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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ____________ to ____________
COMMISSION FILE NUMBER 33-19139-NY
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NETAMERICA.COM CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 11-2936371
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
TWO EMBARCADERO CENTER, SUITE 200
SAN FRANCISCO, CA 94111
(Address of Principal Executive Offices) (Zip Code)
(415) 371-9800
(Registrant's Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting and non-voting common stock
held by non-affiliates of the registrant as of March 27, 2000 was approximately
$483,945,000.
The registrant had issued and outstanding 17,019,651 shares of its
common stock on March 27, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the registrant's
2000 proxy statement for its annual meeting of shareholders to be held on April
20, 2000.
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NETAMERICA.COM CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C>
PART I
ITEM 1. BUSINESS.................................................................................... 5
ITEM 2. PROPERTIES.................................................................................. 12
ITEM 3. LEGAL PROCEEDINGS........................................................................... 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......................................... 12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ...................... 16
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA........................................................ 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF..................................................... 18
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................................... 18
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.................................. 28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................................. 29
INDEPENDENT AUDITORS REPORT................................................................. 30
CONSOLIDATED BALANCE SHEETS................................................................. 31
CONSOLIDATED STATEMENTS OF OPERATIONS....................................................... 32
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY............................................. 33
CONSOLIDATED STATEMENTS OF CASH FLOWS....................................................... 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.................................................. 36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE........ 44
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY............................................. 44
ITEM 11. EXECUTIVE COMPENSATION...................................................................... 44
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.............................. 44
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................................. 44
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K............................ 45
SUPPLEMENTAL INFORMATION TO BE FILED BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT
TO SECTION 12 OF THE ACT ............................................................................. 46
SIGNATURES ........................................................................................... 47
</TABLE>
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FORM 10-K
PART I
ITEM 1. BUSINESS
OVERVIEW
We are a pioneer in the development of business-to-business ("B2B")
e-commerce for the telecommunications industry. We are a development stage B2B,
e-commerce company seeking to develop new transaction services for the estimated
$1 trillion international market for telecommunications services. We focus on
developing, operating and maintaining liquid, efficient and automated online
market services to trade bandwidth and other telecommunications products. Since
its launch in January 1998, the RateXchange portal (www.ratexchange.com) has
registered more than 5,000 members, and is currently growing at a rate of 200
new members per month. In February 2000, we announced the launch of the
RateXchange Real-Time Bandwidth eXchange ("RTBX"). We believe RTBX is the first
online exchange specializing in telecommunication bandwidth as a tradeable
commodity. We also announced the opening of our first two delivery hubs in New
York and Los Angeles where carriers will interconnect to the exchange. During
2000, we expect to commence other revenue-generating services such as
RateXchange CustomAuctions for buying and selling of other telecommunications
products and services and to open additional interconnection delivery hubs.
GENERAL DEVELOPMENT OF BUSINESS
The Company was originally incorporated as Venture World, Ltd. on May 6,
1987 under the laws of the State of Delaware for the purpose of developing or
acquiring general business opportunities. We did not have any material
operations from 1992 to 1998.
On September 30, 1998, we acquired PolarCap, Inc. As a result of this
acquisition, PolarCap became our wholly owned subsidiary. PolarCap is a
California corporation that was organized in April 1997 for the purpose of
investing in and developing rights to a variety of software technologies related
to multimedia, development tools, and applications technologies.
In September 1998, in connection with our strategy to acquire and
consolidate Internet Service Providers ("ISP"), we also entered into an
agreement with NetAmerica, Inc., a Washington corporation, pursuant to which we
agreed to purchase the outstanding stock of Net America, Inc. Net America, Inc.
subsequently agreed to be renamed A1 Internet, Inc. and agreed to assign and
transfer to us all of its right, title and interest in the name "Net America."
We determined in March 1999 that it was not in our best interest to complete the
purchase of A1 Internet's stock after A1 Internet acknowledged that certain
representations made to us were inaccurate. Consequently, on March 16, 1999, we
entered into an agreement with A1 Internet to abandon the stock purchase and
settle our differences.
In 1999, we changed the name of the Company to NetAmerica.com
Corporation. Shortly thereafter, we incorporated Telenisus Corporation, a
Delaware corporation, as one of our wholly owned subsidiaries. Telenisus is a
development stage company that is seeking to become a single source provider of
secure and reliable Internet-based business-to-business services to corporate
customers, carriers, ISPs and marketers of telecommunications services. Through
acquisitions and internal business development, Telenisus seeks to develop a
full suite of Internet and data network management tools that will enable
customers to increase productivity, to reduce costs and to access a wide range
of Internet, e-commerce, security and communication applications from a one-stop
network service delivery provider.
On or about November 3, 1999, Telenisus announced the closing of its
first independent private placement financing. The common stock issued in this
financing, together with stock issued in a Telenisus-subsidiary acquisition,
reduced our percentage ownership interest in Telenisus to less than 10%.
Telenisus used the proceeds of the financing to expand its management team and
to accelerate development of its four service families: virtual private
networks, managed firewall/security services, Web site and application hosting,
and e-commerce. Telenisus is focused on delivering its business Internet
solutions to large and mid-sized corporate customers.
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On July 6, 1999, we acquired 100% of the outstanding stock of Rate
Exchange, Inc., a Colorado corporation, through a merger into RateXchange, Inc.,
our wholly owned Delaware subsidiary. The Delaware subsidiary was the surviving
entity. We paid 574,998 shares of common stock and $450,000 in a note that was
due one year from the date of closing. This note is now fully paid. On July 23,
1999, RateXchange entered into an agreement with a consultant for market
development expertise as applied to the telecommunications market. In exchange
for these services, RateXchange agreed to issue up to 10% of its common stock
based on successful completion and delivery of certain software. As of the date
of this report, no shares of RateXchange, Inc. have been issued under the
consultant agreement and the parties are in discussions regarding termination of
this agreement.
On September 15, 1999, RateXchange and Donald H. Sledge entered into an
employment agreement under which RateXchange agreed to grant Mr. Sledge an
equity position of up to 10% of RateXchange's outstanding stock through a stock
purchase right. RateXchange has now agreed to repurchase Mr. Sledge's equity as
part of our restructuring.
RateXchange is a development stage B2B, e-commerce company seeking to
develop new transaction services for the estimated $1 trillion international
market for telecommunications services. RateXchange has operated an
Internet-based lead generation service for trading in long-distance minutes,
telephony minutes and bandwidth since January 1998. As of March 2000, the lead
generation service has registered more than 5,000 members and facilitated more
than 900 offline transactions. RateXchange historically has generated minimal
revenues from these lead-generation services and from the collection and
dissemination of telecommunications market data.
On February 7, 2000, we announced our intention to change our name to
RateXchange Corporation (subject to shareholder approval) and to focus our
efforts on the business of RateXchange, Inc. As part of our restructuring,
Donald H. Sledge agreed to serve as our Chairman and CEO.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This annual report, including all documents incorporated herein by
reference, includes certain "forward-looking statements" within the meaning of
that term in Section 27A of the Securities Act of 1933, and Section 21E of the
Exchange Act, including, among others, those statements preceded by, followed by
or including the words "believes," "expects," "anticipates" or similar
expressions.
These forward-looking statements are based largely on our current
expectations and are subject to a number of risks and uncertainties. Our actual
results could differ materially from these forward-looking statements. In
addition to the other risks described in the "Factors That May Affect Future
Results" discussion under Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations in Part II of this annual report,
important factors to consider in evaluating such forward-looking statements
include:
- changes in our business strategy or an inability to execute our
strategy due to unanticipated changes in the market,
- our ability to raise sufficient capital to meet operating
requirements,
- various competitive factors that may prevent us from competing
successfully in the marketplace, and
- changes in external competitive market factors or in our internal
budgeting process which might impact trends in our results of
operations.
In light of these risks and uncertainties, there can be no assurance that the
events contemplated by the forward-looking statements contained in this annual
report will, in fact, occur.
PRODUCTS & MARKETS
We initially anticipate revenue from four sources:
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1. Transaction fees on trades executed through RTBX, typically
generated as commissions paid by both buyer and seller upon each
trade;
2. Service fees for CustomAuctions paid by the offeror for holding an
Auction Event;
3. Exchange membership fees which entitle members to trading privileges
and Web-based, premium marketplace information services; and
4. Advertising revenues from exchange members or suppliers purchasing
advertising banners for display on the RateXchange portal.
We have developed an efficient and flexible exchange platform based upon robust
and open technical architecture, proprietary intellectual property, and
strategic customer relationships to facilitate business-to-business trade
through our three primary online exchange services:
<TABLE>
<CAPTION>
EXCHANGE B2B TELECOM
SERVICE PRODUCTS TRADED KEY BENEFITS TO EXCHANGE PARTICIPANTS
- - ---------------------------- ---------------------- --------------------------------------
<S> <C> <C>
Minutes, VoIP - Free leads for standard products
Lead Generation Bandwidth, Co-location - Community-building
- Open access to real time market info
Real-Time Bandwidth eXchange Bandwidth (standard - Anonymous trading
(RTBX) increments ranging - Managed credit, settlement & delivery
from DS1 to OC-x) - Spot and Forward trading
- Effective risk and yield management
RateXchange Blocks of Bandwidth, - Large market of prequalified competitive
CustomAuctions Minutes, Internet bidders
Access, etc. - Reduced time & cost of sales
- RateXchange contract & market design allows
specialized transactions
</TABLE>
From inception, we have believed that inefficiencies in the global
telecommunications marketplace cost carriers (and their customers) billions of
dollars in operating costs and missed business opportunities. Due to the
explosive growth of the Internet, e-commerce and other forms of data and
bandwidth intensive transmissions and the increasingly competitive nature of
global telecommunications, we believe that participants in telecommunications
market will increasingly seek to maximize the efficiency and speed of their
buying and selling of bandwidth and other telecommunications products and
services. Telecommunications transactions, in general, are hindered by lack of
standardized contracts and the traditional requirement to negotiate every aspect
of interconnection, delivery, quality of service, payment and settlement terms,
terms and conditions, and dispute resolution. Lack of adequate, real-time market
pricing information has also resulted in many tiers of arbitrage, which results
in further market inefficiencies. While others, including some of our
competitors, have created online sites which mirror and perpetuate this
inefficient, arbitrage-based market, we believe we have created a new paradigm
which reflects the "commoditization" of bandwidth and certain other
telecommunications products and services.
In order to increase participation by buyers and sellers of
telecommunications products in this more efficient marketplace, we are
introducing an evolutionary model to educate the industry and to encourage
membership in the RateXchange portal. Since the telecommunications industry is
highly competitive and buying decisions are almost entirely based on even small
pricing differentials, we seek market entry and awareness by focusing on
acquiring and publishing real time pricing information. Our pricing indices are
regularly quoted and relied upon by industry publications and industry
professionals. We intend to use our various exchange platforms and products to
enable participants to benefit from equal, real time access to accurate pricing
information. These existing and planned exchange platforms include:
LEAD-GENERATION SERVICES (COMMENCED DECEMBER 1997)
The RateXchange lead-generation service has built an online community of
capacity traders. Registration for the service is free and available to capacity
suppliers and buyers or their direct representatives. Members post bids and
offers in an electronic format and members' identities are kept anonymous. When
a member wishes to accept a bid or offer and engage in a transaction, our
traders manually introduce the parties to generate the lead. We currently
operate lead generation for basic, non-delivered products as a non-revenue
generating service to build
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membership and traffic to our portal and to educate active exchange participants
about the additional benefits of online trading.
REAL-TIME BANDWIDTH eXCHANGE (RTBX) (COMMENCED FEBRUARY 2000)
Deploying an online bandwidth exchange is the cornerstone of the
RateXchange business-to-business e-commerce strategy. On the RTBX, carriers and
capacity users establish memberships, adhere to terms and conditions established
by us for telecommunications performance standards and financial terms, and
trade in the exchange's multiple-user environment. To facilitate delivery of
capacity traded on our exchange, buyers and sellers interconnect facilities at
one or more of RateXchange's delivery hubs in the cities that comprise the
natural termination points for major traffic corridors. In February 2000, we
announced our opening of delivery hubs at major carrier interconnection
facilities in New York and Los Angeles. Once interconnected, customers can buy
or sell bandwidth with any other RateXchange member based on the standardized
contractual and credit terms and conditions.
CUSTOMAUCTIONS (PLANNED COMMENCEMENT: MID-2000)
We intend to develop a CustomAuctions service to facilitate the trade of
products with specific product, geographic or financial requirements that are
not covered by the RTBX. CustomAuctions service benefits include:
1. Providing specialized products to a large and pre-qualified market;
2. Significantly reducing time and cost of the transaction;
3. "Book-building" process to assure matching of supply/demand to
contract and market design; and
4. Market and contract design to assure optimal price discovery in
auction events.
We anticipate the first CustomAuctions auction event to be held during the year
2000.
COMPETITIVE CONDITIONS
Products, services and geographic location define the competitive
landscape for online bandwidth trading. At this stage in the telecommunications
exchange industry's development, we believe first-mover advantage is
significant. Because participation in a real-time bandwidth exchange requires
physical connection to one of the exchange's interconnection locations, once a
carrier is connected, the cost of moving operations to a new exchange will be
significant. In addition, building a critical mass of connected carriers creates
a network effect, with each new connection enhancing the value of the service to
all customers and raising the barrier to competition. For these reasons, we are
focused on attracting large numbers of users to our exchange and in connecting
significant numbers of carriers and other traders of bandwidth to our delivery
hubs.
We believe we are well positioned to compete effectively in this
competitive landscape for three reasons:
- NEUTRALITY - We believe that some of our competitors intend to
take positions in their own exchanges as market makers. This will
generate initial liquidity, but carrier reactions have been negative as
these companies are perceived as competing with their own exchange
customers.
- FIRST-MOVER ADVANTAGE - We believe that we are one of the
first bandwidth exchanges established in the United States and among the
first in the world. We also believe that we are currently one of the
only United States exchanges that:
- Provides a neutral bandwidth exchange with no other lines of
business;
- Provides delivery hubs in more than one region; and
- Provides a spot and forward contract exchange.
- INDUSTRY EXPERIENCE - Our management team's knowledge of key
industry participants in the core market and expertise in telephony and
financial markets adds credibility and reduces time to market.
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COMPETITORS
The companies currently in the online bandwidth trading market fall into
three categories: real-time exchanges, clearinghouses and lead-generation
services. We plan to operate primarily in the first category but will operate
services in other categories. Another category, offline brokers, also competes
with the new paradigm of online bandwidth trading.
- ELECTRONIC EXCHANGES
RTBX is an online electronic exchange. In the real-time
exchange model, a neutral third party operates an Internet-based
exchange with integrated real-time delivery of capacity bought and sold.
Members trade online on a route-by-route basis with variable terms. The
exchange provides a trading forum and facilitates the transaction
between buyer and seller, maintaining anonymity, and providing billing
and settlement services, quality assurance and the physical delivery hub
to fulfill the transaction. A typical business model involves a fee for
initial connection to the delivery hub, exchange membership fees and
commissions on each transaction completed on the exchange.
- CLEARINGHOUSES
Clearinghouses differ from exchanges in that they
aggregate supply and demand (sometimes taking a speculative position in
the market) and contract directly with buyers or sellers, rather than
facilitating a relationship between the two. In the current telecom
market, clearinghouses often also act as carriers, providing transit
over their own networks and least-cost routing services. Despite the
cost advantages of least-cost routing, many buyers are uncomfortable
ceding control of route selection to a third party or an automated
system. Most clearinghouse services deal only in IP telephony minutes, a
market that is small at the moment but growing rapidly.
- LEAD-GENERATION
Companies in the lead-generation category, including our
own lead-generation service, provide an opportunity for buyers and
sellers to identify trading opportunities through online listings. The
buyers and sellers then complete their deals offline, paying a
commission back to the listing service upon completion of the deal. In
contrast to real-time exchanges and clearing houses, lead-generation
services do nothing to reduce the typical 60-90 day fulfillment cycle.
They also typically depend on the "honor system" for buyers and sellers
to send commissions back to the lead-generation service. Though not
directly challenging to us, some lead-generation services include
geographic areas complementary to our initial targets.
- AUCTIONS
While Clearinghouse models employ an auction market design
into their least-cost routing mechanism, there is only one other
competitor that we know of that provides a service similar to our
CustomAuctions. This competitor is believed to have held at least one
auction but is not believed to have provided the contracting or market
design components and the auction was not a web-based event.
- OFFLINE BROKERS
As with any technological change, online bandwidth trading
must compete with established practices and routines. In this case, some
carriers do their own buying and selling through bilateral transactions
while others rely on brokers. The most successful brokers act as agents
for a small clientele of carriers, assisting them in buying and selling
certain routes for a commission estimated at $0.0025 to $0.005 per
minute. We will seek to attract some of these brokers to become traders
through RTBX.
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TARGET CUSTOMERS
The market for domestic and international bandwidth includes dominant
major Tier 1 carriers such as AT&T and MCI WorldCom as well as wholesale-only
carriers, resellers, brokers and large multinational corporations. Customer
interviews, surveys and a review of the industry press have yielded the
following observations:
- Customers have significant frustrations with the current process;
- Customers see benefits to trading with us;
- Customers have indicated willingness to interconnect with us and are
willing to pay for our services; and
- In addition to carriers, large corporate users of bandwidth and
telecom products may become direct users to purchase selected
bandwidth on a domestic or international city-to-city basis.
We anticipate that some early participants in the RTBX will be the large
inter-exchange carriers that are seeking ways to reduce sales inefficiencies and
take advantage of a new sales channel. These carriers have large and sometimes
costly sales forces aimed at the wholesale, ISP, and enterprise markets (the
Fortune 500). Selling bandwidth through us should allow carriers and ISPs to
serve additional market segments where they have less success due to the
cumbersome contract process, interconnection inefficiencies or where it may not
be financially prudent to use sales resources to sell low end products such as
DS-1 and DS-3 private lines. Our products may also allow carriers to serve
additional market segments, without re-directing, retraining or redeploying
their workforce. Because our members seeking to sell bandwidth and other
products will be required to agree to quality standards prior to
interconnection, we expect that the willingness of buyers to trade in our online
environment may be enhanced.
We believe that international carriers and ISPs seeking to expand their
operations into the United States may also be early participants in the
bandwidth markets. Many of these companies want to enter the United States
marketplace without the appearance that they are partnering with a particular
United States carrier. Initially, second- and third-tier carriers may buy
through us to obtain the best market pricing and to ensure a guaranteed
connection timeframe. We estimate that as acceptance of our exchange grows,
large ISPs and enterprises with strategic applications that require bandwidth
for a guaranteed period of time may use us to ensure access to bandwidth at the
required time of their application.
Initial buyers on our portal are expected to be small carriers, new
carriers, resellers and ISPs. We will offer these buyers easy access to large
carriers and their product offerings at competitive prices. Buyers will have
identical access, no matter their size or expertise, to the same competitive
products, prices and quality standards. Some of the new carriers interested in
this model are expected to include international telecommunications companies
entering the United States marketplace.
INDUSTRY INFORMATION
INDUSTRY OVERVIEW
At least one analyst estimates the market for bandwidth trading will
reach $12 billion in traffic with orders of magnitude greater in traded volume
in 5 years. Some analysts go further to predict that the competitive, or
tradable, market for communications bandwidth will exceed $400 billion in 2005,
surpassing the competitive worldwide market for electricity and gas.
SUITABILITY OF TELECOMMUNICATIONS FOR BUSINESS-TO-BUSINESS E-COMMERCE
- LARGE ADDRESSABLE MARKET - Annual global spending on telecom
services is currently $726 billion and is expected to grow to $1
trillion by 2001. Technology and deregulation continue to transform
the telecommunications market from a closed industry made up of
localized monopolies to an increasingly competitive marketplace.
Formerly state-owned carriers must both defend their own markets and
pursue opportunities abroad to remain competitive. Both new and
legacy carriers are taking advantage of rapid advances in technology
to build new networks with drastically lower costs of operation.
Liberalization of telecommunications, most recently with the World
Trade Organization agreement in which 70 countries,
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comprising 90% of telephone users, is allowing carrier competition.
The number of carriers licensed to trade international voice traffic
in the United States alone has doubled in each of the past three
years to well over 1,200.
- LOW TECHNOLOGICAL BARRIERS. - Most telecommunications professionals
are sophisticated users and present no barrier to adoption based on
innovations in software or hardware.
- BANDWIDTH IS A PERISHABLE COMMODITY - If bandwidth is not utilized
as an asset, the return on that asset is lost. Traditionally,
perishable commodities have been liquidated at a great loss to the
seller. We estimate that bilateral trading of bandwidth has resulted
in a loss equal to the market value of excess capacity.
- MARKET FRICTION AND INEFFICIENCY - Carriers are increasingly seeking
to use partnerships and outsource agreements to quickly gain access
to new markets or to alleviate congestion in their current networks.
These are the market drivers behind the rapidly growing spot and
forward markets. However, despite advances in hardware and software
technologies and increasing network interconnection,
telecommunications transactions remain inefficient due to legacy
business processes still utilized by carriers of all sizes.
TELECOMMUNICATIONS CAPACITY AS A BUSINESS-TO-BUSINESS COMMODITY
We believe that bandwidth demonstrates the qualities of a successful
tradable commodity. In order for a commodity to be successfully traded through
e-commerce, there needs to be a need or desire, economic or otherwise, to
promote trading, a sufficient number of buyers and sellers, standardization of
the commodity, and a physical ability to deliver the traded commodity.
We also believe there are a sufficient number of buyers and sellers to
support telecom bandwidth capacity as a commodity. The current trading methods
in bandwidth are quite inefficient given the multiple national and global
networks with approximately 10,000 potential buyers, including more than 6,000
ISPs. With such a large universe of potential buyers and sellers, we believe it
is atypical that a buyer or seller has achieved their best possible price using
the current bilateral, telephone-based, purchasing and selling approach.
Our hub approach further standardizes the trading points around delivery
hubs where large amounts of product are already traded. This hub approach has
proven very successful in natural gas (i.e., Henry Hub, Chicago and Perriem
Basin as the three big pool points) and in electricity (i.e., New York power
pool and Bloomberg's hub market such as the Western PJM Hub). An effective
exchange market requires an efficient delivery system and our delivery hubs are
expected to fulfill this requirement by establishing seamless delivery
capability at the traded points.
It is an economic axiom that all markets for services and commodities
are finite. Bandwidth is not a storable commodity; thus creative pricing
mechanisms will be played against one another until some predictability and
experience is gained. As demand approaches marginal costs, and suppliers,
jointly or in unison, move to limit supply, prices will approach equilibrium,
increasing volatility and furthering the online trading solution as the best
means to manage risk.
Finally, our approach of standardizing contracts (i.e., DS-1 and DS-3
monthly and yearly contracts), trading rules, settlement, scheduling, billing,
credit management and managed delivery should further enhance online trading of
bandwidth.
INTELLECTUAL PROPERTY
We have applied for several trademarks covering specific businesses and
products offered on our internet web site. We also hold several software
licenses that are critical to our ongoing business. We do not have any patents
or franchises.
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RESEARCH & DEVELOPMENT
We conduct on-going research in the areas of commoditization of
telecommunications bandwidth in evolving pricing models for bandwidth and other
telecommunications products and services, and we are developing future products
and services based on this research. During 1999, we estimate that we spent
approximately $100,000 to commission proprietary university-based and private
sector research in these areas. Prior to 1999, we did not have any significant
expenditures for research and development.
EMPLOYEES
As of March 27, 2000, NetAmerica.com and its subsidiaries employed
approximately thirty (30) people. We believe our relations with our employees
are good. Our employees are not subject to any collective bargaining agreements.
ITEM 2. PROPERTIES
Our principal facility is located at 185 Berry Street, Suite 3515, San
Francisco, California. We hold a lease on this facility. We believe that this
property is suitable for our immediate needs; however, we may expand our
facilities or relocate in the future.
ITEM 3. LEGAL PROCEEDINGS
On February 3, 2000, we filed a lawsuit against Waave
Telecommunications, Inc. in the San Francisco County Superior Court (Case No.
309608). Other defendants named in the lawsuit include Robert W. Ingraham, Gran
Columbia Resources, Inc. (aka Waave Telecommunications, Inc.) and Does One
through Fifty. The lawsuit involves claims for breach of contract, promissory
estoppel, fraud and deceit, intentional interference with a contract and
prospective economic advantage, and unfair and unlawful business practices. We
are seeking in excess of $1 million in compensatory damages, exemplary damages,
interest and attorneys fees.
On February 24, 2000, Concentric Network Corporation filed a lawsuit
against NetAmerica, Inc., aka A1 Internet, Inc., and us in the Superior Court of
California for the County of Santa Clara (CV 784335). The lawsuit involves
claims for breach of contract and common counts based on A1 Internet's
nonperformance in a settlement agreement between A1 Internet, Concentric and us.
Concentric is asking for compensatory damages of at least $167,794, restitution,
costs and attorney fees. We have issued 23,305 shares of our common stock for
settlement of this dispute and we do not believe that any additional
compensation will be required to resolve this lawsuit.
Additionally, from time to time, we are involved in ordinary routine
litigation incidental to our business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We held our annual meeting of shareholders on December 16, 1999. During
the meeting, holders of 7,659,141 shares, out of 13,645,156 shares outstanding
on the record date, attended either in person or by proxy. With respect to the
election of the Board of Directors, shareholders cast all of the 7,659,141
shares present and entitled to vote, with the following results: 7,659,141 votes
in favor of the appointment of Douglas D. Cole, John Dixon, Douglas Glen, Edward
P. Mooney and Donald H. Sledge as directors of the Company, 0 votes against and
0 abstentions.
With respect to the approval of our 1999 Stock Option Plan, shareholders
cast all of the 7,659,141 shares present and entitled to vote, with the
following results: 7,658,641 votes in favor of approval of the 1999 Stock Option
Plan, 500 votes against and 0 abstentions.
With respect to the ratification of the appointment of independent
auditors, shareholders cast all of the 7,659,141 shares present and entitled to
vote, with the following results: 7,658,941 votes in favor of ratification of
the appointment of Crouch, Bierwolf & Chisholm as our independent auditors for
the fiscal year ending December 31, 1999, 200 votes against and 0 abstentions.
12
<PAGE> 11
EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information regarding our executive
officers as of March 27, 2000:
<TABLE>
<CAPTION>
Name Age Position
- - ---------------- --- ------------------------------------------------------
<S> <C> <C>
Donald H. Sledge 59 Chairman of the Board of Directors and Chief Executive Officer
Ross Mayfield 29 President
Paul Wescott 42 Executive Vice President and Chief Operating Officer
Philip Rice 42 Executive Vice President and Chief Financial Officer
</TABLE>
- - ---------------------
Donald H. Sledge
Mr. Sledge was appointed Chairman of the Board of Directors and Chief
Executive Officer of the Company in February 2000. He has been a member of the
Board since September 1999. Mr. Sledge also serves as an officer of RateXchange,
Inc. Previously, he served as President and Chief Executive Officer of TeleHub
Communications Corporation, a next generation ATM-based telecommunications
company. From 1994 to 1995, Mr. Sledge was President and Chief Operating Officer
of WCT, a $160 million long-distance telephone company that was one of Fortune
Magazine's 25 fastest growing public companies before it was acquired by
Frontier Corporation. Mr. Sledge has also served as:
- the head of operations for New T&T, a Hong Kong-based start-up
company competing with Hong Kong Telephone,
- the Chairman and Chief Executive Officer of New Zealand Telecom
International,
- a member of the executive board of TCNZ, where he led privatization
and public offerings,
- the managing director of New Zealand's largest operating telephone
company, Telecom Auckland Ltd., and
- the President and Chief Executive Officer of Pacific Telesis
International.
One of the subsidiaries of TeleHub Communications, TeleHub Network Services
Corporation, filed for bankruptcy several months after Mr. Sledge resigned from
TeleHub. Mr. Sledge holds a Master of Business Administration degree and a
Bachelors of Arts degree in Industrial Management from Texas Technological
University.
Ross Mayfield
Mr. Mayfield was appointed President of the Company in February 2000. He
is a co-founder of RateXchange, Inc. and has also served as an officer of
RateXchange, Inc. since July 1999. Mr. Mayfield was previously the marketing
director for a privately held telecommunications group in the Baltic States and
was the lead manager of the group's initial public offering. He founded:
- a Web design/software development company headquartered in Tallinn,
Estonia, and
- an Internet service provider that provides access on cable TV
networks in Estonia and Lithuania.
Mr. Mayfield is also a former foreign and telecommunications policy advisor to
the Office of the President of Estonia and started his career in the nonprofit
sector in Washington DC. Mr. Mayfield holds a Bachelor of Arts degree in
Political Science from the University of California at Los Angeles (UCLA).
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<PAGE> 12
Paul Wescott
Mr. Wescott was appointed Executive Vice President and Chief Operating
Officer of the Company in February 2000. He has also served as an officer of
RateXchange, Inc. since September 1999. Prior to joining RateXchange, Inc., Mr.
Wescott was the vice president of marketing and interim Chief Executive Officer
of TimeShift, a business-to-business e-commerce company that provides
telecommunications carriers with a real-time transaction-processing network for
deploying and billing new services. He has 18 years of competitive
telecommunications experience with Sprint in marketing, business development,
sales, operations, product development, external affairs and network planning.
Following the passage of the Federal Telecommunications Act of 1996, Mr. Wescott
was responsible for the deployment of Sprint's competitive local exchange
carrier (CLEC) in a seven-state region. Previously, he developed joint marketing
programs and new national distribution channels for both the consumer and small
business markets. Mr. Wescott has a Bachelor of Arts degree in history from the
University of California at Berkeley and a Master of Business Administration
degree in finance from the University of San Francisco.
Philip Rice
Philip Rice was appointed Executive Vice President and Chief Financial
Officer in March 2000. Mr. Rice was previously Vice President and Treasurer for
Transamerica Corporation, a diversified financial services company. Mr. Rice was
part of Transamerica's Senior Management and was head of the Treasury
Department, responsible for all corporate treasury functions including finance,
debt management, cash management, risk management, capital markets,
securitization and asset liability management. Prior to joining Transamerica,
Mr. Rice headed Atlas-Pleiades Partners, an investment firm he founded in San
Francisco. Prior to forming that company, Mr. Rice held senior financial
management positions with several firms including SBC Warburg, Goldman Sachs and
AIG Financial Products Corporation. Mr. Rice received his Bachelor of Arts
degree from Williams College, where he was elected Phi Betta Kappa and received
the Horace Clark Prize for outstanding scholarship. He also holds a Master of
Business Administration degree from the University of California, Berkeley,
where he received the ARCO Prize for outstanding scholarship
OTHER KEY EMPLOYEES
Russell Matulich, 36, is Vice President of Sales and Marketing. We hired
Mr. Matulich in 1999. From 1998 until 1999, as the vice president of global
sales and marketing for WorldPort Communications, Mr. Matulich managed a global
sales force that targeted carriers, high-end corporate accounts and ISPs,
primarily in Europe. Prior to that, Mr. Matulich held the position of Vice
President of Regional Sales at Frontier Telecommunications, where he recruited
and hired one of the highest producing carrier sales forces in the nation and
was awarded Frontier's highest sales award. From 1996 until 1997, Mr. Matulich
was Vice President of the West Region at Citizen Communications. Mr. Matulich
has over 15 years of experience in the development, implementation and
management of marketing programs for both start-up venture and established
telecommunications corporations competing in international markets.
J. Terry Ginn, 54, is Vice President of Software Engineering and
Development, responsible for developing the architecture and the platform on
which RTBX will operate. We hired Mr. Ginn in 1999. Mr. Ginn performs a
leadership role in the engineering of the RateXchange Web site and other
services. Previously the Director of Engineering of SRI International from 1993
until 1999, Mr. Ginn was responsible for profit and loss for multiple programs,
with additional responsibilities including planning, marketing, program
management, operations and personnel management. With software skills acquired
from developing over 1 million lines of code in multiple operating systems and
languages, he has a broad range of competencies in software design and
engineering. While working at Hughes Aircraft Company, Mr. Ginn performed
initial systems requirements analysis and design using object-oriented
techniques, and he developed software processes and procedures at Lockheed
Sanders. Mr. Ginn holds a Bachelor of Science degree and a Master of Science
degree in Mathematics from the University of Kentucky.
R. Nick Cioll, 41, is the Vice President of Trading Operations. He
supervises the development and implementation of our credit, settlement and
payment mechanism for bandwidth trade. We hired Mr. Cioll in 1999. Mr. Cioll has
over 10 years of broad-based senior management experience in finance,
international business development and marketing, strategic planning, mergers
and acquisitions, initial and secondary public financings,
14
<PAGE> 13
and strategic planning in the electricity, energy, chemicals, metals and
e-commerce industries. As Vice President of Automated Power Exchange until
October 1999, Mr. Cioll was responsible for leading the sales and marketing
group in a company that is a private developer of power exchanges and
business-to-business e-commerce for electricity. During this time he led
development of Automated Power Exchange's marketing strategies and tactical
plans to expand the business. From 1995 to 1998, Mr. Cioll was the Director of
Business Development at Kaiser Aluminum. Mr. Cioll has a Bachelor of Science
degree in economics from Louisiana State University and a Master of Science in
finance and Master of Business Administration degree from the University of New
Orleans. He is also a licensed Certified Public Accountant.
15
<PAGE> 14
FORM 10-K
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
Our common stock trades on the OTC Bulletin Board under the symbol
"NAMI." The following table sets forth the range of the high and low sales
prices per share of our common stock for the fiscal quarters indicated, as
reported by OTC. Prior to December 18, 1998, there was no known public trading
in our common stock. Quotations represent inter-dealer prices, without retail
markup, markdown, or commission and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
HIGH LOW
------ -------
<S> <C> <C>
1999
Fourth Quarter $8 7/8 $3 3/4
Third Quarter 6 3/4 4 3/8
Second Quarter 7 1/4 5 1/2
First Quarter 6 7/8 4 1/2
1998
Fourth Quarter $5 3/8 $4 1/2
Third Quarter N/A N/A
Second Quarter N/A N/A
First Quarter N/A N/A
</TABLE>
APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
On March 27, 2000, there were 337 shareholders of record of our common
stock. Because many of such shares are held by brokers and other institutions on
behalf of shareholders, we are unable to estimate the total number of
shareholders represented by these record holders.
DIVIDENDS
We do not presently pay dividends on our common stock. We intend for the
foreseeable future to continue the policy of retaining our earnings to finance
the development and growth of our business.
UNREGISTERED EQUITY SECURITIES SOLD DURING 1999
- On January 2, 1999, we issued to certain related parties 916,574 shares
of our common stock for $91,657 in notes. We issued the shares to
accredited investors in reliance upon Section 4(2) of the 1933 Act.
- In January 1999, we issued to certain services providers 322,500 shares
of our common stock for cost reimbursement. The costs were valued at
$32,250. We issued the shares to accredited investors in reliance upon
Section 4(2) of the 1933 Act.
- In a private placement conducted between November 1998 and March 1999,
we issued to certain private placement investors and related parties a
total of 1,864,688 shares of our common stock for cash and 3,112,500
shares of common stock for notes at an effective purchase price of $1.07
per share ($5,115,100 net). We issued the shares to accredited investors
in reliance upon Section 4(2) of the 1933 Act.
- In March 1999, we issued to certain services providers 268,500 shares of
our common stock for services. The services were valued at $287,233. We
issued the shares to accredited investors in reliance upon Section 4(2)
of the 1933 Act.
16
<PAGE> 15
- Between March and May, 1999, we issued to A1 Internet creditors 193,186
shares of our common stock to settle and discharge obligations owed by
A1 Internet to creditors. These obligations totaled $216,879. We issued
the shares to accredited investors in reliance upon Section 4(2) of the
1933 Act.
- In March 1999, we issued to certain service providers 30,000 shares of
our common stock for services valued at $32,000. We issued the shares to
accredited investors in reliance upon Section 4(2) of the 1933 Act.
- In March 1999, we issued to certain services providers 30,000 shares of
our common stock for $30,000 in notes. We issued the shares to
accredited investors in reliance upon Section 4(2) of the 1933 Act.
- In a private placement conducted between May and June 1999, we issued to
certain private placement investors a total of 515,188 shares of our
common stock for cash at a price of $1.60 per share ($628,272 net). We
issued an additional 122,518 shares (valued at $196,029) of our common
stock as commissions in this private placement. We issued the shares to
accredited investors in reliance upon Section 4(2) of the 1933 Act.
- On July 6, 1999, we issued 574,998 shares ($920,000 aggregate) of our
common stock to the shareholders of Rate Exchange, Inc. to acquire all
of the outstanding stock of Rate Exchange, Inc. We issued the shares to
accredited investors in reliance upon Section 4(2) of the 1933 Act.
- Between December 1998 and November 1999, we granted to our employees,
officers, directors, consultants and advisors a total of 2,990,000
options and 625,000 warrants to purchase shares of our common stock at
exercise prices ranging from $.05 to $2.75. We issued the shares in
reliance upon Rule 506 of Regulation D and Section 4(2) of the 1933 Act.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE YEAR 1999 1998 1997 1996 1995
------------ ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues $ -- $ -- $ -- $ -- $ --
Income (loss) from operations (7,329,280) (1,116,953) (200) (1,961) (2,561)
Income (loss) per common share
Basic (0.57) (0.68) -- -- --
Diluted (0.57) (0.68) -- -- --
Average weighted number of
common shares outstanding:
Basic 12,863,020 1,636,919 200,000 200,000 200,000
Diluted 12,863,020 1,636,919 200,000 200,000 200,000
AT END OF YEAR
Total assets $ 2,749,222 $ 878,146 $ -- $ -- $ 211
Long-term debt, less current
portion $ -- $ -- $ -- $ -- $ --
Stockholders' equity $ 224,921 $ 809,946 $ (200) $ (1,300) $ (5,689)
</TABLE>
17
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussions should be read in conjunction with our
Consolidated Financial Statements contained herein under Item 8 of this report.
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Dec. 31, Dec. 31, Dec. 31,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenue: -- -- --
Expenses (including selling,
general and administrative) $ 7,474,757 $ 1,108,394 $ 200
----------- ----------- -----
Net earnings (loss) $(7,329,280) $(1,116,953) $(200)
=========== =========== =====
</TABLE>
RESULTS OF OPERATIONS
1999 VS. 1998
Revenue
We have not generated any revenues since inception. The only income we
generated during 1999 and 1998 was interest income on our subscription
receivables. Interest income for 1999 was $151,276 as compared to $2,214 for
1998. The increase in interest income is attributable to the amount of
subscription receivables carried during 1999 versus 1998. Most of the
receivables have been collected and interest income from this source will be
substantially less in future periods.
Expenses
Our total expenses for 1999 increased substantially as compared to the
previous period in 1998 because of the time period we had operations in 1999 as
compared to 1998. Operations did not begin until September 30, 1998 (three
months) as compared to operations for the full year of 1999. We did not engage
in any ongoing business and incurred expenses related to finding and funding a
development stage enterprise. We investigated many potential acquisition targets
and succeeded in creating one entity, Telenisus Corporation, and acquiring
another entity, RateXchange, Inc.
We funded Telenisus Corporation with an original equity capitalization
of $75,000 and loans that were repaid. We also covered certain of the Telenisus
operating expenses that were not reimbursed. Further funding of Telenisus was
completed on its own and did not affect our operations.
RateXchange, Inc. is now our only operating subsidiary and
during 1999, it was reliant primarily on our financing activities for
its operations.
Total expenses for 1999 were $7,474,757 for the year and consisted of
the following:
- $1,537,300 for write down of goodwill;
- $863,750 for bad debt expense from advances to A1 Internet, Inc.;
- $2,522,222 for legal, accounting, consulting and other operational
expenses related to business development;
- $1,325,106 for payroll and payroll taxes;
- $501,839 for office and other administrative expenses;
- $342,762 for travel; and
- $381,778 for other miscellaneous expenses.
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<PAGE> 17
Total expenses for 1998 related to operations since September 30, 1998
and only included the activity of NetAmerica.com because there were no
subsidiaries operating in 1998.
1998 VS. 1997
Revenue
We have not generated any revenues since inception. The only income we
recorded in 1998 related to interest income of $2,214 which was from
subscriptions receivable. There was no income for 1997 because we did not have
any material operations in that year.
Expenses
Total expenses for 1998 were $1,108,394 for the year and consisted of
the following:
- $885,000 for bad debt expenses from advances to A1 Internet, Inc.;
- $44,855 for the write down of goodwill from the purchase of
PolarCap, Inc.; and
- $178,539 for other miscellaneous expenses.
Total expenses for 1997 were $200 for miscellaneous expenses.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations to date primarily through the sale of
equity securities. We have been unprofitable since inception and we have
incurred net losses in each year.
We had negative working capital of $128,733 at December 31, 1999
compared to $461,954 on December 31, 1998. At December 31, 1999, we had
subscription receivables in the amount of $1,787,531 which were due and payable
in 2001. As of March 27, 2000, all subscription receivables were paid in full
one year prior to the due date.
Our operating activities used $2,827,690 during the twelve months ended
December 31, 1999 due primarily to our:
- operating losses,
- increased business development,
- expansion of our executive management team,
- acquisitions and integration of acquisitions,
- identification and analysis of prospective acquisition candidates,
- legal, accounting and consulting expenses, and
- lease deposits and payments and other operating expenses.
Our investing activities consumed $1,525,738 during the twelve months
ended December 31, 1999, primarily to purchase equipment and for the
identification, acquisition and integration of acquisition targets.
Financing activities generated $4,276,527 during the twelve months ended
December 31, 1999. Financing activities during the twelve months ended December
31, 1999 consisted primarily of proceeds from sales of common stock. The
proceeds of the sales of common stock were and will be used for acquisitions,
business development, accounts payable, equipment purchases, and for general
working capital. The various sales of common stock are as follows:
19
<PAGE> 18
- Between November 1998 and March 1999, we sold a total of 1,864,688
shares of our restricted common shares to accredited investors. The
shares were sold at an effective subscription price of $1.07 per
share. After deducting the offering expenses related to the
offering, we received $1,745,000 in cash, of which approximately
$1,631,188 was advanced to A1 Internet as working capital and for
debt repayment.
- In January 1999, we sold 916,574 shares of common stock to certain
related parties at a price of $.10 per share for notes. In March
1999, we sold 3,112,500 additional common shares as part of the
above private placement offering at an effective price per share of
$1.07 for notes. As of December 31, 1999, we collected a total of
approximately $1,924,126 from note repayments from both the January
and March offerings. As of March 27, 2000, all notes were repaid.
- In the second quarter 1999, we sold 515,188 shares of stock for
$1.60 per share in a second private placement and received a total
of $628,272 net proceeds.
Through our operating subsidiary, RateXchange, Inc., we are developing
an overall business plan for a telecommunications bandwidth and services
exchange that requires significant additional capital for among other uses:
- additional equipment and facilities,
- expansion into new domestic and international markets,
- additional management and personnel,
- development of additional products and services, and
- acquisitions.
At year end, we determined that our funding of working capital and
current and future operating losses would require additional capital investment.
We do not currently possess a bank source of financing and we have not had any
revenues.
Subsequent to year end, we closed a $32.8 million private placement. We
anticipate that these funds will be sufficient to facilitate our business plan
and cover our operating expenses for the next twelve (12) months. Based on our
planned expansion; however, we may need to seek additional funding in the
future.
Our business and operations have not been materially affected by
inflation during the periods for which financial information is presented.
OUTLOOK
Historically, we have not had any long-term successful business
operations and we are concentrating our efforts in developing a new business
model for business-to-business e-commerce products and services for the
telecommunications sector. We are in an early stage of development and we are
subject to all the risks inherent in the establishment of a new business
enterprise. To address these risks, we must:
- establish market acceptance for our online exchange and other
products and services,
- implement and successfully execute our business and marketing
strategy,
- respond to competitive developments,
- continue to develop and upgrade our exchange and delivery hub
technology,
- continue to attract, retain and motivate qualified personnel, and
20
<PAGE> 19
- effectively manage our capital to support the expenses of developing
and marketing new products and services.
The foregoing contains forward-looking statements that involve risks and
uncertainties, including but not limited to, changes in our business strategy,
our inability to raise sufficient capital, general market trends and conditions,
and other risks detailed below in "Factors That May Affect Future Results."
Actual results may vary materially from projected results.
SUBSEQUENT EVENTS
RESTRUCTURING
On February 7, 2000, we announced our intention to change our name to
RateXchange Corporation (subject to shareholder approval) and to focus our
efforts on the business of RateXchange, Inc. The shareholder meeting is
scheduled to be held on April 20, 2000.
BRIDGE LOAN
In January 2000, RateXchange, Inc. closed a $2,000,000 convertible note
offering. The note offered was convertible into RateXchange, Inc. common stock
at a price per share to be determined in an anticipated subsequent financing of
RateXchange, Inc. In addition, warrants to purchase RateXchange common stock
were issued.
As a result of our new business strategy, we offered to such note
holders the right to convert their notes into NetAmerica.com common stock at an
exchange rate of $5.00 per share. In addition, we agreed to issue such holders
an aggregate of 500,000 warrants to purchase common stock at $5.00 per share.
Any note holders who decline this offer will be entitled to rescind their
original investment and receive their principal back in full, including accrued
interest.
PRIVATE PLACEMENT
On March 20, 2000, we closed a $32.8 million private placement. The
proceeds will be used to accelerate deployment of our delivery hubs, expand our
online marketplace for telecommunications products and enhance our geographic
reach and product line. The placement was priced at $12.00 per share, the
approximate seven trading day average closing price of our common stock prior to
the commencement of the private placement.
FACTORS THAT MAY AFFECT FUTURE RESULTS
We operate in a highly competitive market that involves a number of
risks. While we are optimistic about our long-term prospects, the following
discussion highlights some risks and uncertainties that should be considered in
evaluating our growth outlook. See "Forward-Looking Statements and Associated
Risks" in Part I of this annual report.
AS A DEVELOPMENT STAGE COMPANY WITH A LIMITED OPERATING HISTORY IN A NEW AND
RAPIDLY CHANGING INDUSTRY, IT IS DIFFICULT TO EVALUATE OUR BUSINESS AND
PROSPECTS.
We are a development stage company with a limited operating history. Our
activities to date, including the activities of our predecessor, have
concentrated on:
- offering a free online lead-generation service in order to build
clientele and educate potential exchange participants about the
benefits of online trading; and
- planning and developing our online exchange for trading bandwidth,
and other telecommunications products.
Accordingly, we have a limited operating history on which to base an
evaluation of our business and prospects. Our prospects must be considered in
light of the risks, expenses and difficulties frequently encountered by
companies in their early stage of development, particularly companies in new and
rapidly evolving markets such
21
<PAGE> 20
as online commerce. There can be no assurance that we will be successful in
addressing such risks, and the failure to do so could have a material adverse
effect on our business and results of operations.
OUR SUCCESS DEPENDS ON OUR ABILITY TO SUCCESSFULLY DEVELOP OUR ONLINE EXCHANGE,
SECURE PARTICIPATION IN THE EXCHANGE AND CONNECT PARTICIPANTS TO OUR NETWORK.
Our online exchange is still in the early stages of continued
development and implementation and, as such, is subject to the inherent risks
involved in the development and implementation of an integrated hardware and
software application.
The success of our online exchange is dependent upon the creation of a
network of physically interconnected users. Prior to trading on the exchange,
users must connect to our network at one of our delivery hubs. We currently do
not own any delivery hub equipment or other infrastructure necessary to
interconnect users. Instead, we plan to lease switching capacity from one or
more providers. There is a risk that we will not be able to identify suitable
switching facilities, or even if we do identify such facilities, we may not be
able to enter into contractual arrangements on favorable terms, if at all.
Although we have established a timetable for the full launch of our
online exchange, we may need additional time and substantially more resources
than anticipated to develop the website and configure the necessary
infrastructure in multiple cities. Setbacks in the development, or delays in
developing, the online exchange would have a material adverse effect on our
business and results of operations.
The success of our business depends on our ability to attract users to
our online exchange. While we have identified target users, there can be no
assurance that we will be able to secure their participation in the exchange.
Users must agree to physically connect their systems to our network. In
addition, we do not presently have commitments from any of the members of our
free online lead-generation service to participate in the fee-based online
exchange, and therefore, there can be no assurance that any such members will
use the online exchange.
WE HAVE A HISTORY OF LOSSES AND EXPECT TO INCUR LOSSES IN THE FUTURE, AND WE MAY
NEVER ACHIEVE PROFITABILITY.
At December 31, 1999, our accumulated deficit since inception was
$(8,667,576). For the fiscal year ended December 31, 1999, we incurred net
losses of $(7,329,280). We have incurred a net loss in each year of our
existence, and have financed our operations primarily through sales of equity
securities. Our expense levels are high and our revenues nonexistent. We expect
to incur net losses for the foreseeable future. We may never achieve or sustain
significant revenues or profitability on a quarterly or annual basis in the
future.
IF OUR ONLINE EXCHANGE DOES NOT ACHIEVE COMMERCIAL ACCEPTANCE, OUR RESULTS WILL
SUFFER.
We will rely primarily on a single source (fees and commissions from
transactions facilitated on the online exchange) for our revenues for the
foreseeable future. Online trading of telecommunications bandwidth and minutes
currently has only a limited market acceptance. As a result, our future ability
to gain commercial acceptance of our online exchange is critical to our success.
Any failure to successfully gain commercial acceptance of our online exchange
would not only have a material adverse effect on our business and results of
operation but also on our ability to seek additional revenue opportunities.
WE EXPECT TO NEED ADDITIONAL CAPITAL IN THE FUTURE AND IT MAY NOT BE AVAILABLE
ON ACCEPTABLE TERMS.
We anticipate incurring substantial costs in developing, operating and
maintaining the online exchange and in implementing the objectives of our
business plan. We may need significant amounts of working capital for
infrastructure, software development, marketing, personnel, general and
administrative costs, and to fund losses prior to achieving profitability.
We may need to raise additional funds through additional equity and/or
debt financings to meet our capital requirements. We may need to raise
additional funds if we have underestimated our capital needs or if we incur
unexpected expenses. There can be no assurance that such financings will be
available in amounts or on terms acceptable to us, if at all. Further, our lack
of tangible assets to pledge could prevent us from establishing a source
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<PAGE> 21
of financing. The inability to raise all needed funding would adversely affect
our ability to successfully implement the objectives of our business plan.
WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY AGAINST CURRENT AND FUTURE
COMPETITORS.
The market for online bandwidth and minutes trading services is new,
rapidly evolving and very competitive, as are the online commerce and
business-to-business e-commerce markets generally. We expect competition in this
market to intensify in the future. Several of our existing competitors, such as
InterXion, Band-X, Enron and Arbinet, currently operate online exchanges and
have large established customer bases. Our ability to compete with them will
depend largely upon our ability to capture market share by obtaining sufficient
participants for our online exchange.
In addition, we compete with all companies who trade, broker, or
otherwise assist in the buying and selling of telecommunications bandwidth and
minutes. Therefore, we currently or potentially compete with a variety of other
companies, including established clearinghouses, lead-generation services and
traditional offline brokers. We are aware of established clearinghouses, such as
Arbinet, GRIC, ITXC and AT&T Global Clearinghouse, that aggregate supply and
demand and contract directly with buyers or sellers, rather than facilitate
trades. Many established companies, such as Band-X, Min-X, Asia Capacity
Exchange and Cape Saffron offer lead-generation services which provide
opportunities for buyers and sellers to identify trading opportunities through
online listings. Barriers to entry in the lead-generation category are minimal,
as current and new competitors can launch sites at a relatively low cost.
Traditional offline brokers act as agents for buyers and sellers of bandwidth
for a commission and have the advantage of established industry practices and
industry contacts. The increased use and acceptance of any other method of
facilitating the buying and selling of excess telecommunications bandwidth and
minutes may adversely impact the commercial viability of our online exchange.
Large telecommunications companies such as AT&T and MCI Worldcom have
the ability and resources to compete in the online bandwidth and minutes trading
services market if they choose to do so, including launching their own online
exchanges or offering clearinghouse and other trading services. Many of our
competitors have substantially greater financial, technical and marketing
resources, larger customer bases, longer operating histories, greater name
recognition and more established relationships in the industry than we have. In
addition, a number of these competitors may combine or form strategic
partnerships. As a result, our competitors may be able to offer, or bring to
market earlier, products and services that are superior to our own in terms of
features, quality, pricing or other factors. Our failure to compete successfully
with any of these companies could have a material adverse effect on our business
and results of operations.
Increased pressure created by any present or future competitors, or by
our competitors collectively, could have a material adverse effect on our
business and results of operations. Increased competition may result in reduced
commissions and loss of market share. Further, as a strategic response to
changes in the competitive environment, we may from time to time make certain
pricing, service or marketing decisions or acquisitions that could have a
material adverse effect on our business and results of operations. There can be
no assurance that we will be able to compete successfully against current and
future competitors. In addition, new technologies and the expansion of existing
technologies may increase the competitive pressures on us.
WE MAY BECOME SUBJECT TO REGULATION BY THE COMMODITY FUTURES TRADING COMMISSION
DEPENDING ON THE TYPES OF PRODUCTS AND SERVICES WE EVENTUALLY INTRODUCE.
We propose to develop an online exchange for trading spot and forward
contracts for the purchase or sale of bandwidth and other telecommunications
products. Spot contracts for the near term delivery of a commodity are not
subject to regulation by the Commodity Futures Trading Commission ("CFTC").
Forward contracts, which impose binding obligations for the deferred delivery of
a commodity between commercial parties, also are excluded from the CFTC's
jurisdiction. We currently intend to operate our online exchange in a manner
consistent with existing regulatory guidance concerning transactions and
services that are not subject to regulation by the CFTC.
The Commodity Exchange Act provides that futures contracts may only be
entered into on an exchange that has been designated by the CFTC as a contract
market. If we elected in the future to provide trading and/or clearing services
for futures contracts and options on futures contracts, we would have to apply
to the CFTC for designation as a contract market. The contract market
designation process is complicated, time consuming, and
23
<PAGE> 22
expensive. We cannot assure that we could satisfy all of the regulatory
requirements applicable to obtaining designation as a contract market or predict
how long the process would take.
Contract markets must comply on an ongoing basis with numerous
regulatory requirements. Those requirements currently include submitting all
proposed rules and contracts, and proposed changes to existing rules and
contracts, to the CFTC for prior review and approval, implementing and enforcing
disciplinary rules, and submitting reports to the CFTC on, among other things,
trading volume, open contracts, and prices.
The CFTC has never determined whether some or all swap agreements are
futures contracts. Nevertheless, depending on the type of trading and/or
clearing services that we elected in the future to provide for swap agreements,
we may need to request an exemption from the CFTC from the requirement that
futures contracts and options on futures contracts only be traded on a
CFTC-designated contract market. The CFTC is under no obligation to reach a
decision within a certain period or to grant an exemption.
Future regulatory changes also could affect our operations. Pending
regulatory proposals, if they become law, may remove some of the obstacles to
our providing trading and/or clearing services for swap agreements involving
telecommunications products. Some of those proposals still would subject
possible future services to CFTC regulation. We are unable to predict at this
time, however, whether pending regulatory proposals, if enacted, would have an
affect on our ability to offer trading and/or clearing services for swap
agreements, futures contracts and options on futures contracts involving
telecommunications products.
WE ARE DEPENDENT ON THE CONTINUED GROWTH OF ONLINE COMMERCE AND THE ACCEPTANCE
BY USERS OF THE INTERNET AS A MEANS FOR TRADING EXCESS BANDWIDTH AND MINUTES.
Our future revenues and profits are substantially dependent upon the
widespread acceptance and use of the Internet and online services as an
effective medium of commerce by businesses. Rapid growth in the use of and
interest in the Internet and online services is a recent phenomenon, and there
can be no assurance that acceptance and use will continue to develop or that a
sufficiently broad base of businesses or customers will adopt, and continue to
use, the Internet and online services as a medium of commerce.
Demand and market acceptance for recently introduced services and
products over the Internet are subject to a high level of uncertainty. We will
rely on customers who have historically used traditional offline means of
commerce to buy and sell excess telecommunications bandwidth and minutes. For us
to be successful, these customers must accept and utilize novel ways of
conducting business and exchanging information over the Internet.
Critical issues concerning the commercial use of the Internet, such as
ease of access, security, reliability, cost and quality of service, remain
unresolved and may affect the growth of Internet use or the attractiveness of
conducting commerce online. In addition, the Internet and online services may
not be accepted as a viable commercial marketplace for a number of reasons,
including potentially inadequate development of the necessary network
infrastructure or delayed development of enabling technologies and performance
improvements. To the extent that the Internet and online services continue to
experience significant growth, there can be no assurance that the infrastructure
of the Internet and online services will prove adequate to support increased
user demands. In addition, the Internet or online services could lose their
viability due to delays in the development or adoption of new standards and
protocols required to handle increased levels of Internet or online service
activity. Changes in or insufficient availability of telecommunications services
to support the Internet or online services also could result in slower response
times and adversely affect usage of the Internet and online services generally
and us in particular. If use of the Internet and online services does not
continue to grow or grows more slowly than expected, if the infrastructure for
the Internet and online services does not effectively support growth that may
occur, or if the Internet and online services do not become a viable commercial
marketplace, we would be materially adversely affected.
WE FACE ONLINE COMMERCE SECURITY RISKS.
We rely on encryption and authentication technology licensed from third
parties to provide the security and authentication necessary to effect secure
transmission of confidential information, such as bank account or credit
information. There can be no assurance that advances in computer capabilities,
new discoveries in the field of cryptography, or other events or developments
will not result in a compromise or breach of the algorithms used by
24
<PAGE> 23
us to protect transaction data. Any compromise of our security could have a
material adverse effect on us and our reputation. A party who is able to
circumvent our security measures could misappropriate proprietary information or
cause interruptions in our operations. We may be required to expend significant
capital and other resources to protect against such security breaches or to
alleviate problems caused by such breaches. To the extent that our activities or
those of third party contractors involve the storage and transmission of
proprietary information, such as bank account or credit information, security
breaches could damage our reputation and expose us to a risk of loss or
litigation and possible liability which could have a material adverse effect on
our business and results of operations.
OUR OPERATING RESULTS COULD BE IMPAIRED IF WE ARE OR BECOME SUBJECT TO
BURDENSOME GOVERNMENTAL REGULATION OF ONLINE COMMERCE.
We are not currently subject to direct regulation by any domestic or
foreign governmental agency, other than regulations applicable to businesses
generally, including e-commerce companies. However, due to the increasing
popularity and use of the Internet and other online services, it is possible
that a number of laws and regulations may be adopted with respect to the
Internet or other online services covering issues such as:
- user privacy,
- pricing,
- content,
- copyrights,
- distribution, and
- characteristics and quality of products and services.
The adoption of any additional laws or regulations may decrease the
growth of the Internet or other online services, which could, in turn, decrease
the demand for our products and services and increase our cost of doing
business, or otherwise have an adverse effect on our business and results of
operations. Moreover, the applicability to the Internet and other online
services of existing laws in various jurisdictions governing issues such as
property ownership, sales and other taxes and personal privacy is uncertain and
may take years to resolve.
We plan to facilitate transactions between numerous customers residing
in various states and foreign countries, and such jurisdictions may claim that
we are required to qualify to do business as a foreign corporation in each such
state and foreign country. Our failure to qualify as a foreign corporation in a
jurisdiction where it is required to do so could subject us to taxes and
penalties. Any new legislation or regulation, the application of laws and
regulations from jurisdictions whose laws do not currently apply to our
business, or the application of existing laws and regulations to the Internet
and other online services could have a material adverse effect on our business
and results of operations.
WE MAY FACE LIABILITY FOR INFORMATION RETRIEVED FROM OUR WEBSITE.
Due to the fact that material may be downloaded from our website and
subsequently distributed to others, there is a potential that claims may be made
against us for negligence, copyright or trademark infringement or other theories
based on the nature and content of such material. Although we carry general
liability insurance, our insurance may not cover potential claims of this type
or may not be adequate to cover all costs incurred in defense of potential
claims or to indemnify us for all liability that may be imposed. Any costs or
imposition of liability that is not covered by insurance or in excess of
insurance coverage could have a material adverse effect on our business and
results of operations.
WE ARE AT RISK OF CAPACITY CONSTRAINTS AND FACE SYSTEM DEVELOPMENT RISKS.
The satisfactory performance, reliability and availability of our online
exchange and the related network infrastructure are critical to our reputation
and our ability to attract and retain users and maintain adequate customer
service levels. Our revenues depend on the number of users of our online and the
volume of trading that the
25
<PAGE> 24
exchange facilitates. Any system interruptions that result in the unavailability
of our website or reduced performance of the online exchange could reduce the
volume of bandwidth traded and the attractiveness of our website as a means for
such trading.
As a start-up venture, we expect to experience system interruptions,
which may continue to occur from time to time. There may be a significant need
to upgrade the capacity of our website in order to handle thousands of
simultaneous users and transactions. Our inability to add additional software
and hardware or to develop and upgrade further our existing technology,
transaction-processing systems or network infrastructure to accommodate
increased traffic on our online bandwidth exchange or increased trading volume
through our online trading or transaction-processing systems may cause
unanticipated system disruptions, slower response times, degradation in levels
of customer service and impaired quality and speed of trade processing, any of
which could have a material adverse effect on our business and results of
operations.
OUR BUSINESS AND OPERATIONS WOULD SUFFER IN THE EVENT OF SYSTEM FAILURES.
Our success, in particular our ability to successfully facilitate
bandwidth trades and provide high-quality customer service, largely depends on
the efficient and uninterrupted operation of our computer and communications
hardware systems. Our systems and operations are vulnerable to damage or
interruption from fire, flood, power loss, telecommunications failure,
break-ins, earthquake and similar events. We do not have a formal disaster
recovery plan and carry only limited business interruption insurance to
compensate us for losses that may occur. Despite the implementation of network
security measures, our servers are vulnerable to computer viruses, physical or
electronic break-ins and similar disruptions, which could lead to interruptions,
delays, loss of data or the inability to accept and fulfill customer orders. In
addition, we rely on online trading software developed by third parties.
Disruptions or failures in the online trading software systems, or the
occurrence of any of the other foregoing system disruptions, could have a
material adverse effect on our business and results of operations.
IF WE DO NOT RESPOND EFFECTIVELY TO TECHNOLOGICAL CHANGE, OUR SERVICE COULD
BECOME OBSOLETE AND OUR BUSINESS WILL SUFFER.
To remain competitive, we must continue to enhance and improve the
responsiveness, functionality and features of our online exchange. The Internet
and the online commerce industry are characterized by rapid technological
change, changes in user and customer requirements and preferences, frequent new
product and service introductions embodying new technologies and the emergence
of new industry standards and practices that could render our existing online
exchange and proprietary technology and systems obsolete. Our success will
depend, in part, on our ability to license leading technologies useful in our
business, enhance our existing services, develop new services and technology
that address the increasingly sophisticated and varied needs of our prospective
customers, and respond to technological advances and emerging industry standards
and practices on a cost-effective and timely basis.
The development of the online exchange and other proprietary technology
entails significant technical and business risks. There can be no assurance that
we will successfully use new technologies effectively or adapt our online
exchange and proprietary technology to user requirements or emerging industry
standards. Our failure to adapt in a timely manner for technical, legal,
financial or other reasons, to changing market conditions or customer
requirements, could have a material adverse effect on our business and results
of operations.
IF WE DO NOT EFFECTIVELY MANAGE GROWTH, OUR ABILITY TO PROVIDE TRADING SERVICES
WILL SUFFER.
To manage the expected growth of our operations and personnel, we will
be required to improve existing and implement new transaction-processing,
operational and financial systems, procedures and controls, and to expand, train
and manage a growing employee base. Further, we will be required to maintain and
expand our relationships with various hardware and software vendors, Internet
and other online service providers and other third parties necessary to our
business. If we are unable to manage growth effectively, we will be materially
adversely affected.
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<PAGE> 25
WE NEED TO HIRE AND RETAIN QUALIFIED PERSONNEL TO SUSTAIN OUR BUSINESS.
We are currently managed by a small number of key management and
operating personnel. We do not maintain "key man" insurance on, any employee.
Our future success depends, in part, on the continued service of our key
executive, management, and technical personnel, many of whom have only recently
been hired, and our ability to attract highly skilled employees. If any key
officer or employee were unable or unwilling to continue in their present
positions, our business could be harmed. From time to time we have experienced,
and we expect to continue to experience, difficulty in hiring and retaining
highly skilled employees. Competition for employees in our industry is intense,
particularly in the San Francisco Bay Area where we are located. If we are
unable to retain our key employees or attract, assimilate or retain other highly
qualified employees in the future, that may have a material adverse effect on
our business and results of operations.
OUR SUCCESS IS DEPENDENT ON OUR ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY.
Our performance and ability to compete is dependent to a significant
degree on our proprietary technology, including, but not limited to the design
of our online exchanges and delivery hubs. We regard our copyrighted material,
trade secrets and similar intellectual property as critical to our success, and
we rely on trademark and copyright law, trade secret protection and
confidentiality and/or license agreements with our employees, customers,
partners and others to protect our proprietary rights. There can be no assurance
that we will be able to secure significant protection for any of our
intellectual property. It is possible that our competitors or others will adopt
product or service names similar to our marks, thereby inhibiting our ability to
build brand identity and possibly leading to customer confusion.
We generally have entered into agreements containing confidentiality and
non-disclosure provisions with our employees and consultants and limited access
to and distribution of our software, documentation and other proprietary
information. There can be no assurance that the steps taken by us will prevent
misappropriation of our technology or that agreements entered into for that
purpose will be enforceable. Notwithstanding the precautions we have taken, it
might be possible for a third party to copy or otherwise obtain and use our
software independently. Policing unauthorized use of our technology is
difficult, particularly because the global nature of the Internet makes it
difficult to control the ultimate destination or security of software or other
data transmitted. The laws of other countries may afford us little or no
effective protection of our intellectual property.
Effective trademark, service mark, copyright and trade secret protection
may not be available in every country where our services are made available
online. In the future, we may also need to file lawsuits to enforce our
intellectual property rights, protect our trade secrets, and determine the
validity and scope of the proprietary rights of others. Such litigation, whether
successful or unsuccessful, could result in substantial costs and diversion of
resources, which could have a material adverse effect on our business and
results of operations.
WE MAY NOT BE ABLE TO SECURE LICENSES FOR TECHNOLOGY FROM THIRD PARTIES ON
COMMERCIALLY REASONABLE TERMS.
We rely on a variety of software and hardware technologies that we
license from third parties, including our database and Internet server software,
components of our online trading software, and transaction-processing software
which is used in our online exchange to perform key functions. There can be no
assurance that these third party technology licenses will continue to be
available to us on commercially reasonable terms. The loss of our ability to
maintain or obtain upgrades to any of these technology licenses could result in
delays in completing our proprietary software enhancements and new developments
until equivalent technology could be identified, licensed or developed and
integrated. Any such delays could have a material adverse effect on our business
and results of operations.
THE VOLATILITY OF OUR SECURITIES PRICES MAY INCREASE.
The market price of our common stock has in the past been, and may in
the future continue to be, volatile. A variety of events may cause the market
price of our common stock to fluctuate significantly, including:
- quarter to quarter variations in operating results,
- adverse news announcements,
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<PAGE> 26
- the introduction of new products and services,
- market conditions in the telecommunications industry in general,
Internet-based services and B2B e-commerce, and
- general market conditions.
In addition, the stock market in recent years has experienced
significant price and volume fluctuations that have particularly affected the
market prices of equity securities of many companies in our business and that
often have been unrelated to the operating performance of such companies. These
market fluctuations may adversely impact the price of our common stock.
WE MAY BE REQUIRED TO ISSUE STOCK IN THE FUTURE THAT WILL DILUTE THE VALUE OF
OUR EXISTING STOCK.
We have a significant number of outstanding options and warrants. The
exercise of all of the outstanding options and warrants would dilute the
then-existing shareholders' percentage ownership of our common stock. Any sales
resulting from exercise of options and warrants in the public market could
adversely affect prevailing market prices for our common stock. Moreover, our
ability to obtain additional equity capital could be adversely affected since
the holders of outstanding options and warrants will likely exercise the options
and warrants when we would also wish to enter the market to obtain capital on
terms more favorable than those provided by these securities. We lack control
over the timing of any exercise or the number of shares issued or sold if
exercises occur.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to equity price risk on the marketable portion of our
equity securities. We own 100,000 shares of unregistered common stock of A1
Internet.com Inc. (OTC Bulletin Board: AWON). A1 Internet is a relatively new
company that has historically experienced volatility in its stock prices. At
December 31, 1999, 100,000 shares of publicly traded common stock of A1 would
have been valued at $385,938. We estimate our equity price risk to be a
potential loss in fair value equal to the entire value of the A1 Internet stock.
Actual results may differ. Currently, we carry the value of the A1 Internet
stock at par value because of the stock's price volatility and restricted nature
and A1 Internet's lack of operations and profitability. We have not attempted to
reduce or eliminate our market exposure on these securities.
The remainder of our investment portfolio consists of equity securities
in private companies, including Telenisus Corporation, which are not publicly
traded. These investments are recorded at the lower of cost or fair market value
(if determinable by the Board of Directors). This method of valuation does not
result in increases or decreases in the fair value of these equity securities in
response to changes in market prices. Thus, these equity securities are not
subject to equity price risk.
Other than the securities described above, we have not invested in any
market rate sensitive instruments held for either trading purposes or for
purposes other than trading. The carrying values of our financial instruments
including cash, cash equivalents, interest receivable, deposits, accounts
payable, accrued expenses and notes payable approximate fair value because of
the short maturity of these instruments. As a result we are not subject to
interest rate risk, foreign currency exchange rate risk, commodity price risk,
or other relevant market risks.
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<PAGE> 27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following constitutes a list of Financial Statements included in
Part II of this report:
- Report of Independent Auditors.
- Consolidated Balance Sheets as of December 31, 1999 and December 31,
1998.
- Consolidated Statements of Operations for the years ended December
31, 1999, December 31, 1998, and December 31, 1997.
- Consolidated Statements of Stockholders' Equity for the period
December 31, 1996 to December 31, 1999.
- Consolidated Statements of Cash Flows for the years ended December
31, 1999, December 31, 1998, and December 31, 1997.
- Notes to Consolidated Financial Statements.
29
<PAGE> 28
INDEPENDENT AUDITORS REPORT
To the
Board of Directors and Stockholders
of NetAmerica.com Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of NetAmerica.com
Corporation (a Delaware corporation) (a development stage company) as of
December 31, 1999 and 1998 and the related consolidated statements of
operations, stockholders' equity and cash flows for the years ended December 31,
1999, 1998 and 1997 and for the period from September 30, 1998 (beginning of
development stage) to December 31, 1999. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted an audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
NetAmerica.com Corporation at December 31, 1999 and 1998, and the results of its
operations and cash flows from the years ended December 31, 1999, 1998 and 1997
and for the period from September 30, 1998 (beginning of development stage) to
December 31, 1999, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 14, the Company's
recurring operating losses and lack of working capital raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to those matters are also described in Note 14. The financial statements do not
include any adjustments that might result from outcome of this uncertainty.
Crouch, Bierwolf & Chisholm
February 29, 2000
Salt Lake City, Utah
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<PAGE> 29
NETAMERICA.COM CORPORATION
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash (Note 2) $ 451,615 $ 528,516
Interest Receivable (Note 9) 150,608 1,638
Prepaid Expenses 5,814 --
Note Receivable (Note 9) 1,787,531
------------ ------------
TOTAL CURRENT ASSETS 2,395,568 530,154
PROPERTY & EQUIPMENT (NET) (NOTE 4) 175,349 6,875
OTHER ASSETS
Investment in Affiliate (Note 13) 75,000 --
Goodwill (Note 6) -- 41,117
Deposits (Note 2) 103,305 --
Note Receivable (Note 9) -- 300,000
------------ ------------
TOTAL ASSETS 2,749,222 878,146
============ ============
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 1,639,301 $ 68,200
Accrued Taxes (Note 7) 85,000 --
Short Term Debt (Note 12) 800,000 --
------------ ------------
TOTAL CURRENT LIABILITIES 2,524,301 68,200
COMMITMENTS AND CONTINGENCIES (NOTE 10) -- --
MINORITY INTERESTS (NOTE 16) -- --
STOCKHOLDERS' EQUITY
Common Stock, $.0001 par value; 300,000,000 shares
authorized; issued and outstanding; 14,087,425
shares and 7,243,023 shares, respectively 1,409 724
Capital in Excess of Par Value 8,891,088 2,147,518
Retained (Deficit) Accumulated During
Development Stage (8,667,576) (1,338,296)
------------ ------------
Total stockholders' equity 224,921 809,946
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,749,222 $ 878,146
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE> 30
NETAMERICA.COM CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Beginning of
Development
Stage
For the For the For the September 30,
Year Year Year 1998
ended ended ended though
December 31, December 31, December 31, December 31,
1999 1998 1997 1999
------------ ------------ ---------- --------------
<S> <C> <C> <C> <C>
REVENUE $ -- $ -- $ -- $ --
EXPENSES
Selling, General & Administrative 5,048,614 174,176 200 5,222,790
Bad Debt (Note 7) 863,750 885,000 -- 1,748,750
Depreciation and Amortization 25,093 4,363 -- 29,456
Loss from write down of
Goodwill (Note 6) 1,537,300 44,855 -- 1,582,155
------------ ------------ ---------- ------------
Total Expenses 7,474,757 1,108,394 200 8,583,151
OTHER INCOME (Expenses)
Interest Income 151,276 2,214 -- 153,490
Interest Expense (13,019) (10,773) -- (23,792)
Other Income 220 -- -- 220
Loss Allocated to Minority Interest 7,000 -- -- 7,000
------------ ------------ ---------- ------------
Income (Loss) Before Taxes (7,329,280) (1,116,953) (200) (8,446,233)
Taxes (Note 3) -- -- -- --
INCOME (LOSS) (7,329,280) (1,116,953) (200) (8,446,233)
============ ============ ========== ============
Loss Per Common Share (Note 2) --
Basic (0.57) (0.68) --
============ ============ ==========
Fully Diluted (0.57) (0.68)
============ ============ ==========
Weighted Average Number
of Shares (Note 2) 12,863,020 1,636,919 200,000
============ ============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
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NETAMERICA.COM CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Period December 31, 1996 to December 31, 1999
<TABLE>
<CAPTION>
Accumulated
Deficit during Subscriptions/
Common Par Paid-In Development Minority Notes
Shares Value Capital Stage Interest Receivable
--------- ----- ---------- -------------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 200,000 20 219,823 (221,143) -- --
Contribution by Officer/Directors -- -- 1,300 -- -- --
Net (loss) for year ended
December 31, 1997 -- -- -- (200) -- --
--------- --- ---------- ---------- ---- ----------
Balance, December 31, 1997 200,000 20 221,123 (221,343) -- --
Shares issued for services at $.001 1,000,000 100 900 -- -- --
Shares issued for acquisition at $.001 2,400,000 240 2,160 -- -- --
Shares issued for conversion of debt at $.34 1,399,773 140 474,559 -- -- --
Shares issued for services at $1.00 87,000 9 86,991 -- -- --
Shares issued for cash at $1.07 1,106,250 110 1,179,890 -- -- --
Less: Offering Costs -- -- (118,000) -- -- --
Shares issued for subscription
receivable at an average price of $0.40 1,050,000 105 299,895 -- -- (300,000)
Net (loss) for year ended December 31, 1998 -- -- -- (1,116,953) -- --
--------- --- ---------- ---------- ---- ----------
Balance, December 31, 1998 7,243,023 724 2,147,518 (1,338,296) -- (300,000)
Options/Warrants offered at $.05 and
$.33 per share (Note 11) -- -- 261,835 -- -- --
Shares issued for cash and notes at
$0.10 per share (Note 8) 916,574 92 91,565 -- -- --
Shares issued for cost reimbursement at
$0.10 per share (Note 8) 322,500 32 32,218 -- -- --
Shares issued for cash and notes at
$1.07 per share (Net)(Note 8) 3,870,938 387 4,047,713 -- -- (3,411,655)
</TABLE>
(Continued)
33
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NETAMERICA.COM CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Period December 31, 1996 to December 31, 1999
<TABLE>
<CAPTION>
Accumulated
Deficit during Subscriptions/
Common Par Paid-In Development Minority Notes
Shares Value Capital Stage Interest Receivable
---------- ----- --------- -------------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
Shares issued for conversion of
A1 Internet debt at $1.12
(average) (Note 7) 193,186 19 216,860 -- -- --
Shares issued for services at
$1.07 per share (Note 8) 268,500 27 287,206 -- -- --
Shares issued for note conversion
at $1.00 per share (Note 8) 30,000 3 29,997 -- -- --
Shares issued for services at
$1.07 per share (Note 8) 30,000 3 31,997 -- -- --
Shares issued for cash at $1.60
per share (Net) (Note 8) 515,188 52 628,220 -- -- --
Shares issued for services at
$1.60 per share (Note 8) 122,518 12 196,017 -- -- --
Shares issued for purchase of
RateXchange at $1.60 per
share (Note 6) 574,998 58 919,942 -- -- --
Subscription receivables
collected (Note 9) -- -- -- -- -- 1,924,126
Shares issued from subsidiary
for services (Note 16) -- -- -- -- 7,000 --
Net (loss) for year ended
December 31, 1999 -- -- -- (7,329,280) (7,000) --
---------- ----- --------- ---------- ------ ----------
Balance, December 31, 1999 14,087,425 1,409 8,891,088 (8,667,576) -- (1,787,531)
========== ===== ========= ========== ====== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
34
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NETAMERICA.COM CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year For the Year For the Year Beginning of the
Ended Ended Ended Development Stage
December 31, December 31, December 31, September 30, 1998 to
1999 1998 1997 December 31, 1999
------------- ------------ ------------ ---------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) (7,329,280) (1,116,953) (200) (8,446,233)
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Depreciation and Amortization 25,093 4,363 -- 29,456
Bad Debt (Note 7) 863,750 885,000 -- 1,748,750
Write Off of Goodwill (Note 6) 1,537,300 44,855 -- 1,582,155
Stock for Services/Expenses 613,318 88,926 -- 702,244
Stock for Interest -- 10,773 -- 10,773
Stock for Accounts Payable conversion (30,000) -- -- (30,000)
(Increase) Decrease in Accounts Receivable and
Other Advances (155,184) (921,138) -- (1,076,322)
Increase (Decrease) in Accounts Payable and
Accrued Expenses 1,647,313 4,000 (1,100) 1,651,313
----------- ----------- ------ -----------
TOTAL (2,827,690) (1,000,174) (1,300) (3,827,864)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of RateXchange (450,000) -- -- (450,000)
Payment for Purchase of Equipment (168,322) -- -- (168,322)
Payment for Deposits (103,305) -- -- (103,305)
Cash Purchased by Stock Acquisition of
Subsidiary (82,240) 3,690 -- (78,550)
Advances to Affiliates (721,871) -- -- (721,871)
----------- ----------- ------ -----------
TOTAL (1,525,738) 3,690 -- (1,522,048)
CASH FLOWS FROM FINANCING ACTIVITIES
Loans and Other Debt (Net) 800,000 463,000 1,300 1,263,000
Proceeds from Stock Sales 3,557,427 1,180,000 -- 4,737,427
Less: Public Offering Costs (80,900) (118,000) -- (198,900)
----------- ----------- ------ -----------
TOTAL 4,276,527 1,525,000 1,300 5,801,527
INCREASE (DECREASE) IN CASH (76,901) 528,516 -- 451,615
CASH BEGINNING OF PERIOD 528,516 -- -- --
----------- ----------- ------ -----------
CASH END OF PERIOD 451,615 528,516 -- 415,615
=========== =========== ====== ===========
Supplementary Cash Flow Information
Cash Paid For:
Interest -- -- -- --
Taxes -- -- -- --
Stock Issuances for:
Services and Expenses $ 613,318 $ 99,699 -- $ 1,085,182
Acquisition of RateXchange $ 920,000 -- -- $ 920,000
Commission on stock sales $ 196,029 -- -- $ 196,029
A1 Internet Settlement $ 216,879 -- -- $ 216,879
Account payable conversion $ 30,000 -- -- $ 30,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
35
<PAGE> 34
NETAMERICA.COM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
NOTE 1 BACKGROUND AND HISTORY
NetAmerica.com Corporation is a consolidated group of companies
including the parent corporation, NetAmerica.com Corporation
(NetAmerica.com), and its subsidiaries, RateXchange, Inc. (RateXchange)
and PolarCap, Inc. (PolarCap).
NetAmerica.com (formerly Venture World, Ltd.) is a Delaware corporation
organized on May 6, 1987 for the purpose of seeking out and developing
any general business opportunity.
RateXchange, a Delaware corporation organized in June 1999, is in the
business of business-to-business e-commerce seeking to develop new
exchange services for the telecommunications market.
PolarCap is a California corporation organized on April 7, 1997 for the
purpose of investing in and developing rights to a variety of software
technologies related to multimedia, development tools and application
technologies. Together, all companies are combined into NetAmerica.com
Corporation, a consolidated group of corporations known in this report
as the Company.
The Company is in its planning stages for its eventual day to day
business and has not generated any revenues from its planned
operations. The Company is defined as a development stage company per
SFAS No. 7. The Company had no operations or business before September
30, 1998. All operations since the start of the development stage,
September 30, 1998, when the Company acquired PolarCap, have been
reported.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of
NetAmerica.com and its subsidiaries. Collectively, these entities are
referred to as the Company. All significant intercompany transactions
and accounts have been eliminated.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments with an original maturity of three
months or less to be equivalents.
Nonmonetary Transactions
Nonmonetary transactions are transactions for which no cash was
exchanged and for which shares of common stock were exchanged for goods
and services. These transactions are recorded at fair market value as
determined by the board of directors based on the quoted price of the
stock (restricted and unrestricted) at the time of the transaction.
Earnings Per Share and Average Shares Outstanding
Earnings (loss) per share are computed based on the weighted average
method. Options and warrants on shares of common stock were not
included in computing diluted earnings per share because their effects
were antidilutive (2,990,000 options and 625,000 warrants).
Concentration of Risk - Cash
At December 31, 1999, the Company had several bank accounts, many of
which exceeded the $100,000 limit of FDIC insured balances. As of the
end of the year, the Company had $53,159 and $198,452 at risk to such
loss.
Deposits
NetAmerica.com issued a letter of credit for security for the
RateXchange lease (Note 10). This letter of credit is secured by a
Certificate of Deposit in the amount of $103,305.
36
<PAGE> 35
NETAMERICA.COM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
NOTE 3 INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No.
109 "Accounting for Income Taxes" in the fiscal year ended December
31, 1997 and has applied the provisions of the statement on a
retroactive basis to all the previous years which resulted in no
significant adjustment.
Statement of Financial Accounting Standards No. 109 "Accounting for
Income Taxes" requires an asset and liability approach for financial
accounting and reporting for income tax purposes. This statement
recognizes (a) the amount of taxes payable or refundable for the
current year and (b) deferred tax liabilities and assets for future
tax consequences of events that have been recognized in the financial
statements or tax returns.
Deferred income taxes result from temporary differences in the
recognition of accounting transactions for tax and financial reporting
purposes. There were no temporary differences at December 31, 1999 and
earlier years; accordingly, no deferred tax liabilities have been
recognized for all years.
The Company has cumulative net operating loss carryforwards over
$8,000,000 at December 31, 1999. No effect has been shown in the
financial statements for the net operating loss carryforwards as the
likelihood of future tax benefit from such operating loss
carryforwards is not presently determinable. Accordingly, the
potential tax benefits of the net operating loss carryforwards,
estimated based upon current tax rates at December 31, 1999 have been
offset by valuation reserves in the same amount. The net operating
losses begin to expire in 2007.
NOTE 4 PROPERTY AND EQUIPMENT
The Company capitalizes purchases of long-lived assets that are
expected to give benefit to the Company over the life of the asset.
The Company also capitalizes improvements and costs that increase the
value of or extend the life of the asset.
Capitalized assets are depreciated over the estimated useful lives of
the assets (5 to 7 years for furniture and fixtures, 3 years for
computer equipment) on a straight line basis.
Property and Equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
---------------------
1999 1998
--------- -------
<S> <C> <C>
Furniture and Fixtures $ 12,323 $ 7,500
Computer Equipment and Software 173,792 --
--------- -------
186,115 7,500
Less: Accumulated depreciation (10,766) (625)
--------- -------
$ 175,349 $ 6,875
========= =======
</TABLE>
Depreciation expense for the years 1999 and 1998 is $10,141 and $625,
respectively.
NOTE 5 USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the reporting
period. In these financial statements, assets, liabilities and earnings
involve extensive reliance on management's estimates. Actual results
could differ from those estimates.
37
<PAGE> 36
NETAMERICA.COM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
NOTE 6 ACQUISITION OF SUBSIDIARY/GOODWILL
On September 30, 1998, the Company purchased all of the outstanding
stock of PolarCap, Inc. for 2,400,000 shares of stock. The equity of
PolarCap at September 30, 1998 was $(87,310). The value of the stock
was issued at $.001, for a total purchase price of $2,400. All of the
assets of PolarCap were established at estimated fair market value
leaving a value of $89,710 for goodwill that was to be written off over
three years. By the end of 1998, the Company determined that $44,855 of
the value of goodwill would be expensed in the current period based on
the estimated continued value and use of PolarCap and its corporate
image, operations and personnel talent. Amortization expense for 1999
was $14,952. The remaining goodwill at year end was written off.
In the third quarter, 1999, the Company acquired Rate Exchange, Inc., a
Colorado corporation, in the business of business-to-business
e-commerce seeking to develop new exchange services for the
telecommunications market. The Company paid $574,998 shares of common
stock and $450,000 in a note. The transaction was valued at $1,395,000
($920,000 in stock and $450,000 in a note plus out of pocket expenses
of $25,000). The fair market value of Rate Exchange's assets was
$(116,134) before the acquisition, creating goodwill in the amount of
$1,511,135. Management elected to write off all goodwill attributed to
RateXchange in 1999.
NOTE 7 ADVANCES TO AFFILIATE/BAD DEBT
On September 30, 1999 the Company negotiated, and later terminated by
mutual agreement, a purchase of 100% of the ownership of NetAmerica,
Inc., subsequently renamed A1 Internet, Inc., an Internet services
provider company based in Seattle, Washington. Between the time the
Company agreed to purchase (September 30, 1999) and the time the
termination agreement was reached (March 1999), the Company advanced
$1,748,750 ($1,531,871 in cash and $216,879 in stock) which was
eventually written off as bad debt. After the March agreement was
reached, A1 Internet agreed to repay certain of the costs incurred
prior to the termination. As part of its plan to repay the costs, A1
Internet informed the Company that it had entered into an agreement
with another potential acquiror, Halo Holdings of Nevada, Inc., to sell
substantially all of its assets in exchange for shares of common stock
and assumption of certain liabilities, including A1 Internet's
obligations to the Company. In September 1999, after further
negotiations, the Company agreed with A1 Internet (aka Halo) to the
following settlement:
- The Company retained certain rights to the name "NetAmerica,"
- A1 Internet transferred to the Company its interest in 100,000
shares of Halo restricted stock,
- The Company agreed to pay $85,000 of past due payroll taxes of A1
Internet from 1998, and
- All further obligations of the Company to issue stock or options to
A1 Internet were canceled.
The 100,000 shares of Halo stock are being held by the Company at par
value since the stock is restricted, the shares of Halo stock are
thinly traded and Halo has little or no assets and little or no
business activity.
NOTE 8 COMMON STOCK TRANSACTIONS
All stock transactions conducted during the period for which no cash
was exchanged and for which shares of stock were exchanged for assets
or goods and services were recorded at fair market value of the stock
as best determined by the board of directors at the time the share
issuances were authorized. The Company stock had a listed price
beginning December 1998.
Common stock transactions during 1999 are as follows:
38
<PAGE> 37
NETAMERICA.COM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
During the fourth quarter of 1998, the board of directors approved
several stock transactions that were not completed and issued until
1999:
- 916,574 shares of stock issued for $91,657 in notes to related
parties. ($0.10) (January). The board has placed restrictions on
this stock so that the stock cannot be sold, traded, assigned,
transferred or pledged until the Company reaches $10,000,000 in
gross revenues in a one year time period.
- 322,500 shares issued for cost reimbursements of $32,250 ($.10 per
share) (January).
The remaining stock issuances were approved and issued in 1999:
- 758,438 shares of stock were issued for $727,342 (Net of $80,900
commissions). ($1.07) (February).
- 3,112,500 shares of stock issued for $3,320,000 in notes to related
parties and other investors. ($1.07) (March).
- 268,500 shares of stock issued for $287,233 of legal and consulting
services. ($1.07) (March).
- 193,186 shares of stock issued for $216,879 of debt to creditors of
A1 Internet. ($1.12, average) (March and May).
- 30,000 shares of stock issued in lieu of a $30,000 outstanding note
payable. ($1.00) (March).
- 30,000 shares for services rendered of $32,000. ($1.07) (March).
- 515,188 shares of stock issued for $1.60 per share or $628,272. (Net
of $196,029 in commission paid in stock) (122,518 shares - see
below) (May and June).
- 122,518 shares issued for commissions on private placement of $1.60
per share. ($1.60 per share) (June). (netted against proceeds of
sale of 515,188 shares-see above).
- 574,998 shares of stock issued for $1.60 per share for Rate
Exchange, Inc. (July).
NOTE 9 SUBSCRIPTIONS RECEIVABLE /NOTE RECEIVABLE- RELATED PARTY
In January 1999, the Company sold 916,574 shares for $91,657 to a
related party and other investors at a price of $.10 per share. (See
Note 8 for additional restrictions placed on stock).
In March 1999, the Company sold 3,112,500 shares to a related party and
other investors in exchange for $3,320,000 in notes payable at a price
of $1.07 per share.
Of the total subscriptions receivable/note receivable issued during the
year of $3,411,157 and $300,000 issued in 1998, $1,924,126 was
collected. Interest is being assessed at 6.5% and accrued interest on
the subscription receivable was $150,608 at December 31, 1999.
Subsequent to year end, the board of directors of the Company waived
the interest on the purchase of 3,112,500 shares when the notes were
collected in full by February 25, 2000 (originally due by March 31,
2001).
The subscription receivables have been reclassified from the equity
section to the long-term asset section for 1998 to comply with the
comparative nature of the asset in 1999 as a note receivable since the
collection of the receivables occurred in early 2000.
39
<PAGE> 38
NETAMERICA.COM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
NOTE 10 COMMITMENTS AND CONTINGENCIES
RateXchange negotiated an office lease beginning October 1999 for 36
months with the following terms:
<TABLE>
<CAPTION>
Year Monthly Rent Totals
--------- ------------ --------
<S> <C> <C>
1999-2000 $16,325 $195,900
2000-2001 $16,676 $200,112
2001-2002 $17,028 $204,336
--------
$600,348
========
</TABLE>
In 1999, RateXchange entered into a term sheet agreement with a vendor
to provide specialized consulting and computer programming to assist in
RateXchange's business plans and operations in the business-to-business
e-commerce niche it was developing. The term sheet was never finalized
into a formal agreement, but some services were provided, and payments
were made for the services that were rendered. The term sheet provided
for the vendor to receive a stock position in RateXchange of up to 10%
for certain services. The Company is in discussion with the vendor
concerning the 10% stock position in RateXchange because the formal
agreement was never completed and the contemplated services were not
fully provided. The ultimate outcome of this discussion is uncertain at
this time. No adjustment has been made in the financial statements for
this uncertainty.
The Company is involved in several issues as follows:
Gregory K. Martin v. NetAmerica., Inc. et al. In the spring of 1999,
Gregory K. Martin, a former officer of both NetAmerica (Seattle)(NAI)
and the Company, brought suit against the Company and others in the
Superior Court of Washington (Civil Action No. 99-2-09171-OSEA). The
suit related to, among other things, Mr. Martin's claims for
compensation, reimbursement for business expenses, certain insurance
benefits, payment of certain other obligations guaranteed by Mr. Martin
(or reimbursement of payments made by him as guarantor), payment of
certain tax and other obligations of a company referred to as
SRG/Quantum that were purportedly assumed by NAI and the Company,
issuance of options to purchase stock of the Company and other remedies
relating to the terminated acquisition and other transactions. The suit
was conditionally settled by an agreement dated May 22, 1999 among NAI
(referred to therein as "A1"), the Company and Mr. Martin (with William
Fritts undertaking certain limited obligations). Pursuant to that
agreement, Mr. Martin took a voluntary non-suit, i.e. dismissed his
suit without prejudice. Mr. Martin may have the ability to attempt to
void the settlement pursuant to noncompliance on the part of NAI to
their part of the settlement. As of December 31, 1999, the Company has
fulfilled all of its current obligations under the settlement
agreement.
NAI Office Lease. The Company understands that NAI leased certain
office space in Seattle pursuant to a lease agreement. The lease's
identification of the party intended to be obligated as tenant may not
be entirely clear. In early 1999, the Landlord asserted that the
Company may be liable for NAI's obligations under that lease, although
the Landlord did not clearly present its basis for that assertion. The
Landlord brought suit against NAI for breach of this lease and also
named the Company as a party. The Company believes that there is a
remote chance that any further losses will result from this action.
Dispute with Waave Telecommunications, Inc. The Company has asserted
certain claims against Waave Telecommunications, Inc. ("Waave"). These
claims arise out of (i) a three-page agreement that the Company and
Waave entered into in March 1999 which contemplated the Company's
acquisition of 50% of Waave's outstanding equity, and subsequent oral
statements and course of conduct, and (ii) a service agreement between
the Company and Waave pursuant to which Waave agreed to provide certain
services to the Company and to which the Company has provided funds to
Waave for those services. The
40
<PAGE> 39
NETAMERICA.COM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
Company has not made an evaluation as to the likelihood of settlement
or favorable or unfavorable results from this action.
On February 24, 2000, Concentric Network Corporation filed a lawsuit
against NetAmerica, Inc., aka A1 Internet, Inc., and us in the Superior
Court of California for the County of Santa Clara (CV 784335). The
lawsuit involves claims for breach of contract and common counts based
on A1 Internet's nonperformance in a settlement agreement between A1
Internet, Concentric and us. Concentric is asking for compensatory
damages of at least $167,794, restitution, costs and attorney fees. We
have issued 23,305 shares of our common stock for settlement of this
dispute and we do not believe that any additional compensation will be
required to resolve this lawsuit.
NOTE 11 OPTIONS/WARRANTS FOR PURCHASE OF COMMON STOCK
Stock Option Plans - The Company has a stock incentive plan which
provides for the grant of options to officers, consultants and
employees to acquire shares of its common stock at a purchase price
generally equal to the fair market value on the date of grant. Options
generally expire five years from date of grant. The Company has also
issued warrants that generally expire five years from the date of
grant. A summary of activity follows:
Warrants:
<TABLE>
<CAPTION>
1999 1998
------------------------------ -----------------------------
Weighted Weighted-
Number of average Number of average
shares exercise price shares exercise price
--------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of
year 100,000 $2.00 -- $ --
Granted 525,000 1.69 100,000 2.00
Exercised -- -- -- --
Canceled -- -- -- --
--------- ----- ------- -----
Outstanding at end of
year 625,000 1.74 100,000 2.00
========= ===== ======= =====
Exercisable at end of
year 625,000 1.74 100,000 2.00
========= ===== ======= =====
</TABLE>
Options:
<TABLE>
<CAPTION>
1999 1998
------------------------------ -----------------------------
Weighted Weighted-
Number of average Number of average
shares exercise price shares exercise price
--------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of -- $ -- -- $ --
year
Granted 3,050,000 2.24 -- --
Exercised -- -- -- --
Canceled 60,000 2.50 -- --
--------- ----- ------- -----
Outstanding at end of
year 2,990,000 2.23 -- --
========= ===== ======= =====
Exercisable at end of
year 1,287,500 1.96 -- --
========= ===== ======= =====
</TABLE>
As permitted by SFAS #123 "Accounting for Stock-Based Compensation,"
the Company has elected to account for the stock option plans under APB
#25 "Accounting for Stock Issued to Employees." Accordingly, no
compensation cost has been recognized for these plans when options were
issued at equal to or more than fair market value.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Had
compensation cost for the stock option plan been determined based on
the
41
<PAGE> 40
NETAMERICA.COM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
fair value at the grant date consistent with SFAS #123, the Company's
net earnings and earnings per share are estimated as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Net Earnings
As reported $(7,329,280) $(1,116,953)
Pro Forma (8,309,779) (1,116,953)
Net earnings per share
(basic and diluted)
As reported (0.57) (0.68)
Pro forma (0.65) (0.68)
=========== ===========
</TABLE>
The fair market value of each option grant was estimated at the date of
grant using the Black-Scholes option pricing model with the following
weighted average assumptions:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Risk-free interest rate 7.0% N/A
Dividend yield 0% N/A
Volatility 100% N/A
Average expected term (years) 5 N/A
==== ====
</TABLE>
Employee stock options and warrants outstanding and exercisable under
these plans as of December 31, 1999 were:
<TABLE>
<CAPTION>
Outstanding Exercisable
------------------------------------------ -----------------------
Weighted
Weighted Average Weighted
Range of Average Remaining Average
exercise Warrant/ Exercise Contractual Warrants/ Exercise
prices Options Price Life (years) Options Price
-------------- ---------- ---------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C>
$ .05 - $ .99 275,000 $ .10 4.06 275,000 $ .10
$1.00 - $1.99 1,155,000 $1.58 4.16 700,000 $1.56
$2.00 - $2.75 2,185,000 $2.70 4.69 937,500 $2.65
-------------- --------- ------ ---- --------- -----
3,615,000 1,912,500
========= =========
</TABLE>
Shareholders authorized the 1999 NetAmerica.com Stock Option Plan
during 1999. Total options available to employees are 3,000,000 shares.
Total options and warrants issued during the year for less than fair
market value were 225,000 for which the Company recognized related
compensation expense of $261,835.
NOTE 12 SHORT TERM DEBT
The Company issued a note for $450,000 for the purchase of Rate
Exchange, Inc (Note 6). The notes carried an interest rate of 5%. The
notes were paid in January 2000.
During December 1999, RateXchange received $350,000 in short term loans
in anticipation of a $2,000,000 bridge loan agreement. The $2 million
bridge loan agreement will be used as ongoing financing of RateXchange
activities. The loan will bear interest at 10% and will mature six
months from the completion of the funding of the loan (completed
February 2000). The loan agreement comes with warrants to purchase up
to 400,000 shares of RateXchange stock at $2.40 per share (subject to
adjustments and other funding objectives). The warrants are set to
expire on December 31, 2002.
42
<PAGE> 41
NETAMERICA.COM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
NOTE 13 INVESTMENT IN AFFILIATE.
During 1999, the Company created a wholly owned subsidiary, Telenisus
Corporation, a Delaware corporation, for the purpose of providing
internet services to small to mid-sized corporations and
telecommunications service providers. The Company funded the initial
capital of Telenisus of $75,000. It subsequently loaned Telenisus
additional funds to start operations. Telenisus has funded operations
from its own equity and debt financing and has paid back the Company
all loans except for the initial capitalization of $75,000. At the end
of the year, the Company's interest in Telenisus had decreased to less
than 10% ownership and the Company is showing this investment at cost.
NOTE 14 GOING CONCERN
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. The Company has negative
working capital and has had recurring operating losses and is dependent
upon financing to continue operations. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty. Management intends to fund RateXchange activities,
according to its business plan, and emerge profitable sometime in the
future.
NOTE 15 RELATED PARTY TRANSACTIONS
During 1998, the Company entered into a consulting contract with a
major shareholder that pays a monthly consulting fee plus an incentive
bonus for 1) any successful acquisition of business enterprises, or 2)
successful capital funding of a least $5,000,000 in 1998 or 1999. The
incentive awards are $250,000 in cash, warrants to purchase 250,000
shares of common stock at $2.75, and a mergers and acquisition fee for
any acquisition during 1998 or 1999. At December 31, 1999, the Company
accrued $315,800 in cash incentives relating to completed financing and
the value of the RateXchange acquisition.
NOTE 16 MINORITY INTEREST
During 1999, the Company issued 10% of the outstanding shares of its
subsidiary, RateXchange, to Donald Sledge, the Chief Executive Officer
of RateXchange, as an incentive for employment. The shares were issued
at par value, since the shares are privately owned, have no trading
value, have no book value, and no voting or liquidation value based on
its minority status.
NOTE 17 SUBSEQUENT EVENTS
In February 2000, the Company anticipates another private placement for
further funding of RateXchange activities.
43
<PAGE> 42
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
FORM 10-K
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Information regarding directors of the Company is incorporated by
reference from "Election of Directors" in the Proxy Statement to be delivered to
shareholders in connection with the 2000 Annual Meeting of Shareholders to be
held on April 20, 2000.
Information concerning current executive officers of the Company is
incorporated by reference to the section in Part I hereof found under the
caption "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
Information regarding this item is incorporated by reference from
"Executive Compensation" in the Proxy Statement to be delivered to shareholders
in connection with the 2000 Annual Meeting of Shareholders to be held on April
20, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding this item is incorporated by reference from
"Security Ownership of Certain Beneficial Owners and Management" in the Proxy
Statement to be delivered to shareholders in connection with the 2000 Annual
Meeting of Shareholders to be held on April 20, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding this item is incorporated by reference from
"Certain Relationships and Related Transactions" in the Proxy Statement to be
delivered to shareholders in connection with the 2000 Annual Meeting of
Shareholders to be held on April 20, 2000.
44
<PAGE> 43
FORM 10-K
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following constitutes a list of Financial Statements, Financial
Statement Schedules, and Exhibits required to be used in this report:
1. Financial Statements - Included in Part II, Item 8 of this report:
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 1999 and December 31,
1998
Consolidated Statements of Operations for the years ended December 31,
1999, December 31, 1998, and December 31, 1997
Consolidated Statements of Stockholders' Equity for the period December
31, 1996 to December 31, 1999
Consolidated Statements of Cash Flows for the years ended December 31,
1999, December 31, 1998, and December 31, 1997
Notes to Consolidated Financial Statements for the years ended December
31, 1999, December 31, 1998, and December 31, 1997
2. Financial Statement Schedules - included in Part IV of this report:
Schedules other than those listed above are omitted because of the
absence of conditions under which they are required or because the
required information is presented in the financial statements or notes
thereto.
3. Exhibits
3.1 Certificate of Incorporation for NetAmerica.com Corporation,
as amended, filed with the Form 10-Q dated September 30, 1999,
incorporated herein by reference.
3.2 Amended and Restated Bylaws of NetAmerica.com Corporation,
filed with the Form 10-Q dated September 30, 1999,
incorporated herein by reference.
4.1 Form of Warrant, filed herein.
4.2 Form of Convertible Promissory Note between RateXchange, Inc.
and Investors, filed herein.
10.1 Agreement and Plan of Merger between NetAmerica.com
Corporation and Rate Exchange, Inc., dated June 1, 1999, filed
with the Form 10-Q dated September 30, 1999, incorporated
herein by reference.
10.2 Acquisition Agreement between NetAmerica.com Corporation and
PolarCap, Inc., filed with the Form 8-K dated September 22,
1998, incorporated herein by reference.
10.3 Form of Severance Agreement between NetAmerica.com Corporation
and each of Douglas Cole and Edward Mooney, filed herein.
10.4 Employment Agreement between RateXchange, Inc. and Donald H.
Sledge, filed with the Form 10-Q dated September 30, 1999,
incorporated herein by reference.
10.5 Form of Employment Agreement between RateXchange, Inc. and
each of Philip Rice, Ross Mayfield and Paul Wescott, filed
herein.
10.6 NetAmerica.com Corporation 1999 Stock Option Plan, filed with
the Proxy Statement for the Annual Meeting of Shareholders on
December 16, 1999.
21.1 Subsidiaries of NetAmerica.com Corporation, filed herein.
45
<PAGE> 44
27 Financial Data Schedule, filed herein.
4. Reports on Form 8-K: None
SUPPLEMENTAL INFORMATION TO BE FILED BY REGISTRANTS WHICH HAVE NOT
REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT
We voluntarily filed with the Commission via EDGAR on November 29, 1999
a proxy statement for our 1999 annual shareholders meeting held on December 16,
1999.
46
<PAGE> 45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NETAMERICA.COM CORPORATION
March 28, 2000 By: /s/ DONALD H. SLEDGE
--------------------------------
DONALD H. SLEDGE,
CHIEF OFFICER
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C>
/s/ DONALD H. SLEDGE Chairman,
- - ------------------------------------ Chief Executive Officer March 28, 2000
DONALD H. SLEDGE
/s/ PHILIP RICE Principal Financial and
- - ------------------------------------ Accounting Officer March 28, 2000
PHILIP RICE
/s/ ROSS MAYFIELD
- - ------------------------------------ President March 28, 2000
ROSS MAYFIELD
/s/ JONATHAN MERRIMAN Director
- - ------------------------------------ March 28, 2000
JONATHAN MERRIMAN
/s/ DOUGLAS COLE Director
- - ------------------------------------ March 28, 2000
DOUGLAS COLE
/s/ RONALD SPEARS Director
- - ------------------------------------ March 28, 2000
RONALD SPEARS
/s/ CHRISTOPHER VIZAS Director
- - ------------------------------------ March 28, 2000
CHRISTOPHER VIZAS
</TABLE>
47
<PAGE> 46
EXHIBIT INDEX
<TABLE>
<S> <C>
3.1 Certificate of Incorporation for NetAmerica.com Corporation, as
amended, filed with the Form 10-Q dated September 30, 1999,
incorporated herein by reference.
3.2 Amended and Restated Bylaws of NetAmerica.com Corporation, filed with
the Form 10-Q dated September 30, 1999, incorporated herein by
reference.
4.1 Form of Warrant, filed herein.
4.2 Form of Convertible Promissory Note between RateXchange, Inc. and
Investors, filed herein.
10.1 Agreement and Plan of Merger between NetAmerica.com Corporation and
Rate Exchange, Inc., dated June 1, 1999, filed with the Form 10-Q dated
September 30, 1999, incorporated herein by reference.
10.2 Acquisition Agreement between NetAmerica.com Corporation and PolarCap,
Inc., filed with the Form 8-K dated September 22, 1998, incorporated
herein by reference.
10.3 Form of Severance Agreement between NetAmerica.com Corporation and each
of Douglas Cole and Edward Mooney, filed herein.
10.4 Employment Agreement between RateXchange, Inc. and Donald H. Sledge,
filed with the Form 10-Q dated September 30, 1999, incorporated herein
by reference.
10.5 Form of Employment Agreement between RateXchange, Inc. and each of
Philip Rice, Ross Mayfield and Paul Wescott, filed herein.
10.6 NetAmerica.com Corporation 1999 Stock Option Plan, filed with the Proxy
Statement for the Annual Meeting of Shareholders on December 16, 1999.
21.1 Subsidiaries of NetAmerica.com Corporation, filed herein.
27 Financial Data Schedule, filed herein.
</TABLE>
<PAGE> 1
EXHIBIT 4.1
THIS WARRANT, AND THE SECURITIES ISSUABLE UPON THE EXERCISE OF THIS WARRANT,
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("THE
"SECURITIES ACT"), OR UNDER ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS (1) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND SUCH LAWS,
OR (2) AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND
SUCH LAWS IS AVAILABLE AND THE COMPANY HAS RECEIVED EITHER AN OPINION OF
COUNSEL, IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY,
TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED IN CONNECTION WITH
SUCH DISPOSITION OR OTHER EVIDENCE THAT IS SATISFACTORY TO THE
COMPANY, WHICH EVIDENCE ESTABLISHES THAT ANY SUCH DISPOSITION
WILL NOT VIOLATE THE SECURITIES ACT, SUCH LAWS OR ANY RULE OR
REGULATION PROMULGATED THEREUNDER.
NETAMERICA.COM CORPORATION
a Delaware Corporation
COMMON STOCK PURCHASE WARRANT
[________] SHARES OF COMMON STOCK
Warrant No. [________]
Exercisable on or before
[____________________________]
FOR VALUE RECEIVED, NETAMERICA.COM CORPORATION, a corporation organized and
existing under the laws of the State of Delaware (the "COMPANY"), promises to
issue in the name of, and sell and deliver to [_____________________] or its
registered assigns (in each case, the "HOLDER"), a certificate or certificates
for an aggregate of [______________] (______) Shares (the "WARRANT SHARES") of
common stock, $0.0001 par value per share ("COMMON STOCK"), upon compliance with
the terms of this Common Stock Purchase Warrant (the "WARRANT") and payment
therefor of the exercise price, subject to adjustment in certain events (the
"EXERCISE PRICE"), of $[______] per Warrant Share. This Warrant shall be
exercisable at any time after [__________] and prior to [_________________] (the
"EXERCISE PERIOD") and shall be void thereafter.
1. EXERCISE OF WARRANT.
(a) General Method of Exercise. This Warrant may be exercised in
whole or in part at any time during the Exercise Period by delivery to
the Company's principal office (or such other office as the Company may
designate by written notice to the Holder), not later than two (2)
business days before the date on which this Warrant is to be exercised
(the "EXERCISE DATE"), of all of the following:
(i) a Form of Exercise Agreement (the "FORM OF EXERCISE")
annexed
<PAGE> 2
hereto, duly executed by the Holder and setting forth (A) the
Exercise Date, (B) the number of Warrant Shares as to which this
Warrant is to be exercised on the Exercise Date, and (C) if the
Holder elects to effect a cashless exercise as described in
subsection (b) below, indication of such cashless exercise as
provided in the Form of Exercise;
(ii) if the Holder does not effect a cashless exercise,
either cash, a certified or official bank check payable to the
Company in funds immediately available on the Exercise Date or a
wire transfer for the account of the Company, in an amount equal
to the Exercise Price multiplied by the number of Warrant Shares
of the Company's Common Stock as to which this Warrant is to be
exercised on the Exercise Date; and
(iii) this Warrant.
(b) Cashless Exercise. If the Holder so elects in the Form of
Exercise referred to in subsection (a) to effect a cashless exercise,
this Warrant shall be converted on the Exercise Date, without any
further consideration, into that number of shares of the Company's
Common Stock equal to the total number of Warrant Shares set forth in
such Form of Exercise multiplied by the difference of one minus a
fraction equal to the Exercise Price divided by the Fair Market Value
Per Share of the Company's Common Stock, determined as set forth below.
For purposes of the above calculation, the "Fair Market Value Per Share"
of the Company's Common Stock shall be the average over the fifteen (15)
days preceding the Exercise Date, appropriately adjusted to reflect any
stock split or similar transaction during such relevant period, of (i)
the closing price of the Company's Common Stock quoted on any national
or regional exchange on which the Company's Common Stock is listed or,
if not so listed, (ii) the average of the closing bid and asked prices
of the Company's Common Stock quoted in the OTC Bulletin Board quotation
service. If there is no public market for the Company's Common Stock at
the time of such exercise, the Fair Market Value Per Share of the
Company's Common Stock shall be determined by the Company's Board of
Directors in good faith. Any calculation by the Company of the Fair
Market Value Per Share of the Company's Common Stock shall be conclusive
in the absence of manifest error.
(c) Issuance of Certificates and New Warrant. Within a reasonable
time not in excess of twenty (20) days after the Exercise Date, the
Company shall deliver to the Holder:
(i) if the Holder did not elect to effect a cashless
exercise, (A) a certificate for the number of shares of the
Company's Common Stock such Holder elected to purchase on the
Exercise Date and (B) if this Warrant was not exercised in full,
a new Warrant of like tenor in the name of the Holder evidencing
the right to purchase the number of Warrant Shares as to which
this Warrant has not been exercised, both of which shall be
delivered to the Holder at the address designated in the Form of
Exercise. Any new Warrant shall be dated with this Warrant's
2
<PAGE> 3
original issue date; or
(ii) if the Holder did elect to effect a cashless
exercise, (A) a certificate for the number of shares of the
Company's Common Stock referred to in subsection (b) and (B) if
this Warrant was not exercised in full, a new Warrant of like
tenor in the name of the Holder evidencing the right to purchase
the number of Warrant Shares as to which this Warrant has not
been exercised, both of which shall be delivered to the Holder at
the address designated in the Form of Exercise. Any new Warrant
shall be dated with this Warrant's original issue date.
The Company shall deliver to the Holder physical certificates
representing the Warrant Shares so purchased, as described above. Any
certificates so delivered shall be in such denominations as may be
requested by the Holder hereof, shall be registered in the name of such
Holder or such other name as shall be designated by such Holder and
shall bear a restrictive legend.
2. EXERCISE PRICE. Except as otherwise provided in Section 3 hereof,
the initial exercise price of this Warrant shall be $[ ] per Share. The adjusted
exercise price shall be the price which shall result from time to time from any
and all adjustments of the initial exercise price in accordance with the
provisions of Section 3 hereof. The term "EXERCISE PRICE" as used herein shall
mean the initial exercise price or the adjusted exercise price, as the context
requires.
3. ADJUSTMENTS.
(a) Subdivision or Combination of Shares. If the Company is
recapitalized through the subdivision or combination of its outstanding
shares of Common Stock into a larger or smaller number of shares, the
number of Warrant Shares shall be increased or reduced, as of the record
date for such recapitalization, in the same proportion as the increase
or decrease in the outstanding shares of Common Stock, and the Exercise
Price shall be adjusted so that the aggregate amount payable for the
purchase of all of the Warrant Shares issuable hereunder immediately
after the record date for such recapitalization shall equal the
aggregate amount so payable immediately before such record date.
(b) Dividends in Common Stock or Securities Convertible into
Common Stock. If the Company declares a dividend or distribution on
Common Stock payable in Common Stock or securities convertible into
Common Stock, the number of shares of Common Stock for which this
Warrant may be exercised shall be increased, as of the record date for
determining which holders of Common Stock shall be entitled to receive
such dividend, in proportion to the increase in the number of
outstanding shares (and shares of Common Stock issuable upon conversion
of all such securities convertible into Common Stock) of Common Stock as
a result of such dividend or distribution, and the Exercise Price shall
be adjusted so that the aggregate amount payable for the purchase of all
the Warrant Shares issuable hereunder immediately after the record date
for such dividend or distribution shall equal the aggregate amount so
payable immediately before such record date.
3
<PAGE> 4
(c) Merger, Sale of Assets. If at any time while this Warrant, or
any portion thereof, is outstanding and unexpired there shall be (i) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (ii) a merger or
consolidation of the Company with or into another corporation in which
the Company is not the surviving entity, or a reverse triangular merger
in which the Company is the surviving entity but the shares of the
Company's capital stock outstanding immediately prior to the merger are
converted by virtue of the merger into other property, whether in the
form of securities, cash, or otherwise, or (iii) a sale or transfer of
the Company's properties and assets as, or substantially as, an entirety
to any other person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so that
the holder of this Warrant shall thereafter be entitled to receive upon
exercise of this Warrant, during the period specified herein and upon
payment of the Exercise Price then in effect, the number of shares of
stock or other securities or property of the successor corporation
resulting from such reorganization, merger, consolidation, sale or
transfer that a holder of the shares deliverable upon exercise of this
Warrant would have been entitled to receive in such reorganization,
consolidation, merger, sale or transfer if this Warrant had been
exercised immediately before such reorganization, merger, consolidation,
sale or transfer, all subject to further adjustment as provided in this
Section 3. The foregoing provisions of this Section 3(c) shall similarly
apply to successive reorganizations, consolidations, mergers, sales and
transfers and to the stock or securities of any other corporation that
are at the time receivable upon the exercise of this Warrant.
(d) Reclassification. If the Company, at any time while this
Warrant, or any portion thereof, remains outstanding and unexpired,
shall change any of the securities as to which purchase rights under
this Warrant exist, by reclassification of securities or otherwise, into
the same or a different number of securities of any other class or
classes, this Warrant shall thereafter represent the right to acquire
such number and kind of securities as would have been issuable as the
result of such change with respect to the securities that were subject
to the purchase rights under this Warrant immediately prior to such
reclassification or other change and the Exercise Price therefor shall
be appropriately adjusted, all subject to further adjustment as provided
in this Section 3.
(e) Liquidation, etc. If the Company shall, at any time before
the expiration of this Warrant, dissolve, liquidate or wind up its
affairs, or otherwise declare a dividend, or make a distribution to the
holders of its Common Stock generally, whether in cash, property or
assets of any kind, including any dividend payable in stock or
securities of any other issuer owned by the Company (excluding regularly
payable cash dividends declared from time to time by the Company's Board
of Directors or any dividend or distribution referred to in Section
3(b)), the Exercise Price shall be reduced, without any further action
by the parties hereto, by the Per Share Value (as hereinafter defined)
of the dividend. For purposes of this Section 3(e), the "Per Share
Value" of a cash dividend or other distribution shall be the dollar
amount of the distribution on each share of Common Stock and the "Per
Share Value" of any dividend or distribution other than cash shall be
equal to the fair market value of such non-cash distribution on each
share of Common Stock as determined in good faith by the Board of
Directors of the Company.
4
<PAGE> 5
(f) Notice of Adjustment. Whenever the number of Warrant Shares
purchasable upon the exercise of the Warrant or the Exercise Price of
the Warrant Shares is adjusted as provided herein, the Company shall
mail to the Holder a notice of such adjustment or adjustments, prepared
and signed by the Chief Executive Officer, Chief Financial Officer or
Secretary of the Company, which sets forth the number of Warrant Shares
purchasable upon the exercise of the Warrant and the Exercise Price of
such Warrant Shares after such adjustment, a brief statement of the
facts requiring such adjustment, and the computation by which such
adjustment was made. Upon an adjustment described herein, the Company
may elect to issue a new Warrant reflecting such adjustment, and if the
Company so elects, the Holder will return this Warrant to the Company in
exchange for such new Warrant.
(g) Notices to Holder. So long as this Warrant shall be
outstanding (a) if the Company shall pay any dividends or make any
distribution upon the Common Stock otherwise than in cash or (b) if
there shall be any capital reorganization of the Company in which the
Company is not the surviving entity, recapitalization of the capital
stock of the Company, consolidation or merger of the Company with or
into another corporation, sale, lease or other transfer of all or
substantially all of the property and assets of the Company, or
voluntary or involuntary dissolution, liquidation or winding up of the
Company, then in such event, the Company shall cause to be mailed to the
Holder, at least twenty (20) days prior to the relevant date described
below (or such shorter period as is reasonably possible if twenty days
is not reasonably possible), a notice containing a description of the
proposed action and stating the date or expected date on which a record
of the Company's stockholders is to be taken for the purpose of any such
dividend, distribution of rights, or such reclassification,
reorganization, consolidation, merger, conveyance, lease or transfer,
dissolution, liquidation or winding up is to take place, the effect of
the action, to the extent such effect may be known on the date of such
notice, on the Exercise Price and the kind and amount of shares of stock
or other securities or property deliverable on the exercise of the
Warrant, and the date or expected date, if any is to be fixed, as of
which the holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities or other property
deliverable upon such event. All such notices shall be deemed to have
been received (i) in the case of personal delivery, on the date of such
delivery, and (ii) in the case of mailing, on the fifth (5th) business
day following the date of such mailing.
(h) The provisions of this Section 3 are for the purpose of, and
shall be interpreted to the effect that, upon any exercise of this
Warrant, the Holder shall be entitled to receive the same amount and
kind of securities and other property that it would have been entitled
to receive as the owner at all times subsequent to the date hereof of
the number of shares of Common Stock issuable upon conversion of the
Warrant Shares purchased upon any such exercise.
(i) It is agreed and understood that no adjustments shall be made
hereunder solely as a result of the issuance by the Company of: (i)
Common Stock issued pursuant to any future public or private issuance of
stock; or (ii) Common Stock issued upon the exercise of warrants or
options granted by the Company.
5
<PAGE> 6
(j) No adjustment of the Exercise Price shall be made in an
amount of less than 1% of the Exercise Price in effect at the time such
adjustment is otherwise required to be made, but any such lesser
adjustment shall be carried forward and shall be made at the time and
together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(k) Irrespective of any adjustment or change in the Exercise
Price, or the number of shares of Common Stock actually purchasable
under each Warrant of like tenor, the Warrants theretofore and
thereafter issued may continue to express the Exercise Price per Share
and the number of Warrant Shares purchasable thereunder as the Exercise
Price per Share and the number of Warrant Shares purchasable were
expressed on the Warrants when initially issued.
4. REGISTRATION
(a) Piggyback Registration. If the Company proposes to register
under the Securities Act any of its Common Stock (other than a
registration (1) relating to the sale of securities to employees,
officers and directors of, and independent contractors and consultants
to, the Company or a subsidiary pursuant to a stock option, stock
purchase or similar plan which is registered on Form S-8 or otherwise,
(2) relating to an exchange offer or offering of securities solely to
the Company's existing security holders, (3) relating to any business
combination or other transaction in which the Company's securities are
registered on Form S-4 or (4) on any form which does not include
substantially the same information as would be required to be included
in a registration statement covering the sale of Common Stock of the
Company owned by the Holder), the Company shall, at least twenty (20)
days prior to filing such registration statement with the Securities and
Exchange Commission give the Holder written notice of such proposed
filing, and include in such registration statement any or all of the
Warrant Shares as the Holder may request within ten (10) days after the
Company's giving of such notice, subject to the conditions set forth
herein.
(b) Registration Procedures. If, pursuant to Section 4(a) hereof,
the Company is required to include any Warrant Shares in a registration
statement proposed to be filed, the Company will, as expeditiously as
possible:
(i) prepare and file such registration statement under the
Securities Act on an appropriate form and use its best efforts to
cause such registration statement to become effective;
(ii) prepare and file with the Securities and Exchange
Commission such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may
be necessary to comply with the provisions of the Securities Act
and the Exchange Act of 1934 (the "EXCHANGE ACT") with respect to
the offer of the securities covered by such registration
statement during the period required for distribution of such
securities;
(iii) furnish to the Holder those copies of such
registration statement
6
<PAGE> 7
and all amendments thereto and of such prospectus (including each
preliminary, amended or supplemental prospectus) as the Holder
may reasonably request in order to facilitate the sale or
transfer of the securities covered by such registration
statement;
(iv) use its best efforts to register or qualify the
securities covered by any such registration statement in those
states and jurisdictions the Holder may reasonably request;
(v) furnish, at the request of Holder, on the date that
such Warrant Shares are delivered to the underwriters for sale
pursuant to such registration or, if such Warrant Shares are not
being sold through underwriters, on the date such registration
statement becomes effective (1) an opinion, dated such date, in a
form customary to such transactions, of the independent counsel
representing the Company for the purposes of such registration,
addressed to the underwriters, if any, reasonably acceptable in
form and substance to such underwriter, and (2) a letter, dated
such date, from the independent certified public accountants of
the Company, addressed to the underwriters, if any, stating that
they are independent certified public accountants within the
meaning of the Securities Act and that in the opinion of such
accountants, the financial statements and other financial data of
the Company included in the registration statement or the
prospectus, or any amendment or supplement thereto (including, in
each case, documents incorporated by reference thereto), comply
as to form in all material respects with the applicable
accounting requirements of the Securities Act; such opinion of
counsel shall additionally cover such other legal matters with
respect to the registration statement and the Company as the
underwriters, if any, may reasonably request; and such letter
from the independent certified public accountants shall
additionally cover such other financial matters (including
information as to the period ending not more than five (5)
business days prior to the date of such letter) with respect to
the registration statement and the Company as the underwriters,
if any, may reasonably request;
(vi) use its best efforts to keep such registration and
qualification effective until all exercises, sales and
distributions contemplated by the requests made pursuant to
Section 4(a) hereof shall have been completed, but not in any
event for a period in excess of ninety (90) days; and
(vii) pay all expenses incurred by the Company in
complying with this Section 4(b), including without limitation
(1) all registration and filing fees; (2) all printing expenses;
(3) all fees and disbursements of counsel and independent public
accountants for the Company; (4) all Blue Sky fees and expenses
(including fees and expenses of counsel in connection with Blue
Sky surveys); and (5) the entire expense of any special audits
incident to or required by any such registration.
(c) Certain Conditions to Registration. The right of the Holder
to have any Warrant Shares included in any registration statement
pursuant to the provisions of
7
<PAGE> 8
Section 4(a) hereof shall be subject to the following further
conditions:
(i) Should the request for registration be pursuant to
Section 4(a), and should the registration statement proposed by
the Company relate to an underwritten offering of securities of
the Company, and should the managing underwriter for the Company
render a recommendation to the effect that such registration of
all or a part of the Common Stock would materially impair the
Company's ability to sell the securities being registered by the
Company, then the Holder shall be entitled to participate pro
rata with all other stockholders entitled to registration rights
of equal priority, if any ("OTHER STOCKHOLDER"), based upon the
number of shares owned by or issuable to the Holder and each
Other Stockholder in the maximum amount of shares that such
underwriter determines may be sold without such impairment, after
the Company has included all stock that it desires to sell;
(ii) Should the registration statement proposed by the
Company relate to an underwritten offering of securities of the
Company, on exercise of its registration rights pursuant to this
Section 4, the Holder shall enter into an underwriting agreement
in customary form with the underwriter or underwriters for such
distribution and shall perform its obligations thereunder and, in
addition, the Holder shall bear a pro rata portion of the
underwriting discounts and commissions;
(iii) To the extent requested by any underwriter of the
Company's securities, the Holder shall not sell, loan, grant an
option for the purchase of or otherwise transfer or dispose of
any securities of the Company (including without limitation a
sale pursuant to Rule 144 of the Securities Act) during the
period (not in excess of 180 days) prior to and after the
effective date of a registration statement with respect to a
distribution of the Company's securities, if the officers and
directors of the Company enter into similar agreements. The
Company may impose stop transfer instructions to enforce the
provisions of the foregoing sentence;
(iv) The Holder hereby irrevocably waives and covenants
not to assert any right the Holder might have to obtain or seek
an injunction, administrative order or other action restraining
or otherwise delaying the registration of securities of the
Company in connection with any controversy that may arise with
respect to the interpretation and enforcement of this Section 4;
(v) The Holder shall furnish to the Company in writing
such information and documents as, in the opinion of counsel to
the Company, may be reasonably required to properly prepare and
file such registration statement in accordance with applicable
provisions of the Securities Act; and
(vi) If the Holder desires to sell and distribute
securities over a period of time, or from time to time at the
prevailing market prices pursuant to a registration statement to
be filed by the Company under the Securities Act, then
8
<PAGE> 9
the Holder shall execute and deliver to the Company such written
undertakings as the Company and its counsel may reasonably
require to assure full compliance with relevant provisions of the
Securities Act and the Exchange Act.
5. INDEMNIFICATION
(a) Indemnification of Holder. The Company will, and does hereby
undertake to, indemnify and hold harmless each Holder, each of such
Holder's officers, directors, partners and agents, and each person
controlling such Holder, with respect to any registration, qualification
or compliance effected pursuant to Section 4, against all claims,
losses, damages and liabilities (or actions in respect thereto) to which
they may become subject under the Securities Act, the Exchange Act, as
amended, or other federal or state law arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular, or other similar
document (including any related registration statement, notification or
the like) incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading and will reimburse, as
incurred, each Holder and each director, officer, partner, agent and
controlling person of the Holder, for any legal and any other expenses
reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action; provided that the Company
will not be liable in any such case to the extent that any such claim,
loss, damage, liability or expense, arises out of or is based on any
untrue statement or omission based upon written information furnished to
the Company by an instrument duly executed by any of the Holders or any
underwriter and stated to be specifically for use therein.
(b) Indemnification of Company. Each Holder will, if Shares held
by or issuable to such Holder are included in such registration,
qualification, or compliance, severally and not jointly, indemnify the
Company, each of its directors, and each officer who signs a
registration statement in connection therewith, and each person
controlling the Company, each underwriter, if any, and, each person who
controls any underwriter, of the Company's securities covered by such a
registration statement, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on
any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement, prospectus, offering
circular or other document, or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, and will reimburse, as
incurred, the Company, and each such underwriter or other person, for
any legal or any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or
action, in each case only to the extent that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) was made in
such registration statement, prospectus, offering circular or other
document, in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Holder
and stated to be specifically for use therein; provided, however, that
the liability of each such Holder hereunder shall be limited to the net
proceeds received by such Holder from the sale of securities under such
registration statement. In no event will any Holder be required to enter
into any agreement or
9
<PAGE> 10
undertaking in connection with any registration under this Section 5
providing for any indemnification or contribution obligations on the
part of such Holder greater than such Holder's obligations under this
Section 5.
(c) Notice. Each party entitled to indemnification under this
Section 5 (the "INDEMNIFIED PARTY") shall give notice to the party
required to provide such indemnification (the "INDEMNIFYING PARTY") of
any claim as to which indemnification may be sought promptly after such
Indemnified Party has actual knowledge thereof, and the Indemnifying
Party shall assume the defense of any such claim or any litigation
resulting therefrom; provided that counsel for the Indemnifying Party,
who shall conduct the defense of such claim or litigation, shall be
subject to approval by the Indemnified Party (whose approval shall not
be unreasonably withheld) and the Indemnified Party may participate in
such defense with its separate counsel at the Indemnifying Party's
expense if representation of such Indemnified Party would be
inappropriate due to actual or potential differing interests between
such Indemnified Party and any other party represented by such counsel
in such proceeding; and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve
the Indemnifying Party of its obligations under this Section 5, except
to the extent that such failure to give notice shall materially
adversely affect the Indemnifying Party in the defense of any such claim
or any such litigation. No Indemnifying Party, in the defense of any
such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof the
giving by the claimant or plaintiff therein, to such Indemnified Party,
of a release from all liability in respect to such claim or litigation.
6. CONTRIBUTION. In order to provide for just and equitable
contribution in any case in which (i) the Holder or any of Holder's officers,
directors, partners, agents or any controlling persons makes a claim for
indemnification pursuant to Section 5 hereof but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that the express provisions of Section 5 hereof provide for indemnification in
such case or (ii) contribution may be required on the part of any Holder or any
of Holder's officers, directors, partners, agents or any controlling persons,
then the Company and the Holder or any of Holder's officers, directors,
partners, agents or any controlling persons shall contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject (which
shall, for all purposes of this Agreement, include, but not be limited to, all
costs of defense and investigation and all attorneys' fees), in either such case
(after contribution from others) on the basis of relative fault as well as any
other relevant equitable considerations. The relative fault shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company on the one hand or
the Holder or any of Holder's officers, directors, partners, agents or any
controlling persons on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and the Holder agree that it would not be just and
equitable if contribution pursuant to this Section 6 were determined by pro rata
allocation or by any other method which does not take account of the equitable
considerations referred to in this Section 6. The amount paid or payable
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<PAGE> 11
by an Indemnified Party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above in this Section 6
shall be deemed to include any legal or other expenses reasonably incurred by
such Indemnified Party in connection with investigating or defending any such
action or claim. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11 of the Securities Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation.
7. COVENANTS OF THE COMPANY. The Company hereby covenants and agrees
that, prior to the expiration of this Warrant by exercise or by its term:
(a) The Company will not by amendment of its Certificate of
Incorporation or through reorganization, consolidation, merger,
dissolution or sale of assets, or by any other voluntary act or deed,
avoid or seek to avoid the observance or performance of any of the
covenants, stipulations or conditions to be observed or performed
hereunder by the Company, but will at all times in good faith assist,
insofar as it is able, in the carrying out of all provisions of this
Warrant and in the taking of all other actions that may be necessary to
protect the rights of the Holder against dilution.
(b) The Company shall at all times reserve and keep available,
out of its authorized and unissued capital stock, such numbers of shares
of Common Stock as shall, from time to time, be sufficient for the
exercise of the Warrants.
(c) All Warrant Shares that may be issued upon the exercise of
the rights represented by this Warrant will, upon issuance, be validly
issued, fully paid and non-assessable, and free from all taxes, liens
and charges with respect to the issue thereof (other than taxes in
respect of any transfer contemporaneously with such issue).
8. HOLDER'S REPRESENTATIONS AND WARRANTIES. The Holder hereby
represents and warrants that:
(a) Holder is an "accredited investor" as that term is defined in
Rule 501(a) of the Securities Act;
(b) Holder, either alone or with the assistance of the Holder's
professional advisors, has such knowledge and experience in financial
and business matters that it is capable of evaluating the merits and
risks of the Holder's investment in the Company;
(c) Holder has either spoken or met with, or been given
reasonable opportunity to speak with or meet with, representatives of
the Company for the purpose of asking questions of, and receiving
answers and information from, such representatives concerning the
Holder's investment in the Company;
(d) Holder has sufficient financial resources to be able to bear
the risk of the Holder's investment in the Company; and
(e) Holder is acquiring this Warrant (and will acquire any
securities issuable on exercise of this Warrant) for its own account for
investment purposes and not with a view toward the sale or distribution
of all or any part of this Warrant or such securities.
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<PAGE> 12
No one other than the Holder has any beneficial interest in this Warrant
or the securities issuable on exercise of this Warrant.
9. COVENANTS OF THE HOLDER.
(a) Securities Laws. The Holder, by acceptance hereof, agrees
that, absent both an effective registration statement under the
Securities Act and qualification under applicable state law covering the
disposition of this Warrant or the Warrant Shares, Holder will not sell
or transfer any or all of such Warrant or the Warrant Shares, without
first providing the Company with either an opinion of counsel reasonably
acceptable to the Company and its counsel to the effect that such sale
or transfer will be exempt from both the registration requirements of
the Securities Act and the qualification requirements of applicable
state law, or other evidence that is satisfactory to the Company
establishing that any such disposition will not violate the Securities
Act or applicable state law.
(b) Restrictions on Transfer. By acceptance hereof, the Holder
consents to (A) the placing of the legend substantially similar to that
set forth on this Warrant on the Warrant Shares, stating that such
securities have not been registered under the Securities Act and setting
forth the restriction on transfer contemplated hereby and (B) the
placing of a stop transfer order on the books of the Company and with
any transfer agents against this Warrant and such securities, as deemed
necessary by the Company to comply with such restrictions. The Holder
understands that, except pursuant to Section 4, the Company has no
obligation to the Holder to register this Warrant or any securities
issuable on exercise hereof, and has not represented to the Holder that
it will register this Warrant or such securities. The Holder understands
that there is no assurance that the Company will make filings under the
1934 Act, or that a public market for any securities of the Company will
exist, and as a result the Holder understands that Rule 144 may not be
available for the resale or distribution of any securities of the
Company by the Holder.
(c) If, at the time of the surrender of this Warrant in
connection with any exercise, transfer, or exchange of this Warrant,
this Warrant or the Warrant Shares are not registered under both the
Securities Act and applicable state securities laws, the Company may
require, as a condition of allowing such exercise, transfer or exchange,
a representation by the Holder that the transferee of this Warrant, in
whole or in part, or any Warrant Shares, is an "accredited investor" as
defined in Rule 501(a) promulgated under the Securities Act; provided
that no such representation shall be required in connection with a
transfer pursuant to Rule 144 of the Securities Act.
10. TRANSFER AND EXCHANGE.
(a) Transfer. This Warrant is not transferable without the
Company's prior written consent. Upon receipt of such consent, this
Warrant is transferable on the books of the Company at its principal
office by the registered Holder hereof only upon surrender of this
Warrant properly endorsed. The Company shall issue and deliver to the
transferee a new Warrant or Warrants representing the Warrant so
transferred. Upon any partial transfer, the Company will issue and
deliver to the Holder a new Warrant or Warrants with respect to the
Warrants not so transferred. Until due presentment for
12
<PAGE> 13
registration of transfer on the books of the Company, the Company may
treat the registered Holder hereof as the owner and Holder hereof for
all purposes, and the Company shall not be affected by any notice to the
contrary.
(b) Exchange. This Warrant, at any time prior to the exercise
hereof, upon presentation and surrender to the Company may be exchanged,
along with other Warrants of like tenor registered in the name of the
same Holder, for another Warrant or other Warrants of like tenor in the
name of such Holder exercisable for the same aggregate number of Warrant
Shares as the Warrant or Warrants surrendered.
11. LOSS, THEFT, DESTRUCTION OR MUTILATION. In case this Warrant
shall become mutilated or defaced or be destroyed, lost or stolen, the Company
shall execute and deliver a new Warrant in exchange for and upon surrender and
cancellation of such mutilated or defaced Warrant or in lieu of and substitution
for such Warrant so destroyed, lost or stolen, upon the Holder of such Warrant
filing with the Company such evidence satisfactory to it that such Warrant has
been so mutilated, defaced, destroyed, lost or stolen and of the ownership
thereof by the Holder; provided, however, that the Company shall be entitled, as
a condition to the execution and delivery of such new Warrant, to demand
indemnity satisfactory to it and payment of expenses and charges incurred in
connection with the delivery of such new Warrant. All Warrants so surrendered to
the Company shall be canceled.
12. RECORD OWNER. At the time of the surrender of this Warrant,
together with the form of subscription properly executed and payment of the
Exercise Price, the person exercising this Warrant shall be deemed to be the
holder of record of the shares of Common Stock deliverable upon such exercise,
in whole or in part, notwithstanding that the stock transfer books of the
Company shall then be closed or that certificates representing such shares of
Common Stock shall not then be actually delivered to such person.
13. FRACTIONAL SHARES. No fractional Warrant Shares or scrip
representing fractional Warrant Shares shall be issued upon the exercise of this
Warrant. With respect to any fraction of a Share called for on such exercise,
the Holder may elect to receive, and the Company shall pay to the Holder, an
amount in cash equal to such fraction multiplied by the Exercise Price. In the
alternative, the Holder may elect to remit to the Company an amount in cash
equal to the difference between such fraction and one, multiplied by the
Exercise Price, and the Company will issue the Holder one share of Common Stock
in addition to the number of whole Warrant Shares required by the exercise of
the Warrant.
14. MAILING OF NOTICES. All notices and other communications from the
Company to the Holder of this Warrant shall be sent by registered or certified
mail, (return receipt requested) or delivered personally or by courier or by
confirmed telecopy, and shall be effective five (5) days after being placed in
the mail, if mailed, or upon receipt or refusal of receipt, if delivered
personally or by courier, or by confirmed telecopy, in each case addressed to a
party. The addresses for such communications shall be:
If to the Company:
NetAmerica.com Corporation
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<PAGE> 14
Two Embarcadero Center, Suite 200
San Francisco, CA 94111
Telephone No. (415) 393-1727
Facsimile No. (415) 393-0721
Attention: Donald Sledge
With a Copy to:
Snell & Wilmer, LLP
15 West South Temple, Suite 1200
Salt Lake City, Utah 84101
Telephone No. (801) 257-1900
Facsimile No. (801) 257-1800
Attention: Dawn M. Call
Or such other addresses as the Company furnishes by notice to the Holder
in accordance with this Section 14.
If to the Holder, at such address as such Holder shall have provided in
writing to the Company, or at such other address as such Holder furnishes by
notice given in accordance with this Section 14.
15. NO REGISTRATION UNDER THE SECURITIES ACT. Because this Warrant
has not been registered under the Securities Act, it and all replacement
Warrants and the Warrant Shares shall bear the following legend:
THIS WARRANT, AND THE SECURITIES ISSUABLE UPON THE EXERCISE OF
THIS WARRANT, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED ( THE "SECURITIES ACT"), OR UNDER ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
OTHERWISE DISPOSED OF UNLESS (1) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND SUCH LAWS, OR
(2) AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND
SUCH LAWS IS AVAILABLE AND THE COMPANY HAS RECEIVED EITHER AN
OPINION OF COUNSEL, IN FORM AND SUBSTANCE REASONABLY SATISFACTORY
TO THE COMPANY, TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED
IN CONNECTION WITH THE DISPOSITION OR SUCH OTHER EVIDENCE AS MAY
BE SATISFACTORY TO THE COMPANY, WHICH EVIDENCE ESTABLISHES THAT
ANY SUCH DISPOSITION WILL NOT VIOLATE THE SECURITIES ACT, SUCH
LAWS OR ANY RULE OR REGULATION PROMULGATED THEREUNDER.
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<PAGE> 15
16. GOVERNING LAW; JURISDICTION. This Warrant shall be governed by
and construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware. Each of the Company
and the Holder irrevocably consents to the jurisdiction of the United States
federal courts and state courts located in the State of Delaware in any suit or
proceeding based on or arising under this Warrant and irrevocably agrees that
all claims in respect of such suit or proceeding may be determined in such
courts. Each of the Company and the Holder irrevocably waives any objection to
the laying of venue and the defense of an inconvenient forum to the maintenance
of such suit or proceeding. Each of the Company and the Holder further agrees
that service of process upon the company or the Holder mailed by certified or
registered mail to the address set forth in Section 14 shall be deemed in every
respect effective service of process upon the Company or the Holder in any such
suit or proceeding. Nothing herein shall affect the Holder's or the Company's
right to serve process in any other manner permitted by law. Each of the Company
and the Holder agrees that a final non-appealable judgment in any such suit or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.
17. ENTIRE AGREEMENT AND INTEGRATION. The Company and the Holder of
this Warrant hereby represent and warrant that this Warrant is intended to and
does contain and embody all of the understandings and agreements, both written
and oral, of the parties hereto with respect to the subject matter of this
Warrant, and that there exists no oral agreement or understanding, express or
implied, whereby the absolute, final and unconditional character and nature of
this Warrant shall be in any way invalidated, empowered or affected.
18. AMENDMENT; NO WAIVERS. Any provision of this Warrant may be
amended or waived only if such amendment or waiver is in writing and signed, in
the case of an amendment, by the Company and the Holder or, in the case of a
waiver, by the party against whom the waiver is to be effective. No failure or
delay by either party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies herein provided shall
be cumulative and not exclusive of any rights or remedies provided by law.
19. HEADINGS. The headings and captions in this Warrant are included
for convenience of reference only and shall be ignored in the construction and
interpretation thereof.
20. NO RIGHTS AS SHAREHOLDER. This Warrant shall not entitle the
Holder to any rights as a stockholder of the Company, either at law or in
equity. The rights of the Holder are limited to those expressed in this Warrant
and are not enforceable against the Company except to the extent set forth
herein.
21. SURVIVAL. The provisions of, and representations, warranties,
agreements and obligations of the Company and the Holder under this Warrant
shall survive the expiration of this Warrant, by exercise, transfer or by its
terms.
IN WITNESS WHEREOF, the Company, by its duly authorized officer, has
executed this Warrant on this [____] day of [________________].
15
<PAGE> 16
NETAMERICA.COM CORPORATION,
a Delaware corporation
By:
Its:
Address: Two Embarcadero Center, Suite 200
San Francisco, CA 94111
ATTEST:
[__________________________]
By:
Its:
Address: [__________________]
16
<PAGE> 17
FORM OF EXERCISE AGREEMENT
To: NetAmerica.com Corporation
Telephone No.
Facsimile No.
Attention:
The undersigned hereby irrevocably exercises the right to purchase
_________________ shares of the Common Stock of NetAmerica.com Corporation, a
corporation organized under the laws of the State of Delaware (the "COMPANY"),
and either
______ tenders herewith payment of the Exercise Price in full, in the amount of
$____________, in cash, by certified or official bank check or by wire
transfer for the account of the Company; or
______ elects pursuant to Section 1 of the Warrant to convert such Warrant into
Common Stock on a cashless exercise basis.
The undersigned agrees not to offer, sell, transfer or otherwise dispose
of any Common Stock obtained on exercise of the Warrant, except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws.
Exercise Date:____________________ ______________________________________
Signature of Holder
______________________________________
Name of Holder (Print)
Address:
______________________________________
______________________________________
______________________________________
17
<PAGE> 18
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ___________________________________________________________________________
________________________________________________________________________________
(Please print name and address of transferee)
this Warrant to purchase __________ Warrant Shares of NetAmerica.com
Corporation, a Delaware corporation (the "COMPANY"), together with all right,
title and interest therein, and does hereby irrevocably constitute and appoint
_______________________________ attorney, to transfer the Warrant on the books
of the Company, with full power of substitution in the premises.
DATED:________________________ _______________________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)
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<PAGE> 1
EXHIBIT 4.2
PROMISSORY NOTE
$_______________ December __, 1999
FOR VALUE RECEIVED, RateXchange, Inc., a Delaware corporation (the
"Maker"), promises to pay to __________________________________, or assigns (the
"Holder"), at 185 Berry Street, Suite 3515, San Francisco, California 94107, or
at such other place as the Holder of this Note may from time to time designate,
on ______ ___, 2000 [six months from Closing], the principal amount of
_____________________ _____________________ DOLLARS ($ ), together with interest
on the unpaid principal amount hereof from the date hereof, until paid in full,
said interest to be due and payable on ________ ___, 2000, at a rate per annum
(computed on the basis of a 365-day year and applied to the actual number of
days elapsed in each interest calculation period) equal to ten percent (10.0%).
All payments hereunder shall be made in lawful money of the United States of
America, without offset, except as otherwise provided herein.
The unpaid principal amount of this Note may be prepaid in whole or in
part at any time or times without premium or penalty. Each prepayment shall be
applied first to the payment of all interest accrued hereunder on the date of
any such prepayment, and the balance of any such prepayment shall be applied to
the principal amount hereof.
Upon the consummation any debt or equity financing by Maker in which
Maker raises gross proceeds of at least $7.0 million, Maker shall prepay the
unpaid principal amount of this Note, together with all accrued interest
hereunder through the date of such prepayment. Such prepayment shall be made to
Holder within ten (10) business days after the date such financing is
consummated. At Maker's election, if such financing is an equity financing
involving the issuance of convertible preferred stock, Maker may prepay the
unpaid principal amount of this Note, together with all accrued interest
hereunder through the date of such prepayment, in whole or in part, in shares of
convertible preferred stock issued by Maker in such equity financing, such
shares to be valued for purposes of such prepayment at the per share purchase
price paid for such convertible preferred stock in such equity financing
completed by Maker and to be accompanied by the same rights and be on the same
terms and conditions as Holder would have received if it had invested the unpaid
principal amount of this Note plus accrued interest in such financing under the
documents and agreements entered into in such financing.
The occurrence of any one or more of the following shall constitute an
<PAGE> 2
event of default ("Event of Default") hereunder:
(1) Failure to pay, when due, the principal and interest
payable hereunder on the date on which such principal or interest is
due (whether upon maturity hereof, upon any prepayment date, upon
acceleration, or otherwise);
(2) The failure of Maker generally to pay its debts as such
debts become due, the admission by Maker in writing of its inability to
pay its debts as such debts become due, or the making by Maker of any
general assignment for the benefit of creditors;
(3) The commencement by Maker of any case, proceeding, or
other action seeking reorganization, arrangement, adjustment,
liquidation, dissolution, or composition of it or its debts under any
law relating to bankruptcy, insolvency, or reorganization, or relief of
debtors, or seeking appointment of a receiver, trustee, custodian, or
other similar official for it or for all or any substantial part of its
property; or
(4) The commencement of any case, proceeding, or other action
against Maker seeking to have any order for relief entered adjustment,
liquidation, dissolution, or composition of Maker or its debts under
any law relating to bankruptcy, insolvency, reorganization, or relief
of debtors, or seeking appointment of a receiver, trustee, custodian,
or other similar official for Maker or for all or any substantial part
of the property of Maker, and (i) Maker shall, by any act or omission,
indicate its consent to, approval of, or acquiescence in such case,
proceeding, or action, or (ii) such case, proceeding, or action results
in the entry of an order for relief which is not fully stayed within
seven (7) business days after the entry thereof, or (iii) such case,
proceeding, or action remains undismissed for a period of sixty (60)
days.
Upon the occurrence of any such Event of Default hereunder, the entire principal
amount hereof, and all accrued and unpaid interest thereon, shall be
accelerated, and shall be immediately due and payable, at the option of the
Holder, without demand or notice, and in addition thereto, and not in
substitution therefor, the Holder shall be entitled to exercise any one or more
of the rights and remedies provided by applicable law. Failure to exercise said
option or to pursue such other rights and remedies shall not constitute a waiver
of such option or such other rights and remedies or of the right to exercise any
of the same in the event of any subsequent Event of Default hereunder.
2
<PAGE> 3
The Maker promises to pay all reasonable costs and expenses (including
without limitation reasonable attorneys' fees and disbursements) incurred in
connection with the collection hereof, and to perform each and every covenant or
agreement to be performed by the Maker under this Note.
Any payment on this Note coming due on a Saturday, a Sunday, or a day
which is a legal holiday in the place at which a payment is to be made hereunder
shall be made on the next succeeding day which is a business day in such place,
and any such extension of the time of payment shall be included in the
computation of interest hereunder.
The Maker hereby waives presentment, protest, demand, notice of
dishonor, and all other notices, and all defenses and pleas on the grounds of
any extension or extensions of the time of payments or the due dates of this
Note, in whole or in part, before or after maturity, with or without notice. No
renewal or extension of this Note, and no delay in enforcement of this Note or
in exercising any right or power hereunder, shall affect the liability of the
Maker hereunder. The pleading of any statute of limitations as a defense to any
demand against Maker is expressly waived.
No single or partial exercise by the Holder of any right hereunder
shall preclude any other or further exercise thereof or the exercise of any
other rights. No delay or omission on the part of the Holder in exercising any
right hereunder shall operate as a waiver of such right or of any other right
under this Note.
Whenever used herein, the words "Maker" and "Holder" shall be deemed to
include their respective successors and assigns.
This Note shall be governed by and construed under and in accordance
with the laws of State of Delaware (but not including the choice of law rules
thereof).
IN WITNESS WHEREOF, the undersigned has duly executed this Note, or has
caused this Note to be duly executed on its behalf, as of the day and year first
hereinabove set forth.
RATEXCHANGE, INC.
By: _______________________________________
Donald Sledge
Chief Executive Officer
3
<PAGE> 1
EXHIBIT 10.3
SEVERANCE AGREEMENT AND MUTUAL RELEASE
THIS SEVERANCE AGREEMENT AND MUTUAL RELEASE (the "AGREEMENT") is
executed and entered into this ___ day of _____, 2000 by and between Douglas
Cole ("COLE"), and NetAmerica.com Corporation, a Delaware corporation
("NETAMERICA.COM" or the "COMPANY").
R E C I T A L S
WHEREAS, on or about April 1, 1999, Cole and the Company entered into an
employment agreement, attached hereto as Attachment A (the "EMPLOYMENT
AGREEMENT");
WHEREAS, Cole is also a director of the Company;
WHEREAS, the parties mutually agree that it is in their respective best
interests to bring the employment relationship between Cole and the Company to a
conclusion;
WHEREAS, the Company would like Cole to provide consulting services
during a transition period and remain as a director of the Company; and
WHEREAS, the parties intend to provide for such employment termination
and transition and other services in this Agreement.
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein and other good and valuable consideration, receipt of which is
hereby acknowledged, the parties hereto covenant and agree as follows:
1. TERMINATION OF EMPLOYMENT. As of February 7, 2000, the parties
mutually agree that Cole's employment with the Company ceased. Furthermore, Cole
delivered a written resignation as of such date (the "RESIGNATION") from his
position as an officer of the Company.
2. INTERIM RESPONSIBILITIES DURING TRANSITION PERIOD. From February 7,
2000 through March 31, 2000 or such later time as the parties agree, Cole
continued or will continue to assume such responsibilities and perform such
tasks as the Board of Directors shall assign.
3. CONSULTING SERVICES. Upon execution of this Agreement, the Company
hereby retains Cole as a consultant, to advise it with respect to certain
aspects of its business. In connection therewith, Cole hereby agrees to perform
such reasonable and necessary consulting services relating to the restructuring
of NetAmerica.com's business to focus on the operations of its subsidiary,
RateXchange, Inc., as may be requested by the Company and its executive officers
from time to time until May 1, 2000 or such later time as the parties may
mutually agree (the "CONSULTING PERIOD"). Cole hereby accepts such retention and
shall in good faith perform such services, for and on behalf and in the best
interests of the Company during the Consulting Period. It is agreed that Cole
shall not be required to spend any specific period or periods of time at the
offices or premises of the Company in providing the services hereunder, but will
be available to consult with the Company at mutually convenient times and
places. Cole may provide the services hereunder in person, by telephone,
facsimile, e-mail or other correspondence as he and the Company mutually agree.
<PAGE> 2
4. DIRECTORSHIP. Cole agrees to continue serving as a director of the
Company for a period of three (3) months or such earlier or later time as the
parties may mutually agree. The Company agrees to pay Cole the standard rate
paid to non-employee directors for each director meeting plus out-of-pocket
expenses.
5. CONSIDERATION. In consideration for the covenants and agreements set
forth in Sections 1-4 above, and the parties' mutual releases, on the terms and
conditions of this Agreement, the parties acknowledge and agree as follows:
(a) Until the expiration of the Consulting Period, the Company shall pay
to Cole a consulting fee of $14,000 per month for the consulting services Cole
renders to the Company during the Consulting Period.
(b) Upon execution of this Agreement, the Company agrees to pay Cole
$14,000 per month for six (6) months in severance pay less applicable
withholdings. Each payment will be made by the fifth (5th) day of each month.
Notwithstanding the foregoing, after the Company receives at least $7.5 million
in additional financing, any unpaid severance payments will be paid in a lump
sum payment within ten (10) days of the Company's receipt of such funds.
(c) Cole agrees to comply with Sections 6, 7 and 8 of the Employment
Agreement, which are incorporated herein by reference, pertaining to
Non-Competition, Confidentiality and Remedies. The Non-Competition provision
will be limited to non-competition with the Company's operations on the date of
the execution of this Agreement. All other terms and provisions of the
Employment Agreement shall terminate upon the execution of this Agreement.
(d) Upon execution of this Agreement, the Company agrees to pay the cost
of Cole's health insurance premiums for a period of twelve (12) months. Each
payment will be made by the seventh (7th) day of each month.
(e) Upon execution of this Agreement, the Company agrees to pay Cole a
performance bonus of $115,000 for his services as Chief Executive Officer which
were outside his duties as defined in his Employment Agreement.
(f) Upon execution of this Agreement, the Company agrees to pay all
amounts it owes Cole for unpaid salary, bonuses and/or expenses. The Company
also agrees to issue all options that were approved for Cole by the Board of
Directors prior to the execution of this Agreement.
(g) Cole shall be entitled to keep his current computer and office
equipment.
(h) Within thirty (30) days of the expiration of the Consulting Period,
the Company agrees to register on Form S-8, or on an alternative form to Form
S-8, all shares issuuable upon exercise of the options issued under the
Company's 1999 or 2000 Stock Option Plans or outside such plans and owned by
Cole at the end of the Consulting Period. The Company agrees to maintain the
effectiveness of this registration for a period of at least one (1) year.
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<PAGE> 3
6. RELEASE OF COLE'S CLAIMS AGAINST THE COMPANY.
(a) Excluding claims for breach or enforcement of this Agreement, Cole
does hereby irrevocably and unconditionally release and forever discharge, for
himself and for his heirs, executors, administrators and assigns, any and all
claims of any nature whatsoever against the Company, its current and former
officers, directors, shareholders, employees, representatives, attorneys and
agents as well as its predecessors, parent companies, subsidiaries, affiliates,
successors and assigns, which Cole has or had against them or any of them
arising out of or by reason of any cause, matter or thing whatsoever existing as
of the date of execution of this Agreement, whether known to the parties at the
time of execution of this Agreement or not, including without limitation, any
claims arising out of, or relating in any manner whatsoever to the employment of
Cole by the Company and his separation from the Company. This FULL WAIVER OF ALL
CLAIMS includes, without limitation, any claims, demands, or causes of action
arising out of, or relating in any manner whatsoever to the Civil Rights Act of
1964 and 1991, as amended, the Age Discrimination in Employment Act of 1967, as
amended, the Older Workers Benefit Protections Act, the Fair Labor Standards
Act, the Labor Management Relations Act, the Employee Retirement Income Security
Act of 1974, the Americans with Disabilities Act, or any other applicable
federal, state, or local statute or regulation, or any common law cause of
action, including without limitation, claims for breach of any express or
implied contract, the covenant of good faith and fair dealing, tort, wrongful
discharge, constructive discharge, personal injury, emotional distress,
defamation, fraud, or any claims for attorneys' fees or other costs. Cole
further covenants and agrees that upon being paid the amounts provided for in
Section 5, above, the Company is not further indebted to him in any amount for
any reason, including any fringe benefits or other forms of compensation.
(b) Cole represents and warrants that he has not assigned or subrogated
any of his rights, claims and causes of action, including any claims referenced
in this Agreement, or authorized any other person or entity to assert such claim
or claims on his behalf and he agrees to indemnify and hold harmless the Company
against any assignment of said right, claims and/or causes of action.
(c) Cole represents that he has not filed any complaints or charges
against the Company with any local, state or federal court or agency based upon
events occurring prior to the date of execution of this Agreement. Cole further
represents and agrees that he will not in the future file, instigate or
encourage the filing of any proceeding or lawsuit by any party against the
Company in any local, state or federal court or agency. Cole further represents
and agrees that he shall not in the future cooperate or participate in any such
lawsuit or proceedings except in accordance with this Agreement and as otherwise
required by law. It is understood and agreed that Cole's promises set forth in
this Section 6 are of critical importance to this Agreement. Any breach by Cole
of the provisions of this Section shall be deemed a material breach of this
Agreement.
(d) Cole agrees that he will not disclose, disseminate and/or publicize
any of the terms of this Agreement, any of the factual allegations underlying
any claims the Company or Cole may have against one another, any of the
underlying facts of this Agreement or negotiations regarding this Agreement,
directly or indirectly, specifically or generally, to any person, corporation,
association or governmental agency, except (a) as required by law; (b) to the
extent
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<PAGE> 4
necessary to report income to appropriate taxing authorities; (c) pursuant to
privileged communications; or (d) in response to an order of a court or
governmental agency of competent jurisdiction or subpoena issued under proper
authority; provided that notice of receipt of such judicial order, inquiry or
subpoena shall be immediately communicated to the Company, telephonically and
confirmed immediately thereafter in writing, so that the Company will have the
opportunity to intervene and assert what rights it has to nondisclosure prior to
the response to the order, inquiry or subpoena.
7. RELEASE OF THE COMPANY'S CLAIMS AGAINST COLE.
(a) Excluding claims for breach or enforcement of this Agreement, the
Company for itself, its legal representatives, subsidiaries, affiliates, agents,
successors in interest and assigns, irrevocably and unconditionally releases and
forever discharges Cole from any and all claims of any nature whatsoever against
Cole, or his affiliates, agents, employees, attorneys, successors and assigns,
which the Company has or had against Cole arising out of or by reason of any
cause, matter or thing whatsoever existing as of the date of execution of this
Agreement, whether known to the parties at the time of the execution of this
Agreement or not, including without limitation, any claims arising out of, or
relating in any manner whatsoever to the employment of Cole by the Company and
his separation from the Company. The Company acknowledges that this release of
claims specifically includes, but is not limited to, any and all claims for
breach of contract, breach of the covenant of good faith and fair dealing,
intentional or negligent misrepresentation, conspiracy, negligence of any kind,
libel, slander or any other wrongful conduct based upon events occurring prior
to the date of the execution of this Agreement.
(b) The Company represents and warrants that it has not assigned or
subrogated any of its rights, claims and causes of action including any claims
referenced in this Agreement or authorized any other person or entity to assert
such claim or claims on its behalf and agrees to indemnify and hold harmless
Cole against any assignment of said rights, claims and/or causes of action.
(c) The Company represents that it has not filed any complaints or
charges against Cole with any local, state or federal court or agency based upon
the events occurring prior to the date of execution of this Agreement. The
Company further represents and agrees that it will not in the future file,
instigate or encourage the filing of any proceeding or lawsuit by any party
against Cole in any local, state or federal court or agency. The Company further
represents and agrees that it shall not in the future cooperate or participate
in any such lawsuit or proceeding except in accordance with this Agreement and
as otherwise required by law. It is understood and agreed that the Company's
promises as set forth in this Section 7 are of critical importance to this
Agreement. Any breach by the Company of the provisions of this Section shall be
deemed a material breach of this Agreement.
(d) The Company agrees that it will not disclose, disseminate and/or
publicize any of the terms of this Agreement, any of the factual allegations
underlying any claims the Company or Cole may have against one another, any of
the underlying facts of this Agreement or negotiations regarding this Agreement,
directly or indirectly, specifically or generally, to any person, corporation,
association or governmental agency, except (a) as required by law; (b) to the
extent necessary to report income to appropriate taxing authorities; or (c) in
response to an order
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of a court or governmental agency of competent jurisdiction or subpoena issued
under proper authority; provided that notice of receipt of such judicial order,
inquiry or subpoena shall be immediately communicated to Cole, telephonically
and confirmed immediately thereafter in writing, so that Cole will have the
opportunity to intervene and assert what rights he has to nondisclosure prior to
the response to the order, inquiry or subpoena.
8. TAX OBLIGATIONS. It is understood and agreed that Cole is liable for
all tax obligations, if any, with respect to the payments and sums set forth in
Sections 4 or 5, above. The Company makes no warranty as to any tax consequences
of such payments, and a determination of the tax consequences of such payments
are the sole responsibility of Cole.
9. INDEPENDENT CONTRACTOR STATUS. With respect to Section 3 above, it is
expressly understood and agreed that Cole is an independent contractor and is
not in any manner an agent or employee of the Company (or any of its
subsidiaries), nor is Cole authorized or empowered to conduct business under the
name of, or for the account of, the Company (or any of its subsidiaries) or to
incur obligations of any kind, express or implied, on behalf of the Company, or
to make any promise, warranty or representation on behalf of the Company (or any
of its subsidiaries) with respect to any of its or their products or services.
10. INDEMNIFICATION. With respect to Sections 2, 3 and 4 above, Cole
shall indemnify the Company from and against any and all expenses (including
attorneys' fees), judgments, fines, claims, causes of action, liabilities and
other amounts paid (whether in settlement or otherwise actually and reasonably
incurred) by the Company in connection with such action, suit or proceeding if
(i) the Company was made a party to any action, suit or proceeding by reason of
the fact that Cole rendered advice or services pursuant to this Agreement, and
(ii) Cole did not act in good faith and in a manner reasonably believed by Cole
to be in or not opposed to the interests of the Company, and, with respect to
any criminal action or proceeding, did not reasonably believe his conduct was
lawful.
11. SURVIVAL OF REPRESENTATIONS, ETC. All representations, warranties,
and agreements made herein shall survive for a period of five (5) years
following execution of this Agreement.
12. TWENTY-ONE DAY CONSIDERATION PERIOD. Cole acknowledges that he has
been allowed twenty-one (21) days to consider this Agreement and the releases
and waivers contained herein. Cole further acknowledges that he has been advised
to consult with counsel and that he has consulted with counsel regarding this
Agreement.
13. SEVEN DAY REVOCATION PERIOD. The parties agree that Cole shall have
a period of seven (7) days following the execution of this Agreement in which to
revoke the Agreement and that the Agreement shall not become effective or
enforceable until the revocation period has expired (See Attachment B).
14. CIVIL CODE SECTION 1542. Each party expressly waives all rights
under Section 1542 of the Civil Code of the State of California, which each
party understands provides as follows:
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A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have materially
affected his settlement with the debtor.
15. MISCELLANEOUS.
(a) Binding Effect; Assignment. This Agreement shall inure to the
benefit of and be binding upon the parties hereto, their respective legal
representatives and successors. This Agreement may not be assigned.
(b) Further Assurances; Cooperation. Each party shall, upon reasonable
request by the other party, execute and deliver any additional documents
necessary or desirable to complete the transactions contemplated by this
Agreement, pursuant to and in the manner contemplated by this Agreement.
(c) Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto and supersedes all prior arrangements, understandings
and agreements, oral or written, between the parties hereto with respect to the
subject matter hereof.
(d) Dispute Resolution. Except as otherwise expressly provided in this
Agreement, any civil claim which arises out of or relates in any way to this
Agreement shall be settled by binding and exclusive arbitration in California,
in accordance with the following terms and procedures:
(i) The party with a civil claim must notify the other party in
writing by certified mail within the times set forth by statute for filing a
civil claim of its desire to have the claim resolved by arbitration.
(ii) Upon notice of a timely civil claim, the parties will agree
upon an arbitrator or, if unable to agree, will request a list from the Federal
Mediation and Conciliation Service from which the parties will alternate strikes
until only one name remains. The last remaining name will be the arbitrator.
(iii) The arbitrator shall have no authority to add to, subtract
from, or otherwise modify the terms of this Agreement or to make awards beyond
those provided for by the statute or other cause of action under which the claim
arises.
(iv) Any party to the arbitration may be represented by counsel.
All decisions of the arbitrator made in accordance with this policy shall be
final and conclusively binding upon the parties. The parties agree that the
arbitrator's award may be entered as a judgment by any court of competent
jurisdiction, unless the award is vacated, modified or corrected.
(i) Issues of procedure, arbitrability, appeal, or confirmation,
vacation or correction of award shall be governed by the Federal Arbitration
Act, 9 U.S.C. Sections 1-16.
(e) Attorney Fees. In any action or proceeding arising out of or related
to this Agreement, the prevailing party shall be entitled to its reasonable
attorney fees and related costs,
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<PAGE> 7
including fees and costs incurred prior to formal initiation of any action or
proceeding, and including fees and costs incurred for collecting or attempting
to collect any judgment or award.
(f) Amendments and Waivers. This Agreement may not be modified or
amended except by an instrument or instruments in writing signed by the party
against whom enforcement of any such modification or amendment is sought. Cole
may, by an instrument in writing, waive compliance by the Company with any term
or provision of this Agreement on the part of the Company to be performed or
complied with. The Company may, by an instrument in writing, waive compliance by
Cole, with any term or provision of this Agreement on the part of Cole to be
performed or complied with. Any waiver of a breach of any term or provision of
this Agreement shall not be construed as a waiver of any subsequent breach.
(g) Headings: Severability. The headings contained in this Agreement are
for convenience of reference only and shall not affect the interpretation or
construction hereof. Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction. If any provision of this Agreement is
so broad as to be unenforceable, such provision shall be interpreted to be only
so broad as is enforceable.
(h) Jurisdiction. This Agreement shall be governed in all respects,
whether as to validity, construction, capacity, performance, or otherwise, by
the laws of the State of California. The parties to this Agreement hereby submit
to the jurisdiction of the courts of the State of California.
(i) Voluntary Agreement. This Agreement is freely entered into by the
undersigned parties upon advice of counsel.
(j) Agreement not an Admission. The parties hereby acknowledge that
neither this Agreement nor the payments made hereunder nor the acceptance of the
same, may be treated as an admission of any legal responsibility, liability,
wrongdoing or fault of any kind whatsoever. Such responsibility, liability,
wrongdoing and fault being expressly denied.
(k) Execution in Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original and all of which shall
be deemed to be one and the same instrument.
(l) Construction. It is agreed and understood that the general rule that
"ambiguities are to be construed against the drafter" shall not apply to this
Agreement. The parties agree that this Agreement is a part of negotiation and
was drafted by all parties. In the event any language of this Agreement is found
to be ambiguous, each party shall have an opportunity to present evidence as to
the actual intent of the parties with respect to any such ambiguous language.
(m) Amendments and Modifications. Any amendment or modification of this
Agreement must be in writing and signed by each party.
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<PAGE> 8
THE SIGNATORIES HAVE CAREFULLY READ THIS ENTIRE AGREEMENT.
ITS CONTENTS HAVE BEEN FULLY EXPLAINED BY THE RESPECTIVE
ATTORNEYS. THE SIGNATORIES FULLY UNDERSTAND THE FINAL AND
BINDING EFFECT OF THIS AGREEMENT. THE ONLY PROMISES MADE
TO ANY SIGNATORY ABOUT THIS AGREEMENT, AND TO SIGN THIS
AGREEMENT, ARE CONTAINED IN THIS AGREEMENT. THE
SIGNATORIES ARE SIGNING THIS AGREEMENT VOLUNTARILY. PLEASE
READ CAREFULLY: THIS SEVERANCE AGREEMENT AND MUTUAL
RELEASE INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN
CLAIMS.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first above written.
DOUGLAS COLE
______________________________________
Douglas Cole
NETAMERICA.COM CORPORATION
By:___________________________________
Its: _________________________________
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<PAGE> 9
ATTACHMENT A
EMPLOYMENT AGREEMENT
<PAGE> 10
ATTACHMENT B
NON-REVOCATION
AS OF THE DATE SHOWN ON THIS FORM
By signing below, I verify that I have chosen not to revoke my agreement
to and execution of the Severance Agreement and Mutual Release. My signature
confirms my renewed agreement to the terms of that Agreement, including the
release and waiver of any and all claims relating to my employment with
NetAmerica.com Corporation and its successors, assigns, and affiliated
companies, and/or the termination of that employment.
______________________________ _____________________________
Signature* Date
* Do not sign, date, or return this document until seven (7) days after you sign
the Severance Agreement and Mutual Release. The Severance Agreement was signed
on ____________.
<PAGE> 1
Exhibit 10.5
EMPLOYMENT AGREEMENT
(PHILIP RICE)
This Employment Agreement (this "Agreement") is entered into effective
as of the _____ day of February, 2000 (the "Effective Date"), by and between
RateXchange, Inc., a Delaware corporation (the "Company"), and Philip Rice
("Employee"). The Company and Employee agree as follows:
1. Employment. The Company hereby employs Employee, and Employee
accepts such employment, upon the terms and conditions set forth in this
Agreement.
2. Position and Duties. During Employee's employment hereunder, he
shall serve as the Company's Chief Financial Officer, and shall perform such
employment duties as the Company shall assign to him from time to time. Employee
agrees to serve the Company faithfully and to the best of his ability and to
devote his full time, attention, and efforts to the business and affairs of the
Company during the term of his employment. Employee hereby confirms that he is
under no contractual commitments inconsistent with his obligations set forth in
this Agreement. Employee agrees that, during the term of this Agreement, he will
not render or perform any services for any corporation, firm, entity, or person,
other than the Company, without the prior written consent of the Company, except
that Employee shall be entitled without prior written consent to hold positions
on the Board of Directors of entities that do not compete with the Company.
Employee has, as of the date of this Agreement, disclosed to the Board of
Directors of the Company the positions Employee currently holds on other Boards
of Directors, and the Company has consented to such positions.
3. Term. Unless terminated at an earlier date in accordance with
Section 5 of this Agreement, the term of this Agreement (the "Term") shall be
three years commencing on the Effective Date.
4. Compensation. As compensation for all services to be rendered by
Employee under this Agreement, the Company shall provide to Employee the
following:
4.01 Base Salary. The Company shall pay to Employee an annual
base salary of Two Hundred Thousand Dollars ($200,000), less legally required
deductions and authorized withholdings, payable in periodic installments in
accordance with the standard payroll practices of the Company in effect from
time to time. Employee shall be eligible for annual salary increases which shall
be determined by the Company in its sole discretion.
4.02 Incentive Bonus. Employee shall be eligible for an annual
incentive bonus (a "Bonus") of up to 50% of his annual base salary, less legally
required or legally authorized deductions and withholdings. The amount of any
Bonus paid to Employee shall be based upon criteria upon which the Employee and
the Company shall mutually agree. The amount of any Bonus payable to Employee
for the remaining years of the Term shall be determined by the Company in its
sole discretion, based upon the eligibility criteria upon which the Company and
Employee have agreed.
<PAGE> 2
4.03. Stock Options. Employee shall be entitled to receive a
grant of options to acquire Two Hundred Fifty Thousand (250,000) shares of
Company stock pursuant to the terms and subject to the conditions of the stock
plan in which the Company employee's participate.
5. Termination.
5.01 Termination Due to Employee's Death or Disability.
Employee's employment pursuant to this Agreement shall terminate automatically
prior to the expiration of the Term in the event of Employee's death or
Disability, as defined herein. "Disability" shall mean a physical or mental
impairment of Employee which results in Employee's inability to perform one or
more of the essential functions of Employee's position, with or without
reasonable accommodation, provided Employee has exhausted Employee's entitlement
to any applicable leave, if Employee desires to take such leave and satisfies
all eligibility requirements for such leave.
5.02 Termination by the Company for Cause. Company may
terminate Employee's employment pursuant to this Agreement prior to the
expiration of the Term in the event that there is "Cause" to terminate
Employee's employment, which shall be defined as any of the following:
(a) Employee's material breach of any obligation to
the Company under the terms of this Agreement;
(b) Employee's conviction, or the entry of a plea of
guilty or nolo contendere by Employee of any felony or any crime involving moral
turpitude; or
(c) Any acts of Employee constituting gross
negligence or misconduct in connection with his employment with the Company, or
Employee's breach of any fiduciary duty to the Company or Employee's failure to
carry out any reasonable directive of the Company, any conduct by Employee which
is detrimental to the Company, or any failure by Employee to comply with any of
the policies or performance standards of the Company.
The Company's determination that there is Cause to terminate Employee's
employment shall be subject to the dispute resolution procedures pursuant to
Section 16 of this Agreement.
5.03 Termination by the Company without Cause. The Company may
terminate Employee's employment at any time prior to the expiration of the Term,
without prior notice and for any reason including, but not limited to, a sale,
merger, or change of control in the ownership of the Company, provided the
Company pays to Employee the severance pay described in Section 5.05(d).
5.04 Termination by Employee. Employee may terminate his
employment at any time during the term of this Agreement by giving sixty (60)
days' prior written notice thereof to the Company's Board of Directors. In the
event of termination by Employee under this Section, the Company may at its
option elect to have Employee cease to provide services immediately, provided
that during such 60-day notice period Employee shall be entitled to continue to
receive his base salary.
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<PAGE> 3
5.05 Effect of Termination.
(a) Survival of Provisions. Notwithstanding any
termination or expiration of this Agreement, or any termination of Employee's
employment with the Company pursuant to Section 5, Employee, in consideration of
Employee's employment hereunder to the date of such termination or expiration,
shall remain bound by the provisions of this Agreement which specifically relate
to periods, activities, or obligations upon or subsequent to the termination of
Employee's employment, including, but not limited to, the provisions of Sections
6, 7, and 8.
(b) Termination due to Death or Disability. In the
event Employee's employment terminates prior to the expiration of the Term due
to his death or Disability, Employee shall not be entitled to any further
compensation under the provisions of this Agreement, except for his base salary
earned through the date of termination, and the portion of any annual Bonus
under Section 4.02 of this Agreement which previously had been approved by the
Company but was unpaid as of Employee's death or Disability. Employee (or, in
the event of death, Employee's estate) shall be entitled to such unpaid portion
of any approved Bonus only if Employee (or the authorized representative of
Employee's estate) signs a comprehensive general release of claims in a form
acceptable to Company. Payments of such approved but unpaid annual Bonus shall
not commence until after Employee (or the authorized representative of his
estate) signs such a release, and after any revocation period referenced in such
release has expired. If Employee (or the authorized representative of his
Estate) does not sign such a general release of claims, Employee (or his estate)
shall not be entitled to receive any compensation under the provisions of this
Agreement except for Employee's base salary earned through the date of death or
Disability. In the case of Disability, if Employee violates any of the
provisions of Sections 7 or 8 of this Agreement, the Company's obligations to
pay the unpaid portion of any approved Bonus to Employee shall cease on the date
of such violation.
(c) Termination for Cause. In the event of a
termination for Cause under Section 5.02, Employee shall not be entitled to
receive any further compensation under the provisions of this Agreement, except
for his base salary earned through the date of termination.
(d) Termination without Cause. In the event of
termination without Cause under Section 5.03, Employee shall be entitled to
severance pay consisting of the following: (1) base salary continuation for 12
months following the date of termination, at the rate in effect at the time of
termination, which shall be paid on the Company's regular paydays; and (2) a
lump sum payment of $100,000. Employee shall only be entitled to the foregoing
severance pay if Employee signs a comprehensive general release of claims in a
form acceptable to the Company. Employee's severance pay shall not commence
until the first payday after Employee signs such a release, and after any
revocation period referenced in such release has expired. If Employee does not
sign such a general release of claims, Employee shall not be entitled to receive
any compensation under the provisions of this Agreement except for his base
salary earned through the date of termination. If Employee violates any of the
provisions of Sections 7 or 8 of this Agreement, the Company's obligations to
pay severance pay to Employee shall cease on the date of such violation.
(e) Termination Occasioned by Employee. In the event
Employee terminates his employment under Section 5.04, Employee shall not be
entitled to receive any further
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<PAGE> 4
compensation under the provisions of this Agreement, except for his base salary
earned through the date of termination.
6. Return of Proprietary Property. Employee agrees that all property in
Employee's possession that he obtains or is assigned in the course of his
employment with the Company, including, without limitation, all documents,
reports, manuals, memoranda, customer lists, credit cards, keys, access cards,
and all other property relating in any way to the business of the Company, is
the exclusive property of the Company, even if Employee authored, created, or
assisted in authoring or creating such property. Employee shall return to the
Company all such property immediately upon termination of employment or at such
earlier time as the Company may request.
7. Confidential Information. Except as permitted or directed by the
Company's Board of Directors, during the time Employee is employed by the
Company or at any time thereafter, Employee shall not divulge, furnish, or make
accessible to anyone or use in any way (other than in the ordinary course of the
business of the Company) any confidential or secret information or knowledge of
the Company, whether developed by himself or by others. Such confidential and/or
secret information encompassed by this Section 7 includes, but is not limited
to, the Company's customer and supplier lists, business plans, and financial,
marketing, and personnel information. Employee agrees to refrain from any acts
or omissions that would reduce the value of any confidential or secret knowledge
or information to the Company, both during his employment hereunder and at any
time after the termination of his employment. Employee's obligations of
confidentiality under this Section 7 shall not apply to any knowledge or
information that is now published publicly or that subsequently becomes
generally publicly known, other than as a direct or indirect result of a breach
of this Agreement by Employee.
8. Patent and Related Matters.
8.01 Disclosure and Assignment. Employee agrees to promptly
disclose in writing to the Company complete information concerning each and
every invention, discovery, improvement, device, design, process, or product
made, developed, perfected, devised, conceived, or first reduced to practice by
Employee, either solely or in collaboration with others, during Employee's term
of employment by the Company, or within six months thereafter, relating to the
business, products, practices, or techniques of the Company (hereinafter
referred to as "Developments"). Employee, to the extent that Employee has the
legal right to do so, hereby acknowledges that any and all of said Developments
are the property of the Company and hereby assigns and agrees to assign to the
Company any and all of Employee's right, title, and interest in and to any and
all of such Developments.
8.02 Limitation. The provisions of this Section 8 shall not
apply to any Development meeting the following conditions:
(a) such Development was developed entirely on
Employee's own time; and
(b) such Development was made without the use of any
Company equipment, supplies, facilities, or trade secret information; and such
Development does not relate at
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<PAGE> 5
the time of conception or reduction to practice to (i) to the business of the
Company, or (ii) to the Company's actual or demonstrably anticipated research or
development; and
(c) such Development does not result from any work
performed by Employee for the Company.
8.03 Assistance of Employee. Upon request and without further
compensation therefor, but at no expense to Employee, and whether during the
term of Employee's employment by the Company or thereafter, Employee will do all
lawful acts, including, but not limited to, the execution of papers and the
giving of testimony, that in the opinion of the Company, its successors, or
assigns, may be necessary or desirable in obtaining, sustaining, reissuing,
extending, or enforcing Letters Patent, and for perfecting, affirming, and
recording the Company's complete ownership and title thereto, and to cooperate
otherwise in all proceedings and matters relating thereto.
9. Confidentiality of this Agreement. Employee agrees to keep the terms
of this Agreement confidential, and not to disclose such terms to any other
RateXchange, Inc., employee, other than authorized members of the Board of
Directors of the Company.
10. Assignment. The rights and obligations of the Company under this
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of the Company. Employee may not assign this Agreement or any rights
hereunder. Any purported or attempted assignment or transfer by Employee of this
Agreement or any of Employee's duties, responsibilities, or obligations
hereunder shall be void.
11. Governing Law, Construction, and Severability. This Agreement is
made under and shall be governed by and construed in accordance with the laws of
the State of California. In the event any provision of this Agreement (or
portion thereof) shall be held illegal or invalid for any reason, such
illegality or invalidity will not in any way affect the legality or validity of
any other provision (or portion thereof) of this Agreement.
12. Company Remedies. Employee acknowledges that the remedy at law for
any breach of any of the provisions of Sections 6 or 7 will be inadequate, and
that the Company shall be entitled, in addition to any remedy at law or in
equity, to preliminary and permanent injunctive relief and specific performance.
13. Entire Agreement. This Agreement contains the entire agreement
between the Company and Employee with respect to his employment by the Company
and there are no undertakings, covenants, or commitments other than as set forth
herein. This Agreement may not be altered or amended, except by a writing
executed by the party against whom such alteration or amendment is to be
enforced. This Agreement supersedes, terminates, replaces, and supplants any and
all prior understandings or agreements between the parties relating in any way
to the hiring or employment of Employee by the Company.
5
<PAGE> 6
14. Counterparts. This Agreement may be simultaneously executed in any
number of counterparts, and such counterparts executed and delivered, each as an
original, shall constitute but one and the same instrument.
15. Waivers. No failure on the part of either party to exercise, and no
delay in exercising, any right or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any right or remedy
hereunder preclude any other or further exercise thereof, or the exercise of any
other right or remedy granted hereby or by any related document or by law. No
single or partial waiver of rights or remedies hereunder, nor any course of
conduct of the parties, shall be construed as a waiver of rights or remedies by
either party (other than as expressly and specifically waived).
16. Dispute Resolution. Any controversy, claim, or dispute of whatever
nature arising out of or relating to this Agreement or Employee's employment,
including but not limited to discrimination claims, whether such controversy,
claim, or dispute is based on statute, contract, tort, common law, or otherwise,
and whether such controversy, claim, or dispute existed prior to or arises after
the date of this Agreement (any such controversy, claim or dispute being a
"Dispute"), shall be resolved in accordance with the procedures set forth in
this Section 16 which procedures shall be the sole and exclusive procedures for
the resolution of any Disputes (except as otherwise provided in Section 12). All
Disputes shall be resolved by arbitration in San Francisco, California, in
accordance with the then current Non-Administered International Arbitration
Rules & Commentary of the CPR Institute by a sole arbitrator who has had both
training and experience as an arbitrator of general corporate, commercial, and
employment matters and who is and for at least ten years has been a partner,
shareholder, or member in a law firm. If the Company and Employee cannot agree
on an arbitrator, then the arbitrator shall be selected by the President of the
CPR Institute in accordance with the criteria set forth in the preceding
sentence. The arbitrator may decide any issue as to whether, or as to the extent
to which, any Dispute is subject to the arbitration and other Dispute resolution
provisions in this Agreement. The arbitrator must: (i) base and render his or
her award on the provisions of this Agreement or applicable law and (ii) render
his or her award in writing including an explanation of the reasons for such
award and the provisions of this Agreement supporting such award. Judgment upon
the award rendered by the arbitrator may be entered by any court having
jurisdiction thereof. The statute of limitations applicable to the commencement
of a lawsuit shall apply to the commencement of an arbitration under this
subsection. The Employee acknowledges and agrees that the Employee has been
given the opportunity to negotiate this provision. No exercise of any rights
under this Section 16 shall limit the right of the Company or the Employee
pursuant to this Agreement to commence any judicial proceeding to obtain
injunctive relief. Reasonable attorney's fees and expenses of arbitration
incurred in any Dispute relating to the interpretation or enforcement of this
Agreement shall be paid by the prevailing party in such Dispute.
17. Notices. All notices, requests, demands, consents, or other
communications required or permitted under this Agreement shall be in writing
and shall be deemed to have been duly given if delivered by overnight courier or
express mail service or by postage prepaid registered or certified mail, return
receipt requested (the return receipt constituting prima facie evidence the
giving of such notice request, demand or other communication), by personal
delivery, or by fax with confirmation of receipt and a copy mailed with postage
prepaid, to the following address or such
6
<PAGE> 7
other address of which a party may subsequently give notice to the other party
in accord with the provisions of this Section. Notice is effective immediately
if by personal delivery or by fax with confirmation received and a copy mailed
the same day. Notice sent by overnight courier or by registered or certified
mail is effective the earlier of actual receipt or the fifth date after the date
mailed as evidenced by the sender's certified or registered receipt.
To the Company: RateXchange, Inc.
185 Berry St., Suite 3515
San Francisco, California 94107
Attn: Mr. Donald Sledge
To Employee: Mr. Philip Rice
P.O. Box 680
Ross, CA 94957
18. Attorneys Fees. Should any party hereto retain counsel for the
purpose of enforcing, or preventing the breach of, any provision hereof
including, but not limited to, the institution of any action or proceeding,
whether by arbitration, judicial or quasi-judicial action, or otherwise, to
enforce any provision hereof, or for damages for any alleged breach of any
provision hereof, or for a declaration of such party's rights or obligations
hereunder, then whether the matter is settled by negotiation, or by arbitration
or judicial determination, the prevailing party shall be entitled to be
reimbursed by the losing party for all costs and expenses incurred thereby,
including, but not limited to, reasonable attorney's fees for the services
rendered to such prevailing party.
IN WITNESS WHEREOF, the parties, intending to be legally bound thereby,
have signed this Agreement.
RATEXCHANGE: EMPLOYEE
RateXchange, Inc.
By: By:
----------------------------------- --------------------------------------
Don Sledge, Chief Executive Officer Philip Rice
7
<PAGE> 1
EXHIBIT 21.1
NETAMERICA.COM CORPORATION
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
State or Other
Jurisdiction of
Incorporation or Names Under Which
Subsidiary Name Organization Each Subsidiary Does Business
- - --------------- ---------------- -----------------------------
<S> <C> <C>
PolarCap, Inc. California Same
RateXchange, Inc. Delaware Same
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 451,615
<SECURITIES> 0
<RECEIVABLES> 1,787,531
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,395,568
<PP&E> 186,115
<DEPRECIATION> (10,766)
<TOTAL-ASSETS> 2,749,222
<CURRENT-LIABILITIES> 2,524,301
<BONDS> 0
0
0
<COMMON> 8,892,497
<OTHER-SE> (8,667,576)
<TOTAL-LIABILITY-AND-EQUITY> 2,749,222
<SALES> 0
<TOTAL-REVENUES> 151,276
<CGS> 0
<TOTAL-COSTS> 7,467,757
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,019
<INCOME-PRETAX> (7,329,280)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,329,280)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,329,280)
<EPS-BASIC> (.57)
<EPS-DILUTED> (.57)
</TABLE>
