-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NuhnFMJ9to+F11+/PuQ9w2+mFM0veSQ0UsFEcsS1ifrjSVjgwuAqj2rHHIYcVg4C Hi75VrbtcjFEhhnA9pXZgg== 0000950134-03-006929.txt : 20030501 0000950134-03-006929.hdr.sgml : 20030501 20030501151828 ACCESSION NUMBER: 0000950134-03-006929 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030501 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HIGH SPEED ACCESS CORP CENTRAL INDEX KEY: 0001075244 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 611324009 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26153 FILM NUMBER: 03676715 BUSINESS ADDRESS: STREET 1: 1000 W ORMSBY AVE STREET 2: SUITE 210 CITY: LOUISVILLE STATE: KY ZIP: 40210 MAIL ADDRESS: STREET 1: 1000 W ORMSBY AVE STREET 2: SUITE 210 CITY: LOUISVILLE STATE: KY ZIP: 40210 10-Q 1 d05289e10vq.txt FORM 10-Q ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q --------------- (Mark One) [X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2003. [ ] 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 000-26153 --------------- HIGH SPEED ACCESS CORP. (Exact name of Registrant as specified in its charter) DELAWARE 61-1324009 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 9900 CORPORATE CAMPUS DRIVE, SUITE 3000 LOUISVILLE, KENTUCKY 40223 (Address of principal executive offices, including zip code) 502/657-6340 (Registrant's telephone number, including area code) FORMER NAME, FORMER ADDRESS, AND FORMER YEAR, IF CHANGED SINCE LAST REPORT: NOT APPLICABLE Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [X] 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 [X] NO [ ] Number of shares of Common Stock outstanding as of April 18, 2003... 40,294,783 1 INDEX
PAGE ------ PART I - FINANCIAL INFORMATION Item 1 - Financial Statements (Unaudited) Condensed Consolidated Statements of Net Assets in Liquidation as of March 31, 2003 and December 31, 2002 3 Condensed Consolidated Statement of Changes in Net Assets in Liquidation for the three months ended March 31, 2003 4 Condensed Consolidated Statement of Operations (Going Concern Basis) for the three months ended March 31, 2002 5 Condensed Consolidated Statement of Cash Flows (Going Concern Basis) for the three months ended March 31, 2002 6 Notes to Condensed Consolidated Financial Statements 7 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Item 3 - Quantitative and Qualitative Disclosures About Market Risk 20 Item 4 - Controls and Procedures 20 PART II - OTHER INFORMATION Item 1 - Legal Proceedings 20 Item 2 - Changes in Securities and Use of Proceeds 21 Item 3 - Defaults upon Senior Securities 22 Item 4 - Submission of Matters to a Vote of Security Holders 22 Item 5 - Other Information 22 Item 6 - Exhibits and Reports on Form 8-K 22 Signatures 23
2 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS HIGH SPEED ACCESS CORP. CONDENSED CONSOLIDATED STATEMENTS OF NET ASSETS IN LIQUIDATION (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED)
MARCH 31, DECEMBER 31, 2003 2002 ------------ ------------ ASSETS Cash and cash equivalents $ 64,256 $ 63,640 Short-term investments 1,250 1,237 Interest receivable 260 392 Charter holdback 1,053 2,092 Furniture and fixtures 112 113 ------------ ----------- Total assets 66,931 67,474 ------------ ----------- LIABILITIES Accounts payable and accrued liabilities 2,096 2,571 Estimated costs to be incurred during the liquidation period 1,016 1,089 ------------ ----------- Total liabilities 3,112 3,660 ------------ ----------- Net assets in liquidation 63,819 63,814 Less: Contingency reserve 2,000 2,000 ------------ ----------- Net assets available for distribution to stockholders $ 61,819 $ 61,814 ============ =========== Net assets in liquidation per share $ 1.58 $ 1.58 Net assets available for distribution to stockholders per share $ 1.53 $ 1.53 Outstanding shares used in computing per share amounts 40,294,783 40,294,783
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 HIGH SPEED ACCESS CORP. CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION FOR THE THREE MONTHS ENDED MARCH 31, 2003 (IN THOUSANDS) (UNAUDITED)
Net assets in liquidation at December 31, 2002 $ 63,814 Adjust assets and liabilities to fair value 61 Accrue additional estimated costs during liquidation (56) ---------- Net assets in liquidation at March 31, 2003 $ 63,819 ==========
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 HIGH SPEED ACCESS CORP. CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (GOING CONCERN BASIS) FOR THE THREE MONTHS ENDED MARCH 31, 2002 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED) General and administrative operating expenses: General and administrative expenses $ 3,210 Non-cash compensation expense from restricted stock 326 -------------- Total general and administrative operating expenses 3,536 -------------- Loss from continuing operations before other income (expense) and discontinued operations (3,536) Investment income 189 Interest expense (224) --------------- Loss from continuing operations before discontinued operations (3,571) Discontinued operations: Loss from discontinued operations, net (4,112) Gain on sale of operations to Charter 40,259 -------------- Net income $ 32,576 ============== Basic and diluted net income per share: Loss from continuing operations $ (0.07) Loss from discontinued operations (0.07) Gain on sale of operations to Charter 0.77 -------------- Net income $ 0.63 ============== Weighted average shares used in computation of basic and diluted net income per share 52,018,876
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 HIGH SPEED ACCESS CORP. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (GOING CONCERN BASIS) FOR THE THREE MONTHS ENDED MARCH 31, 2002 (IN THOUSANDS) (UNAUDITED) OPERATING ACTIVITIES Net income $ 32,576 Adjustments to reconcile net income to cash used in operating activities of continuing operations: Loss from discontinued operations, net 4,112 Gain on sale of operations to Charter (40,259) Loss on early extinguishment of debt and capital lease obligations 2,041 Non-cash compensation expense from restricted stock 326 Changes in operating assets and liabilities excluding the effect of dispositions: Prepaid expenses (332) Accrued compensation and related expenses (537) ----------- Net cash used in operating activities of continuing operations (2,073) Net cash used in operating activities of discontinued operations (4,915) ---------- Net cash used in operating activities (6,988) ---------- INVESTING ACTIVITIES Purchases of short-term investments (30,783) Sales and maturities of short-term investments 4,986 ---------- Net cash used in investing activities of continuing operations (25,797) Net cash provided by investing activities of discontinued operations 74,622 ---------- Net cash provided by investing activities 48,825 ---------- FINANCING ACTIVITIES Repurchase of common stock (4,449) ----------- Net cash used in financing activities of continuing operations (4,449) Net cash used in financing activities of discontinued operations (10,697) ---------- Net cash used in financing activities (15,146) ---------- Net change in cash and cash equivalents from continuing operations (32,319) Net change in cash and cash equivalents from discontinued operations 59,010 ---------- Net change in cash and cash equivalents 26,691 Cash and cash equivalents, beginning of period 11,714 ---------- Cash and cash equivalents, end of period $ 38,405 ========== SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Property and equipment purchases payable $ 220
The accompanying notes are an integral part of these condensed consolidated financial statements. 6 ITEM 1 - NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - BASIS OF PRESENTATION The unaudited condensed consolidated financial statements of High Speed Access Corp. and its subsidiaries (herein referred to as the Company, we, us, or our) included herein reflect all adjustments, consisting only of normal recurring adjustments, which in the opinion of management are necessary to present fairly the Company's net assets in liquidation and changes in net assets in liquidation or financial position, results of operations and cash flows for the periods presented. Certain information and footnote disclosures normally included in audited financial information prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the Securities and Exchange Commission's rules and regulations. The Board of Directors unanimously adopted a Plan of Liquidation and Dissolution (the "Plan") on August 13, 2002. The Plan was approved by the holders of a majority of the Company's shares on November 27, 2002. The key features of the Plan are (1) filing a Certificate of Dissolution with the Secretary of State of Delaware and thereafter remaining in existence as a non-operating entity for three years; (2) winding up our affairs, including the settlement of any then-outstanding issues with Charter (see Note 2, "Discontinued Operations") relating to the Asset Sale, selling any remaining non-cash assets of the Company, and taking such action as may be necessary to preserve the value of our assets and distributing our assets in accordance with the Plan; (3) paying our creditors; (4) terminating any of our remaining commercial agreements, relationships or outstanding obligations; (5) resolving our outstanding litigation; (6) establishing a Contingency Reserve for payment of the Company's expenses and liabilities; and (7) preparing to make distributions to our stockholders. Under Delaware law, the Company will remain in existence as a non-operating entity until December 4, 2005 and is required to maintain a certain level of liquid assets and reserves to cover any remaining liabilities and pay operating costs during the dissolution period. During the dissolution period, the Company will attempt to convert its remaining assets to cash and settle its liabilities as expeditiously as possible. These financial statements should be read in conjunction with the financial statements, notes and discussions thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2002 and our October 25, 2002 Proxy Statement. LIQUIDATION BASIS OF ACCOUNTING The condensed consolidated financial statements for the three months ended March 31, 2002 were prepared on the going concern basis of accounting, which contemplates realization of assets and satisfaction of liabilities in the normal course of business. As a result of the adoption of the Plan, the Company adopted the liquidation basis of accounting effective November 27, 2002. Inherent in the liquidation basis of accounting are significant management estimates and judgments. Under the liquidation basis of accounting, assets are stated at their estimated net realizable values and liabilities, including costs of liquidation, are stated at their anticipated settlement amounts, all of which approximate their estimated fair values. The estimated net realizable values of assets and settlement amounts of liabilities represent our best estimate of the recoverable values of the assets and settlement amounts of liabilities. There can be no assurance, however, that we will be successful in selling the assets at their estimated net realizable value or in settling the liabilities at their estimated amounts. The liquidation basis of accounting requires that we accrue an estimate for all liabilities related to expenses to be incurred during the wind up period. While we believe our estimates are reasonable under the circumstances, if the length of our wind up period were to change or other conditions were to arise, actual results may differ from these estimates and those differences may be material. In order to record assets at estimated net realizable value and liabilities at estimated settlement amounts under liquidation basis accounting, the Company recorded the following adjustments to record its assets and liabilities to fair value as of November 27, 2002, the date of adoption of liquidation basis accounting (in thousands): ADJUST ASSETS AND LIABILITIES TO FAIR VALUE: Record future interest income $ 551 Write-off prepaid expenses (168) Adjust furniture and fixtures to fair value 150 Adjust accounts payable and accrued expenses to fair value 123 ---------- Total adjustments to fair value 656 ---------- ACCRUE ESTIMATED COSTS DURING LIQUIDATION: Costs to be incurred during the liquidation period (1,110) ---------- Total estimated costs during liquidation (1,110) ---------- Total liquidation adjustments $ (454) ==========
7 The amount and timing of liquidating distributions will depend upon a variety of factors including, but not limited to, the actual proceeds from the realization of the Company's assets, the ultimate settlement amounts of the Company's liabilities and obligations and actual costs incurred in connection with carrying out the Plan, including salaries, administrative and operating costs during the liquidation period. A summary of significant estimates and judgments utilized in preparation of the March 31, 2003 consolidated financial statements on a liquidation basis follows: Interest Receivable. At March 31, 2003, interest receivable of $0.3 million represents the Company's estimate of future interest earnings on cash, cash equivalents and short-term investments over the liquidation period through December 4, 2005 and accounts for less than 0.5% of the Company's total estimated assets. Charter Holdback. At March 31, 2003, the Charter holdback of $1.1 million represents the remaining amount of the Asset Sale purchase price held back by Charter to secure indemnity claims against the Company under the Asset Purchase Agreement plus accrued interest. On February 28, 2003, Charter notified the Company of its assertion of a potential claim for indemnity in respect of Charter being named as a "successor in interest" to the Company in the IPO Litigation (see Note 5, "Commitments, Guarantees and Contingencies"), and deferred release of half of the $2.0 million indemnity holdback. The Company collected $1.0 million of its indemnity holdback plus accrued interest from Charter, and will seek the release of the $1.0 million balance plus accrued interest if and at such time as Charter is dismissed as a defendant in the IPO Litigation or the IPO Litigation is otherwise settled, minus Charter's actual defense costs if such costs exceed $250,000. Furniture and Fixtures. At March 31, 2003, furniture and fixtures of $0.1 million represents the Company's estimate of cash proceeds to be received on the sale of office furniture. Accounts Payable and Accrued Liabilities. At March 31, 2003, accounts payable and accrued expenses were $2.1 million. Included in this amount are accrued circuit termination charges of $0.2 million and other known obligations totaling $1.0 million, including $0.2 million for the expected payout on 2,862,174 stock options outstanding under the Company's stock option plans that were cancelled on March 3, 2003. The balance of $0.9 million in accounts payable and accrued liabilities is comprised of the following items: o Severance and Other Compensation. Severance and other compensation in the amount of $0.7 million represents severance payable to our former President and Chief Executive Officer of $0.5 million, as well as other healthcare and compensation expenses for current and former employees. o Estimated Litigation Settlement Costs. Litigation settlement costs in the amount of $0.2 million represents the Company's expected proportional share of fees and expenses related to settling the Delaware Class Action lawsuits (Denault v. O'Brien, et. al., Civil Action No. 19045-NC, Tesche v. O'Brien, et al., Civil Action No. 19046-NC, Johnson v. O'Brien, et. al., Civil Action No. 19053-NC, and Krim v. Allen, et al., Civil Action 19478-NC). Estimated Costs to be Incurred During The Liquidation Period. At March 31, 2003, the Company estimates that there are $1.0 million of costs to be incurred through December 4, 2005, including compensation for liquidation personnel ($0.4 million), professional fees ($0.5 million), and miscellaneous other costs ($0.1 million). Contingency Reserve. In view of the duration of the liquidation period to December 4, 2005, and provision in Delaware law that the Company maintain reserves sufficient to allow for the payment of all its liabilities and obligations, including all contingent, conditional and unmatured claims, the Company established a Contingency Reserve upon the adoption of liquidation basis accounting on November 27, 2002. The amount of reserve initially established was $2.0 million and is unchanged as of March 31, 2003. At March 31, 2003, the Company has no known material claims against this reserve and will periodically assess whether maintenance of a lower or higher Contingency Reserve is required. In the event there are no claims against this reserve, the amount of liquidation proceeds that may be paid to stockholders will be increased. 8 Stock-Based Employee Compensation. The Company accounted for stock-based awards to employees in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and adopted the disclosure-only requirements of SFAS No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123"). The following illustrates the effect on net income and net income per share for the three months ended March 31, 2002 if the fair value based method of SFAS 123 had been applied to all outstanding and unvested awards (in thousands). Net income as reported........................................... $ 32,576 Add: Stock based employee compensation expense included in reported net income........................................... 350 Deduct: Total stock-based employee compensation expense determined under fair value based methods for all awards...... (3,319) ---------- Pro forma net income (loss)...................................... $ 29,607 ========== Basic and diluted net income (loss) per share: As reported.................................................. $ 0.63 Pro forma.................................................... $ 0.57
NOTE 2 - DISCONTINUED OPERATIONS HIGH SPEED INTERNET ACCESS AND RELATED SERVICES On February 28, 2002, the Company consummated the sale of substantially all of its assets (the "Asset Sale") to CC Systems, LLC immediately after obtaining the required approval of the Company's stockholders. The Asset Sale was effected pursuant to an asset purchase agreement (the "Asset Purchase Agreement"), dated September 28, 2001, between the Company and Charter Communications Holding Company, LLC. Subsequent to September 28, 2001, Charter Communications Holding Company, LLC assigned to CC Systems, LLC the rights to purchase assets and certain other rights under the Asset Purchase Agreement and certain other related agreements. Except as otherwise specifically noted or unless the context otherwise requires, any reference herein to "Charter" should be deemed a reference individually and/or collectively to any of the following Charter entities: Charter Communications Holding Company, LLC, Charter Communications, Inc., CC Systems, LLC, and Charter Communications Ventures, LLC. The assets acquired by Charter pursuant to the Asset Purchase Agreement were used by the Company primarily in the provision of high speed Internet access to residential and commercial customers of Charter via cable modems. Subsequent to the Asset Sale, we do not own or operate any revenue-generating businesses. Pursuant to the terms of the Asset Purchase Agreement, Charter acquired certain assets from us in consideration for (i) the payment to us of a cash amount equal to $81.1 million, subject to certain adjustments, (ii) the assumption of certain of our operating liabilities, and (iii) the tender to us of all our outstanding shares of Series D Preferred Stock and warrants held by Charter to purchase shares of common stock. On February 28, 2002, Charter held back an aggregate of $3.4 million of the purchase price to secure certain purchase price adjustments and indemnity claims against the Company under the Asset Purchase Agreement. Of this amount, $1.4 million was paid to us on April 30, 2002 and $1.0 million plus accrued interest was paid to us on February 28, 2003. The Company received from Charter on February 28, 2002, a net cash amount equal to $69.5 million. The payment consisted of the following (in millions): Cash purchase price per the Asset Purchase Agreement...... $ 81.1 -------- Adjustments: Current assets acquired by Charter, as adjusted per the Asset Purchase Agreement........................ 4.5 Capital leases, debt and other liabilities assumed or paid by Charter.................................. (12.7) Indemnity holdbacks.................................... (3.4) -------- Total adjustments................................ (11.6) -------- Net cash proceeds from sale to Charter................. $ 69.5 ========
Under the Asset Purchase Agreement: 9 o We sold substantially all of our revenue-generating fixed assets with a net book value of $22.8 million at February 28, 2002. o We sold all accounts receivable related to Charter systems with a net book value of $4.1 million at February 28, 2002 for which we received a purchase price adjustment. o The Company paid to Charter $5.1 million for outstanding launch fees. o Charter paid to the Company $2.2 million for expenses incurred by the Company on Charter's behalf prior to September 28, 2001. o Charter assumed certain of the Company's operating and capital lease obligations with future minimum lease payments of $13.5 million. o The Company paid $2.2 million to retire all outstanding long-term debt and $8.1 million to pay-off substantially all of the Company's remaining capital lease obligations. In connection with these payments, the Company recorded a loss on the early extinguishment of debt and capital lease obligations of $2.0 million during the first quarter of 2002. o Warrants to purchase 2,650,659 shares of our Company's common stock earned by Charter under various distribution agreements were cancelled. o All of the Company's 75,000 outstanding shares of Series D Preferred Stock were cancelled. o Charter assumed certain commitments relating to circuits with a national telecommunications company with future minimum payments of $7.4 million through 2003. o On February 28, 2002, the Company paid an additional $3.4 million of expenses related to the Asset Sale. The total expenses paid were $6.4 million. The Company recorded a gain on the Asset Sale to Charter of $40.3 million during the first quarter of 2002. The components of the gain are as follows (in millions): Net cash proceeds from sale to Charter...... $ 69.5 Fair value of preferred stock............... 3.7 Liabilities assumed by Charter.............. 14.4 Book value of assets acquired by Charter.... (44.3) Indemnity holdbacks......................... 3.4 Transaction expenses........................ (6.4) -------- Gain on Asset Sale.......................... $ 40.3 ========
Also on February 28, 2002, the Company purchased 20,222,139 shares of our common stock from Vulcan Ventures Incorporated ("Vulcan") for an aggregate purchase price of $4.4 million, or $0.22 per share. The consummation of the Asset Sale was a condition precedent to the purchase of common stock from Vulcan. The Board of Directors approved the cancellation of these shares in March, 2002 and they were officially retired in September, 2002. Following the consummation of the Asset Sale and the purchase of common stock from Vulcan, none of Vulcan, Charter or any of their respective affiliates hold any equity interest in the Company. Accordingly, the Company is no longer affiliated with Vulcan, Charter, or any of their respective affiliates. The Asset Sale completed the discontinuance of the Company's high speed Internet access and related services business. The Company adopted Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS 144) on January 1, 2002. SFAS 144 supersedes Emerging Issues Task Force Issue No. 95-18 "Accounting and Reporting for a Discontinued Business Segment When the Measurement Date Occurs after the Balance Sheet Date but before the Issuance of Financial Statements" and requires a discontinued operation to be accounted for under SFAS 144 if a measurement date for the discontinued operations is not reached under Accounting Principles Board Opinion No. 30, "Reporting Results of Operations - Reporting the Effects of Disposal of a Segment of a Business" prior to the entity's period-end. The measurement date for the discontinuance of the Company's high speed Internet access and related services business that included the Asset Sale occurred on February 28, 2002, the date on which the Company's stockholders approved the Asset Sale. Consequently, the results of operations of the high speed Internet access and related services business have been presented as discontinued. INTERNATIONAL ISP INFRASTRUCTURE SERVICES On December 31, 2001, the Company terminated its agreement with Kabel Nordrhein-Westfalen GmbH & Co. KG ("KNRW") in Germany for the provision of international ISP infrastructure services. The results of this operation have also been classified as discontinued. NOTE 3 - STOCKHOLDERS' EQUITY 10 Activity in stockholders' equity for the three months ended March 31, 2002 was as follows (in thousands except share amounts):
PREFERRED STOCK COMMON STOCK --------------- ----------------- TREASURY STOCK COMPRE- STOCK- PAID-IN DEFERRED ACCUMULATED ------------------- HENSIVE HOLDERS' SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT SHARES AMOUNT LOSS EQUITY ------ ------ ---------- ------ -------- ------------ ----------- ------ ------- ------- -------- Balance at December 31, 2001 75,000 $ 1 60,394,835 $ 604 $742,144 $(1,763) $(698,791) -- $ -- $ 38 $42,233 Amortization of deferred compensation 350 350 Purchase of treasury stock 20,222,139 (4,449) (4,449) Retirement of preferred stock (75,000) (1) (3,663) (3,664) Net unrealized gain on investments 15 15 Net income 32,576 32,576 ------- ---- ---------- ----- -------- ------- --------- ---------- ------ ----- ------- Balance at March 31, 2002 -- $ - 60,394,835 $ 604 $738,481 $(1,413) $(666,215) 20,222,139 $(4,449) $ 53 $67,061 ======== ==== ========== ===== ======== ======= ========= ========== ======= ===== =======
COMPREHENSIVE INCOME (LOSS) Comprehensive income, comprised of net income and net unrealized holding gains and losses on investments, totaled $32.6 million for the three months ended March 31, 2002. NOTE 4 - INCOME PER SHARE For the three months ended March 31, 2002, the Company computed net income per share under the provisions of SFAS No. 128, "Earnings per Share," ("SFAS 128"). Under the provisions of SFAS 128, basic net income per share was computed by dividing the net income for the period by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share was determined in the same manner as basic earnings per share, except that the number of shares was increased assuming exercise of dilutive stock options and warrants using the treasury stock method, assuming conversion of preferred stock, and assuming vesting of restricted stock awards. In addition, income was adjusted for dividends and other transactions relating to preferred stock for which conversion was assumed. The calculation of diluted net income per share excluded potential common shares if the effect was anti-dilutive. Basic and diluted net income per share for the three months ended March 31, 2002 was $0.63 based on weighted average shares outstanding of 52,018,876. Diluted net income per share equals basic net income per share because the assumed exercise of the Company's stock options and warrants, the assumed conversion of preferred stock, and the vesting of restricted stock is anti-dilutive to the loss from continuing operations per share. Stock options and warrants to purchase 5,934,778 shares of our common stock at March 31, 2002 were excluded from the calculation of diluted net income per share as they were anti-dilutive. NOTE 5 - COMMITMENTS, GUARANTEES AND CONTINGENCIES The Delaware Class Action Lawsuits. The Company, our then directors, certain former directors as well as Charter and Paul Allen, were named as defendants in four putative class action lawsuits filed in the Court of Chancery of the State of Delaware (Denault v. O'Brien, et. al., Civil Action No. 19045-NC, Tesche v. O'Brien, et al., Civil Action No. 19046-NC, Johnson v. O'Brien, et. al., Civil Action No. 19053-NC, and Krim v. Allen, et al., Civil Action 19478-NC). All four lawsuits, which alleged breach of fiduciary duties by the individual defendants and Charter, were consolidated and settled with the approval of the Delaware Chancery Court on April 16, 2003. No objections to the settlement were filed, and any appeals must be filed by May 16, 2003. Assuming no appeals are filed, the Company will pay its $166,500 portion of the $390,000 settlement amount required to reimburse plaintiffs' counsel for their fees and expenses incurred in the litigation. The Company will not make any liquidation distributions until the court's approval of the settlement (including any appeals) is final in all respects. The IPO Litigation. Also, on November 5, 2001, the Company, our President and Chief Financial Officer (Mr. George Willett) and one of our former Presidents (Mr. Ron Pitcock), together with Lehman Brothers, Inc., J.P. Morgan Securities, Inc., CIBC World Markets Corp., and Banc of America Securities, Inc., were named as defendants in a purported class action lawsuit filed in the United States District Court for the Southern District of New York (Ruthy Parnes v. High Speed Access Corp., et. al., Index No. 01-CV-9743(SAS)). The lawsuit alleges that our Registration Statement, dated June 3, 1999, and Prospectus, dated June 4, 1999, for the issuance and initial public offering of 13,000,000 shares of our common stock to investors contained material misrepresentations and/or omissions. The purported class action alleges violations of Sections 11 and 15 of the Securities Act of 1933 (the "1933 Act") and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "1934 Act") and Rule 10b- promulgated thereunder. The 11 essence of the complaints is that defendants issued and sold our common stock pursuant to the Registration Statement for the IPO without disclosing to investors that certain underwriters in the offering had solicited and received excessive and undisclosed commissions from certain investors. The complaints also allege that our Registration Statement for the IPO failed to disclose that the underwriters allocated Company shares in the IPO to customers in exchange for the customers' promises to purchase additional shares in the aftermarket at pre-determined prices above the IPO price, thereby maintaining, distorting and/or inflating the market price for the shares in the aftermarket. The plaintiff asks to represent the interest of all holders of our common stock and seeks unspecified monetary damages. On July 15, 2002, the Company moved to dismiss all claims against it and Messrs. Willett and Pitcock. The allegations against Messrs. Willett and Pitcock were dismissed without prejudice on October 11, 2002 pursuant to a Reservation of Rights and Tolling Agreement dated as of July 20, 2002. On February 19, 2003, the Court denied the Company's motion to dismiss the alleged violations of Section 11 and 15 of the 1933 Act. However, the Court granted the Company's motion to dismiss the alleged violations of Sections 10(b) and 20(a) of the 1934 Act and Rule 10b- promulgated thereunder. This action is being coordinated with nearly three hundred other nearly identical actions filed against other companies. Prior to the February 19, 2003 ruling on the Company's motion to dismiss, there were settlement discussions among the plaintiffs, the company defendants and their insurance carriers, which if closed would have removed the Company from the litigation without payment of any funds. However, as a result of the recent ruling, we cannot opine as to whether or when a settlement might occur. With respect to the allegations against the Company, we believe this lawsuit is without merit and intend to continue to vigorously defend against the claims made therein. We express no opinion as to the allegations lodged against Lehman Brothers, Inc., J.P. Morgan Securities, Inc., CIBC World Markets Corp., and Banc of America Securities Inc. On February 28, 2003, Charter notified the Company of its assertion of a potential claim for indemnity in respect of Charter being named as a "successor in interest" to the Company in the IPO Litigation (the "Charter IPO Litigation Indemnity Claim"), and deferred release of half of the $2.0 million indemnity holdback until such time as we obtain the dismissal of Charter as a defendant in the IPO Litigation or the IPO Litigation is otherwise settled, minus Charter's actual defense costs if such costs exceed $250,000. On February 28, 2003, we collected $1.0 million of the indemnity holdback plus accrued interest thereon from Charter. We do not believe Charter is a "successor in interest" to the Company, and are attempting to obtain an out-of-court dismissal of Charter from the IPO Litigation. If we are not successful in this effort, we may either file a motion with the court to obtain Charter's dismissal or wait on a possible settlement of the IPO Litigation with respect to the Company. We do not believe that the IPO litigation will have a material adverse effect on our net assets in liquidation. Indemnification of Charter. In connection with the Asset Sale, we agreed to indemnify Charter against all claims arising from breaches of our representations, warranties and covenants, various excluded liabilities and the pre-closing operation of the assets we sold to Charter. The material representations and warranties related to, among other things: the necessary stockholder approval required to consummate the Asset Sale; the absence of defaults under our material agreements; the assets being sold comprising of all material assets used in the provision of high speed Internet access to Charter's customers via cable modems; the absence of certain changes or events; compliance with applicable laws, including environmental laws; the absence of litigation; the status of our material contracts, capital leases and operating leases; real property, including leased premises; title to and condition of the assets being sold; intellectual property rights; taxes; labor matters; employee benefit plans; our solvency immediately following the closing; and the correctness of information we provided to Houlihan Lokey and Lehman Brothers in connection with the issuance of their fairness opinion. With the exception of certain representations and warranties and covenants described below, all of the above-noted representations and warranties are in effect through August 31, 2003, however any claims arising from any breaches of these representations and warranties can only be asserted against and are limited to the $2.0 million indemnification holdback that was released to us on February 28, 2002 (subject to the single $1.0 million potential claim described below). The following representations and warranties and covenants extend beyond August 31, 2003 and are not subject to any limitations: (i) breaches of representations and warranties related to title to the acquired assets, and certain matters affecting intellectual property, technology and know-how, will be in effect until the Company is finally dissolved on December 5, 2005; 12 (ii) breaches of representations and warranties related to taxes, certain employee benefit plans and environmental matters will be in effect through February 28, 2004; (iii) the excluded liabilities, including the $1.0 million claim pertaining to Charter being named as a defendant and "successor in interest" to the Company in the IPO Litigation; (iv) our operation of the assets sold to Charter prior to the closing of the Asset Sale; and (v) common law fraud. The Company has no liability to Charter for claims arising from breaches of our representations and warranties unless the damages in the aggregate for such breaches exceed $250,000, in which case Charter is entitled to reimbursement from the first dollar of such damages. However, Charter is entitled to reimbursement from the first dollar of damages related to (i) breaches of post-closing covenants and representations and warranties related to title, taxes, certain benefit plans and environmental matters, (ii) the excluded liabilities, (iii) operation of the assets sold to Charter prior to the closing of the Asset Sale, and (iv) actual common law fraud, and such damages are unlimited. These indemnification obligations are limited to actual damages. The Company has no liability to Charter for indirect or consequential damages. On February 28, 2003, Charter notified the Company of its assertion of a potential claim for indemnity in respect of Charter being named as a "successor in interest" to the Company in the IPO Litigation (the "Charter IPO Litigation Indemnity Claim"), and deferred release of half of the $2.0 million indemnity holdback until such time as we obtain the dismissal of Charter as a defendant in the IPO Litigation or the IPO Litigation is otherwise settled, minus Charter's actual defense costs if such costs exceed $250,000. On February 28, 2003, we collected $1.0 million of the indemnity holdback plus accrued interest thereon from Charter. We do not believe Charter is a "successor in interest" to the Company, and are attempting to obtain an out-of-court dismissal of Charter from the IPO Litigation. If we are not successful in this effort, we may either file a motion with the court to obtain Charter's dismissal or wait on a possible settlement of the IPO Litigation with respect to the Company. Other than the Charter IPO Litigation Indemnity Claim described above, we are aware of no other claims that Charter has or intends to assert against us in connection with the Asset Sale. NOTE 7 - RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS In May 2002, the FASB issued SFAS No. 145 ("SFAS 145"), "Rescission of SFAS Nos. 4, 44, 64, Amendment of SFAS 13, and Technical Corrections as of April 2002." SFAS 145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt," which required that gains and losses from extinguishment of debt that were included in the determination of net income be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect. Under SFAS 145, gains or losses from extinguishment of debt should be classified as extraordinary items only if they meet the criteria in Accounting Principal's Board Opinion No. 30 ("APB 30"), "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions". Applying the criteria in APB 30 will distinguish transactions that are part of an entity's recurring operations from those that are unusual or infrequent or that meet the criteria for classification as an extraordinary item. The Company adopted SFAS 145 on January 1, 2003. The losses on early extinguishment of debt and capital lease obligations that were classified as extraordinary items in prior periods presented that did not meet the criteria of APB 30 for classification as extraordinary items were reclassified to loss from operations. In November 2002, the FASB, issued FASB Interpretation No. 45 ("FIN 45"), Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34. Fin 45 requires that upon issuance of a guarantee, the entity must recognize a liability for the fair value of the obligation it assumes under that guarantee. FIN 45 requires disclosure about each guarantee even if the likelihood of the guarantor's having to make any payments under the guarantee is remote. The provisions for initial recognition and measurement are effective on a prospective basis for guarantees that are issued or modified after December 31, 2002 and the disclosure provisions of FIN 45 were effective for our December 31, 2002 financial statements. Adopting the recognition provisions of FIN 45 did not have an impact on the Company. We have made the disclosures required by FIN 45 in the notes to our consolidated financial statements (see Note 5, "Commitments, Guarantees and Contingencies"). In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"), Consolidation of Variable Interest Entities, an interpretation of ARB 51. The primary objectives of FIN 46 are to provide guidance on the identification of entities for which control is achieved 13 through means other than through voting right (variable interest entities, or VIEs) and how to determine when and which business enterprise should consolidate the VIE (the primary beneficiary). The provisions of FIN 46 are effective immediately for VIEs created after January 31, 2003 and no later than July 1, 2003 for VIEs created before February 1, 2003. In addition, FIN 46 requires that both the primary beneficiary and all other enterprises with a significant variable interest make additional disclosure in filings issued after January 31, 2003. The adoption of FIN 46 is not expected to have an impact on the Company because we do not hold any interest in an entity qualifying as a VIE. In January 2003, the FASB issued Statement No. 148 ("SFAS 148"), Accounting for Stock-Based Compensation - Transition and Disclosure. SFAS 148 amends FASB Statement No. 123 ("SFAS 123"), Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. See Note 1, "Basis of Presentation" for our stock option accounting policy and required disclosures. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Quarterly Report on Form 10-Q contains certain statements of a forward-looking nature relating to future events or the future financial performance of the Company. Such statements are only predictions, involve risks and uncertainties, and actual events or results may differ materially from the results discussed in the forward-looking statements. Factors that could cause or contribute to such differences include those discussed under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Factors" as well as those discussed in other filings with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2002. OVERVIEW High Speed Access Corp. (hereinafter referred to as the Company, we, us or our) formerly provided high speed Internet access and related services to residential and commercial customers primarily via cable modems and international ISP infrastructure services. On August 13, 2002, our Board concluded that the liquidation of the Company was the best alternative available for maximizing stockholder value and adopted a Plan of Liquidation and Dissolution (the "Plan"). The Plan was approved by the holders of a majority of the Company's shares on November 27, 2002. The key features of the Plan are (1) filing a Certificate of Dissolution with the Secretary of State of Delaware and thereafter remaining in existence as a non-operating entity for three years; (2) winding up our affairs, including the settlement of any then-outstanding issues with Charter relating to the Asset Sale, selling any remaining non-cash assets of the Company, and taking such action as may be necessary to preserve the value of our assets and distributing our assets in accordance with the Plan; (3) paying our creditors; (4) terminating any of our remaining commercial agreements, relationships or outstanding obligations; (5) resolving our outstanding litigation; (6) establishing a Contingency Reserve for payment of the Company's expenses and liabilities; and (7) preparing to make distributions to our stockholders. In connection with the adoption of the Plan and the anticipated liquidation, the Company adopted the liquidation basis of accounting effective November 27, 2002, and has valued its assets at their estimated net realizable cash values and has stated its liabilities, including costs to liquidate, at their estimated settlement amounts, all of which approximate their estimated fair values. Uncertainties as to the value to be realized from the disposal of the Company's assets (other than cash), and the ultimate amount paid to settle its liabilities make it impracticable to predict the aggregate net value that may ultimately be distributable to stockholders. Claims, liabilities and future expenses of liquidation (including salaries, payroll and local taxes, professional fees, and miscellaneous office expenses), although currently declining in the aggregate, will continue to be incurred with execution of the Plan. Although we do not believe that a precise estimate of the Company's net assets can currently be made, we believe that available cash and cash equivalent investments and amounts received from the sale of office furniture will be adequate to provide for the Company's obligations, liabilities, operating costs and claims (including contingent liabilities), and to make future cash distributions to stockholders. Under Delaware law, the Company will remain in existence as a non-operating entity until December 4, 2005 and is required to maintain a certain level of liquid assets and reserves to cover any remaining liabilities and pay operating costs during the dissolution period. During the dissolution period, the Company will attempt to covert its remaining assets to cash and settle its liabilities as expeditiously as possible. CRITICAL ACCOUNTING POLICIES AND ESTIMATES 14 Liquidation Basis of Accounting. As of November 27, 2002, all activities of the Company are presented under the liquidation basis of accounting. Inherent in the liquidation basis of accounting are significant management estimates and judgments. Under the liquidation basis of accounting, assets have been valued at their estimated net realizable values and liabilities are stated at their anticipated settlement amounts, all of which approximate their estimated fair values. The estimated net realizable values of assets and settlement amounts of liabilities, including costs of liquidation, represent our best estimate of the recoverable value of the assets and settlement amounts of liabilities. There can be no assurance, however, that we will be successful in selling the assets at their estimated net realizable value or in settling the liabilities at their estimated amounts. The liquidation basis of accounting requires that we accrue an estimate for all liabilities related to expenses to be incurred during the wind up period. While we believe our estimates are reasonable under the circumstances, if the length of our wind up period were to change or other conditions were to arise, actual results may differ from these estimates and these differences may be material. Interest Receivable. At March 31, 2003, interest receivable of $0.3 million represents the Company's estimate of future interest earnings on cash, cash equivalents and short-term investments over the liquidation period through December 4, 2005 and accounts for less than 0.5% of the Company's total estimated assets. Charter Holdback. At March 31, 2003, the Charter holdback of $1.1 million represents the remaining amount of the Asset Sale purchase price held back by Charter to secure indemnity claims against the Company under the Asset Purchase Agreement plus accrued interest. On February 28, 2003, Charter notified the Company of its assertion of a potential claim for indemnity in respect of Charter being named as a "successor in interest" to the Company in the IPO Litigation (see Note 5 of Notes to Condensed Consolidated Financial Statements, "Commitments, Guarantees and Contingencies"), and deferred release of half of the $2.0 million indemnity holdback. The Company collected $1.0 million of its indemnity holdback plus accrued interest from Charter, and will seek the release of the $1.0 million balance plus accrued interest if and at such time as Charter is dismissed as a defendant in the IPO Litigation or the IPO Litigation is otherwise settled, minus Charter's actual defense costs if such costs exceed $250,000. Furniture and Fixtures. At March 31, 2003, furniture and fixtures of $0.1 million represents the Company's estimate of cash proceeds to be received on the sale of office furniture. Accounts Payable and Accrued Liabilities. At March 31, 2003, accounts payable and accrued expenses were $2.1 million. Included in this amount are accrued circuit termination charges of $0.2 million and other known obligations totaling $1.0 million, including $0.2 million for the expected payout on 2,862,174 stock options outstanding under the Company's stock option plans that were cancelled on March 3, 2003. The balance of $0.9 million in accounts payable and accrued liabilities is comprised of the following items: o Severance and Other Compensation. Severance and other compensation in the amount of $0.7 million represents severance payable to our former President and Chief Executive Officer of $0.5 million, as well as other healthcare and compensation expenses for current and former employees. o Estimated Litigation Settlement Costs. Litigation settlement costs in the amount of $0.2 million represents the Company's expected proportional share of fees and expenses related to settling the Delaware Class Action lawsuits (Denault v. O'Brien, et. Al., Civil Action No. 19045-NC, Tesche v. O'Brien, et al., Civil Action No. 19046-NC, Johnson v. O'Brien, et. Al., Civil Action No. 19053-NC, and Krim v. Allen, et al., Civil Action 19478-NC). Estimated Costs to be Incurred During The Liquidation Period. At March 31, 2003, the Company estimates that there are $1.0 million of costs to be incurred through December 4, 2005, including compensation for liquidation personnel ($0.4 million), professional fees ($0.5 million) and other miscellaneous costs ($0.1 million). Contingency Reserve. In view of the duration of the liquidation period to December 4, 2005, and provision in Delaware law that the Company maintain reserves sufficient to allow for the payment of all its liabilities and obligations, including all contingent, conditional and unmatured claims, the Company established a Contingency Reserve upon the adoption of liquidation basis accounting on November 27, 2002. The amount of reserve initially established was $2.0 million and is unchanged as of March 31, 2003. At March 31, 2003, the Company has no known material claims against this reserve and will periodically assess whether maintenance of a lower or higher Contingency Reserve is required. In the event there are no claims against this reserve, then the amount of liquidation proceeds that may be paid to stockholders will be increased. 15 STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION The condensed consolidated financial statements for the three months ended March 31, 2002 were prepared on the going concern basis of accounting, which contemplates realization of assets and satisfaction of liabilities in the normal course of business. The Company adopted the liquidation basis of accounting as of November 27, 2002. In order to record assets at estimated net realizable value and liabilities at estimated settlement amounts under liquidation basis of accounting, the Company recorded the following adjustments to record its assets and liabilities to fair value as of November 27, 2002 (in thousands):
ADJUST ASSETS AND LIABILITIES TO FAIR VALUE: Future interest income $ 551 Prepaid expenses (168) Furniture and fixtures 150 Accounts payable and accrued expenses 123 ---------- Total adjustments to fair value 656 ---------- ACCRUE ESTIMATED COSTS DURING LIQUIDATION: Costs to be incurred during the liquidation period (1,110) ---------- Total estimated costs during liquidation (1,110) ---------- Total liquidation adjustments $ (454) ==========
The amount and timing of future liquidating distributions will depend upon a variety of factors including, but not limited to, the actual proceeds from the realization of the Company's assets, the ultimate settlement amounts of the Company's liabilities and obligations, and actual costs incurred in connection with carrying out the Plan, including salaries, administrative and operating costs during the liquidation period. The increase in net assets in liquidation during the three months ended March 31, 2003 is the result of the following (in thousands):
ADJUST ASSETS AND LIABILITIES TO FAIR VALUE: Increase in estimated future interest income $ 28 Accounts payable and accrued expenses 33 ---------- Total adjustments to fair value 61 ---------- ACCRUE ADDITIONAL ESTIMATED COSTS DURING IQUIDATION: Costs to be incurred during the liquidation period (56) ---------- Total estimated costs during liquidation (56) ---------- Total liquidation adjustments $ 5 ==========
The increase in estimated costs during the liquidation period is primarily the result of additional legal fees relating to the remaining $1.0 holdback from Charter. LIQUIDITY AND CAPITAL RESOURCES The Company's primary objectives are to liquidate its assets in the shortest time period possible while realizing the maximum values for such assets. The actual nature, amount, and timing of all future distributions will be determined by the Board in its sole discretion, and will depend in part upon the Company's ability to convert certain remaining assets into cash and settle certain obligations. Although the liquidation is currently expected to be concluded on December 4, 2005, the period of time to liquidate the assets and distribute the proceeds is subject to uncertainties and contingencies, many of which are beyond the Company's control (see Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Factors"). The Company currently intends to make an initial cash distribution of $1.40 per share or $56.4 million to its stockholders in late May 2003, to be followed by a subsequent liquidating distribution of $0.13 per share or $5.2 million on or before November 27, 2003. The "per share" amounts are based on 40,294,783 shares of common stock outstanding as of April 18, 2003. These amounts do not include any benefit that might be realized if some or all of the Contingency Reserve is not required to pay claims. At March 31, 2003, the Company estimates that there is $1.0 million of operating costs to be incurred during the remaining liquidation period through December 4, 2005. The estimated liabilities of the Company at March 31, 2003 total $3.1 million. In addition, the Company has established a Contingency Reserve of $2.0 million (see Note 1 of "Notes to Condensed Consolidated Financial Statements"), equivalent to approximately $0.05 per share. 16 At March 31, 2003, net assets in liquidation were $63.8 million. We had cash and cash equivalents and short-term investments of $64.3 million and $1.3 million, respectively, compared to cash and cash equivalents and short-term investments of $63.6 million and $1.2 million, respectively, at December 31, 2002. The increase in cash, cash equivalents and short-term investments of $0.6 million is the result of the following: (in thousands):
Receipt of portion of Charter holdback $ 1,046 Interest received 152 Compensation and related expenses and severance (251) Property, income and franchise taxes (138) Circuit termination charges (82) Professional fees (79) Other accrued expenses (19) ---------- Net increase in cash, cash equivalents and short-term investments $ 629 ==========
We invest excess cash in money market accounts with the intent to make such funds readily available for potential distributions to stockholders. The amount and timing of liquidating distributions will depend upon a variety of factors including, but not limited to, the actual proceeds from the realization of the Company's assets, the ultimate settlement amounts of the Company's liabilities and obligations and actual costs incurred in connection with carrying out the Plan, including salaries, administrative and operating costs during the liquidation period. INVESTMENT PORTFOLIO. Cash equivalents are highly liquid investments with insignificant interest rate risk and original maturities of 90 days or less and are stated at amounts that approximate fair value based on quoted market prices. Cash equivalents consist of investments in interest-bearing money market accounts with financial institutions. Short-term investments at March 31, 2003 are comprised solely of certificates of deposit. LEGAL PROCEEDINGS. The Delaware Class Action Lawsuits. The Company, our then directors, certain former directors as well as Charter and Paul Allen, were named as defendants in four putative class action lawsuits filed in the Court of Chancery of the State of Delaware (Denault v. O'Brien, et. al., Civil Action No. 19045-NC, Tesche v. O'Brien, et al., Civil Action No. 19046-NC, Johnson v. O'Brien, et. al., Civil Action No. 19053-NC, and Krim v. Allen, et al., Civil Action 19478-NC). All four lawsuits, which alleged breach of fiduciary duties by the individual defendants and Charter, were consolidated and settled with the approval of the Delaware Chancery Court on April 16, 2003. No objections to the settlement were filed, and any appeals must be filed by May 16, 2003. Assuming no appeals are filed, the Company will pay its $166,500 portion of the $390,000 settlement amount required to reimburse plaintiffs' counsel for their fees and expenses incurred in the litigation. The Company will not make any liquidation distributions until the court's approval of the settlement (including any appeals) is final in all respects. The IPO Litigation. Also, on November 5, 2001, the Company, our President and Chief Financial Officer (Mr. George Willett) and one of our former Presidents (Mr. Ron Pitcock), together with Lehman Brothers, Inc., J.P. Morgan Securities, Inc., CIBC World Markets Corp., and Banc of America Securities, Inc., were named as defendants in a purported class action lawsuit filed in the United States District Court for the Southern District of New York (Ruthy Parnes v. High Speed Access Corp., et. al., Index No. 01-CV-9743(SAS)). The lawsuit alleges that our Registration Statement, dated June 3, 1999, and Prospectus, dated June 4, 1999, for the issuance and initial public offering of 13,000,000 shares of our common stock to investors contained material misrepresentations and/or omissions. The purported class action alleges violations of Sections 11 and 15 of the Securities Act of 1933 (the "1933 Act") and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "1934 Act") and Rule 10b- promulgated thereunder. The essence of the complaints is that defendants issued and sold our common stock pursuant to the Registration Statement for the IPO without disclosing to investors that certain underwriters in the offering had solicited and received excessive and undisclosed commissions from certain investors. The complaints also allege that our Registration Statement for the IPO failed to disclose that the underwriters allocated Company shares in the IPO to customers in exchange for the customers' promises to purchase additional shares in the aftermarket at pre-determined prices above the IPO price, thereby maintaining, distorting and/or inflating the market price for the shares in the aftermarket. The plaintiff asks to represent the interest of all holders of our common stock and seeks unspecified monetary damages. 17 On July 15, 2002, the Company moved to dismiss all claims against it and Messrs. Willett and Pitcock. The allegations against Messrs. Willett and Pitcock were dismissed without prejudice on October 11, 2002 pursuant to a Reservation of Rights and Tolling Agreement dated as of July 20, 2002. On February 19, 2003, the Court denied the Company's motion to dismiss the alleged violations of Section 11 and 15 of the 1933 Act. However, the Court granted the Company's motion to dismiss the alleged violations of Sections 10(b) and 20(a) of the 1934 Act and Rule 10b- promulgated thereunder. This action is being coordinated with nearly three hundred other nearly identical actions filed against other companies. Prior to the February 19, 2003 ruling on the Company's motion to dismiss, there were settlement discussions among the plaintiffs, the company defendants and their insurance carriers, which if closed would have removed the Company from the litigation without payment of any funds. However, as a result of the recent ruling, we cannot opine as to whether or when a settlement might occur. With respect to the allegations against the Company, we believe this lawsuit is without merit and intend to continue to vigorously defend against the claims made therein. We express no opinion as to the allegations lodged against Lehman Brothers, Inc., J.P. Morgan Securities, Inc., CIBC World Markets Corp., and Banc of America Securities Inc. On February 28, 2003, Charter notified the Company of its assertion of a potential claim for indemnity in respect of Charter being named as a "successor in interest" to the Company in the IPO Litigation (the "Charter IPO Litigation Indemnity Claim"), and deferred release of half of the $2.0 million indemnity holdback until such time as we obtain the dismissal of Charter as a defendant in the IPO Litigation or the IPO Litigation is otherwise settled, minus Charter's actual defense costs if such costs exceed $250,000. On February 28, 2003, we collected $1.0 million of the indemnity holdback plus accrued interest thereon from Charter. We do not believe Charter is a "successor in interest" to the Company, and are attempting to obtain an out-of-court dismissal of Charter from the IPO Litigation. If we are not successful in this effort, we may either file a motion with the court to obtain Charter's dismissal or wait on a possible settlement of the IPO Litigation with respect to the Company. We do not believe that the IPO litigation will have a material adverse effect on our net assets in liquidation. RISK FACTORS You should carefully consider the following factors and other information in this Form 10-Q and other filings we make with the Securities and Exchange Commission before trading in our common stock. The Company's plan is to wind-up the Company's affairs and distribute its net assets to the stockholders. The timing and completion of these objectives are subject to a number of risks and uncertainties, including those set forth below: WE MAKE FORWARD-LOOKING STATEMENTS IN THIS FORM 10-Q THAT ARE SUBJECT TO RISKS THAT MAY CHANGE THE LIKELIHOOD OF THOSE STATEMENTS BEING REALIZED. This Form 10-Q, as well as other documents incorporated by reference herein and to which we refer in this Form 10-Q, describes many of the positive factors and assumed benefits of the Plan. You should also be aware of factors that could have a negative impact on the Plan and our ability to make distributions of net assets, including the expected Initial Distribution, to you. When we use such words as "believes", "expects", "anticipates", or similar expressions, we are making forward-looking statements. In addition, we have made in this Form 10-Q certain forward looking statements, including statements concerning the timing and amount of distributions of cash to stockholders and other statements concerning the value of our net assets and the resultant liquidation value per share of common. All such forward-looking statements are necessarily only estimates of future results, and there can be no assurance that actual results will not materially differ from expectations. These statements are subject to many risks, including those set forth in each of the following paragraphs. YOU WILL NOT KNOW THE EXACT AMOUNT OR TIMING OF THE LIQUIDATION DISTRIBUTIONS. The methods used by the Board and management to estimate the value of our net assets do not result in an exact determination of value nor are they intended to indicate definitively the amount of cash you will receive in liquidation. The Company has established reserves for known and unknown liabilities (see "Contingency Reserve" discussion below) and the adequacy of those reserves will be reviewed prior to making the initial and any subsequent cash distributions to stockholders. We cannot assure you that the amount you will receive in liquidation will equal or exceed the price or prices at which the common stock has recently traded or may trade in the future. Any distributions to you may be reduced by additional liabilities we may incur, and the ultimate settlement amounts of our liabilities. 18 The expected distribution of our cash to stockholders, including the anticipated Initial Distribution in May 2003, may be delayed from the timing we have previously announced for any number of reasons. These reasons include the following: 1. It may take us longer than we anticipate to settle or finally resolve our outstanding litigation. The Delaware Chancery Court approved the settlement the Delaware Class Action Suits (see "Legal Proceedings") on April 16, 2003. No objections to the settlement were filed, and any appeals must be filed by May 16, 2003. We do not intend to make the Initial Distribution until the Delaware Class Action Suits are finally settled in all respects. Moreover, we may need additional time to evaluate and assess the progress of the IPO Litigation (see "Legal Proceedings") in order to more accurately gauge and reserve for our non-insured exposure, if any, in the IPO Litigation. 2. Uncertainty remains regarding our expected collection of a $1.0 million indemnity holdback due to us from Charter under the Asset Purchase Agreement. On February 28, 2003, Charter notified the Company of its assertion of a potential claim for indemnity in respect of Charter being named as a "successor in interest" to the Company in the IPO Litigation (see "Legal Proceedings"), and deferred release of half of the $2.0 million indemnity holdback. The Company collected $1.0 million of its indemnity holdback plus accrued interest from Charter, and will seek the release of the $1.0 million balance plus accrued interest if and at such time as Charter is dismissed as a defendant in the IPO Litigation or the IPO Litigation is otherwise settled or disposed of, less actual defense costs to the extent they exceed $250,000. We are presently not aware of any additional claims that Charter intends to assert against us under the Asset Purchase Agreement. Nevertheless, many of our covenants, representations and warranties survived the closing of the Asset Sale and will not expire until February 28, 2004, while others will continue indefinitely. 3. Additionally, even though we are not aware of any other pending or threatened claims, a creditor of HSA or other party with a claim against HSA might file a new lawsuit or obtain an injunction against our making the proposed distributions to you under the Plan. In that event, either our board or a court may decide that the amounts to be distributed are needed to provide for the payment of such liabilities and expenses, including unknown or contingent liabilities that may arise or be put in dispute at a later date. WE MIGHT MISCALCULATE OR FAIL TO ADEQUATELY RESERVE AN AMOUNT SUFFICIENT TO COVER OUR CONTINGENT LIABILITIES. On December 4, 2002 we filed a Certificate of Dissolution with the State of Delaware dissolving HSA. According to Delaware General Corporation Law, HSA will continue to exist for three years after the dissolution becomes effective (December 4, 2005) or for a longer period if the Delaware Court of Chancery requires us to, for the purpose of prosecuting and defending suits against HSA and enabling us to dispose of our property, discharge our liabilities and distribute to our stockholders any remaining assets. Under Delaware law, the Board established a reserve for known and unknown liabilities expected to be incurred through completion of our liquidation (the "Contingency Reserve"), and the adequacy of that reserve will be reviewed prior to making cash distributions to you. As of March 31, 2003, we set aside a $2.0 million Contingency Reserve. However, we cannot assure you that the Contingency Reserve we established will be adequate to cover all of our expenses and liabilities expected to be incurred through completion of our liquidation. If the Contingency Reserve is insufficient for payment of our expenses and liabilities, you could be held liable for payment to HSA's creditors of your proportional share of amounts owed to creditors in excess of the Contingency Reserve. In that regard, your liability would be limited to the amounts previously received by you from HSA or a liquidating trust established by HSA. Accordingly, you could be required to return some or all distributions previously made to you. In such an event, you could receive nothing from HSA under the Plan. Moreover, you could incur a net tax cost if you paid taxes on the amounts received from HSA and then have to repay such amounts back to HSA's creditors. Unless you are able to get a corresponding reduction in taxes in connection with your repayment, you may end up having paid taxes on monies that you have had to return. YOU MAY NOT BE ABLE TO BUY OR SELL SHARES OF HSA'S COMMON STOCK IF WE CLOSE OUR STOCK TRANSFER BOOKS. We may close our stock transfer books at some after which you will no longer be able to transfer shares. At the present time, we expect to keep our stock transfer books open for some period of time after we make the Initial Distribution. However, we expect to close our stock transfer books and discontinue recording transfers of shares of common stock on the earliest to occur of: 19 o the close of business on the date on which the remaining assets of HSA are transferred to a liquidating trust, which we expect to occur sometime if and after we make the Initial Distribution and any subsequent distributions prior to November 27, 2003; o the close of business on the record date fixed by the Board of Directors for the final liquidating distribution; or o December 5, 2005, the date on which HSA ceases to exist under Delaware law (or later if unresolved claims or litigation is still outstanding). After the stock transfer books have been closed, certificates representing shares of common stock will not be assignable or transferable on HSA's books except by will, intestate succession or operation of law. After the final record date for the recording of stock transfers, we will not issue any new stock certificates, other than replacement certificates. OUR STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE On July 10, 2002, HSA's common stock was delisted from the Nasdaq National Market ("Nasdaq"). Ours common stock now trades on the Nasdaq over-the-counter electronic bulletin board and the Pink Sheets, which could affect a stockholder's ability to obtain price quotations and to buy or sell the Company's common shares. At the present time, our stock price is trading at a discount to our net cash value per share. If we were to announce the timing and amount of a cash distribution, our stock could fluctuate suddenly and widely depending on the amount and timing of such distribution and the amount of funds still retained by the Company. In the past, companies that have experienced volatility in the market price of their stock have been the objects of securities class action litigation. If we were the object of securities class action litigation, it could result in substantial costs to our stockholders. Additionally, the market price of our common stock may fluctuate significantly in the future, and these fluctuations may be unrelated to our performance or actions with respect to the Plan. General market price declines or market volatility in the future could adversely affect the price of the our common stock, and thus, the current market price may not be indicative of future market prices. If the number of the Company's shareholders of record drops below 300, the Company may deregister under the Securities Act of 1934, and will no longer be subject to its rules, including those relating to reporting and proxy solicitations. ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our exposure to market risk is limited to interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. Our cash equivalents are invested with high-quality issuers and limit the amount of credit exposure to any one issuer. Due to the short-term nature of our cash equivalents, we believe that we are not subject to any material market risk exposure. We do not have any foreign currency hedging instruments. ITEM 4 - CONTROLS AND PROCEDURES Within the 90-day period prior to the filing of this report, an evaluation was carried out under the supervision and with the participation of the Company's management, including the Company's principal executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures. Based on that evaluation, he has concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Subsequent to the date of their evaluation, there were no significant changes in the Company's internal controls or in other factors that could significantly affect the disclosure controls, including any corrective actions with regard to significant deficiencies and material weaknesses. PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS The Delaware Class Action Lawsuits. The Company, our then directors, certain former directors as well as Charter and Paul Allen, were named as defendants in four putative class action lawsuits filed in the Court of Chancery of the State of Delaware (Denault v. O'Brien, et. al., Civil Action No. 19045-NC, Tesche v. O'Brien, et al., Civil Action No. 19046-NC, Johnson v. O'Brien, et. al., Civil Action No. 19053-NC, and Krim v. Allen, et al., Civil Action 19478-NC). All four lawsuits, which alleged breach of fiduciary duties 20 by the individual defendants and Charter, were consolidated and settled with the approval of the Delaware Chancery Court on April 16, 2003. No objections to the settlement were filed, and any appeals must be filed by May 16, 2003. Assuming no appeals are filed, the Company will pay its $166,500 portion of the $390,000 settlement amount required to reimburse plaintiffs' counsel for their fees and expenses incurred in the litigation. The Company will not make any liquidation distributions until the court's approval of the settlement (including any appeals) is final in all respects. The IPO Litigation. Also, on November 5, 2001, the Company, our President and Chief Financial Officer (Mr. George Willett) and one of our former Presidents (Mr. Ron Pitcock), together with Lehman Brothers, Inc., J.P. Morgan Securities, Inc., CIBC World Markets Corp., and Banc of America Securities, Inc., were named as defendants in a purported class action lawsuit filed in the United States District Court for the Southern District of New York (Ruthy Parnes v. High Speed Access Corp., et. al., Index No. 01-CV-9743(SAS)). The lawsuit alleges that our Registration Statement, dated June 3, 1999, and Prospectus, dated June 4, 1999, for the issuance and initial public offering of 13,000,000 shares of our common stock to investors contained material misrepresentations and/or omissions. The purported class action alleges violations of Sections 11 and 15 of the Securities Act of 1933 (the "1933 Act") and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "1934 Act") and Rule 10b- promulgated thereunder. The essence of the complaints is that defendants issued and sold our common stock pursuant to the Registration Statement for the IPO without disclosing to investors that certain underwriters in the offering had solicited and received excessive and undisclosed commissions from certain investors. The complaints also allege that our Registration Statement for the IPO failed to disclose that the underwriters allocated Company shares in the IPO to customers in exchange for the customers' promises to purchase additional shares in the aftermarket at pre-determined prices above the IPO price, thereby maintaining, distorting and/or inflating the market price for the shares in the aftermarket. The plaintiff asks to represent the interest of all holders of our common stock and seeks unspecified monetary damages. On July 15, 2002, the Company moved to dismiss all claims against it and Messrs. Willett and Pitcock. The allegations against Messrs. Willett and Pitcock were dismissed without prejudice on October 11, 2002 pursuant to a Reservation of Rights and Tolling Agreement dated as of July 20, 2002. On February 19, 2003, the Court denied the Company's motion to dismiss the alleged violations of Section 11 and 15 of the 1933 Act. However, the Court granted the Company's motion to dismiss the alleged violations of Sections 10(b) and 20(a) of the 1934 Act and Rule 10b- promulgated thereunder. This action is being coordinated with nearly three hundred other nearly identical actions filed against other companies. Prior to the February 19, 2003 ruling on the Company's motion to dismiss, there were settlement discussions among the plaintiffs, the company defendants and their insurance carriers, which if closed would have removed the Company from the litigation without payment of any funds. However, as a result of the recent ruling, we cannot opine as to whether or when a settlement might occur. With respect to the allegations against the Company, we believe this lawsuit is without merit and intend to continue to vigorously defend against the claims made therein. We express no opinion as to the allegations lodged against Lehman Brothers, Inc., J.P. Morgan Securities, Inc., CIBC World Markets Corp., and Banc of America Securities Inc. On February 28, 2003, Charter notified the Company of its assertion of a potential claim for indemnity in respect of Charter being named as a "successor in interest" to the Company in the IPO Litigation (the "Charter IPO Litigation Indemnity Claim"), and deferred release of half of the $2.0 million indemnity holdback until such time as we obtain the dismissal of Charter as a defendant in the IPO Litigation or the IPO Litigation is otherwise settled, minus Charter's actual defense costs if such costs exceed $250,000. On February 28, 2003, we collected $1.0 million of the indemnity holdback plus accrued interest thereon from Charter. We do not believe Charter is a "successor in interest" to the Company, and are attempting to obtain an out-of-court dismissal of Charter from the IPO Litigation. If we are not successful in this effort, we may either file a motion with the court to obtain Charter's dismissal or wait on a possible settlement of the IPO Litigation with respect to the Company. We do not believe that the IPO litigation will have a material adverse effect on our net assets in liquidation. ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS (a) On March 3, 2003, the Board of Directors cancelled the Company's stock option plans and authorized the Company to cancel all of its 2,862,174 outstanding stock options upon receipt of each optionee's agreement to accept payment from the Company of an amount equivalent to what the optionee would have received had the optionee exercised their options and sold the underlying shares. The Company expects each optionee to agree to these terms. Pursuant to the Plan, the Board of Directors also accelerated the vesting of 149,992 options. Accordingly, the Company has recorded $0.2 million in accounts payable and accrued liabilities to cover these payments. 21 ITEM 3 - DEFAULTS UPON SENIOR SECURITIES None. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5 - OTHER INFORMATION On April 30, 2003, George E. Willett, our President and Chief Financial Officer, was terminated by the Company. Pursuant to his Employment Agreement dated June 4, 2001, Mr. Willett will receive severance payments in the amount of $168,000 plus healthcare benefits for a period of 12 months. The restrictions on his 75,000 shares of restricted common stock lapsed upon his termination. Mr. Willett will continue to serve as the Company's non-employee President and Chief Financial Officer under a Consulting Agreement dated April 30, 2003 for a period of six months ending October 31, 2003. Mr. Willett will receive a consulting fee of $7,000 per month under this agreement. ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.1 Separation Agreement and Consulting Agreement by and between High Speed Access Corp. and George E. Willett dated April 30, 2003. 99.1 Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002 (b) On April 21, 2003, the Company filed an 8-K announcing that the Delaware Chancery Court approved the settlement of the Delaware Class action lawsuits at a hearing on April 16, 2003. 22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 as amended, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. High Speed Access Corp. Date: May 1, 2003 By /s/ George E. Willett ------------------------------------- George E. Willett President and Chief Financial Officer I, George E. Willett, President and Chief Financial Officer of High Speed Access Corp., certify that: (1) I have reviewed this Quarterly Report on Form 10-Q of High Speed Access Corp. (the "Company"); (2) Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report; (3) Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this Quarterly Report; (4) I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and have: (a) designed such disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Quarterly Report is being prepared; (b) evaluated the effectiveness of the Company's disclosure controls and procedures as of a date within 90 days prior to the filing date of this Quarterly Report (the "Evaluation Date"); and (c) presented in this Quarterly Report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; (5) I have disclosed, based on our most recent evaluation, to the Company's auditors and the Audit Committee of the Company's Board of Directors: (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Company's ability to record, process, summarize and report financial data and have identified for the Company's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal controls; and (6) I have indicated in this Quarterly Report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 1, 2003 By /s/ George E. Willett ------------------------------------- George E. Willett President and Chief Financial Officer 23 EXHIBIT INDEX
No. Description - --- ------------------------- 10.1 Separation Agreement and Consulting Agreement by and between High Speed Access Corp. and George E. Willett dated April 30, 2003. 99.1 Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002
EX-10.1 3 d05289exv10w1.txt SEPARATION AGREEMENT AND CONSULTING AGREEMENT EXHIBIT 10.1 SEPARATION AGREEMENT The parties to this Separation Agreement ("Agreement") are: George E. Willett 401 DUFF LANE LOUISVILLE, KY 40207 ("WILLETT") and High Speed Access Corp. 9900 CORPORATE CAMPUS DRIVE SUITE 3000 LOUISVILLE, KY 40223 ("HSA") RECITALS A. Willett and HSA are parties to a certain Employment Agreement dated June 4, 2001 (the "Willett Employment Agreement"). Willett's employment with HSA was terminated on April 30, 2003, pursuant to a Constructive Termination (as defined in the Willett Employment Agreement). B. The parties hereto wish to mutually and amicably settle all issues existing between them, whether or not arising under the Willett Employment Agreement, as more specifically set forth below on the terms and conditions of this Agreement. HSA, by entering into this Agreement, admits no wrongdoing or liability whatsoever. In consideration of the mutual covenants set forth herein and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows: 1. Willett, for himself and his heirs and assigns, acknowledges his separation from HSA on April 30, 2003, and does hereby forever release and discharge HSA, its subsidiaries, affiliates, successors, predecessors, assigns, agents, employees, directors, attorneys and representatives (collectively, referred to as "Released Parties") from any and all causes of action, actions, judgments, liens, indebtedness, damages, losses, claims, liabilities and demands of whatsoever kind and character in any manner whatsoever arising from or relating to the Willett Employment Agreement and his employment and termination of employment with HSA; and, without limiting the generality of the foregoing, specifically from all claims relating to bonus, accrued vacation, continued base salary, benefits (including COBRA), or any and all other allegations asserted or which could have been asserted by Willett or on his behalf against HSA, including claims for attorneys' fees. Willett specifically releases HSA and the above-released parties from any and all claims of age discrimination under the federal Age Discrimination in Employment Act, 29 U.S.C. Section 621, et seq. 2. Willett represents that he has not commenced, and that he will not at any time after execution of this Agreement commence, any other action, lawsuit, or legal proceeding or 1 file any charge or complaint with any federal, state or local agency against any of the Released Parties relating in any way to the Willett Employment Agreement or his employment with or separation from HSA. 3. Notwithstanding anything to the contrary contained herein, HSA acknowledges and agrees to the existence and continuing validity, as they may apply to Willett, or Article VII of HSA's Second Amended and Restated Certificate of Incorporation and HSA's Amended and Restated Bylaw, and that certain Indemnity Agreement dated as of May 23, 2001 by and between HSA and Willett. The foregoing sections and agreement which relate to indemnification, advancement of expenses and related protections for Willett as an officer of HSA are expressly incorporated into this Agreement and continue in full force and effect notwithstanding any release or other provision of this Agreement. 4. Willett acknowledges and agrees to the existence and continued validity of Sections 8 and 9 (and their subparts) of the Willett Employment Agreement. These provisions relating to covenants not to compete, non-solicitation, non-inducement and non-disclosure, are expressly incorporated into this Agreement, and continue in full force and effect notwithstanding the termination of Willett's employment with the HSA. 5. Willett understands and expressly agrees that this Agreement extends to all claims of every nature and kind, known or unknown, suspected or unsuspected, past, present, or future, arising from or relating to the Willett Employment Agreement, including any claim of any kind of nature whatsoever or any alleged unlawful act of any of the Released Parties occurring prior to the execution of this Agreement, referred to herein or not. 6. The parties understand and expressly agree that this Agreement shall bind and benefit Willett and HSA, and their respective heirs, administrators, successors and assigns. Willett further represents that he has full and exclusive authority to release, discharge and covenant not to sue the Released Parties pursuant to the terms of this Agreement, and that he has not assigned or transferred in any way any claims against any of the Released Parties. 7. In consideration of the releases, covenants and covenant not to sue set forth in this Agreement, HSA and Willett agree to the following: a) On May 2, 2003, HSA shall pay Base Salary to Willett through April 30, 2003. b) HSA shall pay Willett $168,000 (the "Severance Payment") as follows: HSA shall continue to pay Base Salary to Willett in the amount of $14,000 per month commencing May 1, 2003 through the date of HSA's initial liquidating distribution to shareholders (which is presently expected to occur on or before June 1, 2003), and a lump sum payment to Willett of the remaining amount balance of such Severance Payent within 10 days after such initial liquidating distribution. c) HSA shall provide for Willett continued health benefits programs (i.e., "family" medical coverage with Humana and Kentucky Access, but not disability or group life insurance) by reimbursing Willett for the cost ($876.25 per month) of obtaining 2 such family medical coverage (the "New Coverage") for a period of not less than 12 months from the Termination Date. If Willett obtains family medical coverage through a subsequent employer's group plan (the "Replacement Coverage") prior to the end of such 12 month period, HSA shall pay to Willett (grossed-up for any tax/W-2 effect to Willett) the "employee-paid" portion of such employer-provided group coverage (not to exceed $876.25/mo.) from the effective start date of such Replacement Coverage through April 30, 2004. d) HSA shall permit Willett to cash-out his "in-the-money" options pursuant to the terms of a certain Options Termination and Cash-Out Agreement. e) HSA shall release from it custody and deliver to Willett one (1) HSA stock certificate (No. C1278) representing 75,000 shares of HSA common stock pursuant a certain Restricted Stock Agreement dated February 2, 2001; provided, that such shares shall not be registered and are subject trading restrictions absent compliance with SEC Rule 144 (including, without limitation, a 1-year holding period commencing May 1, 2003). f) HSA shall enter into a Consulting Agreement with Willett in the form of Exhibit A hereto and pursuant. g) HSA shall maintain its D&O coverage in full force and effect and treat Willett as an Insured officer thereunder for all purposes. 8. It is understood and agreed by Willett that, with respect to the payment to be made pursuant to paragraph 7(d) above, all applicable income and other taxes are required to be withheld. If and to the extent HSA is required to withhold on the value of the restricted stock delivered to Willett under Section 7(d) above, Willett shall pay the appropriate amount of withholding taxes to HSA for remittance to the IRS. 9. Willett expressly warrants and agrees that he will keep the terms of this Agreement strictly confidential and will not communicate the terms of this Agreement orally or in writing to any third party except to his immediate family, his tax advisor, or as may be required by law. This confidentiality agreement shall not apply to any terms hereof disclosed publicly by HSA. 10. The parties agree that this Agreement does not constitute an admission of liability; that it does not constitute any factual or legal precedent or finding whatsoever; and that it may not be used as evidence in any subsequent proceeding of any kind, except in an action alleging a breach of this Agreement. 11. The parties will bear their own attorneys' fees and costs respectively in connection with this Agreement. 12. Each party to this Agreement shall have the right to bring an action to enforce any of its terms or provisions. The parties agree that the Court shall enter an award of attorneys' fees and costs to the prevailing party in any action to enforce the terms of this Agreement. 3 13. Kentucky law shall govern the validity, effect and interpretation of this Agreement. 14. This Agreement constitutes the entire understanding and agreement between the parties. Any modification of this Agreement must be in writing and signed by both Willett and HSA. 15. Willett represents that he has read this Agreement, has consulted his attorney of record concerning the terms of this Agreement, and understands each of the terms of this Agreement. Willett further represents that he has entered into this settlement and executed this Agreement voluntarily and willingly. Willett understands that he may revoke this Agreement by giving written notice to HSA within seven (7) days after it has been signed and notarized. This Agreement will not become effective or enforceable until the seven day revocation period is passed. 16. Willett further agrees to cooperate with HSA in any investigations, hearings, lawsuits or other matters involving HSA or its affiliates, subsidiaries and divisions, and its and their predecessors, successors, and assigns, concerning items or issues where Willett had specific involvement, knowledge or responsibility, or where subsequent assistance and cooperation is reasonably necessary or appropriate. Willett will be available, at the expense of HSA, upon reasonable notice and at reasonable times and for reasonable periods, for such things as interviews, depositions, hearings and trials. 17. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and this same agreement. I HAVE CAREFULLY READ THE FOREGOING CONFIDENTIAL SEPARATION AGREEMENT, GENERAL RELEASE AND COVENANT NOT TO SUE AND ACKNOWLEDGE THAT I KNOW AND UNDERSTAND THE CONTENTS THEREOF, THAT IT CONTAINS THE TERMS AND CONDITIONS I HAVE AGREED UPON WITH THE COMPANY, AND THAT I EXECUTE IT OF MY OWN FREE WILL. I HAVE BEEN NOTIFIED TO SEEK THE COUNSEL OF AN ATTORNEY. Executed effective on May 1, 2003, but actually on April 30, 2003. /s/ GEORGE E. WILLETT ------------------------------------- GEORGE E. WILLETT HIGH SPEED ACCESS CORP. By: /s/ DAVID A. JONES, JR. ---------------------------------- David A. Jones, Jr. Chairman of the Board of Directors 4 CONSULTING AGREEMENT This is a Consulting Agreement (the "Agreement") dated as of May 1, 2003, between HIGH SPEED ACCESS CORP., a Delaware corporation ("HSA") and GEORGE E. WILLETT ("Consultant"), a resident of Louisville, Kentucky. RECITALS HSAC wishes to retain the services of Consultant with respect to the windup of the HSA and other financial and management services as Consultant and HSA may agree. Consultant has negotiated the terms of this Agreement with HSA and has agreed to the terms as set forth hereafter. NOW, THEREFORE, the parties hereto agree as follows: 1. CONSULTING SERVICES. For a period commencing on May 1, 2003, and continuing through October 31, 2003, Consultant agrees to advise, assist, and serve as HSA's President and CFO on a non-employee basis, and otherwise continue to render such services and fulfill such responsibilities to HSA in connection with the wind-up of its affairs as Consultant previously rendered as an employee/officer of the Company (the "Consulting Services"). The Consultant shall render his or her Consulting Services by telephone, letter or in person, as the Consultant and the HSA may mutually determine. Consultant shall faithfully and industriously perform the Consulting Services, and shall devote such time to the performance of such duties incident to the Consulting Services as may be necessary therefor, provided that Consultant shall not be required to devote any specific number of hours a month to such consulting services or a minimum number of hours as a condition to receiving the compensation described herein. HSA shall have no authority to direct or control Consultant with respect to the amount, time, place, or manner of his or her Consulting Services. 2. REMEDIES FOR BREACH. Consultant acknowledges that the Consulting Services to be rendered by him or her hereunder are of a special, unique, and extraordinary character which gives this Agreement a peculiar value to HSA, the loss of which cannot be reasonably or adequately compensated in damages in an action at law, and that a breach by Consultant of this Agreement shall cause HSA irreparable injury. Therefore, HSA shall be entitled to (i) cancel any remaining consulting payments due Consultant under Section 3 of this Agreement, and (ii) institute and prosecute proceedings in any court of competent jurisdiction, either in law or in equity, and to pursue any available remedies, including injunctive relief, actions for specific performance and damages, for breaches by Consultant of any covenants contained herein. 1 3. COMPENSATION. As compensation for the Consulting Services provided to HSA by Consultant under this Agreement, HSAC shall pay to Consultant the sum of SEVEN THOUSAND DOLLARS PER MONTH ($7,000/month) for the period May 1, 2003 through October 31, 2003, plus reasonable, documented business expenses (but not mileage to and from Consultant's residence and HSA's offices in Louisville, Kentucky). As Consultant will be an independent contractor and consultant to HSA, he will be precluded from having, receiving or being entitled to receive any of the rights, privileges or benefits of employees of HSA. Consultant shall be solely responsible for meeting any legal requirements imposed on him or any person acting on his behalf as a result of this Agreement, including but not limited to the payment of taxes on income or the filing of tax returns, and Consultant agrees to indemnify HSA for his failure to do so. 6. TERMINATION. This Agreement shall terminate immediately upon the occurrence of any one of the following events: (a) The expiration of the term hereof; (b) Consultant's breach of his duties hereunder, unless waived by HSA or cured by Consultant within 10 days after HSA's having given notice thereof to Consultant; (c) HSA's breach of its duties hereunder, unless waived by Consultant or cured by HSA within 10 days after Consultant's having given written notice thereof to HSA. 7. ASSIGNABILITY. This Agreement may not be assigned or transferred by Consultant without the prior written consent of HSA. 8. GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Kentucky. Consultant and HSA agree that that the Circuit Courts of Jefferson County, Kentucky shall have exclusive jurisdiction with respect to the adjudication and enforcement of any and all disputes arising under this Agreement, including actions arising under Section 1 hereof. 9. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of the parties, and supersedes all prior understandings with the respect to the subject matter hereof. No change in or modification of this Agreement shall be enforceable unless in writing and signed by the party against whom enforcement is sought. 10. SEVERABILITY. If any provision of this Agreement or application thereof shall be adjudged by any court of competent jurisdiction to be invalid, illegal or unenforceable in any 2 respect, the validity, legality and enforceability of all other applications of that provision, and of all other provisions and applications thereof, shall not in any way be affected or impaired. 11. NO WAIVERS. No failure or delay on the part of any party exercising any power or right under this Agreement shall operate as a waiver thereof, and no single or partial exercise of any such right or power shall preclude any other or further exercise thereof, or the exercise of any other right or power under this Agreement. 12. HEADINGS. The headings used in this Agreement have been included solely for ease of reference and shall not be considered in the interpretation or construction of this Agreement. 13. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement or the terms hereof to produce or account for more than one of such counterparts. IN WITNESS WHEREOF, the parties have signed this Agreement as of the date set forth in the preamble above, but actually on the dates indicated below. HIGH SPEED ACCESS CORP. By /s/ DAVID A. JONES, JR. ------------------------------------- Name: David A. Jones, Jr. Title: Chairman of the Board Date: May 1, 2003 CONSULTANT: /s/ GEORGE E. WILLETT ---------------------------------------- GEORGE E. WILLETT Date: April 30, 2003 3 EX-99.1 4 d05289exv99w1.txt CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of High Speed Access Corp. (the "Company") on Form 10-Q for the period ended March 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, George E. Willett, President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. Date: May 1, 2003 By /s/ George E. Willett --------------------- George E. Willett President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----