SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): 11/28/2001
RATEXCHANGE CORPORATION
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(Exact Name of Registrant as Specified in Charter)
DELAWARE 001-15831 11-2936371
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State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
100 PINE STREET, SUITE 500, SAN FRANCISCO, CALIFORNIA 94111
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (415) 274-5650
185 BERRY STREET, SUITE 3515, SAN FRANCISCO, CALIFORNIA 94107
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(Former Name or Former Address, if Changed Since Last Report)
Item 5. Other Events
It has come to the Company's attention that the renegotiated terms of a
severance agreement with the former Chairman and CEO were inadvertently not
reflected in the June 30, 2001 and September 30, 2001 financial statements. The
net impact on the Company's income statement for the nine months ending
September 30, 2001 will be an increase in compensation expense of $129,000 and
an increase in interest expense of $10,000.
In May 2001, the Company renegotiated the terms of the severance included in its
employment agreement with Donald Sledge, former Chairman and CEO of RateXchange
Corporation. Upon his leaving the Company, Mr. Sledge was originally to receive
one year's salary, or $300,000, in addition to a $150,000 severance payment in
cash and the accelerated vesting of certain stock option grants. The Company did
not accrue this original obligation as the terms were being renegotiated at the
time. In lieu of the original agreement, the Company renegotiated these terms to
payments of $25,000 cash in May 2001, $25,000 cash in July 2001 and the issuance
of a $400,000 two-year convertible promissory note from the Company with
interest at 7.0% per annum. The principal can be converted to shares of common
stock at $2.75 per share conversion rate at any time during the term.
Additionally, an option to purchase 300,000 shares of common stock that was
granted to Mr. Sledge was terminated as part of the negotiation.
The Company's second quarter Form 10Q did not account for $400,000 in deferred
compensation expense and the associated promissory note as a long-term
liability. Furthermore, the related accrued interest expense was not reflected
in the second and third quarter statements. Additionally, the offsetting impact
of not accounting for the terminated option resulted in the recognition of
excess compensation expense of $68,000 in the second quarter of 2001 and
$203,000 in the third quarter of 2001.
The Company is in the process of filing amendments to its Form 10Q for the
second quarter of year 2001 and the Form 10Q for the third quarter of 2001 in
order to properly reflect the impact of this renegotiated agreement.
Mr. Sledge remains a member of the Company's Board of Directors.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
RATEXCHANGE CORPORATION
Date: November 28, 2001
By: /s/ John T. Blunt, Jr.
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John T. Blunt, Jr.
Senior Vice-President, Finance
EXHIBIT A
RATEXCHANGE
[GRAPHIC OMITTED]
May 25, 2001
Via Hand Delivery
Donald H. Sledge
27 Cherry Hills Court
Alamo, CA 94507
RE: Separation Agreement
Dear Mr. Sledge:
I write to set forth the terms of RateXchange Corporation's ("Company")
offer to you in consideration of your separation from your employment with the
Company and chairmanship of the board of directors
The effective date of your separation will be May 25, 2001 ("Effective
Date"), unless you waive your right to the additional time and agree to an
earlier date. The Company offers you the following Terms of Separation,
including applicable effective dates:
1. If you sign this document on or before June 15, 2001, and do not
rescind, you will receive the following:
a. A lump sum payment of $25,000 net of applicable taxes, paid on
the Effective Date and another payment of $25,000 upon the
Company's receipt of new private financing or July 1, 2001, which
ever is first.
b. A convertible promissory note from the Company to you, with
principle amount of $400,000 and term of (2) years. Interest on
the note will accrue at 7.0% per annum. The principle, plus
interest accrued will be due and payable at the end of the term.
You will have the option to elect to convert the principle to
shares of the Company's common stock at any time during the term.
Upon your election to convert the principle
185 Berry Street, Suite 3515
San Francisco CA 94107 415 371-9800 Fax: 415 371-9801
Letter to Donald H. Sledge
May 25, 2001
Page 2 of 2
you will receive shares based upon the principle value, including
accrued interest, at the Conversion Price of $2.75.
The Company reserves the right to pay the balance of the note,
plus accrued interest, at any time during the term. Upon early
payment, you will have the option to elect cash payment or
payment in shares based upon the principle value, including
accrued interest, at the Conversion Price of $2.75.
You will have "piggyback" registration rights and, upon your
election to convert, the Company will make best business efforts
to register your conversion shares for resale in its next
registration filing with the Securities and Exchange Commission
including registration filings made on Forms S-1 or S-3.
Should the Company prepay the note, and you chose to convert at
the time, the Company will register the converted shares within
90 days.
The promissory note will be in substantially the same form as
Exhibit A, attached hereto.
c. In addition to the 900,000 options that have previously vested
under the terms of your "Out-of-Plan" option grant and the
100,000 shares granted to you for your Board participation, you
have vested an additional 300,000 shares, effective January 1,
2001.
The balance of 300,000 option shares from your "Out of Plan"
grant will terminate on the Effective Date and will not vest.
The exercise period for the 1,300,000 vested option shares will
be extended to allow for your exercise within two (2) years after
the Effective Date.
d. You will continue to serve as a member of the Board of Directors
of RateXchange Corporation pursuant to the terms of your election
on September 27, 1999 and the Amended and Restated By-Laws of the
Company, Article VII.
e. You can retain your laptop computer, flat screen monitor and
miscellaneous office equipment currently in your possession.
185 Berry Street, Suite 3515
San Francisco CA 94107 415 371-9800 Fax: 415 371-9801
Letter to Donald H. Sledge
May 25, 2001
Page 3 of 3
2. By signing this document, you acknowledge and accept each of the Terms
and Conditions set forth in Exhibit B, attached hereto.
RATEXCHANGE CORPORATION
/s/ D. Jonathan Merriman
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D. Jonathan Merriman
President and Chief Executive Officer.
I ACKNOWLEDGE AND ACCEPT THE TERMS OF THIS DOCUMENT, INCLUDING EXHIBITS A and B
ATTACHED HERETO.
DATE: May 25, 2001 BY: /s/ Donald H. Sledge
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Donald H. Sledge
185 Berry Street, Suite 3515
San Francisco CA 94107 415 371-9800 Fax: 415 371-9801
EXHIBIT B
PROMISSORY NOTE
$400,000 May 25, 2001
FOR VALUE RECEIVED, RateXchangeCorporation, a Delaware
corporation (the "Maker"), promises to pay to Donald H. Sledge, 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 May 25, 2003 (or such earlier date as provided below) the principal amount of
four hundred thousand DOLLARS ($400,000), 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 May 25, 2003 (or such earlier date as provided below),
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
seven percent (7.0%). All payments hereunder shall be made in lawful money of
the United States of America, except as otherwise provided herein, without
offset.
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. As described more
fully below, Holder may elect conversion upon notice from Maker of intent to
prepay. Holder will receive no less that ten (10) business days notice of
Maker's intent to prepay.
At the Holder's option, at any time within the term of this
Note, the Holder may elect to convert the unpaid principal amount of this Note,
together with all accrued interest hereunder through the date of such election,
in whole or in part, into shares of common stock issued by Maker; such shares to
be valued for purposes of such conversion at $2.75. The number of shares of
common stock issuable upon conversion of this Note as provided herein shall
equal the quotient obtained by dividing the amount of principal and interest of
this Note so desired to be converted by the per share purchase price of $2.75.
In order to exercise the foregoing conversion right, the Holder shall surrender
this Note to Maker at Maker's principal office address, 185 Berry Street, Suite
3515, San Francisco, California 94107 (or at such other address as Maker shall
specify in writing to the Holder), accompanied by written notice (the
"Conversion Notice") to Maker stating that the Holder elects to convert this
Note or, if less than the entire unpaid principal amount, plus accrued interest
through the date of the Conversion Notice, is to be converted, the portion
thereof to be converted. As soon as practicable after receipt of any such
Conversion Notice, and in any event within twenty (20) business days thereafter,
Maker will cause to be issued in the name of and delivered to the Holder a
certificate for the number of duly authorized, validly issued, fully paid and
nonassessable whole shares of common stock of Maker, plus, in lieu of any
fractional share to which the Holder would otherwise be entitled, cash equal to
the amount of such fractional share.
The occurrence of any one or more of the following shall
constitute an 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 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;
(3) 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 assets or
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;
or
(4) Any failure of the Maker to issue and deliver any shares
of common stock as provided herein upon conversion of this
Note.
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.
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.
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.
If any mutilated Note is surrendered to the Maker, the Maker
shall execute and deliver to the Holder in exchange therefor a new Note of like
tenor and principal amount. If there shall be delivered to the Maker (i)
evidence to its satisfaction of the destruction, loss or theft of the Note and
(ii) such security or indemnity as may be required by the Maker to save it
harmless, then, in the absence of notice to the Maker that such Note has been
acquired by a bona fide purchaser, the Maker shall execute and deliver to the
Holder, in lieu of any such destroyed, lost or stolen Note, a new Note of like
tenor and principal amount. In case any such mutilated, destroyed, lost or
stolen Note has become or is about to become due and payable, the Maker in its
discretion may, instead of issuing a new Note, pay such Note. Upon the issuance
of any new Note under this paragraph, the Maker may require the payment from the
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Holder of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto and any other expenses connected therewith.
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 California(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 CORPORATION
By: /s/ D. Jonathan Merriman
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D. Jonathan Merriman
Chief Executive Officer
-3-
EXHIBIT C
RATEXCHANGE
[GRAPHIC OMITTED]
May 25, 2001
Terms and Conditions
Mr. Sledge acknowledges that he has received the Separation Agreement
from the Company, dated May 25, 2001, and that he accepts each of the terms set
forth therein in consideration for waiving his right to claims against
RateXchange Corporation, its respective subsidiaries and parent corporations,
its officers, directors, agents, employees, predecessors, successors and assigns
("Company") and each of them, referred to in these Terms and Conditions and the
Separation Agreement.
Waiver of Claims. In exchange for the consideration described in the Separation
Agreement, you forever give up, waive and release any and all claims, charges,
complaints, grievances or promises of any and every kind you may have up to the
effective date of the Separation Agreement against the Company, including, but
not limited to, any and all claims for unreimbursed expenses, harassment, sexual
or gender discrimination, age discrimination, race or national origin
discrimination, physical handicap and medical condition discrimination, breach
of contract or wrongful termination from employment under California and federal
laws, including but not limited to the United States Civil Rights Act as
amended, 42 U.S.C. Section 2000e et seq; the Age Discrimination in Employment
Act of 1967, as amended, 29 U.S.C. Section 621 et seq; and the California Fair
Employment and Housing Act, California Government Code Section 12900 et seq.
Waiver of California Civil Code section 1542. This is a full and final Release
applying to all unknown and unanticipated injuries or damages, including any and
all claims now existing or which may arise in the future, arising out of said
employment or event as well as those not known or disclosed; you expressly waive
any right or claim of right to assert hereafter that any claim, demand,
obligation and/or cause of action has, through ignorance, oversight or error,
been omitted from the terms of this agreement, and further expressly waive any
right or claim of right that you may have under the law of any jurisdiction that
releases, such as those herein given do not apply to unknown or unstated claims.
It is your express intent to waive any and all claims that you have against the
persons and entities herein released, including any which are presently unknown,
unsuspected, unanticipated or undisclosed. YOU EXPRESSLY WAIVE THE PROVISIONS OF
SECTION 1542 OF THE CIVIL CODE OF CALIFORNIA, WHICH PROVIDES:
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.
185 Berry Street, Suite 3515
San Francisco CA 94107 415 371-9800 Fax: 415 371-9801
Terms and Conditions
Page 2 of 2
Confidentiality and Non-Disparagement. You agree that the Separation Agreement,
including these Terms and Conditions are private and that you will not discuss
the fact that it exists or its terms with anyone else except your attorney,
advisor, tax accountant, or as required by law. You also agree that you will not
disparage or otherwise injure the Company by your words or deeds.
Non-Solicitation. You will not, directly or indirectly, at any time within
twelve (12) months of the Effective Date, employ or retain, or arrange to have
any other person or entity employ or retain, any Company employee, consultant or
agent, without the Company's prior written consent.
Advice of Counsel. You have been advised of your right to consult an attorney
before you sign the Separation Agreement. You have had at least 21 days to
consider whether to sign the Separation Agreement and seven (7) days thereafter
to rescind. You sign the Separation Agreement voluntarily. The Separation
Agreement must be signed by you and returned to the Company not later than June
15, 2001, and not rescinded in order to be valid. If the Company does not
receive the Separation Agreement by that date, it will be considered expired and
withdrawn.
Return of Proprietary Property. You agree that all property in your possession
that you have obtained or been assigned in the course of your employment with
the Company, including, without limitation, all documents, reports, manuals,
memoranda, customer lists, credit cards, keys, access cards, computer equipment
and all other property relating in any way to the business of the Company, is
the exclusive property of the Company, even if you authored, created, or
assisted in authoring or creating such property. You shall return to the Company
all such property immediately upon separation from the Company or at such
earlier time as the Company may request. This clause does not apply to those
pieces of office equipment specified in the Separation Agreement.
Confidential Information. Except as permitted or directed by the Company's Board
of Directors, during the time you are employed by the Company or at any time
thereafter, you 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 yourself or by others. Such confidential and/or secret information
includes, but is not limited to, the Company's customer and supplier lists,
business plans, and financial, marketing, and personnel information. You agree
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 your
employment hereunder and at any time after the termination of your employment.
Your obligations of confidentiality under this section 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 these Terms and Conditions.
Governing Law, Construction, and Severability. The Separation 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 the Separation Agreement,
including its Terms and Conditions (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 the
Separation Agreement and Terms and Conditions.
185 Berry Street, Suite 3515
San Francisco CA 94107 415 371-9800 Fax: 415 371-9801
Terms and Conditions
Page 3 of 3
Company Remedies. You acknowledges that the remedy at law for any breach of any
of the provisions of the Separation Agreement and these Terms and Conditions
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.
Entire Agreement. The Separation Agreement, Promissory Note and these Terms and
Conditions contain the entire agreement between you and the Company with respect
to your employment by the Company and there are no undertakings, covenants, or
commitments other than as set forth herein. The Separation Agreement, Promissory
Note and these Terms and Conditions may not be altered or amended, except by a
writing executed by the party against whom such alteration or amendment is to be
enforced. The Separation Agreement, Promissory Note and these Terms and
Conditions supersede, terminate, replace, and supplant any and all prior
understandings or agreements between the parties relating in any way to the
hiring or employment of you by the Company.
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).
Dispute Resolution. Any controversy, claim, or dispute of whatever nature
arising out of or relating to the Separation Agreement, its Terms and Conditions
or your 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 the Separation Agreement (any such controversy,
claim or dispute being a "Dispute"), shall be resolved in accordance with the
procedures set forth herein which procedures shall be the sole and exclusive
procedures for the resolution of any Disputes. 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. Any court having jurisdiction thereof may
enter judgment upon the award rendered by the arbitrator. The statute of
limitations applicable to the commencement of a lawsuit shall apply to the
commencement of arbitration under this subsection. You acknowledge and agree
that you have been given the opportunity to negotiate this provision. No
exercise of any rights under this section shall limit the right of you or the
Company 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 the Separation Agreement or
these Terms and Conditions shall be paid by the prevailing party in such
Dispute.
185 Berry Street, Suite 3515
San Francisco CA 94107 415 371-9800 Fax: 415 371-9801