SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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): JANUARY 15, 2002
THE X-CHANGE CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA
(State or other jurisdiction of incorporation)
0 41703 51-0356301
(Commission File Number) (IRS Employer Identification Number)
36 WEST 44TH STREET, SUITE 1209, NEW YORK, NY
10036 (Address of principal executive offices
including zip code)
(646) 728-7023
(Registrant's telephone number including area code)
48 S.W. 16TH STREET, DANIA BEACH, FL 33004
(Former name or former address, if changed since last report)
ITEM 1. CHANGE IN CONTROL OF REGISTRANT.
TERMS OF ACQUISITION OF WEBIX INC.: On January 15, 2002, The X-Change
Corporation, a publicly-held Nevada corporation (the "Company" or "XCHC"),
closed under an Agreement and Plan of Merger which had been entered into on
December 14, 2001 (the "Plan of Merger"). The closing resulted in X-Change
Technologies Corp., a Delaware corporation ("XCHC Technologies") which is the
wholly-owned subsidiary of XCHC, acquiring the business and operations of WEBiX
Inc., a privately-held Florida corporation ("WEBiX") in exchange for the
issuance by XCHC of a controlling interest in its shares to the former
shareholders of WEBiX. XCHC Technologies had been formed solely for the purpose
of effecting the Plan of Merger and had no assets, liabilities or operations at
the time of the closing. Upon the closing of the merger transaction, the
shareholders of XCHC elected a new board of directors which, in turn, appointed
new executive officers for XCHC.
Under the Plan of Merger, the Company acquired the business and operations of
WEBiX by issuing (a) 24,000,000 shares of common stock (the "XCHC Common
Shares") to WEBiX common shareholders on a pro rata basis, and (b) 4,000,000
shares of Series A Preferred Stock (the "XCHC Preferred Shares") and 40,000,000
warrants (the "XCHC Warrants") to WEBiX preferred shareholders on a pro rata
basis. Immediately prior to closing, certain existing shareholders of XCHC
surrendered approximately 9,500,000 XCHC Common Shares to treasury, which
reduced the number of outstanding XCHC Common Shares immediately prior to
closing to 13,002,000. Following the closing, the Company has outstanding
37,002,000 XCHC Common Shares, 4,000,000 XCHC Preferred Shares and 40,000,000
XCHC Warrants.
The XCHC Preferred Share provisions are attached as an exhibit to this filing.
Reference is made to that exhibit for a more thorough understanding of the terms
and conditions of the XCHC Preferred Shares. In summary, the XCHC Preferred
Shares (a) are a series of up to 5,000,000 shares termed Series A Convertible
Preferred Stock, (b) have a liquidation preference of $1.00 per share, (c) are
convertible at the option of the holder on a 10 XCHC Common Shares for 1 XCHC
Preferred Shares basis (subject to adjustment), (d) will automatically convert
in the event of (i) a public offering of XCHC Common Shares yielding gross
proceeds of at least $7,500,000 at a minimum price of $3.00 per share, or (ii)
in the event that holders of at least 2/3rds of the outstanding XCHC Preferred
Shares elect to convert, (e) are entitled to ten votes on parity with the XCHC
Common Shares on all matters which may be submitted to a vote, (f) are not
redeemable, and (g) are not entitled to the declaration or receipt of dividends
other than on as converted basis in the event that any dividends are declared on
the XCHC Common Shares. The XCHC Preferred Shares are considered to be a common
stock equivalent for financial reporting purposes.
The form of agreement evidencing the XCHC Warrants is attached as an exhibit to
this filing. Reference is made to that exhibit for a more thorough understanding
of the terms and conditions of the XCHC Warrants. In summary, the XCHC Warrants
are exercisable to purchase one XCHC Common Share at an exercise price of $1.00
per share (subject to adjustment) for a one year period beginning on the
effective date of the registration of the warrants and the underlying shares
(the "XCHC Warrant Shares") with the Securities and Exchange Commission under
the Securities Act of 1933, as amended.
In connection with the closing, a Lock-Up agreement was entered into amongst
various XCHC shareholders and the Company. The form of Lock-Up agreement is
attached to this filing as an exhibit. Reference is made to that exhibit for a
more thorough understanding of its terms and conditions. In summary, the Lock-Up
agreement prevents the sale or other transfer of the subject shares by the
holders prior to April 15, 2003. The parties to the Lock-Up Agreement are the
holders of 8,000,000 of the 13,002,000 outstanding XCHC Common Shares at closing
and the holders of the 24,000,000 shares of XCHC Common Stock issued to the
former WEBiX common shareholders at closing.
Following the merger, the following persons have beneficial ownership of in
excess of 5% of the outstanding shares of Common Stock of the Corporation
(assuming conversion of the XCHC Preferred Shares): K. Richard B. Niehoff-
14,671,450; Donald E. Weeden- 8,267,756, and John D. Weeden living trust-
4,178,436.
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DESCRIPTION OF THE BUSINESS OPERATIONS ACQUIRED THROUGH THE MERGER
WEBiX was formed in December 2000 for the purpose of establishing an internet
based trading market for securities that are currently quoted on the OTC
Bulletin Board (the "OTCBB"). At the time of the merger, WEBiX was in the
development phase, had not commenced the operation of its proposed market and
had no revenue producing activities. The following is a description of the
proposed business of the Company following its acquisition of WEBiX.
THE OTC SECURITIES INDUSTRY AND THE BACKGROUND OF RECENT SEC REGULATORY
INITIATIVES AIMED AT THE MICROCAP SECURITIES MARKETS:
Over-The-Counter (OTC) securities are composed of securities issued by publicly
traded companies which are registered with the Securities and Exchange
Commission (the "SEC") but which are not listed on a national securities
exchange, such as the New York or American Stock Exchanges or on the automated
quotation system maintained by the National Association of Securities Dealers,
Inc. ("NASDAQ"). These securities are sometimes also referred to as microcap
issues since the market capitalization of these companies is generally
relatively small.
Price quotations of OTC microcap securities are indicated on the OTC Bulletin
Board ("OTCBB"). The OTCBB principally differs from registered exchanges and
NASDAQ in that it functions solely as a quotation service which provides pricing
information to subscribing NASD broker-dealer members. Unlike registered
exchanges, a quotation service does not impose listing standards on the issuers
themselves. Further, the NASD has no authority over the issuers; instead, the
NASD merely requires OTCBB market makers to research the public filings on the
issuer and to sponsor the issuer for trading by that market maker by filing an
eligibility form with the NASD. The OTCBB also differs from registered exchanges
and NASDAQ in that it does not provide a means for automated order executions,
maintain listing standards and relationships with the quoted issuers or impose
obligations on market makers similar to those imposed by NASDAQ on
broker-dealers that make a market in securities that trade on the NASDAQ
National Market System or on the NASDAQ Small Cap Market System.
These differences have long been a source of concern and comment by industry
members, commentators, regulators and other interested parties, particularly in
light of concerns over the perceived increase in the incidence of fraud in OTC
securities. On March 5, 1999, the SEC proposed amendments to Rule 15c2-11 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act") to attempt
to remedy these differences. (Exchange Act Release No. 34-41110, File No.
S7-5-00). These amendments, as proposed, would require broker-dealers who
publish quotes on OTCBB securities to review and record the measures taken by
them to ensure that the issuers whose securities are being quoted and traded are
financially viable prior to publishing quotes. NASD member firms expressed their
concern that compliance with this proposal would place an enormous and
unbearable cost burden on them. One predicted effect of implementation of the
proposed amendments was the elimination of "Pink Sheet" trading altogether and a
commensurate dissipation in liquidity for microcap issues generally.
In response to these expressed concerns, the SEC reproposed the amendment and
called for the establishment of a centralized database which would enhance the
availability of, and foster access to, information about microcap issuers. This
reproposal called for the establishment of a centralized information repository
(IR) that would allow subscribing broker-dealers to comply with the rule as
amended without individually being required to research the issuers that they
make a market in. The NASD, however, advised the SEC in its first comment that
it was unable to undertake the responsibility of establishing or serving as an
IR. The SEC, therefore, has encouraged the development of one or more private
sector entities to act as an IR. Although proposed rulemaking has not yet been
finalized and adopted by the SEC, management believes that an opportunity to
establish an IR is available and it is considering the feasibility of pursuing
this business opportunity. Management believes that the pending SEC rulemaking
will also create an opportunity to create market infrastructure and systems
which will assure an orderly market in OTC securities. It is this potential
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opportunity that is the focus of managements efforts at the present time and
which is discussed in the section below.
THE PROPOSED BUSINESS OF THE COMPANY AS A MARKETPLACE FOR OTCBB SECURITIES:
The Company is premised on the belief that effective markets thrive on
efficiency, investor confidence, transparency and the ready availability of
information to investors and market participants. Management does not believe
that the OTCBB currently functions as an effective marketplace. One sign of the
current market inefficiencies is the existence of substantially larger spreads
between the "bid" and "asked" price of the securities quoted on the OTCBB than
those on registered exchanges or on NASDAQ. This pricing inefficiency serves to
discourage trading of OTCBB issues and creates uncertainty among investors and
market participants. Management believes that the SEC will continue to take
steps to regulate the OTC securities industry, particularly if interest in OTC
traded securities continues to increase. Recent SEC proposed rulemaking
initiatives would increase the level of information concerning orders for the
purchase or sale of OTCBB securities which is viewed as likely to compress the
wide spread in these stocks. Management of the Company believes that the
increasing levels of public demand for microcap securities coupled with the
recent SEC regulatory initiatives presents a market opportunity for the
establishment and operation of a central exchange or marketplace for trading in
OTCBB securities that would be responsive to the concerns of the SEC, investors
and market participants alike.
The Company is currently considering two approaches in which it could function
as a central exchange or marketplace. The first would involve the attempt by the
Company to seek registration for exchange status in the same manner as the New
York or American Stock Exchanges are registered. This approach would be quite
expensive and time consuming and would delay the Company's ability to implement
its proposed marketplace. The second approach would require the Company (or an
affiliated company) to first become registered with the SEC as a broker-dealer
and to thereafter file with the SEC to be a registered operator of an
Alternative Trading System ("ATS"), which would enable the Company to provide an
order matching service to broker-dealer subscribers. The Company has chosen this
second approach and in August 2001, through its affiliated company, WEBiX
Brokerage Services, Inc., filed an application for licensure as a registered
broker-dealer with the SEC and for membership in the NASD. In January 2002,
WEBiX Brokerage Services, Inc. filed an application for licensure as a sponsor
of an Alternative Trading System. Although the regulatory licensing process is
complicated and there may be unanticipated delays, management is hopeful that
these licenses will be granted in March 2002. In the event that these licenses
are granted on a timely basis, the Company currently intends to launch its
Alternative Trading System in April 2002. Thereafter, the Company may pursue
partnership opportunities with an existing registered national securities
exchange which would enhance its exposure and credibility in the marketplace and
would potentially afford additional revenue producing opportunities in the form
of listing fees, membership fees, and market data fees.
Upon establishment of the Company's marketplace, the Company intends to offer
access to its web site on a subscription basis and further intends to charge
transaction fees for all transactions that are processed through its system.
THE COMPANY'S TECHNOLOGY ENCOMPASSES THE FEATURES AND FUNCTIONALITY THAT
MANAGEMENT BELIEVES WILL BE REQUIRED TO OPERATE A SUCCESSFUL MARKETPLACE:
The Company has licensed and has proceeded to customize and further develop a
proprietary internet-based software trading system which offers the ability to
route, display, and automatically execute orders in microcap securities in a
straight through processing (STP) environment. This user-friendly, web enabled
system requires no client-side software other than a standard web/internet
browser. The application uses extensive caching to minimize bandwidth
requirements and to thereby make the system broadly accessible.
The system is designed to handle standard brokerage order types and to report
all executions in real-time to broker-dealer subscribers. The system
incorporates order entry and routing features, automated, instantaneous
executions of orders, automated locked-in trades, best execution methodology, an
anonymous central limit order book, price and time priority, and the
preferencing of orders to counterparties for execution. The OTCBB currently
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offers none of these features. The system provides a complete quote and sales
log audit trail. In essence, the Company intends to provide a systemic
infrastructure to the microcap market that has been previously available only to
primary markets and their participants.
Additionally, the Company is also seeking opportunities to relicense its
proprietary trading technologies for use in other non competitive exchange
related applications.
DIRECTORS AND EXECUTIVE OFFICERS:
K. RICHARD B. NIEHOFF (Chairman of the Board of Directors, President and CEO).
From September 2000 to January 2002, Mr. Niehoff was President and Chief
Executive Officer of WEBiX Inc. Prior to that, from September 1999 to August
2000, he was President of VSX Technologies, Inc. a wholly-owned subsidiary of
Unified Management Corp., where he also served as Managing Director of its
broker-dealer subsidiary. From August 1998 to September 1999, Mr. Niehoff was
Vice President of Wit Capital Corp. and President of the Digital Stock Market,
Inc., a wholly-owned subsidiary of Wit Capital Corp. From May 1997 to August
1998, Mr. Niehoff was Vice President and Director of Third Market Corporation, a
registered broker-dealer. From September 1996 to May 1997, Mr. Niehoff was the
Regional Sales Manager of Interactive Brokers, LLC.
In his long career in the securities brokerage and regulatory industries, Mr.
Niehoff has also served as a Managing Director of KPMG OTC Markets Project for
the Republic of Poland and as an Advisor to the Polish Ministry of
Privatization. Mr. Niehoff also established the Trading Services Division of the
NASDAQ Stock Market and was its first executive officer. Prior to joining
NASDAQ, he served as President and Chief Operating Officer of the Cincinnati
Stock Exchange, a position he held for fifteen years. He also was a member of
the Cincinnati and Philadelphia Exchanges, and an allied member of the New York
Stock Exchange. Mr. Niehoff has been substantially involved for most of his
career in the area of building on-line transaction processing equity trading
systems for U.S. and global exchanges and brokerages and could be regarded as a
pioneer and expert in this area. Mr. Niehoff was a founding member and Director
of the Consolidated Tape Association, Composite Quote Operating Committee, and
the Intermarket Trading System Committee. Additionally, he served on the
Exchange Executive Coordinating Committee. He maintains principal and general
licenses with the NASDR and maintains various state brokerage registrations.
Mr. Niehoff earned his dual B.A. in history and economics from the University of
Cincinnati. He also attended the Colleges of Business Administration and Law at
this university at the graduate level.
DONALD E. WEEDEN (Director): For the past 15 years, Mr. Weeden has been the
Chairman of Weeden Securities Corporation, the general partner of Weeden & Co.,
L.P., a New York Stock Exchange member firm and a member of the NASD. In the
1960s and 1970s Weeden & Co., a corporation controlled by Mr. Weeden, was
regarded as a pioneer and one of the leading firms in the "third market." Mr.
Weeden has served on several committees of the SEC involved in market structure
and the SEC's National Market Advisory Board.
Mr. Weeden has also been an active investor in high technology ventures and
companies related to the securities industry. In 1959, he was a founder of
National Semiconductor Corporation and has been a director since 1962.
Subsequent venture investments included Instinet Corp., Autex, Cadence Design
and Quantum Health. Mr. Weeden has a B.A. in economics from Stanford University.
MOLLY G. BAYLEY (Director and Executive Vice-President of the Company): From
March 2001 to January 2002, Ms. Bayley was Executive Vice President of WEBiX,
Inc. From December 2000 to March 2001, Ms. Bayley was Vice President, Regulation
of Market Systems, Inc. Prior to that, from May 2000 to November 2000, she was a
principal of Molly G. Bayley Consulting. From October 1998 to April 2000 Ms.
Bayley was Vice President, Exchange Relations of OptiMark Technologies Inc. From
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November 1997 to October 1998 she was Senior Managing Director of DST Catalyst,
a company which built automated trading systems for stock exchanges.
In her career, Ms. Bayley has also served as a Vice President of NASDAQ
Operations for the NASDAQ Stock Mark and a Director of Market Surveillance for
NASDAQ. She also served as the Executive Director of the Commodity Futures
Trading Commission and as an International Regulatory Advisor for Emerging
Capital Markets at Arthur Andersen Consulting. Ms. Bayley has a B.A. in French
from Wellesley College.
JEFFREY M. SCHAEFER (Senior Vice-President): From February 2001 to January 2002,
Dr. Shaefer was Senior Vice President and Director of Research of WEBiX, Inc.
From July 2000 to February 2001 he was self-employed. From November 1997 to July
2000, Dr. Schaefer was a Consultant to the Securities Industry Association.
Prior to that, he was Senior Economic Advisor of Midwood Securities from March
1998 to December 1999. From June 1977 to November 1997, he was Senior Vice
President and Director of Research of the Securities Industry Association.
Before joining SIA, Dr. Schaefer worked as the Director of International
Financial Policy at the New York Stock Exchange. Mr. Schaefer has a B.A. in
Economics from City College of New York and an M.A. and a PhD in Economics from
Columbia University.
ERIC B. NISSAN (Director and Senior Vice-President): From March 2000 to January
2002, Mr. Nissan was a principal of WebIAm, Inc., a technology development and
consulting firm engaged in the development of exchange related applications.
From December 1997 to March 2000, he was a Programmer Analyst with Lazard Freres
and Co., LLC. Prior to that, from August 1996 to December 1997, he was an
Application Developer at Integrated Office Solutions.
Mr. Nissan's career has been focused on introducing and implementing technology
solutions for major financial institutions and brokerage firms. As a principal
and founder of WebIAm, Inc. he oversaw the day-to-day operations of the company,
as well as the development of various projects relating to the delivery of
real-time trading systems over the Internet. Mr. Nissan has a B.S. in Computer
Science from SUNY Stony Brook.
SUSAN LAPCZYNSKI (Vice President): From June 2001 to January 2002, Ms.
Lapczynski was Vice President, Market Technology and Support of WEBiX, Inc.
Prior to taking her position with WEBiX, Ms. Lapczynski was a Technology Group
Analyst with OptiMark Technolgies from May 1998 to June 2001. From September
1993 to May 1998, she was with Chase Securities Inc. (formerly Chemical Bank)
where she was a Research Analyst in the Global Investment Banking Group and a
Business Analyst in the Global Emerging Markets Group. Prior to that she was a
Senior Systems Analyst with Merrill Lynch & Co., Inc., in their Capital Markets
Information Systems divisions. Ms. Lapczynski has a B.A. in both French and
Business Administration from Rutgers College.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This filing contains certain forward-looking statements, as defined in the
Private Securities Litigation Reform Act of 1995, and information relating to us
that are based on the beliefs of our management, as well as assumptions made by
and information currently available to our management. When used in this filing,
the words estimate, project, believe, anticipate, intend, expect and similar
expressions are intended to identify forward-looking statements. These
forward-looking statements reflect our current views with respect to future
events and are subject to risks and uncertainties that could cause actual
results to differ materially from those contemplated in these forward-looking
statements. You are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date on this filing. We
have no obligation to publicly release any revisions to these forward-looking
statements to reflect events or circumstances after the date of this prospectus
or to reflect the occurrence of unanticipated events.
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS: See Item 1, above.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS: The
financial statements required will be filed within the time limitations set
forth in applicable regulations.
EXHIBITS
(c) Exhibits
3.1 Preferred Stock Provisions
4.1 Lock-Up Agreement
10.1 Merger Agreement
10.2 Form of Warrant Agreement
99.1 Press Release
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
Dated: January 30, 2002 The X-Change Corporation
(Registrant)
By: /s/ K. Richard B. Niehoff
K. Richard B. Niehoff, Chief Executive Officer
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