Schedule 14A
                                 (Rule 14a-101)

                     INFORMATION REQUIRED IN PROXY STATEMENT

                            SCHEDULE 14A INFORMATION

           Proxy Statement Pursuant to Section 14(a) of the Securities
                              Exchange Act of 1934

Filed by the Registrant                              |X|

Filed by a Party other than the Registrant           [ ]

Check the appropriate box:

[ ]      Preliminary Proxy Statement                 [ ] Confidential,  For  Use
                                                         of the Commission  Only
                                                         (as permitted  by  Rule
                                                         14a-6(e)(2))

|X|      Definitive Proxy Statement

[ ]      Definitive Additional Materials

[ ]      Soliciting Material Under Rule 14a-12

                             RATEXCHANGE CORPORATION
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                (Name of Registrant as Specified in Its Charter)
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    (Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):
[X]      No fee required
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         0-11.
(1)      Title of each class of securities to which transaction applies:
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(2)      Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange  Act Rule  0-11  (set  forth the  amount  on which  the  filing  fee is
calculated and state how it was determined):

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(5)      Total fee paid:
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[ ]      Fee paid previously with preliminary materials:
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[ ]      Check box if any part of the fee is offset as provided by Exchange  Act
Rule  0-11(a)(2)  and identify the filing for which the  offsetting fee was paid
previously.  Identify the previous filing by registration  statement  number, or
the form or schedule and the date of its filing.

(1)      Amount previously paid:
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(4)      Date Filed:
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<PAGE>

                                   RATEXCHANGE

                                                                     May 2, 2001

Dear RateXchange Corporation Stockholder:

         You are  cordially  invited to attend  RateXchange  Corporation's  2001
annual  meeting of  stockholders  to be held on Thursday,  May 31, 2001 at 10:00
a.m.,  pacific standard time, at The Park Hyatt Hotel,  333 Battery Street,  San
Francisco, California 94111.

         An outline of the  business to be  conducted at the meeting is given in
the  accompanying  Notice of Annual Meeting of Stockholders and Proxy Statement.
In  addition  to the  matters  to be voted  on,  there  will be a report  on our
progress and an opportunity for stockholders to ask questions.

         I hope you will be able to join us. To ensure  your  representation  at
the meeting,  I encourage  you to complete,  sign and return the enclosed  proxy
card as soon as possible. Your vote is very important.  Whether you own a few or
many shares of stock, it is important that your shares be represented.

                                          Sincerely,

                                          D. Jonathan Merriman
                                          President and Chief Executive Officer

<PAGE>

                             RATEXCHANGE CORPORATION

       -------------------------------------------------------------------

                    NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

                                  May 31, 2001

TO THE STOCKHOLDERS:

         The 2001 annual meeting of stockholders of RateXchange Corporation will
be held on Thursday,  May 31, 2001 at 10:00 a.m.,  pacific standard time, at The
Park Hyatt Hotel, 333 Battery Street,  San Francisco,  California  94111. At the
meeting, you will be asked:

1.       To elect seven  directors  to serve  until the 2002  annual  meeting of
         stockholders;

2.       To approve the 2001 Stock Option and Incentive Plan; and

3.       To transact  such other  business as may  properly be  presented at the
         annual meeting.

         The foregoing  items of business are more fully  described in the proxy
statement accompanying this notice.

         If you were a  stockholder  of record at the close of business on April
25,  2001,  you  may  vote  at  the  annual  meeting  and  any   adjournment  or
postponement.

         We invite  all  stockholders  to attend the  meeting in person.  If you
attend the  meeting,  you may vote in person even if you  previously  signed and
returned a proxy.

                                         By Order of the Board of Directors

                                         Christopher L. Aguilar
                                         Secretary

San Francisco, California
May 2, 2001

--------------------------------------------------------------------------------

YOUR  VOTE  IS  IMPORTANT.  TO  ASSURE  REPRESENTATION  OF YOUR  SHARES,  PLEASE
COMPLETE,  SIGN AND DATE THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED
ENVELOPE.

--------------------------------------------------------------------------------

<PAGE>

                             RATEXCHANGE CORPORATION

                          185 Berry Street, Suite 3515
                         San Francisco, California 94107

                         -------------------------------

                                 PROXY STATEMENT

                   FOR THE 2001 ANNUAL MEETING OF STOCKHOLDERS

GENERAL

         RateXchange  Corporation,  a Delaware  corporation,  is soliciting this
proxy on behalf of its Board of Directors to be voted at the 2001 annual meeting
of  stockholders  to be held on Thursday,  May 31, 2001, at 10:00 a.m.,  Pacific
standard time, or at any  adjournment or postponement  thereof.  The 2001 annual
meeting  of  stockholders  will be held at The Park  Hyatt  Hotel,  333  Battery
Street, San Francisco, California 94111.

METHOD OF PROXY SOLICITATION

         These proxy solicitation  materials were mailed on or about May 2, 2001
to all  stockholders  entitled to vote at the meeting.  RateXchange will pay the
cost of soliciting these proxies.  These costs include the expenses of preparing
and mailing proxy  materials for the annual  meeting and  reimbursement  paid to
brokerage  firms and others for their expenses  incurred in forwarding the proxy
materials.  Directors,  officers and employees of  RateXchange  may also solicit
proxies without additional compensation.

VOTING OF PROXIES

         Your shares will be voted as you direct on your signed  proxy card.  If
you do not specify on your proxy card how you want to vote your shares,  we will
vote signed returned proxies:

         o    FOR the election of the board's seven nominees for director; and

         o    FOR the approval of the 2001 Stock Option and Incentive Plan.

         We do not  know of any  other  business  that may be  presented  at the
annual meeting. If a proposal other than those listed in the notice is presented
at the annual  meeting,  your signed  proxy card gives  authority to the persons
named in the proxy to vote your shares on such matters in their discretion.

REQUIRED VOTE

         Record  holders  of shares of  RateXchange's  common  stock and  record
holders of Series A  preferred  shares,  at the close of  business  on April 25,
2001,  the voting  record  date,  may vote at the  meeting  with  respect to the
election  of seven  directors  and the  approval  of the 2001  Stock  Option and
Incentive  Plan.  Each  share  of  common  stock  and  each  share  of  series A
convertible  preferred stock outstanding on the record date has one vote. At the
close of  business on April 25,  2001,  there were  17,783,174  shares of common
stock outstanding and 2,000,000 shares of preferred stock outstanding.

         RateXchange's  bylaws provide that a majority of the shares entitled to
vote, represented in person or by proxy, constitutes a quorum for transaction of
business.  Assuming the presence of a quorum at the annual meeting,  the vote of
the holders of at least a majority of the stock having  voting power  present in
person or  represented  by proxy is required to elect the seven  nominees of the
board as directors and to approve the 2001 Stock Option and  Incentive  Plan. An
automated system administered by RateXchange's  transfer agent will tabulate the
votes.  Each is  tabulated  separately.  Abstentions  and broker  non-votes  are
counted as present for  purposes of  establishing  a quorum.  Broker  non-votes,
however,  will  not be  considered  as  part  of the  voting  power  present  or
represented  at the annual  meeting for  purposes of any matter  voted on at the
meeting. Abstensions will have the same effect as a vote against the proposal to
approve the 2001 Stock Option and Incentive Plan

<PAGE>
REVOCABILITY OF PROXIES

         You may revoke your proxy by giving  written notice to the Secretary of
RateXchange  or by  delivering a later proxy to the  Secretary,  either of which
must be received  prior to the annual  meeting,  or by attending the meeting and
voting in person.

                        PROPOSAL 1: ELECTION OF DIRECTORS

         The board of directors  has nominated  seven  directors for election at
the 2001 annual meeting. If you elect them, they will hold office until the next
annual meeting, until their respective successors are duly elected and qualified
or  until  their  earlier  resignation  or  removal.  Cumulative  voting  is not
permitted.  Unless you specify  otherwise,  your  returned  signed proxy will be
voted in favor of each of the board's nominees. In the event a nominee is unable
to serve,  your proxy may vote for another  person  nominated by the board.  The
board of directors  has no reason to believe  that any of the  nominees  will be
unavailable.

         In  addition  to the  seven  nominees  of the board of  directors,  the
holders  of the  outstanding  shares of series A  convertible  preferred  stock,
voting separately as a class, are entitled to elect two additional  directors at
the annual meeting.

VOTE REQUIRED

         The affirmative vote of the holders of at least a majority of the stock
having  voting power  present in person or  represented  by proxy is required to
elect the seven nominees of the board as directors.

THE BOARD OF DIRECTORS UNANIMOUSLY  RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" EACH
OF THE BOARD'S NOMINEES LISTED BELOW.

DIRECTORS

         Set forth below are the principal occupations of, and other information
regarding, the seven director nominees of the board. Each of these persons is an
incumbent director.

         D. Jonathan Merriman, 40, has served as our Chief Executive Officer and
President  since October 2000. He has served as a Director  since February 2000.
In June 1998,  Mr.  Merriman  became  Managing  Director  and Head of the Equity
Capital Markets Group and member of the Board of Directors at First Security Van
Kasper. In this capacity,  he oversaw the Research,  Institutional Sales, Equity
Trading,  Syndicate and Derivatives Trading departments.  He is currently on the
Boards of Directors of Leading Brands, Inc., Fiberstars, Inc., SSE Telecom, Inc.
and the Internet  Venture Fund,  LLC.  From June 1997,  Mr.  Merriman  served as
Managing  Director and head of Capital  Markets at The Seidler  Companies in Los
Angeles, where he also served on the firm's Board of Directors.  Before Seidler,
Mr. Merriman was Director of Equities for Dabney/Resnick/Imperial, LLC. In 1989,
Mr.  Merriman  co-founded  the  hedge  fund  company  Curhan,  Merriman  Capital
Management,  Inc.,  which  managed  money  for high net  worth  individuals  and
corporations. Before Curhan, Merriman Capital Management, Inc., he worked in the
Risk  Arbitrage  Department  at Bear Stearns & Co. as a  trader/analyst.  He has
completed coursework at New York University's  Graduate School of Business.  Mr.
Merriman received his Bachelor of Arts in Psychology from Dartmouth College.

         Patrick Arbor, 63, has served as Director of RateXchange since February
2000.  Currently an independent  futures trader, Mr. Arbor is a principal of the
trading  firm of  Shatkin,  Arbor,  Karlov & Co. He is a longtime  member of the
Chicago Board of Trade (CBOT), the world's oldest derivatives exchange,  serving
as the organization's  Chairman from 1993 to 1999. During that period, Mr. Arbor
also served on the Board of Directors of the National Futures Association. Prior
to that, he served as Vice Chairman of the CBOT for three years and ten years as
a Director.  Mr.  Arbor's other exchange  memberships  include the Chicago Board
Options  Exchange,  the  Mid-America  Commodity  Exchange and the Chicago  Stock
Exchange.  Mr. Arbor received his undergraduate degree in business and economics
from Loyola University.

         Donald H. Sledge,  60, has served as Chairman of our Board of Directors
since  February  2000. He also served as Chief  Executive  Officer from February
2000 until October 2000. He was a Director from September 1999 to February 2000,


                                       2
<PAGE>
and from  September  1999 until  February of 2000 he served as President,  Chief
Executive Officer and Chairman of our subsidiary  RateXchange I, Inc. Mr. Sledge
is  currently a general  partner in Fremont  Communications,  a venture  capital
fund,  based in San  Francisco.  From 1996 to  September  1999,  Mr.  Sledge was
president and Chief Executive Officer of TeleHub Communications  Corporation,  a
next generation  ATM-based  telecommunications  company.  From 1994 to 1995, Mr.
Sledge served as 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.  From
1993 to 1994, Mr. Sledge was head of operations  for New T&T, a Hong  Kong-based
start-up.  He was Chairman and Chief  Executive  Officer of New Zealand  Telecom
International  from  1991 to 1993 and a member of the  executive  board of TCNZ,
where he led  privatization and public offerings and served as managing director
of New Zealand's largest operating telephone company,  Telecom Auckland Ltd. One
of  the  subsidiaries  of  Telehub  Communications,   Telehub  Network  Services
Corporation,  filed for bankruptcy several months after Mr. Sledge resigned from
Telehub.  Mr.  Sledge also served as president  and Chief  Executive  Officer of
Pacific Telesis  International.  Since November 1997, Mr. Sledge also has served
on the Board of Directors of eGlobe, Inc., a voice-based  applications  services
provider. Mr. Sledge holds a Masters of Business Administration and Batchelor of
Arts degree in industrial management from Texas Technological University.

         Dean S. Barr,  40, has served as one of our  Directors  since  November
2000.  Mr. Barr is  currently  the Global Chief  Investment  Officer of Deutsche
Asset  Management,  a position he has held since 1999. In this role, Mr. Barr is
responsible for $600 billion in investment  assets  worldwide for Deutsche Bank.
Before joining Deutsche Bank, Mr. Barr served as Global Chief Investment Officer
of Active  Strategies  and Global  Director of Research at State  Street  Global
Advisors where he was responsible for $120 billion in active investment  assets.
Mr. Barr co-founded and served from 1988 to 1997 as Chief  Executive  Officer of
Advanced Investment Technology,  a quantitative asset manager with $1 billion in
assets under management,  until State Street Global Advisors  purchased Advanced
Investment Technology.  Mr. Barr began his career in 1984 at Goldman Sachs where
he worked on early trading  applications for computer program trading.  Mr. Barr
received  his  undergraduate  degree from  Cornell  University  and received his
Masters in Business Administration from New York University.

         E. Russell "Rusty" Braziel, 50, has served as a Director of RateXchange
since  February  2000.  Mr.  Braziel  is  founder  and CEO of  Netrana,  LLC,  a
consulting and software venture that brings innovative market services, software
solutions and  liquidity  formation  methodologies  to a broad range of vertical
electronic  markets.  Previously,  in 1996,  Mr.  Braziel  founded  Altra Energy
Technologies,  a world leader in enterprise-wide business solutions,  delivering
electronic trading platforms,  transaction  management  products and integration
services for the energy  industry.  Under Mr. Braziel's  leadership,  Altra grew
from a small project team to a company  conducting  billions in e-commerce  each
month.  Mr. Braziel  serves on various Boards of Directors and advisory  boards,
providing   insight  into  the   development  of  a  number  of  B2B  exchanges,
professional  services firms, and software  companies.  Mr. Braziel received his
undergraduate degree in finance and his Masters in Business  Administration from
Stephen F. Austin University.

         Ronald E. Spears,  51, has served as one of our  Directors  since March
2000.  Throughout  his 20-year  career,  he has managed  telecommunications  and
professional   service   start-ups,   as  well  as  established   long  distance
powerhouses.   Since  June  2000,  Mr.  Spears  has  led  the   formulation  and
implementation  of  corporate-wide  development  related to strategic  planning,
marketing  and   communications,   business  alliances  as  Vaultus',   formerly
MobileLogic,  President and Chief Executive  Officer.  Mr. Spears joined Vaultus
after serving as the President and Chief Executive Officer of CMGI Solutions, an
enterprise  focused  Internet  solutions  provider  from April 1999 to May 2000.
Before joining CMGI Solutions, Mr. Spears served as president and COO of e.spire
Communications,  one of the nation's fastest growing  integrated  communications
providers, from February 1998 to April 1999 where he managed day-to-day business
operations  and saw  significant  growth in revenue and market share.  From June
1995 to January 1998 he was  corporate  vice  president  at Citizens  Utilities,
managing that company's  independent  telephone company operations in 13 states.
He also served as President of MCI WorldCom,  Inc.'s Midwest  Division from 1984
to 1990. A pioneer of the competitive long distance  industry,  Mr. Spears began
his  career  in  telecommunications  as a  manager  of AT&T  Longlines  in 1978,
following  eight years as an officer in the U.S.  Army.  He is a graduate of the
United Military Academy at West Point and also holds a Master's Degree in Public
Service from Western Kentucky University.

         Steven W. Town,  40, has served as one of our  Directors  since October
2000.  Mr. Town  currently  serves as Co-Chief  Executive  Officer of the Amerex
Natural  Gas,  Amerex  Power and  Amerex  Bandwidth,  Ltd.  Mr.  Town  began his
commodities  career in 1987 in the retail futures  industry prior to joining the
Amerex Group of Companies.  He began the Amerex  futures and forwards  brokerage


                                       3
<PAGE>
group in natural gas in 1990, in Washington  D.C., and moved this unit of Amerex
to Houston in 1992. During Mr. Town's tenure as Co-Chief Executive Officer,  the
Amerex  companies  have  become the  leading  brokerage  organizations  in their
respective  industries.  Amerex currently  provides energy,  power and bandwidth
brokerage  services to many of the energy  companies.  Mr. Town is a graduate of
Oklahoma State University.

                  In addition to the  foregoing  incumbent  directors,  in April
2001,  David Boren and Michael Boren were appointed to the RateXchange  board of
directors  as the  representatives  of the  holders of the series A  convertible
preferred  stock under the terms of the merger  agreement  pursuant to which the
series A  convertible  preferred  stock  was  issued.  Set  forth  below are the
principal  occupations of, and other information  regarding,  these individuals.
Under the terms of the  certificate  of  designation  establishing  the series A
convertible  preferred stock, the holders of the outstanding  shares of series A
convertible  preferred stock,  voting  separately as a class (and in addition to
their right to vote together with the common stockholders on all other matters),
are entitled to elect two  directors at the annual  meeting.  It is  anticipated
that the holders of the series A  convertible  preferred  stock will vote at the
annual meeting to re-elect Messrs. David Boren and Michael Boren as the director
representatives  of the series A convertible  preferred stock to terms of office
expiring at the 2002 annual meeting.

         Michael Boren, 38, has served as one of our Directors since April 2001.
Mr.  Boren  is a  founder  of Xpit  and  co-owner  and  co-founder  of  Sawtooth
Investment  Management,  a limited liability  company  specializing in arbitrage
(low risk) and limited risk investment  strategies in government  debt,  foreign
currencies and related derivative securities.  Prior to the formation of Xpit in
1999 and Sawtooth in 1995,  Mr. Boren was a co-owner  and  co-founder  of Summit
Management,  which he sold to Refco.  Prior to the  formation of Summit in 1992,
Mr.  Boren was a trader and  introducing  broker  specializing  in basis  trades
between various futures and cash  securities.  Prior to acting as an independent
broker,  Mr. Boren worked at the  Geldermann  Group from 1984 where he developed
options trading strategies and hedging programs for institutional  accounts. Mr.
Boren has a B.A. in economics from Brigham Young University.

         David Boren,  41, has served as one of our Directors  since April 2001.
Mr.  Boren  is a  founder  of Xpit  and  co-owner  and  co-founder  of  Sawtooth
Investment  Management,  a limited liability  company  specializing in arbitrage
(low risk) and limited risk investment  strategies in government  debt,  foreign
currencies and related derivative securities.  Prior to the formation of Xpit in
1999 and Sawtooth in 1995, Mr. Boren was involved in a variety of  sophisticated
proprietary  trading  activities  for  Goldman  Sachs in New York and Tokyo from
1986.  Mr. Boren has a B.A. in Economics  from Brigham Young  University  and an
M.B.A from Harvard Business School.

BOARD MEETINGS AND COMMITTEES

         In 2000, the Board of Directors held four board meetings.  During 2000,
no incumbent  director attended fewer than 75% of the aggregate of (a) the total
number of meetings of the board of directors held during the period for which he
has been a director and (b) the total number of meetings held by all  committees
of the board of directors  on which he served  during the period that he served.
RateXchange has the following board committees:

         Audit Committee.  The principal functions of the Audit Committee are to
recommend engagement of our independent  auditors,  to consult with our auditors
concerning  the scope of the audit and to review  with them the results of their
examination,  to approve the services performed by the independent  auditors, to
review  and  approve  any  material  accounting  policy  changes  affecting  our
operating results and to review our financial control  procedures and personnel.
The following board members served as Audit Committee  members during 2000: John
Dixon, Edward Mooney,  Douglas Cole, Christopher Vizas, D. Jonathan Merriman and
Gordon  Hutchins.  John Dixon and Edward  Mooney  resigned as committee  members
pursuant to their resignations from the board in February 2000 and were replaced
by  Christopher  Vizas and D.  Jonathan  Merriman.  Douglas  Cole  resigned as a
committee member pursuant to his resignation from the board in June 2000 and was
replaced by Gordon  Hutchins.  In April 2001,  Mr.  Merriman  resigned  from the
committee  and was  replaced  by Patrick  Arbor.  In April  2001,  Mr.  Hutchins


                                       4
<PAGE>
resigned from the Committee  and was replaced by E. Russell  Braziel.  The Audit
Committee held two meetings in 2000.  The board of directors  believes that each
of the  current  members of the Audit  Committee  is an  "independent"  director
within the meaning of the applicable  rules of the American Stock Exchange.  The
board of directors has adopted a written charter for the Audit Committee, a copy
of which is attached to this proxy statement as Annex A.

         Compensation  Committee.  The  Compensation  Committee  of the board of
directors has exclusive authority to establish the level of compensation paid to
the Company's  executive  officers and  administers  the Company's  stock option
plans.  The following  board members served as  Compensation  Committee  members
during 2000: Douglas Cole, John Dixon,  Douglas Glen,  Christopher Vizas, Ronald
Spears,  Gordon Hutchins and D. Jonathan  Merriman.  John Dixon and Douglas Glen
resigned  from the  committee  when they resigned from the board in February and
March 2000 and were replaced by Christopher Vizas and Ronald Spears. Christopher
Vizas  resigned from the  committee and was replaced by D. Jonathan  Merriman in
June 2000. The Compensation Committee held two meetings in 2000.

         Nominating  Committee.  RateXchange does not have a separate Nominating
Committee of the board of directors.

                             AUDIT COMMITTEE REPORT

         The Audit Committee  reviews our financial  reporting process on behalf
of the  board of  directors.  In  fulfilling  its  responsibilities,  the  Audit
Committee has reviewed and discussed the audited financial  statements contained
in the 2000 Annual  Report on Form 10-K with  RateXchange's  management  and the
independent auditors. Management is responsible for the financial statements and
the  reporting  process,   including  the  system  of  internal  controls.   The
independent auditors are responsible for expressing an opinion on the conformity
of  those  audited  financial  statements  with  generally  accepted  accounting
principles.

         The Audit Committee discussed with the independent auditors the matters
required  to  be  discussed  by   Statement  on  Auditing   Standards   No.  61,
Communication  with  Audit  Committees,  as  amended.  In  addition,  the  Audit
Committee has discussed with the independent auditors the auditors' independence
from  RateXchange  and its  management,  including  the  matters in the  written
disclosures   required  by   Independence   Standards   Board  Standard  No.  1,
Independence Discussions with Audit Committees.

         In reliance on the reviews and discussions referred to above, the Audit
Committee  recommended  to the  board the  inclusion  of the  audited  financial
statements in RateXchange's  2000 Annual Report on Form 10-K for filing with the
Securities and Exchange Commission.

                                                AUDIT COMMITTEE

                                                Ronald Spears, Chairman
                                                Patrick Arbor
                                                E. Russell Braziel

                            COMPENSATION OF DIRECTORS

      Directors  may receive  stock option  grants for service on the board.  In
connection  with  their  appointment  as board  members  in 2000,  Mr.  Hutchins
received an option to purchase 100,000 shares of common stock in June 2000 at an
exercise  price of $5.69 per share and  Messrs.  Town and Barr each  received an
option to purchase 100,000 shares of common stock in October 2000 at an exercise
price of $1.56 per share.  Messrs.  Arbor and Braziel each received an option to
purchase  100,000 shares of common stock in January 2001 at an exercise price of
$2.01 per share for their  services as board  members.  Messrs.  David Boren and
Michael Boren each received an option to purchase 100,000 shares of common stock
in April 2001 at an exercise price of $1.40 per share. Messrs.  Sledge,  Spears,
Vizas and Merriman also each received option grants for 100,000 shares of common
stock at the time of their  initial  appointment  as directors in October  1999,
February  2000,  February 2000 and February  2000,  respectively.  The per share
exercises  prices of these options  is$2.75 for Mr. Sledge and $7.00 for Messrs.
Spears,  Vizas and  Merriman.  All of these  options have terms of ten years and
vest over one year from the date of grant. Vesting is accelerated upon change of
control of the Company.  RateXchange's  directors  also receive travel and other
out-of-pocket expenses related to board meeting attendance. In


                                       5
<PAGE>
addition,  Mr. Sledge receives  $120,000 per year for serving as Chairman of our
board of directors.  See "Employment Contracts and Termination of Employment and
Change in Control Agreements."

                             EXECUTIVE COMPENSATION

         The following table sets forth  information  regarding the compensation
paid to each of the individuals who served as our Chief Executive Officer during
2000 and to our other  executive  officers whose total salary and bonus for 2000
exceeded $100,000.

<TABLE>
<CAPTION>
                                                  SUMMARY COMPENSATION TABLE
                                                                                                   Long-Term Compensation
                                                                                                          Awards
                                                                 Annual Compensation               ----------------------
                                                        ----------------------------------         Securities Underlying
                Name and Principal Position              Year       Salary         Bonus                  Options
          ----------------------------------------      -----      --------       --------         ---------------------
<S>                                                      <C>       <C>            <C>                      <C>
          Douglas Cole (1)                               2000      $133,000       $240,000                 100,000
               Chairman and Chief Executive              1999      $126,000       $125,000                 100,000
               Officer                                   1998      n/a            n/a                      n/a

          Donald H. Sledge (2)                           2000      $238,040       $75,000                  1,500,000
                Chairman and Chief Executive             1999      $94,653        $75,000                  100,000
                Officer                                  1998      n/a            n/a                      n/a

          D. Jonathan Merriman (3)                       2000      $59,039        0                        2,100,000
                President and Chief Executive            1999      n/a            n/a                      n/a
               Officer                                   1998      n/a            n/a                      n/a

          Ross Mayfield (4)                              2000      $157,385       $97,745                  300,000
                President                                1999      $87,619        $0                       100,000
                                                         1998      n/a            n/a                      n/a

          Paul Wescott (5)                               2000      $232,129       $25,000                  250,000
                Chief Operating Officer                  1999      $64,230        $0                       150,000
                                                         1998      n/a            n/a                      n/a

          Philip Rice (6)                                2000      $152,052       0                        250,000
                Chief Financial Officer                  1999      n/a            n/a                      n/a
                                                         1998      n/a            n/a                      n/a
</TABLE>

-------------

(1)  Mr. Cole was hired as an officer on April 1, 1999 and  resigned in February
     2000.  Mr.  Cole's  annual  salary was  $168,000,  plus a bonus,  under his
     employment  agreement.  Mr.  Cole's bonus of $125,000  accrued at year-end.
     However, the bonus was not paid to Mr. Cole until 2000.

(2)  Mr.  Sledge was hired on September  15, 1999 as one of our directors and as
     the Chairman and Chief Executive Officer of RateXchange I, Inc., one of our
     subsidiaries.  Mr. Sledge was  appointed  our Chairman and Chief  Executive
     Officer in February 2000 and  currently  serves as Chairman of our Board of
     Directors. Mr. Sledge's annual salary with our company was $300,000, plus a
     bonus,   under  his   employment   agreement.   Mr.  Sledge  also  received
     approximately  $1,000 each month for car allowance and approximately $1,000
     each month for payment of whole life insurance premiums.

                                                           6
<PAGE>

(3)  Mr.  Merriman was appointed to the Board of Directors in February 2000. Mr.
     Merriman  was hired on October  5, 2000 as  President  and Chief  Executive
     Officer.  Mr. Merriman's annual salary is $300,000,  plus a bonus under his
     employment  agreement.  Effective March 15, 2001, Mr. Merriman  reduced his
     annual salary to $1.00, plus a bonus tied to performance.

(4)  Mr. Mayfield was hired as an executive  officer of RateXchange I, Inc., one
     of our  subsidiaries,  in July 1999.  While  employed at RateXchange I, Mr.
     Mayfield  served,  at various times during 1999, as Vice President of Sales
     and Marketing, Chief Operating Officer and President. Mr. Mayfield's annual
     salary at RateXchange I during 1999 was $165,000,  plus a bonus,  under his
     employment  agreement.  We  appointed  Mr.  Mayfield  as our  President  in
     February  2000.  Mr.   Mayfield's   employment  with  RateXchange  and  its
     subsidiaries  was  terminated  effective  August 15, 2000. A portion of Mr.
     Mayfield's  option  grant  vesting was  accelerated  under the terms of his
     severance  agreement  with  the  Company.  See  "Employment  Contracts  and
     Termination of Employment and Change in Control Agreements."

(5)  Mr.  Wescott was hired as an executive  officer of RateXchange I, Inc., one
     of our  subsidiaries,  in September 1999.  While employed at RateXchange I,
     Mr.  Wescott  served,  at various times during 1999,  as an Executive  Vice
     President,   Chief  Operating   Officer  and  Vice  President  of  Business
     Development.  Mr.  Wescott's annual salary at RateXchange I during 1999 was
     $165,000,  plus bonuses,  under his employment agreement.  We appointed Mr.
     Wescott  our Chief  Operating  Officer  in  February  2000.  Mr.  Wescott's
     employment with RateXchange and its  subsidiaries was terminated  effective
     October 1, 2000.  . A portion of Mr.  Wescott's  option  grant  vesting was
     accelerated  under the terms of his severance  agreement  with the Company.
     See  "Employment  Contracts and  Termination  of  Employment  and Change in
     Control Agreements."

(6)  Mr. Rice was hired as an executive  officer of  RateXchange  Corporation in
     March 2000.  While employed at RateXchange  Corporation  Mr. Rice served as
     our Chief Financial Officer. Mr. Rice's annual salary at RateXchange during
     2000 was $200,000,  plus bonuses, under his employment agreement.  Mr. Rice
     resigned from  RateXchange,  effective  January 19, 2001. Mr. Rice's option
     grant terminated upon his resignation.

                       OPTION GRANTS IN LAST FISCAL YEAR

         The following table sets forth  information  regarding  options granted
during fiscal year 2000 to the named executive  officers.  No stock appreciation
rights were granted in 2000.

<TABLE>
<CAPTION>
                                           Individual Grants
                             --------------------------------------------------------
                             Number of     Percent of
                             Securities    Total Options                                      Potential Realizable Value at
                             Underlying    Granted to     Exercise or                      Assumed Annual Rates of Stock Price
                              Options      Employees in   Base Price Per   Expiration          Appreciation for Option Term
            Name              Granted         2000          Share(1)         Date             5% ($)              10% ($)
      --------------------   ----------    ------------   --------------   ---------      ----------------------------------
<S>                           <C>              <C>              <C>          <C>            <C>                 <C>
      Douglas Cole(2)           100,000         1.3%            $7.00        2/24/10        $1,140,226          $1,815,620

      Donald H. Sledge(3)     1,500,000        20.0              7.00        2/24/10        17,103,394          27,234,296

      Ross Mayfield(4)          300,000         4.0              7.00        2/24/10         3,420,679           5,446,859

      Paul Wescott(5)           250,000         3.3              7.00        2/24/10         2,850,566           4,539,049

      D. Jonathan Merriman(6)   100,000         1.3              7.00        2/24/10         1,140,226           1,815,620
                              2,000,000        26.6              3.19        10/5/10         4,235,126           6,743,730

      Philip Rice (7)           250,000         3.3              7.00        2/24/10         2,850,566           4,539,049
</TABLE>


                                                                  7
<PAGE>

(1)  The  exercise  prices of the  options  included  in this table  reflect the
     board's bona fide  estimation  of market value of the shares on the various
     grant dates.

(2)  Mr.  Cole's  option,  received  for  service  as a member  of the  board of
     directors,  vests 50% immediately  and 50% on the first  anniversary of the
     February 24, 2001 grant date.

(3)  Mr.  Sledge's  option,  received  according to the terms of his  employment
     agreement, vests 500,000 shares immediately;  300,000 on January 1, 2001 or
     upon a secondary  public  offering  with a share price of $15.00 or higher;
     300,000 on January  1,  2002;  and,  400,000 on January 1, 2003 or upon the
     Company's  common  stock  closing  at $20.00 or higher  for 10  consecutive
     trading days.

(4)  Mr. Mayfield's  option,  received  according to the terms of his employment
     agreement,  vests 25% on the first anniversary of Mr. Mayfield's employment
     with the  Company  and then  1/36 of the  remainder  each  month for the 36
     months  thereafter.  Mr.  Mayfield's  date of hire  was May 28,  1998.  The
     vesting of a portion of Mr.  Mayfield's  option grant was accelerated under
     the terms of his  severance  agreement  with the Company.  See  "Employment
     Contracts and Termination of Employment and Change in Control Agreements."

(5)  Mr.  Wescott's  option,  received  according to the terms of his employment
     agreement, vests 25% on the first anniversary of the grant and then 1/36 of
     the  remainder  each month for the 36 months  thereafter.  The vesting of a
     portion of Mr.  Wescott's  option grant was accelerated  under the terms of
     his severance  agreement with the Company.  See  "Employment  Contracts and
     Termination of Employment and Change in Control Agreements."

(6)  Mr. Merriman's option to purchase 100,000 shares, received for service as a
     member of the board of  directors,  vests  50%  immediately  and 50% on the
     first  anniversary  of the  February  24, 2001 grant date.  Mr.  Merriman's
     option to purchase 2,000,000 shares, received according to the terms of his
     employment agreement, vest 500,000 immediately;  500,000 on January 1, 2005
     or upon  completion of a financing for $15 million or more;  250,000 on the
     first anniversary of Mr. Merriman's employment, October 5, 2001; 250,000 on
     the  second  anniversary  of Mr.  Merriman's  employment,  October 5, 2002;
     250,000 on January 1, 2007 or upon the  Company's  first fiscal  quarter of
     positive  earnings before interest,  taxes,  depreciation and amortization;
     and 250,000 on January 1, 2006 or upon the  Company's  common stock closing
     at $7.00 or higher for 30 consecutive trading days.


                                                           8
<PAGE>

(7)  Mr.  Rice's  option,  received  according  to the  terms of his  employment
     agreement, vests 25% on the first anniversary of the grant and then 1/36 of
     the remainder  each month for the 36 months  thereafter.  Mr. Rice's option
     grant terminated upon his resignation.

               AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND
                          FISCAL YEAR-END OPTION VALUES

         The following table sets forth  information with respect to each of the
named  executive  officers  concerning  the  number  of  securities   underlying
unexercised  stock  options at the end of fiscal  year 2000 and the 2000  fiscal
year-end value of all unexercised in the money options held by such individuals.
No options were exercised by any named executive officer in fiscal year 2000.

<TABLE>
<CAPTION>
                                                      Number of                               Value of
                                                Securities Underlying                        Unexercised
                                                     Unexercised                             In-the-Money
                                                     Options (#)                             Options (1)
                                           ---------------------------------        -------------------------------
                   Name                    Exercisable         Unexercisable        Exercisable       Unexercisable
               -----------                 ---------------     -------------        -----------       -------------
<S>                                            <C>               <C>                     <C>                 <C>
  Douglas Cole                                   200,000                 0               $0                  $0

  Donald H. Sledge                             1,200,000           300,000                0                   0

  Ross Mayfield                                  300,000                 0                0                   0

  Paul Wescott                                    72,916            26,040                0                   0

  P. Jonathan Merriman                           600,000         1,500,000                0                   0

  Philip Rice                                          0                 0                0                   0
</TABLE>

(1)  Market value of underlying securities at year-end minus the exercise price.


                                        9
<PAGE>

                       COMPARATIVE STOCK PERFORMANCE CHART

         The following  graph  compares our  stockholder  returns since July 10,
2000,  the date our common stock began trading on the American  Stock Exchange ,
with the AMEX US index and the NASDAQ US index.  The graph assumes an investment
of $100 in each of RateXchange and the AMEX US and NASDAQ US indices on July 10,
2000.

                                     [GRAPH]

         The points on the graph represent the following numbers:

                         July 10, 2000         December 31, 2000

RateXchange                     $100.00                     $37.24
AMEX US                         $100.00                     $95.88
NASDAQ US                       $100.00                     $61.66

             EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND
                          CHANGE IN CONTROL AGREEMENTS

         Effective  April 1, 1999, we entered into an employment  agreement with
Douglas Cole. Mr. Cole's employment agreement provided for an annual base salary
of $168,000,  an annual incentive bonus of up to 100% of Mr. Cole's base salary,
option rights and other  employee  benefits.  Under this  agreement,  Mr. Cole's
employment  could  be  terminated  for  cause  or  upon  death,  and  all of our
obligations to pay compensation and provide benefits would thereafter cease. Mr.
Cole's  employment also could be terminated  without cause if we paid Mr. Cole's
base salary for 180 days following termination.  As part of our restructuring to
focus on the  business  of  RateXchange  I, Inc.,  Mr. Cole agreed to resign his
position as an executive  officer,  effective  February 2000.  Under a severance
agreement  entered  into with him at that time,  Mr. Cole  received  six-months'
severance pay.

         In February  2000,  we appointed  Donald  Sledge our Chairman and Chief
Executive  Officer,  Ross  Mayfield  our  President  and Paul  Wescott our Chief
Operating  Officer.  Previously these individuals were officers of RateXchange I
since the fourth  quarter of 1999. In March 2000,  we appointed  Philip Rice our
Executive Vice President and Chief Financial  Officer.  In connection with these
appointments,  we entered  into  separate  employment  agreements  with  Messrs.
Sledge, Rice, Mayfield and Wescott.

         Mr. Sledge's employment agreement provided for him to serve as Chairman
and Chief  Executive  Officer of  RateXchange  I with an annual  base  salary of
$300,000,  an annual incentive bonus of up to 50% of base salary, a 10% interest
in RateXchange I, Inc., an expense  reimbursement  and other employee  benefits.
Under this  agreement,  Mr.  Sledge's  employment may be terminated for cause or
upon death or disability so long as we pay all compensation  owed as of the date
of termination.  Mr. Sledge's  employment may be terminated  without cause if we
pay him  severance  pay equal to one year's annual salary and a bonus payment of
$150,000.  In October 2000, Mr. Sledge resigned as Chief Executive Officer,  but
continues to serve as Chairman at a salary of $120,000 per year.

         Mr. Rice's employment  agreement  provided for an annual base salary of
$200,000,  an annual  incentive  bonus of up to 50% of his base  salary,  option
rights and other employee benefits.  Under this agreement, Mr. Rice's employment
could be  terminated  for  cause,  or upon death or  disability,  and all of our
obligations to pay compensation and provide benefits shall thereafter cease. Mr.
Rice's employment also could be terminated without cause if we paid Mr. Rice his
base  salary  for twelve  months  following  termination,  as well as a lump sum
payment of $100,000,  and provide Mr. Rice other specified  benefits.  Effective
January 19, 2001, Mr. Rice resigned as Chief Financial Officer.


                                       10
<PAGE>
         Mr. Mayfield's  employment agreement provided for an annual base salary
of  $165,000,  an annual  incentive  bonus of up to 50% of Mr.  Mayfield's  base
salary,  option rights and other employee  benefits.  Under this agreement,  Mr.
Mayfield's employment could be terminated for cause or upon death or disability,
and all of our  obligations  to pay  compensation  and  provide  benefits  would
thereafter  cease. Mr.  Mayfield's  employment also could be terminated  without
cause  if we paid  Mr.  Mayfield's  base  salary  for  twelve  months  following
termination,  as well as a lump  sum  payment  of  $100,000,  and  provided  Mr.
Mayfield other specified benefits.

         Mr. Wescott's  employment  agreement provided for an annual base salary
of $200,000,  an annual incentive bonus of up to 50% of his base salary,  option
rights  and  other  employee  benefits.  Under  this  agreement,  Mr.  Wescott's
employment  could be terminated for cause, or upon death or disability,  and all
of our obligations to pay  compensation  and provide  benefits would  thereafter
cease.  Mr.  Wescott's  employment also could be terminated  without cause if we
paid to Mr. Wescott his base salary for twelve months following termination,  as
well as a lump sum payment of $100,000, and provided Mr. Wescott other specified
benefits.

         Effective  August 15, 2000, Mr.  Mayfield's  employment was terminated.
Under a separation  agreement entered into with Mr. Mayfield,  he received or is
entitled to receive:

         o    His annual salary through February 15, 2001;

         o    Lump sum  payments  of $50,000 on August 18,  2000 and  $82,250 on
              February 15, 2001;

         o    Accelerated  vesting of a total of 93,750 stock options previously
              granted  to him,  together  with an  extension  for two years from
              August 15, 2000 within which to exercise the options; and

         o    Full benefits for Mr. Mayfield and his family through February 15,
              2001.

         Effective  October 1, 2000, Mr.  Wescott's  employment was  terminated.
Under a separation  agreement  entered into with Mr. Wescott,  he received or is
entitled to receive:

         o    His annual salary through March 31, 2001;

         o    Lump sum  payments  of $50,000  on  October  2,  2000,  $25,000 on
              January 2, 2001,  $100,000 on April 1, 2001,  and $50,000 on April
              2, 2001; and

         o    Accelerated vesting of a total of98,956 stock options held by him,
              together with an extension for two years following October 1, 2000
              within  which  to  exercise212,500  of the  options  and a  90-day
              exercise period beginning on October 1, 2001 to exercise 36,456 of
              the options.

         Effective  October 5, 2000,  Mr.  Sledge was named our Chairman and Mr.
Merriman was named our President and Chief Executive Officer.  Effective on that
date,  Mr.  Sledge's  employment  agreement was amended to reflect his change in
status from Chairman and Chief Executive Officer to Chairman.  As Chairman,  Mr.
Sledge was employed on a part-time basis to render  executive,  policy and other
management  services to us of the type customarily  performed by persons serving
in such capacity.  Under the amendment to his employment agreement, Mr. Sledge's
annual  salary  was  reduced  to  $120,000  per  year and any  entitlement  to a
guaranteed bonus for 2000 or for any future year was eliminated.

         In connection with Mr. Merriman's  appointment as our new President and
Chief  Executive  Officer,  we entered  into an  employment  agreement  with Mr.
Merriman. His initial annual salary under his employment agreement was $300,000.
The  agreement  also  included a $200,000  bonus paid to him on January 2, 2001,
expense reimbursement and other employee benefits. Effective March 15, 2001, Mr.
Merriman  reduced his annual salary to $1.00,  plus a bonus tied to performance.
Under his employment  agreement,  Mr.  Merriman has been awarded  ten-year stock
options, which are incentive options to the extent permissible under Section 422
of the  Internal  Revenue  Code of 1986,  as  amended,  to  purchase  a total of
2,000,000 shares of our common stock at an exercise price of $3.19 per share, as
follows:

         o    Options to purchase 500,000 shares vesting on October 5, 2000;

         o    Options to  purchase  500,000  shares  vesting on January 1, 2005,
              subject  to  acceleration  of  vesting  upon the  completion  of a
              financing for $15 million and further subject,  in either case, to
              continued employment on such date;

         o    Options to  purchase  250,000  shares  vesting on October 5, 2001,
              subject to continued employment on that date;


                                       11
<PAGE>
         o    Options to  purchase  250,000  shares  vesting on October 5, 2002,
              subject to continued employment on that date;

         o    Options to  purchase  250,000  shares  vesting on January 1, 2007,
              subject to acceleration of vesting immediately following the first
              quarter of positive earnings before interest,  taxes, depreciation
              and amortization after January 2001 and further subject, in either
              case, to continued employment on such date; and

         o    Options to  purchase  250,000  shares  vesting on January 1, 2006,
              subject to  acceleration of vesting  immediately  after the common
              stock has traded on AMEX at a price of $7.00 per share or more for
              30 consecutive trading days, subject, in either case, to continued
              employment on such date.

         The vesting of the stock options will accelerate, and Mr. Merriman will
additionally be entitled to receive a payment of $1.0 million from  RateXchange,
upon:

         o    A sale of all or substantially all of our assets;

         o    A merger of our company with  another  entity where we are not the
              surviving  entity or where our stockholders  immediately  prior to
              the  merger own less than 50% of our voting  stock  following  the
              merger; or

         o    A change in the  membership  of the board of  directors  such that
              individuals  who, as of October 5, 2000,  constitute  our board of
              directors  cease for any reason to  constitute at least a majority
              of the board of directors; provided that any individual becoming a
              director  subsequent  to  October  5,  2000  whose  election,   or
              nomination  for  election by our  stockholders,  was approved by a
              vote of at least a majority of the directors  then  comprising the
              incumbent  board shall be considered as though the individual were
              a member of the incumbent board, but excluding,  for this purpose,
              any  individual  whose  initial  assumption  of office occurs as a
              result of an actual or threatened election contest with respect to
              the election or removal of directors or other actual or threatened
              solicitation  of proxies or  consents  by or on behalf of a person
              other than our board of directors.

         Under Mr. Merriman's  employment  agreement,  Mr. Merriman's employment
may be  terminated  for cause or upon death or  disability so long as we pay all
compensation  owed as of the  date of  termination.  Mr.  Merriman's  employment
agreement may be  terminated  by us without cause if we pay to Mr.  Merriman his
base salary for twelve  months  following  termination,  any bonus that had been
earned  but not paid at the  time of  termination  and all  other  benefits  and
compensation  he would have been entitled to receive under the agreement had his
employment  not been  terminated.  All stock  options  granted  to him under his
employment  also would  immediately  vest.  Mr.  Merriman  would be  entitled to
receive the same payments and  acceleration  of the vesting of his options if he
were to terminate his  employment  for "good reason," as that term is defined in
his employment agreement.

                 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The Company formed a strategic alliance with Amerex Bandwidth,  Ltd. in
September,  2000. Amerex is an over-the-counter broker, providing customers with
voice and electronic brokerage services, market liquidity,  price discovery, and
data  services  around  the  globe.  Under  the terms of the  agreement,  Amerex
Bandwidth,  Ltd. received warrants to purchase 2,300,000 shares of the Company's
common stock and also receives a monthly  payment for expenses  associated  with
their bandwidth brokering services.  In 2000, the Company paid Amerex Bandwidth,
Ltd. $113,225 in expense  reimbursements.  Steven Town, Co-CEO of Amerex, joined
the Company's board of directors in October 2000.

         In  March  2001,  the  Company  acquired  Xpit.com,  Inc.  in a  merger
transaction  that resulted in the formation of a wholly owned  subsidiary,  Xpit
Corporation.  The shareholders of Xpit.com,  Inc.  received a total of 2,400,000
shares of series A convertible preferred stock of the Company,  $500,000 in cash
and a promissory note from the Company in the amount of $500,000. The promissory
note  matures  on March 12,  2003 with  interest  only  payable  annually  until
maturity at an annual rate of 7%.  Michael  Boren and David  Boren,  significant
shareholders of Xpit.com, Inc., joined the Company's board of directors in April
2001.


                                       12
<PAGE>
         For  certain  other  transactions  with  directors  see,  "Compensation
Committee Interlocks and Insider Participation."

       BOARD COMPENSATION COMMITTEE 2000 REPORT ON EXECUTIVE COMPENSATION

General Compensation Policy

         The  Compensation  Committee  of the board of directors  has  exclusive
authority to establish the level of compensation paid to the Company's executive
officers and administers the Company's stock option plans. Compensation policies
of the Committee  are designed to attract,  retain and motivate  highly  skilled
executive officers by providing compensation that is comparable to that provided
by our  competitors  for key personnel.  It is the  Committee's  policy to offer
executive officers  competitive  compensation that is based upon overall Company
performance, individual contributions to the Company's financial success and the
scope of responsibilities performed pursuant to particular offices.

         Currently,   the  Committee  does  not  use  quantitative   methods  or
mathematical  formulas  to set any  element  of  compensation  for a  particular
executive officer. Instead, the Committee administers the executive compensation
system  through  informal  surveys of  compensation  programs  of other  similar
companies and application of the subjective  business judgment of each Committee
member.  In employing its discretion,  the Committee  principally  considers for
each  component  of an  executive's  compensation  factors  such as previous and
anticipated Company performance,  as well as demonstrated  individual initiative
and   performance.   The  principal   components  of  the  Company's   executive
compensation  include (a) annual base salary,  (b) bonus programs and (c) equity
awards.  Currently,  we do not contribute to any retirement  programs or pension
plans on behalf of our executive officers.

Base Salaries

         Annual base salaries for executive officers are initially determined by
evaluating  the scope of the  responsibilities  of the office and the experience
and  knowledge  of the  individual  officer.  A secondary  consideration  is the
competitiveness   of  the  marketplace  for  executive  talent.   The  Committee
establishes  base salaries of its executives with the objective of ensuring that
the salaries we offer remain competitive with those of similar companies.

         In establishing the annual base salaries of our executive officers, the
Company's Board of Directors  specifically  assessed the responsibilities of the
offices,  evaluated  the  officers'  level of  experience,  skills and knowledge
relevant to the  Company's  business  objectives  and  informally  reviewed  the
compensation  for  executive  officers of  comparable  companies.  The Committee
believes that the annual base salaries of our executive officers are appropriate
when compared to salaries paid by other  companies for the same offices,  and in
light of both the scope of responsibilities and anticipated performance, as well
as previous  related  work  experience  and level of skill and  knowledge of our
officers.

         The  Committee   anticipates  that  it  will  periodically  review  the
individual  salaries  of each of our  executive  officers.  Adjustments  to base
salaries  are  made  at  the  discretion  of the  Committee,  which  takes  into
consideration  factors such as past and  anticipated  performance of the Company
and the Committee's subjective perception of the individual's performance.

Bonuses

         Executive   officer   bonuses  are  designed  to  provide  the  Company
flexibility in devising incentives for exceptional  performance by our executive
officers.  Generally, cash bonus payouts are tied to achievement of company-wide
performance  goals,  including stock  performance.  At its sole discretion,  the
Committee may award annual cash bonuses to the Company's executive officers. The
amount of the  performance  bonus awarded,  if any, is tied to both the level of
our executive officers' performance and that of the Company.

         Nevertheless,  bonuses available to our executive  officers reflect the
specific   capitalization   and   development   needs  of  the   Company   as  a
development-stage  company.  Thus,  the Company has  utilized  the  incentive of


                                       13
<PAGE>
special cash  fundraising  bonuses for  executive  officers,  which  bonuses are
granted  in the event the  Company  obtains  certain  levels  of  aggregate  net
proceeds from borrowing and issuance of debt and equity securities.  The Company
has also employed special  acquisition bonuses as an incentive for our executive
officers to identify and consummate  certain business  combinations that promote
the business objectives of the Company.

Equity Awards

         In granting stock options,  the Company's goals are to attract,  retain
and  motivate  the  highest   caliber  of  executives   by  offering   long-term
compensation   that  links  a  meaningful   portion  of  the  executives'  total
compensation  to the best  interests of  stockholders.  Making  stock  options a
significant component of executive  compensation provides each executive officer
with  incentive to manage the Company from the  perspective  of an owner with an
equity  interest in the Company.  The Committee  also believes  that,  given the
emerging  market in which the Company  operates and the Company's early stage of
development,  equity-based  compensation  provides  the greatest  incentive  for
outstanding executive performance.

Chief Executive Officer Compensation

Douglas Cole

         Mr. Cole's 2000  compensation,  including  salary and bonus,  was based
upon his function as the Chief Executive Officer.  Mr. Cole provided the Company
executive services beginning in September 1998 through February 2000. Mr. Cole's
annual  salary was based upon a survey of  salaries  for  executives  in similar
businesses at the time. The salary amount given to Mr. Cole was reduced from the
survey  amounts  and  a  bonus  provision  was  included.  The  bonus  provision
contemplated earnings based upon securing financing for the Company. The Company
secured private financing in February 2000.

Donald Sledge

         Mr. Sledge's 2000 compensation,  including salary,  bonus and equity in
the Company,  was based upon his function as the Chief  Executive  Officer.  Mr.
Sledge  became the Company's  chief  executive in February  2000,  following Mr.
Cole's resignation. Mr. Sledge guided the Company by building an executive team,
securing  private  financing,  updating and  executing on the business  plan and
successfully  listing the Company on the American  Stock  Exchange.  Mr.  Sledge
resigned from his position as chief executive officer in October 2000.

D. Jonathan Merriman

         Mr.  Merriman's 2000  compensation;  including salary and equity in the
Company,  was based  upon his  function  as the  President  and Chief  Executive
Officer.  Mr. Merriman became the Company's chief executive in October 2000. Mr.
Merriman's compensation was negotiated based upon the then-current  compensation
being given to executives in similar businesses.  Mr. Merriman's equity interest
in the  Company  is earned  based  upon the  performance  goals set forth in his
employment  agreement.  See "Employment  Contracts and Termination of Employment
and Change in Control Agreements."

$1 Million Pay Deductibility Limit

      Section 162(m) of the Internal Revenue Code of 1986, as amended, prohibits
publicly traded companies from taking a tax deduction for compensation in excess
of $1 million paid to the chief executive officer or any of the four most highly
compensated  executive officers for any fiscal year. Certain  "performance-based
compensation"  is excluded  from this $1 million cap. At this time,  none of the
Company's  executive officer's  compensation  subject to the deductibility limit
exceeds $1 million.  In the  Committee's  view,  the Company is not likely to be
affected by the nondeductibility rules in the near future.

Conclusion

         In  conclusion,  a  significant  portion  of  the  Company's  executive
compensation  is linked  directly to  individual  performance  of our  executive
officers as measured by the accomplishment of the Company's  strategic goals and


                                       14
<PAGE>
stock price  appreciation.  The  Committee  intends to continue  the practice of
linking  executive  compensation  to  Company  performance,  individual  officer
performance  and stockholder  return,  realizing,  of course,  that the business
cycle from time to time may result in an imbalance for a particular period.

                                            COMPENSATION COMMITTEE DURING 2000

                                            D. Jonathan Merriman*
                                            Ronald Spears

*  Mr. Merriman did not participate in decisions on his own compensation.

           COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

    During  2000,  the  following  directors  served as  compensation  committee
members:  Douglas Cole, John Dixon,  Douglas Glen, D. Jonathan Merriman,  Ronald
Spears and Gordon Hutchins. Currently, our compensation committee is composed of
Donald Sledge,  Michael Boren and Steven Town. John Dixon, Douglas Glen, Douglas
Cole and Gordon Hutchins  resigned from the compensation  committee in 2000 when
they resigned from our board of directors.

    Douglas Cole

    As part of a transaction  agreed to in October 1998,  our board of directors
authorized the issuance to Douglas Cole and other  unrelated  parties a total of
666,574 shares of our common stock in exchange for a total of $66,657 in secured
notes dated January 2, 1999. Our board of directors has placed  restrictions  on
this stock so that the stock cannot be sold,  traded,  assigned,  transferred or
pledged until we reach  $10,000,000 in gross revenues in a one-year period.  Mr.
Cole was one of our directors and executive officers.  Interest on the notes was
6.5% APR and,  together  with any  unpaid  principal  on the  notes,  was due on
January 2, 2001. The greatest  aggregate amount  outstanding on the notes during
1999 was $70,990, on December 31, 1999. Because Mr. Cole and the other unrelated
parties  paid the entire  principal  amount  owed under these notes early at our
request, we agreed to waive unpaid accrued interest in the approximate amount of
$4,700.

    D. Jonathan Merriman

    In conjunction  with a private  offering of our securities in February 2000,
we paid the  investment  banking  firm First  Security  Van Kasper a  commission
consisting  of 7% of the  aggregate  proceeds of the  offering  and  warrants to
purchase shares of our common stock in an amount equal to 7% of the common stock
purchased by  investors  at an exercise  price of $12.00 per share and 7% of the
warrants  purchased by investors at an exercise  price of $14.40 per share.  Mr.
Merriman has been a member of our board of directors since February 2000 and our
President and Chief  Executive  Officer  since  October 2000. He previously  was
managing director and head of First Security Van Kasper's Equity Capital Markets
Group.

    In February 2000,  RateXchange I, Inc. closed a $2,000,000  convertible note
offering.  The notes offered were  convertible  into  RateXchange I, Inc. common
stock  at a price  per  share  to be  determined  in an  anticipated  subsequent
financing of  RateXchange I, Inc. As a result of our new business  strategy,  we
offered to such note  holders  the right to convert  their notes into our 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. Note holders have elected to convert  $1,975,000 of the notes.  Under
the offer to convert the  RateXchange  I, Inc.  notes into our common  stock and
warrants to purchase our common stock, First Security Van Kasper, Venture Fund I
elected to convert its $525,000  note into 105,000  shares of common  stock,  as
well as accepted a warrant to purchase an additional 131,250 shares at $5.00 per
share.  Mr. Merriman was an investor in First Security Van Kasper,  Venture Fund
I. In  addition,  we issued to First  Security  Van Kasper a warrant to purchase
40,770  shares  of our  common  stock at $5.00  per  share to  compensate  First
Security Van Kasper for its services as placement  agent during the  RateXchange
I, Inc. convertible note offering.


                                       15
<PAGE>
          PROPOSAL 2: APPROVAL OF 2001 STOCK OPTION AND INCENTIVE PLAN

         This  section  provides a summary of the terms of the 2001 Stock Option
and Incentive Plan and the proposal to approve the plan.

         The board of directors  approved  the 2001 Stock  Option and  Incentive
Plan on April 30,  2001,  subject  to  approval  from our  stockholders  at this
meeting.  The purpose of the 2001 Stock Option and Incentive  Plan is to attract
and to encourage the continued  employment  and service of, and maximum  efforts
by,  officers,  directors,  key employees and other key  individuals by offering
those  persons  an  opportunity  to acquire  or  increase  a direct  proprietary
interest in our operations and our future success.  In the judgment of the board
of  directors,  an initial or  increased  grant under the 2001 Stock  Option and
Incentive  Plan will be a  valuable  incentive  and will  serve to the  ultimate
benefit of  stockholders  by aligning  more closely the  interests of 2001 Stock
Option and Incentive Plan participants with those of our stockholders.

         A total of 5,000,000 shares of common stock reserved for issuance under
the 2001 Stock Option and Incentive  Plan. At March 30, 2001,  the closing price
of our common stock was $1.75 per share.  There are currently no participants in
the 2001 Stock Option and Incentive Plan. Because participation and the types of
awards  under the 2001  Stock  Option  and  Incentive  Plan are  subject  to the
discretion of the Compensation  Committee,  the benefits or amounts that will be
received by any  participant or groups of  participants if the 2001 Stock Option
and  Incentive  Plan is approved are not  currently  determinable.  At March 31,
2001, there was one executive officer, 30 employees and 8 non-employee directors
of the Company and its subsidiaries who were eligible to participate in the 2001
Stock Option and Incentive Plan.

Required Vote

         The  affirmative  vote of the holders of a majority of the stock having
voting power present in person or  represented by proxy at the Annual Meeting is
required to approve the 2001 Stock Option and Incentive Plan.  Unless  otherwise
indicated,  properly  executed  proxies  will be voted in favor of Proposal 2 to
approve the 2001 Stock Option and Incentive Plan.

         The board of  directors  recommends  that  stockholders  vote "FOR" the
approval of the 2001 Stock Option and Incentive Plan.

Description of the Plan

         A description  of the provisions of the 2001 Stock Option and Incentive
Plan is set forth  below.  This  summary is  qualified  in its  entirety  by the
detailed provisions of the 2001 Stock Option and Incentive Plan, a copy of which
is attached as Annex B to this proxy statement.

         Administration.   The  2001  Stock   Option  and   Incentive   Plan  is
administered by the Compensation Committee of the board of directors. Subject to
the terms of the plan, the  Compensation  Committee may select  participants  to
receive  awards,  determine  the types of awards  and  terms and  conditions  of
awards, and interpret provisions of the plan.

         Common Stock  Reserved for Issuance under the Plan. The common stock to
be issued under the 2001 Stock Option and Incentive  Plan consists of authorized
but unissued shares.  If any shares covered by an award are not purchased or are
forfeited,  or if an award otherwise  terminates  without delivery of any common
stock,  then the number of shares of common stock counted  against the aggregate
number of shares available under the plan with respect to the award will, to the
extent of any such  forfeiture  or  termination,  again be available  for making
awards under the 2001 Stock Option and Incentive Plan.

         Eligibility.  Awards  may be made  under  the  2001  Stock  Option  and
Incentive Plan to our  directors,  employees of or consultants to RateXchange or
any of our affiliates, including any such employee who is an officer or director
of us or of any affiliate.


                                       16
<PAGE>
         Amendment  or  Termination  of the  Plan.  The board of  directors  may
terminate  or amend  the plan at any time  and for any  reason.  The 2001  Stock
Option  and  Incentive  Plan will  terminate  in any  event ten years  after its
effective date.  Amendments  will be submitted for  stockholder  approval to the
extent required by the Internal Revenue Code or other applicable laws.

         Options.  The 2001 Stock Option and Incentive Plan permits the granting
of options to purchase  shares of common stock  intended to qualify as incentive
stock  options  under the Internal  Revenue  Code and stock  options that do not
qualify as incentive stock options.

         In the case of incentive  stock  options,  the  exercise  price of each
stock  option may not be less than 100% of the fair  market  value of our common
stock on the date of grant. In the case of certain 10%  stockholders who receive
incentive  stock  options,  the exercise  price may not be less than 110% of the
fair market  value of the common  stock on the date of grant.  An  exception  to
these requirements is made for options that we grant in substitution for options
held by  employees  of  companies  that we acquire.  In such a case the exercise
price is adjusted to preserve the economic value of the employee's  stock option
from his or her former  employer.  In no event will the  exercise  price be less
than the par value of a share of common stock on the date of grant.

         The term of each stock  option is fixed by the  Compensation  Committee
and may not  exceed  10  years  from  the  date of  grant.  Options  may be made
exercisable in installments. The exercisability of options may be accelerated by
the Compensation Committee.

         Unless the Compensation  Committee provides otherwise in the applicable
option  agreement,  unvested options will expire  immediately and vested options
will expire 90 days after a grantee  terminates  employment with us for a reason
other than for death or disability.  Unless the Compensation  Committee provides
otherwise in the applicable  option  agreement,  in the case of a termination of
employment  due to death or  disability,  options  will  fully  vest and  remain
exercisable for a period of one year following termination of employment. In the
case of a  termination  for cause,  we may cancel the options upon the grantee's
termination.

         In general,  a grantee may pay the exercise price of an option by cash,
certified  check, by tendering shares of common stock (which if acquired from us
have  been  held by the  grantee  for at  least  six  months),  or by means of a
broker-assisted cashless exercise.

         Stock options  granted  under the 2001 Stock Option and Incentive  Plan
may not be sold,  transferred,  pledged or assigned  other than by will or under
applicable  laws of descent and  distribution.  However,  we may permit  limited
transfers of  non-qualified  options for the benefit of immediate family members
of grantees to help with estate planning concerns.

         Other Awards.  The Compensation Committee also may award:

         o    restricted  stock,  which are  shares of common  stock  subject to
              restrictions.

         o    restricted  stock units,  which are common stock units  subject to
              restrictions.

         Effect of Certain  Corporate  Transactions.  Certain  change of control
transactions  involving  us,  such as a sale of  RateXchange,  may cause  awards
granted  under the 2001 Stock  Option  and  Incentive  Plan to vest,  unless the
awards are continued or substituted for in connection with the change of control
transaction.

         Adjustments for Stock Dividends and Similar  Events.  The  Compensation
Committee will make appropriate adjustments in outstanding awards and the number
of shares available for issuance under the 2001 Stock Option and Incentive Plan,
including  the  individual  limitations  on  options,  to reflect  common  stock
dividends, stock splits and other similar events.

         Section  162(m) of the Internal  Revenue  Code.  Section  162(m) of the
Internal Revenue Code limits  publicly-held  companies such as RateXchange to an
annual  deduction for federal income tax purposes of $1 million for compensation


                                       17
<PAGE>
paid to their covered employees.  However,  "performance-based  compensation" is
excluded  from this  limitation.  The 2001 Stock  Option and  Incentive  Plan is
designed to permit the  Compensation  Committee to grant options that qualify as
performance-based for purposes of satisfying the conditions of Section 162(m).

         To qualify as performance-based:

(a)  the compensation must be paid solely on account of the attainment of one or
     more pre-established, objective performance goals;

(b)  the performance  goal under which  compensation is paid must be established
     by a compensation  committee  comprised solely of two or more directors who
     qualify as outside directors for purposes of the exception;

(c)  the  material  terms  under  which the  compensation  is to be paid must be
     disclosed to and subsequently approved by stockholders of the corporation
     before payment is made in a separate vote; and

(d)  the  compensation  committee  must certify in writing before payment of the
     compensation  that the performance  goals and any other material terms were
     in fact satisfied.

         In  the  case  of  compensation  attributable  to  stock  options,  the
performance goal requirement (summarized in (a) above) is deemed satisfied,  and
the certification requirement (summarized in (d) above) is inapplicable,  if the
grant or award is made by the compensation  committee;  the plan under which the
option is granted  states the  maximum  number of shares  with  respect to which
options may be granted during a specified  period to an employee;  and under the
terms of the option,  the amount of  compensation is based solely on an increase
in the value of the common stock after the date of grant.  The maximum number of
shares of common  stock  subject to options  that can be awarded  under the 2001
Stock Option and Incentive Plan to any person is 1,000,000 shares per year.

Federal Income Tax Consequences

         Incentive  Stock Options.  The grant of an option will not be a taxable
event for the grantee or for us. A grantee  will not  recognize  taxable  income
upon exercise of an incentive stock option (except that the alternative  minimum
tax may apply),  and any gain realized  upon a  disposition  of the common stock
received  pursuant to the exercise of an incentive stock option will be taxed as
long-term  capital  gain if the grantee  holds the shares of common stock for at
least  two  years  after  the date of grant  and for one year  after the date of
exercise  (the  "holding  period  requirement").  We will not be entitled to any
business  expense  deduction with respect to the exercise of an incentive  stock
option, except as discussed below.

         For  the  exercise  of an  option  to  qualify  for the  foregoing  tax
treatment,  the  grantee  generally  must be our  employee or an employee of our
subsidiary  from the date the  option is  granted  through a date  within  three
months before the date of exercise of the option.

         If all of the foregoing  requirements are met except the holding period
requirement mentioned above, the grantee will recognize ordinary income upon the
disposition  of the common stock in an amount  generally  equal to the excess of
the fair market value of the common  stock at the time the option was  exercised
over the option  exercise  price (but not in excess of the gain  realized on the
sale).  The balance of the realized  gain, if any, will be capital gain. We will
be allowed a business  expense  deduction  to the extent the grantee  recognizes
ordinary  income,  subject to our compliance with Section 162(m) of the Internal
Revenue Code and to certain reporting requirements.

         Non-Qualified  Options.  The grant of an  option  will not be a taxable
event for the grantee or for us.  Upon  exercising  a  non-qualified  option,  a
grantee will  recognize  ordinary  income in an amount  equal to the  difference
between the exercise  price and the fair market value of the common stock on the
date of exercise. Upon a subsequent sale or exchange of shares acquired pursuant
to the exercise of a non-qualified option, the grantee will have taxable gain or
loss,  measured by the difference between the amount realized on the disposition


                                       18
<PAGE>
and the tax basis of the shares of common stock (generally,  the amount paid for
the shares plus the amount treated as ordinary income at the time the option was
exercised).

         If we  comply  with  applicable  reporting  requirements  and  with the
restrictions of Section 162(m) of the Internal Revenue Code, we will be entitled
to a business  expense  deduction  in the same amount and  generally at the same
time as the grantee recognizes ordinary income.

         A grantee who has transferred a non-qualified  stock option to a family
member by gift will realize taxable income at the time the  non-qualified  stock
option is  exercised  by the  family  member.  The  grantee  will be  subject to
withholding of income and employment taxes at that time. The family member's tax
basis in the shares of common  stock will be the fair market value of the shares
of common  stock on the date the option is  exercised.  The  transfer  of vested
non-qualified  stock  options  will be treated as a completed  gift for gift and
estate tax purposes. Once the gift is completed, neither the transferred options
nor  the  shares  acquired  on  exercise  of the  transferred  options  will  be
includable in the grantee's estate for estate tax purposes.

         Restricted  Stock. A grantee who is awarded  restricted  stock will not
recognize any taxable  income for federal income tax purposes in the year of the
award,  provided  that the shares of common  stock are  subject to  restrictions
(that is, the restricted stock is  nontransferable  and subject to a substantial
risk of forfeiture).  However,  the grantee may elect under Section 83(b) of the
Internal Revenue Code to recognize  compensation income in the year of the award
in an amount  equal to the fair market  value of the common stock on the date of
the award,  determined  without regard to the restrictions.  If the grantee does
not make such a Section  83(b)  election,  the fair  market  value of the common
stock on the date the restrictions lapse will be treated as compensation  income
to the grantee  and will be taxable in the year the  restrictions  lapse.  If we
comply with applicable reporting requirements and subject to the restrictions of
Section  162(m) of the Internal  Revenue Code, we will be entitled to a business
expense  deduction  in the same  amount  and  generally  at the same time as the
grantee recognizes ordinary income.

         Restricted  Stock Units.  There are no immediate  tax  consequences  of
receiving  an award of  restricted  stock units under the 2001 Stock  Option and
Incentive Plan. A grantee who is awarded restricted stock units will be required
to  recognize  ordinary  income in an amount  equal to the fair market  value of
shares issued to such grantee at the end of the restriction period or, if later,
the  payment  date.  If we comply with  applicable  reporting  requirements  and
subject to the  restrictions of Section 162(m) of the Internal  Revenue Code, we
will be  entitled  to a  business  expense  deduction  in the  same  amount  and
generally at the same time as the grantee recognizes ordinary income.


                                       19
<PAGE>
         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The  following  table  sets  forth  information   regarding  beneficial
ownership of each class of our voting  securities  as of April 25, 2001,  by (a)
each  person who is known by us to own  beneficially  more than five  percent of
each of our outstanding classes of voting securities, (b) each of our directors,
(c) each of the named  executive  officers and (d) all  directors  and executive
officers as a group.

<TABLE>
<CAPTION>
                                                                              Series A
                                                                             Convertible
                                                                              Preferred
                                             Common Stock                       Stock
           Name and Address of               Beneficially                    Beneficially
             Beneficial Owner                    Owned         Percent (1)      Owned       Percent (2)
             ----------------               -------------     -----------    ------------   -----------
<S>                                            <C>                 <C>          <C>              <C>
Patrick Arbor (3)                                 65,000             *             --              --

Dean S. Barr (4)                                  83,750             *             --              --

David Boren (5)                                1,641,512           8.5%         1,591,512        79.6%

Michael Boren (6)                              1,641,512           8.5%         1,591,512        79.6%

E. Russell Braziel (7)                            50,000             *             --              --

Douglas Cole (8)                                 792,574           3.7%            --              --

Ross Mayfield (9)                                416,675           2.3%            --              --

D. Jonathan Merriman (10)                      1,114,400           6.1%            --              --

Philip Rice (11)                                  34,514             *             --              --

Donald H. Sledge (12)                          1,305,000           6.8%            --              --

Ronald E. Spears (13)                            100,000             *             --              --

Steven W. Town (14)                               50,000             *             --              --

Paul Wescott (15)                                239,583          1.33%            --              --

All directors and executive officers as a      7,534,520          36.0%         1,591,512        79.6%
group (13 persons) (16)

Sockeye Trading Company, LLC
250 S. 5th Street, Suite 150
Boise, Idaho  83702                            1,591,512          --            1,591,512        79.6%
</TABLE>

    -------------
    * Less than one percent.


                                                 20
<PAGE>

(1)  Applicable  percentage  ownership is based on  17,783,174  shares of common
     stock  outstanding  as of April  25,  2001.  Pursuant  to the  rules of the
     Securities and Exchange  Commission,  shares shown as "beneficially"  owned
     include  all shares of which the  persons  listed have the right to acquire
     beneficial ownership within 60 days of April 25, 2001, including (a) shares
     subject to options,  warrants or any other right exercisable within 60 days
     of April 25, 2001, even if these shares are not currently outstanding,  (b)
     shares attainable  through  conversion of other  securities,  even if these
     shares are not currently outstanding, (c) shares that may be obtained under
     the power to revoke a trust,  discretionary  account or similar arrangement
     and (d) shares that may be obtained  pursuant to the automatic  termination
     of a trust, discretionary account or similar arrangement.  This information
     is not  necessarily  indicative  of  beneficial  ownership  for  any  other
     purpose.  Our  directors  and  executive  officers  have  sole  voting  and
     investment  power  over the  shares of common  stock  held in their  names,
     except as noted in the following footnotes.

(2)  Applicable  percentage  ownership is based on 2,000,000  shares of series A
     convertible preferred stock outstanding as of April 25, 2001. At that date,
     the series A convertible  preferred  stock was convertible on a one-for-one
     basis into common stock.

(3)  Includes Mr. Arbor's currently exercisable option to purchase 50,000 shares
     of common  stock at $2.01 per  share.  Mr.  Arbor  also  holds an option to
     purchase  50,000  shares of  common  stock at $2.01  that is not  currently
     exercisable.

(4)  Includes  27,500 shares and 6,250 warrants  (exercisable  at $5.00) held by
     members of Mr. Barr's family. Includes 50,000 currently exercisable options
     to  purchase  common  stock at  $1.56.  Mr.  Barr  also  holds an option to
     purchase  50,000  shares of common  stock at $1.56  that are not  currently
     exercisable.

(5)  Includes Mr. Boren's currently exercisable option to purchase 50,000 shares
     of common  stock at $1.40 per  shares.  Mr.  Boren  also holds an option to
     purchase  50,000  shares of common  stock at $1.40  that are not  currently
     exercisable.  Includes  1,591,512 shares of series A convertible  preferred
     stock held of record by  Sockeye  Trading  Company,  LLC  ("Sockeye").  Mr.
     Boren,  along  with  his  brother,  is a  member  of  Sockeye  and  holds a
     substantial  interest  in that  company  and,  therefore,  may be deemed to
     beneficially own the shares held of record by Sockeye.

(6)  Includes Mr. Boren's currently exercisable option to purchase 50,000 shares
     of common  stock at $1.40 per  shares.  Mr.  Boren  also holds an option to
     purchase  50,000  shares of common  stock at $1.40  that are not  currently
     exercisable.  Includes  1,591,512 shares of series A convertible  preferred
     stock held of record by Sockeye.  Mr. Boren,  along with his brother,  is a
     member of Sockeye and holds a  substantial  interest in that  company  and,
     therefore,  may be deemed to beneficially  own the shares held of record by
     Sockeye.

(7)  Includes Mr.  Braziel's  currently  exercisable  option to purchase  50,000
     shares of common stock at $2.01 per share. Mr. Braziel also holds an option
     to purchase  50,000  shares of common stock at $2.01 that is not  currently
     exercisable.

(8)  Includes  37,500  shares  held by members of Mr.  Cole's  family.  Includes
     currently exercisable options to purchase 100,000 shares of common stock at
     $1.60 per share, and 100,000 shares of common stock at $7.00 per share. Mr.
     Cole  resigned as our Chief  Executive  Officer in  February  2000 and as a
     director in June 2000.

(9)  Includes Mr. Mayfield's  currently  exercisable  options to purchase 40,000
     shares of common stock at $2.50 per share, 60,000 shares of common stock at
     $2.75 per share, and 300,000 shares of common stock at $7.00 per share. Mr.
     Mayfield was terminated as President in August 2000.

(10) Includes Mr. Merriman's  currently  exercisable options to purchase 100,000
     shares of common  stock at $7.00  per  share and  500,000  shares of common
     stock at $3.19 per  share.  Mr.  Merriman  also holds  options to  purchase
     1,500,000 shares of common stock that are not currently exercisable.

(11) Includes Mr. Rice's currently  exercisable warrant to purchase 4,167 shares
     of  common  stock at $14.40  per  share.  Mr.  Rice  resigned  as our Chief
     Financial Officer in January 2001.


                                       21
<PAGE>

(12) Includes Mr. Sledge's  currently  exercisable  options to purchase  100,000
     shares of common  stock at $2.75 per share and  1,200,000  shares of common
     stock at $7.00 per share. Mr. Sledge holds  additional  options to purchase
     300,000 shares of common stock that are not currently exercisable.

(13) Includes Mr.  Spears'  currently  exercisable  options to purchase  100,000
     shares of common stock at $7.00 per share.

(14) Includes Mr. Town's currently exercisable options to purchase 50,000 shares
     of common stock at $2.87 per share.  Mr. Town also holds option to purchase
     50,000 shares of common stock that are not currently exercisable.

(15) Includes Mr. Wescott's  currently  exercisable  options to purchase 150,000
     shares of common stock at $2.75 per share, 83,332 shares of common stock at
     $7.00 per share and a  currently  exercisable  warrant  to  purchase  2,083
     shares of common stock at $14.40 per share.  Mr. Wescott also holds options
     to  purchase  an  additional  15,624  shares of common  stock  that are not
     currently exercisable.

(16) The  total  for  directors  and  executive  officers  as a  group  includes
     7,534,520  shares of common stock,  3,133,332 shares subject to outstanding
     stock  options that are  currently  exercisable,  6,250  shares  subject to
     outstanding  warrants that are currently  exercisable and 1,519,512  shares
     issuable upon  conversion of a  corresponding  number of shares of series A
     convertible preferred stock.


                                       22
<PAGE>
             SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section  16(a) of the  Securities  Exchange  Act of 1934  required  the
Company's directors and executive officers to file reports with the SEC on Forms
3, 4 and 5 for the purpose of reporting their  ownership of and  transactions in
the Company's  equity  securities.  During 2000,  Jonathan  Merriman was late in
filing  Forms 4 for  January and  February to report the  purchase of 40,000 and
30,000 shares of common stock, respectively.

AUDITORS

         The board of directors has engaged Arthur  Andersen LLP to serve as our
auditors for the fiscal year ending December 31, 2001. Arthur Andersen was first
engaged to serve as our  auditors  for the fiscal year ended  December 31, 2000.
Representatives  of Arthur  Andersen  are expected to be available at the Annual
Meeting.  Such  representatives  will have an opportunity to make a statement if
they so desire and will be available to respond to appropriate questions.

         Arthur  Andersen's  fees for  providing  services to us in 2000 were as
follows:

         Audit  Fees.  The  aggregate   fees  billed  by  Arthur   Andersen  for
professional  services rendered for the audit of our annual financial statements
for 2000 and the reviews of the financial statements included in our Form 10-Q's
for 2000 was approximately $120,000.

         Financial Information Systems Design and Implementation Fees.  None.

         All Other Fees.  The aggregate  fees billed by Arthur  Andersen for all
other services rendered by it to us for 2000 was approximately $200,000.

         The Audit  Committee of the board of directors has  considered  whether
the  provision  of the  foregoing  non-audit  services  by  Arthur  Andersen  is
compatible with maintaining Arthur Andersen's independence.

                  STOCKHOLDER PROPOSALS FOR 2002 ANNUAL MEETING

      If you wish to submit proposals to be included in RateXchange's 2002 proxy
statement,  we must receive them on or before  January 2, 2002.  Please  address
your proposals to the Corporate Secretary.

      If you wish to raise a matter  before  the  stockholders  at the year 2002
annual meeting, you must notify the Secretary in writing by not later than March
18, 2002. Please note that this requirement  relates only to matters you wish to
bring before your fellow stockholders at the annual meeting. It is separate from
the SEC's  requirements  to have your  proposal  included in next  year's  proxy
statement.


                                       23
<PAGE>
                           ANNUAL REPORT ON FORM 10-K

         Our 2000 Annual  Report to  Stockholders  was prepared on an integrated
basis with our Annual Report on Form 10-K for the year ended  December 31, 2000,
and  accompanies  this proxy  statement.  Stockholders  may obtain a copy of the
exhibits to the  Company's  Form 10-K for the year ended  December 31, 2000 upon
payment of a reasonable  fee by writing to  RateXchange  Corporation,  185 Berry
Street,  Suite 3515,  San  Francisco,  California  94107,  Attention:  Corporate
Secretary.

                                              By Order of the Board of Directors

                                              Christopher L. Aguilar
                                              Secretary


                                       24
<PAGE>

                                                                         ANNEX A

                             RATEXCHANGE CORPORATION

                         CHARTER OF THE AUDIT COMMITTEE

                            OF THE BOARD OF DIRECTORS

                              Adopted June 21, 2000

I.       PURPOSE

         The primary purpose of the Audit Committee of the Board of Directors of
RateXchange Corporation is to provide independent and objective oversight of the
accounting  functions  and internal  controls of  RateXchange  Corporation,  its
subsidiaries  and  affiliates  and to ensure the  objectivity  of  RateXchange's
financial  statements.  The  Committee  and the  Board  will  have the  ultimate
authority and responsibility to select, evaluate and, where appropriate, replace
the independent accountants.

II.      FUNCTIONS

         The Audit Committee will perform the following functions:

         1.  Independent  Accountants.  Recommend  to the  Board  the firm to be
employed by  RateXchange  as its  independent  accountants,  which firm shall be
ultimately  accountable to the Board and the Committee as representatives of the
shareholders.

         2. Plan of Audit.  Consult with the independent  accountants  regarding
the  plan of  audit.  The  Committee  also  will  review  with  the  independent
accountants their report on the audit and review with management the independent
accountants'  suggested  changes or  improvements  in  RateXchange's  accounting
practices or controls.

         3.   Accounting   Principles   and   Disclosure.   Review   significant
developments  in accounting  rules.  The Committee  will review with  management
recommended  changes  in  RateXchange's   methods  of  accounting  or  financial
statements.  The Committee also will review with the independent accountants any
significant proposed changes in accounting principles and financial statements.

         4.  Internal   Accounting   Controls.   Consult  with  the  independent
accountants  regarding  the  adequacy of  internal  accounting  controls.  Where
appropriate,  consultation with the independent  accountants  regarding internal
controls will be conducted out of management's presence.

         5.  Financial  Disclosure  Documents.  Review with  management  and the
independent accountants RateXchange's financial disclosure documents,  including
all  financial  statements  and reports filed with the  Securities  and Exchange
Commission or sent to stockholders.  The review will include (a) a discussion of
any  significant  problems  and material  disputes  between  management  and the
independent  accountants,  (b) a discussion with the independent accountants out
of management's  presence of the quality of RateXchange's  accounting principles
as applied in its financial  reporting,  the clarity of RateXchange's  financial
disclosures and the degree of  aggressiveness  or conservatism of  RateXchange's
accounting  principles  and  underlying  estimates,  and  (c) a frank  and  open
discussion of other  significant  decisions  made by management in preparing the
financial disclosure.

         6.  Internal  Control  Systems.  Review with  management  and  internal
auditors   RateXchange's   internal  control  systems  intended  to  ensure  the
reliability  of financial  reporting and  compliance  with  applicable  codes of
conduct,  laws, and regulations.  The review will include discussions concerning
any significant problems and regulatory concerns. The Committee also will review
internal audit plans in significant compliance areas.


                                       25
<PAGE>

         7. Ethical  Environment.  Consult with management on the  establishment
and maintenance of an environment that promotes ethical behavior,  including the
establishment,  communication,  and  enforcement  of codes of  conduct  to guard
against dishonest, unethical, or illegal activities.

         8.  Oversight of  Executive  Officers and  Directors  and  Conflicts of
Interest.  Review  significant  conflicts  of interest  involving  directors  or
executive  officers.  The Committee will review compliance with Company policies
and  procedures  with respect to  officers'  expense  accounts and  perquisites,
including their use of corporate assets,  and consider the results of any review
of these areas by the  independent  accountant.  The Committee  also will review
significant questionable or illegal payments.

         9.  Oversight of  Independent  Accountants.  Evaluate  the  independent
accountants on an annual basis and where appropriate recommend a replacement for
the independent accountants.  In such evaluation, the Committee will ensure that
the independent  accountants deliver to the Committee a formal written statement
delineating  all  relationships  between the accountants  and  RateXchange.  The
Committee  also will engage in a dialogue with the  accountants  with respect to
any  disclosed  relationships  or services that may impact the  objectivity  and
independence of the  independent  accountants and in response to the independent
accountant's  report take, or recommend that the Board take,  appropriate action
to satisfy itself of the independent accountant's independence.

         10.  Adequacy  of  Personnel.   Review  periodically  the  adequacy  of
RateXchange's accounting and financial personnel resources.

         11. Risk  Management.  Review and evaluate risk management  policies in
light of RateXchange's  business  strategy,  capital strength,  and overall risk
tolerance.

         12. Tax Policies.  Review  periodically  RateXchange's tax policies and
any pending audits or assessments.

         13.  Offerings of  Securities.  Perform  appropriate  due  diligence on
behalf of the Board of  Directors  with  respect to  RateXchange's  offerings of
securities.

         14. Legal Compliance.  Review annually with RateXchange's legal counsel
any  legal  matters  that  could  have a  significant  impact  on  RateXchange's
financial  statements,   RateXchange's   compliance  with  applicable  laws  and
regulations, and inquiries received from regulators or government agencies.

         15.  Charter  Amendments.  Review  this  Charter  annually,  assess its
adequacy and propose appropriate amendments to the Board.

         The Committee's  function is one of oversight and review, and it is not
expected  to audit  RateXchange,  to define the scope of the  audit,  to control
RateXchange's  accounting  practices,  or to define the  standards to be used in
preparation of RateXchange's financial statements.

III.     COMPOSITION & INDEPENDENCE

         The Committee shall consist of not less than three independent members,
who shall be appointed by the Board of Directors.  Members of the Committee will
be independent  nonexecutive  directors,  free from any relationship  that would
interfere with the exercise of the member's independent judgment. All members of
the Audit  Committee will have a basic  understanding  of finance and accounting
and be able to read and  understand  fundamental  financial  statements,  and at
least  one  member of the  Audit  Committee  will  have  accounting  or  related
financial management expertise.

         In the  event  that a  Committee  member  faces a  potential  or actual
conflict  of  interest  with  respect  to a matter  before the  Committee,  that
Committee member shall be responsible for alerting the Committee  Chairman,  and
in the case where the Committee Chairman faces a potential or actual conflict of
interest,  the  Committee  Chairman  shall  advise the  Chairman of the Board of
Directors.  In the event that the  Committee  Chairman,  or the  Chairman of the
Board of  Directors,  concurs  that a potential  or actual  conflict of interest


                                       26
<PAGE>
exists,  an  independent  substitute  Director  will be appointed as a Committee
member until the matter, posing the potential or actual conflict of interest, is
resolved.

IV.      QUORUM AND MEETINGS

         A quorum of the  Committee  will be  declared  when a  majority  of the
appointed members of the Committee are in attendance. The Committee will meet at
least annually,  or more frequently as circumstances  dictate.  Meetings will be
scheduled at the  discretion  of the  Chairman.  Notice of the meetings  will be
provided  at  least  ten days in  advance.  The  Committee  may ask  members  of
management or others to attend the meeting and provide pertinent  information as
necessary.

V.       REPORTS

         The  Committee  will report to the Board from time to time with respect
to its activities and its recommendations. When presenting any recommendation or
advice to the Board,  the Committee will provide such  background and supporting
information as may be necessary for the Board to make an informed decision.  The
Committee will keep minutes of its meetings and will make such minutes available
to the full Board for its review.

         The  Committee  will  report to  shareholders  in the  Company's  proxy
statement  for its annual  meeting  whether  the  Committee  has  satisfied  its
responsibilities under this Charter.

VI.      OTHER AUTHORITY

         The Committee is authorized to confer with Company management and other
employees  to the extent it may deem  necessary  or  appropriate  to fulfill its
duties. The Committee is authorized to conduct or authorize  investigations into
any matters within the Committee's scope of responsibilities. The Committee also
is  authorized  to seek  outside  legal or other  advice to the  extent it deems
necessary  or  appropriate,  provided  it will keep the Board  advised as to the
nature and extent of such outside advice.

         The Committee  will perform such other  functions as are authorized for
this Committee by the Board of Directors.


                                       27
<PAGE>
                                                                         ANNEX B

                      2001 STOCK OPTION AND INCENTIVE PLAN

         RateXchange Corporation,  a Delaware corporation (the "Company"),  sets
forth herein the terms of its 2001 Stock Option and Incentive  Plan (the "Plan")
as follows:

1.       PURPOSE

         The Plan is intended to enhance the Company's and its subsidiaries' (as
defined  herein)  ability  to  attract  and retain  highly  qualified  officers,
directors,  key  employees,  and other  persons,  and to motivate such officers,
directors,  key  employees,  and  other  persons  to serve the  Company  and its
affiliates  and to expend  maximum  effort to improve the  business  results and
earnings of the Company, by providing to such officers,  key employees and other
persons an opportunity to acquire or increase a direct  proprietary  interest in
the operations and future success of the Company. To this end, the Plan provides
for the grant of stock options,  restricted  stock and restricted stock units in
accordance  with the terms hereof.  Stock options  granted under the Plan may be
non-qualified stock options or incentive stock options, as provided herein.

2.       DEFINITIONS

         For purposes of interpreting the Plan and related documents  (including
Award Agreements), the following definitions shall apply:

         2.1  "Affiliate"  of, or person  "affiliated"  with, a person means any
              company or other trade or business that controls, is controlled by
              or is under common  control with such person within the meaning of
              Rule 405 of  Regulation  C under the  Securities  Act,  including,
              without limitation, any Subsidiary.

         2.2  "Award  Agreement"  means the stock option  agreement,  restricted
              stock agreement,  restricted stock unit agreement or other written
              agreement  between the Company and a Grantee  that  evidences  and
              sets out the terms and conditions of a Grant.

         2.3  "Benefit  Arrangement" shall have the meaning set forth in Section
              14 hereof.

         2.4  "Board" means the Board of Directors of the Company.

         2.5  "Change of Control"  means (i) the  dissolution  or liquidation of
              the Company or a merger,  consolidation,  or reorganization of the
              Company  with one or more other  entities  in which the Company is
              not the surviving entity,  (ii) a sale of substantially all of the
              assets of the Company to another entity,  or (iii) any transaction
              (including  without limitation a merger or reorganization in which
              the Company is the  surviving  entity) which results in any person
              or entity (other than persons who are  stockholders  or affiliates
              of the Company at the time the Plan is  approved by the  Company's
              stockholders)  owning 80% or more of the combined  voting power of
              all classes of stock of the Company.

         2.6  "Code" means the Internal  Revenue Code of 1986,  as now in effect
              or as hereafter amended.

         2.7  "Committee" means a committee of, and designated from time to time
              by resolution of, the Board.

         2.8  "Company" means RateXchange Corporation.

         2.9  "Effective  Date"  means  April  30,  2001,  the date the Plan was
              approved by the Board.

         2.10 "Exchange Act" means the  Securities  Exchange Act of 1934, as now
              in effect or as hereafter amended.


                                       28
<PAGE>
         2.11 "Fair Market  Value"  means the closing  price of the Stock on the
              OTC  Bulletin  Board,  the American  Stock  Exchange or the Nasdaq
              Stock  Market on the Grant Date or such other  determination  date
              (or if there is no such reported  closing  price,  the Fair Market
              Value shall be the mean  between the highest bid and lowest  asked
              prices or  between  the high and low sale  prices on such  trading
              day) or, if no sale of Stock is reported  for such trading day, on
              the next preceding day on which any sale shall have been reported.

         2.12 "Family Member" means a person who is a spouse, child,  stepchild,
              grandchild,  parent,  stepparent,   grandparent,  sibling,  niece,
              nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law,
              brother-in-law,     or    sister-in-law,     including    adoptive
              relationships,  of the Grantee,  any person  sharing the Grantee's
              household  (other  than a tenant  or  employee),  a trust in which
              these  persons  have more than  fifty  percent  of the  beneficial
              interest,  a  foundation  in which these  persons (or the Grantee)
              control the  management  of assets,  and any other entity in which
              these  persons (or the Grantee) own more than fifty percent of the
              voting interests.

         2.13 "Grant"  means  an  award  of  an  Option,   Restricted  Stock  or
              Restricted Stock Unit under the Plan.

         2.14 "Grant  Date"  means,  as  determined  by the Board or  authorized
              Committee,  (i) the date as of which the  Board or such  Committee
              approves a Grant,  (ii) the date on which the recipient of a Grant
              first becomes  eligible to receive a Grant under Section 6 hereof,
              or (iii) such other date as may be  specified by the Board or such
              Committee.

         2.15 "Grantee"  means  a  person  who  receives  or  holds  an  Option,
              Restricted Stock or Restricted Stock Unit under the Plan.

         2.16 "Incentive  Stock Option" means an "incentive stock option" within
              the  meaning  of  Section  422 of the Code,  or the  corresponding
              provision of any subsequently enacted tax statute, as amended from
              time to time.

         2.17 "Option"  means an option to purchase  one or more shares of Stock
              pursuant to the Plan.

         2.18 "Option  Period"  means the period  during  which  Options  may be
              exercised as set forth in Section 10 hereof.

         2.19 "Option  Price" means the  purchase  price for each share of Stock
              subject to an Option.

         2.20 "Other  Agreement"  shall have the meaning set forth in Section 14
              hereof.

         2.21 "Plan" means this 2001 Stock Option and Incentive Plan.

         2.22 "Reporting  Person" means a person who is required to file reports
              under Section 16(a) of the Exchange Act.

         2.23 "Restricted Period" means the period during which Restricted Stock
              or  Restricted   Stock  Units  are  subject  to   restrictions  or
              conditions pursuant to Section 12.2 hereof.

         2.24 "Restricted  Stock"  means  shares of Stock,  awarded to a Grantee
              pursuant to Section 12 hereof,  that are  subject to  restrictions
              and to a risk of forfeiture.

         2.25 "Restricted Stock Unit" means a unit awarded to a Grantee pursuant
              to Section 12 hereof,  which  represents  a  conditional  right to
              receive a share of Stock in the  future,  and which is  subject to
              restrictions and to a risk of forfeiture.

         2.26 "Securities  Act"  means  the  Securities  Act of 1933,  as now in
              effect or as hereafter amended.


                                       29
<PAGE>
         2.27 "Stock" means the common stock of the Company.

         2.28 "Subsidiary"  means any  "subsidiary  corporation"  of the Company
              within the meaning of Section 424(f) of the Code.

3.       ADMINISTRATION OF THE PLAN

3.1      Board.

         The Board  shall  have  such  powers  and  authorities  related  to the
administration  of the Plan as are consistent with the Company's  certificate of
incorporation  and by-laws and  applicable  law. The Board shall have full power
and  authority  to take all actions and to make all  determinations  required or
provided for under the Plan,  any Grant or any Award  Agreement,  and shall have
full power and  authority to take all such other actions and make all such other
determinations  not  inconsistent  with the specific terms and provisions of the
Plan that the Board deems to be necessary or appropriate  to the  administration
of  the  Plan,  any  Grant  or  any  Award  Agreement.   All  such  actions  and
determinations  shall be by the affirmative vote of a majority of the members of
the Board present at a meeting or by unanimous  consent of the Board executed in
writing in  accordance  with the  Company's  certificate  of  incorporation  and
by-laws and applicable law. The  interpretation and construction by the Board of
any provision of the Plan, any Grant or any Award  Agreement  shall be final and
conclusive.

3.2      Committee.

         The Board from time to time may delegate to a Committee such powers and
authorities related to the administration and implementation of the Plan, as set
forth in  Section  3.1 above and in other  applicable  provisions,  as the Board
shall determine, consistent with the certificate of incorporation and by-laws of
the Company  and  applicable  law. In the event that the Plan,  any Grant or any
Award Agreement entered into hereunder provides for any action to be taken by or
determination  to be made by the  Board,  such  action  may be  taken by or such
determination  may be made by the  Committee if the power and authority to do so
has  been  delegated  to the  Committee  by the  Board as  provided  for in this
Section.  Unless otherwise expressly determined by the Board, any such action or
determination by the Committee shall be final, binding and conclusive.

3.3      Grants.

         Subject to the other terms and  conditions of the Plan, the Board shall
have full and final authority (i) to designate  Grantees,  (ii) to determine the
type or types of Grant to be made to a Grantee, (iii) to determine the number of
shares  of Stock to be  subject  to a Grant,  (iv) to  establish  the  terms and
conditions of each Grant  (including,  but not limited to, the exercise price of
any  Option,  the  nature and  duration  of any  restriction  or  condition  (or
provision for lapse thereof)  relating to the vesting,  exercise,  transfer,  or
forfeiture of a Grant or the shares of Stock subject  thereto,  and any terms or
conditions that may be necessary to qualify Options as Incentive Stock Options),
(v) to prescribe the form of each Award Agreement  evidencing a Grant,  and (vi)
to amend,  modify,  or  supplement  the  terms of any  outstanding  Grant.  Such
authority  specifically  includes  the  authority,  in order to  effectuate  the
purposes of the Plan but without amending the Plan, to modify Grants to eligible
individuals  who are  foreign  nationals  or are  individuals  who are  employed
outside the United States to recognize  differences in local law, tax policy, or
custom.  As a condition  to any Grant,  the Board  shall have the right,  at its
discretion,  to require  Grantees  to return to the  Company  Grants  previously
awarded under the Plan.  Subject to the terms and  conditions  of the Plan,  any
such  subsequent  Grant shall be upon such terms and conditions as are specified
by the Board at the time the new Grant is made. The Company may retain the right
in an Award Agreement to cause a forfeiture of the gain realized by a Grantee on
account of actions taken by the Grantee in violation or breach of or in conflict
with any non-competition  agreement,  any agreement prohibiting  solicitation of
employees  or  clients  of  the  Company  or  any   affiliate   thereof  or  any
confidentiality  obligation with respect to the Company or any affiliate thereof
or otherwise in competition  with the Company,  to the extent  specified in such
Award Agreement applicable to the Grantee.  Furthermore, the Company may annul a
Grant if the Grantee is an employee of the Company or an  affiliate  thereof and
is terminated  "for cause" as defined in the  applicable  Award  Agreement.  The
Board may permit or require the deferral of any award  payment,  subject to such
rules and procedures as it may establish,  which may include  provisions for the
payment or crediting of interest or dividend  equivalents,  including converting
such credits into deferred Stock equivalents.


                                       30
<PAGE>
3.4      No Liability.

         No  member  of the Board or of the  Committee  shall be liable  for any
action or determination made in good faith with respect to the Plan or any Grant
or Award Agreement.

4.       STOCK SUBJECT TO THE PLAN

         Subject to adjustment  as provided in Section 17 hereof,  the number of
shares of Stock  available  for  issuance  under the Plan shall be five  million
(5,000,000). Stock issued or to be issued under the Plan shall be authorized but
unissued  shares.  If any  shares  covered by a Grant are not  purchased  or are
forfeited,  or if a Grant  otherwise  terminates  without  delivery of any Stock
subject  thereto,  then the  number  of  shares  of Stock  counted  against  the
aggregate  number of shares  available under the Plan with respect to such Grant
shall, to the extent of any such  forfeiture or termination,  again be available
for making Grants under the Plan.

5.      EFFECTIVE DATE AND TERM OF THE PLAN

5.1     Effective Date.

        The  Plan  shall be  effective  as of the  Effective  Date,  subject  to
approval of the Plan within one year of the Effective Date, by the  stockholders
of the Company in accordance with Section 422(b) of the Code and the regulations
thereunder.  Upon approval of the Plan by the stockholders of the Company as set
forth above, all Grants made under the Plan on or after the Effective Date shall
be fully  effective as if the  stockholders of the Company had approved the Plan
on the Effective Date. If the  stockholders  fail to approve the Plan within one
year after the Effective  Date, any Grants made hereunder shall be null and void
and of no effect.

5.2     Term.

        The Plan shall terminate on the tenth anniversary of the Effective Date.

6.      OPTION GRANTS

6.1     Employees or Consultants.

        Grants (including Grants of Incentive Stock Options,  subject to Section
7.1) may be made under the Plan to any employee,  officer or director of, or any
consultant  or advisor  to, the  Company or any  Subsidiary,  as the Board shall
determine and designate from time to time.

6.2      Successive Grants.

        An  eligible  person may  receive  more than one Grant,  subject to such
restrictions as are provided herein.

7.       LIMITATIONS ON GRANTS

7.1      Limitations on Incentive Stock Options.

         An Option shall  constitute  an Incentive  Stock Option only (i) if the
Grantee of such Option is an employee  of the Company or any  Subsidiary  of the
Company;  (ii)  to  the  extent  specifically  provided  in  the  related  Award
Agreement;  and  (iii)  to the  extent  that the  aggregate  Fair  Market  Value
(determined  at the time the  Option is  granted)  of the  shares of Stock  with
respect  to which  all  Incentive  Stock  Options  held by such  Grantee  become
exercisable  for the first time during any calendar year (under the Plan and all
other  plans of the  Grantee's  employer  and its  affiliates)  does not  exceed
$100,000. This limitation shall be applied by taking Options into account in the
order in which they were granted.


                                       31
<PAGE>
         7.2  Limitation on Shares of Stock Subject to Grants.

         The maximum  number of shares of Stock  subject to Options  that can be
awarded under the Plan to any person eligible for a Grant under Section 6 hereof
is one million (1,000,000) per year.

8.       AWARD AGREEMENT

         Each  Grant  pursuant  to the  Plan  shall  be  evidenced  by an  Award
Agreement, in such form or forms as the Board shall from time to time determine.
Award Agreements  granted from time to time or at the same time need not contain
similar  provisions  but shall be  consistent  with the terms of the Plan.  Each
Award Agreement evidencing a Grant of Options shall specify whether such Options
are intended to be non-qualified  stock options or Incentive Stock Options,  and
in the absence of such specification such options shall be deemed  non-qualified
stock options.

9.       OPTION PRICE

         The Option  Price of each Option shall be fixed by the Board and stated
in the Award Agreement evidencing such Option. In the case of an Incentive Stock
Option the Option  Price shall be the Fair  Market  Value on the Grant Date of a
share of  Stock;  provided,  however,  that in the event  that a  Grantee  would
otherwise be  ineligible  to receive an Incentive  Stock Option by reason of the
provisions of Sections  422(b)(6) and 424(d) of the Code  (relating to ownership
of more than ten  percent of the  Company's  outstanding  shares of Stock),  the
Option  Price of an Option  granted to such  Grantee  that is  intended to be an
Incentive  Stock  Option  shall be not less than the greater of the par value or
110 percent of the Fair Market  Value of a share of Stock on the Grant Date.  In
no case  shall the  Option  Price of any  Option be less than the par value of a
share of Stock.

10.      VESTING, TERM AND EXERCISE OF OPTIONS

         10.1 Vesting and Option Period.

         Subject to Sections 10.2 and 17.3 hereof, each Option granted under the
Plan shall become  exercisable at such times and under such  conditions as shall
be  determined by the Board and stated in the Award  Agreement.  For purposes of
this Section  10.1,  fractional  numbers of shares of Stock subject to an Option
shall be rounded down to the next nearest whole number.  The period during which
any Option  shall be  exercisable  shall  constitute  the "Option  Period"  with
respect to such Option.

         10.2 Term.

         Each Option granted under the Plan shall  terminate,  and all rights to
purchase  shares of Stock  thereunder  shall cease,  upon the  expiration of ten
years from the date such Option is granted,  or under such  circumstances and on
such date  prior  thereto  as is set forth in the Plan or as may be fixed by the
Board and  stated in the Award  Agreement  relating  to such  Option;  provided,
however,  that in the event that the Grantee  would  otherwise be  ineligible to
receive  an  Incentive  Stock  Option by reason of the  provisions  of  Sections
422(b)(6) and 424(d) of the Code (relating to ownership of more than ten percent
of the outstanding  shares of Stock),  an Option granted to such Grantee that is
intended to be an  Incentive  Stock Option  shall not be  exercisable  after the
expiration of five years from its Grant Date.

         10.3 Acceleration.

         Any  limitation  on the  exercise of an Option  contained  in any Award
Agreement  may be  rescinded,  modified  or  waived  by the  Board,  in its sole
discretion,  at any time and from  time to time  after  the  Grant  Date of such
Option,  so as to  accelerate  the time at which the  Option  may be  exercised.
Notwithstanding  any other provision of the Plan, no Option shall be exercisable
in whole or in part prior to the date the Plan is approved  by the  stockholders
of the Company as provided in Section 5.1 hereof.

         10.4 Termination of Employment or Other Relationship.

         Unless  otherwise  provided  by the Board,  upon the  termination  of a
Grantee's  employment or other  relationship  with the Company or any Subsidiary
other than by reason of death or "permanent  and total  disability"  (within the


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<PAGE>
meaning of Section  22(e)(3) of the Code), any Option or portion thereof held by
such Grantee that has not vested in  accordance  with the  provisions of Section
10.1 hereof shall terminate immediately,  and any Option or portion thereof that
has vested in accordance  with the provisions of Section 10.1 hereof but has not
been  exercised  shall  terminate  at the  close  of  business  on the  90th day
following the Grantee's  termination of employment or other relationship (or, if
such 90th day is a Saturday,  Sunday or holiday, at the close of business on the
next preceding day that is not a Saturday,  Sunday or holiday). Upon termination
of an Option or portion  thereof,  the  Grantee  shall have no further  right to
purchase shares of Stock pursuant to such Option or portion  thereof.  Whether a
termination of employment or other relationship shall have occurred for purposes
of the Plan shall be determined by the Board, which determination shall be final
and conclusive.  For purposes of the Plan, a termination of employment,  service
or other relationship shall not be deemed to occur if the Grantee is immediately
thereafter a director of the Company or an affiliate.

10.5     Rights in the Event of Death.

        Unless otherwise provided by the Board, if a Grantee dies while employed
by or providing  services to the Company or Subsidiary,  all Options  granted to
such  Grantee  shall  fully  vest on the date of  death,  and the  executors  or
administrators  or legatees or distributees of such Grantee's  estate shall have
the right,  at any time within one year after the date of such  Grantee's  death
and prior to  termination  of the Option  pursuant  to Section  10.2  above,  to
exercise any Option held by such Grantee at the date of such Grantee's death.

10.6     Rights in the Event of Disability.

        Unless  otherwise  provided by the Board,  if a Grantee's  employment or
other relationship with the Company or Subsidiary is terminated by reason of the
"permanent and total disability"  (within the meaning of Section 22(e)(3) of the
Code) of such Grantee,  all Options  granted to such Grantee shall fully vest on
the date of  permanent  and total  disability,  and the  Grantee  shall have the
right,  at any time within one year after the date of such  Grantee's  permanent
and total  disability and prior to termination of the Option pursuant to Section
10.2 above,  to exercise any Option held by such Grantee.  Whether a termination
of employment  or service is to be considered by reason of "permanent  and total
disability"  for purposes of the Plan shall be  determined  by the Board,  which
determination shall be final and conclusive.

10.7     Limitations on Exercise of Option.

        Notwithstanding  any other  provision  of the Plan,  in no event may any
Option be exercised, in whole or in part, prior to the date the Plan is approved
by the  stockholders  of the  Company  as  provided  herein,  or after ten years
following the date upon which the Option is granted,  or after the occurrence of
an event  referred to in Section 17 hereof which results in  termination  of the
Option.

10.8     Method of Exercise.

         An  Option  that  is  exercisable  may be  exercised  by the  Grantee's
delivery to the Company of written  notice of exercise on any  business  day, at
the Company's  principal  office,  addressed to the attention of the Board. Such
notice  shall  specify  the number of shares of Stock with  respect to which the
Option is being  exercised  and shall be  accompanied  by payment in full of the
Option Price of the shares for which the Option is being exercised.  The minimum
number of shares of Stock with respect to which an Option may be  exercised,  in
whole or in part,  at any time  shall be the  lesser  of (i) 100  shares or such
lesser number set forth in the applicable  Award  Agreement and (ii) the maximum
number  of  shares  available  for  purchase  under  the  Option  at the time of
exercise.  Payment of the Option Price for the shares purchased  pursuant to the
exercise  of an  Option  shall  be  made  (i) in  cash  or in  cash  equivalents
acceptable  to the  Company;  (ii)  to the  extent  permitted  by law and at the
Board's discretion,  through the tender to the Company of shares of Stock, which
shares,  if  acquired  from the  Company,  shall have been held for at least six
months  at the time of  tender  and  which  shall be  valued,  for  purposes  of
determining the extent to which the Option Price has been paid thereby, at their
Fair Market Value on the date of exercise;  or (iii) to the extent  permitted by
law and at the Board's discretion,  by a combination of the methods described in
(i) and (ii). In addition and unless the Board  provides  otherwise in the Award
Agreement,  payment in full of the Option Price need not  accompany  the written
notice of  exercise  provided  that the  notice  of  exercise  directs  that the
certificate  or  certificates  for the  shares of Stock for which the  Option is
exercised  be delivered to a licensed  broker  acceptable  to the Company as the
agent for the individual exercising the Option and, at the time such certificate


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<PAGE>
or certificates  are delivered,  the broker tenders to the Company cash (or cash
equivalents  acceptable to the Company) equal to the Option Price for the shares
of Stock  purchased  pursuant to the  exercise of the Option plus the amount (if
any) of federal  and/or  other taxes which the Company may in its  judgment,  be
required to withhold  with respect to the exercise of the Option.  An attempt to
exercise  any Option  granted  hereunder  other than as set forth above shall be
invalid and of no force and effect.  Unless  otherwise  stated in the applicable
Award Agreement,  an individual  holding or exercising an Option shall have none
of the  rights of a  shareholder  (for  example,  the right to  receive  cash or
dividend  payments or distributions  attributable to the subject shares of Stock
or to direct  the  voting of the  subject  shares of Stock)  until the shares of
Stock covered  thereby are fully paid and issued to such  individual.  Except as
provided  in Section  17  hereof,  no  adjustment  shall be made for  dividends,
distributions  or other rights for which the record date is prior to the date of
such issuance.

         10.9 Delivery of Stock Certificates.

         Promptly  after the  exercise of an Option by a Grantee and the payment
in full of the Option Price, such Grantee shall be entitled to the issuance of a
stock  certificate or certificates  evidencing  such Grantee's  ownership of the
shares of Stock subject to the Option.

11.      TRANSFERABILITY OF OPTIONS

         11.1 Transferability of Options

         Except as provided in Section  11.2,  during the lifetime of a Grantee,
only the Grantee  (or, in the event of legal  incapacity  or  incompetence,  the
Grantee's guardian or legal  representative)  may exercise an Option.  Except as
provided in Section 11.2, no Option shall be assignable or  transferable  by the
Grantee to whom it is  granted,  other  than by will or the laws of descent  and
distribution.

         11.2 Transfers.

         If  authorized  in  the  applicable  Award  Agreement,  a  Grantee  may
transfer,  not for  value,  all or part of an Option  which is not an  Incentive
Stock Option to any Family Member.  For the purpose of this Section 11.2, a "not
for value"  transfer is a transfer which is (i) a gift,  (ii) a transfer under a
domestic  relations order in settlement of marital property  rights;  or (iii) a
transfer to an entity in which more than fifty  percent of the voting  interests
are owned by Family Members (or the Grantee) in exchange for an interest in that
entity.  Following a transfer  under this  Section  11.2,  any such Option shall
continue  to be  subject  to the same terms and  conditions  as were  applicable
immediately prior to transfer.  Subsequent  transfers of transferred Options are
prohibited  except to Family Members of the original  Grantee in accordance with
this Section 11.2 or by will or the laws of descent and distribution. The events
of termination of employment or other  relationship of Section 10.4 hereof shall
continue to be applied with respect to the original Grantee, following which the
Option shall be exercisable by the  transferee  only to the extent,  and for the
periods specified in Sections 10.4, 10.5, or 10.6.

12.      RESTRICTED STOCK AND RESTRICTED STOCK UNITS

         12.1 Grant of Restricted Stock or Restricted Stock Units.

         The Board may from time to time grant  Restricted  Stock or  Restricted
Stock  Units to persons  eligible  to  receive  Grants  under  Section 6 hereof,
subject  to such  restrictions,  conditions  and  other  terms as the  Board may
determine.


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<PAGE>
         12.2 Restrictions.

         At the time a Grant of Restricted  Stock or  Restricted  Stock Units is
made,  the Board  shall  establish  a period of time (the  "Restricted  Period")
applicable to such  Restricted  Stock or Restricted  Stock Units.  Each Grant of
Restricted  Stock or  Restricted  Stock  Units  may be  subject  to a  different
Restricted Period. The Board may, in its sole discretion, at the time a Grant of
Restricted  Stock or Restricted Stock Units is made,  prescribe  restrictions in
addition to or other than the expiration of the Restricted Period, including the
satisfaction  of corporate or individual  performance  objectives,  which may be
applicable to all or any portion of the  Restricted  Stock or  Restricted  Stock
Units. Such performance  objectives shall be established in writing by the Board
prior to the  ninetieth day of the year in which the Grant is made and while the
outcome is substantially  uncertain.  Performance objectives shall be based on a
number of factors  including,  but not limited to,  Stock price,  market  share,
sales, earnings per share, return on equity or costs. Performance objectives may
include  positive  results,  maintaining  the  status quo or  limiting  economic
losses. Subject to the fourth sentence of this Section 12.2, the Board also may,
in its sole discretion,  shorten or terminate the Restricted Period or waive any
other  restrictions  applicable to all or a portion of the  Restricted  Stock or
Restricted Stock Units.  Neither Restricted Stock nor Restricted Stock Units may
be sold, transferred,  assigned,  pledged or otherwise encumbered or disposed of
during  the  Restricted  Period  or  prior  to the  satisfaction  of  any  other
restrictions  prescribed by the Board with respect to such  Restricted  Stock or
Restricted Stock Units.

         12.3 Restricted Stock Certificates.

        The Company shall issue,  in the name of each Grantee to whom Restricted
Stock has been  granted,  stock  certificates  representing  the total number of
shares  of  Restricted  Stock  granted  to the  Grantee,  as soon as  reasonably
practicable  after the Grant Date.  The Board may provide in an Award  Agreement
that either (i) the  Secretary of the Company shall hold such  certificates  for
the Grantees'  benefit until such time as the  Restricted  Stock is forfeited to
the Company,  or the  restrictions  lapse,  or (ii) such  certificates  shall be
delivered to the Grantee, provided, however, that such certificates shall bear a
legend  or  legends  that  complies  with  the  applicable  securities  laws and
regulations and makes  appropriate  reference to the restrictions  imposed under
the Plan and the Award Agreement.

         12.4 Rights of Holders of Restricted Stock.

        Unless the Board otherwise  provides in an Award  Agreement,  holders of
Restricted  Stock  shall  have the  right to vote  such  Stock  and the right to
receive any dividends declared or paid with respect to such Stock. The Board may
provide that any dividends paid on Restricted Stock must be reinvested in shares
of Stock,  which may or may not be subject to the same  vesting  conditions  and
restrictions  applicable to such Restricted  Stock. All  distributions,  if any,
received by a Grantee with respect to Restricted  Stock as a result of any stock
split, stock dividend,  combination of shares or other similar transaction shall
be subject to the restrictions applicable to the original Grant.

         12.5 Rights of Holders of Restricted Stock Units.

        Unless the Board otherwise  provides in an Award  Agreement,  holders of
Restricted Stock Units shall have no rights as stockholders of the Company.  The
Board may provide in an Award Agreement  evidencing a Grant of Restricted  Stock
Units  that the holder of such  Restricted  Stock  Units  shall be  entitled  to
receive, upon the Company's payment of a cash dividend on its outstanding Stock,
a cash  payment  for each  Restricted  Stock  Unit held  equal to the  per-share
dividend paid on the Stock. Such Award Agreement may also provide that such cash
payment will be deemed  reinvested  in  additional  Restricted  Stock Units at a
price per unit  equal to the Fair  Market  Value of a share of Stock on the date
that such dividend is paid.

12.6     Termination of Employment or Other Relationship.

        Unless  otherwise  provided  by the  Board,  upon the  termination  of a
Grantee's  employment or other relationship with the Company or Subsidiary other
than by reason of death or "permanent and total disability"  (within the meaning
of Section  22(e)(3) of the Code),  any shares of Restricted Stock or Restricted
Stock Units held by such Grantee that have not vested,  or with respect to which
all applicable restrictions and conditions have not lapsed, shall immediately be
deemed forfeited. Upon forfeiture of Restricted Stock or Restricted Stock Units,
the Grantee shall have no further  rights with respect to such Grant,  including
but not  limited to any right to vote  Restricted  Stock or any right to receive


                                       35
<PAGE>
dividends with respect to shares of Restricted  Stock or Restricted Stock Units.
Whether a termination  of employment or other  relationship  shall have occurred
for purposes of the Plan shall be determined by the Board,  which  determination
shall be final and  conclusive.  For  purposes  of the Plan,  a  termination  of
employment,  service or other  relationship  shall not be deemed to occur if the
Grantee is immediately thereafter a director of the Company or an affiliate.

         12.7 Rights in the Event of Death.

        Unless otherwise provided by the Board, if a Grantee dies while employed
by the Company or  Subsidiary,  all Restricted  Stock or Restricted  Stock Units
granted to such Grantee shall fully vest on the date of death, and the shares of
Stock  represented  thereby shall be deliverable in accordance with the terms of
the Plan to the  executors,  administrators,  legatees  or  distributees  of the
Grantee's estate.

         12.8 Rights in the Event of Disability.

        Unless  otherwise  provided by the Board,  if a Grantee's  employment or
other relationship with the Company or Subsidiary is terminated by reason of the
"permanent and total disability"  (within the meaning of Section 22(e)(3) of the
Code) of such Grantee, such Grantee's Restricted Stock or Restricted Stock Units
shall continue to vest in accordance  with the applicable  Award Agreement for a
period of one year after such  termination of employment or service,  subject to
the earlier  forfeiture of such  Restricted  Stock or Restricted  Stock Units in
accordance  with  the  terms  of  the  applicable  Award  Agreement.  Whether  a
termination of employment or service is to be considered by reason of "permanent
and total disability" for purposes of the Plan shall be determined by the Board,
which determination shall be final and conclusive.

         12.9 Delivery of Stock and Payment Therefor.

         Upon the expiration or  termination  of the  Restricted  Period and the
satisfaction of any other  conditions  prescribed by the Board, the restrictions
applicable to shares of Restricted  Stock or Restricted Stock Units shall lapse,
and,  unless  otherwise  provided in the Award  Agreement,  upon  payment by the
Grantee to the Company, in cash or by check, of the greater of (i) the aggregate
par  value  of the  shares  of Stock  represented  by such  Restricted  Stock or
Restricted  Stock Units or (ii) the  purchase  price,  if any,  specified in the
Award agreement  relating to such Restricted  Stock or Restricted Stock Units, a
stock  certificate  for  such  shares  shall  be  delivered,  free  of all  such
restrictions, to the Grantee or the Grantee's beneficiary or estate, as the case
may be.

13.      CERTAIN PROVISIONS APPLICABLE TO AWARDS

         13.1 Stand-Alone, Additional, Tandem, and Substitute Grants

         Grants under the Plan may, in the  discretion of the Board,  be granted
either  alone or in addition to, in tandem with or in  substitution  or exchange
for, any other Grant or any award granted under another plan of the Company, any
affiliate or any business  entity to be acquired by the Company or an affiliate,
or any other  right of a Grantee  to  receive  payment  from the  Company or any
affiliate.  Such  additional,  tandem and  substitute or exchange  Grants may be
awarded at any time.  If a Grant is  awarded in  substitution  or  exchange  for
another  Grant,  the Board shall  require the  surrender  of such other Grant in
consideration for the new Grant. In addition, Grants may be made in lieu of cash
compensation, including in lieu of cash amounts payable under other plans of the
Company or any  affiliate,  in which the value of Stock  subject to the Grant is
equivalent in value to the cash compensation (for example, Restricted Stock), or
in which the exercise  price,  grant price or purchase price of the Grant in the
nature of a right that may be exercised is equal to the Fair Market Value of the
underlying  Stock  minus the  value of the cash  compensation  surrendered  (for
example,  Options  granted with an exercise price  "discounted" by the amount of
the cash compensation surrendered).

         13.2 Term of Grant.

         The term of each Grant shall be for such period as may be determined by
the  Board;  provided  that in no event  shall the term of any  Option  exceed a
period of ten years (or such  shorter  term as may be  required in respect of an
Incentive Stock Option under Section 422 of the Code).


                                       36
<PAGE>
         13.3 Form and Timing of Payment Under Grants; Deferrals.

         Subject to the terms of the Plan and any  applicable  Award  Agreement,
payments  to be made by the  Company or an  affiliate  upon the  exercise  of an
Option or other  Grant may be made in such forms as the Board  shall  determine,
including,  without limitation, cash, Stock, other Grants or other property, and
may be made in a single payment or transfer,  in installments,  or on a deferred
basis. The settlement of any Grant may be accelerated,  and cash paid in lieu of
Stock in connection with such settlement, in the discretion of the Board or upon
occurrence of one or more specified events. Installment or deferred payments may
be required by the Board or  permitted  at the  election of the Grantee on terms
and  conditions  established  by  the  Board.  Payments  may  include,   without
limitation,  provisions  for the payment or crediting  of a reasonable  interest
rate on installment  or deferred  payments or the grant or crediting of dividend
equivalents  or other  amounts in respect of  installment  or deferred  payments
denominated in Stock.

14.      PARACHUTE LIMITATIONS

         Notwithstanding  any  other  provision  of this  Plan  or of any  other
agreement,  contract, or understanding heretofore or hereafter entered into by a
Grantee with the Company or any  affiliate,  except an agreement,  contract,  or
understanding  hereafter  entered  into  that  expressly  modifies  or  excludes
application of this paragraph (an "Other  Agreement"),  and  notwithstanding any
formal  or  informal  plan or  other  arrangement  for the  direct  or  indirect
provision  of  compensation  to the  Grantee  (including  groups or  classes  of
participants or beneficiaries of which the Grantee is a member),  whether or not
such  compensation is deferred,  is in cash or is in the form of a benefit to or
for the Grantee (a  "Benefit  Arrangement"),  if the Grantee is a  "disqualified
individual," as defined in Section  280G(c) of the Code, any Option,  Restricted
Stock or Restricted Stock Unit held by that Grantee and any right to receive any
payment or other benefit under this Plan shall not become  exercisable or vested
(i) to the extent  that such right to  exercise,  vesting,  payment or  benefit,
taking  into  account  all other  rights,  payments,  or  benefits to or for the
Grantee  under this Plan,  all Other  Agreements  and all Benefit  Arrangements,
would  cause  any  payment  or  benefit  to the  Grantee  under  this Plan to be
considered a "parachute payment" within the meaning of Section 280G(b)(2) of the
Code as then in  effect  (a  "Parachute  Payment")  and (ii) if,  as a result of
receiving a Parachute Payment,  the aggregate  after-tax amounts received by the
Grantee from the Company under this Plan,  all Other  Agreements and all Benefit
Arrangements  would be less than the  maximum  after-tax  amount  that  could be
received  by the  Grantee  without  causing  any such  payment  or benefit to be
considered a Parachute Payment.  In the event that the receipt of any such right
to exercise,  vesting,  payment or benefit under this Plan, in conjunction  with
all other  rights,  payments or  benefits to or for the Grantee  under any Other
Agreement or any Benefit Arrangement would cause the Grantee to be considered to
have received a Parachute  Payment under this Plan that would have the effect of
decreasing the after-tax  amount  received by the Grantee as described in clause
(ii) of the preceding  sentence,  then the Grantee shall have the right,  in the
Grantee's sole discretion, to designate those rights, payments or benefits under
this Plan,  any Other  Agreements  and any Benefit  Arrangements  that should be
reduced  or  eliminated  so as to avoid  having  the  payment  or benefit to the
Grantee under this Plan be deemed to be a Parachute Payment.

15.      REQUIREMENTS OF LAW

         15.1 General.

         The Company  shall not be required to sell or issue any shares of Stock
under  any Grant if the sale or  issuance  of such  shares  would  constitute  a
violation by the Grantee, any other individual exercising a right emanating from
such Grant,  or the Company of any  provision  of any law or  regulation  of any
governmental  authority,  including  without  limitation  any  federal  or state
securities laws or regulations.  If at any time the Company shall determine,  in
its discretion,  that the listing,  registration or  qualification of any shares
subject  to a Grant  upon any  securities  exchange  or under  any  governmental
regulatory  body is necessary or desirable as a condition  of, or in  connection
with,  the issuance or purchase of shares  hereunder,  no shares of Stock may be
issued or sold to the  Grantee  or any  other  individual  exercising  an Option
pursuant to such Grant unless such listing, registration, qualification, consent
or approval  shall have been  effected or obtained  free of any  conditions  not
acceptable to the Company,  and any delay caused  thereby shall in no way affect
the date of  termination  of the Grant.  Specifically,  in  connection  with the
Securities  Act, upon the exercise of any right emanating from such Grant or the
delivery of any shares of Restricted Stock or Stock underlying  Restricted Stock
Units, unless a registration  statement under such Act is in effect with respect
to the shares of Stock covered by such Grant,  the Company shall not be required
to sell or issue such shares unless the Board has received evidence satisfactory
to it that the Grantee or any other individual  exercising an Option may acquire


                                       37
<PAGE>
such shares pursuant to an exemption from registration under the Securities Act.
Any  determination  in this connection by the Board shall be final,  binding and
conclusive. The Company may, but shall in no event be obligated to, register any
securities  covered hereby pursuant to the Securities Act. The Company shall not
be obligated to take any affirmative action in order to cause the exercise of an
Option or the  issuance  of shares of Stock  pursuant to the Plan to comply with
any law or regulation of any governmental authority. As to any jurisdiction that
expressly  imposes the requirement that an Option shall not be exercisable until
the shares of Stock  covered by such  Option are  registered  or are exempt from
registration, the exercise of such Option (under circumstances in which the laws
of such jurisdiction  apply) shall be deemed  conditioned upon the effectiveness
of such registration or the availability of such an exemption.

         15.2 Rule 16b-3.

        During  any  time  when  the  Company  has a class  of  equity  security
registered under Section 12 of the Exchange Act, it is the intent of the Company
that Grants pursuant to the Plan and the exercise of Options  granted  hereunder
will qualify for the exemption provided by Rule 16b-3 under the Exchange Act. To
the extent that any provision of the Plan or action by the Board does not comply
with the  requirements  of Rule  16b-3,  it shall be deemed  inoperative  to the
extent  permitted by law and deemed advisable by the Board, and shall not affect
the  validity of the Plan.  In the event that Rule 16b-3 is revised or replaced,
the  Board may  exercise  its  discretion  to  modify  this Plan in any  respect
necessary to satisfy the  requirements  of, or to take advantage of any features
of, the revised exemption or its replacement.

16.      AMENDMENT AND TERMINATION OF THE PLAN

         The Board  may,  at any time and from time to time,  amend,  suspend or
terminate  the Plan as to any shares of Stock as to which  Grants  have not been
made;  provided,  however,  that the Board  shall not,  without  approval of the
Company's  stockholders,  amend the Plan such that it does not  comply  with the
Code.  Except as  permitted  under this  Section  16 or  Section  17 hereof,  no
amendment,  suspension or termination of the Plan shall,  without the consent of
the Grantee,  alter or impair rights or obligations  under any Grant theretofore
awarded under the Plan.

17.      EFFECT OF CHANGES IN CAPITALIZATION

         17.1 Changes in Stock.

         If the number of outstanding  shares of Stock is increased or decreased
or the shares of Stock are changed into or exchanged  for a different  number or
kind  of  shares  or  other   securities  of  the  Company  on  account  of  any
recapitalization,  reclassification,  stock split, reverse split, combination of
shares,  exchange of shares,  stock  dividend or other  distribution  payable in
capital  stock,  or other increase or decrease in such shares  effected  without
receipt of consideration by the Company  occurring after the Effective Date, the
number and kinds of shares for which  Grants of  Options,  Restricted  Stock and
Restricted   Stock   Units  may  be  made  under  the  Plan  shall  be  adjusted
proportionately and accordingly by the Company. In addition, the number and kind
of shares for which Grants are outstanding shall be adjusted proportionately and
accordingly  so that  the  proportionate  interest  of the  Grantee  immediately
following  such  event  shall  be,  to  the  extent  practicable,  the  same  as
immediately before such event. Any such adjustment in outstanding  Options shall
not change the  aggregate  Option Price  payable with respect to shares that are
subject to the unexercised  portion of an Option outstanding but shall include a
corresponding  proportionate  adjustment  in the  Option  Price per  share.  The
conversion of any convertible  securities of the Company shall not be treated as
an increase in shares effected without receipt of consideration.

         17.2 Reorganization in Which the Company Is the Surviving Entity and in
              Which No Change of Control Occurs.

         Subject to Section 17.3 hereof,  if the Company  shall be the surviving
entity in any reorganization, merger or consolidation of the Company with one or
more  other  entities  and in which no  Change of  Control  occurs,  any  Option
theretofore  granted  pursuant  to the Plan  shall  pertain  to and apply to the
securities  to which a holder of the  number of shares of Stock  subject to such
Option  would have been  entitled  immediately  following  such  reorganization,
merger or consolidation,  with a corresponding  proportionate  adjustment of the
Option Price per share so that the aggregate  Option Price  thereafter  shall be
the same as the aggregate  Option Price of the shares  remaining  subject to the
Option  immediately  prior  to such  reorganization,  merger  or  consolidation.
Subject to any  contrary  language in an Award  Agreement  evidencing a Grant of


                                       38
<PAGE>
Restricted  Stock,  any  restrictions  applicable to such Restricted Stock shall
apply as well to any  replacement  shares received by the Grantee as a result of
the reorganization, merger or consolidation.

         17.3 Reorganization,  Sale of Assets or Sale of Stock Which  Involves a
              Change of Control.

         Subject  to the  exceptions  set  forth  in the last  sentence  of this
Section 17.3,  (i) upon the occurrence of a Change of Control,  all  outstanding
shares of Restricted  Stock and  Restricted  Stock Units shall be deemed to have
vested,  and all  restrictions  and  conditions  applicable  to such  shares  of
Restricted  Stock and  Restricted  Stock Units  shall be deemed to have  lapsed,
immediately prior to the occurrence of such Change of Control,  and (ii) fifteen
days prior to the  scheduled  consummation  of a Change of Control,  all Options
outstanding  hereunder  shall become  immediately  exercisable  and shall remain
exercisable  for a period of fifteen days. Any exercise of an Option during such
fifteen-day  period shall be conditioned  upon the consummation of the event and
shall be effective only immediately  before the consummation of the event.  Upon
consummation  of any  Change  of  Control,  the  Plan  and all  outstanding  but
unexercised  Options shall terminate.  The Board shall send written notice of an
event that will result in such a termination to all individuals who hold Options
not  later  than the time at which  the  Company  gives  notice  thereof  to its
stockholders.  This Section 17.3 shall not apply to any Change of Control to the
extent that (A) provision is made in writing in  connection  with such Change of
Control for the assumption of the Options, Restricted Stock and Restricted Stock
Units theretofore granted, or for the substitution for such Options,  Restricted
Stock and Restricted Stock Units of new options, restricted stock and restricted
stock units covering the stock of a successor  entity, or a parent or subsidiary
thereof,  with  appropriate  adjustments as to the number and kinds of shares or
units and exercise prices, in which event the Plan and Options, Restricted Stock
and Restricted Stock Units theretofore  granted shall continue in the manner and
under the terms so provided or (B) a majority of the full Board  determines that
such Change of Control shall not trigger  application  of the provisions of this
Section 17.3.

         17.4 Adjustments.

         Adjustments  under  this  Section  17  related  to  shares  of Stock or
securities of the Company  shall be made by the Board,  whose  determination  in
that respect shall be final,  binding and  conclusive.  No fractional  shares or
other  securities  shall be  issued  pursuant  to any such  adjustment,  and any
fractions resulting from any such adjustment shall be eliminated in each case by
rounding downward to the nearest whole share.

         17.5 No Limitations on Company.

         The making of Grants  pursuant to the Plan shall not affect or limit in
any  way  the   right   or   power   of  the   Company   to  make   adjustments,
reclassifications,  reorganizations  or  changes  of  its  capital  or  business
structure  or to  merge,  consolidate,  dissolve  or  liquidate,  or to  sell or
transfer all or any part of its business or assets.

18.      DISCLAIMER OF RIGHTS

         No  provision in the Plan or in any Grant or Award  Agreement  shall be
construed  to confer  upon any  individual  the right to remain in the employ or
service of the Company or any  affiliate,  or to  interfere  in any way with any
contractual  or other right or  authority  of the Company  either to increase or
decrease the compensation or other payments to any individual at any time, or to
terminate any  employment or other  relationship  between any individual and the
Company.  In  addition,  notwithstanding  anything  contained in the Plan to the
contrary,  unless otherwise  stated in the applicable Award Agreement,  no Grant
awarded  under the Plan shall be affected by any change of duties or position of
the  Grantee,  so long as such  Grantee  continues  to be a  director,  officer,
consultant or employee of the Company or any  affiliate.  The  obligation of the
Company to pay any  benefits  pursuant  to this Plan shall be  interpreted  as a
contractual obligation to pay only those amounts described herein, in the manner
and  under  the  conditions  prescribed  herein.  The  Plan  shall  in no way be
interpreted  to require  the  Company to  transfer  any amounts to a third party
trustee or  otherwise  hold any  amounts  in trust or escrow for  payment to any
participant  or  beneficiary  under the terms of the Plan. No Grantee shall have
any of the rights of a  shareholder  with respect to the shares of Stock subject
to an Option  except to the extent  the  certificates  for such  shares of Stock
shall have been issued upon the exercise of the Option.


                                       39
<PAGE>
19.      NONEXCLUSIVITY OF THE PLAN

Neither the  adoption  of  the  Plan  nor  the  submission  of the  Plan  to the
      stockholders  of the Company for  approval  shall be construed as creating
      any  limitations  upon the right and  authority of the Board to adopt such
      other  incentive  compensation  arrangements  (which  arrangements  may be
      applicable  either  generally  to a class or  classes  of  individuals  or
      specifically to a particular individual or particular  individuals) as the
      Board  in  its  discretion   determines  desirable,   including,   without
      limitation, the granting of stock options otherwise than under the Plan.

20.      WITHHOLDING TAXES

         The Company or any affiliate,  as the case may be, shall have the right
to deduct from  payments  of any kind  otherwise  due to a Grantee any  Federal,
state or local taxes of any kind  required by law to be withheld with respect to
the vesting of or other lapse of restrictions  applicable to Restricted Stock or
Restricted  Stock  Units or upon the  issuance  of any  shares of Stock upon the
exercise  of an Option.  At the time of such  vesting,  lapse or  exercise,  the
Grantee  shall pay to the Company or  affiliate,  as the case may be, any amount
that the Company or  affiliate  may  reasonably  determine  to be  necessary  to
satisfy  such  withholding  obligation.  Subject  to the prior  approval  of the
Company or the affiliate, which may be withheld by the Company or the affiliate,
as the case may be, in its sole  discretion,  the  Grantee  may elect to satisfy
such  obligations,  in whole or in  part,  (i) by  causing  the  Company  or the
affiliate to withhold  shares of Stock  otherwise  issuable to the Grantee in an
amount equal to the  statutory  withholding  amount or (ii) by delivering to the
Company or the  affiliate  shares of Stock  already  owned by the  Grantee.  The
shares of Stock so  delivered or withheld  shall have an  aggregate  Fair Market
Value equal to such withholding obligations. The Fair Market Value of the shares
of Stock used to satisfy such withholding  obligation shall be determined by the
Company or the affiliate as of the date that the amount of tax to be withheld is
to be determined. A Grantee who has made an election pursuant to this Section 20
may satisfy his or her withholding obligation only with shares of Stock that are
not subject to any repurchase,  forfeiture, unfulfilled vesting or other similar
requirements.

21.      CAPTIONS

        The use of  captions  in this  Plan or any  Award  Agreement  is for the
convenience  of reference only and shall not affect the meaning of any provision
of the Plan or such Award Agreement.

22.      OTHER PROVISIONS

        Each Grant  awarded  under the Plan may  contain  such  other  terms and
conditions not inconsistent  with the Plan as may be determined by the Board, in
its sole discretion.

23.      NUMBER AND GENDER

        With respect to words used in this Plan, the singular form shall include
the plural form, the masculine gender shall include the feminine  gender,  etc.,
as the context requires.

24.      SEVERABILITY

        If any provision of the Plan or any Award  Agreement shall be determined
to be  illegal or  unenforceable  by any court of law in any  jurisdiction,  the
remaining  provisions  hereof and thereof shall be severable and  enforceable in
accordance with their terms, and all provisions shall remain  enforceable in any
other jurisdiction.

25.      POOLING

In    the event any provision of the Plan or the Award  Agreement  would prevent
      the use of pooling of  interests  accounting  in a  corporate  transaction
      involving the Company and such  transaction is contingent  upon pooling of
      interests  accounting,  then that  provision  shall be deemed  amended  or
      revoked to the extent required to preserve such pooling of interests.  The
      Company may require in an Award  Agreement  that a Grantee who  receives a
      Grant under the Plan shall, upon advice from the Company, take (or refrain
      from taking,  as appropriate) all actions necessary or desirable to ensure
      that pooling of interests accounting is available.


                                       40
<PAGE>
26.      GOVERNING LAW

         The  validity  and  construction  of  this  Plan  and  the  instruments
evidencing  the Grants  awarded  hereunder  shall be governed by the laws of the
State of Delaware (excluding the choice of law rules thereof).

                                      * * *


                                       41
<PAGE>
                                      PROXY

                             RATEXCHANGE CORPORATION
             ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 31, 2001

           THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

     The undersigned  hereby appoints D. Jonathan  Merriman and Donald H. Sledge
and each of them,  as  proxies,  with full  power of  substitution,  and  hereby
authorizes them to represent and vote, as designated on the reverse,  all shares
of  common  stock  and  shares  of  series  A  convertible  preferred  stock  of
RateXchange  Corporation,  a  Delaware  corporation,   held  of  record  by  the
undersigned, on April 25, 2001, at the 2001 annual meeting of stockholders to be
held on Thursday,  May 31, 2001, at 10:00 a.m.,  pacific  standard  time, at The
Park Hyatt Hotel, 333 Battery Street, San Francisco, California 94111, or at any
adjournment or postponement  thereof, upon the matters set forth on the reverse,
all in accordance with and as more fully described in the accompanying Notice of
Annual Meeting of Stockholders and Proxy  Statement,  receipt of which is hereby
acknowledged.

         THIS  PROXY,  WHEN  PROPERLY  EXECUTED,  WILL BE  VOTED  IN THE  MANNER
DIRECTED  HEREIN BY THE UNDERSIGNED  STOCKHOLDER.  IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED "FOR" THE ELECTION OF THE BOARD OF DIRECTORS' SEVEN NOMINEES
NAMED ON THE REVERSE AND "FOR" THE PROPOSAL TO APPROVE THE 2001 STOCK OPTION AND
INCENTIVE  PLAN AND IN THE  MANNER  RECOMMENDED  BY A  MAJORITY  OF THE BOARD OF
DIRECTORS AS TO OTHER MATTERS.  PLEASE COMPLETE,  SIGN AND DATE THIS PROXY WHERE
INDICATED AND RETURN PROMPTLY IN THE ACCOMPANYING PREPAID ENVELOPE.

                         (To be Signed on Reverse Side.)

SIDE 2

1.              To elect seven directors.

                 FOR all nominees listed         WITHHOLD AUTHORITY
                 (except as marked to the        to vote for all nominees listed
                 contrary below)
                 [ ]                             [ ]

                           Nominees:  D. Jonathan Merriman
                                       Patrick Arbor
                                       Dean Barr
                                       E. Russell Braziel
                                       Donald H. Sledge
                                       Ronald Spears
                                       Steven W. Town

(INSTRUCTION:  To withhold authority to vote for any individual  nominee,  write
that nominee's name on the space provided below.)

--------------------------------------------------------------------------------

2.       To approve the 2001 Stock Option and Incentive Plan.

                [ ]      For     [ ]      Against        [ ]      Abstain

3.     In their  discretion,  the proxies are authorized to vote upon such other
       business  as  may  properly  come  before  the  annual   meeting  or  any
       adjournment or postponement thereof.

<PAGE>
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD IN THE ENCLOSED ENVELOPE.

Signature                Date           Signature               Date
          -------------       --------            ------------       -----------

Note:  Please sign above exactly as the shares are issued.  When shares are held
       by  joint  tenants,  both  should  sign.  When  signing  as an  attorney,
       executor,  administrator,  trustee or guardian, please give full title as
       such. If a  corporation,  please sign in full corporate name by president
       or other authorized officer. If a partnership, please sign in partnership
       name by authorized person.