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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 June 30, 2004.
[ ] 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 June 30, 2004...40,289,532
1
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
Condensed Consolidated Statements of Net Assets in
Liquidation as of June 30, 2004 and December 31, 2003 3
Condensed Consolidated Statement of Changes in Net
Assets in Liquidation for the six months ended June
30, 2004 4
Item 2 - Trustee's Discussion and Analysis of Financial Condition and
Results of Operations 8
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 12
Item 4 - Controls and Procedures 12
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 12
Item 2 - Changes in Securities and Use of Proceeds 12
Item 3 - Defaults upon Senior Securities 12
Item 4 - Submission of Matters to a Vote of Security Holders 12
Item 5 - Other Information 12
Item 6 - Exhibits and Reports on Form 8-K 13
Signatures 13
2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
HIGH SPEED ACCESS CORP.
LIQUIDATING TRUST
CONDENSED CONSOLIDATED STATEMENTS OF NET ASSETS IN LIQUIDATION
(IN THOUSANDS, EXCEPT UNIT AND PER UNIT AMOUNTS)
(UNAUDITED)
JUNE 30, DECEMBER 31,
2004 2003
------------ ------------
ASSETS
Cash and cash equivalents $ 1,332 $ 1,362
Short-term investments 436 422
Interest receivable 16 41
------------ ------------
Total assets 1,784 1,825
------------ ------------
LIABILITIES
Accounts payable and accrued liabilities 476 480
Estimated costs to be incurred during the wind-up period 152 189
------------ ------------
Total liabilities 628 669
------------ ------------
Net assets in liquidation 1,156 1,156
Less: Contingency reserve (1,156) (1,156)
------------ ------------
Net assets available for distribution to unitholders $ 0 $ 0
============ ============
Net assets in liquidation per unit $ 0.00 $ 0.00
Net assets available for distribution to stockholders per unit of beneficial interest $ 0.00 $ 0.00
Units used in computing per unit amounts* 40,289,532 40,294,783
(*5,251 shares were cancelled effective June 1, 2004 upon final closure of the
Company's retirement plan)
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
HIGH SPEED ACCESS CORP.
LIQUIDATING TRUST
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION
FOR THE SIX MONTHS ENDED JUNE 30, 2004
(IN THOUSANDS)
(UNAUDITED)
Six months
----------
Net assets in liquidation, beginning of period $1,156
Adjust assets and liabilities to fair value 0
------
Net assets in liquidation at June 30, 2004 $1,156
======
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
ITEM 1 - NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
Effective as of midnight, December 31, 2003, all of the remaining assets
and liabilities of the High Speed Access Corp., including certain cash and other
reserves set aside for costs and expenses of the Company in liquidation as well
as any other existing or contingent liabilities of the Company, were transferred
to the High Speed Access Corp. Liquidating Trust (the "Trust"). Accordingly, all
references herein to the High Speed Access Corp. or the Company shall be deemed
to be a reference to the Trust, and all references to the Company's shares shall
be deemed to refer to the units of beneficial interest in the Trust, each as the
context requires.
The unaudited condensed consolidated financial statements of High Speed
Access Corp. and its subsidiaries (herein referred to as the Company, Trust, we,
us, or our) included herein reflect all adjustments, consisting only of normal
recurring adjustments, which in the opinion of the trustee of the Trust are
necessary to present fairly the Company's net assets in liquidation and changes
in net assets in liquidation 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 Company's stockholders approved
the Plan on November 27, 2002. The key features of the Plan are (1) the
Company's 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 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) making distributions to our stockholders.
Pursuant to the Plan, effective as of midnight, December 31, 2003:
1. All of the Company's remaining assets and liabilities,
including certain cash and other reserves set aside for costs
and expenses of the Company in liquidation as well as any
other existing or contingent liabilities of the Company, were
transferred to the High Speed Access Corp. Liquidating Trust
(the "Trust");
2. The Company and its shares were deregistered from compliance
under the Securities Exchange Act of 1934, and is no longer
subject to its rules, including those relating to reporting
and proxy solicitations;
3. The Company's outstanding shares were cancelled in exchange
for illiquid beneficial interests in the Trust on a 1 for 1
basis;
4. The Company's stock transfer books were closed, shareholders
were no longer able to transfer shares, and certificates
representing shares of common stock are not assignable or
transferable except by will, intestate succession or operation
of law; and
5. The Company is not issuing any new stock certificates, other
than replacement certificates
Under Delaware law, through the completion of the wind-up period, the
Company will remain in existence as a non-operating entity until December 5,
2005. The Company 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, and our Quarterly Report on Form 10-Q for the period
ended September 30, 2003.
5
LIQUIDATION BASIS OF ACCOUNTING
As a result of the adoption of the Plan of Liquidation, 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. In connection with transfer of the Company's assets and liabilities to the
Trust on December 31, 2003, the stockholders were deemed to have received a
distribution in the amount of $.0287 per share.
THE COMPANY DOES NOT EXPECT TO MAKE ANY OTHER LIQUIDATING DISTRIBUTIONS
PRIOR TO THE MAKING OF A FINAL LIQUIDATION PAYMENT, WHICH THE TRUSTEE EXPECTS TO
OCCUR ON OR ABOUT DECEMBER 31, 2005. However, 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 the actual costs incurred in connection with carrying out
the Plan, including professional fees, administrative and operating costs during
the wind-up period.
Due to the duration of the wind-up period to December 5, 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 $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 $1.156 million. At June 30, 2004, the Trust has no known
material claims against this reserve. In the event no claims are made against
this reserve, then the Final Liquidation Payment on or about December 31, 2005
will include the full amount of the Contingency Reserve.
A summary of significant estimates and judgments utilized in preparation
of the June 30, 2004 condensed consolidated financial statements on a
liquidation basis follows:
Interest Receivable. At June 30, 2004, interest receivable of $16,000
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 1% of the Company's total assets.
Accounts Payable and Accrued Liabilities. At June 30, 2004, accounts
payable and accrued liabilities and expenses were $476,000.
Estimated Costs to be Incurred during the Wind-Up Period. At June 30,
2004, the Trust estimates there are $152,000 of professional fees and other
miscellaneous costs to be incurred through December 5, 2005.
Contingency Reserve. In view of the duration of the wind-up period to
December 5, 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 $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 $1.156 million. At June
30, 2004, the Trust has no known material claims against this reserve. In the
event no claims are made against this reserve, the amount of the Final
Liquidation Payment will include the full amount of the Contingency Reserve.
NOTE 4 - COMMITMENTS, GUARANTEES AND CONTINGENCIES
The IPO Litigation. On November 5, 2001, the Company and two of its
officers, 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
6
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 its
defendant officers, and those allegations 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-5 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 has been structured in the IPO
Litigation which would guarantee at least $1.0 billion to investors who are
class members from the insurers of the issuers. The cases will continue against
the 55 investment bank underwriter defendants. The Company has assented to
participate in the settlement, and all of the settlement documents were
finalized and executed by most of the parties in May 2004. The settlement was
presented to the court on June 14, 2004. The Plaintiffs filed a motion for
preliminary approval on Friday, July 2, 2004. Once the Court decides the motion,
and assuming it grants preliminary approval (which is expected), the Plaintiffs
will notify the class. Following this notice (which will likely take several
months given the size of the class), there will be a hearing regarding Court
approval of the settlement. If and when final settlement occurs, the Company and
its directors should be removed from the litigation without payment of any
funds.
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 of the
Company's other representations and warranties have expired.
The following representations and warranties and covenants will be in
effect until the Company is finally dissolved on December 5, 2005 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;
(ii) the excluded liabilities;
(iii) our operation of the assets sold to Charter prior to the closing of
the Asset Sale on February 28, 2002; and
(iv) common law fraud.
The Trust 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, (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 Trust has no liability to Charter for indirect or consequential
damages.
The Trust is aware of no claims that Charter has or intends to assert
against us in connection with the Asset Sale.
7
ITEM 2 - TRUSTEE'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
"Trustee's Discussion and Analysis of Financial Condition and Results of
Operations" as well as those discussed in other filings with the Securities and
Exchange Commission.
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.
Effective as of midnight, December 31, 2003, all of the Company's
remaining assets and liabilities, including certain cash and other reserves set
aside for costs and expenses of the Company in liquidation as well as any other
existing or contingent liabilities of the Company, were transferred to the High
Speed Access Corp. Liquidating Trust (the "Trust"). Accordingly, all references
herein to the High Speed Access Corp. or the Company shall be deemed to be a
reference to the Trust, and all references to the Company's shares shall be
deemed to refer to the units of beneficial interest in the Trust, each as the
context requires.
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 stockholders on November 27, 2002. The key features of the Plan
are (1) the Company's 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) making 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 taxes, professional fees, and miscellaneous
expenses) 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 will be
adequate to provide for the Company's obligations, liabilities, operating costs
and claims (including contingent liabilities), and to make a Final Liquidation
Payment to stockholders.
Pursuant to the Plan, effective as of midnight, December 31, 2003:
1. All of the Company's remaining assets and liabilities,
including certain cash and other reserves set aside for costs
and expenses of the Company in liquidation as well as any
other existing or contingent liabilities of the Company, were
transferred to the High Speed Access Corp. Liquidating Trust
(the "Trust");
2. The Company and its shares were deregistered from compliance
under the Securities Exchange Act of 1934, and is no longer
subject to its rules, including those relating to reporting
and proxy solicitations;
3. The Company's outstanding shares were cancelled in exchange
for illiquid beneficial interests in the Trust on a 1 for 1
basis;
4. The Company's stock transfer books were closed, shareholders
were no longer able to transfer shares, and certificates
representing shares of common stock are not assignable or
transferable except by will, intestate succession or operation
of law; and
5. The Company is not issuing any new stock certificate, other
than replacement certificates.
8
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.
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. In connection with transfer of the Company's assets and liabilities to the
Trust on December 31, 2003, the stockholders were deemed to have received a
distribution in the amount of $.0287 per share.
THE COMPANY DOES NOT EXPECT TO MAKE ANY OTHER LIQUIDATING DISTRIBUTIONS
PRIOR TO THE MAKING THE FINAL LIQUIDATION PAYMENT, WHICH THE TRUSTEE EXPECTS TO
MAKE ON OR ABOUT DECEMBER 31, 2005. However, 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 professional fees, administrative and operating costs during the
wind-up period.
Due to the duration of the wind-up period to December 5, 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 $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 $1,156,000. At June 30, 2004, the Trust has no known
material claims against this reserve. In the event no claims are made against
this reserve, then the amount of the Final Liquidation Payment on or about
December 31, 2005 will include the full amount of the Contingency Reserve.
A summary of significant estimates and judgments utilized in preparation
of the June 30, 2004 condensed consolidated financial statements on a
liquidation basis follows:
Interest Receivable. At September 30, 2004, interest receivable of $16,000
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 1.0% of the Company's total assets.
Accounts Payable and Accrued Liabilities. At June 30, 2004, accounts
payable and accrued liabilities and expenses were $476,000.
Estimated Costs to be Incurred during the Wind-Up Period. At June 30,
2004, the Trust estimates there are $152,000 of professional fees and other
miscellaneous costs to be incurred through December 5, 2005.
Contingency Reserve. In view of the duration of the wind-up period to
December 5, 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 $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 $1,156,000. At June 30,
2004, the Trust has no known material claims against this reserve. In the event
no claims are made against
9
this reserve, then the amount of any future liquidating distributions and the
Final Liquidation Payment that may be paid to stockholders will include the full
amount of the Contingency Reserve.
LIQUIDITY AND CAPITAL RESOURCES
The Trust's primary objectives are to liquidate its assets in the shortest
time period possible while realizing the maximum values for such assets
consistent with preservation of capital. The actual nature, amount, and timing
of all future distributions will be determined by the Trustee in the Trustee's
sole discretion. Although the liquidation is expected to conclude on December 5,
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
Trustee's control (see Item 2, "Trustee's Discussion and Analysis of Financial
Condition and Results of Operations"). 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. In connection with transfer of the Company's assets and
liabilities to the Trust on December 31, 2003, the stockholders were deemed to
have received a distribution in the amount of $.0287 per share. THE COMPANY DOES
NOT EXPECT TO MAKE OTHER LIQUIDATING DISTRIBUTIONS PRIOR TO THE FINAL
LIQUIDATION PAYMENT ON OR ABOUT DECEMBER 31, 2005. The "per share" amounts are
based on 40,289,532 shares of beneficial interest in the Trust outstanding as of
June 30, 2004. 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.
Effective as of midnight, December 31, 2003:
1. All of the Company's remaining assets and liabilities,
including certain cash and other reserves set aside for costs
and expenses of the Company in liquidation as well as any
other existing or contingent liabilities of the Company, were
transferred to the High Speed Access Corp. Liquidating Trust
(the "Trust");
2. The Company and its shares were deregistered from compliance
under the Securities Exchange Act of 1934, and is no longer
subject to its rules, including those relating to reporting
and proxy solicitations;
3. The Company's outstanding shares were cancelled in exchange
for illiquid beneficial interests in the Trust;
4. The Company's stock transfer books were closed, shareholders
were no longer able to transfer shares, and certificates
representing shares of common stock are not assignable or
transferable except by will, intestate succession or operation
of law; and
5. The Company is not issuing any new stock certificate, other
than replacement certificates.
Due to the duration of the wind-up period to December 5, 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 $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 $1.156 million. At June 30, 2004, the Trust has no known
material claims against this reserve. In the event no claims are made against
this reserve, then the amount of the Final Liquidation Payment will include the
full amount the Contingency Reserve.
At June 30, 2004, the Company estimates that there is $476,000 of accounts
payable and accrued liabilities, and $152,000 in estimated operating costs to be
incurred during the remaining wind-up period through December 5, 2005. In
addition, the Company has a Contingency Reserve of $1.156 million (see Note 1 of
"Notes to Condensed Consolidated Financial Statements"), equivalent to
approximately $0.0287 per share.
At June 30, 2004, net assets in liquidation were $1.156 million. We had
cash and cash equivalents and short-term investments of $1.332 million and
$436,000, respectively, compared to cash and cash equivalents and short-term
investments of $1.362 million and $422,000, respectively, at December 31, 2003.
The net decrease in cash, cash equivalents and short-term investments of $16,000
is the result of the following: (in thousands):
Interest received 25
Payment of Accounts Payable and Accrued Liabilities (41)
----
Net decrease in cash, cash equivalents and short-term investments $(16)
====
10
THE COMPANY DOES NOT EXPECT TO MAKE OTHER LIQUIDATING DISTRIBUTIONS PRIOR
TO THE FINAL LIQUIDATION PAYMENT ON OR ABOUT DECEMBER 31, 2005. However, the
amount and timing of the Final Liquidation Payment 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 professional fees, 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 June 30, 2004
are comprised solely of a certificate of deposit.
LEGAL PROCEEDINGS.
The IPO Litigation. Also, on November 5, 2001, the Company, two of our
officers, 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
the two officers, and the allegations the officers 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.
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 has been structured in the IPO
Litigation which would guarantee at least $1.0 billion to investors who are
class members from the insurers of the issuers. The cases will continue against
the 55 investment bank underwriter defendants. The Company has assented to
participate in the settlement, and all of the settlement documents were
finalized and executed by most of the parties in May 2004. The settlement was
presented to the court on June 14, 2004. The Plaintiffs filed a motion for
preliminary approval on Friday, July 2, 2004. Once the Court decides the motion,
and assuming it grants preliminary approval (which is expected), the Plaintiffs
will notify the class. Following this notice (which will likely take several
months given the size of the class), there will be a hearing regarding Court
approval of the settlement. If and when final settlement occurs, the Company and
its directors should be removed from the litigation without payment of any
funds.
THE TAX CONSEQUENCES OF OUR LIQUIDATION MAY NOT BE FAVORABLE TO YOU
The following discussion is a general summary and does not purport to be a
complete analysis of all the potential tax effects:
The Company structured the transfer of its remaining assets and
liabilities to the Trust so that stockholders were treated for tax purposes as
having received their proportionate share of the property at the time of the
transfer to the Trust. The Trust itself is not subject to tax. The stockholders
will take into account for Federal income tax purposes their allocable portion
of any income, gain or loss recognized by the Trust. AS A RESULT OF THE TRANSFER
OF PROPERTY TO THE LIQUIDATING TRUST AND THE ONGOING OPERATIONS OF THE
LIQUIDATING TRUST, STOCKHOLDERS SHOULD BE AWARE THAT THEY HAVE BEEN AND MAY BE
SUBJECT TO TAX, WHETHER OR NOT THEY HAVE RECEIVED ANY ACTUAL DISTRIBUTIONS FROM
THE LIQUIDATING TRUST WITH WHICH TO PAY THE TAX.
11
We recommend that you consult your own tax advisor regarding the specific
tax consequences of the Plan and the Trust 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
Not applicable
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The IPO Litigation. Also, on November 5, 2001, the Company, two of its
officers, 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
the two officers, and the officers 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.
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 has been structured in the IPO
Litigation which would guarantee at least $1.0 billion to investors who are
class members from the insurers of the issuers. The cases will continue against
the 55 investment bank underwriter defendants. The Company has assented to
participate in the settlement, and all of the settlement documents were
finalized and executed by most of the parties in May 2004. The settlement was
presented to the court on June 14, 2004. The Plaintiffs filed a motion for
preliminary approval on Friday, July 2, 2004. Once the Court decides the motion,
and assuming it grants preliminary approval (which is expected), the Plaintiffs
will notify the class. Following this notice (which will likely take several
months given the size of the class), there will be a hearing regarding Court
approval of the settlement. If and when final settlement occurs, the Company and
its directors should be removed from the litigation without payment of any
funds.
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
12
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
None
13
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: August 25, 2004 By /s/ John G. Hundley
-----------------------------------
John G. Hundley
Trustee of the High Speed Access Corp.
Liquidating Trust
14