**UNITED STATES****SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON, D. C. 20549**

 

**FORM 10-K/A**

 

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| **ý****        AMENDMENT  NO. 1 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**                                                                                                                                                          |
|                                                                                                                                                            |
| o         **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE  SECURITIES EXCHANGE ACT OF 1934**                |
|                                                                                                                                                            |
| **Commission  File Number: 0-25520**                                                                                                                            |

 

### **CENTERSPANCOMMUNICATIONS CORPORATION**

(Exact name of registrantas specified in its charter)

 

| **Oregon**                                                                       |   | **93-1040330**                        |
|----------------------------------------------------------------------------------|--------|---------------------------------------|
| (State or other jurisdiction  of incorporation  or organization)                 |   | (I.R.S. Employer  Identification No.) |
|                                                                             |   |                                  |
| **7175 NW Evergreen Parkway #400****Hillsboro,  Oregon**                         |   | **97124-5839**                        |
| (Address of principal  executive offices)                                        |   | (Zip Code)                            |
|                                                                             |   |                                  |
| Registrant’s telephone  number, including area code:  **503-615-3200** |

# ** **

# **Securitiesregistered pursuant to Section 12(b) of the Act:** None

Securities registeredpursuant to Section 12(g) of the Act: **Common Stock**

 

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Indicate by check mark whether the Registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theRegistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days: Yes ýNo o

 

Indicate by check mark if disclosure of delinquent filers pursuant toItem 405 of Regulation S-K is not contained herein, and will not be contained,to the best of Registrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-K, or anyamendment to this Form 10-K. ý

 

Indicate by check mark whether the Registrant is an accelerated filer(as defined in Rule 12b-2 of the Act).

Yes  ̈     Nox

 

The aggregate market value of the voting and non-voting common equityheld by non-affiliates, computed by reference to the last sales price ($4.60)as reported by the Nasdaq National Market System, as of the last business dayof the Registrant’s most recently completed second fiscal quarter (June 28, 2002),was $29,688,317

 

The number of shares outstanding of the Registrant’s common stock as ofMarch 21, 2003 was 10,926,915 shares.

 

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**Explanatory Notes**

 

The information required by Part III, Items 10 through 13, was to beincorporated by reference to the Registrant’s Proxy Statement for its 2003Annual Meeting of Stockholders.  TheRegistrant’s Proxy Statement will not be filed with the Commission within the120-day period after the end of the Registrant’s fiscal year.  Part III, Items 10 through 13 are thereforefiled herewith.

 

 

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**PART III**

 

**Item 10.                   Directors& Executive Officers**

** **
| **NAME**                  |   | **AGE** |   | **POSITION WITH COMPANY**                                                                                |
|---------------------------|--------|---------|--------|----------------------------------------------------------------------------------------------------------|
| Frank G. Hausmann         |   | 45      |   | Chairman of the Board, Chief Executive Officer,  President, and acting Chief Financial Officer |
| David Billstrom           |   | 41      |   | Director                                                                                                 |
| General Merrill A. McPeak |   | 67      |   | Director                                                                                                 |
| G. Gerald Pratt           |   | 75      |   | Director                                                                                                 |
| Frederick M. Stevens      |   | 66      |   | Director                                                                                                 |
| Richard S. Sadowsky       |   | 40      |   | Vice President of Engineering, New Technology and  Chief Technology Officer                              |

 

The term of each director expires upon the election and qualificationof such director’s successor.

 

***Frank G. Hausmann***,45, became a member of the Board of Directors in October 1998 and was electedChairman of the Board in March 2000. Mr. Hausmann has been employed by CenterSpan since July 1998, serving asChief Executive Officer since  October1998.  Mr. Hausmann served as Presidentfrom October 1998 until June 2001.  Hewas again appointed President in November 2002.  Mr. Hausmann served as Vice President, Finance and Administrationand Chief Financial Officer from July 1998 until October 1998.  He was appointed acting Chief FinancialOfficer in January 2003.  From August1997 to May 1998, Mr. Hausmann was Vice President, Finance and Chief FinancialOfficer of Atlas Telecom, Inc., a developer of enhanced facsimile andvoice-mail solutions.  From September1995 to July 1997, Mr. Hausmann served as Vice President, Corporate Developmentand General Counsel of Diamond Multimedia Systems, Inc., a designer andmarketer of computer peripherals such as modems and graphics and sound cards.From June 1993 to September 1995, Mr. Hausmann was Executive Vice President andChief Financial Officer for Supra Corporation, a designer and marketer ofmodems that was acquired by Diamond Multimedia Systems, Inc. in September 1995.Mr. Hausmann received B.S. degrees in economics and political science fromWillamette University and a J.D. degree from the University of Oregon.

 

***David Billstrom***, 41,became a member of the Board of Directors in November 1999.  Mr. Billstrom is Managing Partner at FBRCoMotion Venture Capital, which he founded in January 2000.  From January to August 1999 he was VicePresident of Content Services for Infoseek/Go Network, which is now owned byDisney.  In 1996, Mr. Billstromco-founded Quando, Inc. and served as Chief Executive Officer, President andChairman until the company was acquired by Infoseek in January 1999.  In 1993, Mr. Billstrom co-founded MediaMosaic, a CD-ROM publisher, which was restructured as Quando in January1996.  Prior to 1993, Mr. Billstromspent seven years at Intel Corporation as a sales/marketing executive. Mr.Billstrom is a member of the board of directors of ThinkShare Corporation,Selec+Metrics(nee MeasureCast, Inc.) and Vendaria, Inc..

 

***General Merrill A. McPeak***,67, became a member of the Board of Directors in March 1996. He has been thePresident of McPeak and Associates, an international aerospace consulting firm,since January 1995.  General McPeakspent 37 years in the United States Air Force, and was Chief of Staff fromOctober 1990 to October 1994, when he retired. He also serves on the Board of Directors of Tektronix, Inc. and on theBoard of Directors of ECC International Corp., where he serves as Chairman ofthe Board.  He holds a B.A. degree ineconomics from San Diego State University and an M.S. degree in internationalrelations from George Washington University.

 

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***G. Gerald Pratt***, 75,has been a director of the Company since its inception in 1990.  Since 1980, Mr. Pratt has been a privateventure capitalist.  Mr. Pratt has beena trustee of the Meyer Memorial Trust, a charitable trust, since 1978.

 

***Frederick M. Stevens***,66, became a member of the Board of Directors in December 1993.  From April 1988 until his retirement inJanuary 1991, Mr. Stevens was Chairman of the Board and Chief Executive Officerof Fred Meyer, Inc.

** **

**RichardS. Sadowsky**, 40, joined CenterSpan in May 2002 as VicePresident of Advanced Technology and was promoted in February 2003 to VicePresident of Engineering, New Technology and Chief Technology Officer. Prior tojoining CenterSpan he was the Chief Technology Officer and Senior VicePresident of Technology for RadioCentral from January 2000 to April 2002. From1999 to January 2000, Mr. Sadowsky was Director of Engineering of OnRadio.  From 1992 to 1998, Mr. Sadowsky held variouspositions at Symantec Corporation — the last was Director of EmergingTechnology and Software Architect of the Shared Technology Group at SymantecCorporation.

 

**FAMILY RELATIONSHIPS**

 

There are no family relationships between any director, executiveofficer or person nominated or chosen to be a director or executive officer ofCenterSpan, and any other director, executive officer or person nominated orchosen to become a director or executive officer of CenterSpan.

 

**SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE**

 

Section 16(a) of theSecurities Exchange Act of 1934, as amended (the “Exchange Act”), requires anyperson who is a director or executive officer at any time during the fiscalyear and any person who beneficially owns more than 10 percent of our commonstock to report their initial ownership and any subsequent changes in thatownership to the Securities and Exchange Commission (the “SEC”).  Specific due dates for such reports have beenestablished.  Persons subject to theSection 16(a) reporting requirements are required to furnish us copies of allSection 16(a) reports they file with the SEC. To our knowledge, based solely ona review of copies of such reports furnished to us and representations that noother reports are required, all Section 16(a) filing requirements applicable tosuch reporting persons were complied with during the year ended December 31,2002, except as follows:

 

•                  Messrs. MarkConan, Andrew Mallinger and Alfred Lee, each an executive officer, failed totimely file a report on Form 4, Statement of Changes in Beneficial Ownership ofSecurities;

•                  Mr. Hausmann, anexecutive officer and director failed to timely file a report on Form 4,Statement of Changes in Beneficial Ownership of Securities;

•                  General MerrillMcPeak, Messrs. Gerald Pratt, David Billstrom and Frederick Stevens, each adirector, each failed to timely file a report on Form 4, Statement of Changesin Beneficial Ownership of Securities.

 

All of the transactionsnot reported on a timely basis related to the grant of stock options.

 

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**Item 11.                   ExecutiveCompensation**

 

**EXECUTIVE COMPENSATION**

 

The following table sets forth the compensation paid to our ChiefExecutive Officer and the other executive officers as of December 31, 2002 whoearned more than $100,000 during 2002 (collectively, the “Named ExecutiveOfficers”).

 

**Summary Compensation Table**

** **
| **Name and Principal  Position** |   | **Year**  |   | **Annual  Compensation**              |    | **Long-Term  Compensation  Awards**     |   |                              |   |
|----------------------------------|--------|-----------|--------|---------------------------------------|---------|-----------------------------------------|--------|-----------------------------------|--------|
| **Salary**                       |   | **Bonus** |   | **Other  Annual  Compen-  sation(1)** |    | **Securities  Underlying  Options (#)** |   | **All Other  Compen-  sation(2)** |   |
|                             |   |      |   |                                  |    |                                    |   |                              |   |   |   |   |   |
| Frank G.  Hausmann               |   | 2002      |   | $                                     | 285,000 |                                    | $      | —                            |   | $ | 1,225 |   | 203,750 |   | $ | 5,000 |   |
| Chairman, CEO,                   |   | 2001      |   | 275,000                               |    | 100,000                                 |   | 1,891                             |   | 265,000 |   | — |   |
| President and  acting CFO        |   | 2000      |   | 230,000                               |    | 115,000                                 |   | 1,869                             |   | 85,000 |   | — |   |
|                             |   |      |   |                                  |    |                                    |   |                              |   |   |   |   |   |
| Steven G.  Frison(3)             |   | 2002      |   | 183,347                               |    | —                                  |   | 2,750                             |   | — |   | — |   |
| Former President  and Chief      |   | 2001      |   | 250,000                               |    | 75,000                                  |   | 2,438                             |   | 260,000 |   | — |   |
| Operating  Officer               |   | 2000      |   | 186,667                               |    | 100,000                                 |   | 2,350                             |   | 345,000 |   | — |   |
|                             |   |      |   |                                  |    |                                    |   |                              |   |   |   |   |   |
| Mark B. Conan(4)                 |   | 2002      |   | 180,000                               |    | —                                  |   | 2,363                             |   | 25,000 |   | 1,000 |   |
| Former Vice  President of        |   | 2001      |   | 175,000                               |    | 15,000                                  |   | 2,297                             |   | 80,000 |   | — |   |
| Finance,  Administration and CFO |   | 2000      |   | 150,000                               |    | 45,000                                  |   | 2,250                             |   | 50,000 |   | — |   |
|                             |   |      |   |                                  |    |                                    |   |                              |   |   |   |   |   |
| Alfred M. Lee(5)                 |   | 2002      |   | 167,500                               |    | —                                  |   | 1,152                             |   | 36,250 |   | 1,000 |   |
| Former Vice  President of        |   | 2001      |   | 72,234                                |    | 20,000                                  |   | 581                               |   | 145,000 |   | — |   |
| Engineering                      |   | 2000      |   | —                                |    | —                                  |   | —                            |   | — |   | — |   |
|                             |   |      |   |                                  |    |                                    |   |                              |   |   |   |   |   |
| Andrew F.  Mallinger(6)          |   | 2002      |   | 160,000                               |    | —                                  |   | 2,400                             |   | 38,750 |   | — |   |
| Former Vice  President of        |   | 2001      |   | 141,710                               |    | 15,000                                  |   | 2,352                             |   | 155,000 |   | 32,698 |   |
| Marketing                        |   | 2000      |   | —                                |    | —                                  |   | —                            |   | — |   | — |   |
|                                  |        |           |        |                                       |         |                                         |        |                                   |        |  |  |  |  |  |  |  |  |

 

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(1)               “Other AnnualCompensation” represents company matching contributions under our 401(k) plan.

(2)               “All OtherCompensation” represents moving allowances paid to Mr. Mallinger and thedifference between Fair Market Value and purchase price of the Common Stockpurchased by Messrs. Hausmann, Conan and Lee in a private placement on April 1,2002.

(3)               Mr. Frison’s 2002salary represents amounts earned from January 2002 until his resignation inNovember 2002.  Mr. Frison’s 2000 salaryrepresents amounts earned since joining CenterSpan in February 2000 throughDecember 2000.

(4)               Mr. Conan resignedas Vice President of Finance, Administration and CFO on December 31, 2002

(5)               Mr. Lee’s 2001salary represents amounts earned since joining CenterSpan in July 2001 throughDecember 2001.  Mr. Lee resigned inFebruary 2003.

(6)               Mr. Malinger’s 2001salary represents amounts earned since joining CenterSpan in January 2001through December 2001.  Mr. Malingerresigned in February 2003.

 

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**OptionGrants**

 

The following table sets forth information with respect to grants ofstock options to the Named Executive Officers during 2002.  No options were granted to Steven G. Frisonin 2002.

 

**Option Grants In Last Fiscal Year**

 
|                                                    |   |                                                           |   | **Potential  Realizable Value  At Assumed Annual  Rates of Stock Price  Appreciation for Option  Term(6)** |   |
|---------------------------------------------------------|--------|----------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------|--------|
| **Individual  Grants**                                  |
| **Number of  Securities  Underlying  Options  Granted** |   | **% of Total  Options  Granted to  Employees in  Fiscal Year** |   | **Exercise  Price ($/Sh.)**                                                                                |   | **Expiration  Date** |
|                                                    |   |                                                           |
|                                                    |   |                                                           |
|                                                    |   |                                                           |
|                                                    |   |                                                           |   | **5%**                                                                                                     |   | **10%** |   |
|                                                    |   |                                                           |   |                                                                                                       |   |   |   |   |   |   |   |   |   |
| Frank G.  Hausmann, Jr.                                 |   | 35,000                                                         | (1)    | 2.6                                                                                                        | %      | $ | 5.15 | (2) | 2/6/2012 |   | $ | 113,358 |   | $ | 287,272 |   |
|                                                    |   | 168,750                                                        | (3)    | 12.5                                                                                                       |   | 1.99 | (4) | 11/12/2012 |   | 211,191 |   | 535,199 |   |
|                                                    |   |                                                           |   |                                                                                                       |   |   |   |   |   |   |   |   |   |
| Mark B. Conan                                           |   | 25,000                                                         | (5)    | 1.9                                                                                                        |   | 2.25 | (4) | 12/10/2005 |   | 35,375 |   | 89,648 |   |
|                                                    |   |                                                           |   |                                                                                                       |   |   |   |   |   |   |   |   |   |
| Alfred M. Lee                                           |   | 36,250                                                         | (3)    | 2.7                                                                                                        |   | 1.99 | (4) | 11/12/2012 |   | 45,367 |   | 114,969 |   |
|                                                    |   |                                                           |   |                                                                                                       |   |   |   |   |   |   |   |   |   |
| Andrew F.  Mallinger                                    |   | 38,750                                                         | (3)    | 2.9                                                                                                        |   | 1.99 | (4) | 11/12/2012 |   | 48,496 |   | 122,897 |   |
|                                                         |        |                                                                |        |                                                                                                            |        |  |  |  |  |  |  |  |  |  |  |  |

 

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(1)               Options vest as to25% of the total amount granted on the first anniversary of the grant date withan additional 1/48th of the total vesting each month thereafter.

(2)               Discount price of20.5% from the closing price of our common stock as reported on The NasdaqNational Market on the grant date.

(3)               Options vest as to33% of the total amount granted on the six month anniversary of the grant datewith an additional 1/18th of the total vesting each monththereafter.

(4)               Based on theclosing prices of our common stock as reported on The Nasdaq National Market onthe respective grant dates.

(5)               Options vest as to100% of the total amount granted as of February 15, 2003.

(6)               This column showsthe hypothetical gains or option spreads of the options granted based onassumed annual compound stock appreciation rates of 5% and 10% over the full10-year term of the options. The assumed rates of appreciation are mandated bythe rules of the Securities and Exchange Commission and do not represent ourestimate or projection of our future common stock prices.

 

**OptionExercises and Holdings**

The following table provides information concerning unexercised optionsheld at December 31, 2002 by the Named Executive Officers.  There were no options exercised by the NamedExecutive Officers during 2002.

 

**Fiscal Year-End Option Values**

 

| **Name**             |   | **Number of  Securities  Underlying Unexercised  Options  At FY-End (#)  Exercisable/  Unexercisable** |   | **Value of  Unexercised  In-The-Money Options  At FY-End ($)(1)  Exercisable/  Unexercisable** |   |
|----------------------|--------|--------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------|--------|
| Frank G.  Hausmann   |   | 437,083                                                                                                | /      | 406,667                                                                                        |   | $ | — | / | $ | — |   |
| Steve G. Frison      |   | 285,833                                                                                                | /      | —                                                                                         |   | — | / | — |   |
| Mark B. Conan        |   | 139,167                                                                                                | /      | 115,833                                                                                        |   | — | / | — |   |
| Alfred M. Lee        |   | 50,521                                                                                                 | /      | 130,729                                                                                        |   | — | / | — |   |
| Andrew F.  Mallinger |   | 66,667                                                                                                 | /      | 127,083                                                                                        |   | — | / | — |   |
|                      |        |                                                                                                        |        |                                                                                                |        |  |  |  |  |  |  |

 

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(1)               Calculated based onthe difference between the market value of the underlying securities atDecember 31, 2002, $1.16 per share based on the closing price of our commonstock reported on the Nasdaq National Market for the date, and the exerciseprice of the unexercised options.  Theunderlying options have not been, and may never be, exercised.  Actual gains, if any, on exercise willdepend on the value of our common stock on the date of exercise.

 

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**COMPENSATION OF DIRECTORS**

 

During 2002, each non-employee director received an annual fee of$5,000 and $1,000 for each Board and committee meeting attended (unless thecommittee meeting was held on the same day as a Board meeting), and $500 foreach Board and committee meeting attended via telephone.  In 2002, each non-employee director who wasa director as of August 2002 and November 2002 received options to purchase10,000 and 20,000 shares of our common stock with respect to each of thosedates (for options to purchase a total of 30,000 shares for a non-employeedirector who was a director as of both dates) at a price equal to the fairmarket value of our common stock on the date of grant. No employee directorreceives additional compensation for his or her service as a director.

 

**EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ANDCHANGE-IN-CONTROL ARRANGEMENTS**

 

We have entered into arrangements with our executive officers listed inthe table above providing for a severance payment equal to six months basesalary if they are terminated without cause. We have also entered intochange-in-control agreements with our executive officers providing for aseverance payment equal to 12 months base salary for Mr. Sadowsky and 18 monthsbase salary for Mr. Hausmann in the event of termination as the result of achange-in-control.

 

**COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION**

 

The members of the Compensation Committee during 2002 were Messrs.Stevens and Billstrom and General McPeak, all of whom are independent,non-employee directors.  None of ourexecutive officers serves as a director or member of the Compensation Committeeof any entity that has one or more executive officers serving as a member ofour Board of Directors or Compensation Committee

 

**COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION***

 

It is the duty of the Compensation Committee to evaluate theperformance of management, review levels of compensation, and consider relatedmatters.

 

CenterSpan’s compensation policy, which is endorsed by the CompensationCommittee, is that a substantial portion of the annual cash compensation ofexecutive officers should be contingent upon the performance of CenterSpan andthe individual executive officer as well. As a result, a substantial portion of an executive officer’scompensation is “at risk,” with annual bonus compensation constituting asignificant portion of total compensation.

 

CenterSpan’s compensation programs are designed to align the executiveofficers’ compensation with the strategic goals and performance of CenterSpanand the underlying interests of our shareholders.  Accordingly, executive officers are generally granted options topurchase shares of our common stock under our stock option plans tied to theirlevel of compensation and contribution.

 

The base compensation for Frank G. Hausmann, our Chairman and ChiefExecutive Officer, was determined by the Compensation Committee to be $285,000for 2002 based upon evaluating the responsibilities of the position and theexperience of the individual, by reference to the competitive marketplace forcorporate executives and the individual job performance associated with theCompany’s new technology.  Mr. Hausmannwas also awarded options in 2002 exercisable for 203,750 shares of our common stock.

 

David Billstrom

Merrill A. McPeak

Frederick M. Stevens

 

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**COMPARISON OF TOTAL CUMULATIVE SHAREHOLDER RETURN**

 

The following graph and table set forth our total cumulativeshareholder return as compared to that of The Nasdaq Stock Market and of theS&P Computer Software and Services Index. The total shareholder return assumes that $100 was invested at thebeginning of the period in our common stock, The Nasdaq Stock Market Index andthe S&P Computer Software and Services Index, with all cash dividendsreinvested on the date paid.  Historicalstock price performance is not necessarily indicative of future stock priceperformance.

 

 
| **Company/Index**                |         | **Base  Period  12/31/97** |         | **Indexed  Returns  Year Ended** |         |
|----------------------------------|--------------|----------------------------|--------------|----------------------------------|--------------|
|                             | **12/31/98** |                       | **12/31/99** |                             | **12/31/00** |   | **12/31/01** |   | **12/31/02** |   |
| CenterSpan                       |         | $                          | 100.00       |                             | $            | 126.10 |   | $ | 255.16 |   | $ | 88.18 |   | $ | 74.87 |   | $ | 9.14 |   |
| Nasdaq U.S.  Market              |         | 100.00                     |         | 140.99                           |         | 261.48 |   | 157.42 |   | 124.89 |   | 86.33 |   |
| S&P-Software  & Services |         | 100.00                     |         | 179.43                           |         | 325.41 |   | 157.19 |   | 159.25 |   | 112.50 |   |
|                                  |              |                            |              |                                  |              |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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**Item 12.                   SecurityOwnership of Certain Beneficial Owners and Management**

 

**DISCLOSURE REGARDING CENTERSPAN’S EQUITY COMPENSATION PLANS**

 

CenterSpan maintains the 1998 Stock Option Plan (“1998 Plan”), the 2000Nonqualified Stock Option Plan (the “2000 Plan”) and the 2001 Non-EmployeeOption Plan (the “2001 Plan”) pursuant to which CenterSpan may make equityawards to eligible persons. Additionally, certain awards granted under the 1990Nonqualified Stock Option Plan (the “1990 Plan”) and the Directors’Nonqualified Stock Option Plan (the “1994 Directors’ Plan”) remain outstandingand CenterSpan has awarded options to certain of its directors and officersoutside of the plans.  The 1990 Plan,the 1994 Directors’ Plan and the 1998 Plan have been approved by CenterSpan’s shareholders.  The 2000 Plan, the 2001 Plan and the optionsgranted outside of the plans were not approved by CenterSpan’sshareholders.  The material terms ofthose plans, options are described below.

 

The following table summarizes information about CenterSpan’s commonstock that may be issued upon exercise of outstanding equity awards made as ofDecember 31, 2002 under and outside of CenterSpan’s existing equity compensationplans:

** **
| **Plan Category**                                       |   | **Number of  securities to  be issued upon  exercise of outstanding  options, warrants and  rights** |   | **Weighted  average  exercise price of  outstanding  options, warrants  and rights** |   | **Number of  securities  remaining available for future  issuance under equity  compensation plans  (excluding securities reflected  in the first column)** |      |
|---------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------|
|                                                    |   |                                                                                                 |   |                                                                                 |   |                                                                                                                                                        |      |
| Equity  compensation plans approved by shareholders     |   | 3,038,870                                                                                            | (1)    | $                                                                                    | 8.06   |                                                                                                                                                        | 599,454   | (3) |
|                                                    |   |                                                                                                 |   |                                                                                 |   |                                                                                                                                                        |      |   |
| Equity  compensation plans not approved by shareholders |   | 973,515                                                                                              | (2)    | 10.93                                                                                |   | 700,613                                                                                                                                                     | (4)       |
|                                                    |   |                                                                                                 |   |                                                                                 |   |                                                                                                                                                        |      |
| Total                                                   |   | 4,012,385                                                                                            |   | $                                                                                    | 8.76   |                                                                                                                                                        | 1,300,067 |   |

 

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(1)               Comprised of 32,960shares issuable under our 1990 Plan, 20,600 shares issuable under our 1994Directors’ Plan; and 2,985,310 shares issuable under our 1998 Plan.

(2)               Comprised of586,015 shares issuable under our 2000 Plan and 387,500 share subject tooptions issued to employees outside any of our equity compensation plans.

(3)               All shares areavailable under our 1998 Plan.

(4)               Comprised of210,613 shares available under our 2000 Plan and 490,000 shares available underour 2001 Plan.

 

**2000 Nonqualified Stock Option Plan and 2001 Non-EmployeeOption Plan**

 

CenterSpan’s Board of Directors adopted the 2000 Nonqualified StockOption Plan in 2000 and adopted the 2001 Non-Employee Option Plan in 2001.Neither the 2000 Plan, nor the 2001 Plan have been approved by CenterSpan’sshareholders.  The 2000 Plan and the2001 Plan are sometimes referred to collectively in this section as “thePlans.”

 

***Shares Available***

The 2000 Plan reserved up to 900,000 shares of CenterSpan’s CommonStock for issuance pursuant to options granted thereunder.  The 2001 Plan reserves up to 500,000 sharesof CenterSpan’s Common Stock for issuance pursuant to options grantedthereunder.  Both Plans permit grants ofnon-statutory stock options (“NSOs”). If an option granted under either Plan expires, terminates or iscancelled, the shares subject to such option again become available forissuance under the applicable Plan.

 

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***Eligibility***

All employees, officers and directors of CenterSpan and itssubsidiaries are eligible to participate in the 2000 Plan. Non-employeeconsultants, agents, independent contractors and advisors who provide servicesto CenterSpan or its subsidiaries are also eligible to participate. In anygiven three-year period beginning October 1 to the following third September30, CenterSpan’s officers and directors may not receive options involving morethan an aggregate of 49% of the shares of Common Stock subject to the totalaggregate number of options granted during any single three-year period.

 

Non-employee service providers, suppliers, consultants, advisors andindependent contractors who provide bona-fide, non-capital raising services toCenterSpan or a related company are eligible to participate in the 2001 Plan.

 

***Administration***

The Compensation Committee of the Board of Directors administers the2000 Plan and the 2001 Plan. The Compensation Committee may designate, fromtime to time, the individuals to whom options are granted under the Plans, theoption price, the number of shares subject to each option, the period of eachoption and the times at which options vest and may be exercised. TheCompensation Committee has the full and exclusive power to interpret the 2000Plan and the 2001 Plan and may, subject to the provisions of the each of thePlans, establish the rules for their operation. The Plans may only be amended,modified or terminated by the Board.

 

***Term of Plan***

Neither the 2000 Plan, nor the 2001 Plan has an expiration date, butthe Board of Directors may suspend or terminate either of the Plans at anytime.

 

***Stock Options***

Options granted under either of the Plans generally continue in effectfor the period fixed by the Compensation Committee.  If no term is fixed, options shall be exercisable for ten yearsfrom the date of grant.  No monetaryconsideration is paid to CenterSpan upon the granting of options.  Options are exercisable in accordance withthe terms of an option agreement entered into at the time of grant. Except asotherwise determined by the Compensation Committee, options granted under the2001 Plan are nontransferable and options granted under the 2000 Plan arenontransferable except on death. The Compensation Committee shall establishwhether an option will continue to be exercisable if an optionee ceases to beemployed by or in the service of CenterSpan or a related company.  If the Compensation Committee does not soestablish, the vested options shall be exercisable after termination ofemployment or service on the earliest of (i) the option’s expiration date; (ii)within 12 months following termination of employment or service by reason ofdeath or disability; or (iii) 90 days following termination for any other reason.Notwithstanding the foregoing, under the 2001 Plan, if the optionee’s serviceterminates for cause, the option expires upon notice of such termination.  The purchase price for each share purchasedpursuant to exercise of options under the 2000 Plan must be paid in cash or by check or in other forms of considerationpermitted by the Compensation Committee. The purchase price for each share purchased pursuant to exercise ofoptions under the 2001 Plan may also be paid in shares of Common Stock valued at fair market value that have beenowned by the optionee for at least six months (or any shorter period necessaryto avoid a charge to CenterSpan’s earnings for financial reportingpurposes).  Upon the exercise of anoption, the number of shares subject to the option and the number of sharesavailable under the relevant Plan for future option grants are reduced by thenumber of shares with respect to which the option is exercised, less any sharessurrendered in payment or withheld to satisfy withholding obligations.

 

***Changes in Capital Structure***

Both Plans provide that if the outstanding Common Stock of CenterSpanis increased or decreased or changed into or exchanged for a different numberor kind of shares or other securities of CenterSpan or of another corporationdue to any recapitalization, merger,

 

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consolidation, stock split or certain other transactions, appropriateadjustment will be made by the Compensation Committee in the number and kind ofshares available for awards under each of the Plans and the number and kind ofsecurities that are subject to the Plans and to any outstanding option.

 

***Amendments***

The Board of Directors may at any time amend, suspend or terminateeither of the Plans in such respect as it shall deem advisable; provided thatshareholder approval must be obtained if required by law.

 

***Tax Consequences***

No income is realized by the grantee under federal income tax law untila stock option is exercised. All of the stock options granted under the 2000Plan and the 2001 Plan are NSOs.  At thetime of exercise of an NSO, the optionee will realize ordinary compensationincome, and CenterSpan will generally be entitled to a deduction, in the amountby which the market value of the shares subject to the option at the time ofexercise exceeds the exercise price. CenterSpan’s deduction is conditioned uponwithholding income taxes on the income amount. Upon the sale of shares acquiredupon exercise of an NSO, the excess of the amount realized from the sale overthe market value of the shares on the date of exercise will be taxable to theoptionee.

 

Section 162(m) of the Code limits to $1,000,000 per person the amountthat CenterSpan may deduct for compensation paid to any of its most highlycompensated officers in any year after 1993. Because neither of the Plans wereapproved by CenterSpan’s shareholders, compensation received through theexercise of options granted under the 2000 Plan or the 2001 Plan’s subject tothe $1,000,000 deduction limit.

 

**OtherNon-Shareholder Approved Equity Arrangements**

On February 23, 2001, we issued nonqualified stock options to three ofour officers to purchase 125,000 shares each of our common stock at an exerciseprice of $13.438 per share.  Theseoptions were not awarded pursuant to any of our equity compensation plans.  Because each option was issued as aninducement essential to the officer’s entering into employment with CenterSpan,shareholder approval of the options was not required.  One quarter of the shares subject to each option vested andbecame exercisable on the first anniversary of the grant and an additional 1/48of the shares vest monthly thereafter. One of the optionees resigned on February 7, 2003, the second optioneeresigned on February 14, 2003 and the third optionee resigned on February 28,2003.  At the time of theirresignations, 59,896, 59,896 and 62,500 shares, respectively, were vested undereach option.  The options will terminateand no longer be exercisable on May 8, 2003, May 15, 2003 and May 29, 2003,respectively if not exercised prior to that date.  Except as permitted by the Compensation Committee the options arenontransferable except on death. The options provide for the payment of theexercise price in cash, by check or any other method permitted by theCompensation Committee.

 

On February 3, 2000, we issued a stock option to Steven Frison topurchase 125,000 shares of our common stock at an exercise price of $23.875 pershare.  The option incorporates theterms and conditions of our 1998 Plan. When the grant was made, the 1998 Plan limited one-time grants to newlyhired individuals to 100,000 shares. Therefore, the portion of the option granted to purchase 25,000 sharesin excess of the 100,000 share limitation was awarded outside of any of ourequity compensation plans.  Because theoption was issued as an inducement essential to Mr. Frison’s entering intoemployment with CenterSpan, shareholder approval of the option was notrequired.  Pursuant to its terms,one-quarter of the shares subject to the option vest and become exercisable oneach of the first four anniversaries of the grant date.  Mr. Frison resigned on November 15,2002.  At that time, 75,000 shares werevested under the option.  The optionterminated unexercised on February 15, 2003. The option is nontransferable except on death.  Payment of the exercise price must be made in cash or by check.

 

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**BENEFICIAL OWNERSHIP TABLE**

 

The following table sets forth certain information regarding beneficialownership as of March 31, 2003 of our common stock by (i) each shareholderknown by us to be the beneficial owner of more than 5% of the outstandingcommon stock, (ii) each director, (iii) each of the Named Executive Officers and(iv) all directors and executive officers as a group.  Except as otherwise indicated, we believe that the beneficialowners of our common stock listed below, based on information furnished by suchowners, have sole investment and voting power with respect to such shares.

 
|                                                                 |   | **Common  Stock(2)**      |   |
|----------------------------------------------------------------------|--------|---------------------------|--------|
| **Shareholder(1)**                                                   |   | **Number  of  Shares(3)** |   | **Percent  of Shares  Outstanding** |   |
| Peter R.  Kellogg(4)                                                 |   | 3,946,738                 |   | 33.2 | % |
| Sawtooth Capital  Management, L.P.(5)                                |   | 1,079,972                 |   | 9.8 | % |
| G. Gerald Pratt                                                      |   | 523,764                   |   | 4.8 | % |
| Frank G.  Hausmann                                                   |   | 565,903                   |   | 4.9 | % |
| Mark B. Conan                                                        |   | 181,444                   |   | 1.6 | % |
| Frederick M.  Stevens                                                |   | 94,291                    |   |   | * |
| David J.  Billstrom                                                  |   | 87,233                    |   |   | * |
| General Merrill  A. McPeak                                           |   | 86,642                    |   |   | * |
| Andrew F.  Mallinger                                                 |   | 69,896                    |   |   | * |
| Alfred M. Lee                                                        |   | 52,521                    |   |   | * |
| Richard S.  Sadowsky                                                 |   | 46,250                    |   |   | * |
| Steven G. Frison                                                     |   | —                    |   |   | * |
| All current  executive officers and directors as a group (6 persons) |   | 1,404,083                 |   | 11.8 | % |

 

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*                      Less than 1%

 

(1)               Unless otherwiseindicated, the address of each beneficial owner identified is CenterSpanCommunications Corporation, 7175 NW Evergreen Parkway #400, Hillsboro, Oregon97124.

 

(2)               Beneficialownership is based on 10,926,915 shares outstanding as of March 31, 2003 and isdetermined in accordance with the rules of the SEC.  For purposes of this table, a person is deemed to be thebeneficial owner of securities that (i) can be acquired by such person within60 days upon the exercise of options or warrants and (ii) are held by suchperson’s spouse or other immediate family member sharing such person’shousehold. Each beneficial owner’s percentage ownership is determined byassuming that options and warrants held by such person, but not those held byany other person, that are exercisable within 60 days after March 31, 2003,have been exercised.

 

(3)               Includes/excludesoptions and warrants currently exercisable or exercisable within 60 days/beyond60 days after March 31, 2003 for shares of our common stock as follows:

 

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| **Name**                                                     |   | **Includes  Shares  Subject to Options and/or  Warrants  Exercisable within 60 days** |   | **Excludes  Shares  Subject to Options and/or  Warrants Not  Exercisable within 60 days** |   |
|--------------------------------------------------------------|--------|---------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------|--------|
| Peter R. Kellogg                                             |   | 973,383                                                                               |   | —                                                                                    |   |
| Sawtooth Capital  Management, L.P.                           |   | 109,207                                                                               |   | —                                                                                    |   |
| G. Gerald Pratt                                              |   | 99,553                                                                                |   | 46,167                                                                                    |   |
| Frank G.  Hausmann                                           |   | 555,903                                                                               |   | 297,847                                                                                   |   |
| Mark B. Conan                                                |   | 180,444                                                                               |   | 74,556                                                                                    |   |
| Frederick M.  Stevens                                        |   | 89,553                                                                                |   | 46,167                                                                                    |   |
| David J.  Billstrom                                          |   | 85,833                                                                                |   | 54,167                                                                                    |   |
| General Merrill  A. McPeak                                   |   | 86,642                                                                                |   | 46,458                                                                                    |   |
| Andrew F.  Mallinger                                         |   | 69,896                                                                                |   | —                                                                                    |   |
| Alfred M. Lee                                                |   | 51,521                                                                                |   | —                                                                                    |   |
| Richard S.  Sadowsky                                         |   | 46,250                                                                                |   | 158,750                                                                                   |   |
| Steven G. Frison                                             |   | —                                                                                |   | —                                                                                    |   |
| All executive  officers and directors as a group (6 persons) |   | 963,734                                                                               |   | 649,556                                                                                   |   |

 

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(4)               Mr. Kellogg’saddress is c/o Spear, Leeds & Kellogg, 120 Broadway, New York, NY 10271.

 

(5)               Sawtooth CapitalManagement, L.P. is a registered investment advisor.  Sawtooth Partners, L.P. owns 711,835 of such shares. SawtoothCapital Management, L.P. is the sole general partner of Sawtooth Partners, L.P.Sawtooth Capital Management, Inc. is the sole general partner of SawtoothCapital Management, L.P., and Bartley B. Blout is the controlling shareholderof Sawtooth Capital Management, Inc. Sawtooth Capital Management, L.P. has shared voting and dispositivepower with respect to all shares held. The address for all of these persons is 360 East Avenue North, Suite400, Ketchum, ID, 83340.

 

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**Item 13.                   CertainRelationships and Related Transactions**

 

Peter Kellogg is an accredited investor who, as of February 21, 2003,beneficially owned 36.1% of CenterSpan’s outstanding shares of commonstock.  On June 10, 2002, we enteredinto a stand-by investment agreement with Mr. Kellogg who unconditionallyagreed to purchase up to 833,333 shares of our common stock at a price of $6.00per share.  Under the terms of theagreement, upon execution of the agreement, we issued a three-year warrant toMr. Kellogg to purchase 100,000 shares of our common stock at an exercise priceof $10.67.  The purchase price of thecommon stock and the exercise price of the warrant were established based onthe corresponding prices for the securities sold in CenterSpan’s privateplacements in February 2002 and April 2002. The purchase price reflected a discount of approximately 25% from theFebruary 2002 trailing 10-day volume weighted average price of CenterSpan’scommon stock.  The exercise price of thewarrant represented a premium of approximately 35% over the February 2002trailing 10-day volume weighted average price of CenterSpan’s commonstock.  We also agreed to issue anadditional three-year warrant to purchase one share of our common stock at anexercise price of $10.67 for each share of common stock purchased by Mr.Kellogg in excess of 100,000 shares.  Inconjunction with the stand-by investment agreement, Mr. Kellogg entered into astand-still agreement, in which he agreed, among other things, to vote hisshares for director nominees proposed by the Company’s Board of Directors andto refrain from taking certain actions with respect to shares of the Company’scommon stock over which he has voting and dispositive power.  Pursuant to the terms of the stand-byinvestment agreement, on August 22, 2002, we sold 833,333 shares of our commonstock to Mr. Kellogg for an aggregate purchase price of $5 million.  In connection with this purchase, we issued athree-year warrant to Mr. Kellogg to purchase 733,333 shares. Mr. Kellogg hashad no material relationship with the Company, other than as a shareholder oras a holder of warrants to purchase shares of the Company’s common stock.

 

Sawtooth Capital Management L.P. is an investment advisor that as ofMarch 25, 2003, beneficially owned 9.8% of CenterSpan’s outstanding shares ofcommon stock on that date.  In March of2002, we arranged a stand-by line of credit with Sawtooth in the amount of $1million upon which we could draw between July 1, 2002 and December 31,2002.  In exchange for this commitment,we issued a three-year warrant to Sawtooth to purchase 20,000 shares of ourcommon stock at $7.20 per share, the market price of our common stock on thedate the line of credit was arranged. CenterSpan did not draw on this line of credit.

 

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**SIGNATURES**

 

Pursuant to the requirements of Section 13 or 15(d) of the SecuritiesExchange Act of 1934, the Registrant has duly caused this report to be signedon its behalf by the undersigned, hereunto duly authorized.

 
| Date:  April  30, 2003 |   | CENTERSPAN COMMUNICATIONS CORPORATION                                                                                  |
|-----------------------------|--------|------------------------------------------------------------------------------------------------------------------------|
|                        |   |                                                                                                                   |
|                        |   | By                                                                                                                     | /s/ Frank G. Hausmann, Jr. |   |
|                        |   | Frank G. Hausmann, Jr.*President,  Chief Executive Officer, Chairman of the  Board and acting Chief Financial Officer* |

 

Pursuant to the requirements of the Securities Exchange Act of 1934,this report has been signed below by the following persons on behalf of the Registrantand in the capacities indicated on April 30, 2003:

 
| **Signature**              |   | **Title**                                                                                                                                                                  |
|----------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                       |   |                                                                                                                                                                       |
| /s/ Frank G. Hausmann, Jr. |   | President, Chief Executive Officer (Principal  Executive (Officer), acting Chief Financial Officer (Principal Financial and  Accounting Officer) and Chairman of the Board |
| Frank G. Hausmann, Jr.     |
|                       |   |                                                                                                                                                                       |
| /s/ David Billstrom*       |   | Director                                                                                                                                                                   |
| David Billstrom            |   |                                                                                                                                                                       |
|                       |   |                                                                                                                                                                       |
| /s/ Merrill A. McPeak*     |   | Director                                                                                                                                                                   |
| Merrill A. McPeak          |   |                                                                                                                                                                       |
|                       |   |                                                                                                                                                                       |
| /s/ G. Gerald Pratt*       |   | Director                                                                                                                                                                   |
| G. Gerald Pratt            |   |                                                                                                                                                                       |
|                       |   |                                                                                                                                                                       |
| /s/ Frederick M. Stevens*  |   | Director                                                                                                                                                                   |
| Frederick M. Stevens       |   |                                                                                                                                                                       |

 
| *By:   | /s/ Frank G. Hausmann, Jr. |                                       |   |
|--------|----------------------------|--------------------------------------------|--------|
|   |                       | Frank G.  Hausmann, Jr.,*Attorney-in-Fact* |   |   |
|        |                            |                                            |        |  |

 

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