Back to GetFilings.com
================================================================================
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 September 30, 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 Identification Number)
incorporation or organization)
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 October 31, 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
September 30, 2003 and December 31, 2002 3
Condensed Consolidated Statement of Changes in Net Assets in Liquidation for
the three and nine months ended September 30, 2003 4
Condensed Consolidated Statement of Operations (Going Concern Basis) for
the three and nine months ended September 30, 2002 5
Condensed Consolidated Statement of Cash Flows (Going Concern Basis) for
the nine months ended September 30, 2002 6
Notes to Condensed Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 17
Item 4 - Controls and Procedures 17
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 18
Item 2 - Changes in Securities and Use of Proceeds 18
Item 3 - Defaults upon Senior Securities 18
Item 4 - Submission of Matters to a Vote of Security Holders 18
Item 5 - Other Information 18
Item 6 - Exhibits and Reports on Form 8-K 18
Signatures 20
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)
SEPTEMBER 30, DECEMBER 31,
2003 2002
-------------- ---------------
ASSETS
Cash and cash equivalents $ 1,456 $ 63,640
Short-term investments 416 1,237
Interest receivable 33 392
Charter holdback -- 2,092
Furniture and fixtures 53 113
------------ -----------
Total assets 1,958 67,474
------------ -----------
LIABILITIES
Accounts payable and accrued liabilities 273 2,571
Estimated costs to be incurred during the wind-up period 529 1,089
------------ -----------
Total liabilities 802 3,660
------------ -----------
Net assets in liquidation 1,156 63,814
Less: Contingency reserve 1,150 2,000
------------ -----------
Net assets available for distribution to stockholders $ 6 $ 61,814
============ ===========
Net assets in liquidation per share $ 0.03 $ 1.58
Net assets available for distribution to stockholders per share $ 0.00 $ 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 AND NINE MONTHS ENDED SEPTEMBER 30, 2003
(IN THOUSANDS)
(UNAUDITED)
Three months Nine months
------------ -----------
Net assets in liquidation, beginning of period $ 8,007 $ 63,814
Adjust assets and liabilities to fair value -- 661
Accrue additional estimated costs during wind-up -- (56)
Cash distributions (6,851) (63,263)
------------ ------------
Net assets in liquidation at September 30, 2003 $ 1,156 $ 1,156
============ ============
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 AND NINE MONTHS ENDED SEPTEMBER 30, 2002
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
Three months Nine months
------------ -----------
General and administrative operating expenses:
General and administrative expenses $ 509 $ 6,502
Non-cash compensation expense from restricted stock 12 1,673
------------ -----------
Total general and administrative operating expenses 521 8,175
------------ -----------
Loss from continuing operations before other income
(expense) and discontinued operations (521) (8,175)
Investment income 328 852
Interest expense -- (226)
------------ ------------
Loss from continuing operations before discontinued
operations (193) (7,549)
Discontinued operations:
Loss from discontinued operations, net -- (4,217)
Gain on sale of operations to Charter -- 40,259
------------ -----------
Net income (loss) $ (193) $ 28,493
============= ===========
Basic and diluted net (loss) income per share:
Loss from continuing operations $ (0.01) $ (0.17)
Loss from discontinued operations -- (0.10)
Gain on sale of operations to Charter -- 0.92
------------ -----------
Net (loss) income $ (0.01) $ 0.65
============= ===========
Weighted average shares used in computation of basic and
diluted net (loss) income per share 40,208,580 43,938,876
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 NINE MONTHS ENDED SEPTEMBER 30, 2002
(IN THOUSANDS)
(UNAUDITED)
OPERATING ACTIVITIES
Net income $ 28,493
Adjustments to reconcile net income to cash used in operating activities
of continuing operations:
Loss from discontinued operations, net 4,217
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 1,673
Changes in operating assets and liabilities excluding the effect of dispositions:
Prepaid expenses (206)
Accrued compensation and related expenses 74
----------
Net cash used in operating activities of continuing operations (3,967)
Net cash used in operating activities of discontinued operations (8,936)
----------
Net cash used in operating activities (12,903)
----------
INVESTING ACTIVITIES
Purchases of short-term investments (67,324)
Sales and maturities of short-term investments 72,129
----------
Net cash provided by investing activities of continuing operations 4,805
Net cash provided by investing activities of discontinued operations 76,160
----------
Net cash provided by investing activities 80,965
----------
FINANCING ACTIVITIES
Repurchase of common stock (4,449)
Proceeds from exercise of stock options 36
----------
Net cash used in financing activities of continuing operations (4,413)
Net cash used in financing activities of discontinued operations (11,017)
----------
Net cash used in financing activities (15,430)
----------
Net change in cash and cash equivalents from continuing operations (3,575)
Net change in cash and cash equivalents from discontinued operations 56,207
----------
Net change in cash and cash equivalents 52,632
Cash and cash equivalents, beginning of period 11,714
----------
Cash and cash equivalents, end of period $ 64,346
==========
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 (Charter Communications,
Inc., CC Systems, LLC, Charter Communications Holding Company, LLC and Charter
Communications Ventures, LLC) 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 5, 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 wind-up period. During the wind-up 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 and nine
months ended September 30, 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.
The Company made an Initial Cash Distribution of $1.40 per share or $56.4
million to its stockholders on May 30, 2003 and a Subsequent Cash Distribution
of $0.17 per share or $6.9 million on August 29, 2003. The "per share" amounts
are based on 40,294,783 shares of common stock outstanding as of October 31,
2003.
THE COMPANY DOES NOT EXPECT TO MAKE ANY ADDITIONAL LIQUIDATING DISTRIBUTIONS
UNTIL THE FINAL LIQUIDATION PAYMENT IS MADE ON OR BEFORE DECEMBER 31, 2005. THE
COMPANY'S BOARD OF DIRECTORS HAS AUTHORIZED, EFFECTIVE AS OF THE CLOSE OF
BUSINESS ON DECEMBER 31, 2003, THE TRANSFER OF ITS REMAINING ASSETS AND
LIABILITIES TO A LIQUIDATING TRUST. AT SUCH TIME, THE COMPANY WILL CANCEL ITS
OUTSTANDING SHARES OF COMMON STOCK IN EXCHANGE FOR ILLIQUID BENEFICIAL INTERESTS
IN THE LIQUIDATING TRUST, CLOSE THE STOCK TRANSFER BOOKS, AND DEREGISTER THE
COMPANY'S SECURITIES UNDER THE SECURITIES EXCHANGE ACT OF 1934. After the stock
transfer books have been closed, you will no longer be able to transfer your
shares, and we will not issue any new stock certificates, other than replacement
certificates. Certificates representing shares of common stock will not be
assignable or transferable on our books except by will, intestate succession or
operation of law. In addition, the Company will not
7
file any additional quarterly reports on Form 10-Q or proxy statements under the
Securities Exchange Act of 1934. Instead, the Company will file only abbreviated
reports on Forms 10-K or 8-K regarding its net assets in liquidation and changes
in net assets in liquidation or financial position and cash flows for the period
presented.
Due to the duration of the wind-up period to December 5, 2005, and
provisions in Delaware law that require the Company to 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 $2.0 million Contingency Reserve upon the adoption of liquidation
basis accounting on November 27, 2002. As of June 30, 2003, the Company lowered
the established Contingency Reserve to $1,150,000. At September 30, 2003, the
Company has no known material claims against this reserve. If no claims are
presented against this reserve, then the amount of the Final Liquidation Payment
on or before December 31, 2005 would include the full amount of the Contingency
Reserve.
The amount and timing of the Final Liquidation Payment by the trustee 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 wind-up period. A summary of significant estimates
and judgments utilized in preparation of the September 30, 2003 condensed
consolidated financial statements on a liquidation basis follows:
Interest Receivable. At September 30, 2003, interest receivable of $33,000
represents the Company's estimate of future interest earnings on cash, cash
equivalents and short-term investments over the wind-up period through December
5, 2005 and accounts for less than 2.0% of the Company's total assets.
Furniture and Fixtures. At September 30, 2003, furniture and fixtures of
$53,000 represents the Company's estimate of cash proceeds to be received on the
sale of office furniture. The Company's remaining office furniture was
subsequently sold for approximately the carrying value in October 2003.
Accounts Payable and Accrued Liabilities. At September 30, 2003, accounts
payable and accrued expenses were $0.3 million, including accrued circuit
termination charges of $0.2 million.
Estimated Costs to be Incurred During The Wind-Up Period. At September 30,
2003, the Company estimates that there are $0.5 million of costs to be incurred
through December 5, 2005, including compensation for liquidation personnel ($0.2
million) and professional fees and other miscellaneous costs ($0.3 million).
Contingency Reserve. In view of the duration of the wind-up period to
December 5, 2005, and provisions in Delaware law that require the Company to
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 $2.0 million Contingency Reserve upon the adoption of
liquidation basis accounting on November 27, 2002. As of June 30, 2003, the
Company lowered the established Contingency Reserve to $1,150,000. At September
30, 2003, the Company has no known material claims against this reserve. In the
event there are no claims against this reserve, the amount of the Final
Liquidation Payment that may ultimately be paid to stockholders would include
the full amount of the Contingency Reserve.
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 (loss) and net income
(loss) per share for the three and nine months ended September 30, 2002 if the
fair value based method of SFAS 123 had been applied to all outstanding and
unvested awards (in thousands).
Three months Nine months
------------ -----------
Net (loss) income as reported.................................... $ (193) $ 28,493
Add: Stock based employee compensation expense included in
reported net (loss) income.................................... 12 1,697
Deduct: Total stock-based employee compensation expense
determined under fair value based methods for all awards (2,981) (10,604)
---------- ----------
Pro forma net (loss) income...................................... $ (3,162) $ 19,586
========== ==========
Basic and diluted net (loss) income per share:
As reported.................................................. $ (0.01) $ 0.65
Pro forma.................................................... $ (0.08) $ 0.45
8
NOTE 2 - COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss), comprised of net income (loss) and net
unrealized holding gains and losses on investments, totaled $(0.2) million and
$28.5 million for the three and nine months ended September 30, 2002,
respectively.
NOTE 3 - INCOME (LOSS) PER SHARE
For the three and nine months ended September 30, 2002, the Company computed
net income (loss) per share under the provisions of SFAS No. 128, "Earnings per
Share," ("SFAS 128"). Under the provisions of SFAS 128, basic net income (loss)
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 (loss) per share for the three and nine months
ended September 30, 2002 were $(0.01) and $0.65, respectively, based on weighted
average shares outstanding of 40,208,580 and 43,938,876, respectively. Diluted
net income (loss) per share equals basic net income (loss) 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 8,873,996 shares of our common stock at September 30,
2002 were excluded from the calculation of diluted net income (loss) per share
as they were anti-dilutive.
NOTE 4 - COMMITMENTS, GUARANTEES AND CONTINGENCIES
The IPO Litigation. On November 5, 2001, the Company and its IPO
underwriters, 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 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.
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.
On June 26, 2003, the Plaintiffs' Executive Committee announced that a
proposed settlement between the approximately 300 issuer defendants and their
directors and officers and the plaintiffs had been structured in the IPO
Litigation which would guarantee at least $1.0 billion to investors who were
class members from the insurers of the issuers. The Company has assented to
participate in the settlement, which is subject to final documentation and
review and consent of the Court. If final settlement occurs, the Company will be
removed from the litigation without payment of any funds. Accordingly, we do not
believe that the IPO litigation will have a material adverse effect on our net
assets in liquidation.
9
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. With the exception of
certain representations and warranties and covenants described below, all other
representations and warranties expired August 31, 2003.
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;
(ii) breaches of representations and warranties related to taxes, certain
employee benefit plans and environmental matters will be in effect through
February 28, 2004;
(ii) the excluded liabilities;
(iii) our operation of the assets sold to Charter prior to the closing of
the Asset Sale; and
(iv) common law fraud.
The Company has no liability to Charter for claims arising from breaches of
our representations and warranties relating to intellectual property, technology
and know-how 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. With respect to any other claims listed above, Charter
is entitled to reimbursement from the first dollar of damages 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.
We are aware of no other claims that Charter has or intends to assert
against us in connection with the Asset Sale.
NOTE 5 - 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
continuing 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 condensed consolidated financial statements (see Note 4,
"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 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 December 31, 2003 for VIEs created before February 1,
2003. In addition, FIN 46 requires
10
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 will not 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 February 28, 2002, we sold our
Internet access and related services business to Charter in the Asset Sale.
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).
Under Delaware law, the Company will remain in existence as a non-operating
entity until December 5, 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 wind-up period. During the wind-up period, the Company will
attempt to covert its remaining assets to cash and settle its liabilities as
expeditiously as possible.
Pursuant to the Plan, the Company made an Initial Cash Distribution of $1.40
per share or $56.4 million to its stockholders on May 30, 2003 and a Subsequent
Cash Distribution of $0.17 per share or $6.9 million on August 29, 2003. The
"per share" amounts are
11
based on 40,294,783 shares of common stock outstanding as of October 31, 2003.
The Company does not expect to make any additional distributions until the Final
Liquidation Payment is made on or before December 31, 2005.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
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.
The Company made an Initial Cash Distribution of $1.40 per share or $56.4
million to its stockholders on May 30, 2003 and a Subsequent Cash Distribution
of $0.17 per share or $6.9 million on August 29, 2003. The "per share" amounts
are based on 40,294,783 shares of common stock outstanding as of October 31,
2003.
THE COMPANY DOES NOT EXPECT TO MAKE ANY ADDITIONAL LIQUIDATING DISTRIBUTIONS
UNTIL THE FINAL LIQUIDATION PAYMENT IS MADE ON OR BEFORE DECEMBER 31, 2005. THE
COMPANY'S BOARD OF DIRECTORS HAS AUTHORIZED, EFFECTIVE AS OF THE CLOSE OF
BUSINESS ON DECEMBER 31, 2003, THE TRANSFER OF ITS REMAINING ASSETS AND
LIABILITIES TO A LIQUIDATING TRUST. AT SUCH TIME, THE COMPANY WILL CANCEL ITS
OUTSTANDING SHARES OF COMMON STOCK IN EXCHANGE FOR ILLIQUID BENEFICIAL INTERESTS
IN THE LIQUIDATING TRUST, CLOSE THE STOCK TRANSFER BOOKS, AND DEREGISTER THE
COMPANY'S SECURITIES UNDER THE SECURITIES EXCHANGE ACT OF 1934. After the stock
transfer books have been closed, you will no longer be able to transfer your
shares, and we will not issue any new stock certificates, other than replacement
certificates. Certificates representing shares of common stock will not be
assignable or transferable on our books except by will, intestate succession or
operation of law. In addition, the Company will not file any additional
quarterly reports on Form 10-Q or proxy statements under the Securities Exchange
Act of 1934. Instead, the Company will file only abbreviated reports on Forms
10-K or 8-K regarding its net assets in liquidation and changes in net assets in
liquidation or financial position and cash flows for the period presented.
Due to the duration of the wind-up period to December 5, 2005, and
provisions in Delaware law that require the Company to 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 $2.0 million Contingency Reserve upon the adoption of liquidation
basis accounting on November 27, 2002. As of June 30, 2003, the Company lowered
the established Contingency Reserve to $1,150,000. At September 30, 2003, the
Company has no known material claims against this reserve. In the event there
are no claims against this reserve, then the amount of the Final Liquidation
Payment on or before December 31, 2005 would include the full amount of the
Contingency Reserve.
The amount and timing of the Final Liquidation Payment by the trustee 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 wind-up period. A summary of significant estimates
and judgments utilized in preparation of the September 30, 2003 condensed
consolidated financial statements on a liquidation basis follows:
Interest Receivable. At September 30, 2003, interest receivable of $33,000
represents the Company's estimate of future interest earnings on cash, cash
equivalents and short-term investments over the wind-up period through December
5, 2005 and accounts for less than 2.0% of the Company's total assets.
Furniture and Fixtures. At September 30, 2003, furniture and fixtures of
$53,000 represents the Company's estimate of cash proceeds to be received on the
sale of office furniture. The Company's remaining office furniture was
subsequently sold for approximately the carrying value in October, 2003.
Accounts Payable and Accrued Liabilities. At September 30, 2003, accounts
payable and accrued expenses were $0.3 million, including accrued circuit
termination charges of $0.2 million.
12
Estimated Costs to be Incurred During The Wind-up Period. At September 30,
2003, the Company estimates that there are $0.5 million of costs to be incurred
through December 5, 2005, including compensation for liquidation personnel ($0.2
million) and professional fees and other miscellaneous costs ($0.3 million).
Contingency Reserve. In view of the duration of the wind-up period to
December 5, 2005, and provisions in Delaware law that require the Company to
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 $2.0 million Contingency Reserve upon the adoption of
liquidation basis accounting on November 27, 2002. As of June 30, 2003, the
Company lowered the established Contingency Reserve to $1,150,000. At September
30, 2003, the Company has no known material claims against this reserve. In the
event there are no claims against this reserve, then the amount of the Final
Liquidation Payment that may be paid to stockholders would include the full
amount of the Contingency Reserve.
Net Assets Available for Distribution to Stockholders Per Share. Because of
the need to maintain the Contingency Reserve to pay liabilities and claims, the
Company does not expect to make any other liquidating distributions until the
Final Liquidation Payment is made on or before December 31, 2005.
STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION
The condensed consolidated financial statements for the three and nine
months ended September 30, 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.
The decrease in net assets in liquidation during the nine months ended
September 30, 2003 is the result of the $56.4 million Initial Cash Distribution
on May 31, 2003 and a Subsequent Cash Distribution of $6.9 million on August 29,
2003 plus the following adjustments made during the nine months ended September
30, 2003 (in thousands):
ADJUST ASSETS AND LIABILITIES TO FAIR VALUE:
Increase in estimated future interest income $ 28
Accounts payable and accrued expenses 633
----------
Total adjustments to fair value 661
ACCRUE ADDITIONAL ESTIMATED COSTS DURING WIND-UP:
Costs to be incurred during the wind-up period (56)
----------
Total estimated costs during the wind-up period (56)
----------
Total liquidation adjustments $ 605
==========
The decrease in accounts payable and accrued expenses was the result of the
settlement of liabilities at less than the recorded amounts. The increase in
estimated costs during the wind-up period was primarily the result of additional
legal fees.
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
or before December 31, 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 made an Initial Cash Distribution of $1.40 per share or $56.4 million to
its stockholders on May 30, 2003 and a Subsequent Cash Distribution of $0.17 per
share or $6.9 million on August 29, 2003. THE COMPANY DOES NOT EXPECT TO MAKE
OTHER LIQUIDATING DISTRIBUTIONS PRIOR TO THE FINAL LIQUIDATION PAYMENT ON OR
BEFORE DECEMBER 31, 2005. The "per share" amounts are based on 40,294,783 shares
of common stock outstanding as of October 31, 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.
THE COMPANY WILL TRANSFER ITS REMAINING ASSETS AND LIABILITIES TO A
LIQUIDATING TRUST AS OF THE CLOSE OF BUSINESS ON DECEMBER 31, 2003. AT SUCH
TIME, THE COMPANY WILL CANCEL ITS OUTSTANDING SHARES OF COMMON STOCK IN EXCHANGE
FOR ILLIQUID BENEFICIAL INTERESTS IN THE LIQUIDATING TRUST, CLOSE THE STOCK
TRANSFER BOOKS, AND DEREGISTER THE COMPANY'S SECURITIES UNDER THE SECURITIES
EXCHANGE ACT OF 1934. After the stock transfer books have been closed, you will
no longer be able to transfer your shares, and we will not issue any new stock
certificates,
13
other than replacement certificates. Certificates representing shares of common
stock will not be assignable or transferable on our books except by will,
intestate succession or operation of law. In addition, the Company will not file
any additional quarterly reports on Form 10-Q or proxy statements under the
Securities Exchange Act of 1934. Instead, the Company will file only abbreviated
reports on Forms 10-K or 8-K regarding its net assets in liquidation and changes
in net assets in liquidation or financial position and cash flows for the period
presented.
Due to the duration of the wind-up period to December 5, 2005, and
provisions in Delaware law that require the Company to 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 $2.0 million Contingency Reserve upon the adoption of liquidation
basis accounting on November 27, 2002. As of June 30, 2003, the Company lowered
the established Contingency Reserve to $1,150,000. At September 30, 2003, the
Company has no known material claims against this reserve. In the event there
are no claims against this reserve, then the amount of the Final Liquidation
Payment that may ultimately be paid to stockholders would include the full
amount of the Contingency Reserve.
At September 30, 2003, the Company estimates that there is $0.5 million of
operating costs to be incurred during the remaining wind-up period through
December 5, 2005. The estimated liabilities of the Company at September 30, 2003
total $0.8 million. In addition, the Company has a Contingency Reserve of
$1,150,000 (see Note 1 of "Notes to Condensed Consolidated Financial
Statements"), equivalent to approximately $0.0285 per share.
At September 30, 2003, net assets in liquidation were $1,156,000. We had
cash and cash equivalents and short-term investments of $1.5 million and $0.4
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 net decrease in cash, cash equivalents and short-term investments of
$63.0 million is the result of the following: (in thousands):
Receipt of Charter holdback $ 2,103
Interest received 376
Sale of furniture and fixtures 60
Cash distributions (63,263)
Compensation and related expenses and severance (1,381)
Property, income and franchise taxes (153)
Legal settlement (167)
Professional fees (275)
Circuit termination charges (89)
Other accrued expenses (216)
----------
Net decrease in cash, cash equivalents and short-term investments $ (63,005)
==========
THE COMPANY DOES NOT EXPECT TO MAKE OTHER LIQUIDATING DISTRIBUTIONS PRIOR TO
THE FINAL LIQUIDATION PAYMENT ON OR BEFORE DECEMBER 31, 2005. 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 wind-up
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 September 30,
2003 are comprised solely of a certificate of deposit.
LEGAL PROCEEDINGS.
The IPO Litigation. On November 5, 2001, the Company and our IPO
underwriters, 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 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
14
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.
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.
On June 26, 2003, the Plaintiffs' Executive Committee announced that a proposed
settlement between the approximately 300 issuer defendants and their directors
and officers and the plaintiffs had been structured in the IPO Litigation which
would guarantee at least $1.0 billion to investors who were class members from
the insurers of the issuers. The Company has assented to participate in the
settlement, which is subject to final documentation and review and consent of
the Court. If final settlement occurs, the Company will be removed from the
litigation without payment of any funds. Accordingly, 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. 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 ANY FUTURE LIQUIDATING
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 during the
winding up and liquidation of the Company. The Company has established reserves
for known and unknown liabilities (see "Contingency Reserve" discussion herein)
but we cannot be certain such reserves are adequate. Moreover, 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. The Final Liquidation Payment to you may be reduced by additional
liabilities we may incur and the ultimate settlement amounts of our liabilities.
Additionally, even though we are not aware of any other pending or
threatened claims, a creditor of the Company or other party with a claim against
us might file a new lawsuit or obtain an injunction against our making any
further distributions to you under the Plan. In that event, our Board, the
liquidating trustee 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.
15
On December 5, 2002 we filed a Certificate of Dissolution with the State of
Delaware dissolving the Company. According to Delaware General Corporation Law,
we will continue to exist for three years after the dissolution becomes
effective (December 5, 2005) or for a longer period if the Delaware Court of
Chancery requires us to, for the purpose of prosecuting and defending suits
against us 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 has been and will
continue to be reviewed prior to making any cash distributions to you. As of
September 30, 2003, we set aside a $1,150,000 Contingency Reserve. However, we
cannot assure you that such Contingency Reserve 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 our 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 us or a liquidating trust established by the
Company. Accordingly, you could be required to return some or all distributions
previously made to you. In such an event, you could receive nothing from us
under the Plan. Moreover, you could incur a net tax cost if you paid taxes on
the amounts received from us and then have to repay such amounts back to our
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 WILL NOT BE ABLE TO BUY OR SELL SHARES OF OUR COMMON STOCK IF AND WHEN WE
CLOSE OUR STOCK TRANSFER BOOKS.
We expect to close our stock transfer books and transfer the remaining
assets of the Company to a liquidating trust on December 31, 2003, after which
you will no longer be able to transfer shares.
After the stock transfer books have been closed, certificates representing
shares of common stock will not be assignable or transferable on our 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 COULD BE VOLATILE AND OUR STOCK IS LIKELY TO BE THINLY TRADED.
Our stock price has been trading at a discount to our net cash value per
share. Even though we do not expect to make any additional cash distributions
prior to the Final Liquidation Payment on or before December 31, 2005, our stock
price prior to December 31, 2003 could fluctuate suddenly and widely depending
on the amount and timing of any claims that are subsequently present against the
funds still retained by the Company, and these fluctuations may be unrelated to
our performance or actions with respect to the Plan.
In addition, at such time as the Company transfers its remaining assets
and liabilities to a liquidating trust, the Company will most likely deregister
and cancel its outstanding shares in exchange for illiquid beneficial interests
in the liquidating trust. This deregistration and cancellation, or even the
announcement of such a deregistration and cancellation could also adversely
affect the price of our common stock. Moreover, if the number of the Company's
shareholders of record drops below 300, the Company may deregister under the
Securities Act of 1934 prior to December 31, 2003, and will no longer be subject
to its rules, including those relating to reporting and proxy solicitations.
Until the closure of our stock transfer books on December 31, 2003, it is
possible that our stock will be thinly traded on the over the counter electronic
bulletin board and the Pink Sheets, which could affect a stockholder's ability
to obtain price quotations and/or acquire or dispose of the Company's shares.
THE TAX CONSEQUENCES OF OUR LIQUIDATION MAY NOT BE FAVORABLE TO YOU
The following discussion is a general summary of what the Company believes
are the material Federal income tax consequences of the Plan to its
stockholders, but does not purport to be a complete analysis of all the
potential tax effects:
As a consequence of our liquidation, our stockholders will recognize
gain or loss equal to the difference between (i) the sum of the amount of
cash distributed to them and the fair market value (at the time of
distribution) of any property distributed to them (net of their
proportionate share of liabilities), and (ii) their tax basis for their
shares of the common stock. A stockholder's tax basis in his or her shares
will depend upon various
16
factors, including the amount paid by the stockholder for his or her shares
and the amount and nature of any distributions received with respect to
those shares. A stockholder's gain or loss will be computed on a "per share"
basis. We have made more than one liquidating distribution, and the amount
of each such liquidating distribution will be allocated proportionately to
each share of stock owned by a stockholder. Any gain will be recognized by
reason of a liquidating distribution only to the extent that the aggregate
value of such distributions received by a stockholder with respect to a
share exceeds his, her or its tax basis for that share. Any loss will be
recognized only if the aggregate value of the liquidating distributions with
respect to a share is less than the stockholder's tax basis for that share.
Any gain or loss recognized by a stockholder will be capital gain or
loss provided the shares are held as capital assets. Gain resulting from
distributions of cash or assets from a corporation pursuant to a plan of
liquidation is, therefore, generally capital gain rather than ordinary
income. If it were to be determined that distributions made pursuant to the
Plan were not liquidating distributions, the result could be treatment of
distributions as dividends, taxable at ordinary income rates. Upon any
distribution of property, the stockholder's tax basis in such property
immediately after the distribution will be the fair market value of such
property at the time of distribution. The gain or loss realized upon the
stockholder's future sale of that property will be measured by the
difference between the stockholder's tax basis in the property at the time
of the sale and the proceeds of the sale. After the close of each year, we
will provide stockholders and the IRS with a statement of the amount of cash
distributed to the stockholders and, if applicable, our best estimate as to
the value of any property distributed to them during that year. There is no
assurance that the IRS will not challenge such property valuation. As a
result of such a challenge, the amount of gain or loss recognized by
stockholders might be changed. Distributions to stockholders could result in
tax liability to any given stockholder exceeding the amount of cash
received, requiring the stockholder to meet the tax obligations from other
sources or by selling all or a portion of the assets received.
We intend to structure the transfer of our remaining assets and
liabilities to the liquidating trust so that stockholders will be treated
for tax purposes as having received their proportionate share of the
property at the time it is transferred to the liquidating trust. In such
event, the amount of the distribution deemed to have been received by a
stockholder will be reduced by his or her proportionate share of known
liabilities assumed by the liquidating trust or to which the property
transferred is subject. Assuming such treatment is achieved, assets
transferred to the liquidating trust will cause the stockholders to be
treated in the same manner for Federal income tax purposes as if the
stockholders had received a distribution directly from us and they may be
subject to tax on their proportionate value of such transferred assets even
though they will not have received any actual distributions from the Company
or the liquidating trust with which to pay the tax.
The liquidating trust itself should not be subject to tax. After
formation of the liquidating trust, the stockholders will take into account
for Federal income tax purposes their allocable portion of any income, gain
or loss recognized by the liquidating trust. AS A RESULT OF THE ONGOING
OPERATIONS OF THE LIQUIDATING TRUST, STOCKHOLDERS SHOULD BE AWARE THAT THEY
MAY BE SUBJECT TO TAX, WHETHER OR NOT THEY HAVE RECEIVED ANY ACTUAL
DISTRIBUTIONS FROM THE LIQUIDATING TRUST WITH WHICH TO PAY THE TAX.
Stockholders may also be subject to state or local taxes and should
consult their tax advisor with respect to the state and local tax
consequences of the Plan. The foregoing summary of certain Federal income
tax consequences is included for general information only and does not
constitute legal advice to any stockholder. The tax consequences of the Plan
may vary depending upon your particular circumstances. We recommend that you
consult your own tax advisor regarding the specific tax consequences of the
Plan to you.
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
As of September 30, 2003, 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
17
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 the 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 IPO Litigation. On November 5, 2001, the Company and its IPO
underwriters, 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 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.
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.
On June 26, 2003, the Plaintiffs' Executive Committee announced that a proposed
settlement between the approximately 300 issuer defendants and their directors
and officers and the plaintiffs had been structured in the IPO Litigation which
would guarantee at least $1.0 billion to investors who were class members from
the insurers of the issuers. The Company has assented to participate in the
settlement, which is subject to final documentation and review and consent of
the Court. If final settlement occurs, the Company will be removed from the
litigation without payment of any funds. Accordingly, 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
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
18
10.1 Liquidating Trust Agreement dated as of December 31, 2003 by and among
High Speed Access Corp. (the "Company") and John G. Hundley (the
"Trustee" or "Liquidating Trustee") executed in connection with the
Company's Plan of Dissolution and Liquidation dated November 25, 2002
31.1 Certification of CFO Pursuant to Securities Exchange Act Rules 13a-14
and 15d-14 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
32.1 Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant
To Section 906 Of The Sarbanes-Oxley Act Of 2002
(b) On June 6, 2003, the Company filed an 8-K announcing that Charter
Communications, Inc. was dismissed as a defendant in the IPO litigation and had
paid to us the remaining $1.0 million balance of the indemnity holdback plus
accrued interest.
On August 6, 2003, the Company filed an 8-K announcing a cash
distribution of $0.17 per share on August 29, 2003, payable to shareholders of
record as of August 22, 2003.
19
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: November 14, 2003 By /s/ George E. Willett
----------------- --------------------------------------
George E. Willett
President and Chief Financial Officer
20
Exhibit Index
Exhibit No. Description
- ----------- -----------
10.1 Liquidating Trust Agreement dated as of December 31, 2003 by and
among High Speed Access Corp. (the "Company") and John G. Hundley
(the "Trustee" or "Liquidating Trustee") executed in connection with
the Company's Plan of Dissolution and Liquidation dated November 25,
2002
31.1 Certification of CFO Pursuant to Securities Exchange Act Rules
13a-14 and 15d-14 as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification Pursuant To 18 U.S.C. Section 1350, As Adopted
Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002
(b) On June 6, 2003, the Company filed an 8-K announcing that Charter
Communications, Inc. was dismissed as a defendant in the IPO litigation and had
paid to us the remaining $1.0 million balance of the indemnity holdback plus
accrued interest.
On August 6, 2003, the Company filed an 8-K announcing a cash
distribution of $0.17 per share on August 29, 2003, payable to shareholders of
record as of August 22, 2003.
21