<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 11, 1999
REGISTRATION NO. 333-76519
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
WATTAGE MONITOR INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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<S> <C> <C>
NEVADA 8999 86-0882633
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
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1100 KIETZKE LANE
RENO, NEVADA 89502
(775) 327-6000
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
------------------------
GERALD R. ALDERSON
PRESIDENT
745 CALIFORNIA AVENUE
RENO, NEVADA 89509
(775) 327-6000
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
Copies to:
DANIEL I. DEWOLF, ESQ.
WILLIE E. DENNIS, ESQ.
CAMHY KARLINSKY & STEIN LLP
1740 BROADWAY, 16TH FLOOR
NEW YORK, NEW YORK 10019-4315
(212) 977-6600
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
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 interest
reinvestment plans, please 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 Rule 462(c)
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 Rule 462(d)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier registration statement for the
same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SECTION 8(A), MAY DETERMINE.
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<PAGE>
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 is effective. This prospectus is not an offer
to sell these securities and we are not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION DATED JUNE , 1999
WATTAGE MONITOR INC.
10,082,316 SHARES OF COMMON STOCK
------------------------
This prospectus covers an aggregate of 10,082,316 shares of our common
stock, which will be sold, from time to time, by some of our shareholders.
Our common stock is quoted on the OTC Electronic Bulletin Board under the
symbol "WMON." On June 7, 1999, the price of our common stock as quoted on the
OTC Electronic Bulletin Board was $8.87.
------------------------
The securities offered hereby are speculative and involve a high degree of
risk. See "Risk Factors" commencing on Page 6.
------------------------
These securities have not been approved or disapproved by the securities and
exchange commission nor has the securities and exchange commission passed
upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
------------------------
JUNE , 1999
<PAGE>
Wattage Monitor Design Graphic & Table
2
<PAGE>
You may rely only on the information contained in this prospectus. We have
not authorized anyone to provide information different from that contained in
this prospectus. Neither the delivery of the prospectus nor the sale of common
stock means that information contained in this prospectus is correct after the
date of this prospectus. This prospectus is not an offer to sell or solicitation
of an offer to buy these shares of common stock in any circumstances under which
the offer or solicitation is unlawful.
TABLE OF CONTENTS
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SECTION PAGE
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Prospectus Summary......................................................................................... 4
Summary Financial Information.............................................................................. 5
Available Information...................................................................................... 5
Risk Factors............................................................................................... 6
Use of Proceeds............................................................................................ 10
Price Range of Common Stock................................................................................ 10
Dividend Policy............................................................................................ 10
Capitalization............................................................................................. 11
Selected Financial Data.................................................................................... 11
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 12
Business................................................................................................... 15
Management................................................................................................. 26
Executive Compensation and Other Information............................................................... 27
Stock Option Plan.......................................................................................... 29
Certain Transactions....................................................................................... 29
Principal Shareholders..................................................................................... 30
Selling Shareholders....................................................................................... 33
Plan of Distribution....................................................................................... 34
Description of the Capital Stock........................................................................... 36
Shares Eligible for Future Sale............................................................................ 37
Legal Matters.............................................................................................. 38
Experts.................................................................................................... 38
Disclosure of Company Position on Indemnification for Securities Act Liabilities........................... 38
Index to Financial Statements.............................................................................. F-1
</TABLE>
3
<PAGE>
PROSPECTUS SUMMARY
THE COMPANY
Our goal is to be recognized as the preeminent electric rate and service
information source in the evolving, competitive United States electric market.
To do so, our initial focus is to be seen as the industry standard for objective
information regarding an electric consumer's specific choices. We receive fees
from electric service providers for presenting consumers their electric service
choices. We also receive commissions for sales to such consumers. In addition,
we provide electric marketing research, industry news and information, and
statistical indices reflecting industry performance. Our principal offices are
located at 1100 Kietzke Lane, Reno, Nevada 89502. Our telephone number is (775)
327-6000.
THE OFFERING
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<S> <C>
Shares of Common Stock Offered by Us...... None
Shares of Common Stock Which May Be Sold
by Our Shareholders..................... Up to 10,082,316 shares of our common stock.(1)
Use of Proceeds........................... We will not receive any money from any shareholders when they sell
their shares of common stock.
</TABLE>
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(1) Includes:
8,207,816 shares of our common stock;
1,000,000 shares of our common stock that may be acquired when 1,000,000
shares of Series A preferred stock are converted into our common
stock;
874,500 shares of our common stock that may be acquired when our stock
options are issued and exercised. As of June 1, 1999, there were
241,500 stock options that may be exercised and converted into
241,500 shares of our common stock.
Since this is a summary of the terms of the common stock described in this
prospectus, it does not contain all of the information that may be important to
you. This prospectus contains forward-looking statements. The forward-looking
statements involve known and unknown risks, uncertainties, and other factors
that could cause actual results, financial or operating performance to differ
from the future results, financial or operating performance or achievements
expressed or implied by such forward-looking statements. You should read the
"Risk Factors" section, along with the more detailed information, financial
statements and the notes to the financial statements appearing elsewhere in this
prospectus, before you decide whether to purchase the common stock described in
this prospectus.
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
The summary financial information below is derived from and should be read
in conjunction with the financial statements, including the notes to the
financial statements, appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
JULY 1, 1997
CUMULATIVE TO
FROM INCEPTION PERIOD ENDED PERIOD ENDED YEAR ENDED DECEMBER 31,
TO MARCH 31, 1999 MARCH 31, 1999 MARCH 31, 1998 DECEMBER 31, 1998 1997
----------------- -------------- -------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
(1):
Net sales....................... $ -- $ -- $ -- $ -- $ --
Net loss........................ (4,919,568) (2,150,254) (208,192) (2,591,399) (177,935)
Net loss per common share....... (0.68) (0.25) (0.03) (0.36) (0.03)
Weighted average number of
common shares outstanding..... 7,264,637 8,680,059 6,600,000 7,287,500 6,650,000
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
MARCH 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital/(deficit).................................. $ 2,455,915 $ (687,005)
Total assets............................................... 3,867,176 878,455
Total liabilities.......................................... 1,099,934 1,753,079
Stockholders' equity/(deficit)............................. 2,767,242 (874,624)
</TABLE>
- ------------------
(1) On February 26, 1999, Wattage Monitor Inc. acquired all of the equity, in
the form of membership units, of WattMonitor LLC. For accounting purposes,
the acquisition has been treated as a recapitalization of WattMonitor LLC
with WattMonitor LLC as the acquirer; a reverse acquisition. Financial
statements prior to the acquisition date are those of WattMonitor LLC. Pro
forma information is not presented since the combination is not a business
combination. The financial statements give retroactive effect to the
conversion of WattMonitor LLC membership interests in Wattage Monitor common
stock to reflect the recapitalization.
AVAILABLE INFORMATION
We will file reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied, at the Public Reference Room of the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at the
Northeast Regional Office of the Commission located at Seven World Trade Center,
Suite 1300, New York, New York 10048 and at the Midwest Regional Office of the
Commission located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Please call the Commission at 1-800-SEC-0330 for
further information on the public reference rooms. Our Commission filings will
also be available to the public from the Commission's website at
http://www.sec.gov.
We have filed a registration statement with the Commission on Form SB-2,
under the Securities Act of 1933, with respect to the securities described in
this prospectus. This prospectus, filed as part of the registration statement,
does not contain all of the information set forth in the registration statement
and the exhibits and schedules filed with the registration statement. For
further information about us and the common stock described by this prospectus,
reference is made to the registration statement and to the exhibits and
schedules filed with it, copies of which can be inspected at, or obtained from,
the Public Reference Room.
5
<PAGE>
RISK FACTORS
Investment in the shares of our common stock involves a high degree of
risk. You should give careful consideration to the following factors, among
others, before making an investment decision.
In order to relate the risk factors set forth below to the broad categories
of risk to which they correspond, the risk factors are organized in three
groups:
o Risks in establishing Wattage Monitor as a going concern;
o Risks in growing Wattage Monitor; and
o Risks of Wattage Monitor's common stock by virtue of its
characteristics, such as liquidity and potential dilution.
RISKS IN ESTABLISHING WATTAGE MONITOR
The active participation of suppliers in our information system is
necessary for our business to succeed.
Before we can generate income, we must overcome suppliers' reluctance to
participate in our information system. Initially, we expected that creating a
national electricity information brand would require us to:
o Create the information system itself;
o Demonstrate that consumers found the system useful; and
o Convince competing electricity suppliers to participate in our
system.
We believe we have demonstrated our ability to successfully achieve the
first two of these requirements. However, to date suppliers have been reluctant
to participate. There are a number of factors we believe are affecting electric
suppliers' reluctance to participate in of our service. Four of the most
important are:
o Market Immaturity--When Pennsylvania and other states decided to
allow competition in their electricity industry it required
legislation to do so. In spite of that legislation, the specific
structure of the market and the requirements for participating
evolved through hearings to implementing regulations issued by the
various Public Utility Commissions. That process is not complete
even today. That process made it difficult for suppliers to compete
for customers beginning as soon as the market was first open, as the
exact rules of engagement were not yet established. The end result,
again using Pennsylvania as an example, was that nearly eighty
companies obtained licenses to complete but only about thirty have,
as yet sought customers. Many of those approximately thirty
competing suppliers are essentially test marketing a product or
approach while they wait for the market to come further into focus.
In such as environment, the need for our service only arises once
the supplier decides to proceed full speed ahead.
o Consumer Behavior--While a hundred million households and twenty
million business use electricity, virtually none have ever chosen
their electric supplier. There is no confidence about how such
customers will make those choices. Since we represent a novel
distribution channel in the mind of a supplier that adds risk to
enrolling with us before we demonstrate our effectiveness. Most
suppliers chose to begin their marketing efforts in Pennsylvania
using traditional marketing channels only.
o Organizational Immaturity--All competing suppliers, including those
(more than half) that are subsidiaries of very large enterprises,
are nevertheless newly created. This "start-up" nature of all
companies in this market mean virtually every one of them was
conceived by its' founders and/or its parent to succeed in this new
market by taking a certain approach. An organization was created to
implement this approach. Necessarily, we were not part of those
plans because we didn't exist. Most suppliers conclude they needed
to try the originally adopted approach before they either (a) change
directions, or (b) add a second approach, such as the service we
offer.
6
<PAGE>
o Our Credibility--Until we launched in Pennsylvania we could
demonstrate our system for suppliers but we had no track record and
no live consumer experience. Given the above noted market conditions
suppliers were reluctant to use our service until we demonstrated
our operational existence.
Although this reluctance seems to be disappearing, our marketing efforts to
suppliers continue to be more difficult than originally anticipated.
Insignificant historical revenues do not enable us to evaluate whether we
will ever operate profitably.
Because we have not generated significant revenues since inception on
July 1, 1997, we cannot be sure that we will ever generate the revenue necessary
to be a successful business. Our financial statements reflect that we are a
development stage company. They show that we have incurred losses since
inception. We expect to continue to incur losses for the foreseeable future. Our
ability to achieve a profitable level of operating revenue will depend on the
market's acceptance of our products and services, the rate at which states adopt
electric competition, and the manner in which each state chooses to phase in
competition. For a detailed account of our historical losses, please see the
"Selected Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" sections.
RISKS IN GROWING WATTAGE MONITOR
We are uncertain that we will grow, or that we will be able to effectively
manage our growth.
Any growth we may experience will result in increased responsibility for
existing and new management personnel. This is particularly significant in the
high growth, internet related industry where the demand for skilled personnel is
quite extreme and turn-over is high. Effective growth management will depend on
the following:
o Our ability to integrate new personnel into our corporate structure;
o Improving our operational, management and financial systems and
controls; and
o Our capacity to recruit, train, motivate and manage employees.
If we are unable to do so, our business, results of operations and
financial condition may be adversely affected.
We depend on certain key personnel and the loss of them may adversely
affect us.
Our success will be greatly dependent upon the personal efforts of Gerald
R. Alderson, our President and Chief Executive Officer. The loss of his
services, or those of certain other key management or personnel, could have a
material adverse effect on us. Currently, we have an employment agreement with
Mr. Alderson. However, the employment agreement expires in 2000. For a detailed
account of Mr. Alderson's employment agreement, please see the "Executive
Compensation and Other Information" section. We have not obtained key man life
insurance for Mr. Alderson or any of our other key employees.
We are uncertain we can obtain the capital to grow the business.
To fully realize our business objectives and potential, we will require
significant additional financing. We cannot be sure that we will be able to
secure the financing we will require, or that it will be available on favorable
terms. We are actively seeking such financing. If we are unable to obtain it, we
will be required to substantially curtail our approach to implementing our
business objectives. Additional financing may be debt, equity or a combination
of debt and equity. If equity, it could result in significant dilution to the
net tangible book value per share of our common stock. One source of financing
may be the exercise of warrants to acquire $3,500,000 million of our Series B
preferred stock on or before December 15, 1999. However, we cannot be sure that
the warrants will be exercised and the $3,500,000 million received by us. We
will not receive any proceeds from the current offering.
The entire competitive electric market is new, so no one knows how the
market will evolve, or how the companies that operate in the market will behave.
7
<PAGE>
All competitive electric suppliers, including those that are subsidiaries
of large enterprises, are new. The start-up nature of all companies in this
market and the formative nature of the market itself mean that the companies in
the market were created by their founders or parent to implement a specific
business plan. Necessarily, we were not a part of that plan because we did not
exist at the time the plan was formulated. These new organizations generally
decide that they must first try to implement their original plan before they
either change direction or add a second approach to their efforts to obtain
customers, such as the one we offer. The time it takes for these newly formed
companies to mature will materially affect the timing of our growth. There can
be no assurance that this will occur in a timely enough manner to allow us to
profitably offer our service.
Our computer-based information system may not be sufficient to satisfy the
requirements of consumers and suppliers.
With the initial release of our nationwide, zip code-based information
system and its subsequent use by tens of thousands of electric consumers, a
number of system problems were identified. Two matters, the structure of how we
access certain data tables and an error in the coding of zip codes served by
more than one regulated electric utility, required more effort to resolve than
the other identified problems. At this point, the system is fully functioning,
albeit a little slower than we believe desirable. Further problems with the
system may occur or the solutions to currently identified problems may be
insufficient.
WM 2.0, targeted for release in September 1999, is expected to represent
the mature website we believe consumers want. WM 2.0 is critical to our ability
to grow with the rapidly deregulating electric market. There can be no assurance
that WM 2.0 will meet its performance standards or that its development will not
experience delays that push it beyond the expected September release date.
Finally, the technology that enables delivery of the information services we
offer, such as computer Internet-based access systems, are subject to rapid and
significant technological change. Competitors may develop more effective and
efficient technology that may render ours obsolete. If this occurs, we will need
to make a substantial investment to upgrade to remain competitive.
We depend upon our proprietary information and intellectual property for
success.
As an information service company, our success depends in particular on our
ability to protect our proprietary information and trademarks. To do so, we rely
on a combination of copyright, trademark and trade secret laws, nondisclosure
and other contractual agreements with employees and third parties, and technical
measures. We cannot be sure that the steps we have taken will be adequate to
protect us. In addition, third parties may develop equivalent or superior
information systems. We have filed for patents on our service, but no action has
yet been taken on our application. We may be subject to or may initiate
proceedings in the United States Patent and Trademark Office, which may demand
significant financial and management resources. Although we believe our products
and information system do not infringe upon the proprietary rights of others,
there can be no assurance that third parties will not assert infringement claims
against us. Litigation may be necessary to enforce our intellectual property
rights or to defend against claimed infringement by others. Any litigation may
result in substantial cost to us and a diversion of our efforts.
RISKS ATTRIBUTABLE TO OUR COMMON STOCK'S CHARACTERISTICS
The three founders may control Wattage Monitor's behavior.
Mr. Lessin, Mr. Alderson and Mr. Klein have voting power over 5,954,112
shares of common stock, which represents 53.1% of all voting common shares
(48.8% when the voting rights of preferred shareholders are included).
Accordingly, they may control or significantly influence the election of a
majority of Wattage Monitor's directors and otherwise determine most matters
requiring approval by the stockholders, including approval of significant
corporate transactions.
We do not expect to pay dividends on our common stock.
We have not paid dividends on our common stock and do not expect to do so
in the foreseeable future. We are required to pay a quarterly dividend equal to
6% per annum, payable in cash or in shares of common
8
<PAGE>
stock at our option, on the Series A preferred stock. For a detailed account of
our dividend policy, please see the "Dividend Policy" section.
We can issue preferred stock and dilute the position of the shareholders of
our common stock.
Our certificate of incorporation provides that we may issue up to 5,000,000
shares of preferred stock, from time to time, in one or more series. We have
issued 1,000,000 shares of Series A preferred stock, convertible into 1,000,000
shares of our common stock. We have also issued warrants to acquire 3,500,000
shares of our Series B preferred stock, convertible into 3,500,000 shares of our
common stock, which expire on December 15, 1999. The board of directors is
authorized to determine the number of shares, rights, preferences, privileges
and restrictions of any new issuance of preferred stock, without any vote or
action by the holders of our common stock. The board of directors may issue
preferred stock with voting or conversion rights that could adversely affect the
rights of the holders of common stock. The potential issuance of preferred stock
may have the effect of delaying or preventing a change in control, discourage
bids for the common stock at a premium over its market price, or adversely
affect the market price of the common stock.
We are listed on the OTC Electronic Bulletin Board, which can be a volatile
market.
Our common stock is quoted on the OTC Electronic Bulletin Board, a NASD
sponsored and operated quotation system for equity securities. The OTC
Electronic Bulletin Board was introduced as an alternative to the NQB Pink
sheets for trading over-the-counter securities. It is a more limited trading
market than the NASDAQ SmallCap, and timely, accurate quotations of the price of
our common stock may not always be available. You may expect trading volume to
be low in such a market. Consequently, the activity of only a few shares may
affect the market and may result in wide swings in price and in volume.
Our common stock may be subject to the requirements of Rule 15g-9,
promulgated under the Securities Exchange Act of 1934, as amended, if the price
of our common stock falls below $5.00 per share. Under such rule, broker-dealers
who recommend low-priced securities to persons other than established customers
and accredited investors must satisfy special sales practice requirements,
including a requirement that they make an individualized written suitability
determination for the purchaser and receive the purchaser's consent prior to the
transaction. The Securities Enforcement Remedies and Penny Stock Reform Act of
1990 also requires additional disclosure in connection with any trades involving
a stock defined as a penny stock. Generally, the Commission defines a penny
stock as any equity security not traded on an exchange or quoted on NASDAQ that
has a market price of less than $5.00 per share. The required penny stock
disclosures include the delivery, prior to any transaction, of a disclosure
schedule explaining the penny stock market and the risks associated with it.
Such requirements could severely limit the market liquidity of the securities
and the ability of purchasers to sell their securities in the secondary market.
Our common stock was initially quoted on the OTC Bulletin Board at $4.00 per
share. Although as of June 7, 1999 the share price was $8.87, there can be no
assurances that the price per share of our common stock will not fall below
$5.00 per share.
The registration and trading of additional shares may depress the market for our
common stock.
The shares registered by this prospectus have not previously been
registered. Assuming that no existing options are exercised and that the
Series A preferred stock is not converted, there would be a total of 11,207,816
shares outstanding as of the date of this prospectus. The 8,207,816 shares being
registered, which exclude our options and conversion of the Series A preferred
stock, represent 73.2% of the outstanding shares of our common stock.
Mr. Lessin, Mr. Alderson and Mr. Klein entered into agreements with us under
which they agreed not to sell any of their shares prior to August 26, 1999. The
total number of shares owned by Mr. Lessin, Mr. Alderson and Mr. Klein is
5,954,112, representing 53.1% of all outstanding shares. Under the agreements,
they also agreed to sell no more than 20% of their shares between August 27,
1999 and February 26, 2000. Future sales of significant numbers of shares of our
common stock in the public market could have a depressing effect on the
prevailing market price of the common stock, which might also adversely affect
our ability to raise capital through subsequent offerings of securities. If we
decide to pay preferred dividends in shares of our common stock, this too could
depress the market for our common stock if the recipients of those common stock
dividends were to sell those newly issued shares.
We believe we are year 2000 Compliant, but the Y2K problem can still
adversely affect us.
9
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Many existing computer programs use only two digits to identify a year in
the date field. Programmers designed and developed these programs without
considering the impact of the upcoming change in the century. If not corrected,
many computer applications could fail or create erroneous results by, at or
after the year 2000. Year 2000 issues affect virtually all companies and
organizations. All of our systems were designed subsequent to July 1, 1997, well
after the year 2000 compliance problem was identified. Accordingly, all of the
systems we have developed use four digits to identify the year rather than two
digits. Even while our products are Y2K compliant, other aspects of the
information system, such as the supplier's or consumer's computer and operating
system, must also be Y2K compliant in order to function properly. While we
expect that our precautionary measures have reduced or eliminated any
significant impact of year 2000 issues, there is no assurance this will be the
case. In addition, there is no assurance that any Y2K problems that may be
experienced by our customers would not temporarily keep some of them from
accessing the information we supply.
USE OF PROCEEDS
We will not receive any part of the proceeds from the sale by our
shareholders of our common stock. However, we will receive monies from our
shareholders upon the exercise of their stock options and warrants. Based on the
closing bid price of our common stock on June 7, 1999, which was $8.87, the
selling shareholders would receive, before any expenses or commissions,
approximately $89,430,142 if all the shares in this offering are sold. The
maximum amount of funds we will receive from the exercise of the options and
warrants is $5,150,000, of which option exercises resulting in $3,500,000 must
occur by December 15, 1999. Substantially all of the remaining options and
warrants may be exercised during the next ten years.
PRICE RANGE OF COMMON STOCK
Our common stock is currently quoted on the OTC Electronic Bulletin Board
under the symbol "WMON." There was no active market for Wattage Monitor's
securities until February 26, 1999(1). The following table sets forth for the
periods indicated the high and low bid price information for the common stock as
quoted on the OTC Electronic Bulletin Board. The quotations reflect inter-dealer
prices, without retail mark-ups, mark-downs or commissions, and may not
represent actual transactions.
<TABLE>
<CAPTION>
COMMON STOCK
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HIGH BID LOW BID
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<S> <C> <C>
February 26, 1999 through March 31, 1999........................................... $ 7.25 $4.00
</TABLE>
On June 7, 1999, the closing bid price as quoted by the OTC Electronic
Bulletin Board for our common stock was $8.87. As of June 1, 1999, there were 50
holders of record of our common stock.
There is no public trading market for any of our preferred stock, warrants
or options.
- ------------------
(1) Prior to the reverse acquisition of WattMonitor LLC by Wattage Monitor,
Wattage Monitor was listed on the OTC Electronic Bulleting Board from
February 18, 1999 through February 25, 1999.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock. We
presently intend to retain any earnings for use in the business and do not
anticipate paying cash dividends in the foreseeable future. Any future cash
dividends will be at the discretion of the board of directors and will depend on
our earnings, financial condition, cash flows, capital requirements and other
considerations that the board of directors may consider relevant.
Our Series A preferred stock pays a dividend equal to 6% per annum. The
dividend is payable in cash or by the issuance of common stock at the option of
the board of directors. The number of shares to be issued as a dividend is
determined based on the average closing bid price for a share of common stock as
quoted on the OTC Electronic Bulletin Board for the 20 trading days preceding
the record date for the
10
<PAGE>
declaration of the dividend. The number of shares to be issued as a dividend is
equal to the amount of the dividend accrued, divided by the average closing bid
price of the common stock as quoted on the OTC Electronic Bulletin Board for the
5 trading days preceding the record date for the declaration of the dividend.
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1998
and March 31, 1999. This table should be reviewed in conjunction with our
financial statements and related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF AS OF
MARCH 31, 1999 DECEMBER 31, 1998(1)
--------------------- ---------------------
<S> <C> <C>
Short-term notes payable(2).......................................... $ -- $ 304,000
Long-term notes payable(3)........................................... 425,000 925,000
Stockholders' equity.................................................
Series A preferred stock, $0.01 par value.......................... 10,000 --
Common stock, $0.01 par value...................................... 112,079 75,000
Additional paid-in capital......................................... 7,564,731 2,204,710
Unamortized discount on debt....................................... -- (385,000)
Deficit accumulated during the development stage................... (4,919,568) (2,769,334)
----------- -----------
Total stockholders' equity........................................... $ 2,767,242 $ (874,624)
----------- -----------
Total capitalization................................................. $ 3,192,242 $ 354,376
----------- -----------
----------- -----------
</TABLE>
- ------------------
(1) On February 26, 1999, Wattage Monitor Inc. acquired all of the equity, in
the form of membership units, of WattMonitor LLC. For accounting purposes,
the acquisition has been treated as a recapitalization of WattMonitor LLC
with WattMonitor LLC as the acquirer; a reverse merger. Financial statements
prior to the acquisition date are those of WattMonitor LLC. Pro forma
information is not presented, since the combination is not a business
combination. The financial statements give retroactive effect to the
conversion of WattMonitor LLC membership interests into Wattage Monitor
common stock to reflect the recapitalization.
(2) All outstanding short-term notes payable are due directly or beneficially to
the founders of WattMonitor LLC: Gerald R. Alderson, Stephen D. Klein and
Robert H. Lessin through RHL Ventures LLC.
(3) Comprised of $425,000 due to RHL Ventures LLC which remains outstanding at
February 26, 1999, and $500,000 to Verus Capital Corp., which was exchanged
for equity in the February 26, 1999 reverse acquisition of WattMonitor LLC
by Wattage Monitor.
SELECTED FINANCIAL DATA
The selected financial data for the six months from our inception to
December 31, 1997 and for the year ended December 31, 1998, are derived from the
financial statements audited by Grant Thorton LLP, independent certified public
accountants. The selected financial data for the three months ended March 31,
1998 and 1999 and for the period from inception through March 31, 1999 are
unaudited. The results for the periods that ended March 31, 1999 and
December 31, 1998 are not necessarily indicative of results that may be expected
for any other interim period or for a full year. The selected financial data
should be read in conjunction with, and are qualified by reference to, our
financial statements and notes to the financial statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in the prospectus.
On February 26, 1999, Wattage Monitor acquired all of the equity of
WattMonitor LLC. For accounting purposes, the acquisition has been treated as a
recapitalization of WattMonitor LLC, with WattMonitor LLC as the acquirer,
specifically, a reverse acquisition. Financial statements prior to the
acquisition date are those of WattMonitor LLC. Pro forma information is not
presented since the combination is not a business
11
<PAGE>
combination. The financial statements give retroactive effect to the conversion
of WattMonitor LLC membership interests in Wattage Monitor common stock to
reflect the recapitalization.
<TABLE>
<CAPTION>
CUMULATIVE FROM
INCEPTION TO PERIOD ENDED PERIOD ENDED YEAR ENDED JULY 1, 1997 TO
MARCH 31, 1999 MARCH 31, 1999 MARCH 31, 1998 DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Net Sales........... $ -- $ -- $ -- $ -- $ --
Expenses:
Telecommunications.. 588,197 238,951 -- 349,246 --
System development.. 576,394 118,401 -- 442,682 15,311
Marketing........... 657,642 195,178 -- 462,464 --
General and
administrative.... 1,269,541 309,051 205,867 797,617 162,873
Depreciation and
amortization...... 51,970 22,418 2,944 28,493 1,059
Operating loss........ (3,143,744) (883,999) (208,811) (2,080,502) (179,243)
Interest, financing
and other income and
(expense)........... (1,775,824) (1,266,235) 619 (510,897) 1,308
Net loss.............. (4,919,568) (2,150,254) (208,192) (2,591,399) (177,935)
Net loss per common
share............... (0.68) (0.25) (0.03) (0.36) (0.03)
Weighted average
number of common
shares
outstanding......... 7,264,637 8,680,059 6,600,000 7,287,500 6,650,000
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
<S> <C> <C>
Balance Sheet Data:
Working capital/(deficit)................................................... $2,455,915 $ (687,005)
Total assets................................................................ 3,867,176 878,455
Long term debt.............................................................. 425,000 925,000
Total liabilities........................................................... 1,099,934 1,753,079
Stockholders' equity/(deficit).............................................. 2,767,242 (874,624)
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
We were formed in July of 1997. In 1997, we focused on determining whether
or not our business could succeed. Accordingly, our expenditures in 1997 were
general and administrative expenses required to make such a determination. No
payments were made to the founders who contributed all or part of their time and
efforts in 1997. By the end of 1997, the determination was made that the
business could be successful and should be pursued. As a result, we raised
investment capital and began to implement our plan.
In 1998, we focused primarily on the following:
o Developing and refining the software and systems necessary to
support our information service;
o Testing the efficacy of that system and developing the necessary
related capabilities such as its toll free call center
(1-888-WATTAGE); and
o Introducing our service to consumers and electric suppliers.
Therefore, all categories of expenditure, except for general and administrative
expense, were new in all material respects in 1998.
1999 OPERATING PLAN
During 1999, we expect to operate largely as we did in the second half of
1998. Principally, this means:
o We expect to maintain current information about electric rates and
services in all states with active competition among suppliers.
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o We expect to offer Internet access and telephone service through our
call center for the entire year, the cost of which is included in
the monthly expenditures discussed below. No increase in staffing is
required to do so.
o We expect to begin realizing significant revenue from offering our
service in the fourth quarter of 1999. However, after allowing for
the gap between earning revenues and receiving payment, we do not
expect to receive any significant cash in 1999 from operations.
o We expect to continue to actively market our information to
suppliers through our direct sales force. No addition of sales
personnel is anticipated.
o We expect to release the next version of our information system, WM
2.0, in September of 1999. Much of the work developing and
programming WM 1.0 was contracted to outside third parties,
primarily InterWorld corporation and Kirshenbaum Bond and Partners.
WM 2.0 is being completed primarily with internal resources.
InterWorld primarily provided the software that allowed our system
to search for offers by zip code, and Kirshenbaum Bond primarily
provided the software that created the look and feel of the system
that the user sees when visiting the site. This look and feel
software is used virtually intact in WM 2.0. Access to and
manipulation of data in tables, provided by the InterWorld software
in WM 1.0, is provided by the company itself through its own
proprietary software in WM 2.0. Thus, while we intend to add three
or four full time employees to our system development group,
approximately doubling its size, the concurrent reduction in the use
of third parties will leave monthly expenditures at about current
levels.
o We expect a modest increase in general and administrative personnel
over the course of the year, none of which are expected to be senior
level employees. They will be required to support our general
increase in activity. Part of their responsibilities will be to
replace the services of outside parties that we currently use.
Accordingly, the overall level of general and administrative expense
is not anticipated to increase materially.
o In sum, we expect monthly expenditures to remain at approximately
our current level of $300,000 to $350,000 per month for at least the
first nine months of the year. Monthly expenditures are
approximately $40,000 for system development, $50,000 for marketing
to suppliers, $100,000 to operate our toll free telephone service
and $100,000 for general administrative expenses. Of these amounts
approximately $35,000, $30,000, $0 (these services are contracted to
a third party) and $35,000, respectively, are for salaries of our
employees. Expenditures will continue at that level in the fourth
quarter as well, unless New Jersey proceeds with competition on its
currently announced schedule. All states that have adopted
competition to date have extended their respective effective dates.
If New Jersey stays on schedule, our incremental expenditures are
anticipated to be approximately $300,000 for 1999.
New Jersey's competition schedule and structure will largely influence how
competitive the market is initially. By way of example, California implemented
choice in a way in which there were no significant savings available to
consumers in the early years of the program. Generally suppliers chose not to
participate and we chose not to spend any significant resources trying to get
consumers to pay attention to a market which was technically open to competition
but not actively competitive. By contrast Pennsylvania chose a market approach
where consumers could realize immediate savings and the market was intially
quite active. If New Jersey follows this latter approach. Wattage Monitor may
choose to more aggressively make consumers aware of the availability of its
service which will require media expenditures (billboards, drive time radio and
the like) to inform consumers.
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<PAGE>
RESULTS OF OPERATION--THREE MONTHS ENDED MARCH 31, 1999 VS. THREE MONTHS ENDED
MARCH 31, 1998
Consistent with our plan, our operating expenditures in the first quarter
of 1999 were $883,999, or $294,666 per month, slightly less than our anticipated
expenditures of $300,000 to $350,000 per month. Further, the expenditure rate at
the end of the quarter was no higher than at the beginning, so our expenditure
levels remain consistent with our plan.
The details of our expenditures were also in line with those noted above in
the discussion of our 1999 Operating Plan. System development expense averaged
approximately $40,000, marketing expenses averaged approximately $65,000,
operation of our call center averaged approximately $80,000, and general and
administrative expenses averaged approximately $100,000. As these activities had
not begun in earnest in the first quarter of 1998, there are neither comparable
prior year period amounts, nor are percentage comparisons meaningful. All
percentage increases are infinite except for general and administrative expense
which increased by 50% in the first quarter of 1999 vs. the first quarter of
1998.
In addition, a non-cash interest expense of $1,265,000 was recorded. An
identical amount was added to capital surplus. A non-interest bearing loan of
$1,000,000 was converted to 2,750,000 shares of our common stock in conjunction
with the merger on February 26, 1999. This was accounted for as if we had
received $2,750,000, not $1,000,000. The difference was recognized as a
beneficial conversion of debt creating, for accounting purposes, a debt discount
which is reflected as interest expense. Of this debt discount, $485,000 was
recorded in the fourth quarter of 1998 and $1,265,000 was recorded in the first
quarter of 1999. The overall effect was to increase capital surplus by
$1,760,000 and reduce retained earnings by $1,760,000. There was no net effect
on cash or stockholders' equity/(deficit). None of these amounts are recognized
for tax purposes.
RESULTS OF OPERATIONS--1998 VS. 1997
Between 1997 and 1998, system development and support increased $427,371
from $15,311 to $442,682. However, the percentage increase is not meaningful
because 1997's amount was so low. In 1997, we had taken only preliminary steps
to creating our software system. In contrast, our efforts to develop our system
in 1998 were substantial.
In 1998, telecommunication expenses were $349,246, which included the cost
of establishing and operating our call center. We had no such expenses in 1997.
The percentage increase under such circumstances, therefore, is not meaningful.
We began providing our toll-free service to consumers in October 1998.
In 1998, we began incurring marketing expenses in order to attract electric
suppliers to use our system and to inform consumers of our existence. In 1998,
our marketing expenses totaled $462,464. No such amounts were incurred in 1997.
Therefore, the percentage increase is not meaningful.
Between 1997 and 1998, general and administrative expenses increased
$634,744 from $162,873 to $797,617, a 390% increase. This increase was a result
of our efforts to implement our plan and our hiring of 8 new employees in 1998
to do so. In contrast, in 1997 we had only three employees. In 1998, Gerald
Alderson began to be compensated for his services in the amount of $150,000 per
annum.
In the fourth quarter of 1998, we recorded a non-cash interest charge of
$485,000 associated with an accounting convention related to the ultimate
issuance of common stock in conjunction with a loan made by Verus Corporation.
The identical amount was added to capital surplus as if we received greater
proceeds than we did. This transaction is described in more detail above in
discussing the results of operations for the first quarter of 1999 compared
to the first quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
As of June, 1999 we have approximately $2,100,000 of cash in our accounts.
At today's expenditure levels that would carry us into the first quarter of the
year 2000, assuming no revenue. Of course, we expect to begin to generate
revenues during that period. In addition, there are warrants to acquire the
company's common stock for $1.00 per share, which expire on December 15, 1999.
Unless there is a
14
<PAGE>
dramatic decline in our stock price, it is quite certain that such warrants will
be exercised before they expire, adding an additional $3,500,000 of liquidity to
the company.
In 1997, all of our activities were financed through equity investments by
our founders. In 1998, we raised $1,000,000 to fund our initial development,
two-thirds of which was also provided by our founders. All such equity
investments were in the form of limited liability corporation membership
interests which converted to common stock upon the merger on February 26, 1999.
As we needed additional financing
throughout the year, it was provided by our founders through loans and advances.
All such loans were provided an annual interest rate of 12% and included
warrants to purchase shares of common stock at $1.50 per share equal to the
principle amounts of such loans. Short-term advances provided by Mr. Alderson
were without interest or warrants. Accordingly, the entirety of our liquidity
and our use of working capital throughout 1997 and 1998 were dependent upon our
founders' willingness to fund us. Subsequent to the reverse acquisition on
February 26, 1999, the founders will no longer provide funding.
BUSINESS
WATTAGE MONITOR
Overview. WattMonitor LLC, the predecessor to Wattage Monitor, was formed
under the laws of the State of Delaware on July 1, 1997. In February 1999, in
anticipation of the acquisition of WattMonitor LLC, Knowledge Networks Inc., a
publicly held corporation, changed its name to "Wattage Monitor Inc." On
February 26, 1999, Wattage Monitor Inc. acquired WattMonitor LLC, a Delaware
company. The business of Wattage Monitor is identical to that of WattMonitor
LLC. For financial statement purposes, the transaction has been treated as a
recapitalization of WattMonitor LLC, with WattMonitor LLC as the acquirer, a
reverse merger. For tax purposes, the acquisition was a tax-free exchange of
equity securities. Subsequent to the acquisition, the sole activities of Wattage
Monitor have been, and will continue to be, those previously conducted by
WattMonitor LLC. The historical activities of the acquiring company's
predecessor, Knowledge Networks, were limited to certain immaterial software
consulting contracts, all of which were completed prior to the acquisition.
Accordingly, the following discussion of our business relates to the business
previously conducted by WattMonitor LLC.
OUR BUSINESS
Our goal is to be recognized as the preeminent electric rate and service
information source in the evolving, competitive United States electric market.
To do so, our initial focus is to be seen as the industry standard for objective
information regarding an electric consumer's specific choices. We expect to
derive our revenue from fees charged to electric suppliers for presenting
consumers with information about electric rates. In addition, while not an
electric supplier or broker itself, our information system allows consumers to
order electricity from their chosen electric supplier. We also expect to receive
commissions for sales to electric consumers, and provide electric marketing
research, industry news and information, and statistical indices reflecting
industry performance.
The electric utility industry in the United States is vast, fragmented and
just beginning the process of deregulation through the introduction of
competition to a market previously structured as a regulated monopoly. There are
several large electric utilities, but none currently serve more than about 5% of
the national market. Unlike previously deregulated industries, such as
telecommunications or airlines, the electric industry has historically operated
locally, not nationally. Accordingly, there are no national franchises.
There are approximately 100,000,000 households in the United States using
roughly $80,000,000,000 of electricity annually. Commercial consumers use
approximately the same amount of electricity every year. Once these customers
can choose a supplier, they are likely to want an accurate, objective source of
information. Serving that need is our primary focus. Industrial customers
comprise the third category of electric consumers. While they use about the same
volume of electricity as their residential and commercial counterparts, they pay
approximately half as much per unit consumed. Thus, industrial consumers
represent a $40,000,000,000 revenue industry segment. Industrial customers are
not expected to be an important market for our services.
15
<PAGE>
Over 3,000 entities currently provide consumers with electricity. Each must
operate differently in a competitive business environment or disappear. We
intend to provide impartial information to electric consumers and to be a
communication channel to consumers for electric suppliers.
We expect to derive our revenues principally from suppliers seeking
customers. Such revenues are expected to result from fixed fees, transaction
fees and marketing fees, or a combination thereof. The
marketing fee is designed to be less than the equivalent cost of the
advertising, direct mail, or other marketing programs required to reach
potential customers. In practice, it is structured to be 50-75% of the cost of a
direct mail campaign. The transaction fee results from a customer's decision to
choose a particular supplier when using our information system. The transaction
fees are due monthly.
The two market considerations that create the opportunity to build a
national organization offering customers information about their electricity
choices are:
o The electric utility industry is restructuring, which is likely to
result in consumers having the ability to choose their electric
supplier; and
o The competition that will result from a deregulated electricity
market will cause electric suppliers to seek an efficient and
cost-effective means to reach residential and commercial consumers.
To the extent customers choose a new supplier, they are likely to need
information about their electric options. This information may be available from
traditional sources, such as advertising programs, general media coverage,
political discussion, and word of mouth. However, consumers wanting to exercise
their right to choose an electric supplier may be hard-pressed to find an
established information source that can assist them in making an informed
decision. Our service intends to fill this void.
THE ELECTRIC INDUSTRY
Overview. There are approximately three trillion kilowatt hours used in
this country annually, divided almost equally between residential, commercial
and industrial consumers. Measured by revenue, the residential and commercial
users represent an approximate $160,000,000,000 annual industry. The difference
between commercial and industrial consumers is that industrial customers are
large-scale manufacturing concerns, while commercial users are primarily small
businesses, commercial real estate and retail enterprises. However, the
commercial sector acts like the residential sector and has been subjected to
regulated pricing policies similar to those of residential customers. In
contrast, industrial customers are treated differently. We anticipate that most
of our revenue will be derived from the residential and commercial sectors.
There are several secondary considerations that stand out as important to
the future demand for our services.
o Fragmentation. The electric industry is fragmented. No one company
enjoys name recognition by more than a small percentage of
customers. Even when a name is recognized, that recognition is
concentrated in a confined geographic area. No company accounts for
more than about 5% of total industry revenue. There are
approximately 300 investor-owned utilities, which account for about
three-quarters of the industry's revenue. However, even the largest
of these are generally geographically isolated and have less than 5%
of the national market. Unlike telephones, in the emerging
electricity industry there are few, if any, identifiable electricity
providers. Therefore, electric suppliers will seek to gain access to
a large number of new customers. Being able to provide or facilitate
such access will likely be a valuable resource to electric
suppliers.
o Information Vacuum. The electric consumer's working knowledge of
electricity is limited. Once customers have a choice, some are
likely to exercise it. In many cases they will want information
about more than just their specific choices. We plan to serve this
need as well.
o Predictable Electric Use. The deregulation of telecommunications,
principally telephones, has had a significant influence on consumer
views. This may affect electricity in two ways. First, consumers are
suspicious of a profusion of pricing schemes which, given the large
number of anticipated new entrants, is likely to occur. Second,
consumers perceive electric service as a network in which they may
conveniently and routinely switch suppliers. Yet, unlike telephone
16
<PAGE>
usage, electricity use is consistent and predictable. This makes
quantifying a consumer's choice of electric suppliers
straightforward, enhancing comparison shopping while eliminating
complexity.
WATTAGE MONITOR'S SERVICE.
Overview. Our efforts are centered around:
o An information service for individual residential consumers;
o A commercial service; and
o Market research and information.
All information is organized by zip code or sub-zip code. Sub-zip codes are
used if more than one regulated utility serves the area to ensure that the
information is directly relevant to each consumer. The schematic overview on the
inside front cover page summarizes our services.
Competition is new to the electric industry. Most consumers and most
investors are unfamiliar with the industry and the factors that influence
competition. Accordingly, a detailed description of the electric industry and
the most common questions that arise when considering the topic for the first
time are included in this business description.
Residential Consumers. We provide residential consumers with objective,
straightforward comparisons of their electric choices. Our services are
available both through a toll-free telephone service and through the Internet at
www.wattagemonitor.com. Both services are free to consumers.
Commercial Consumers. Commercial electric consumers average approximately
5 times the electric consumption of the average residential consumer. Therefore,
they need more detailed information than is provided to residential consumers.
Through use of our information system, suppliers can convey information about
themselves, their products and services and their contractual requirements. Our
service is also free to commercial consumers.
Research and Information. We intend to become a leading provider of
analytical information regarding the electrical industry. We provide research on
a fee basis, publish industry indicia, and distribute a newsletter. The latter
activities are free and are designed to assist in building our name brand and
industry recognition. The focus of this information is on competition, pricing,
competitive trends and consumer behavior.
The Wattage Monitor System. Our information system is designed to
integrate a licensed data management and electronic commerce search engine with
a licensed text management search engine to create an efficient information
system. The system was designed to create a recognizable brand and convey
objectivity, simplicity and consumer orientation. The data management capability
of our information system maintains numeric data, including zip codes and
prices. The text management capability provides topical information and text.
Our information system required approximately 16 months and several million
dollars to develop. By the time it was first released commercially in
Pennsylvania in October 1998, all United States zip codes were in the system. If
a consumer is in a state that does not yet have competition, entering that zip
code will inform the consumer of his or her state's status, allow the consumer
to register to receive periodic updates, and permit the consumer to use our
information system to express opinions to governmental authorities regarding
electric competition. If the zip code entered is for a state currently allowing
competition, the specific choices available to each consumer are presented. In
both cases, information and answers to frequently asked questions are available.
Operational Experience. While not the first state to allow its citizens
the option of choosing an electric supplier, Pennsylvania was the first state to
do so and allow consumers significant savings. Accordingly, the first commercial
release of our information system occurred in Pennsylvania on October 19, 1998.
While there has been limited experience gained with our system elsewhere, over
90% of its use to date is by residents of Pennsylvania.
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<PAGE>
Upon the deregulation of the electric industry in Pennsylvania, about
375,000 households switched suppliers immediately. This implies that over 10% of
those who switched used our system to get their information. We consider this
consumer response to be positive. Due in part to regulatory delays, active
marketing by suppliers to consumers did not develop until October 1998. In our
first week, 10,000 consumers used the service. For three months, the total
number of electric consumers who used our information system exceeded 50,000.
Usage subsequently declined as we expected, because the early market
participants had made their initial choices.
Today's System Status. With the release of WM 1.0 in October 1998, we
experienced occasional performance difficulties. Programming, system design and
hardware configuration problems became apparent once broad-based usage of the
system began. Any difficulties were exacerbated by greater-than-anticipated use
of the system by consumers. Two matters required more effort than the others to
resolve: the structure of how we access certain data tables, and an error in the
coding of zip codes with more than one regulated utility serving it. However,
when viewed from the perspective of launching a system as large and complicated
as this, the release of the system and its overall performance were acceptable.
We have addressed substantially all of our operating problems. We have
identified and implemented all the changes we consider feasible. The limitations
of our system's operating flexibility and its hardware constraints have proven
to be such that we currently support zip code-based pricing information in 5
states, and expect to continue to do so until WM 2.0 is released. As there are
only seven states that allow consumers a choice today, and as there is little or
no supplier activity in three of these states, this limitation does not
materially impact our short-term ability to meet consumer needs. Further, even
when limited to supporting 5 states, the system response time under certain user
conditions exceeds our design targets. While neither is a serious impediment,
they still detract from the efficiency and timeliness of delivering system
information. The remaining system improvements and changes stemming from the
insights gained from the use of our system are being incorporated into WM 2.0.
There can be no assurance that these problems will not reappear, or that
additional systems deficiencies are not subsequently identified.
Wattage Monitor 2.0. Elimination of the constraints of WM 1.0 and an
upgrade of our system is to be achieved with WM 2.0. Surveys of consumer
satisfaction with our system, surveys of consumers who did not use our system,
and the results of numerous focus groups are also incorporated in WM 2.0. It is
scheduled for release in September 1999. Accordingly, we expect to be able to
fully service all consumers in all states with competition upon the release of
WM 2.0. However, we cannot be sure that we can maintain the scheduled release
date or that complications or problems will not arise with WM 2.0.
Proprietary Intellectual Property. We have applied to the Untied States
Patent and Trademark Office for registration of the trademarks "Wattage
Monitor," "WattMonitor," and "Kilowatt Monitor." They are currently pending.
We have also applied for a patent relating to our information system and
services. The law firm of Pennie & Edmonds, LLP acts as patent counsel. No
action has been taken, nor comments received, on the patent application, which
was filed on November 11, 1998. No assurances can be given when or if our patent
application will be approved.
IMPLEMENTATION
Consumer Awareness. We inform electric consumers of the existence of our
information system by using billboards, drive time radio, links to other
websites and public relations. The most cost-effective of these methods has been
print media, particularly newspapers. Through editorial board meetings with over
75% of the Pennsylvania newspapers whose circulation exceeds 20,000, we have
established our credibility. More than 50 major articles were written about us
during a one-month span. Billboards and radio, while somewhat effective, have
proven to be less useful than newspapers in informing consumers of our service.
It is clear that consumer awareness and use of our system is also dependent upon
the advertising programs of suppliers. The more frequently suppliers approach
consumers, the greater the demand for the comparative information available from
our system. Accordingly, use of our system is dependent upon the active,
independent marketing efforts of suppliers.
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<PAGE>
Finally, we actively solicit commercial customers to use our system.
Informing commercial customers of our service involves out-bound telephone calls
in addition to the awareness programs described above. No such calls are made to
residential consumers. We cannot be certain that making consumers aware of our
service will not be more costly or take longer than is currently anticipated.
Consumer Acceptance. As noted, early consumer acceptance of our services
in Pennsylvania was quite good. Our surveys of customer response have shown the
following:
o High levels of satisfaction with our service;
o Great confusion about the process and consequences of switching
suppliers;
o A lack of information about how electricity is supplied and how
competition is possible;
o Reluctance to tackle the complexities of choosing a supplier,
unfamiliar terms, unfamiliar suppliers, complicated rate structures
and offers; and
o Overwhelming support for competition as "a good thing."
The rate at which consumers become familiar and comfortable with
competition in the electric market will determine when they are willing to
choose a supplier. This may determine when consumers decide to use our system.
At this point, there can be no assurance as to the rate of acceptance of our
service by consumers.
Our system has also found supportive audiences among trade associations,
community-based organizations, church groups and similar associations. It is
anticipated that such groups will help create demand for our service and
influence suppliers to participate.
Supplier Awareness. Supplier participation has been gained through direct
marketing efforts undertaken by us. These efforts are the responsibility of our
direct sales force. We have signed contracts with 3 suppliers, are engaged in
active negotiations with 8 suppliers and have active contracts with an
additional 40 suppliers. While these are significant, we have found suppliers
reluctant to contract with us for our services.
Supplier Acceptance. There are various factors that we believe affect
suppliers' reluctance to participate in our service. Four of the most important
are:
1. Market Immaturity--When Pennsylvania enacted legislation to create
competition, the details of the market structure and the operating
requirements to be met were left to the public utilities
commission. They held hearings and began issuing regulations. That
process is not complete, even today, making it difficult for
suppliers to compete for customers when the exact rules of
engagement are not yet established. The end result was that nearly
80 companies obtained licenses to compete, but only about 30 have
sought customers. Many of the 30 competing suppliers are test
marketing their product while waiting for the parameters of the
industry to be defined. In such an environment, the need for our
services arises only once the suppliers decide to proceed actively
to attract customers.
2. Consumer Behavior--While 100,000,000 households and 20,000,000
businesses use electricity, virtually none have ever chosen their
electric supplier. Accordingly, there is no confidence as to how
such customers will make those choices. Since our service
represents a novel distribution channel, we are uncertain whether
suppliers will use us before our system demonstrates its
effectiveness. Most suppliers decided to begin their marketing
efforts in Pennsylvania, using traditional marketing channels only.
3. Organizational Immaturity--Most competing suppliers are newly
created. This start-up nature of the companies in the electric
market indicates that most were created by their founders to
implement a particular approach to this market. Necessarily, we
were not part of those plans because we didn't exist at the time.
Most suppliers conclude they need to try the originally adopted
approach before they either change directions or add a second
approach, such as Wattage Monitor.
4. Wattage Monitor's Credibility--Until we introduced our services in
Pennsylvania, we could demonstrate our system for suppliers but had
no track record and no live consumer experience.
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<PAGE>
Suppliers were reluctant to contract for our services until we
demonstrated our operational existence. Though the reluctance of
suppliers seems to be slowly disappearing, the marketing of
our service has become more difficult than originally anticipated.
There can be no assurance that a sufficient number of suppliers can
be enrolled to generate sufficient revenue to allow us to implement
our plan.
STATE-BY-STATE STATUS
Overview. The following tables summarize the status of state efforts to
allow consumers a choice of electric suppliers.
<TABLE>
<CAPTION>
NUMBER RESIDENTIAL COMMERCIAL
OF ELECTRIC ELECTRIC
CURRENT STATUS STATES CONSUMERS CONSUMERS
- ------------------------------------------------------------------------------ ------ --------- ----------
(MILLIONS) (MILLIONS)
<S> <C> <C> <C>
Enacted Legislation........................................................... 19 47 6
Pending Legislation........................................................... 8 16 2
Policy Development............................................................ 15 36 4
No Substantial Activity....................................................... 8 8 1
-- --- --
50 107 14
</TABLE>
<TABLE>
<CAPTION>
IMPLEMENTATION OF 1999 2000 2001 2002 2003
CONSUMER CHOICE ---------- ---------- ---------- ---------- ----------
(MILLIONS OF CONSUMERS)(1) RES COM RES COM RES COM RES COM RES COM
- ----------------------------------------------- --- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Enacted Legislation............................ 23 3 27 4 30 4 47 6 47 6
Pending Legislation............................ -- -- 2 0 9 1 15 2 16 2
Policy Development............................. 6 1 7 1 12 2 29 4 36 5
No Substantial Activity(2)..................... 8 1 7 1 8 1 8 1 8 1
--- --- --- -- --- -- --- --- --- ---
37 5 43 6 59 8 99 13 107 14
</TABLE>
- ------------------
(1) The numbers reflected by this chart are estimates. There are no assurances
that competition will be implemented by the dates indicated.
(2) Includes states whose policy is to delay implementation until required to
implement it by the federal government
Other Considerations. Many states are actively in the process of adopting
competition for their electric industry. However, the timing of competition is
not the only factor in determining how, and to what degree, demand for our
information system will evolve. Demand for our service stems as much from how
competition is introduced as when it is introduced. States are enacting
legislation well in advance of implementing competition. While such legislation
typically sets a time table for competition, it may also establish specific
requirements of how competition is to be phased in. For instance, Pennsylvania
adopted regulations which meant consumers could realize immediate savings. By
contrast, California structured the phase-in of competition in a manner that did
not permit consumers such savings. By 2004, a California consumer may see
savings considerably greater than those available in Pennsylvania. Accordingly,
the demand for our service will be determined by the timing of competition that
individual states adopt as well as how it is phased in. There can be no
assurance that the state-by-state phase-in plans will be sufficiently timely or
competitive to allow demand for our service to develop.
DETAIL OF THE ELECTRIC UTILITY INDUSTRY AND COMPETITION
Industry Background. The electric utility industry in the United States
was structured as a regulated, local, geographically isolated, integrated
supplier of electricity, which it regulates. Government granted each utility an
exclusive license to serve all electric consumers in its territory. The 2
primary considerations leading to the adoption of the regulated monopoly
structure were the science of transmission at the time the industry was formed
and the critical role that electricity plays in a modern industrial economy.
This first issue, science transmission, is straightforward. At the time the
industry was forming, significant percentages of electricity were lost
transmitting electricity even short distances. Therefore, it was
20
<PAGE>
critical to consume electricity near the location at which it was produced. As a
result, the industry assumed both the local and integrated characteristics it
currently possesses. However, just as science played an important role in how
the electric industry was structured, it plays an important role in making
deregulation possible. Over the course of the 20th century, the science of
transmission has evolved from being a critical structuring determinate to
becoming virtually irrelevant. Today's technology enables electricity to be
transmitted 1,000 miles with less than a 1% loss. Accordingly, the need to
consume electricity near the location at which it is produced no longer exists.
This makes a national competitive industry technically feasible.
The second factor was the important role that electricity played in the
evolution of a modern industrial economy. The nexus between the growth of the
United States economy and the demand for electricity has been largely in
lockstep for the last 80 years. In some cases, electricity sales have continued
to grow even in periods of recession. A comparison with other modern industrial
economies indicates the same relationship between electric production/
consumption and economic growth. Therefore, government policy has long been to
foster a sound electric industry.
The industry came to be viewed as a natural monopoly. As such, it became
regulated, and since it was essentially a local business it came to be regulated
primarily at the local level. However, since huge capital investments were
required, the regulated monopoly structure adopted eliminated much of the risk
to investors of such investments, creating access to the large capital sums
required. The prevailing model became regulation by the individual states, based
on the cost of service plus a return on capital. As the electric industry
approaches deregulation, it is a combination of private, public, cooperative and
federal utilities. Private utilities, which are often investor-owned utilities,
account for approximately 75% of all electric sales. State and local utilities,
otherwise known as MUNI's, and cooperatives account for approximately the
remaining 25%.
Nearly 3,300 electric utilities currently exist, divided between 300
investor-owned companies, 2,000 MUNI's and 1,000 cooperatives. Of these, most do
not produce power. Typically, they purchase the electrical power they distribute
from either a nearby investor-owned utility or through a preferential purchase
right to inexpensive federally produced power.
The federal government's involvement in the electric industry is primarily
as a generator and wholesaler. It produces about 20% of the electricity in the
United States. Virtually all federal power is sold through one of the 4 federal
power marketing agencies. These agencies serve all states except for those in
the Northeast and the Upper Midwest.
Market Today. Approximately three trillion kilowatt hours of electricity
are produced and consumed annually by consumers typically classified as
residential, commercial, and industrial. Residential customers are
self-explanatory. Commercial customers represent small business, retail outlets
and the like. Industrial customers are typically manufacturers. Broadly, each of
these 3 customer classes represents about one-third of United States electricity
consumption, or about one trillion kilowatt hours.
The cost of electricity to residential, commercial and industrial customers
varies across the United States. While you might expect the cost of producing
electricity to be about the same everywhere, regulatory policies have created
enormous regional and inter-regional differences in electricity pricing. Part of
these differences arise because of differing fuel choices; for instance, coal in
the Midwest but not in New England. Coal is generally considerably less
expensive than natural gas as a fuel for electric power plants. Failed nuclear
programs also account for much of the regional variability. Finally, state and
local government policies contribute to price variability. Some states have
taxes included in their electricity rates, while others have almost none.
Nationwide residential per kilowatt hour rates range from a low of
approximately $0.05 to a high of nearly $0.15. While the range for industrial
customers is not as dramatic, it ranges from as low as approximately $0.03 a
kilowatt hour to as high as approximately $0.09. Commercial rates tend to mirror
residential rates, but at a slight discount. The national average for
residential rates is $0.08; commercial rates average about $0.075; while
industrial prices are typically below $0.05.
Electric consumption is the other relevant determinate of industry revenue.
As with rates, consumption tends to vary by region, based on weather conditions
and the historical economics of electricity in the area.
21
<PAGE>
For instance, virtually the entire air conditioning load in the United States is
electrical. Therefore, the warmer regions of the country have significant summer
residential peaks, while the Pacific Northwest has little demand for electricity
for air conditioning. For home heating purposes, natural gas or fuel oil is the
heating preference in much of the Northeast and Midwest. Yet, because of
historically low electricity prices in the Pacific Northwest, homes there are
often heated by electricity. While the average residential use is approximately
10,000 kilowatt hours per year, it ranges from about 6,000 to about 14,000
kilowatt hours per year.
Tomorrow's Structure. The electric utility industry has functioned as a
regulated monopoly. While a political consensus in the United States has
determined that this industry will be deregulated, the practical problems that
arise in implementing deregulation, along with the issue of states' rights, mean
the process will proceed more slowly than did deregulation in other industries.
State legislation is usually required to permit competition. However,
federal preemption is a possibility. Congress has bills pending in both the
Senate and the House of Representatives mandating that states adopt legislation
introducing competition.
Economic and technological considerations also contribute to the drive
toward competition. Improvements in generating technologies have made small
power plants efficient and cost-effective. Therefore, an industrial customer has
the option of making its own electricity with the same reliability achieved by
its host electric utility. If the cost of electricity to an industrial customer
exceeds the cost of making its own electricity by a wide enough margin, the
customer is likely to make its own. This has had the effect of shifting costs to
retail customers and lowering industrial rates. This shift occurs because of the
nature of the regulatory compact which allows the regulated utility to recover
all of its costs. When the price paid by an industrial customer is lowered, no
reduction in the utility's cost occurs, so the rate to retail customers is
raised by a like amount. Typically such shifts are politically unpopular.
With competition, at least at the industrial level, occurring as a result
of the technological changes, the shift of existing utility costs from
industrial customers, who have a choice, to retail customers, who do not,
becomes more widespread. Politicians believe that retail customers will be
protected only by allowing retail competition. Furthermore, the federal
government has proposed to preempt state regulation unless the states act
separately and soon. Thus, market forces are driving deregulation.
Electric industry competition traces its roots to 1978 with the passage of
the Public Utilities Regulatory Policy Act. Thus, considerable history exists
upon which to forecast the future. We believe that the future industry structure
is generally predictable. It is only the timing of its implementation that is
unknown. That transition also involves massive financial losses, because many
utilities have old, inefficient or over-valued generating facilities, the costs
of which have not yet been recovered from their customers. Such costs would be
unrecoverable if they were to complete with newer, efficient power plants.
In an open, competitive market for electricity, these plants would likely
be closed or written-down to their market value. In the current regulatory
environment, the costs associated with these over-valued plants are being
recovered from consumers through higher-than-competitive market electricity
prices. The impact of this over-valuation varies greatly by individual utility.
Some have over-valued assets that are several times their equity and some have
no over-valued assets. Moving immediately to open competition would likely
bankrupt a number of existing utilities. Accordingly, the timing of the
transition, which will also determine the rate at which demand for our service
grows, is governed by the management of these overvalued assets and/or the
allocation of those losses among customers, shareholders and taxpayers all of
which occurs through the political process.
In the end, we believe that the deregulated electric industry will be
dominated by 3 types of organizations.
o National generating companies that will own and operate power plants
in a number of states and regions of the country. These enterprises
will be much larger than today's utilities.
o A class of companies will exist that will remain regulated that will
own and operate transmission and distribution systems and act as the
supplier of last resort. These transmission system owners will be
common carriers accessible to all electric suppliers.
22
<PAGE>
o Electric Suppliers that will provide a variety of differentiated
electricity services, some on a national basis. These suppliers or
companies will function much like those that exist in the telephone
industry today.
The status of the development of each:
1. National Generating Companies--Active competition to generate
electricity began approximately 15 years ago. It occurred as an
unintended consequence of legislation passed in reaction to the oil
embargoes of the 1970s. The competition permitted certain electric
power stations to be built and to operate free of regulation. Their
electrical output was sold to existing, regulated electric
utilities for distribution to their customers. These new companies
demonstrated that it was possible, even while creating new
technologies, to produce electricity less expensively than was
being accomplished by many regulated utilities. In response, a
consolidation among existing utilities has begun. Thus, competitive
forces are currently creating national generating companies.
Ultimately, these generating companies will compete based upon low
capital cost and operating efficiencies. They will generate and
sell kilowatt hours to the industrial wholesale market. They also
sell electricity under contract to suppliers.
2. Regulated Common Carriers--It seems certain that large regional or
national companies will operate the electric grid. The grid is in
place and has ample capacity. Open access, with transmission rates
regulated primarily by the Federal Energy Regulatory Commission,
are very likely. The capital requirements of such enterprises, and
the significant problems relative to the acquisition of
long-distance, high voltage transmission lines, mean that these
enterprises are likely to be created from the disaggregation of the
transmission assets of existing regulated electric utilities and
their subsequent consolidation into regional nor national firms.
3. Suppliers--We anticipate that there will be many end-use retail
marketing companies. While numerous at first, only a few are likely
to successfully develop a national presence. The economics of these
national companies will be driven by:
o The operating efficiencies of providing customers with service;
o The advertising requirements of attracting and retaining
customers, specifically including television advertising; and
o The creation of differentiated electricity products.
They are likely to be organized around market segments, not
geography. These suppliers are the source of our revenues and the
principal beneficiaries of our service.
THE TRANSMISSION OF ELECTRICITY
Overview. Two of the most important considerations in the evolution of a
competitive market for electricity are the legislative and regulatory
requirements for transmission. Concern for transmission is also the first
question generally asked by consumers and investors alike. The answer lies in an
understanding of the physical nature of electricity transmission. Transmitting
electricity is not like the transmission of the products of 2 other well known,
recently deregulated industries: natural gas and telephones. In the case of
natural gas, a physical commodity flows from one point to another along a
predetermined route, known as the pipeline. Competition in this industry treated
the pipeline itself as a regulated common carrier with open, non-discriminatory
access to all that chose to use it, levying transportation charges based on the
distance and other characteristics of the pipeline used. Conditions and fees for
use of these pipelines are set by the Federal Energy Regulatory Commission. In
the case of telephones, the telephone signal itself includes information on its
destination. Coded at the front end of the call, the signal directs itself to
its destination. Unlike natural gas, the telephone call is not a physical
substance that flows, but rather a network energized by light or an electrical
signal. The transmission characteristics of electricity are more like telephones
than natural gas. However, they also have important differences.
Understanding the nature of the transmission of electricity begins with a
recognition that electricity is not a substance like natural gas and it does not
flow from one point to another. Rather, the electric grid is energized and is in
equilibrium. When electricity is drawn out of the system by a user, the grid is
23
<PAGE>
instantaneously re-equalized. Since the entire transmission system is
interconnected, the ongoing equalization of the system is a natural phenomenon
influenced constantly by various inputs to the system and consumer consumption.
Accordingly, it is not possible to transmit electricity from one point to a user
at another point.
Perhaps the best analogy about what occurs physically in the electric
transmission system is to imagine the grid in its energized state as the
equivalent of an ocean of electrons. Individual power plants produce electricity
and dump it into that ocean. They are the equivalent of rivers flowing into the
sea. These rivers are numerous and individually large, but not infinite.
Consumers are quite small in relation to the system, but they are everywhere. In
a sense, their withdrawals from this sea of electricity is akin to evaporation.
Water flowing into the ocean behaves as electricity does flowing into the
grid. Neither retains an individual identity nor flows in a determinable
direction. Consumers drawing electricity are extracting a homogenous,
untraceable commodity. Impedance works as the equivalent of gravity. Just as
gravity acts to keep the water level constant, impedance works to keep the
electrical grid at a constant energy level.
Thus, the physical nature of the transmission of electricity to serve
consumers has 2 important differences from natural gas or telephones. First, it
does not move from one point to another. Second, the distance from the producer
to the consumer is irrelevant. It is just as easy to scoop a cup of water out of
an ocean 200 miles at sea as it is to do near shore. The water level after the
withdrawal is instantly equalized by water from an unidentifiable source.
Future Regulations. Given these physical properties, the cost of
transmission and access to the grid can be effectively accomplished by:
o Making all suppliers responsible for inputs equal to their sales to
consumers; and
o Charging them a pro-rata fee for the volume, on a percentage basis,
of the cost of the grid.
Electric transmission is not currently regulated in this fashion. Current
regulations pretend that electricity has point-to-point flow. Whether regulators
can make the leap from the current framework to one consistent with the physics
of electricity transmission at once is unlikely. However, transmission access
and economic fairness are 2 overriding characteristics that may require federal
preemption for a truly competitive market to develop.
The experience in Pennsylvania has demonstrated the importance of
transmission to a competitive market. With relatively equal market economics,
consumers in Philadelphia, which is served by a well-developed,
non-discriminatory transmission service, have nearly 5 times as many choices as
those in Pittsburgh, where individually negotiated transmission agreements are
used. In the end, how regulators structure the transmission market will
significantly affect competing suppliers and, in turn, significantly influence
the timing and demand for Wattage Monitor's service.
ELECTRIC COMPETITION PRECEDENTS
European Experience. Two European countries have begun the process of
deregulating their electric utility industry. This takes the form of
privatization. The most common historical model for the organization of the
electric industry even among western democracies, has been state ownership. The
2 recent examples of the state exiting the electric business and simultaneously
creating a private, competitive industry are the United Kingdom and Holland.
United Kingdom. In the privatization of its electric industry, the United
Kingdom created 2 large power generators and aproximately 12 distribution
companies serving designated geographic areas. While these originally had the
characteristics of generators and distribution companies the law by which they
were privatized did not so restrict their activities. Accordingly, distributors
were afforded the opportunity to become generators in addition to their
distribution activities and the generators were similarly free to pursue
distribution. Cost went down, efficiencies up. Several mergers, both among
themselves and with non-United Kingdom companies, occurred. It is likely that as
more countries deregulate this industry, the creation of international electric
companies will evolve.
The Netherlands. Holland developed its electric industry with a profusion
of municipal utilities. Virtually every city in Holland owned its own electric
utility. When the law was changed to allow these local governments to sell such
assets, a widespread consolidation of the industry occurred. Competition for
24
<PAGE>
customers among these newly created, privately owned utilities was significant.
It became common for these companies to offer water, cable and telecommunication
services, in addition to electricity, in an effort to be a single provider of
all the household utility necessities.
Summarizing the experience of both of these countries, several things are
apparent:
o Restructuring the utility industry leads to a period of active
financial restructuring;
o Efficiencies go up and the cost of electricity comes down;
o The industry attracts new entrants;
o Consumers find themselves with a choice of electric suppliers for
the first time; and
o It takes a quite some time for consumers to adjust to the new
environment.
All of these conditions provide fertile ground for our services, but also
control the timing of when those services are required.
INSURANCE
We maintain property and liability coverage with various insurers. We
believe that such coverage is adequate for our needs and customary for
information service companies of comparable size and maturity.
EMPLOYEES
As of March 31, 1999, we employed 13 people and 20 contract employees to
staff our toll-free telephone service at 1-888-WATTAGE. We believe that our
relations with our employees are good.
PROPERTY
We maintain offices in several locations, including:
o San Rafael, California (1999 lease payments of $7,650)
1348 Fourth Street, Suite 210
San Rafael, CA 94901
o Reno, Nevada (1999, 2000, 2001 lease payments of $28,600, $29,350,
$9,850 respectively)
1100 Kietzke Lane
Reno, NV 89502
o Harrisburg, Pennsylvania (month-to-month rental)
2033 Linglestown Road, #378
Harrisburg, PA 17110
o Washington, D.C. (month-to-month rental)
601 Pennsylvania Avenue
Suite 900
Washington, D.C. 20004
Our offices cover an aggregate of approximately 3,500 square feet. Required
annual lease payments are: $36,250 for 1999, $29,350 for 2000, and $9,850 for
2001. In addition, we have offices provided by our employees in Boston,
Massachusetts; Helena, Montana; and Dallas, Texas. No additional lease expenses
are required under these arrangements with our employees.
LEGAL PROCEEDINGS
Wattage Monitor is not a party to any legal proceedings.
25
<PAGE>
MANAGEMENT
The following table sets forth certain information with respect to our
directors and executive officers:
<TABLE>
<CAPTION>
NAME AGE COMPANY POSITION AND OFFICES HELD
- ---------------------------------------------- --- -----------------------------------------------
<S> <C> <C>
Stephen D. Klein.............................. 38 Chairman of the Board of Directors
Gerald R. Alderson............................ 52 President, Chief Executive Officer and Director
Joel Dumaresq................................. 34 Director
Alexander Ellis III........................... 48 Vice President--Marketing and Director
Ajmal Khan.................................... 38 Director
Daniel I. DeWolf.............................. 41 Secretary
Robert E. Forrest............................. 31 Vice President--Operations
John D. Westfield............................. 36 Vice President--Technology
</TABLE>
Stephen D. Klein, age 38, is the Chairman of the Board and a founder of
Wattage Monitor. He is not an employee. Since 1990, he has been a Managing
Partner and Director of Media and Interactive Services of Kirshenbaum Bond &
Partners, one of the country's most successful independent advertising agencies.
Mr. Klein is one of the advertising industry's pioneers in the integration of
Internet media into brand-building marketing efforts. Mr. Klein received a B.A.
in English from Columbia University.
Gerald R. Alderson, age 52, is a founder and President of Wattage Monitor.
Between 1982 and the founding of Wattage Monitor in mid-1997, Mr. Alderson held
a variety of positions with Kenetech Corporation, including as its President and
Chief Executive Officer. He received his B.A. from Occidental College and his
M.B.A. from Harvard University Graduate School of Business Administration.
Joel Dumaresq, age 34, is a director of Wattage Monitor. Mr. Dumaresq is an
experienced business executive and investment banking specialist. Since 1996,
Mr. Dumaresq has acted as an independent investor and currently sits on the
Board of Directors of a number of public and private companies. Since 1996, Mr.
Dumaresq has also served as a Vice President of Verus Capital Corp. From 1994 to
1996, Mr. Dumaresq was President and CEO of Westair Aviation Inc., a full
service, regional airline, and has served in various roles for a large
investment banking firm. From 1987 to 1994, Mr. Dumaresq served as an
institutional equity account representative with RDC Dominion Securities.
Alexander Ellis III, age 48, has served as Vice President--Marketing for
Wattage Monitor since its founding. Since 1990, Mr. Ellis held a number of
management positions at Kenetech Corporation, including as its Vice
President--Marketing. Between 1989 and 1990, he was Vice
President Corporate Accounts at Knoll International, Inc. Mr. Ellis received his
B.A. from Colorado College and his Masters in Public and Private Management from
Yale School of Organization & Management.
Ajmal Khan, age 38, is a director of Wattage Monitor. In 1987 Mr. Khan
founded, and became the President of, Verus Capital Corp., a diversified
investment group. Verus is involved in the ownership of hotels; venture capital
financing; corporate acquisitions; and several joint ventures entailing name
brand franchising and licensing. Mr. Khan also has a joint venture interest in
Barakaat Holdings Ltd., a sports marketing company. Since October of 1998, he
has also served as a director of Advanced Bodymetrics, Inc., a publicly traded
high-tech company dedicated to developing sports wristwatches that are able to
monitor and display various functions of the human body. Since July of 1998,
Mr. Khan has served as a director of iParty Corp., a publicly-traded company
dedicated to providing information and services with respect to coordinating
events.
Daniel I. DeWolf, age 41, is Secretary of Wattage Monitor. Since 1998,
Mr. DeWolf has served as Of Counsel to the law firm of Camhy Karlinsky & Stein
LLP in New York, New York, and has led the Firm's New Media and E-Law Group.
Since 1998, Mr. DeWolf has also served as a Managing Director of Dawntreader
Fund I LP, a venture capital fund. From 1994 to 1998, Mr. DeWolf established and
headed the Corporate and Securities practice group at Camhy Karlinsky & Stein
LLP. His law practice specializes in venture capital, mergers and acquisitions,
and securities transactions. Mr. DeWolf is a graduate of the University of
Pennsylvania (cum laude) and the University of Pennsylvania School of Law.
26
<PAGE>
Robert E. Forrest, age 31, has served as Vice President--Operations for
Wattage Monitor since March of 1998. Between May 1993 and his joining Wattage
Monitor, Mr. Forrest held a variety of finance positions, including cost control
and system development, principally in the food products industry. Since October
1995, in his most recent position, Mr. Forrest was the finance lead for all
United States trade agreement negotiations for Burns Philp, Inc., a global food
company. Mr. Forrest received his B.A. from the University of California at Los
Angeles (magna cum laude).
John D. Westfield, age 36, has served as Vice President--Technology for
Wattage Monitor since April of 1998. Between December, 1996 and April 1998,
Mr. Westfield was a Director of Special Programs for Computer Sciences
Corporation. Between April, 1989 and November, 1996, he held a variety of
management and information technology positions with American Airlines including
responsibility for the design of the SABRE reservation system's internet
interface. Mr. Westfield received a Bachelor's and Master's degree from The
University of Texas, at Austin.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
During the last 5 years, none of the directors, executive officers or
control persons of Wattage Monitor have been:
o A party to a bankruptcy proceeding;
o Convicted in a criminal proceeding;
o Subject to any order, judgment or decree permanently or temporarily
enjoining, barring, suspending or otherwise limiting his involvement in
any type of business, securities or banking activities; or
o Found to have violated a federal or state securities or commodities law.
DIRECTOR COMPENSATION
Compensation of directors consists solely of reimbursement of their
expenses for attending meetings. Additionally each director receives stock
options to purchase 10,000 shares of our common stock on the date of the annual
meeting of our shareholders except that in 1999 the grant will occur on
September 30, 1999.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE
The following table sets forth all compensation awarded to our Chief
Executive Officer and all of our executive officers who received compensation in
excess of $100,000 for the fiscal years ended December 31, 1997
and December 31, 1998:
<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION COMPENSATION AWARDS
NAME AND POSITION YEAR SALARY SECURITIES UNDERLYING OPTIONS
- -------------------------------------------------------------- ---- ------------ -----------------------------
<S> <C> <C> <C>
Gerald R. Alderson ........................................... 1998 $137,500 --
President and Chief Executive Officer
Alexander Ellis, III ......................................... 1998 $125,000 75,000
Vice President--Marketing 1997 $ 62,500 225,000
John D. Westfield ............................................ 1998 $136,215 125,000
Vice President--Technology
</TABLE>
27
<PAGE>
OPTION GRANTS IN 1998
Set forth below is information on grants of stock options for our executive
officers for the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
----------------------------------------------------------------------
% OF TOTAL
NUMBER OPTIONS GRANTED TO
OF OPTIONS EMPLOYEES IN EXERCISE EXPIRATION
NAME GRANTED(2) FISCAL YEAR PRICE PER SHARE DATE
- ------------------------------------------------ ---------- ------------------ --------------- ---------------
<S> <C> <C> <C> <C>
Alexander Ellis, III(2)
Granted Dec. 1998............................. 75,000 11% $1.00 1/1/09
John D. Westfield(3)
Granted Mar. 1998............................. 75,000 11% $1.00 1/1/08
Granted Dec. 1998............................. 50,000 7% $1.00 1/1/09
</TABLE>
- ------------------
(1) Represents contingent membership interests held in WattMonitor LLC, which
were converted into stock options upon the completion of the reverse merger
on February 26, 1999.
(2) The option was granted on December 2,1998 and is exercisable commencing on
January 1, 2000.
(3) The options were granted on March 31,1998 and December 2, 1998 and are
exercisable commencing on January 1, 1999 and January 1, 2000 respectively.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR END OPTION VALUES
Set forth below is information with respect to the stock options held by
our executive officers.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED VALUE AT DECEMBER 31, 1998 AT DECEMBER 31, 1998
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
- ----------------------------------- ----------- -------- ------------------------- --------------------------------
<S> <C> <C> <C> <C>
Alexander Ellis, III............... -- -- 75,000/225,000 0
John D. Westfield.................. -- -- 0/125,000 0
</TABLE>
- ------------------
(1) Calculated on a per share value of $1.00 per share at December 31, 1998
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
On January 1, 1998, WattMonitor LLC, as our predecessor, entered into an
Employment Agreement with Mr. Alderson. On February 26, 1999, we assumed
Mr. Alderson's employment agreement. Mr. Alderson's initial employment term
expires on December 31, 2000, but will be automatically renewed for an unlimited
series of one-year periods unless either party notifies the other.
Mr. Alderson currently receives a base salary of $150,000 per year, which
is subject to an annual adjustment at the discretion of our board of directors.
Under the terms of the agreement, Mr. Alderson is eligible to receive a bonus
for services rendered, subject to the discretion of our board of directors. In
the event we terminate Mr. Alderson's employment for any reason other than "for
cause" after either achieving annual revenues of $10,000,000 or more, or
receiving capital contributions in the aggregate of $10,000,000 or more, then
Mr. Alderson will be entitled to receive a lump sum termination payment equal to
two years' base salary.
In the event we experience a change in control and Mr. Alderson resigns, or
is terminated, within six months of the change in control Mr. Alderson will be
entitled to receive two years base salary, payable in one lump sum. He will also
be entitled to receive a payment equal to the greater of his bonuses for the
three years prior to the termination or eighteen months base salary. In no event
will this termination payment exceed 2.99 times Mr. Alderson's average annual
cash compensation during the five years prior to his termination.
We have no other employment contracts.
28
<PAGE>
STOCK OPTION PLAN
On April 19, 1999, our 1999 Incentive Compensation Plan was adopted by the
Board of Directors.
OUR 1999 STOCK OPTION PLAN
Under our 1999 Incentive Compensation Plan, key employees, officers,
consultants and directors are given an opportunity to acquire our shares
directly or through options or the right to receive cash awards from us.
Our 1999 Incentive Compensation Plan provides for discretionary option
grants, under which key employees, officers, and consultants may be granted
options to purchase our shares of common stock at an exercise price not less
than the fair market value of our shares on the grant date. The options granted
under our 1999 Incentive Compensation Plan may be either incentive stock options
designed to meet the requirements of Section 422 of the Internal Revenue Code of
1986, as amended, or non-statutory options not intended to satisfy such
requirements. Options may be granted to eligible individuals in our employ or
service or in the service of any subsequent corporation.
A total of 1,500,000 shares of common stock are reserved for issuance over
the ten-year term of our 1999 Incentive Compensation Plan. There are 625,500
reserved shares of our common stock which remain available for issuance, and
874,500 shares of our common stock that are reserved for the exercise of
existing grants.
Options have maximum terms of ten years from the grant date. Options are
not assignable or transferable other than by will or by the laws of inheritance.
The option may be exercised only by the optionee. The optionee will not have any
rights with respect to our shares of common stock underlying the options until
the options are exercised and the option price is paid for the purchased shares.
Our Board of Directors has the authority to cancel outstanding options in return
for the grant of new options, stock or cash. Our 1999 Incentive Compensation
Plan terminates on the earlier of April 19, 2009 or the date on which all the
shares available for issuance have been issued or cancelled.
As of March 31, 1999 executive officers and all other employees were
eligible to participate. Three of the four executive officers and all other
employees held options.
If Wattage Monitor is acquired by merger, consolidation or asset sale, or
there is a hostile change in control, each option granted under our 1999 Stock
Option Plan may be accelerated, and all unvested shares issued under the plan
may be immediately vested.
CERTAIN TRANSACTIONS
On August 14, 1998, RHL Ventures LLC loaned us $425,000. The loan is
evidenced by a promissory note for $425,000, bearing interest at 12% per annum,
and matures September 1, 2000. Simultaneously, we issued a warrant to RHL
Ventures exercisable through August 1, 2005, to purchase 283,333 shares of our
common stock at an exercise price of $1.50 per share. The warrant is exercisable
immediately but has not yet been exercised. The note balance may be used to
exercise the warrant. RHL Ventures LLC is one of our shareholders. Mr. Lessin,
one of our shareholders, is the President and Chief Executive Officer of RHL
Ventures.
Between October 7, 1998 and January 18, 1999, Verus Capital Corp., on
behalf of investors, advanced us an aggregate of $1,000,000. The right to this
advance was subsequently assigned by the investors to Wattage Monitor Inc. prior
to our merger in exchange for 2,750,000 shares of common stock. Upon the merger
of Wattage Monitor Inc. and WattMonitor LLC, the advance became a payable to
ourselves and was canceled. Mr. Khan is president of Verus and one of our
directors.
On December 29, 1998, RHL Ventures LLC loaned us $150,000, with interest at
12% per annum. The note was repaid in February of 1999. Simultaneously, we
issued a warrant to RHL Ventures exercisable through December 29, 2005, to
purchase 100,000 shares of our common stock at an exercise price of $1.50 per
share. The
29
<PAGE>
warrant was exercisable immediately. Mr. Lessin, one of our shareholders, is the
President and Chief Executive Officer of RHL Ventures.
On December 29, 1998, Gerald R. Alderson loaned us $50,000, with interest
at 12% per annum. The note was repaid in March of 1999. Simultaneously, we
issued a warrant to Mr. Alderson exercisable through December 29, 2005, to
purchase 33,333 shares of our common stock at an exercise price of $1.50 per
share. The warrant was exercisable immediately. Mr. Alderson is our President
and Chief Executive Officer, as well as one of our directors.
On December 29,1998, Stephen D. Klein loaned us $50,000, with interest at
12% per annum. The note was repaid in February of 1999. Simultaneously, we
issued a warrant to Mr. Klein exercisable through December 29, 2005, to purchase
33,333 shares of our common stock at an exercise price of $1.50 per share. The
warrant was exercisable immediately. Mr. Klein is the Chairman of our Board of
Directors and a shareholder.
For the period ended December 31, 1998, we paid approximately $132,000 for
software development to Kirshenbaum Bond & Partners. During the same period, we
also purchased approximately $112,000 of equipment from Kirshenbaum. Stephen D.
Klein, a partner of Kirshenbaum, is one of our directors.
Certain Transactions
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock as of March 31, 1999 as follows:
o By each person who is known by Wattage Monitor to beneficially own more
than 5% of Wattage Monitor's common stock, fully diluted;
o By each of Wattage Monitor's directors;
o By each officer named under the "Management--Executive
Compensation--Summary Compensation Table"; and
o By all officers and directors as a group.
Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to all shares
beneficially owned, subject to community property laws where applicable. The
percentages set forth in the table assume 11,207,816 shares of common stock
outstanding as of March 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
OF COMMON STOCK BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER (1) BENEFICIALLY OWNED OWNERSHIP(1)
- ------------------------------------------------------------------------ ------------------ ----------------------
<S> <C> <C>
Robert H. Lessin(2) .................................................... 3,164,948(3) 27.3%
c/o Wit Capital
826 Broadway, 6th Floor
New York, NY 10003
Gerald R. Alderson(2) .................................................. 1,935,243(4) 17.2%
c/o Wattage Monitor
1100 Kietzke Lane
Reno, NV 89502
Stephen D. Klein(2) .................................................... 1,303,920(5) 11.5%
c/o Kirshenbaum Bond & Partners
145 6th Avenue
New York, NY 10013
Joel Dumaresq........................................................... 280,000(6) 2.4%
Alexander Ellis, III ................................................... 150,000(7) 1.3%
Ajmal Kahn.............................................................. 120,000(6) 1.1%
John D. Westfield....................................................... 25,000(8) *
Daniel I. DeWolf........................................................ 12,500(9) *
All Officers and Directors (7 persons).................................. 3,826,663 32.9%
</TABLE>
30
<PAGE>
- ------------------
* Less than one percent (1%)
(1) Rule 13d-3 under the Securities exchange Act of 1934 provides the
determination of beneficial owners of securities. That rule includes as
beneficial owners of securities, any person who directly or indirectly has,
or shares, voting power and/or investment power with respect to such
securities. Rule 13d-3 also includes as a beneficial owner of a security
any person who has the right to acquire beneficial ownership of such
security within sixty days through means, including, the exercise of any
options, warrant or conversion of a security. Any securities not
outstanding which are subject to such options, warrants or conversion
privileges are deemed to be outstanding for the purpose of computing the
percentage of outstanding securities of the class owned by such person.
Those securities are not deemed to be outstanding for the purpose of
computing the percentage of the class by any other person.
(2) Mr. Lessin, Mr. Alderson and Mr. Klein have entered into agreements with us
under which they have agreed not to sell any of their shares prior to
August 26, 1999 and not to sell more than 20% of their shares between
August 27, 1999 and February 26, 2000.
(3) Includes 564,706 shares of common stock beneficially owned through RHL
Ventures LLC, warrants to purchase an aggregate of 383,333 shares of common
stock beneficially owned through RHL Ventures LLC, and 2,216,909 shares of
common stock owned directly.
(4) Includes warrants to purchase an aggregate of 33,333 shares of common stock
beneficially owned.
(5) Includes warrants to purchase an aggregate of 33,333 shares of common stock
beneficially owned.
(6) The aggregate amount of Mr. Dumaresq and Mr. Kahn includes shares
beneficially owned by Verus Capital Corp. which includes warrants to
purchase 100,000 shares of common stock from Valiant Growth Fund, options
to purchase 50,000 shares of Series A Preferred Stock or 50,000 shares of
common stock underlying the Series A Preferred Stock and options to
purchase 250,000 shares of Series B Preferred Stock or 250,000 shares of
common stock underlying the Series B Preferred Stock. Mr. Dumaresq and Mr.
Kahn have the right to acquire 70% and 30%, respectively, of the warrants
options or the underlying shares. Mr. Dumaresq and Mr. Kahn each disclaim
beneficial ownership of such shares.
(7) Represents options to purchase 150,000 shares of common stock, which are
immediately exercisable. Does not include options to purchase an additional
150,000 shares of common stock, which are not currently exercisable.
(8) Represents vested options to purchase 25,000 shares of common stock, which
are immediately exercisable. In addition, Mr. Westfield owns options to
purchase 100,000 shares of common stock, which are not currently
exercisable.
(9) Mr. DeWolf is married to Pamela Ehrenkranz DeWolf, who owns 12,500 shares
of common stock. Mr. DeWolf disclaims beneficial ownership of his wife's
shares.
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<PAGE>
SELLING SHAREHOLDERS
The following table shows for our shareholders the following information:
o The number of shares of our common stock beneficially owned by them
as of April 1, 1999 and covered by this prospectus; and
o The number of shares of common stock to be retained after this
offering, if any.
<TABLE>
<CAPTION>
COMMON STOCK(1)
------------------------------------------
NUMBER OF SHARES
OWNED PRIOR TO
AND REGISTERED NUMBER OF SHARES
IN BENEFICIALLY OWNED
NAME OF SELLING SHAREHOLDER THE OFFERING AFTER THE OFFERING
- ------------------------------------------------------------------------- ---------------- ----------------------
<S> <C> <C>
Robert H. Lessin(2)...................................................... 2,781,615(3) 383,333(4)
Gerald R. Alderson(2).................................................... 1,901,910 33,333(5)
Stephen D. Klein(2)...................................................... 1,270,587 33,333(6)
Jonathan Bond............................................................ 397,059 0
Richard Kirshenbaum...................................................... 397,059 0
Alexander Ellis(7)....................................................... 300,000 0
Valiant Growth Fund(8)................................................... 250,000 0
Orion Projects Limited(8)................................................ 250,000 0
Delta Realty Limited(8).................................................. 250,000 0
A.E.L.P.................................................................. 220,588 0
Gail Alderson............................................................ 132,354 0
Vicki L. Center(9)....................................................... 125,000 0
Robert E. Forrest(9)..................................................... 125,000 0
John D. Westfield(9)..................................................... 125,000 0
Alan J. Hirschfield GST Exemption Trust.................................. 110,294
Westin Machineries Pension S.A.(10)...................................... 108,350 0
Liegemen, S.A.(10)....................................................... 108,350 0
Kenneth Hattich.......................................................... 105,884 0
Alison Elliott(11)....................................................... 99,274 0
Marcy Shockey............................................................ 97,060 0
Nigel Carr............................................................... 79,412 0
William Oberlander....................................................... 78,706 0
Anne Alderson(12)........................................................ 69,274 0
Katherine Alderson....................................................... 68,824 0
Kory Alderson............................................................ 68,824 0
John Merrill............................................................. 52,942 0
Johnathen Cohen.......................................................... 50,000 0
Michael J. Marocc........................................................ 44,118 0
Rosemarie Ryan........................................................... 39,706 0
Michael R. Benzian(13)................................................... 38,500 0
Dorothy Piekarz.......................................................... 37,030 0
Laura Y. Hirschfield..................................................... 33,334 0
Marc E. Hirschfield...................................................... 33,333 0
Scott E. Hirschfield..................................................... 33,333 0
Bennet Finance Ltd.(14).................................................. 33,300 0
Dwight Patrick(15)....................................................... 30,000 0
John Vergoz(15).......................................................... 30,000 0
Benjamin Marshall(16).................................................... 27,000 0
Christine M. Ruppert / Martin E. Karlinsky, as joint tenants............. 17,648 0
Jamey Gessaman(17)....................................................... 15,450 0
Robert Fitzgerald(18).................................................... 15,000 0
Pamela Ehrenkranz DeWolf................................................. 12,500 0
Christopher Balthasar(19)................................................ 7,650 0
Frederick S. Powell(20).................................................. 5,000 0
Caryn Bailey............................................................. 4,000 0
Deborah Annex............................................................ 1,148 0
Elaine Connolly.......................................................... 900 0
</TABLE>
(Footnotes on next page)
32
<PAGE>
(Footnotes from previous page)
- ------------------
(1) We assume no purchase in this offering by any shareholder listed above of
any shares of our common stock.
(2) Mr. Lessin, Mr. Alderson and Mr. Klein have entered into agreements with
us, under which they have agreed not to sell any of their shares prior to
August 26, 1999 and not to sell more than 20% of their shares between
August 27, 1999 and February 26, 2000.
(3) Includes 564,706 shares of common stock beneficially owned through RHL
Ventures and 2,216,909 shares of common stock owned directly.
(4) Represents warrants to purchase an aggregate of 383,333 shares of common
stock.
(5) Represents warrants to purchase an aggregate of 33,333 shares of common
stock beneficially owned.
(6) Represents warrants to purchase an aggregate of 33,333 shares of common
stock beneficially owned.
(7) Includes 300,000 shares of our common stock underlying 300,000 options.
(8) Includes 250,000 shares of our common stock underlying 250,000 shares of
our Series A preferred stock. The holder has the right to convert each of
its shares of our Series A preferred stock into one share of our common
stock at any time.
(9) Includes 125,000 shares of our common stock underlying 125,000 options.
(10) Includes 108,350 shares of common stock underlying 108,350 shares of our
Series A preferred stock. The holder has the right to convert each of its
shares of our Series A preferred stock into one share of our common stock
at any time.
(11) Includes 30,450 shares of our common stock underlying 30,450 options.
(12) Includes 450 shares of our common stock underlying 450 options.
(13) Includes 38,500 shares of our common stock underlying 38,500 options.
(14) Includes 33,300 shares of common stock underlying 33,300 shares of our
Series A preferred stock. The holder has the right to convert each of its
shares of our Series A preferred stock into one share of our common stock
at any time.
(15) Includes 30,000 shares of our common stock underlying 30,000 options.
(16) Includes 27,000 shares of our common stock underlying 27,000 options.
(17) Includes 15,450 shares of our common stock underlying 15,450 options.
(18) Includes 15,000 shares of our common stock underlying 15,000 options.
(19) Includes 7,650 shares of our common stock underlying 7,650 options.
(20) Includes 5,000 shares of our common stock underlying 5,000 options.
PLAN OF DISTRIBUTION
We are registering the shares of our common stock covered by this
prospectus.
We will pay the costs, expenses, and fees of registering the common stock,
but our shareholders will pay any underwriting or brokerage commissions and
similar selling expenses relating to the sale of shares of their common stock.
Our shareholders may sell our common stock at market prices prevailing at
the time of the sale, at prices related to the prevailing market prices, at
negotiated prices or at fixed prices, which may change. Our shareholders may
sell some or all of their common stock through:
33
<PAGE>
o Ordinary brokers' transactions, which may include long or short
sales;
o Purchases by brokers, dealers or underwriters as principal and
resale by those purchasers for their own accounts under this
prospectus;
o Market makers or into an existing market for the common stock;
o Transactions in options, swaps or other derivatives; or
o Any combination of the selling options described in this prospectus,
or by any other legally available means.
In addition, our shareholders may enter into hedging transactions with
broker-dealers, who may engage in short sales of our common stock in the course
of hedging the positions they assume. Finally, our shareholders may enter into
options or other transactions with broker-dealers that require the delivery of
our common stock to those broker-dealers. Subsequently, the shares may be resold
under this prospectus.
In their selling activities, our shareholders will be subject to applicable
provisions of the Securities Exchange Act of 1934 and its rules and regulations,
including Regulation M, which may limit the timing of purchases and sales of our
common stock by our shareholders.
Those of our shareholders and any broker-dealers involved in the sale or
resale of our common stock may qualify as "underwriters" within the meaning of
Section 2 (11) of the Securities Act of 1933. In addition, the broker-dealers'
commissions, discounts, or concessions may qualify as underwriters' compensation
under the Securities Act of 1933. If any broker-dealer or any of our
shareholders qualify as an "underwriter," they will be subject to the prospectus
delivery requirements of Section 153 of the Securities Act of 1933.
In conjunction with sales to or through brokers, dealers or agents, our
shareholders may agree to indemnify such brokers, dealers or agents against
liabilities arising under the Securities Act of 1933. We do not know of any
existing arrangements between our shareholders and any other shareholder,
broker, dealer, underwriter or agent relating to the sale or distribution of our
common stock.
In addition to selling their common stock under this prospectus, our
shareholders may:
o Transfer their common stock in other ways not involving market
makers or established trading markets, including by gift,
distribution or other transfer; or
o Sell their common stock under Rule 144 of the Securities Act, if the
transaction meets the requirements of Rule 144.
We have advised our shareholders that, during the time each is engaged in
distribution of their common stock, each must comply with Rule 10b-5 and
Regulation M under the Securities Exchange Act of 1934. They must do all of the
following under those rules:
o Not engage in any stabilization activity in connection with our
common stock;
o Furnish each broker who may be offering our common stock on behalf
of our shareholders the number of copies of this prospectus required
by each broker; and
o Not bid for or purchase any of our common stock or attempt to induce
any person to purchase any of our common stock, other than as
permitted under the Securities Exchange Act of 1934.
Any of our shareholders who may be "affiliated purchasers," as defined in
Regulation M, have been further advised that they must coordinate their sales
under this prospectus with each other and us for the purposes of Regulation M.
To the extent required under the Securities Act, a supplemental prospectus
will be filed, disclosing:
o The name of any such broker-dealers;
o The number of securities involved;
o The price at which such securities are to be sold;
34
<PAGE>
o The commissions paid or discounts or concessions allowed to such
broker-dealers, where applicable;
o That such broker-dealers did not conduct any investigation to verify
the information set out in this Prospectus, as supplemented; and
o Other facts material to the transaction.
There is no assurance that any of our shareholders will sell any of our
common stock.
We have agreed to keep the registration statement relating to the offering
and sale by our shareholders continuously effective until the earlier of the
sale of all our common stock or 12 months from the date of this prospectus.
DESCRIPTION OF THE CAPITAL STOCK
The authorized capital stock of Wattage Monitor consists of common stock,
preferred stock and warrants to acquire common stock as set forth below:
Our authorized capital stock consists of 25,000,000 shares of our common
stock, par value $.01 per share, and 5,000,000 shares of our preferred stock,
par value $.01 per share.
COMMON STOCK
Our authorized common stock consists of 25,000,000 shares of common stock.
As of June 1, 1999, we had issued and outstanding 11,207,816 shares of common
stock. As of June 1, 1999, there were approximately 50 holders of record of our
common stock. In addition, we have reserved the following shares of common
stock:
o 1,000,000 shares of our common stock for conversion of our issued
and outstanding Series A Preferred Stock;
o 1,500,000 shares of our common stock under our 1999 Stock Option
Plan;
o 450,000 shares of our common stock for existing warrants; and
o 3,500,000 shares of our common stock for conversion of our Series B
preferred stock, which shares shall be issued and outstanding upon
the exercise of existing warrants.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of our shareholders. Subject to
preferences that may be applicable to any outstanding shares of our preferred
stock, the holders of our common stock are entitled to receive ratably such
dividends as may be declared by the board of directors out of funds legally
available for such dividends. In the event of our liquidation, dissolution or
winding up, holders of our common stock will be entitled to share ratably in all
assets remaining after payment of liabilities and the liquidation preferences of
any outstanding shares of preferred stock. Holders of common stock have no
preemptive rights and no right to convert their common stock into any other
securities. There are no redemption or sinking fund provisions applicable to the
common stock. All outstanding shares of common stock are fully paid and
non-assessable. The rights, preferences and privileges of holders of common
stock are subject to the rights of holders of shares of any series of preferred
stock that we may designate and issue in the future.
PREFERRED STOCK
We are authorized to issue up to 5,000,000 shares of preferred stock, par
value $.01 per share. As of February 26, 1999, 1,000,000 shares of our Series A
6% preferred stock were issued and outstanding, held by 6 registered holders.
The holders of our Series A 6% preferred stock have voting power equal to the
voting power the preferred stock would provide if the preferred stock were
converted into shares of our common stock, and such other voting power as is
expressly provided under Nevada law. Each share of our Series A preferred stock
is convertible into one share of our common stock. Such conversion may occur at
the option
35
<PAGE>
of the holders of Series A preferred stock, however, such conversion will
automatically occur upon the exercise of the warrants to purchase shares of our
Series B preferred stock.
Pursuant to our articles of incorporation, our board of directors has the
authority, without further action by the shareholders, to issue our preferred
stock in one or more series of preferred stock and to fix the designation,
powers, preferences, privileges and relative participating, optional or special
rights of such stock, and the qualifications, limitations or restrictions
thereof, including dividend rights, conversion rights, voting rights, terms of
redemption and liquidation preferences, any or all of which may be greater than
the rights of the common stock. Our board of directors, without shareholder
approval, may issue preferred stock with voting, conversion of other rights that
could adversely affect the voting power and other rights of the holder of common
stock. Therefore, our preferred stock may be issued quickly, with terms that may
delay or prevent a change in control or make removal of management more
difficult. Additionally, the issuance of preferred stock may have the effect of
decreasing the market price of the common stock and may adversely affect the
voting and other rights of the holders of common stock.
WARRANTS
We have issued four warrants to purchase an aggregate of 450,000 shares of
our common stock at an exercise price of $1.50 per share. The warrants expire on
December 29, 2005, and are exercisable at any time. We have also issued one
warrant to purchase 100,000 shares of our common stock at an exercise price of
$1.00 per share. This warrant expires on February 26, 2005, and is exercisable
at any time. The warrants do not confer upon the holders any voting or other
rights of our shareholders.
We also have issued 1,000,000 Series B warrants to purchase an aggregate
of 3,500,000 shares of our Series B preferred stock. The Series B warrants
expire on December 15, 1999. Each Series B warrant allows the owner to purchase
3.5 shares of Series B preferred stock at a price of $1.00 per share. Upon
issuance, each share of Series B preferred stock will be convertible into 3.5
shares of our common stock. The Series B preferred stock will have no voting
power, except as expressly provided under Nevada Law.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for Wattage Monitor's Common Stock is
American Securities Transfer & Trust, Inc. As neither the convertible preferred
stock, the warrants nor the options is registered, Wattage Monitor acts as its
own Transfer Agent and Registrar as to such securities.
SHARES ELIGIBLE FOR FUTURE SALE
We currently have 11,207,816 shares of common stock outstanding. All of
them are freely tradeable without restriction or further registration under the
Securities Act of 1933. In addition, 1,000,000 shares of our common stock
underlying the shares of Series A preferred stock will, upon conversion of the
Series A preferred stock, be freely tradeable without restriction or further
registration. Also, 874,500 shares of our common stock underlying the options
will, upon exercise of the options, be freely tradeable without restriction or
further registration. However, any shares purchased by an affiliate of ours will
be subject to the resale limitations of Rule 144 under the Securities Act of
1933. An affiliate is a person who has a control relationship with us. The
remaining shares of common stock are with us. Rule 144 provides that a person
who has satisfied a one-year holding period for any restricted shares may sell
within any three-month period an amount of restricted shares that does not
exceed the greater of:
o One percent of that class of outstanding shares; or
o The average weekly trading volume of our common stock.
Sales under Rule 144 are also subject to certain manner of sale provisions,
notice requirements and the availability of current public information about us.
In addition, under Rule 144, persons who are not affiliated with us and who have
held their restricted shares for at least 2 years are not subject to the
quantity limitations or the manner of sale restrictions.
36
<PAGE>
Gerald R. Alderson, Stephen D. Klein, Robert H. Lessin and RHL Ventures LLC
have agreed not to sell or otherwise dispose of any of their shares of common
stock until August 26, 1999. From August 27, 1999 through February 26, 2000,
they have agreed to sell no more than 20% of their individual holdings.
LEGAL MATTERS
The validity of the common stock offered under this prospectus will be
passed upon for us by our counsel, Camhy Karlinsky & Stein LLP, New York, New
York. A partner of Camhy Karlinsky & Stein LLP owns, as a joint tenant, 17,648
shares of our common stock. Another partner of Camhy Karlinsky & Stein LLP may
be deemed to have beneficial ownership of 1,148 shares of our common stock,
although such beneficial ownership is disclaimed. In addition, two other
attorneys of Camhy Karlinsky & Stein LLP may be deemed to have beneficial
ownership of 12,500 shares and 4,000 shares of our common stock, respectively,
although such beneficial ownership is disclaimed by both attorneys.
EXPERTS
The financial statements of WattMonitor LLC as of December 31, 1998, and
for the period from inception through December 31, 1997 and year ended
December 31, 1998, included in this registration statement, have been included
herein in reliance upon the report of Grant Thornton LLP, independent certified
public accountants, appearing elsewhere in this prospectus, and upon the
authority of Grant Thornton LLP as experts in accounting and auditing.
DISCLOSURE OF COMPANY POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Wattage Monitor's certificate of incorporation and by-laws provide that
Wattage Monitor shall indemnify all directors and officers of Wattage Monitor to
the fullest extent permitted by Nevada law. Under such provisions, any director
or officer, who in his capacity as such is made or threatened to be made, party
to any suit or proceeding, shall be indemnified if it is determined that such
director or officer acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of Wattage Monitor. Insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and persons controlling Wattage Monitor
pursuant to the foregoing provision, or otherwise, Wattage Monitor has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable.
Wattage Monitor maintains directors' and officers' liability insurance
providing aggregate coverage of $5,000,000.
37
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants..................................... F-2
Balance Sheet.......................................................................... F-3
Statements of Operations............................................................... F-4
Statements of Stockholders' Equity (Deficit)........................................... F-5
Statements of Cash Flows............................................................... F-7
Notes to Financial Statements.......................................................... F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Wattage Monitor Inc.
We have audited the accompanying balance sheet of Wattage Monitor Inc. (a
development stage company) as of December 31, 1998, and the related statements
of operations, stockholders' equity (deficit), and cash flows for the period
from inception (July 1, 1997) through December 31, 1997 and for the year ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wattage Monitor Inc. as of
December 31, 1998, and the results of its operations and its cash flows for the
period from inception (July 1, 1997) through December 31, 1997 and for year
ended December 31, 1998 in conformity with generally accepted accounting
principles.
GRANT THORNTON LLP
Reno, Nevada
April 15, 1999
F-2
<PAGE>
WATTAGE MONITOR INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31, 1998 MARCH 31, 1999
------------ -------------
(UNAUDITED)
Current assets
<S> <C> <C>
Cash and cash equivalents.................................................. $ 137,688 $ 3,060,828
Prepaid expenses........................................................... 3,386 70,021
------------ -------------
Total current assets.................................................... 141,074 3,130,849
------------ -------------
Property and Equipment, net.................................................. 620,728 666,974
------------ -------------
Other Assets
Software licenses.......................................................... 45,000 37,500
Deferred offering costs.................................................... 48,670 --
Patents.................................................................... 19,650 27,564
Deposits................................................................... 3,333 4,289
------------ -------------
Total other assets...................................................... 116,653 69,353
------------ -------------
$ 878,455 $ 3,867,176
------------ -------------
------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable........................................................... $ 486,190 $ 606,881
Accrued liabilities........................................................ 12,500 36,440
Accrued interest........................................................... 25,389 31,613
Notes payable--related parties............................................. 304,000 --
------------ -------------
Total current liabilities............................................... 828,079 674,934
------------ -------------
Notes Payable--related parties--long-term.................................... 925,000 425,000
------------ -------------
Commitments.................................................................. -- --
------------ -------------
Stockholders' Equity (Deficit)
Preferred stock, Series A, 6% cumulative, convertible; $0.01 par value,
5,000,000 shares authorized, 1,000,000 shares issued and outstanding as
of March 31, 1999....................................................... -- 10,000
Common stock, $0.01 par value, 25,000,000 shares authorized, 7,500,000 and
11,207,817 issued and outstanding as of December 31, 1998 and March 31,
1999.................................................................... 75,000 112,079
Additional paid-in capital................................................. 2,204,710 7,564,731
Deficit accumulated during the development stages.......................... (2,769,334) (4,919,568)
Unamortized discount on debt............................................... (385,000) --
------------ -------------
Total stockholders' equity (deficit)....................................... (874,624) 2,767,242
------------ -------------
$ 878,455 $ 3,867,176
------------ -------------
------------ -------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
WATTAGE MONITOR INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
CUMULATIVE
FROM INCEPTION
INCEPTION THREE MONTHS ENDED (JULY 1, 1997)
(JULY 1, 1997) TO MARCH
DECEMBER 31, 1997 YEAR ENDED TO
DECEMBER 31, 1998 1998 1999 MARCH 31, 1999
----------------- ----------------- ----------- ------------- ----------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating expenses
Telecommunications............ $ -- $ 349,246 $ -- $ 238,951 $ 588,197
System development............ 15,311 442,682 -- 118,401 576,394
Marketing..................... -- 462,464 -- 195,178 657,642
General and
administrative.............. 162,873 797,617 205,867 309,051 1,269,541
Depreciation and
amortization................ 1,059 28,493 2,944 22,418 51,970
----------- ----------- ----------- ----------- ------------
Net loss from
operations............... (179,243) (2,080,502) (208,811) (883,999) (3,143,744)
----------- ----------- ----------- ----------- ------------
Other income (expense)
Interest expense.............. -- (520,389) -- (1,272,736) (1,793,125)
Interest and dividend
income...................... 1,308 9,492 619 6,501 17,301
----------- ----------- ----------- ----------- ------------
1,308 (510,897) 619 (1,266,235) (1,775,824)
----------- ----------- ----------- ----------- ------------
Net Loss.................... (177,935) (2,591,399) (208,192) (2,150,234) (4,919,568)
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
Preferred stock dividend........ -- -- -- (17,260) (17,260)
----------- ----------- ----------- ----------- ------------
Net loss on common shares... $ (177,935) $(2,591,399) $ (208,192) $(2,167,494) $ (4,936,828)
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
Loss per common share........... $ (0.03) $ (0.36) $ (0.03) $ (0.25) $ (0.68)
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
Weighted average number
of common shares
outstanding................... 6,650,000 7,287,500 6,600,000 8,680,059 7,264,637
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
WATTAGE MONITOR INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CLASS I CLASS II
MEMBERSHIP UNITS MEMBERSHIP UNITS COMMON STOCK
------------------------ ---------------------- ----------------------
UNITS AMOUNT UNITS AMOUNT SHARES AMOUNT
---------- --------- -------- --------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Inception, July 1, 1997....... -- $ -- -- $ -- -- $ --
Issuance of membership
units.................... 5,000,000 450,000 -- -- -- --
Net loss.................... -- -- -- -- -- --
---------- --------- -------- --------- ---------- -------
Balances, December 31,
1997........................ 5,000,000 450,000 -- -- -- --
Issuance of membership
units--net of offering
costs.................... -- -- 666,667 949,710 -- --
Beneficial conversion
feature on debt.......... -- -- -- -- -- --
Amortization of discount on
debt..................... -- -- -- -- -- --
Net loss.................... -- -- -- -- -- --
Recapitalization............ (5,000,000) (450,000) (666,667) (949,710) 7,500,000 75,000
---------- --------- -------- --------- ---------- -------
Balances, December 31,
1998........................ -- $ -- -- $ -- 7,500,000 $75,000
---------- --------- -------- --------- ---------- -------
---------- --------- -------- --------- ---------- -------
</TABLE>
<TABLE>
<CAPTION>
DEFICIT
SERIES A ACCUMULATED
PREFERRED STOCK ADDITIONAL UNAMORTIZED DURING THE
--------------------- PAID-IN DISCOUNT DEVELOPMENT
SHARES AMOUNT CAPITAL ON DEBT STAGE TOTAL
-------- -------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Inception, July 1, 1997....... -- $ -- $ -- $ -- $ -- $ --
Issuance of membership
units.................... -- -- -- -- -- 450,000
Net loss.................... -- -- -- -- (177,935) (177,935)
-------- -------- ---------- --------- ----------- -----------
Balances, December 31,
1997........................ -- -- -- -- (177,935) 272,065
Issuance of membership
units--net of offering
costs.................... -- -- -- -- -- 949,710
Beneficial conversion
feature on debt.......... -- -- 880,000 (880,000) -- --
Amortization of discount on
debt..................... -- -- -- 495,000 -- 495,000
Net loss.................... -- -- -- -- (2,591,399) (2,591,399)
Recapitalization............ -- -- 1,324,710 -- -- --
-------- -------- ---------- --------- ----------- -----------
Balances, December 31,
1998........................ -- $ -- $2,204,710 $(385,000) $(2,769,334) $ (874,624)
-------- -------- ---------- --------- ----------- -----------
-------- -------- ---------- --------- ----------- -----------
</TABLE>
F-5
<PAGE>
WATTAGE MONITOR INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CLASS I CLASS II
MEMBERSHIP UNITS MEMBERSHIP UNITS COMMON STOCK
------------------------ ---------------------- -----------------------
UNITS AMOUNT UNITS AMOUNT SHARES AMOUNT
---------- --------- -------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Sale of common stock.......... -- $ -- -- $ -- 707,366 $ 7,074
Exercise of stock options..... -- -- -- -- 450 5
Conversion of convertible
debt........................ -- -- -- -- 2,750,000 27,500
Acquisition of Wattage
Monitor, Inc.--net of
offering costs.............. -- -- -- -- 250,000 2,500
Beneficial conversion feature
on debt..................... -- -- -- -- -- --
Amortization of discount on
debt........................ -- -- -- -- -- --
Net loss...................... -- -- -- -- -- --
---------- --------- -------- --------- ---------- --------
Balances, March 31, 1999
(Unaudited)................. -- $ -- -- $ -- 11,207,816 $112,079
---------- --------- -------- --------- ---------- --------
---------- --------- -------- --------- ---------- --------
</TABLE>
<TABLE>
<CAPTION>
DEFICIT
SERIES A ACCUMULATED
PREFERRED STOCK ADDITIONAL UNAMORTIZED DURING THE
---------------------- PAID-IN DISCOUNT DEVELOPMENT
SHARES AMOUNT CAPITAL ON DEBT STAGE TOTAL
---------- ------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Sale of common stock.......... -- $ -- $ 700,292 $ -- $ -- $ 707,366
Exercise of stock options..... -- -- 445 -- -- 450
Conversion of convertible
debt........................ -- -- 972,500 -- -- 1,000,000
Acquisition of Wattage
Monitor, Inc.--net of
offering costs.............. 1,000,000 10,000 2,806,794 -- -- 2,819,284
Beneficial conversion feature
on debt..................... -- -- 880,000 (880,000) -- --
Amortization of discount on
debt........................ -- -- -- 1,265,000 -- 1,265,000
Net loss...................... -- -- -- -- (2,150,234) (2,150,234)
---------- ------- ---------- --------- ----------- -----------
Balances, March 31, 1999
(Unaudited)................. 1,000,000 $10,000 $7,564,731 $ -- $(4,919,568) $(2,767,242)
---------- ------- ---------- --------- ----------- -----------
---------- ------- ---------- --------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
WATTAGE MONITOR INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH CUMULATIVE FROM
INCEPTION INCEPTION (JULY
(JULY 1, 1997) TO YEAR ENDED -------------------------- 1, 1997) TO MARCH
DECEMBER 31, 1997 DECEMBER 31, 1998 1998 1999 31, 1999
----------------- ----------------- ----------- ------------ -----------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss............................ $ (177,935) $ (2,591,399) $ (208,192) $ (2,150,234) $ (4,919,568)
----------- ------------- ----------- ------------ -------------
Adjustments to reconcile net loss
to net cash used in operating
activities:
Write off of software license... -- 184,875 -- -- 184,875
Amortization of discount on
debt......................... -- 495,000 -- 1,265,000 1,265,000
Depreciation and amortization... 1,059 28,493 2,944 22,418 51,970
Changes in:
Prepaid expenses............. (65,250) 61,865 52,650 (66,635) (70,020)
Other assets................. (2,725) (20,258) -- (8,870) (31,853)
Accounts payable............. -- 113,059 71,152 71,736 184,795
Accrued liabilities.......... -- 12,500 10,037 23,940 36,440
Accrued interest............. -- 25,389 -- 6,224 31,613
----------- ------------- ----------- ------------ -------------
Total adjustments.......... (66,916) 900,923 136,783 1,313,813 2,147,820
----------- ------------- ----------- ------------ -------------
Net cash used in operating
activities............... (244,851) (1,690,476) (71,409) (836,421) (2,771,748)
----------- ------------- ----------- ------------ -------------
Cash flows from investing activities:
Acquisitions of property and
equipment......................... (109,355) (397,670) (50,385) (12,209) (519,234)
----------- ------------- ----------- ------------ -------------
Cash flows from financing activities:
Deferred offering costs............. -- (48,670) -- 48,670 --
Issuance of membership units........ 450,000 949,710 -- -- 1,399,710
Issuance of notes payable to related
parties........................... -- 1,229,000 26,000 500,000 1,729,000
Acquisition of Wattage Monitor
Inc. ............................. -- -- -- 2,819,284 2,819,284
Common stock issued................. -- -- -- 707,366 707,366
Stock options exercised............. -- -- -- 450 450
Payments on notes payable to related
parties........................... -- -- -- (304,000) (304,000)
----------- ------------- ----------- ------------ -------------
Net cash provided by financing
activities................... 450,000 2,130,040 26,000 3,771,770 6,351,810
----------- ------------- ----------- ------------ -------------
Net Increase in Cash and Cash
Equivalents..................... 95,794 41,894 (95,794) 2,923,140 3,060,828
Cash and cash equivalents--beginning
of period........................... -- 95,794 95,974 137,688 --
----------- ------------- ----------- ------------ -------------
Cash and cash equivalents--end of
period.............................. $ 95,794 $ 137,688 $ -- $ 3,060,828 $ 3,060,828
----------- ------------- ----------- ------------ -------------
----------- ------------- ----------- ------------ -------------
Supplemental disclosure of non-cash
investing and financing activities:
Software license agreement and
development costs included in
accounts payable.................. $ 174,968 $ 198,161 $ 196,454 $ 48,955 $ 422,084
----------- ------------- ----------- ------------ -------------
----------- ------------- ----------- ------------ -------------
Notes payable converted to equity... $ -- $ -- $ -- $ 1,000,000 $ 1,000,000
----------- ------------- ----------- ------------ -------------
----------- ------------- ----------- ------------ -------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
WATTAGE MONITOR INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(DATA RELATED TO MARCH 31, 1998 AND 1999 ARE UNAUDITED)
NOTE A--SUMMARY OF ACCOUNTING POLICIES AND NATURE OF BUSINESS
1. ORGANIZATION AND NATURE OF BUSINESS
The Company was organized by its members on July 1, 1997 in Delaware. The
Company is a development stage enterprise and provides electrical rate
information to commercial and residential consumers nationwide. Revenue is
anticipated to come primarily from referral fees and commissions charged to
electricity suppliers who offer their products and service through the Company.
On February 26, 1999, Wattage Monitor Inc. (a Nevada corporation) acquired all
of the membership units of the Company. For accounting purposes, the acquisition
is treated as a recapitalization with the Company as the acquirer (a reverse
acquisition). Pro forma information is not presented since the acquisition is
not a business combination. The financial statements give retroactive effect to
the conversion of members' equity into common stock to reflect the
recapitalization.
2. INTERIM FINANCIAL STATEMENTS
The financial statements for the three months ended March 31, 1999 and 1998
are unaudited; however, in the opinion of management, all adjustments,
consisting of normal recurring adjustments necessary for a fair presentation of
the Company's financial position and results of operations for such periods have
been included. The results for the three months ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999.
3. CASH EQUIVALENTS
The Company considers all short-term investments with original maturities
of ninety days or less to be cash equivalents.
4. DEPRECIATION AND AMORTIZATION
Depreciation and amortization sufficient to relate the cost of depreciable
assets to operations over their estimated service lives is provided using the
straight-line method of depreciation.
5. SOFTWARE LICENSE AND DEVELOPMENT COSTS
The Company has entered into several software license agreements to enable
customers to access information and order services provided via the internet.
Some of these agreements require the Company to pay an annual maintenance fee.
Additionally, the Company incurs software development costs to tailor such
software to its specific requirements. Such customization costs when internally
incurred are expensed and when purchased from third parties are capitalized.
License and development costs are amortized straight-line over three years while
maintenance fees are charged to expense ratably over the contract period.
Periodically, management evaluates the estimated useful life of intangible
assets based on projected future undiscounted cash flows.
The Company intends to provide its information services principally over
the internet through both licensed and custom software. Licensee fees paid were
$184,475 and $45,000 for the years ended December 31, 1997 and 1998,
respectively. License fees paid were $-0-and $45,000 for the three months ended
March 31, 1998 and 1999, respectively. In addition, the Company capitalized
third party payments for software customization of $71,000 and $529,479 for the
years ended December 31, 1997 and 1998. Capitalized third-party payments for
software customization were $162,000 and $49,000 for the three months ended
March 31, 1998 and 1999, respectively.
F-8
<PAGE>
WATTAGE MONITOR INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DATA RELATED TO MARCH 31, 1998 AND 1999 ARE UNAUDITED)
NOTE A--SUMMARY OF ACCOUNTING POLICIES AND NATURE OF BUSINESS--(CONTINUED)
A major portion of the Company's payables at year end 1998 ($183,000) is to
a licensor of software used to operate one portion of the Company's system. This
licensor has also provided significant customization services. A dispute exists
as to whether or not the services provided by this licensor met the agreed-upon
specifications and the terms and conditions of the agreement between the
parties. The Company does not believe the capitalized software license
($184,475) has any future value and, accordingly, has expensed the unamortized
portion of the licensee fee at December 31, 1998.
6. PATENTS AND TRADEMARKS
The Company has filed for a patent relating to its computer-based system
and methods for collecting and providing information regarding the electric
power industry and available electric supply options. The Company has also
applied for trademarks to limit the use by others of WM, Wattage Monitor,
Kilowatt Monitor and Watt Monitor. Patent and trademark expenses will be
amortized on the straight-line method over ten years.
7. ADVERTISING
The Company expenses advertising costs as incurred. Advertising expense was
$-0-and $67,051 for the years ended December 31, 1997 and 1998, respectively.
Advertising expense was $-0-and $54,919 for the three months ended March 31,
1998 and 1999, respectively.
8. USE OF ESTIMATES
In preparing these financial statements in conformity with generally
accepted accounting principles, management is required to make estimates and
assumptions. These affect the carrying value of the Company's assets and
liabilities, revenues and expenses during the reporting period and disclosures
relating to contingent assets and liabilities. Actual results may differ from
these estimates.
9. CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to credit risk
consist primarily of cash and cash equivalents. The Company maintains its cash
in bank deposit accounts which, at times, may exceed federally insured limits.
The Company believes it is not exposed to any significant credit risk related
thereto.
10. INCOME TAXES
The Company, through February 26, 1999, is not subject to income tax.
Income is taxed directly to its members. Accordingly, no provision has been made
for federal income tax. Further, because losses incurred have been reported by
the members, no operating losses are available to offset future income.
After February 26, 1999, the Company will provide for income taxes based
upon income reported for financial reporting purposes. Certain charges to
earnings will differ as to timing from those deducted for tax purposes. The tax
effect of those differences will be recorded as deferred income taxes. At
March 31, 1999, the Company has a deferred tax asset of $121,000 resulting from
a net operating loss for the period February 27, 1999 through March 31, 1999.
The Company has provided for a valuation allowance of $121,000 at March 31,
1999.
F-9
<PAGE>
WATTAGE MONITOR INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DATA RELATED TO MARCH 31, 1998 AND 1999 ARE UNAUDITED)
NOTE A--SUMMARY OF ACCOUNTING POLICIES AND NATURE OF BUSINESS--(CONTINUED)
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
Management believes the fair value of financial instruments other than
notes payable approximates their carrying amounts. Management believes the fair
values of notes payable can not be determined due to the related party nature of
the transactions.
12. DEFERRED OFFERING COSTS
Costs associated with the recapitalization are deferred to the period in
which the recapitalization occurs.
13. DISCOUNT ON DEBT
Costs incurred in connection with the issuance of debt are amortized over
the expected life of the debt. The beneficial conversion feature has been
accounted for as additional paid-in capital and associated unamortized discount
on debt recorded as a component of stockholders' equity.
14. LOSS PER SHARE
Loss per common share is computed based upon the weighted average shares
outstanding giving retroactive effect of common shares issued to members of Watt
Monitor LLC upon completion of the recapitalization. Convertible equity
instruments are not considered in the calculation of net loss per share as their
inclusion would be antidilutive at December 31, 1998 and March 31, 1999.
NOTE B--RELATED PARTY TRANSACTIONS
The Company leased its office space in San Francisco through October 1998
from a company in which the President is a director and has a financial
interest. The total rent expense was $8,724 and $19,750 for the years ended
December 31, 1997 and 1998. Total rent expense was $5,925 and $-0-for the three
months ended March 31, 1998 and 1999, respectively.
For the years ended December 31, 1997 and 1998, the Company paid
approximately $31,000 and $132,000 for software development to Kirschenbaum,
Bond & Partners, the principals of which have a financial interest in the
Company, and one partner is a director of the Company. The Company paid
Kirschenbaum, Bond & Partners approximately $47,000 and $-0-for software
development for the three months ended March 31, 1998 and 1999, respectively.
The Company also purchased approximately $112,000 of equipment from
Kirschenbaum, Bond & Partners during the year ended December 31, 1998. The
Company did not purchase equipment from Kirschenbaum, Bond & Partners during the
three months ended March 31, 1998 and 1999. The Company paid Kirschenbaum, Bond
& Partners $-0-and $5,600 for advertising for the years ended December 31, 1997
and 1998, respectively. The Company paid Kirschenbaum, Bond & Partners
approximately $-0-and $55,000 for advertising for the three months ended
March 31, 1998 and 1999, respectively.
The Company purchased office equipment for approximately $12,500 and
$13,000 from a company in which the President is a director and has a financial
interest during the periods ended December 31, 1997 and 1998. The Company did
not purchase any office equipment from this company during the three months
ended March 31, 1998 and 1999.
F-10
<PAGE>
WATTAGE MONITOR INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DATA RELATED TO MARCH 31, 1998 AND 1999 ARE UNAUDITED)
NOTE C--PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999 LIVES
------------ --------- ---------
<S> <C> <C> <C>
Furniture and equipment.......................................... $120,801 $ 133,010 5-7 years
Software......................................................... 529,479 578,433 3 years
-------- --------- ---------
650,280 711,443
Less accumulated depreciation
And amortization............................................... (29,552) (44,469)
-------- ---------
$620,728 $ 666,974
-------- ---------
-------- ---------
</TABLE>
NOTE D--NOTES PAYABLE--RELATED PARTIES
Notes payable to related parties are as follows at:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ ----------
<S> <C> <C>
Note payable, due September 1, 2000, with interest at 12% due semiannually.
Interest may be paid in common stock at $1.00 per share at the option of
the lender. As part of the loan, the related party was issued one warrant
for the purchase of 283,333 shares of common stock at $1.50 per share.
The warrant expires August 2005.......................................... $ 425,000 $ 425,000
Notes payable, principal and interest at 12%, due upon recapitalization.
The notes were paid February 1999. As part of the loans, the related
parties were issued three warrants which allow for the purchase of
166,666 shares of common stock at $1.50 a share. The warrants expire
December 2005............................................................ 250,000 --
Advances from related parties, due on demand............................... 54,000 --
Note payable, without interest which converts into 1,375,000 shares of
common stock upon completion of the recapitalization. Conversion into
common stock took place in 1999, and therefore, the note is classified as
a long-term liability.................................................... 500,000 --
---------- ----------
1,229,000 425,000
Less: Current maturities................................................... (304,000) --
---------- ----------
Notes payable long-term.................................................... $ 925,000 $ 425,000
---------- ----------
---------- ----------
</TABLE>
Aggregate maturities of long-term notes payable for the five years
following December 31, 1998, are $304,000 for 1999 and $425,000 for 2000.
NOTE E--STOCKHOLDERS' EQUITY (DEFICIT)
The Company had two classes of membership interests. There were 10,000,000
authorized units of Class I membership interests, of which 5,000,000 units were
outstanding as of both December 31, 1997 and 1998. There were 10,000,000
authorized units of Class II membership units. No units were outstanding as of
December 31, 1997, and 666,667 were outstanding at December 31, 1998.
In January 1999, Watt Monitor LLC sold 37,777 membership units.
F-11
<PAGE>
WATTAGE MONITOR INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE E--STOCKHOLDERS' EQUITY (DEFICIT)--(CONTINUED)
On February 26, 1999, Wattage Monitor Inc. (a Nevada corporation) acquired
all of the equity (membership units) of the Company. For accounting purposes,
the acquisition is treated as a recapitalization with the Company as the
acquirer (a reverse acquisition). Pro forma information is not presented since
the acquisition is not a business combination. The members exchanged their
membership units for 7,550,450 shares of common stock (approximately 72% of the
outstanding common stock) of Wattage Monitor Inc. In addition, each member,
other than the controlling members, was entitled to acquire such number of
shares of common stock at $1.00 per share as necessary to maintain the same
ownership percentage in Wattage Monitor Inc. as such member held in the Company.
In connection with this right, 657,366 shares were issued. Also, in connection
with the recapitalization, all employees exchanged their contingent membership
interests for stock options to purchase 918,000 shares of Wattage Monitor Inc.
exercisable at $1.00 per share.
Certain stockholders of Wattage Monitor Inc. advanced approximately
$500,000 in January 1999, which, along with $500,000 advanced in 1998, were
converted into 2,750,000 shares of common stock in 1999.
In connection with its recapitalization, Wattage Monitor Inc. issued
1,000,000 shares of Series A 6% Convertible Preferred Stock for $3,000,000. The
Series A 6% Preferred Stock accrues dividends at 6% per annum, payable annually,
commencing on February 26, 2000. The dividend at the option of the Company may
be paid in common stock. Each share of Series A 6% Preferred Stock is
convertible into one share of common stock. Such shares convert: (1) upon the
exercise of the warrant to purchase Series B Preferred Stock; (2) upon Wattage
Monitor Inc. raising $5,000,000 in an offering of common stock at $1.00 per
share or greater; or (3) at the option of the holder. In connection with the
issuance of the Series A 6% Preferred Stock, each purchaser received one Series
B warrant to purchase 3.5 shares of Series B Preferred Stock at $1.00 per share
exercisable 181 days after closing through December 15, 1999 or within 30 days
of a notice of a sale of at least $7,000,000 in equity securities of Wattage
Monitor Inc. for each share of Series A 6% Preferred Stock purchase.
In the event of liquidation, the Series A Preferred stock ranks senior to
all of the common stock. The preferred stockholders shall be entitled to receive
an amount equal to the sum of the original issue price and any accrued but
unpaid dividends.
In connection with the merger, a warrant was issued to the holder of
250,000 shares of preferred stock which represents the right to purchase 100,000
shares of common stock at $1.00 per share.
NOTE F--CONTINGENT MEMBERSHIP INTERESTS/STOCK OPTIONS
Contingent membership interests in an LLC are similar to stock options in a
corporation. Pursuant to a formal plan, the Board granted various employees and
other individuals contributing to the success of the organization, contingent
membership interests. In conjunction with the reverse acquisition of Wattage
Monitor Inc., all such contingent membership interests were exchanged for stock
options under Wattage Monitor Inc.'s incentive stock option plan. The plan
allows for 1,500,000 shares of common stock to be granted.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, but applies Accounting Principles Board
Opinion No. 25 and related interpretations in accounting for stock options.
The fair value of the Company's stock options was estimated as of the grant
date using the Black-Scholes option pricing model with the following weighted
average assumptions for the years ended December 31, 1997 and 1998 and for the
three months ended March 31, 1998 and 1999: dividend yield of 0.0%, expected
volatility of 0.0%, risk free interest rate of 5.80%, 4.91%, 5.61% and 6%,
respectively, and an expected holding period from three to four years. Based on
these assumptions, compensation expense was immaterial for the periods ended
December 31, 1997 and 1998. Compensation expense was also immaterial for the
three months ended March 31, 1998 and 1999.
F-12
<PAGE>
WATTAGE MONITOR INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE F--CONTINGENT MEMBERSHIP INTERESTS/STOCK OPTIONS--(CONTINUED)
Presented below is a summary of the status of the stock options after
giving retroactive effect to the recapitalization.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
PRICE
--------
<S> <C> <C>
Balance at inception (July 1, 1997)..................................... -- --
Granted............................................................... 225,000 1.00
Balance at December 31, 1997............................................ 225,000 1.00
Granted............................................................... 276,300 1.00
Balance at March 31, 1998............................................... 501,300 1.00
Forfeited/expired..................................................... (450) 1.00
Granted............................................................... 405,000 1.00
Balance at December 31, 1998............................................ 905,850 1.00
Granted............................................................... 25,000 6.00
Forfeited/expired..................................................... (30,900) 1.00
Exercised............................................................. (450) 1.00
-------
Balance at March 31, 1999............................................... 899,500
-------
-------
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED
RANGE OF AVERAGE
EXERCISE OPTIONS CONTRACTUAL OPTIONS
PRICES OUTSTANDING LIFE EXERCISABLE
-------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
December 31, 1998........................... $ 1.00 905,850 9.89 75,000
------ ------- ----- -------
------ ------- ----- -------
March 31, 1999.............................. $ 1.00 874,500 9.61 166,500
------ ------- ----- -------
------ ------- ----- -------
$ 6.00 25,000 9.96 -0-
------ ------- ----- -------
------ ------- ----- -------
</TABLE>
NOTE G--EMPLOYEE BENEFIT PLANS
The Company adopted a 401(k) retirement plan (the "plan") effective
January 1, 1998, which provides for employee salary deferrals limited to 25% of
a participant's compensation and discretionary Company contributions. The plan
year ends on December 31st. The plan covers employees who have completed one
month of service and have attained the minimum age requirement, as defined in
the plan. The Company made no contributions in the year ended December 31, 1998.
The Company contributed $1,270 for the three months ended March 31, 1999.
NOTE H--LEASE COMMITMENTS
The Company leases its office space under operating leases, which expire
through 2001. The Company has options to extend the leases for additional lease
periods. The leases require monthly rental payments totaling approximately
$3,100.
F-13
<PAGE>
WATTAGE MONITOR INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE H--LEASE COMMITMENTS--(CONTINUED)
The following is a schedule of the future minimum lease payments under the
operating leases, as of December 31, 1998:
<TABLE>
<S> <C>
Year ending December 31,
1999......................................................... $36,250
2000......................................................... 29,350
2001......................................................... 9,850
-------
Net minimum lease payments..................................... $75,450
-------
-------
</TABLE>
The Company entered into an operating lease for computer equipment in March
1999 which requires monthly payments of $3,154 through March 2002.
F-14
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The registrant's articles of incorporation eliminate the personal liability
of directors to the registrant or its stockholders for monetary damages for
breach of fiduciary duty to the extent permitted by Nevada law. The registrant's
articles of incorporation and by-laws provide that the registrant shall
indemnify its officers and directors to the extent permitted by Nevada law,
which authorizes a corporation to indemnify directors, officers, employees or
agents of the corporation in non-derivative suits if such party acted in good
faith and in a manner such party reasonably believed to be in or not opposed to
the best interest of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The Nevada General Corporation Act further provides that indemnification shall
be provided if the party in question is successful on the merits or otherwise.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, payable in
connection with the sale of the common stock being registered hereby. Except for
the Securities and Exchange Commission's registration fee, all expenses are
estimated.
<TABLE>
<CAPTION>
ITEM AMOUNT
- --------------------------------------------------------------------------------------------- -------
<S> <C>
SEC registration fee......................................................................... $30,131
Printing and engraving expenses.............................................................. 8,500
Legal fees and expenses...................................................................... 30,000
Auditors' accounting fees and expenses....................................................... 20,000
-------
Total........................................................................................ $88,631
-------
-------
</TABLE>
In addition, holders of the shares being registered under this registration
statement will be responsible for all selling commissions, transfer taxes and
related charges in connection with the offer and sale of the shares offered.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On March 17, 1998, our predecessor, WattMonitor LLC, issued an aggregate of
5,666,667 membership interests [to the founders of the WattMonitor LLC and
certain accredited investors]. WattMonitor LLC received $1,000,000 as a result
of the issuance. In connection with our acquisition of WattMonitor LLC on
February 26, 1999, all of the membership interests were converted into an
aggregate of 7,500,450 shares of our common stock. On February 26, 1999, we
issued an additional 50,000 shares of our common stock to Jonathan Cohen. We
received $50,000 as a result of the issuance. In connection with these
transactions, we relied on the statutory exemption provided by Section 4(2) of
the Securities Act of 1933, because the issuances did not involve public
offerings.
On August 14, 1998, RHL Ventures LLC loaned us $425,000. In consideration
for the loan, we issued a promissory note in the aggregate principal amount of a
warrant to purchase 283,333 membership interests at an exercise price of $1.50
per share. In connection with the reverse acquisition of WattMonitor LLC, the
warrant was converted into a warrant to purchase 283,333 shares of our common
stock at an exercise price of $1.50 per share. The warrant is exercisable at any
time and expires on August 14, 2005. In connection with these transactions, we
relied on the statutory exemption provided by Section 4(2) of the Securities Act
of 1933, because the issuance did not involve a public offering.
On December 29, 1998, Gerald R. Alderson loaned us $50,000. In
consideration for the loan, we issued a promissory note in the aggregate
principal amount of a warrant to purchase 33,333 membership interests at an
exercise price of $1.50 per share. The warrant is exercisable at any time and
expires on December 29, 2005. In connection with the reverse acquisition of
WattMonitor LLC, the warrant was converted into a warrant to purchase 33,333
shares of our common stock at an exercise price of $1.50 per share. In
connection
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES--(CONTINUED)
with these transactions, we relied on the statutory exemption provided by
Section 4(2) of the Securities Act of 1933, because the issuance did not involve
a public offering.
On December 29, 1998, RHL Ventures LLC loaned us $150,000. In consideration
for the loan, we issued a promissory note in the aggregate principal amount of a
warrant to purchase 100,000 membership interests at an exercise price of $1.50
per share. In connection with the reverse acquisition of WattMonitor LLC, the
warrant was converted into a warrant to purchase 100,000 shares of our common
stock at an exercise price of $1.50 per share. The warrant is exercisable at any
time and expires on December 29, 2005. In connection with these transactions, we
relied on the statutory exemption provided by Section 4(2) of the Securities Act
of 1933, because the issuance did not involve a public offering.
On December 29, 1998, Stephen D. Klein loaned us $50,000. In consideration
for the loan, we issued a note in the aggregate principal amount of a warrant to
purchase 33,333 membership interests at an exercise price of $1.50 per share. In
connection with the reverse acquisition of WattMonitor LLC, the warrant was
converted into a warrant to purchase 33,333 shares of our common stock at an
exercise price of $1.50 per share. The warrant is exercisable at any time and
expires on December 29, 2005. In connection with these transactions, we relied
on the statutory exemption provided by Section 4(2) of the Securities Act of
1933, because the issuance did not involve a public offering.
On January 18, 1999, Wattage Monitor issued 980,000 shares of our common
stock. We raised $9,800 from that offering, which was made under Rule 506 of
Regulation D, promulgated under the Securities Act of 1933 as a non-public
offering solely to accredited investors.
On February 5, 1999, Wattage Monitor entered into a Stock Purchase
Agreement in connection with the purchase of 2,750,000 shares of our common
stock. We raised $1,000,000 under the agreement, which was made under Rule 504
of Regulation D, promulgated under the Securities Act of 1933 as a non-public
offering solely to accredited investors.
On February 24, 1999, Wattage Monitor completed an offering of 1,000,000
units, consisting of one share of our Series A preferred stock and one warrant
to purchase our Series B preferred stock at a price of $1.00 per share. We
raised $3,000,000 from that offering, which was made pursuant to Rule 506 of
Regulation D, promulgated under the Securities Act of 1933 a non-public offering
solely to accredited investors.
On February 26, 1999, we completed a reverse acquisition of WattMonitor
LLC. In connection with the merger, we converted all of the outstanding
membership interests in WattMonitor LLC into an aggregate of 7,550,450 shares of
our common stock. In addition, each member, other than the controlling members,
was entitled to acquire such number of shares of our common stock at $1.00 per
share as necessary to maintain the same ownership percentage in Wattage Monitor
as such members held in WattMonitor LLC. In connection with this right, between
February 26, 1999 and March 31, 1999, 657,366 shares of our common stock were
issued. Also in connection with the reverse acquisition, all of our employees
exchanged their contingent membership interests for stock options, exercisable
at $1.00 per share, totaling 918,000 shares of our common stock. In connection
with these transactions, we relied on the statutory exemption provided by
Section 4(2) of the Securities Act of 1933, because these issuances did not
involve public offerings.
ITEM 27. EXHIBITS
The following exhibits are filed as part of this registration statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ---------- --------------------------------------------------------------------------------------------------------
<S> <C>
2.1 -- Agreement and Plan of Merger by and between WattMonitor LLC and Wattage Monitor, dated as of
February 26, 1999 (filed without exhibits or schedules).*
3.1 -- Amended and Restated Articles of Incorporation of Wattage Monitor as filed with the Secretary of
State of the State of Nevada on February 24, 1999.*
3.2 -- Amended and Restated By-Laws of Wattage Monitor, adopted as of February 19, 1999.*
</TABLE>
II-2
<PAGE>
ITEM 27. EXHIBITS--(CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ---------- --------------------------------------------------------------------------------------------------------
<S> <C>
4.1 -- Specimen Common Stock certificate.**
4.2 -- Certificate of Designation of Series A Preferred Stock, as filed with the Secretary of State of
the State of Nevada on February 24, 1999.*
4.3 -- Certificate of Amendment of Certificate of Designation of Series A Preferred Stock, as filed with
the Secretary of State of the State of Nevada on February 26, 1999.*
5.1 -- Opinion of Camhy Karlinsky & Stein LLP.**
10.1 -- Stock Purchase Agreement by and among Knowledge Networks Acquisitions, Inc., Intrepid
International S.A. and Certain Purchasers, dated February 5, 1999.*
10.2 -- Form of Series B Warrant.*
10.3 -- Registration Rights Agreement by and among Wattage Monitor and Certain Shareholders, dated as of
February 26, 1999.*
10.4 -- Employment Agreement by and between WattMonitor LLC and Gerald R. Alderson, dated January 1, 1998,
as assumed by Wattage Monitor on February 26, 1999.*
10.5 -- Warrant to Stephen D. Klein to purchase 33,333 Class II Membership Units of WattMonitor LLC, dated
December 29, 1998.*
10.6 -- Warrant to RHL Ventures LLC to purchase 100,000 Class II Membership Units of WattMonitor LLC,
dated December 29, 1998.*
10.7 -- Warrant to Gerald R. Alderson to purchase 33,333 Class II Membership Units of WattMonitor LLC,
dated December 29, 1998.*
10.8 -- Warrant to RHL Ventures LLC to purchase 283,333 Class II Membership Units of WattMonitor LLC,
dated August 14, 1998.*
10.9 -- Form of Lock-Up Agreement, executed by Gerald R. Alderson, Stephen D. Klein, Robert H. Lessin and
RHL Ventures LLC.*
10.10 -- Wattage Monitor 1999 Incentive and Nonqualified Stock Option Plan.**
23.1 -- Consent of Camhy Karlinsky & Stein LLP, included in Exhibit 5.1.**
23.2 -- Consent of Grant Thornton LLP.**
</TABLE>
- ------------------
* Previously filed.
** Filed herewith.
ITEM 28. UNDERTAKINGS
1. To file, during any period in which offers or sales of the securities
are being made, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information
in the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered may be reflected in the form of
prospectus filed with the Commission under Rule 424(b) if, in aggregate,
the changes in the volume and price represent no more than a 20% change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any additional or changed material information on the
plan of distribution.
2. That, for the purpose of determining liability under the Securities Act
or 1933, it shall treat each post-effective amendment as a new registration
statement of the securities offered, and treat the offering of the securities at
that time as an initial bona fide offering.
II-3
<PAGE>
ITEM 28. UNDERTAKINGS--(CONTINUED)
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remains unsold at the termination of
the offering.
To the extent that indemnification for liabilities arising under the
Securities Act or 1933 may be permitted to directors, officers and controlling
persons of the company pursuant to the provisions described in Item 15, or
otherwise, the company has been advised that, in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable.
In the event a claim for indemnification against such liabilities, other
than the payment by the company of expenses incurred or paid by a director,
officer of controlling person of the company in the successful defense of any
action, suit or proceeding, is asserted by such director, officer or controlling
person in connection with the shares being registered hereby, the company 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 as to
whether such indemnification by the company against public policy as expressed
in the Securities Act of 1933 and will be governed by the final adjudication of
such issue.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM SB-2 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF RENO, STATE OF NEVADA, ON THE 11 DAY OF JUNE, 1999.
WATTAGE MONITOR INC.
By: ______/s/ GERALD R. ALDERSON______
Gerald R. Alderson
President and Chief Executive
Officer
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NO.
- ---------- -------------------------------------------------------------------------------------------- -----------
<S> <C> <C> <C>
2.1 -- Agreement and Plan of Merger by and between WattMonitor LLC and Wattage Monitor, dated
as of February 26, 1999 (filed without exhibits or schedules).*
3.1 -- Amended and Restated Articles of Incorporation of Wattage Monitor as filed with the
Secretary of State of the State of Nevada on February 24, 1999.*
3.2 -- Amended and Restated By-Laws of Wattage Monitor, adopted as of February 19, 1999.*
4.1 -- Specimen Common Stock certificate.**
4.2 -- Certificate of Designation of Series A Preferred Stock, as filed with the Secretary of
State of the State of Nevada on February 24, 1999.*
4.3 -- Certificate of Amendment of Certificate of Designation of Series A Preferred Stock, as
filed with the Secretary of State of the State of Nevada on February 26, 1999.*
5.1 -- Opinion of Camhy Karlinsky & Stein LLP.**
10.1 -- Stock Purchase Agreement by and among Knowledge Networks Acquisitions, Inc., Intrepid
International S.A. and Certain Purchasers, dated February 5, 1999.*
10.2 -- Form of Series B Warrant.*
10.3 -- Registration Rights Agreement by and among Wattage Monitor and Certain Shareholders,
dated as of February 26, 1999.*
10.4 -- Employment Agreement by and between WattMonitor LLC and Gerald R. Alderson, dated
January 1, 1998, as assumed by Wattage Monitor on February 26, 1999.*
10.5 -- Warrant to Stephen D. Klein to purchase 33,333 Class II Membership Units of
WattMonitor LLC, dated December 29, 1998.*
10.6 -- Warrant to RHL Ventures LLC to purchase 100,000 Class II Membership Units of
WattMonitor LLC, dated December 29, 1998.*
10.7 -- Warrant to Gerald R. Alderson to purchase 33,333 Class II Membership Units of
WattMonitor LLC, dated December 29, 1998.*
10.8 -- Warrant to RHL Ventures LLC to purchase 283,333 Class II Membership Units of
WattMonitor LLC, dated August 14, 1998.*
10.9 -- Form of Lock-Up Agreement, executed by Gerald R. Alderson, Stephen D. Klein, Robert H.
Lessin and RHL Ventures LLC.*
10.10 -- Wattage Monitor 1999 Incentive and Nonqualified Stock Option Plan.**
23.1 -- Consent of Camhy Karlinsky & Stein LLP, included in Exhibit 5.1.**
23.2 -- Consent of Grant Thornton LLP.**
</TABLE>
- ------------------
* Previously filed.
** Filed herewith.
<PAGE>
CERTIFICATE OF STOCK
NUMBER [LOGO OF WATTAGE MONITOR] COMMON STOCK
- ------
Shares
-----------------------------------
- ------ -----------------------------------
SEE REVERSE FOR CERTAIN DEFINITIONS
AND A STATEMENT AS TO THE RIGHTS,
PREFERENCES, PRIVILEGES AND
RESTRICITONS OF SHARES
INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA
- --------------------------------------------------------------------------------
CUSIP 74274R 10 2
THIS CERTIFIES THAT ____________________________________________________________
IS THE OWNER OF ________________________________________________________________
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK,
PAR VALUE $0.01 PER SHARE OF
WATTAGE MONITOR INC.
Transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid until countersigned and registered by
the Transfer Agent and Registrar.
WITNESS the facsimile signatures of the duly authorized officers of the
Corporation.
Dated:
/s/ Daniel [Illegible] /s/ [Illegible]
Security President and Chief Executive Officer
COUNTERSIGNED AND REGISTERED:
AMERICAN SECURITIES TRANSFER & TRUST, INC.
P.O. Box 1598, Denver, Colorado 80201
By
TRANSFER AGENT AND REGISTRAR AUTHORIZED SIGNATURE
<PAGE>
June , 1999
---
Board of Directors
Wattage Monitor Inc.
1100 Kietzke Lane
Reno, Nevada 89502
Re: Wattage Monitor Inc. - Registration Statement on Form SB-2
Gentlemen:
You have requested our opinion as counsel for Wattage Monitor Inc., a
Nevada corporation (the "Company"), in connection with the registration
statement (the "Registration Statement") on Form SB-2 filed by the Company with
the Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended (the "Act"), with respect to the registration of (i)
8,207,816 shares of common stock, par value $.01 per share, of the Company (the
"Common Stock"); (ii) 1,000,000 shares of Common Stock (the "Shares")
underlying 1,000,000 shares of Series A Preferred Stock, par value $.01 per
share, of the Company (the "Series A Preferred Stock"); and (iii) 874,500
shares of Common Stock (the "Option Shares") underlying stock options
previously granted by the Company.
In rendering our opinion hereafter, we have relied upon such documents
and instruments as we have deemed appropriate.
In conducting our examination, we have assumed, without investigation,
the genuineness of all signatures, the correctness of all certificates, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified or photostatic
copies and the authenticity of the originals of such copies, and the accuracy
and completeness of all records made available to us by the Company.
The opinions hereafter expressed are subject to the following
qualifications:
<PAGE>
Board of Directors
June , 1999
Page 2
1. Our opinion in paragraph 1 as to the good standing of the
Company is based upon a certificate from public officials.
2. Our opinions below are limited to the matters expressly set
forth in this opinion letter, and no opinion is to be implied or may be
inferred beyond the matter expressly so stated.
3. We disclaim any obligation to update this opinion letter for
events occurring after the date of this opinion.
4. We are members of the Bar of the State of New York. Our
opinions below are limited to the effect of the laws of the State of New York
and of the federal laws of the United States.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of Nevada.
2. The Common Stock is duly authorized, legally issued, fully paid
and non-assessable.
3. The Series A Shares are duly authorized, and when issued, upon
proper conversion of the Series A Preferred Stock, will be
legally issued, fully paid and non-assessable.
4. The Option Shares are duly authorized, and when issued, upon
proper exercise of the options, will be legally issued, fully
paid and non-assessable.
Please be advised that a partner of our firm owns, as a joint tenant,
17,648 shares of Common Stock. Another partner of our firm may be deemed to
have beneficial ownership of 1,148 shares of Common Stock, although such
beneficial ownership is disclaimed. In addition, two other attorneys of our
firm may be deemed to have beneficial ownership of 12,500 shares and 4,000
shares
<PAGE>
Board of Directors
June , 1999
Page
of our Common Stock, respectively, although such beneficial ownership is
disclaimed by both attorneys.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not thereby admit that we
are in the category of persons whose consent is required pursuant to Section 7
of the Act or the rules and regulations of the Commission promulgated
thereunder.
This opinion letter is rendered solely for the benefit of the
addressee. Without our prior written consent, this opinion letter may not be:
(i) relied upon by any other party or for any other purpose; (ii) quoted in
whole or in part or otherwise referred to in any report or document; or (iii)
furnished (the original or copies thereof) to any other party.
Very truly yours,
CAMHY KARLINSKY & STEIN LLP
<PAGE>
WATTAGE MONITOR
1999 Incentive Compensation Plan
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
1 Purpose ............................................................................... 4
2. Definitions............................................................................ 4
3. Administration
(a) Authority of the Committee..................................................... 6
(b) Manner of Exercise of Committee Authority...................................... 6
(c) Limitation of Liability........................................................ 7
4. Stock Subject to Plan
(a) Overall Number of Shares Available for Delivery................................ 7
(b) Application of Limitation to Grants of Awards.................................. 7
(c) Availability of Shares Not Delivered under Awards.............................. 7
5. Eligibility, Per-Person Award Limitations.............................................. 8
6. Specific Terms of Awards
(a) General........................................................................ 8
(b) Options........................................................................ 8
(c) Stock Appreciation Rights...................................................... 9
(d) Restricted Stock............................................................... 9
(e) RSU's.......................................................................... 10
(f) Bonus Stock and Awards in Lieu of Obligations.................................. 11
(g) Dividend Equivalents........................................................... 11
(h) Annual Incentive and Performance Awards........................................ 11
(i) Other Stock Based Awards....................................................... 11
7. Certain Provisions Applicable to Awards
(a) Stand-Alone, Additional, Tandem, and Substitute Awards......................... 11
(b) Term of Awards................................................................. 12
(c) Form and Timing of Payment under Awards; Deferrals............................. 12
(d) Exemptions from Section 16(b) Liability........................................ 12
8. Performance and Annual Incentive Awards
(a) Performance Conditions......................................................... 12
(b) Performance Awards Granted to Designated Covered Employees..................... 12
(c) Annual Incentive Awards Granted to Designated Covered Employees................ 14
(d) Written Determinations ...................................................... 15
(e) Status of Section 8(b) and Section 8(c) Awards under
Code Section 162(m)....................................................... 15
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
9. Change in Control
(a) Effect of "Change In Control".................................................. 15
(b) Definition of "Change in Control".............................................. 16
(c) Definition of "Change in Control Price"........................................ 17
10. Options Granted Automatically to Directors
(a) Annual Option Grants........................................................... 17
(b) Number of Shares Subject to Automatic Option Grants............................ 17
(c) Other Director Annual Option Terms............................................. 17
(d) Method of Exercise............................................................. 18
(e) Availability of Shares......................................................... 18
11. General Provisions
(a) Compliance with Legal and Other Requirements................................... 18
(b) Not an ERISA Plan.............................................................. 18
(c) Amendment and Termination...................................................... 18
(d) Existence of Plan does not preclude issuances outside Plan..................... 19
(e) Limits on Transferability; Beneficiaries....................................... 19
(f) Adjustments.................................................................... 19
(g) Taxes.......................................................................... 19
(h) Changes to the Plan and Awards................................................. 20
(i) Limitation on Rights Conferred under Plan...................................... 20
(j) Unfunded Status of Awards, Creation of Trusts.................................. 20
(k) Nonexclusivity of the Plan..................................................... 20
(l) Payments in the Event of Forfeitures; Fractional Shares........................ 20
(m) Governing Law.................................................................. 21
(n) Awards under Preexisting Plan(s)............................................... 21
(o) Plan Effective Date and Shareholder Approval................................... 21
</TABLE>
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WATTAGE MONITOR CORPORATION
1999 Incentive Compensation Plan
1. Purpose. The purpose of this 1999 Incentive Compensation Plan (the
"Plan") is to assist Wattage Monitor Inc., a Nevada corporation (the
"Corporation"), and its subsidiaries, if any exist, from time to time, in
attracting, retaining, and rewarding high-quality executives, employees,
directors and other persons who provide services to the Corporation, enabling
such persons to acquire or increase a proprietary interest in the Corporation
to strengthen the mutuality of interests between such persons and the
Corporation's shareholders, and providing such persons with annual and
long-term performance incentives to expand their maximum efforts in the
creation of shareholder value. The Plan is also intended to qualify certain
compensation awarded under the Plan for tax deductibility under Code Section
162(m) (as hereafter defined) to the extent deemed appropriate by the
Committee (or any successor committee) of the Board of Directors of the
Corporation.
2. Definitions. For purposes of the Plan, the following terms shall be
defined as set forth below, in addition to such terms defined in Section 1
hereof.
(a) "Annual Incentive Award" means a conditional right
granted to a Participant under Section 8(c) hereof to receive a cash payment,
Stock or other Award, unless otherwise determined by the Committee, after the
end of a specified fiscal year.
(b) "Award" means any Option, SAR (including Limited SAR),
Restricted Stock, RSU, Stock granted as a bonus or in lieu of another award,
Dividend Equivalent, Other Stock Based Award, Performance Award or Annual
Incentive Award, together with any other right or interest granted to a
Participant under the Plan.
(c) "Beneficiary" means the person, persons, trust or trusts
which have been designated by a Participant in his or her most recent written
beneficiary designation filed with the Corporation to receive the benefits
specified under the Plan upon such Participant's death or to which Awards or
other rights are transferred if and to the extent permitted under Section
11(e) hereof. If, upon a Participant's death, there is no designated
Beneficiary or surviving designated Beneficiary, then the term Beneficiary
means person, persons, trust or trusts entitled by will or the laws of descent
and distribution to receive such benefits.
(d) "Beneficial Owner" shall have the meaning ascribed to
such term in Rule 13(d)(3) under the Exchange Act and any successor to such
Rule.
(e) "Board" means the Corporation's Board of Directors.
(f) "Change in Control" means Change in Control as defined
with related terms in Section 9 of the Plan.
(g) "Change In Control Price" means the amount calculated in
accordance with Section 9(c) of the Plan.
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(h) "Code" means the Internal Revenue Code of 1986, as
amended from time to time, including regulations thereunder and successor
provisions and regulations thereto.
(i) "Committee" means a committee of two or more directors
designated by the Board to administer the Plan; provided, however, that,
unless otherwise determined by the Board, the Committee shall consist solely
of two or more directors, each of whom shall be (i) a "non employee director"
within the meaning of Rule 16b-3 under the Exchange Act, unless administration
of the Plan by "non-employee directors" is not then required in order for
exemptions under Rule 16b-3 to apply to transactions under the Plan, and (ii)
an "outside director" as defined under Code Section 162(m), unless
administration of the Plan by "outside directors" is not then required to
qualify for tax deductibility under Code Section 162(m).
(j) "Covered Employee" means an Eligible Person who is a
Covered Employee as specified in Section 8(e) of the Plan.
(k) "Dividend Equivalent" means a right granted to a
Participant under Section 6(g), to receive cash, Stock, other Awards or other
property equal in value to dividends paid with respect to a specified number
of shares of Stock, or other periodic payments.
(1) "Effective Date" means April 19, 1999.
(m) "Eligible Person" means each Executive Officer and other
officers and employees of the Corporation or of any subsidiary, and other
persons who provide services to the Corporation or any of its subsidiaries
including directors of the Corporation. An employee on leave of absence may be
considered as still in the employ of the Corporation or a subsidiary for
purposes of eligibility for participation in the Plan.
(n) "Exchange Act" means the Securities Exchange Act of 1934,
as amended from time to time, including rules thereunder and successor
provisions and rules thereto.
(o) "Executive Officer" means an executive officer of the
Corporation as defined under the Exchange Act.
(p) "Fair Market Value" means the fair market value of Stock,
Awards or other property as determined by the Committee or under procedures
established by the Committee. Unless otherwise determined by the Committee,
the Fair Market Value of Stock shall be the closing price of a share of Stock,
as quoted on the composite transactions table on the NASDAQ or American Stock
Exchange as applicable, on the date on which the determination of fair market
value is being made, or if no shares of Stock were traded on such date, then
the last trading date prior thereto. If the Corporation's common stock is
traded on the OTC Bulletin Board, then the fair market value for the purpose
thereto shall be the average of the closing bid and asked price of the stock
for the five trading days prior to the date on which such determination is
being made.
(q) "Incentive Stock Option" or "ISO" means any Option
intended to be and designated as an incentive stock option within the meaning
of Code Section 422 or any successor provision thereto.
(r) "Limited SAR" means a right granted to a Participant
under Section 6(c) hereof.
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(s) "Option" means a right, granted to a Participant under
Section 6(b) hereof, to purchase Stock or other Awards at a specified price
during specified time periods.
(t) "Other Stock Based Awards" means Awards granted to a
Participant under Section 6(h) hereof.
(u) "Participant" means a person who has been granted an
Award under the Plan which remains outstanding, including a person who is no
longer an Eligible Person.
(v) "Performance Award" means a right, granted to a
Participant under Section 8 hereof, to receive Awards based upon performance
criteria specified by the Committee.
(w) "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d)
thereof, and shall include a "group" as defined in Section 13(d) thereof.
(x) "Preexisting Plan(s)" means the Wattage Monitor Long Term
Incentive Plan.
(y) "Qualified Member" means a member of the Committee who is
a "Non-Employee Director" within the meaning of Rule 16b-3(b)(3) and an
"outside director" within the meaning of Regulation 1-162-27 under Code
Section 162(m).
(z) "Restricted Stock" means Stock granted to a Participant
under Section 6(d) hereof, that is subject to certain restrictions and to a
risk of forfeiture.
(aa) "Restricted Stock Unit" or "RSU" means a right, granted
to a Participant under Section 6(e) hereof, to receive Stock, cash or a
combination thereof at the end of a specified deferral period.
(bb) "Rule 16b-3" means Rule 16b-3, as from time to time in
effect and applicable to the Plan and Participants, promulgated by the
Securities and Exchange Commission under Section 16 of the Exchange Act.
(cc) "Stock" means the Corporation's Common Stock, $0.01 par
value per share, and such other securities as may be substituted (or
resubstituted) for Stock pursuant to Section 11(c) hereof.
(dd) "Stock Appreciation Right" or "SAR" means a right
granted to a Participant under Section 6(c) hereof.
3. Administration
(a) Authority of the Committee. The Plan shall be
administered by the Committee except to the extent the Board elects to
administer the Plan, in which case references herein to the "Committee" shall
be deemed to include references to the "Board." The Committee shall have full
and final authority, in each case subject to and consistent with the provisions
of the Plan, to select Eligible Persons to become Participants, grant Awards,
determine the type, number and other terms and conditions of, and all other
matters relating to Awards, prescribe Award agreements (which need not be
identical for each Participant) and rules and regulations for the
administration of the Plan, construe and
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interpret the Plan and Award agreements and correct defects, supply omissions
or reconcile inconsistencies therein, and to make all other decisions and
determinations as the Committee may deem necessary or advisable for the
administration of the Plan.
(b) Manner of Exercise of Committee Authority. At any time
that a member of the Committee is not a Qualified Member, any action of the
Committee relating to an Award granted or to be granted to a Participant who is
then subject to Section 16 of the Exchange Act in respect of the Corporation,
or relating to an Award intended by the Committee to qualify as "performance
based compensation" within the meaning of Code Section 162(m) and regulations
thereunder, may be taken either by a subcommittee, designated by the Committee,
composed solely of two or more Qualified Members, or by the Committee but with
each such member who is not a Qualified Member abstaining or recusing himself
or herself from such action, provided, however, that, upon such abstention or
recusal, the Committee remains composed solely of two or more Qualified
Members. Such action, authorized by such a subcommittee or by the Committee
upon the abstention or recusal of such non-Qualified Member(s), shall be the
action of the Committee for purposes of the Plan. Any action of the Committee
shall be final, conclusive and binding on all persons, including the
Corporation, it's subsidiaries, if any, Participants, Beneficiaries,
transferees under Section 11(e) hereof or other persons claiming rights from or
through a Participant, and shareholders. The express grant of any specific
power to the Committee, and the taking of any action by the Committee, shall
not be construed as limiting any power or authority of the Committee. The
Committee may delegate to officers or managers of the Corporation or any
subsidiary, or committees thereof, the authority, subject to such terms as the
Committee shall determine, to perform such functions, including administrative
functions, as the Committee may determine, to the extent that such delegation
will not result in the loss of an exemption under Rule 16b-3(d)(1) for Awards
granted to Participants subject to Section 16 of the Exchange Act in respect of
the Corporation, and will not cause Awards intended to qualify as "performance
based compensation" under Code Section 162(m) to fail to so qualify. The
Committee may appoint agents to assist it in administering the Plan.
(c) Limitation of Liability. The Committee and each member
thereof shall be entitled to, in good faith, rely or act upon any report or
other information furnished to him or her by any Executive Officer, other
officer or employee of the Corporation or a subsidiary, the Corporation's
independent auditors, consultants or any other agents assisting in the
administration of the Plan. Members of the Committee and any officer or
employee of the Corporation or a subsidiary acting at the direction or on
behalf of the Committee shall not be personally liable for any action or
determination taken or made in good faith with respect to the Plan, and shall,
to the extent permitted by law, be fully indemnified and protected by the
Corporation with respect to any such action or determination.
4. Stock Subject to Plan.
(a) Overall Number of Shares Available for Delivery. Subject
to adjustment as provided in Section 11(f) hereof, the total number of shares
of Stock reserved and available for delivery in connection with Awards under
the Plan shall be 1,500,000. Any shares of stock delivered under the Plan
shall consist of authorized and unissued shares or treasury shares.
(b) Application of Limitation to Grants of Awards. No Award
may be granted if the number of shares of Stock to be delivered in connection
with such Award or, in the case of an Award relating to shares of Stock but
settleable only in cash (such as cash-only SAR's), the number of shares to
which such Award relates, exceeds the number of shares of Stock remaining
available under the Plan minus the number of shares of Stock issuable in
settlement of or relating to then outstanding Awards.
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The Committee may adopt reasonable counting procedures to ensure appropriate
counting, avoid double counting (as, for example, in the case of tandem or
substitute awards) and make adjustments if the number of shares of Stock
actually delivered differs from the number of shares previously counted in
connection with an Award.
(c) Availability of Shares Not Delivered under Awards. Shares
of Stock subject to an Award under the Plan or award under any Preexisting
Plan(s) that are canceled, expired, forfeited, settled in cash or otherwise
terminated without a delivery of shares to the Participant, including (i) the
number of shares withheld in payment of any exercise or purchase price of an
Award or award or taxes relating to Awards or awards, and (ii) the number of
shares surrendered in payment of any exercise or purchase price of an Award or
award or taxes relating to any Award or award, will again be available for
Awards under the Plan, except that if any such shares could not again be
available for Awards to a particular Participant under any applicable law or
regulation, such shares shall be available exclusively for Awards to
Participants who are not subject to such limitation.
5. Eligibility, Per-Person Award Limitations. Awards may be granted
under the Plan only to Eligible Persons. In each fiscal year during any part
of which the Plan is in effect, an Eligible Person may not be granted Awards
relating to more than 450,000 shares of Stock, subject to adjustment as
provided in Section 11(f), under each of Sections 6(b), 6(c), 6(d), 6(e),
6(f), 6(g), 6(h), 8(b) and 8(c). In addition, the maximum cash amount that may
be earned under the Plan as a final Annual Incentive Award or other cash
annual Award in respect of any fiscal year by any one Participant shall be $5
million, and the maximum cash amount that may be earned under the Plan as a
final Performance Award or other cash Award in respect of a performance period
other than an annual period by any one Participant on an annualized basis
shall be $5 million.
6. Specific Terms of Awards.
(a) General. Awards may be granted on the terms and
conditions set forth in this Section 6. In addition, the Committee may impose
on any Award or the exercise thereof, at the date of grant or thereafter
(subject to Section 11(h)), such additional terms and conditions, not
inconsistent with the provisions of the Plan, as the Committee shall determine,
including terms requiring forfeiture of Awards in the event of termination of
employment by the Participant and terms permitting a Participant to make
elections relating to his or her Award. The Committee shall retain full power
and discretion to accelerate, waive or modify, at any time, any term or
condition of an Award that is not mandatory under the Plan; provided, however,
that the Committee shall not have any discretion to accelerate, waive or modify
any term or condition of an Award that is intended to qualify as "performance
based compensation" for purposes of Code Section 162(m), if such discretion
would cause the Award not to so quality. Except in cases in which the Committee
is authorized to require other forms of consideration under the Plan, or to the
extent other forms of consideration must by paid to satisfy the requirements of
state law, no consideration other than services may be required for the grant
(but not the exercise) of any Award.
(b) Options. The Committee is authorized to grant Options to
Participants on the following terms and conditions:
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<PAGE>
(i) Exercise Price. The exercise price per share of
Stock purchasable under an Option shall be determined by the Committee,
provided that such exercise price shall be not less than the Fair Market Value
of a share of Stock on the date of grant of such Option, except as provided
under Section 7(a) hereof.
(ii) Time and Method of Exercise. The Committee
shall determine the time or times at which, or the circumstances under which,
an Option may be exercised in whole or in part (including based on achievement
of performance goals and/or future service requirements), the methods by which
such exercise price may be paid or deemed to be paid, the form of such payment,
including, without limitation, cash, Stock, other Awards or awards granted
under other plans of the Corporation or any subsidiary, or other property
(including notes or other contractual obligations of Participants to make
payment on a deferred basis), and the methods by or forms in which Stock will
be delivered or deemed to be delivered to Participants. In no event may an
Option remain exercisable more than ten years following the date of grant.
(iii) ISO's. The terms of any ISO granted under the
Plan shall comply in all respects with the provisions of Code Section 422.
Anything in the Plan to the contrary notwithstanding, no term of the Plan
relating to ISO's (including any SAR in tandem therewith) shall be interpreted,
amended or altered, nor shall any discretion or authority granted under the
Plan be exercised, so as to disqualify either the Plan or any ISO under Code
Section 422, unless the Participant has first requested the change that will
result in such disqualification.
(c) Stock Appreciation Rights. The Committee is authorized to
grant SAR's to Participants on the following terms and conditions:
(i) Right to Payment. A SAR shall confer on the
Participant to whom it is granted a right to receive, upon exercise thereof,
the excess of (A) the Fair Market Value of one share of Stock on the date of
exercise (or, in the case of a "Limited SAR," the Fair Market Value determined
by reference to the Change in Control Price, as defined under Section 9(c)
hereof) over (B) the grant price of the SAR as determined by the Committee,
provided that such grant price shall not be less than the Fair Market Value of
a share of Stock on the date of grant of such SAR except as provided under
Section 7(a) hereof.
(ii) Other Terms. The Committee shall determine, at
the date of grant or thereafter, the time or times at which and the
circumstances under which a SAR may be exercised in whole or part (including
based on achievement of performance goals and/or future service requirements),
the method of exercise, method of settlement, form of consideration payable in
settlement, method by or forms in which Stock will be delivered or deemed to be
delivered to Participants, whether or not a SAR shall be in tandem or in
combination with any other award, and any other terms and conditions of any
SAR. Limited SAR's that may only be exercised in connection with a Change in
Control or other event as specified by the Committee may be granted on such
terms, not inconsistent with this Section 6(c), as the Committee may determine.
SAR's and Limited SAR's may be either freestanding or in tandem with other
Awards.
(d) Restricted Stock. The Committee is authorized to grant
Restricted Stock to Participants on the following terms and conditions:
(i) Grant and Restrictions. Restricted Stock shall
be subject to such restrictions on transferability, risk of forfeiture and
other restrictions, if any, as the Committee may impose, which
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<PAGE>
restrictions may lapse separately or in combination at such times, under such
circumstances (including based on achievement of performance goals and/or
future service requirements), in such installments or otherwise, as the
Committee may determine at the date of grant or thereafter. Except to the
extent restricted under the terms of the Plan and any Award agreement relating
to the Restricted Stock, a Participant granted Restricted Stock shall have all
of the rights of a shareholder, including the right to vote the Restricted
Stock and the right to receive dividends thereon (subject to any mandatory
reinvestment or other requirement imposed by the Committee). During the
restricted period applicable to the Restricted Stock, subject to Section 11(e)
below, the Restricted Stock may not be sold, transferred, pledged,
hypothecated, margined or otherwise encumbered by the Participant.
(ii) Forfeiture. Except as otherwise determined by
the Committee, upon termination of employment during the applicable restriction
period, Restricted Stock that is at that time subject to restrictions shall be
forfeited and reacquired by the Corporation; provided that the Committee may
provide, by rule or regulation or in any Award agreement, or may determine in
any individual case, that restrictions or forfeiture conditions relating to
Restricted Stock shall be waived in whole or in part in the event of
terminations resulting from specified causes, and the Committee may in other
cases waive in whole or in part the forfeiture of Restricted Stock.
(iii) Certificates for Stock. Restricted Stock
granted under the Plan may be evidenced in such manner as the Committee shall
determine. If certificates representing Restricted Stock are registered in the
name of the Participant, the Committee may require that such certificates bear
an appropriate legend referring to the terms, conditions and restrictions
applicable to such Restricted Stock, that the Corporation retain physical
possession of the certificates, and that the Participant deliver a stock power
to the Corporation, endorsed in blank, relating to the Restricted Stock.
(iv) Dividends and Splits. As a condition to the
grant of an Award of Restricted Stock, the Committee may require or permit a
Participant to elect that any cash dividends paid on a share of Restricted
Stock be automatically reinvested in additional shares of Restricted Stock or
applied to the purchase of additional Awards under the Plan. Unless otherwise
determined by the Committee, Stock distributed in connection with a Stock split
or Stock dividend, and other property distributed as a dividend, shall be
subject to restrictions and a risk of forfeiture to the same extent as the
Restricted Stock with respect to which such Stock or(nother property has been
distributed.
(e) RSU's. The Committee is authorized to grant RSU's to
Participants, which are rights to receive Stock, cash, or a combination thereof
at the end of a specified deferral period, subject to the following terms and
conditions:
(i) Award and Restrictions. Satisfaction of an Award
of RSU's shall occur upon expiration of the deferral period specified for such
RSU's by the Committee (or, if permitted by the Committee, as elected by the
Participant). In addition, RSU's shall be subject to such restrictions (which
may include a risk of forfeiture) as the Committee may impose, if any, which
restrictions may lapse at the expiration of the deferral period or at earlier
specified times (including based on achievement of performance goals and/or
future service requirements), separately or in combination, in installments or
otherwise, as the Committee may determine. RSU's may be satisfied by delivery
of Stock, cash equal to the Fair Market Value of the specified number of shares
of Stock covered by the RSU's, or a combination thereof, as determined by the
Committee at the date of grant or thereafter.
(ii) Forfeiture. Except as otherwise determined by
the Committee, upon termination of employment during the applicable deferral
period or portion thereof to which forfeiture
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conditions apply (as provided in the Award agreement evidencing the RSU's), all
RSU's that are at that time subject to deferral (other than a deferral at the
election of the Participant) shall be forfeited; provided that the Committee
may provide by rule or regulation or in any Award agreement, or may determine
in any individual case, that restrictions or forfeiture conditions relating to
RSU's shall be waived in whole or in part in the event of terminations
resulting from specified causes, and the Committee may in other cases waive in
whole or in part the forfeiture of RSU's.
(iii) Dividend Equivalents. Unless otherwise
determinedby the Committee at date of grant, Dividend Equivalents on the
specified number of shares of Stock covered by an Award of RSU's shall be
either (A) paid with respect to such RSU's at the dividend payment date in cash
or in shares of unrestricted Stock having a Fair Market Value equal to the
amount of such dividends, or (B) deferred with respect to such RSU's and the
amount or value thereof automatically deemed reinvested in additional RSU's,
other Awards or other investment vehicles, as the Committee shall determine or
permit the Participant to elect.
(f) Bonus Stock and Awards in Lieu of Obligations. The
Committee is authorized to grant Stock as a bonus, or to grant Stock or other
Awards in lieu of obligations to pay cash or deliver other property under the
Plan or under other plans or compensatory arrangements, provided that, in the
case of Participants subject to Section 16 of the Exchange Act, the amount of
such grants remains within the discretion of the Committee to the extent
necessary to ensure that acquisitions of Stock or other Awards are exempt from
liability under Section 16(b) of the Exchange Act. Stock or Awards granted
hereunder shall be subject to such other terms as Shall be determined by the
Committee.
(g) Dividend Equivalents. The Committee is authorized to
grant Dividend Equivalents to a participant, entitling the Participant to
receive cash, Stock, other Awards, or other property equal in value to
dividends paid with respect to a specified number of shares of Stock, or other
periodic payments. Dividend Equivalents may be awarded on a free-standing basis
or in connection with another Award. The Committee may provide that Dividend
Equivalents shall be paid or distributed when accrued or shall be deemed to
have been reinvested in additional Stock, Awards, or other investment vehicles,
and subject to such restrictions on transferability and risks of forfeiture, as
the Committee may specify.
(h) Annual Incentive and Performance Awards. The Committee is
authorized to make Annual Incentive Awards and Performance Awards payable in
cash, Shares, or other Awards, on terms and conditions established by the
Committee, subject to Section 8 in the event of Annual Incentive Awards or
Performance Awards intended to qualify as "performance based compensation" for
purposes of Code Section 162(m).
(i) Other Stock Based Awards. The Committee is authorized,
subject to limitations under applicable law, to grant to Participants such
other Awards that may be denominated or payable in, valued in whole or in part
by reference to, or otherwise based on, or related to, Stock, as deemed by the
Committee to be consistent with the purposes of the Plan, including, without
limitation, convertible or exchangeable debt securities, other rights
convertible or exchangeable into Stock, purchase rights for Stock, Awards with
value and payment contingent upon performance of the Corporation or any other
factors designated by the Committee, and Awards valued by reference to the book
value of Stock or the value of securities of or the performance of specified
subsidiaries, if applicable. The Committee shall determine the terms and
conditions of such Awards. Stock delivered pursuant to an Award in the nature
of a purchase right granted under this Section 6(i) shall be purchased for such
consideration, paid for at such times, by such methods, and in such forms,
including, without limitation, cash, Stock, other
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Awards, or other property, as the Committee sHall determine. Cash awards, as an
element of or supplement to any other Award under the Plan, may also be granted
pursuant to this Section 6(i).
7. Certain Provisions Applicable to Awards.
(a) Stand-Alone, Additional, Tandem, and Substitute Awards.
Awards granted under the Plan may, in the discretion of the Committee, be
granted either alone or in addition to, in tandem with, or in substitution or
exchange for, any other Award or any award granted under another plan of the
Corporation, or any business entity to be acquired by the Corporation or a
subsidiary, or any other right of a Participant to receive payment from the
Corporation or any subsidiary. Such additional, tandem, and substitute or
exchange Awards may be granted at any time. If an Award is granted in
substitution or exchange for another Award or award, the Committee shall
require the surrender of such other Award or award in consideration for the
grant of the new Award. In addition, Awards may be granted in lieu of cash
compensation, including in lieu of cash amounts payable under other plans of
the Corporation or any subsidiary, in which the value of Stock subject to the
Award is equivalent in value to the cash compensation (for example, RSU's or
Restricted Stock), or in which the exercise price, grant price or purchase
price of the Award in the nature of a right that may be exercised is equal to
the Fair Market Value of the underlying Stock minus the value of the cash
compensation surrendered (for example, Options granted with an exercise price
"discounted" by the amount of the cash compensation surrendered).
(b) Term of Awards. The term of each Award shall be for such
period as may be determined by the Committee; provided that in no event shall
the term of any Option or SAR exceed a period of ten years (or such shorter
term as may be required in respect of an ISO under Code Section 422, or state
statutes).
(c) Form and Timing of Payment under Awards; Deferrals.
Subject to the terms of the Plan and any applicable Award agreement, payments
to be made by the Corporation or a subsidiary upon the exercise of an Option
or other Award or settlement of an Award may be made in such forms as the
Committee shall determine, including, without limitation, cash, Stock, other
Awards or other property, and may be made in a single payment or transfer, in
installments, or on a deferred basis. The settlement of any Award may be
accelerated, and cash paid in lieu of Stock in connection with such
settlement, in the discretion of the Committee or upon occurrence of one or
more specified events (in addition to a Change in Control). Installment or
deferred payments may be required by the Committee (subject to Section 11(h)
of the Plan, including the consent provisions thereof in the case of any
deferral of an outstanding Award not provided for in the original Award
agreement) or permitted at the election of the Participant on terms and
conditions established by the Committee. Payments may include, without
limitation, provisions for the payment or crediting of reasonable interest on
installment or deferred payments or the grant or crediting of Dividend
Equivalents or other amounts in respect of installment or deferred payments
denominated in Stock.
(d) Exemptions from Section 16(b) Liability. It is the intent
of the Corporation that the grant of any Awards to or other transaction by a
Participant who is subject to Section 16 of the Exchange Act shall be exempt
from Section 16 pursuant to an applicable exemption (except for transactions
acknowledged in writing to be non-exempt by such Participant). Accordingly, if
any provision of this Plan or any Award agreement does not comply with the
requirements of Rule 16b-3 as then applicable to any such transaction shall be
construed or deemed amended to the extent necessary to conform to the
applicable requirements of Rule 16b-3 so that such Participant shall avoid
liability under Section 16(b).
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8. Performance and Annual Incentive Awards.
(a) Performance Conditions. The right of a Participant to
exercise or receive a grant or settlement of any Award, and the timing
thereof, may be subject to such performance conditions as may be specified by
the Committee. The Committee may use such business criteria and other measures
of performance as it may deem appropriate in establishing any performance
conditions, and may exercise its discretion to reduce or increase the amounts
payable under any Award subject to performance conditions, except as limited
under Sections 8(b) and 8(c) hereof, in the case of a Performance Award or
Annual Incentive Award intended to qualify under Code Section 162(m).
(b) Performance Awards Granted to Designated Covered
Employees. If the Committee determines that a Performance Award to be granted
to an Eligible Person who is designated by the Committee as likely to be a
Covered Employee should qualify as "performance based compensation" for
purposes of Code Section 162(m), the grant, exercise and/or settlement of such
Performance Award shall be contingent upon achievement of preestablished
performance goals and other terms set forth in this Section 8(b).
(i) Performance Goals Generally. The performance
goals for such Performance Awards shall consist of one or more business
criteria and a targeted level or levels of performance with respect to each of
such criteria, as specified by the Committee consistent with this Section 8(b).
Performance goals shall be objective and shall otherwise meet the requirements
of Code Section 162(m) and regulations thereunder (including Regulation
1-162-27 and successor regulations thereto), including the requirement that the
level or levels of performance targeted by the Committee result in the
achievement of performance goals being "substantially uncertain." The Committee
may determine that such Performance Awards shall be granted, exercised and/or
settled upon achievement of any one performance goal or that two or more of the
performance goals must be achieved as a condition to grant, exercise and/or
settlement of such Performance Awards. Performance goals may differ for
Performance Awards granted to any one Participant or to different Participants.
(ii) Business Criteria. One or more of the following
business criteria for the Corporation, on a consolidated basis, and/or for
specified subsidiaries or business or geographical units of the Corporation
(except with respect to the total shareholder return and earnings per share
criteria), shall be used by the Committee in establishing performance goals for
such Performance Awards: (A) earnings per share; (B) increase in revenues or
margin; (C) increase in cash flow; (D) operating margin; (E) return on net
assets, return on investment, return on capital, return on equity; (F) economic
value added; (G) direct contribution; (H) net income, pretax earnings, pretax
earnings before interest, depreciation and amortization (EBITDA), pretax
earnings after interest expense and before extraordinary or special items,
operating income, income before interest income or expense, unusual items and
income taxes (local, state or federal) and excluding budgeted and actual
bonuses which might be paid under any ongoing bonus plans of the Corporation;
(I) working capital; (J) management of fixed costs or variable costs; (K)
identification or consummation of investment opportunities or completion of
specified projects in accordance with corporate business plans, including
strategic mergers, acquisitions or divestitures; (L) total shareholder return;
(M) debt reduction; and (N) any of the above goals determined on an absolute or
relative basis or as compared to the performance of a published or special
index deemed applicable by the Committee including, but not limited to, the
Standard & Poors 500 Stock Index or a group of comparator companies. One or
more of the foregoing business criteria shall also be
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exclusively used in establishing performance goals for Annual Incentive Awards
granted to a Covered Employee under Section 8(c) hereof.
(iii) Performance Period; Timing for Establishing
Performance Goals. Achievement of performance goals in respect of such
Performance Awards shall be measured over a performance period of up to ten
years, as specified by the Committee. Performance goals shall be established
not later than 90 days after the beginning of any performance period applicable
to such Performance Awards, or at such other date as may be required or
permitted for "performance based compensation" under Code Section 162(m).
(iv) Performance Award Pool. The Committee may
establish a Performance Award pool, which shall be an unfunded pool, for
purposes of measuring performance of the Corporation in connection with
Performance Awards. The amount of such Performance Award pool shall be based
upon the achievement of a performance goal or goals based on one or more of the
business criteria set forth in Section 8(b)(ii) hereof, during the given
performance period, as specified by the Committee in accordance with Section
8(b)(iii) hereof. The Committee may specify the amount of the Performance Award
pool as a percentage of any of such business criteria, a percentage thereof in
excess of a threshold amount, or as another amount which need not bear a
strictly mathematical relationship to such business criteria.
(v) Settlement of Performance Awards; Other Terms.
After the end of each performance period, the Committee shall determine the
amount, if any, of (A) the Performance Award pool, and the maximum amount of
potential Performance Award payable to each Participant in the Performance
Award pool, or (B) the amount of potential Performance Award otherwise payable
to each Participant. Settlement of such Performance Awards shall be in cash,
Stock, other Awards or other property, in the discretion of the Committee. The
Committee may, in its discretion, reduce the amount of a settlement otherwise
to be made in connection with such Performance Awards, but may not exercise
discretion to increase any such amount payable to a Covered Employee in respect
of a Performance Award subject to this Section 8(b). The Committee shall
specify the circumstances in which such Performance Awards shall be paid or
forfeited in the event of termination of employment by the Participant prior to
the end of a performance period or settlement of Performance Awards.
(c) Annual Incentive Awards Granted to Designated Covered
Employees. If the Committee determines that an Annual Incentive Award to be
granted to an Eligible Person who is designated by the Committee as likely to
be a Covered Employee should qualify as performance based compensation for
purposes of Code Section 162(m), the grant, exercise and/or settlement of such
Annual Incentive Award shall be contingent upon achievement of preestablished
performance goals and other terms set forth in this Section 8(c).
(i) Annual Incentive Award Pool. The Committee may
establish an Annual Incentive Award pool, which shall be an unfunded pool, for
purposes of measuring performance of the Corporation in connection with Annual
Incentive Awards. The amount of such Annual Incentive Award pool shall be based
upon the achievement of a performance goal or goals based on one or more of the
business criteria set forth in Section 8(b)(ii) hereof, during the given
performance period, as specified by the Committee in accordance with Section
8(b)(iii) hereof. The Committee may specify the amount of the Annual Incentive
Award pool as a percentage of any of such business criteria, a percentage
thereof in excess of a threshold amount, or as another amount which need not
bear a strictly mathematical relationship to such business criteria.
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(ii) Potential Annual Incentive Awards. Not later
than the end of the 90th day of each fiscal year, or at such other date as may
be required or permitted in the case of Awards intended to be "performance
based compensation" under Code Section 162(m), the Committee shall determine
the Eligible Persons who will potentially receive Annual Incentive Awards, and
the amounts potentially payable thereunder, for that fiscal year, either out of
an Annual Incentive Award pool established by such date under Section 8(c)(i)
hereof or as individual Annual Incentive Awards. In the case of individual
Annual Incentive Awards intended to qualify under Code Section 162(m), the
amount potentially payable shall be based upon the achievement of a performance
goal or goals based on one or more of the business criteria set forth in
Section 8(b)(ii) hereof, in the given performance year, as specified by the
Committee; in other cases, such amount shall be based on such criteria as shall
be established by the Committee. In all cases, the maximum Annual Incentive
Award of any Participant shall be subject to the limitation set forth in
Section 5 hereof.
(iii) Payout of Annual Incentive Awards. After the
end of each fiscal year, the Committee shall determine the amount, if any, of
(A) the Annual Incentive Award pool, and the maximum amount of potential Annual
Incentive Award payable to each Participant in the Annual Incentive Award pool,
or (B) the amount of potential Annual Incentive Award otherwise payable to each
Participant. The Committee may, in its discretion, determine that the amount
payable to any Participant as a final Annual Incentive Award shall be increased
or reduced from the amount of his or her potential Annual Incentive Award,
including a determination to make no final Award whatsoever, but may not
exercise discretion to increase any such amount in the case of an Annual
Incentive Award intended to qualify under Code Section 162(m). The Committee
shall specify the circumstances in which an Annual Incentive Award shall be
paid or forfeited in the event of termination of employment by the Participant
prior to the end of a fiscal year or settlement of such Annual Incentive Award.
(d) Written Determinations. All determinations by the
Committee as to the establishment of performance goals, the amount of a
Performance Award pool or potential individual Performance Awards and as to
the achievment of performance goals relating to Performance Awards under
Section 8(b), and the amount of any Annual Incentive Award pool or potential
individual Annual Incentive Awards and the amount of final Annual Incentive
Awards under Section 8(c), shall be made in writing in the case of any Award
intended to qualify under Code Section 162(m). The Committee may not delegate
any responsibility relating to such Performance Awards or Annual Incentive
Awards.
(e) Status of Section 8(b) and Section 8(c) Awards under Code
Section 162(m). It is the intent of the of the Corporation that Performance
Awards and Annual Incentive Awards under Sections 8(b) and 8(c) hereof granted
to persons who are designated by the Committee as likely to be Covered
Employees within the meaning of Code Section 162 (m) and regulations
thereunder (including Regulation 1-162-27 and successor regulations thereto)
shall, if so designated by the Committee, constitute "performance based
compensation" within the meaning of Code Section 162(m) and regulations
thereunder. Accordingly, the terms of Sections 8(b), (c), (d), and (e),
including the definitions of Covered Employee and other terms under therein,
shall be interpreted in a manner consistent with Code Section 162(m) and
regulations thereunder. The foregoing notwithstanding, because the Committee
cannot determine with certainty whether a given Participant will be a Covered
Employee with respect to a fiscal year that has not yet been completed, the
term Covered Employee as used herein shall mean only a person designated by
the Committee, at the time of grant of Performance Awards or an Annual
Incentive Award, as likely to be a Covered Employee with respect to that
fiscal year. If any provision of the Plan as in effect on the date of adoption
or any agreements relating to Performance Awards or Annual Incentive Awards
that are designated as intended to comply with Code Section 162(m) does not
comply or is inconsistent with the requirements of Code Section 162(m) or
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regulations thereunder, such provision shall be construed or deemed amended to
the extent necessary to conform to such requirements.
9. Change in Control.
(a) Effect of "Change In Control". In the event of a "Change
in Control", the following provisions shall apply unless otherwise provided in
the Award agreement:
(i) Any Award carrying a right to exercise that was
not previously exercisable and vested shall become fully exercisable and vested
as of the time of the Change in Control and shall remain exercisable and vested
for the balance of the stated term of such Award without regard to any
termination of employment by the Participant, subject only to applicable
restrictions set forth in Section 11(a) hereof;
(ii) Any optionee who holds an Option shall be
entitled to elect, during the 60 day period immediately following a Change in
Control, in lieu of acquiring the shares of Stock covered by such Option, to
receive, and the Corporation shall be obligated to pay, in cash the excess of
the Change in Control Price over the exercise price of such Option, multiplied
by the number of shares of Stock covered by such Option;
(iii) The restrictions, deferral of settlement, and
forfeiture conditions applicable to any other Award granted under the Plan
shall lapse and such Awards shall be deemed fully vested as of the time of the
Change in Control, except to the extent of any waiver by the Participant and
subject to applicable restrictions set forth in Section 11(a) hereof; and
(iv) With respect to any outstanding Award subject
to achievement of performance
goals and conditions under the Plan, such performance goals and other
conditions will be deemed to be met if and to the extent so provided in the
Award agreement relating to such Award.
(b) Definition of "Change in Control". A "Change in
Control" shall be deemed to have occurred if:
(i) any Person (other than the Corporation, any
trustee or other fiduciary holding securities under any employee benefit plan
of the Corporation, or any company owned, directly or indirectly, by the
stockholders of the Corporation immediately prior to the occurrence with
respect to which the evaluation is being made in substantially the same
proportions as their ownership of the common stock of the Corporation) acquires
securities of the Corporation and immediately thereafter is the Beneficial
Owner (except that a Person shall be deemed to be the Beneficial Owner of all
shares that any such Person has the right to acquire pursuant to any agreement
or arrangement or upon exercise of conversion rights, warrants or options or
otherwise, without regard to the sixty day period referred to in Rule l3d-3
under the Exchange Act), directly or indirectly, of securities of the
Corporation representing 30% or more of the combined voting power of the
Corporation's then outstanding securities (except that an acquisition of
securities directly from the Corporation shall not be deemed an acquisition for
purposes of this clause (i));
(ii) during any period of two consecutive years
individuals who at the beginning of such period constitute the Board, and any
new director (other than a director designated by a person who has entered into
an agreement with the Corporation to a transaction described in clause (i),
(iii), or
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(iv) of this paragraph) whose election by the Board or nomination for
election by the Corporation's stockholders was approved by a vote of at least
two thirds of the directors then still in office who either were directors at
the beginning of the two-year period or whose election or nomination for
election was previously so approved but excluding for this purpose any such new
director whose initial assumption of office occurs as a result of either an
actual or threatened election contest (as such terms are used in Rule 148-11 of
Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of an
individual, corporation, partnership, group, associate or other entity or
Person other than the Board, cease for any reason to constitute at least a
majority of the Board;
(iii) the consummation of a merger or consolidation
of the Corporation with any other entity, other than a merger or consolidation
which would result in the voting securities of the Corporation outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving or
resulting entity) more than 50% of the combined voting power of the surviving
or resulting entity outstanding immediately after such merger or consolidation
or a merger or consolidation in which no premium is intended to be paid to any
shareholder participating in the merg or consolidation;
(iv) the stockholders of the Corporation approve a
plan or agreement for the sale or disposition of all or substantially all of
the consolidated assets of the Corporation (other than such a sale or
disposition immediately after which such assets will be owned directly or
indirectly by the stockholders of the Corporation, in substantially the same
proportions as their ownership of the common stock of the Corporation
immediately prior to such sale or disposition) in which case the Board shall
determine the effective date of the Change in Control resulting therefrom; or
(v) any other event occurs which the Board
determines, in its discretion, would materially alter the structure of the
Corporation or its ownership.
For purposes of this definition:
(1) The term "Beneficial Owner" shall have the meaning ascribed to
such term in Rule 13d-3 under the Exchange Act (including any successor to
such Rule).
(2) The term "Exchange Act" means the Securities Exchange Act of 1934,
as amended from time to time, or any successor act thereto.
(3) The term "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d)
thereof, including "group" as defined in Section 13(d) thereof.
(c) Definition of "Change in Control Price". The "Change in
Control Price" means an amount in cash equal to the higher of (i) the amount
of cash and fair market value of property that is the highest price per share
paid (including extraordinary dividends) in any transaction triggering the
Change in Control or any liquidation of shares following a sale of
substantially all assets of the Corporation, or (ii) the highest Fair Market
Value per share at any time during the 60-day period preceding and 60-day
period following the Change in Control.
10. Options Granted Automatically to Directors.
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(a) Annual Option Grants. A Director Annual Option will be
automatically granted at the close of business on the date of the Corporation's
Annual Meeting of shareholders except as to 1999 in which case such grant shall
occur on September 30, 1999.
(b) Number of Shares Subject to Automatic Option Grants.
Unless otherwise determined by the Board in a resolution adopted on or prior to
the date of the annual meeting of the Company's shareholders that coincides
with or most recently precedes the date of grant of an Option to a non-employee
director, the number of shares of Stock to be subject to each Annual Option
shall be 10,000, in each case subject to adjustment as provided in Section
11(f).
(c) Other Director Annual Option Terms. Unless otherwise
determined by the Board, other terms of Annual Options shall be as follows:
(i) The exercise price per share of Stock
purchasable upon exercise of a Director Annual Option will be equal to 100% of
the Fair Market Value of a share of Stock on the date of grant of the Option.
(ii) A Director Annual Option will expire at the
earlier of (A) 10 years after the
date of grant, or (B) three months after the date the Participant ceases to
serve as a director of the Corporation for any reason.
(iii) Each Director Annual Option will become vested
and exercisable on the date
following the date of grant.
(d) Method of Exercise. A Participant may exercise a Director
Annual Option, in whole or in part, at such time as it is exercisable and
prior to its expiration, by giving written notice of exercise to the Secretary
of the Corporation, specifying the option to be exercised and the number of
shares to be purchased, and paying in full the exercise price in cash
(including by check) or by surrender of shares of Stock already owned by the
Participant (except for shares acquired from the Company by exercise of an
option less than six months before the date of surrender) having a Fair Market
Value at the time of exercise equal to the exercise price, or by a combination
of cash and shares.
(e) Availability of Shares. If an automatic grant of Options
authorized under Section 10(a) or (b) cannot be made in full due to the
limitation set forth in Section 4(a), such grant shall be made (together with
other automatic grants to occur at the same time) to the greatest extent then
permitted under Section 4(a).
11. General Provisions.
(a) Compliance with Legal and Other Requirements. The
Corporation may, to the extent deemed necessary or advisable by the Committee,
postpone the issuance or delivery of Stock or payment of other benefits under
any Award until completion of such registration or qualification of such Stock
or other required action under any federal or state law, rule or regulation,
listing or other required action with respect to any stock exchange or
automated quotation system upon which the Stock or other securities of the
Corporation are listed or quoted, or compliance with any other obligation of
the Corporation, as the Committee may consider appropriate, and may require
any Participant to make such representations, furnish such information and
comply with or be subject to such other conditions as it may consider
appropriate in connection with the issuance or delivery of Stock or payment of
other
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benefits in compliance with applicable laws, rules, and reasons, listing
requirements, or other obligations.
(b) The Stock Plan is not subject to the provisions of the
Employee Retirement Income Security Act of 1974 (ERISA) or Section 401(a) of
the Code.
(c) Amendment and Termination. The Board has the exclusive
authority to amend or modify the Plan in any and all respects. However, no
amendment or modification may, without the consent of the optionee, adversely
affect such individual's rights and obligations under his or her outstanding
stock options. In addition, the Board may not, without the approval of the
Company's stockholders:
(i) materially increase the maximum number of shares
issuable under the Stock plan or otherwise increase the number of shares for
which options may be granted to newly elected or continuing Board members under
the automatic grant program, except in the event of certain changes in the
Company's capital structure (see the Section 11(f) hereof),
(ii) materially modify the eligibility requirements
for Plan participation, or
(iii) materially increase the benefits accruing to
Plan participants.
In no event may any amendments be made to the provisions of
the automatic option grant program, including the outstanding grants
thereunder, at intervals more frequent than once every six (6) months, unless
otherwise necessary to comply with applicable Federal tax laws and
regulations.
The Plan will terminate on the earlier of (i) 2009 or (ii)
the date on which all shares available for issuance under the plan have been
issued or cancelled. Any stock options outstanding at that time, including the
automatic option grants, will continue in effect in accordance with the
provisions of the agreements evidencing those grants.
(d) The Plan does not, nor is it intended to limit the
authority of the Corporation to grant options outside of the Plan or to grant
options to, or assume the options of, any persons in connection with the
acquisition of the business and assets of any firm, company or other business
entity.
(e) Limits on Transferability; Beneficiaries. No award or
other right or interest of a participant, under the plan shall be pledged,
hypothecated or otherwise encumbered or subject to any lien, obligation or
liability of such Participant to any party (other than the Corporation), or
assigned or transferred by such Participant otherwise than by will or the laws
of descent and distribution or to a Beneficiary upon the death of a
Participant, and such Awards or rights that may be exercisable shall be
exercised during the lifetime of the Participant only by the Participant or
his or her guardian or legal representative, except that Awards and other
rights (other than ISO's and SAR's in tandem therewith) may be transferred to
one or more Beneficiaries or other transferees during the lifetime of the
Participant, and may be exercised by such transferees in accordance with the
terms of such Awards but only if and to the extent such transfers are
permitted by the Committee pursuant to the express terms of an Award agreement
(subject to any terms and conditions which the Committee may impose thereon).
A Beneficiary, transferee or other person claiming any rights under the Plan
from or through any Participant shall be subject to all terms and conditions
of the Plan and any Award agreement applicable to such Participant, except as
otherwise determined by the Committee, and to any additional terms and
conditions deemed necessary or appropriate by the Committee.
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(f) Adjustments. In the event that any dividend or other
distribution (whether in the form of cash, Stock, or other property),
recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, share exchange, liquidation,
dissolution or other similar transaction or event affects the Stock such that
an adjustment is determined by the Committee to be appropriate under the Plan,
then the Committee shall, in such manner as it may deem equitable, adjust any
or all of (i) the number and kind of shares of Stock which may be delivered in
connection with Awards granted thereafter, (ii) the number and kind of shares
of Stock by which annual per-person Award limitations are measured under
Section 5 hereof, (iii) the number and kind of shares of Stock subject to or
deliverable in respect of outstanding Awards and (iv) the exercise price,
grant price or purchase price relating to any Award and/or make provision for
payment of cash or other property in respect of any outstanding Award. In
addition, the business unit, or the financial statements of the Corporation or
any subsidiary, or in response to changes in applicable laws, regulations,
accounting principles, tax rates and regulations or business conditions or in
view of the Committee's assessment of the business strategy of the
Corporation, any subsidiary or business unit thereof, performance of
comparable organizations, economic and business conditions, personal
performance of a Participant, and any other circumstances deemed relevant;
provided, that no such adjustment shall be authorized or made if and to the
extent that such authority or the making of such adjustment would cause
Options, SAR's, Performance Awards granted under Section 8(b) hereof, or
Annual Incentive Awards granted under Section 8(c) hereof, to Participants
designated by the Committee as Covered Employees and intended to qualify as
"performance based compensation" under Code Section 162(m) and regulations
thereunder to otherwise fail to qualify as "performance based compensation"
under Code Section 162(m) and regulations thereunder.
(g) Taxes. The Corporation and any subsidiary is authorized
to withhold from any Award granted, any payment relating to an Award under the
Plan, including from a distribution of Stock, or any payroll or other payment
to a Participant, amounts of withholding and other taxes due or potentially
payable in connection with any transaction involving an Award, and to take
such other action as the Committee may deem advisable to enable the
Corporation and Participants to satisfy obligations for the payment of
withholding taxes and other tax obligations relating to any Award. This
authority shall include authority to withhold or receive Stock or other
property and to make cash payments in respect thereof in satisfaction of a
Participants tax obligations, either on a mandatory or elective basis in the
discretion of the Committee.
(h) Changes to the Plan and Awards. The Board may amend,
alter, suspend, discontinue or terminate the Plan or the Committee's authority
to grant Awards under the Plan without the consent of shareholders or
Participants, except that any amendment or alteration to the Plan shall be
subject to the approval of the Corporation's shareholders not later than the
annual meeting next following such Board action if such shareholder approval
is required by any federal or state law or regulation or the rules of any
stock exchange or automated quotation system on which the Stock may then be
listed or quoted, and the Board may otherwise, in its discretion, determine to
submit other such changes to the Plan to shareholders for approval; provided
that, without the consent of an affected Participant, no such Board action may
materially and adversely affect the rights of such Participant under any
previously granted and outstanding Award. The Committee may waive any
conditions or rights under, or amend, alter, suspend, discontinue or terminate
any Award theretofore granted and any Award agreement relating thereto, except
as otherwise provided in the Plan; provided that, without the consent of an
affected Participant, no such Committee action may materially and adversely
affect the rights of such Participant under such Award. Notwithstanding
anything in the Plan to the contrary, if any right under this Plan would cause
a transaction to be ineligible for pooling of interest accounting that would,
but for the right
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<PAGE>
hereunder, be eligible for such accounting treatment, the Committee may modify
or adjust the right so that pooling of interest accounting shall be available,
including the substitution of Stock having a Fair Market Value equal to the
cash otherwise payable hereunder for the right which caused the transaction to
be ineligible for pooling of interest accounting. In addition, the Board shall
also have the authority to modify the Plan, to the extent it deems necessary or
desirable in its sole discretion, to minimize the taxes incurred by either the
Company or any Participant relating to any Award.
(i) Limitation on Rights Conferred under Plan. Neither the
Plan nor any action taken hereunder shall be construed as (i) giving any
Eligible Person or Participant the right to continue as an Eligible Person or
Participant or in the employ or service of the Corporation or a subsidiary,
(ii) interfering in any way with the right of the Corporation or a subsidiary
to terminate any Eligible Person's or Participant's employment or service at
any time, (iii) giving an Eligible Person or Participant any claim to be
granted any Award under the Plan or to be treated uniformly with other
Participants and employees, or (iv) conferring on a Participant any of the
rights of a shareholder of the Corporation unless and until the Participant is
duly issued or transferred shares of Stock in accordance with the terms of an
Award.
(j) Unfunded Status of Awards, Creation of Trusts. The Plan
is intended to constitute an "unfunded" plan for certain incentive awards and
deferred compensation. With respect to any payments not yet made to a
Participant or obligation to deliver Stock pursuant to an Award, nothing
contained in the Plan or any Award shall give any such Participant any rights
that are greater than those of a general creditor of the Corporation.
(k) Nonexclusivity of the Plan. Neither the adoption of the
Plan by the Board nor its submission to the shareholders of the Corporation
for approval shall be construed as creating any limitations on the power of
the Board or a committee thereof to adopt such other incentive arrangements as
it may deem desirable including incentive arrangements and awards which do not
qualify under Code Section 162(m).
(l) Payments in the Event of Forfeitures; Fractional Shares.
Unless otherwise determined by the Committee, in the event of a forfeiture of
an Award with respect to which a Participant paid cash or other consideration,
the Participant shall be repaid the amount of such cash or other
consideration. No fractional shares of Stock shall be issued or delivered
pursuant to the Plan or any Award. The Committee shall determine whether cash,
other Awards or other property shall be issued or paid in lieu of such
fractional shares or whether such fractional shares or any rights thereto
shall be forfeited or otherwise eliminated.
(m) Governing Law. The validity, construction and effect of
the Plan, any rules and regulations under the Plan, and any Award agreement
shall be determined in accordance with the laws of the State of Nevada,
without giving effect to principles of conflicts of laws, and applicable
federal law.
(n) Awards under Preexisting Plan(s). Upon approval of the
Plan by shareholders of the Corporation as required under Sections 11(c) and
11(h) hereof, no further awards shall be granted under the Preexisting
Plan(s).
(o) Plan Effective Date and Shareholder Approval. The Plan
has been adopted by the Board and the shareholders of the Corporation
effective the 19th of April 1999.
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We have issued our report dated April 15, 1999, accompanying the financial
statements of Wattage Monitor Inc. contained in the Registration Statement and
Prospectus. We consent to the use of the aforementioned reports in the
Registration Statement and Prospectus, and to the use of our name as it appears
under the caption "Experts."
GRANT THORNTON LLP
/S/ Grant Thornton LLP
Reno, Nevada
June 10, 1999
