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FIBERNET TELECOM GROUP, INC.
570 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022
STATEMENT PURSUANT TO SECTION 14(f)
OF THE
SECURITIES EXCHANGE ACT OF 1934
AND RULE 14f-1 THEREUNDER
This Information Statement is being mailed on May 12, 1999 to holders
of record on May 7, 1999 ("Record Date") of shares of Common Stock, $.001 par
value per share ("Common Stock"), of FiberNet Telecom Group, Inc. (the
"Company") and to holders on the Record Date of shares of the Series C Preferred
Stock, $.001 par value per share ("Series C Preferred Stock") of the Company
(holders of the Common Stock and the Series C Preferred Stock referred to as the
"Stockholders") pursuant to Section 14(f) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and Rule 14f-1 promulgated thereunder.
This Information Statement is being delivered to the Stockholders to provide
information regarding anticipated changes in the Board of Directors (the
"Board") of the Company and is provided for informational purposes only. No
action on your part is sought or required.
On May 7, 1999, the Company entered into a Securities Purchase
Agreement (the "Securities Purchase Agreement") with certain purchasers named
therein (the "Purchasers") for the sale of $13.9 million aggregate amount of 4%
to 8% Senior Secured Convertible Notes ("Notes") of the Company and 133,333
shares of Series C Preferred Stock, each of which is convertible into shares of
Common Stock, and approximately 7.9 million five-year warrants to purchase
shares of Common Stock of the Company at $.67 to $1.50 per share ("Warrants").
The Company may also sell an additional $1.5 million of securities on
substantially the same terms as those described above (the above events and the
other transactions contemplated by the Securities Purchase Agreement are
referred to as the "Transaction"). The Transaction resulted in a change of
control because the Purchasers own approximately 49.4% of the issued and
outstanding Common Stock of the Company assuming the conversion of all the
Notes, Warrants, Series C Preferred Stock, and other options to purchase shares
of Common Stock into Common Stock. Certain Purchasers will also have voting
rights for shares held by certain beneficial owners of more than 5% of the
Common Stock of the Company pursuant to an irrevocable proxy signed in
connection with the Transaction.
As part of the Transaction, the size of the Board increased from three
to six directors, with the addition of Michael S. Liss, Timothy P. Bradley and
Richard Sayers on the Record Date, although Mr. Liss did not commence service
as a Director on the Board until May 11, 1999. The Transaction also
contemplates that on the date ten (10) days after the date of this
Information Statement (the "Change of Control Date"), (i) Santo Petrocelli,
Sr., Frank Chiaino and Lawrence S. Polan will resign from the Board, and
(ii) Roy (Trey) D. Farmer III, Charles J. Mahoney and Joseph Tortoretti will
be elected to the Board. Those persons elected to the Board on the Record
Date and the Change of Control Date will constitute a majority of the
directors of the Board of the Company.
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VOTING SECURITIES OF THE REGISTRANT
The Company has four classes of stock entitled to vote, of which only
the Company's Common Stock, and the Company's Series C Preferred Stock are
issued and outstanding. On May 7, 1999, there were approximately 16,000,000
shares of Common Stock issued and outstanding and 133,333 shares of Series C
Stock issued and outstanding. Each holder of Common Stock is entitled to one
vote per share of Common Stock and each holder of Series C Preferred Stock is
entitled to 117.03 votes per share of Series C Preferred Stock.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the
beneficial ownership of the Common Stock of the Company as of the Change of
Control Date assuming the conversion of the Notes, Warrants and Series C
Preferred Stock, as well as certain other warrants and stock options issued by
the Company for shares of Common Stock, into Common Stock by (i) each entity
known by the Company to own beneficially more than 5% of the Common Stock, (ii)
the directors added to the Board on the Record Date and the directors to be
elected to the Board on the Change of Control Date, and (iii) the executive
officers of the Company prior to and after the Transaction. Unless otherwise
specified, the address for each of the individuals below is 570 Lexington
Avenue, New York, NY 10022.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
NUMBER OF PERCENT
NAME OF BENEFICIAL OWNER SHARES OF CLASS
<S> <C> <C>
SMFS, Inc.(2)(3) 7,090,000 20.2
c/o Petrocelli Communications Company
12-12 43rd Avenue
Long Island City, NY 11101
Trident Telecom Partners LLC(4) 5,751,332 16.4
350 Park Avenue, 14th Floor
New York, NY 10022
Signal Capital Partners, L.P(5) 5,415,667 15.5
10 East 53rd Street
New York, NY 10022
Joseph Tortoretti(3)(6) 4,215,000 12.0
Michael Lauer(7) 2,753,333 7.8
980 Post Road East
Westport, CT 06880
Michael S. Liss(8) 1,668,334 4.8
Charles J. Mahoney __ __
Tishman Speyer Properties
520 Madison Avenue
New York, NY 10022
</TABLE>
(Table continued on next page)
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<TABLE>
<S> <C> <C>
Richard Sayers(9) 281,500 *
Taurus Telecommunication, Inc.
3625 Ridge Run
Canandaigua, NY 14424
Timothy P. Bradley(10) 5,415,667 15.5
Signal Capital Partners, L.P.
10 E. 53rd Street
New York, NY 10022
Roy (Trey) D. Farmer III(11) 325,000 *
Frank Chiaino(12) 190,000 *
6700 Song Hill Lane
Rochester, NY 14564
All executive officers and directors
as of the Change of Control Date as 11,905,501 34.0
a Group (6 persons)
</TABLE>
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* Less than one percent.
(1) As of the Record Date, there are approximately 16,000,000 shares of Common
Stock and 133,333 shares of Series C Preferred Stock of the Company issued
and outstanding. All calculations in this table assume the conversion of
the Series C Preferred Stock, Notes, Warrants and other stock options and
warrants into Common Stock and measure percentage of ownership of the
class of Common Stock accordingly.
(2) Owned or beneficially owned by SMFS, Inc. or Santo Petrocelli, Sr., who is
the majority shareholder of SMFS, Inc., and will resign as Director of the
Company on the Change of Control Date and resigned as Chairman of the
Company on the Record Date. Includes 190,000 shares issuable upon exercise
of options exercisable within 60 days of the Record Date.
(3) Shares subject to an irrevocable proxy dated as of the Record Date under
which such voting rights and other rights connected with such shares will
be voted by certain Purchasers for the earlier of three years from the
Record Date or the occurrence of other events.
(4) Includes warrants to purchase Common Stock issued to Trident Technology
Partners LLC ("Trident"), an affiliate of Trident Telecom Partners LLC, as
part of a loan facility to the Company which was repaid by the Company on
the Record Date (the "Bridge Warrants"). Trident will distribute the
Bridge Warrants after the Change of Control Date.
(5) Includes 33,333 Warrants issued as part of the Transaction to purchase
shares of Common Stock held by Signal Capital Management Corp., an
affiliate of Signal Capital Partners, L.P. ("Signal").
(6) Owned or beneficially owned by LTJ Group, Inc. or Joseph Tortoretti, who
is the majority shareholder of LTJ Group, Inc., and will be elected to be
a Director of the Company on the Change of Control Date. Includes 190,000
shares issuable upon exercise of options exercisable within 60 days of the
Record Date.
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(7) Michael Lauer is the investment manager of Lancer Offshore, Inc. ("Lancer
Offshore") and the largest shareholder of Lancer Partners LP. Mr. Lauer
and his affiliates, Lancer Offshore and Lancer Partners LP are the record
owners of approximately 2.2 million shares of Common Stock, and Mr. Lauer,
through Lancer Offshore, was a Purchaser under the Securities Purchase
Agreement. Includes shares of Common Stock issuable upon conversion of
Notes, Warrants and Series C Preferred Stock issued to Lancer as a
Purchaser in the Transaction.
(8) Owned or beneficially owned by Concordia Telecom Management, L.L.C.
("Concordia") or Michael S. Liss, who is the sole member of Concordia. Mr.
Liss was elected to be a Director of the Board and President and Chief
Executive Officer of the Company on the Record Date, although Mr. Liss did
not commence his service as President, Chief Executive, Officer and a
Director until May 11, 1999. Includes shares of Common Stock issuable upon
the conversion of Notes, Warrants, Series C Preferred Stock and other
stock options and Bridge Warrants issued to Concordia or Mr. Liss which
are exercisable within 60 days of the Record Date.
(9) Owned or beneficially owned by Taurus Telecommunication, Inc. ("Taurus")
or Richard Sayers, who is the majority shareholder of Taurus and was
elected to be a Director of the Board on the Record Date. Includes shares
of Common Stock issuable upon conversion of Notes, Warrants, Series C
Preferred Stock, other stock options and Bridge Warrants issued to Taurus
which are exercisable within 60 days of the Record Date.
(10) Represents shares beneficially owned by Timothy P. Bradley, who is a
Managing Partner of Signal and Signal Partners LLC. Mr. Bradley disclaims
beneficial ownership of all such shares owned by Signal and its affiliates
except to the extent of his pecuniary interest therein. Mr. Bradley was
elected to be a Director of the Board on the Record Date.
(11) Includes 200,000 Warrants for shares of Common Stock held by Trident for
Mr. Farmer, who was, until the Record Date, a partner at Sterling Capital
LLC, an affiliate of Trident, as well as options for Common Stock
exercisable within 60 days of the Record Date. Mr. Farmer will be elected
to be a Director of the Board on the Change of Control Date.
(12) Mr. Chiaino resigned as President and Chief Executive Officer on the
Record Date and will resign as a Director of the Board of the Company on
the Change of Control Date. Includes 190,000 shares issuable upon exercise
of options exercisable within 60 days of the Record Date.
CHANGE IN CONTROL OF THE REGISTRANT
Pursuant to the Transaction, the Purchasers purchased the Notes, the
Series C Preferred Stock and the Warrants, which resulted in a change of control
because, assuming the conversion of the Notes, Warrants, Series C Preferred
Stock and various stock options for Common Stock into Common Stock, the
Purchasers own approximately 49.4% of the issued and outstanding Common Stock of
the Company, as well as voting rights to shares of Common Stock held by persons
indicated in the security ownership table above and shares of Common Stock
beneficially owned by LPS Consultants, Inc. through an irrevocable proxy
("Proxy"). The Proxy provides that certain Purchasers, pursuant to the terms of
the Securities Purchase Agreement, shall serve as the attorneys and proxies for
the shares of Common Stock held by those entities described above. The Notes are
convertible into shares of Common Stock at $1.50 per share and the Warrants are
exercisable at $.67 to $1.50 per share. The Series C Preferred Stock is also
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convertible to Common Stock at $1.50 per share.
As part of the Transaction, the size of the Board increased from three
to six directors with the addition of Messrs. Liss, Bradley and Sayers. The
Transaction also contemplates that on the Change of Control Date, (i) Messrs.
Petrocelli, Chiaino and Polan will resign from the Board, and (ii) Messrs.
Farmer, Mahoney and Tortoretti will be elected to the Board. Those persons
elected to the Board on the Record Date and the Change of Control Date will
constitute a majority of the directors of the Board of the Company.
In addition, as part of the Transaction, Messrs. Petrocelli, Polan and
Chiaino resigned from all executive officer and other officer positions in the
Company held by them on the Record Date.
DIRECTORS AND EXECUTIVE OFFICERS
IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding (i) the
directors elected to the Board on the Record Date and the directors to be
elected to the Board on the Change of Control Date and (ii) the executive
officers of the Company after the Transaction. Unless otherwise indicated,
positions held are within the Company and the address of each executive officer
is 570 Lexington Avenue, New York, New York 10022.
<TABLE>
<CAPTION>
NAME OF CURRENT DIRECTORS
AND EXECUTIVE OFFICERS AGE CURRENT PRINCIPAL OCCUPATION
---------------------- --- ----------------------------
<S> <C> <C>
Michael S. Liss 44 President, Chief Executive Officer and Director
Charles J. Mahoney 61 Director
Richard Sayers 62 Director
Timothy P. Bradley 37 Director
Roy (Trey) D. Farmer III 28 Director and Executive Vice President
Joseph Tortoretti 51 Director
</TABLE>
Timothy P. Bradley has served as a Director of the Company since May 7,
1999 and has been a Managing Partner with Signal Capital Partners, L.P. and
Signal Partners LLC since 1996. Prior to 1996, Mr. Bradley served as a partner
with Exeter Equity Partners, L.P, where he was employed from 1992 to 1996.
Roy (Trey) D. Farmer III has served as an Executive Vice President and
a Director of the Company since May 11, 1999. From 1998 to 1999, Mr. Farmer was
a partner at Sterling Capital
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LLC. Prior to joining Sterling Capital, Mr. Farmer worked with a group of
strategic consulting firms based in New York City that repositioned technology
companies from 1996 to 1998. From 1994 to 1996, Mr. Farmer was pursuing graduate
degrees and teaching at Harvard University and Yale University.
Michael S. Liss has served as President and Director of FiberNet
Telecom Group, Inc. since May 11, 1999. From 1994 to 1999, Mr. Liss was a
Managing Director of Lazard Freres & Co. LLC and, prior to that time, he was a
Senior Managing Director of Bear, Stearns & Co. Inc.
Charles Mahoney has been a Senior Managing Director and Managing
Director with Tishman Speyer Properties since 1990.
Richard Sayers has served as a Director of the Company since May 7,
1999. Since 1996, Mr. Sayers has served as the President of Taurus
Telecommunications, Inc., a private consulting company in the telecommunications
industry. From 1994 to 1996, Mr. Sayers was the Vice Chairman of ACC Corp. and
President of its international group, serving as Chairman of ACC Telenterprises
(ACC-Canada) and Chairman of ACC Long Distance, United Kingdom.
Joseph Tortoretti is a founder of the Company, and has provided
consulting services to the Company since 1996. From 1993 to 1995, Mr. Tortoretti
served as President, Chief Executive Officer and a Director of FiberNet Inc. and
FiberNet USA, Inc.
After the Change of Control Date, Company intends to form new Audit and
Compensation Committees. Once formed, the Audit Committee will review the
financial results of the Company with the Company's auditors, will work with the
Company's auditors in preparing the Company's financial statements and will make
recommendations to the Board as to the selection of auditors and other
accounting professionals. Once formed, the Compensation Committee's primary
function will be to determine and set forth the compensation arrangements for
the Company's executive officers and directors on the Board, as well as to set
the compensation arrangements for employees of the Company.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
Santo Petrocelli, Sr. is Chairman and a Director of FiberNet Telecom
Group, Inc. until his resignation on the Change of Control Date and, is also
President and Chief Executive Officer of Petrocelli Electric Company, Petrocelli
Communications Company, SMFS, Inc. ("SMFS") and Petrocelli Industries
Incorporated. In addition, he is a Director of National Abatement Corporation.
Petrocelli Industries Incorporated has provided management, marketing and
administrative services to the Company and its affiliates. As a result of an
open bidding process through an independent third party, the Company in 1997
entered into three separate contracts with Petrocelli Electric totaling
approximately $2.5 million to provide electrical contracting for the
construction of premises distribution systems in three commercial buildings. The
Company and SMFS entered into a three-year consulting agreement dated as of
January 1, 1998 whereby SMFS would provide consulting services. This consulting
agreement was terminated on the Record Date.
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Joseph Tortoretti is the majority shareholder of Landtel
Telecommunications Group, Inc. ("Landtel"), which provides engineering services
and network development and was retained to provide consulting work to the
Company pursuant to a consulting agreement dated as of January 1, 1998, and
amended on the Record Date, for a term ending on December 31, 2000. In
consideration for services rendered, the Company is obligated for payment to
Landtel of $125,000 per annum. LTJ Group, Inc. and Landtel are both controlled
by Mr. Tortoretti, who will also be elected to be a Director of the Board on the
Change of Control Date.
Lawrence S. Polan is a Director of FiberNet Telecom Group, Inc., but
will resign from such position on the Change of Control Date. He is also Vice
President and Chief Financial Officer for Petrocelli Electric Company,
Petrocelli Communications Company and Petrocelli Industries Incorporated. In
addition, he controls LPS Consultants, Inc. ("LPS"). Pursuant to a three-year
agreement with the Company dated as of January 1, 1998, LPS provided financial
consulting services at an annual rate of $75,000. The Company terminated this
consulting agreement on the Record Date.
The Company may have continuing relationships with Mr. Petrocelli,
Landtel and LPS. However, management believes that the terms and conditions of
such dealings will be fair and reasonable to the Company and based upon terms
that would be no less beneficial than could be negotiated with unrelated
parties.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
compensation paid by the Company for the fiscal years ended December 31, 1997
and 1998 and long-term compensation for the Company's Chief Executive Officer
and other named executive officers:
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
OTHER ALL
NAME AND ANNUAL SECURITIES OTHER
PRINCIPAL POSITION IN SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
1998(1) YEAR $ $ $ OPTIONS (#) $
<S> <C> <C> <C> <C> <C> <C>
Santo Petrocelli, Sr., 1998 150,000 -- -- -- --
Chairman(2) 1997 120,000 -- -- 190,000 --
Frank Chiaino, President,
CEO(3) 1998 125,000 -- -- 300,000 --
Lawrence S. Polan(4) 1998 -- -- -- -- --
1997 -- -- -- 190,000 --
</TABLE>
(See footnotes on following page)
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(1) For the fiscal years ended December 31, 1996 and 1997, the only named
executive officers of the Company were Santo Petrocelli, Sr., who served
as Chairman, President and Chief Executive Officer and Lawrence S. Polan,
who served as Vice President and Chief Financial Officer. No compensation
was paid to any named executive officer for the fiscal year ended December
31, 1996. For the fiscal year ended December 31, 1997, only Mr. Petrocelli
received compensation for his services.
(2) Mr. Petrocelli resigned as President and Chief Executive Officer on
January 1, 1998. As of January 1, 1998, the Company entered into a
three-year employment agreement with Santo Petrocelli, Sr., the Company's
Chairman, which provides for an annual base salary of $150,000 plus a
bonus at the Board's discretion. Mr. Petrocelli resigned as President and
Chief Executive Officer on January 1, 1998. On the Record Date, Mr.
Petrocelli resigned as Chairman of the Company.
(3) As of January 1, 1998, the Company entered into a three-year employment
agreement with Frank Chiaino to serve as the Company's President and Chief
Executive Officer for an annual base salary of $125,000 plus a bonus at
the Board's discretion. As part of the Transaction, Mr. Chiaino's
employment agreement with the Company was terminated.
(4) Mr. Polan resigned from the positions of Vice President and Chief
Financial Officer in 1998. He did not receive compensation for the fiscal
years ended December 31, 1996 and 1997.
OPTIONS/SAR GRANTS TABLE
<TABLE>
<CAPTION>
NO. OF SECURITIES PERCENT OF TOTAL EXERCISE OF
UNDERLYING OPTION/ OPTIONS/SARS GRANTED TO BASE PRICE EXPIRATION
NAME SAR(S) GRANTED (#) EMPLOYEES IN FISCAL YEAR ($/SHARE) DATE
(a) (b) (c) (d) (e)
<S> <C> <C> <C> <C>
Frank Chiaino(1) 300,000 44.5 $1.95 5/7/2002
</TABLE>
(1) Pursuant to agreements between the Company and Mr. Chiaino, each of which
is dated as of the Record Date, (i) 150,000 options granted to Mr. Chiaino
on January 1, 1998 vested as of the Record Date and are exercisable at
$1.95 per share of Common Stock for a period of three years from the
Record Date, and (ii) 150,000 options granted to Mr. Chiaino on February
25, 1998 were cancelled on the Record Date.
On the Record Date, Michael S. Liss was elected President and Chief
Executive Officer for the Company, but did not commence service in such
positions until May 11, 1999. Pursuant to a two-year Employment Agreement dated
as of the Record Date with the Company, Mr. Liss will receive $250,000 per annum
plus a bonus to be determined by the Board. In addition, he received options for
25,000 shares of Common Stock under the Company's 1999 Stock Option Plan, which
was adopted by the Board on the Record Date, subject to shareholder approval,
exercisable at $4.00 per share. Mr. Liss also received options to purchase
100,000 shares of Common Stock exercisable at $4.00 per share.
The Company also entered into a two-year Employment Agreement dated as
of the
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Record Date with Roy (Trey) D. Farmer III pursuant to which Mr. Farmer will
serve as Executive Vice President beginning on May 11, 1999 and receive an
annual salary of $175,000 plus a bonus to be determined by the Board. In
addition, Mr. Farmer received options for 25,000 shares of Common Stock pursuant
to the 1999 Stock Option Plan exercisable at a price of $4.00 per share, and
100,000 options for shares of the Company's Common Stock exercisable at $4.00
per share.
COMPENSATION OF DIRECTORS
The Board has not yet established amounts to be paid to Directors for
their services on the Board, but intends to adopt a policy for compensation to
Directors after the Change of Control Date.
EMPLOYMENT CONTRACTS
On May 7, 1999, the Company entered into an agreement with Frank
Chiaino, the Company's former President and CEO, to terminate his employment
agreement dated January 1, 1998. Additionally, Mr. Petrocelli resigned as
Chairman of the Company on the Record Date.
The Company also entered into separate employment agreements with
Michael S. Liss and Roy (Trey) D. Farmer III on the Record Date as described
above, although the term of the Employment Agreements with Messrs.
Liss and Farmer commenced on May 11, 1999.
May 12, 1999 FIBERNET TELECOM GROUP, INC.
570 Lexington Avenue
New York, NY 10022
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