SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________
FORM 10-K/A
(AMENDMENT NO. 1)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ to ________
Commission file number (0-25852)
Commission file number____________
FASTNET CORPORATION
-------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2767197
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Two Courtney Place, Suite 130, 3864 Courtney Street,
Bethlehem, Pennsylvania 18017
---------------------------------------------------- --------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 266-6700
Securities registered pursuant to Section 12(b)of the Act:
Title of each class Name of each exchange on which registered
------------------------------ ------------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
--------------------------
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [X].
The aggregate market value of the common equity securities held by
non-affiliates of the Registrant as of June 28, 2002, was $15.8 million, based
on the closing price of the Common Stock on that day, being the last business
day of the registrant's most recently completed second fiscal quarter, as
reported on the NASDAQ National Market. For purposes of making this calculation
only, the Registrant has defined "affiliates" as including all directors and
executive officers. The number of shares of Registrant's Common Stock
outstanding as of April 4, 2003 was 25,572,323.
DOCUMENTS INCORPORATED BY REFERENCE
None.
PRELIMINARY NOTE
This Form 10-K/A is being filed to report Part III information in lieu of the
incorporation of such information by reference to the defininative proxy
material of FASTNET Corporation (the "Company") for its 2003 Annual Meeting of
Shareholders.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position(s)
---- --- -----------
R. Barry Borden(1) 63 President and Chairman of the Board
Stephen A. Hurly(2) 34 Chief Executive Officer and Director
Ward G. Schultz 45 Chief Financial Officer and Secretary
John G. Englesson 50 Executive Vice President of Marketing and Sales
Phillip L. Weller 41 Chief Technology Officer
Sonny C. Hunt 42 Director and Senior Vice President
Douglas L. Michels 49 Director
Avraham Freedman 33 Director
Brian Tierney 45 Director
Bruce H. Luehrs 49 Director
Britton H. Murdoch 45 Director
----------------
(1) Mr. Borden was appointed President and Chairman of the Board in February
2003.
(2) Mr. Hurly served as President during the fiscal year 2002 and through
February 2003.
There are no family relationships among any of our directors and
executive officers.
R. BARRY BORDEN, 63, was appointed President and Chairman of the Board
in February 2003. Mr. Borden has also served as a member of the Board since
January 2000. He is also President of LMA Group, a management consulting firm he
founded in 1984. From August 1997 until January 2001, he served as President of
Broadbeam Corporation of Princeton, New Jersey, a supplier of software for
wireless data communications. Mr. Borden also serves on the board of directors
of AM Communications, a provider of technology for managing and monitoring of
broadband systems. Mr. Borden has served in senior management positions of Delta
Data Systems, Franklin Computer Corporation, Cricket Software and Mergent
International. Mr. Borden holds a B.S. in Electrical Engineering from the
University of Pennsylvania.
STEPHEN A. HURLY, 34, has served as a member of the Board since January
2001 and as the Chief Executive Officer of the Company since December 2000. Mr.
Hurly previously served as the Company's President from December 2000 until
February 2003. Prior to joining the Company, Mr. Hurly spent two and a half
years as a Vice-President in the Global Technology practice with Chase H&Q, a
division of Chase Securities, Inc., in San Francisco. With Chase H&Q, Mr. Hurly
specialized in mergers and acquisitions, as well as private and public
financings of technology companies. From January 1998 to August 1998, Mr. Hurly
worked at Wasserstein Perella, a Global Mergers and Acquisitions Investment Bank
in New York City. From August 1997 to January 1998, Mr. Hurly worked at UBS
Securities in New York City as a member of its Global Corporate Finance Group.
Mr. Hurly holds a B.S. degree in Engineering from Swarthmore College and MBA
from the University of Chicago.
WARD G. SCHULTZ, 45, has served as the Company's Chief Financial
Officer and Secretary since May 2002. From July 1998 to May 2002 Mr. Schultz
served as Chief Financial Officer, Chief Operating Officer and a director of
Asia Access Telecom, Inc., an international long distance telecommunications
provider with operations in the United States, South Korea and Singapore. From
September 1997 to March 1998 Mr. Schultz, served as Chief Financial Officer of
Silverline Technologies, Inc. an information technology consulting firm
providing services to the telecom and financial services industry and from
January 1994 to February 1997 Mr. Schultz served as Chief Financial Officer and
Secretary of Capsule Communications Inc., a facilities based long distance
telecommunications provider. From 1989 to 1994, Mr. Schultz served as Chief
Financial Officer of Global Environmental Corp, a manufacturing, engineering and
constructor of industrial process systems. From 1983 to 1989, Mr. Schultz was a
Tax Manager in the Philadelphia office of Deloitte & Touche. Mr. Schultz
continues to serve on the board of Asia Access Telecom, Inc. Mr. Schultz is a
Certified Public Accountant, holds a B.S. in Business Administration from Drexel
University and a Masters in Taxation from Villanova University.
JOHN G. ENGLESSON, 50, has served as the Company's executive vice
president of marketing and sales since November 2002. From November 2001 to
November 2002 Mr. Englesson served as executive vice president of business
development, sales, marketing and planning at Saucon Technologies, Inc., a New
Jersey and Lehigh Valley technology and e-business firm. Mr. Englesson continues
to serve on its board of directors. Prior to joining Saucon Technologies, Mr.
Englesson was Vice President of Marketing for Wyomissing-based NEXTLINK
Pennsylvania, where he was responsible for marketing, product line management,
product development, market demographics and research. Mr. Englesson began his
career in the telecommunications industry with Chadwick Telecommunications
Corporation and Chadwick Telephone. From 1984 to 1999, Englesson served as
Executive Vice President, COO of the two companies, which marketed business and
institutional phone systems and long distance services to companies. While
there, Englesson helped to grow Chadwick into a regional power, with a long
distance services network that stretched from Northern Virginia to New York. Mr.
Englesson attended Lehigh University in Bethlehem, where he earned a degree in
chemistry from the school's highly regarded College of Engineering and then an
M.B.A. two years later.
PHILLIP L. WELLER, 41, has served as chief technology officer of the
Company since November 1999. Mr. Weller previously served as executive vice
president of engineering of the Company from November 1996 until November 1999.
From June 1991 until November 1996, Mr. Weller was a project manager and senior
developer with AT&T Microelectronics/Lucent Technologies, where he participated
in the development of new and modern message handling systems. From June 1980
until June 1991, Mr. Weller was a circuit designer with AT&T Bell Laboratories,
a developer of voice, data and video telecommunications, in its Very Large Scale
Integration division. Mr. Weller holds an A.A.S. in electronics technology from
Lehigh County Community College, a B.S. in computer science from Moravian
College and a M.S. in engineering science from Pennsylvania State University.
SONNY C. HUNT, 42, has served as a member of the Board since May 1994
and as President of the Company from May 1994 through mid-December 2000. Mr.
Hunt's current position with the Company is Senior Vice President, with respect
to which his responsibilities have included management of key accounts and
business development. Mr. Hunt co-founded the Company together with Mr. David K.
Van Allen in May 1994. Mr. Hunt attended George Mason University and has
completed advanced courses in computer programming.
DOUGLAS L. MICHELS, 49, has served as a member of the Board since
October 1998. Since May 2001, Mr. Michels has been the CEO, President and member
of the board of directors of Tarantella Inc. (NASDAQ:TTLA), a provider of
web-enabling software technologies and Internet-related products. Prior to
Tarantella, Mr. Michels had been CEO of SCO Inc., the predecessor of Tarantella,
which he co-founded in 1979, and a member of SCO's board of directors. During
his tenure at SCO, Mr. Michels also held the positions of Executive Vice
President, responsible for marketing and development, and Chief Technology
Officer. Mr. Michels graduated with honors from the University of California at
Santa Cruz, with a B.S. in Computer and Information Science.
AVRAHAM FREEDMAN, 33, has served as a member of the Board since April
2002, and as the Company's chief network architect from April 2002 through
January 2003. Mr. Freedman founded Netaxs, Inc., Philadelphia's first Internet
Service Provider (ISP), in 1992 and served as its Chief Technology Officer until
April 2002, when Netaxs was acquired by the Company. Mr. Freedman also
contributes articles to Boardwatch, a technology and business publication for
ISPs, and is working on a book on Internet routing. Mr. Freedman also currently
serves as a consultant, and previously served as a vice president until December
2002, for Akamai Technologies, Inc., a provider of secure, outsourced e-business
infrastructure services and software, where he oversees the growth and
management of Akamai's globally distributed network through his leadership of
the Network Infrastructure and Architecture group, which establishes
relationships with networks and ISPs worldwide and manages capacity planning,
architecture, and internal training on networking issues. Mr. Freedman also
served as vice president of engineering at AboveNet in 1998 and 1999, where he
led the architecture, implementation, and operation of AboveNet's ISXs and the
AboveNet global IP network. Mr. Freedman studied computer science at Temple
University.
BRIAN TIERNEY, 45, has served as a member of the Board since August
2002 and is a member of the Compensation Committee. Mr. Tierney is the founder
and chairman of Tierney Communications, a division of the Interpublic Group. In
1989 Mr. Tierney founded Tierney Communications and built it into one of the
Mid- Atlantic's largest Advertising/PR agencies with annual billings of over
$270 million. In 1998, Mr. Tierney sold the company to True North
Communications, a predecessor of Interpublic. Prior to 1989, Mr. Tierney served
in the Reagan Administration and had a series of positions with the Republican
National Committee in Washington, D.C. Mr. Tierney currently serves on the board
of directors of more than a dozen organizations, including the Regional
Performing Arts Center (The Kimmel Center); Thomas Jefferson University; Greater
Philadelphia Chamber of Commerce (Executive Committee); Police Athletic League;
World Affairs Council; the Boy Scouts of America; and the University Museum of
the University of Pennsylvania. In 2000, Mr. Tierney was appointed Chairman of
the Republican National Committee's Catholic Task Force by the Bush 2000
Campaign. In March 2000, he was inducted into the Philadelphia Public Relations
Society Hall of Fame. He received the Cradle of Liberty Good Scout Award in
2001, and in 1998 he received the Community Service Award of the Big
Brothers/Big Sisters Association of Philadelphia. Recently, PA Politics.com
ranked Mr. Tierney number fourteen in its "Fifty Most Powerful Pennsylvanians"
survey. In 1998, Mr. Tierney was made a Knight of St. Gregory the Great by his
Holiness Pope John Paul II. Mr. Tierney received a Juris Doctorate from Widener
School of Law, a B.A. from the University of Pennsylvania and in 2003,
Entrepreneur in Residence from the Wharton School/University of Pennsylvania.
BRUCE H. LUEHRS, 49, has served as a member of the Board since
September 2001 and is a member of the Compensation Committee and is current
Chairman and member of the Audit Committee. Mr. Luehrs has been a General
Partner at Edison Venture Fund since 1997. Mr. Luehrs is a director of
Fiberlink, a provider of customized managed secure remote access solutions,
InnaPhase, an enterprise solutions software technology company in the early drug
development field, Incurrent Solutions, a provider of web and wireless customer
self-service solutions for the payment card industry, Gain Capital, provides
internet-based foreign exchange trading platform; CorrectNet, an enterprise
software solutions provider, V-Span, a video-oriented collaboration and
conferencing services provider; Derivatives Portfolio Management, a provider of
back office services for securities firms; Octagon, a provider of regulatory
information management services for pharma industry; and Cadient, a provider of
professional services for pharma marketing. In 1996 and 1997, Mr. Luehrs
established Penn Valley Capital, a merchant bank focused on the
telecommunications industry. During 1995 and 1996, Mr. Luehrs was vice president
with Columbia Capital, a merchant bank specializing in telecommunications.
During 1992 to 1996, Mr. Luehrs was a founder and chief financial officer of
Seaview Thermal Systems, a technology company in the business of treating
hazardous waste. From 1990 to 1992, Mr. Luehrs served as vice president at PNC
Equity Management where he directed a specialization in financing wireless
telecommunications. From 1984 to 1990, Mr. Luehrs developed a lending and
investment practice for Fidelity Bank to serve emerging growth companies in the
Delaware Valley. Mr. Luehrs established a specialized lending unit to provide
senior debt in conjunction with subordinated debt and institutional equity
services. In 1988, Mr. Luehrs secured a SBIC license for Fidelity Bank and
served as the first President of the SBIC unit. Mr. Luehrs was commissioned as
an officer in the United States Air Force in 1975. He was Chairman of the
Greater Philadelphia Venture Group. Mr. Luehrs received a MBA from Northwestern
University following graduation from Duke University with a B.A. in Economics,
SUMMA CUM LAUDE.
BRITTON H. MURDOCH, 45, has served as a member of the Board since
September 2001. Mr. Murdoch is Managing Director of Strattech Partners, LLC, a
business consulting and venture capital firm, which he founded in 2000. From
1997 to 1998, Mr. Murdoch was Chief Financial Officer for Internet Capital Group
(NASDAQ: ICGE), a Internet company actively engaged in business-to-business
e-commerce through a network of partner companies. Mr. Murdoch was Chief
Financial Officer for Airgas, Inc. (NYSE: ARG) from May 1990 to September 1996,
and served as Vice President, Corporate Development of Airgas, from September
1996 to May 1997. Mr. Murdoch currently serves on the board of directors of
Equity Bank, and Fiberlink, Inc.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires our directors and executive officers, and persons who own more than ten
percent of the Company's Common Stock, to file reports of ownership of our
securities and changes in ownership with the Securities and Exchange Commission.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and representations of these persons that no
other reports were required, during the year ended December 31, 2002, all of the
Company's directors, executive officers and greater than 10% shareholders
complied with all Section 16(a) filing requirements with the exception of the
following: (a) Mr. Schultz, who inadvertently failed to file a timely Form 3,
has since filed a late Form 3; (b) Mr. Borden, who inadvertently failed to file
on one occasion a Form 4 during the fiscal year 2001, has since filed a late
Form 5 in April 2002; (c) Messrs. Hurly, Michels, McClane and Murdoch have filed
late Form 4s. In making these statements, the Company has relied solely on its
review of copies of reports filed under Section 16(a) furnished to the Company
and on written representations of its directors and executive officers. Based
on shareholder public filings with the SEC, the Company does not believe any
other shareholders are subject to Section 16(a) filing requirements.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth for the years ended December 31, 2002,
2001 and 2000 the compensation we paid to our Chief Executive Officer, the next
four most highly paid executive officers, and one additional individual for whom
disclosure would have been provided but for the fact that such individual did
not serve as an executive officer as of December 31, 2002, and each of whose
total annual salary and bonus exceeded $100,000 for the year ended December 31,
2002. These officers are referred to herein as the Named Executive Officers.
Annual compensation listed in the following table excludes other
compensation in the form of perquisites and other personal benefits that
constitutes the lesser of $50,000 or 10% of the total annual salary and bonus of
each of the Named Executive Officers during the fiscal years ended December 31,
2002, 2001 and 2000. The options listed in the following table were granted
under the Company's Amended and Restated Equity Compensation Plan.
ANNUAL COMPENSATION LONG TERM
COMPENSATION
----------------------------------------------------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)(3)
--------------------------------------- --------- ---------- ---------- ---------------- ------------------- -----------------
Stephen A. Hurly(1) 2002 131,250 ----- ----- 125,000 -----
CHIEF EXECUTIVE OFFICER 2001 140,385 50,000 ----- 6,000 63,632
2000 5,769(2) ----- ----- ----- ------
Phillip L. Weller 2002 110,673 15,734 ----- ---- -----
CHIEF TECHNOLOGY OFFICER 2001 119,231 12,500 ----- 200,000 -----
2000 125,000 100,000 ----- ---- -----
Michael McClane(4) 2002 110,001 ----- 100,000(5) -----
VICE PRESIDENT OF FINANCE 2001 97,039 70,500 ----- ----- 15,000
2000 91,135 60,000 ----- 210,000 -----
Ward G. Schultz(6) 2002 73,077 33,333 ----- 275,000 -----
CHIEF FINANCIAL OFFICER
____________________________
(1) Mr. Hurly also served as President during fiscal year 2002 and through
February 2003.
(2) This amount represents Mr. Hurly's salary paid for the time he served as
the Company's Chief Executive Officer for the latter half of December 2000.
(3) The amount listed as all other compensation for: (a) Mr. Hurly represents
moving expenses; (b) Mr. McClane represents forgiveness of loans made by
the Company to him.
(4) Mr. McClane terminated employment with the Company February 13, 2003.
(5) This amount represents an amount paid in connection with a Separation and
Transition Agreement, pursuant to which Mr. McClane was transitioned from
an executive officer to a part-time employee of the Company as of December
14, 2003 and through February 13, 2003 (the "Transition Period"), on which
date his employment with the Company was terminated. This amount was paid
in February 2003 with respect to services performed during the Transition
Period, and was paid in lieu of any and all salary, bonus and severance or
other compensation that may have accrued through December 13, 2002 during
Mr. McClane's full-time employment status.
(6) Mr. Schultz was appointed as the Company's Chief Financial Officer
effective as of May 20, 2003, and was not an employee of the Company prior
to such date.
OPTION GRANTS IN FISCAL YEAR 2002
The following table sets forth information regarding options granted in
the 2002 fiscal year to the Named Executive Officers named in the Summary
Compensation Table above. Messrs. McClane and Weller were not granted any
options during the 2002 fiscal year. Amounts represent the hypothetical gains
that could be achieved from the respective options if exercised at the end of
the option term. These gains are based on assumed rates of stock appreciation of
5% and 10% compounded annually from the date the respective options were granted
to their expiration date based upon the exercise price. No stock appreciation
rights were granted to the Named Executive Officers during the fiscal year.
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED ANNUAL
SECURITIES PERCENT RATES OF STOCK PRICE
NAME UNDERLYING OF TOTAL APPRECIATION FOR OPTION
OPTIONS OPTIONS EXERCISE EXPIRATION TERM
GRANTED(1) GRANTED PRICE ($/SH) DATE
5% ($) 10% ($)
------------------------- ---------------- --------------- -------------- -------------- ------------- ------------------
Stephen A. Hurly 125,000 6.5% 1.00 7/18/12 78,612 169,743
Ward G. Schultz 275,000 14.2% 1.50 5/20/12 259,419 657,415
John G. Englesson 300,000 15.5% 0.34 11/09/12 64,147 162,562
(1) The vesting schedule with respect to the options presented for each of the
Named Executive Officers is as follows: (a) Mr. Hurly's options vests in equal
annual installments of 31,250 shares for a four year period; (b) Mr. Schultz's
options vest in equal semi-annual installments of 34,375 shares over a four year
period; and (c) Mr. Englesson's options vest in equal annual installments of
75,000 shares over a four year period.
AGGREGATED OPTION EXERCISES IN THE FISCAL YEAR 2002 AND OPTION VALUES AS OF
DECEMBER 31, 2002
The following table summarizes option exercises during the fiscal year
2002 and the value of vested and unvested options at December 31, 2002 held by
the Named Executive Officers in the Summary Compensation Table above. The table
also sets forth the value realized upon the exercise of stock options during the
period which is calculated based on the fair market value of our Common Stock on
the date of exercise, as determined by the closing price of our Common Stock as
traded on the Nasdaq National Market less the exercise price paid for the
shares. The value of the unexercised in-the-money options would represent the
positive spread between the exercise price of the options and the fair market
value of the Company's Common Stock as of December 31, 2002, which was $0.28 per
share. However, since the exercise prices with respect to each of the options
presented in the table were above the fair market value of the Company's Common
Stock as of December 31, 2002, or $0.28 per share, none of these options was
considered to be in-the-money as of such date. As a result, no values are
presented in the column entitled "Value of unexercised in-the-money options at
fiscal year end ($)" below. No stock appreciation rights were outstanding as of
December 31, 2002.
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR AT FISCAL YEAR END ($)
END (#)
---------------------------------------------------------------------------------------------------------
SHARES VALUE
ACQUIRED REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE
----------------------------------------------------------------------------------------------------------------------------------
Stephen A. Hurly - - 6,000/125,000 --
Phillip L. Weller - - 150,000/150,000 --
Michael McClane - - 120,000/0 --
Ward G. Schultz - - 68,750/206,250 --
COMPENSATION OF DIRECTORS
The Company reimburses each member of the Board of Directors for
out-of-pocket expenses incurred in connection with attending Board meetings. On
July 31, 2002, the Board approved cash compensation and stock option grants to
independent Board members for serving on the Board and Committees of the Board.
Each independent director is paid $1,250 per quarter, and each such director who
serves as a member of the Company's Audit or Compensation Committees are paid as
follows: Chairman of the Audit Committee -$1,250 per quarter; member of Audit
Committee - $625; Chairman of the Compensation Committee and member of
Compensation Committee - $625. In addition, independent directors are paid for
each meeting of the Board and committee of the Board attended as follows:
Chairman of Audit Committee - $1,000 per meeting; member of Audit Committee -
$500 per meeting; Chairman and member of Compensation Committee - $500 per
meeting. For their initial election to the Board, each new independent Board
member is granted an option to purchase 25,000 of the Company's Common Stock.
These options vest at a rate of 50% immediately and 25% each year over the
following two years from the date of grant, and have an exercise price based on
the closing price of the Company's Common Stock as listed on the Nasdaq Stock
Market on the date of grant. In addition, each independent Board member is
granted an annual stock option of 10,000 shares of the Company's Common Stock,
which vests at a rate of 50% immediately and 25% each year over the next two
years from the date of the grant, and has an exercise price based on the closing
price for the Company's Common Stock as listed on the Nasdaq Stock Market on the
date of grant. On August 1, 2002, the Company granted options to purchase 10,000
shares of Common Stock to each of Messrs. Borden, Michels, Tierney, and Alan S.
Kessman. Mr. Kessman resigned as a director in December 2002. These options vest
at a rate of 50% immediately and 25% each year over the next two years from the
date of grant, have an exercise price of $0.97 per share and expire on August 1,
2012. In addition, on August 1, 2002, the Company granted options to purchase
25,000 shares of Common Stock to Mr. Tierney as part of his initial election to
the Board. These options vest at a rate of 50% immediately and 25% each year
over the next two years from the date of grant, have an exercise price of $0.97
per share and expire on August 1, 2012.
In May 2002, the Company entered into a management consulting agreement
with Strattech Partners, LLC, a management consulting firm controlled by Mr.
Murdoch, a member of the Company's Board of Directors. The agreement provides
for various business financial planning, and acquisition consulting services to
be provided as requested by the Company on a monthly basis, and contains a
minimum fee due under the contract of $2,500 per month and the grant of stock
options based on services rendered. The Company granted to this firm 63,160
stock options during 2002, and paid $99,746 for serviced rendered during the
fiscal year ended December 31, 2002.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
EMPLOYMENT AGREEMENTS. Mr. Hurly and the Company entered into an
Employment Agreement, dated December 18, 2000, pursuant to which Mr. Hurly would
serve as the Company's Chief Executive Officer and President. Under the terms of
the agreement, Mr. Hurly is to be nominated to serve on the Company's Board of
Directors and the Company has agreed to pay Mr. Hurly an annual base salary of
$150,000 and pursuant to which Mr. Hurly is eligible for an annual incentive
bonus of at least $50,000, as determined by the Company's Compensation Committee
and based on the Board's assessment of Mr. Hurly's performance for the
applicable fiscal year. Mr. Hurly also received a $50,000 payment in
consideration of relocation costs for him and his family. In addition, under the
terms of the agreement, Mr. Hurly is entitled to 4 weeks vacation on the terms
generally applicable to senior executives of the Company, and is eligible to
participate in or receive benefits under any of the Company's pension plans,
profit sharing plans, 401(k) plans, non-qualified deferred compensation plan,
supplemental executive retirement plans, medical and dental benefits plans, life
insurance plans, short-term and long-term disability plans, incentive
compensation plans, or any other fringe benefit plans generally made available
to the Company's senior executives. Under the terms of this agreement, the
Company also sold to Mr. Hurly 1,000,000 shares of Common Stock at a price of
$0.4375 per share (the closing price for the Company's Common Stock as listed on
the Nasdaq Stock Market on December 18, 2000). In order to effect the sale of
these shares, the Company also loaned Mr. Hurly a principal amount of $437,500
with interest at a rate of 6% per year, as payment for the shares. Mr. Hurly
also executed and issued to the Company a Promissory Note and Restricted Stock
Agreement, each dated December 18, 2000, representing Mr. Hurly's obligation to
repay the $437,500. The entire principal amount with interest is due and payable
by December 1, 2005, subject to certain mandatory repayment events, including
the receipt of any net cash proceeds by Mr. Hurly in connection with his
ownership of the shares of Common Stock or a transaction to sell the shares of
Common Stock, or Mr. Hurly's termination under the Employment Agreement for any
reason. According to the terms of the Promissory Note and Restricted Stock
Agreement, upon the termination of Mr. Hurly for any reason, Mr. Hurly must
offer to sell to the Company, and the Company must purchase from Mr. Hurly, any
of the "unvested" shares of the Common Stock held by Mr. Hurly at a purchase
price equal to the amount paid by Mr. Hurly for such shares. The vesting of Mr.
Hurly's restricted shares occurs as follows: 25% of the shares vested
immediately as of Mr. Hurly's first day of employment, and the remainder vest in
equal monthly installments as of the last day of each calendar month over a
36-month period commencing on the first day of Mr. Hurly's employment. The
vesting of these shares may also be accelerated upon termination of Mr. Hurly's
employment without cause and in the event of a change of control as defined
under the agreement. Under the terms of this agreement, Mr. Hurly's employment
is at will, and is subject to termination by the Company or Mr. Hurly at any
time. The Company terminated Mr. Hurly from the position of President in
February 2003.
In connection with the recent appointment of Mr. Borden as the
Company's President, the Company intends to enter into an employment agreement
with Mr. Borden. The Company is currently in the process of negotiating an
employment agreement with Mr. Borden and anticipates that a final agreement
will be finalized during the second quarter 2003.
AGREEMENTS RELATING TO TERMINATION OF EMPLOYMENT. On June 12, 2002, the
Company entered into a Separation Agreement and Mutual General Release with
Stanley F. Bielicki in connection with the termination of Mr. Bielicki's
Employment, the Company's former Chief Financial Officer, effective as of May
31, 2002. Under the terms of this agreement, Mr. Bielicki agreed to exercise and
sell, no later than August 28, 2002, 50,000 of his vested options at $1.13 per
share and to use the proceeds to repay the loan of $15,000 made to Mr. Bielicki
by the Company (and any interest due). As the share price which Mr. Bielicki can
obtain for the exercise of the options and the sale of the shares is less than
$1.13 per share, under the terms of the Separation Agreement, Mr. Bielicki's
obligation to exercise the options and sell the shares is null and void, and as
a result of this, the Company has proposed an amendment of the Separation
Agreement, pursuant to which the Company would agree to pay Mr. Bielicki up to a
maximum amount of $21,000 in consulting fees during the fiscal year 2003 (the
"Consulting Fees"); provided, however, that the payment of the Consulting Fees
will be offset against the principal amount and any interest due under the
outstanding $15,000 loan. The Company anticipates that the amendment to the
Separation Agreement will be executed by the end of the second quarter 2003. In
addition, under the terms of the agreement, the Company agreed to (i) pay Mr.
Bielicki, commencing on June 1, 2002, salary continuation payments through
December 31, 2002 at a salary rate of $140,000 per year, payable in accordance
with the Company's normal payroll practices, less applicable federal, state and
local taxes; (ii) permit Mr. Bielicki continued participation in certain
benefits and retirement plans of the Company for a limited period of time after
his effective termination date, (iii) extend the option exercise date of Mr.
Bielicki's vested stock options as follows: (a) until the expiration date (March
9, 2009) of the term of options to purchase 100,000 shares of Common Stock
issued at 41.50 per share, and (b) until October 25, 2010 for options to
purchase 30,000 shares of Common Stock issued at $1.13 per share; and (iv) pay
reasonable attorney's fees, costs and expenses incurred by Mr. Bielicki in
connection with his employment termination. In addition, both the Company and
Mr. Bielicki agreed under the terms of the agreement to release the other party
of any and all claims, actions or causes of action arising out of Mr. Bielicki's
employment with and/or termination of employment.
On December 13, 2002, the Company entered into a Separation and
Transition Agreement with Michael J. McClane in connection with the termination
of Mr. McClane as an employee of the Company. Under the terms of the agreement,
the parties agreed that (i) Mr. McClane would serve as a full-time employee
through December 13, 2002 and continue to receive compensation at the annual
rate of $100,000 through such date, and (ii) from December 14, 2002 through
February 13, 2003 (the "Transition Period"), Mr. McClane would serve as a
part-time employee and be responsible for various duties relating to his prior
work for the Company and, in consideration thereof, would receive compensation
at the annual rate of $50,000 during the Transition Period. The termination of
Mr. McClane's employment with the Company became effective as of February 13,
2003. Under the terms of the agreement, the Company agreed to (i) pay Mr.
McClane, upon completion of the services which he agreed to render through
February 13, 2002, an amount of $100,000, minus all standard payroll deductions,
on the first payroll date after February 13, 2003, (ii) compensate Mr. McClane
for a portion of his legal advisory fees incurred in connection with review of
the agreement, and (iii) permit Mr. McClane to continue to participate in
certain benefits and retirement plans of the Company through the Transition
Period . In addition, the Company agreed to continue certain vested stock
options held by Mr. McClane to purchase a total of 120,000 shares of Common
Stock, granted on October 25, 2000 at an exercise price of $1.13 per shares, to
continue through February 13, 2003, except upon satisfactory completion of his
services during the Transition Period, the provisions of the options which
provide for automatic termination 90 days after the employee's termination shall
be deleted. The agreement also provided that, in connection with a $100,000
demand note, dated June 19, 2002, issued by Mr. McClane to the Company, the
parties agreed that the note would be repaid as follows: (i) on the first
payroll date following February 13, 2003, Mr. McClane would pay the Company an
amount equal to the Payment, and (ii) all remaining amounts due under the note
would be payable by February 13, 2004. In addition, both the Company and Mr.
McClane agreed under the terms of the agreement to release the other party of
any and all claims, actions or causes of action arising out of Mr. McClane's
employment with and/or termination of employment.
In accordance with the terms of the Company's offer letter to Ward G.
Schultz, the Company's Chief Financial Officer, the Company has agreed to pay
Mr. Schultz the equivalent of twelve months of his then current base salary,
plus bonuses received in the prior calendar year, in the event that Mr. Schultz
is terminated without cause, as defined in the offer letter.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee of the Board of
Directors are Messrs. Tierney, Michels, Murdoch and Luehrs. Mr. Luehrs served as
Chairman of the Compensation Committee from June 2002 through February 2003, at
which time Mr. Murdoch was appointed as Chairman. During the fiscal year 2002,
Alan S. Kessman and R. Barry Borden were also members of the Compensation
Committee, and each of these individuals ceased to be a member of the
Compensation Committee as of December 2002 and February 2003, respectively. None
of the members of the Compensation Committee was at any time during the fiscal
year ended December 31, 2002 an officer or employee of the Company, with the
exception of Mr. Murdoch, who was employed by the Company throughout the 2002
fiscal year, but is no longer an employee of the Company. No executive officer
serves as a member of the board of directors or compensation committee of any
entity that has one or more executive officers serving on our Board of Directors
or our Compensation Committee.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth information regarding the beneficial
ownership of the Company's Common Stock as of April 28, 2003 by the following
individuals or groups:
o each person or entity who is known by the Company to own
beneficially more than 5% of the Company's outstanding Common
Stock or the Company's Series A Convertible Preferred Stock;
o each of the Named Executive Officers appearing in the Summary
Compensation table above;
o each of our directors; and
o all directors and executive officers as a group.
Each shareholder's percentage ownership in the following table is based on
25,572,323 shares of Common Stock outstanding, and 3,406,293 shares of the
Company's Series A Convertible Preferred Stock outstanding, as of April 28,
2003. Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and means voting or investment power with
respect to securities. Shares of Common Stock issuable upon the exercise of
stock options or warrants, or upon conversion of convertible securities within
60 days of April 28, 2003 are deemed outstanding and to be beneficially owned by
the person holding such option for purposes of computing such person's
percentage ownership but are not deemed outstanding for the purpose of computing
the percentage ownership of any other person. Unless otherwise indicated, the
principal address of each of the shareholders below is c/o FASTNET Corporation,
Two Courtney Place, Suite 130, 3864 Courtney Street, Bethlehem, PA 18017. Except
as otherwise indicated, and subject to applicable community property laws,
except to the extent authority is shared by both spouses under applicable law,
the Company believes the persons named in the table have sole voting and
investment power with respect to all shares of common and preferred stock held
by them.
COMMON STOCK SERIES A CONVERTIBLE
PREFERRED STOCK
---------------------------------------------------------------------------
NAME SHARES(1) PERCENT SHARES PERCENT
---------------------------------------------------------------------------------------------------------------------
5% SHAREHOLDERS
H&Q You Tools Investment
Holding, L.P...................... 4,106,063(2) 15.4% --- ---
One Bush Street
San Francisco, California 94104
David K. Van Allen.................... 2,825,000(3) 11.0% --- ---
Edison Venture Fund IV, L.P(4)........ 4,034,066(5) 13.9% 2,747,253(6) 80.7%
1009 Lenox Drive, Suite # 4
Lawrenceville, New Jersey 08648
Strattech Partners I, L.P............. 686,814(7) 2.6% 549,451(8) 16.1%
3 Radnor Corporate Center, Suite 304
100 Matsonford Road
Radnor, Pennsylvania 19087
EXECUTIVE OFFICERS
AND DIRECTORS
Stephen A. Hurly.................. 1,140,000 4.5%
Brian Tierney..................... 27,500 *
John G. Englesson................. 11,000(9) *
Sonny C. Hunt..................... 2,131,000(10) 8.3% --- ---
Avraham Freedman.................. 1,313,842 5.1% --- ---
Phillip L. Weller................. 336,500 1.3% --- ---
Douglas L. Michels................ 208,168 * --- ---
R. Barry Borden................... 76,000 * --- ---
Ward G. Schultz................... 68,750 * --- ---
Bruce H. Luehrs .................. 4,034,066(11) 13.9% --- ---
Britton Murdoch .................. 995,147(12) 3.8% --- ---
Michael J. McClane(13)............ 210,800 * --- ---
All directors and executive
officers as a group (11 persons) . 10,341,973 34.0% --- ---
____________________________
* Indicated less than one percent (1%).
(1) Includes the following shares of Common Stock that directors, executive
officers and 5% shareholders have the right to acquire within 60 days of
April 28, 2003, through the exercise of vested options or warrants: (a) H&Q
You Tools Investment - 1,030,000 (warrants); (b) Edison Venture Fund IV, LP
- 686,813 (warrants) (See also footnote 4 below); (c) Strattech Partners I,
LP - 137,363 (warrants); (d) Mr. Hurly - 6,000 (options); (e) Mr. Tierney -
17,500 (options); (f) Mr. Hunt - 6,000 (options); (g) Mr. Weller - 150,000
(options); (h) Mr. Michels - 158,168 (options); (i) Mr. Borden - 66,000
(options); (j) Mr. Schultz - 68,750 (options); (k) Mr. Luehrs - 686,813
(warrants); (l) Mr. Murdoch - 258,333 (options) and 137,363 (warrants); (m)
Mr. McClane - 113,750 (options); and (n) all directors and executive
officers as a group - 730,751 (options) and 824,176 (warrants).
(2) The information provided for this shareholder is based on a Schedule 13G
filed with the Securities and Exchange Commission on February 11, 2002,
which was filed jointly by the following entities, indicating shared voting
power of the shares presented in the table: H&Q You Tools Investment
Holding, L.P.; Hambrecht & Quist Employee Venture Fund, L.P. II; and H&Q
Venture Management, L.L.C. Of the shares presented, 3,076,063 outstanding
shares of Common Stock, and 1,030,000 shares of Common Stock underlying
warrants, are owned directly by H&Q Tools Investment Holding, L..P.; 21,365
shares of Common Stock are owned directly by Hambrecht & Quist Employee
Venture Fund, L.P. II; and 21,365 shares of Common Stock are owned directly
by Hambrecht & Quist California. In addition, because H&Q California is an
indirect wholly-owned subsidiary of J.P. Morgan Chase & Co., Inc., J.P.
Morgan Chase & Co., Inc. may be deemed to be beneficially own any
securities held by H&Q California. Each of these entities filing as a group
expressly disclaims beneficial ownership of any shares of the Common Stock.
(3) The information presented for Mr. Van Allen is based on a Schedule 13G
filed with the Securities and Exchange Commission on February 14, 2001.
(4) A Schedule 13D has been filed jointly with the Securities and Exchange
Commission on February 14, 2003 by the following persons and entities,
indicating shared voting power of the shares presented in the table: Edison
Venture Fund IV, L.P., a Delaware limited partnership, by virtue of its
deemed beneficial ownership of 4,034,066 shares of Common Stock.; Edison
Partners IV, L.P. ("Edison Partners IV"), a Delaware limited partnership,
by virtue of it being the general partner of Edison Venture IV; John H.
Martinson, by virtue of his being a general partner of Edison Partners IV;
Gary P. Golding, by virtue of his being a general partner of Edison
Partners IV; Bruce H. Luehrs, by virtue of his being a general partner of
Edison Partners IV; Ross T. Martinson, by virtue of his being a general
partner of Edison Partners IV; and Joseph A. Allegra, by virtue of his
being a general partner of Edison Partners IV (collectively, the "Reporting
Persons"). Each of the Reporting Persons expressly disclaims beneficial
ownership of any shares of the Common Stock, the Series A Convertible
Preferred Shares or the shares of Common Stock exercisable pursuant to
outstanding warrants, except to the extent of his or its pecuniary interest
therein and, in the case of Edison Venture IV for the Common Stock and the
Series A Convertible Preferred Stock that it holds of record and the shares
of Common Stock underlying the warrants issued in its name.
(5) Includes 2,747,253 shares of the Company's Series A Convertible Preferred
Stock, which is convertible at any time by the holder into an equal number
of shares of Common Stock, and warrants to purchase 686,813 shares of
Common Stock, exercisable at any time by the holder.
(6) These shares of Series A Convertible Preferred Stock are convertible at any
time by the holder into an equal number of shares of Common Stock.
(7) Includes 549,541, shares of the Company's Series A Convertible Preferred
Stock, which is convertible at any time by the holder into an equal number
of shares of Common Stock, and warrants to purchase 137,363 shares of
Common Stock, exercisable at any time by the holder.
(8) These shares of Series A Convertible Preferred Stock are convertible at any
time by the holder into an equal number of shares of Common Stock.
(9) Includes 10,000 shares held jointly with Mr. Englesson's spouse, and 1,000
shares held by a minor child of Mr. Englesson.
(10) Includes 200,000 shares of Common Stock held jointly with Mr. Hunt's
spouse.
(11) Includes the 4,034,066 shares of Common Stock (2,747,253 shares of which
constitute Series A Convertible Preferred Stock which may be converted into
an equal number of shares of Common Stock and warrants to purchase 686,813
shares of Common Stock) relating to which Mr. Luehrs has jointly filed a
Schedule 13D with the Securities and Exchange Commission with the other
Reporting Persons listed in footnote 4 above, indicating shared voting
power of such shares. Mr. Luehrs may be deemed to beneficially own these
4,034,066 shares of Common Stock by virtue of his being a general partner
of Edison Partners IV; provided, however, Mr. Luehrs expressly disclaims
beneficial ownership of these shares.
(12) Includes 686,814 shares of Common Stock, 549,541 shares of which constitute
Series A Convertible Preferred Stock which may be converted into an equal
number of shares of Common Stock and warrants to purchase 137,363 shares of
Common Stock. Mr. Murdoch may be deemed to beneficially own these shares by
virtue of his being the managing director of the general partner of
Strattech Partners I, L.P.; provided, however, Mr. Murdoch expressly
disclaims beneficial ownership of these shares.
(13) Mr. McClane ceased to be an executive officer of the Company as of December
13, 2002 and ceased to be an employee of the Company as of February 13,
2003.
EQUITY COMPENSATION PLAN INFORMATION
The following table gives information about the shares of Common Stock that
may be issued upon the exercise of options, warrants and rights under all of our
existing equity compensation plans as of December 31, 2002, which includes the
Company's Amended and Restated Equity Compensation Plan and 2001 Employee Stock
Purchase Plan.
(c)
(a) (b) NUMBER OF SECURITIES
NUMBER OF SECURITIES TO WEIGHTED AVERAGE EXERCISE REMAINING AVAILABLE FOR
BE ISSUED UPON EXERCISE PRICE OF OUTSTANDING FUTURE ISSUANCE (EXCLUDES
OF OUTSTANDING OPTIONS, OPTIONS, WARRANTS AND SECURITIES REFLECTED IN
PLAN CATEGORY WARRANTS AND RIGHTS RIGHTS COLUMN)(a)(1)
------------------------------------- -------------------------- --------------------------- -----------------------------
EQUITY COMPENSATION PLANS APPROVED
BY SHAREHOLDERS:
Amended and Restated Equity
Compensation Plan.............. 3,730,906 options(2) $1.37$ 269,094
2001 Employee Stock
Purchase Plan................. 0 N/A 397,065
EQUITY COMPENSATION PLANS NOT
APPROVED BY SHAREHOLDERS(2) -- $-- --
Total 3,730,906(3) $1.37(3) 666,159
(1) The Amended and Restated Equity Compensation Plan permits the Compensation
Committee to award restricted stock to participants. Up to 269,094 of the
securities remaining available for issuance under the equity compensation
plans approved by shareholders may be issued as restricted stock awards
under the Plan. The terms of the 2001 Employee Stock Purchase Plan do not
provide for the issuance of restricted stock.
(2) The Company did not have any equity compensation plans not approved by
shareholders as of December 31, 2002.
(3) The Company is unable to calculate the number of securities issuable upon
exercise of rights to participate in the 2001 Employee Stock Purchase Plan.
In addition, the issuance of Common Stock under the 2001 Employee Stock
Purchase Plan is not made on the basis of an exercise price for the right
to purchase shares under the plan. As a result, such calculations cannot be
made in the table and are not included in the totals for columns a and b.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On April 4, 2002, the Company acquired Netaxs, Inc., pursuant to the
terms of an Agreement and Plan of Reorganization, dated as of April 4, 2002 (the
"Merger Agreement"), by and among the Company, FASTNET Merger Corp., a
wholly-owned subsidiary of the Company formed for the sole purpose of effecting
the acquisition, Netaxs and certain shareholders of Netaxs. As one of the
principal shareholders of Netaxs, Mr. Freedman, a member of the Board, received
1,313,842 shares of Common Stock and a promissory note in the amount of
$1,105,938. The principal due under the Note accrues interest at a rate of 7.09%
and is payable monthly through October 2005. The Company has paid Mr. Freedman
an aggregate of $33,786 under the terms of the Note during the fiscal year 2002.
Pursuant to the terms of the Merger Agreement, the Company was required to
appoint Mr. Freedman as a member of the Board.
On September 5, 2001, the Company entered into a Series A Convertible
Preferred Stock Purchase Agreement with Edison Venture Fund IV, L.P., and
Strattech Partners I, L.P., in connection with the Company's sale of its Series
A Convertible Preferred Stock (the "Financing"). Pursuant to the Financing, the
Company sold an aggregate of 3,296,704 shares of Series A Convertible Preferred
Stock to Edison and Strattech at a purchase price of $0.91 per share and issued
warrants to Edison and Strattech to purchase up to an aggregate of 824,176
shares of Common Stock with an exercise price of $1.27 per share. In addition,
under the terms of the Series A Convertible Preferred Stock, the holders of the
Series A Convertible Preferred Stock are entitled to elect two members of the
Board, voting as a separate class. Mr. Luehrs, a director, is the general
partner of Edison and Mr. Murdoch, a director, is the managing director of the
general partner of Strattech.
In May 2002, the Company entered into a management consulting agreement
with Strattech Partners, LLC, a management consulting firm controlled by Mr.
Murdoch a member of the Company's Board of Directors. The agreement provides for
various business financial planning, and acquisition consulting services to be
provided as requested by the Company on a monthly basis. The agreement contains
a minimum fee due under the contract of $2,500 per month and the grant of stock
options based on services rendered. The Company granted to this firm 63,160
stock options during 2002, and paid this firm $99,746 for the year ended
December 31, 2002.
On December 18, 2000, the Company entered into an Employment Agreement
with Mr. Hurly. For a description of the terms of Mr. Hurly's Employment
Agreement, please refer to Item 11, "Executive Compensation - Employment
Contracts, Termination of Employment and Change in Control Arrangements" above.
In August 2001, the Company advanced $202,000 in loans to a group of
executives of the Company. Each of the executives signed a promissory note
bearing interest at 3.75% per year. In June 2002, these notes were amended to
become payable within 90 days from the date of demand, provided that such notice
of demand is not delivered prior to November 1, 2003. Interest on the notes is
payable pro-rata along with repayment of the principal. These notes also may be
prepaid by the holder prior to the demand date though monthly payments over a
period not to exceed sixty (60) months. As of December 31, 2002, $155,000 in
principal and $8,106 in accrued interest remained outstanding under the notes.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FASTNET CORPORATION
Dated: April 30, 2003
By: /s/ R. Barry Borden
-------------------------------------
R. Barry Borden
President and Chairman of the Board