<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for Use of the Commission Only as permitted by
Rule 14a-6(e)(2)
High Speed Access Corp.
________________________________________________
(Name of Registrant as Specified in Its Charter)
________________________________________________
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction
applies:
____________________________________________________________
(2) Aggregate number of securities to which transaction applies:
________________
<PAGE> 2
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
_____________________________________________________________
(4) Proposed maximum aggregate value of transaction:_____________
(5) Total fee paid:______________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:______________________________________
(2) Form, schedule or registration statement no.:________________
(3) Filing party:________________________________________________
(4) Date filed:__________________________________________________
<PAGE> 3
[HIGH SPEED ACCESS CORP. LOGO]
High Speed Access Corp.
10901 West Toller Drive
Littleton, CO 80127
(720) 922-2500
Notice of Special Meeting of Stockholders
December 4, 2000
To our Stockholders:
A special meeting of stockholders (the "Special Meeting") of High Speed
Access Corp., a Delaware corporation ("HSA"), will be held at HSA's principal
executive offices, located at 10901 West Toller Drive, Littleton, CO 80127, on
December 4, 2000, at 2:00 p.m. Mountain Standard Time, for the following
purposes:
1. To approve the issuance to Vulcan Ventures Incorporated and Charter
Communications Ventures, LLC, an affiliate of Charter Communications, Inc., of
75,000 shares of Series D Convertible Preferred Stock, at a price of $1,000 per
share, that is initially convertible into 14,943,960 shares of common stock (at
an initial conversion price of $5.01875 per share), and
2. To transact such other matters as may properly come before the
meeting.
Accompanying this notice are a Proxy Card and a Proxy Statement.
Whether or not you expect to be present at the Special Meeting, please sign and
date the Proxy Card and return it in the enclosed envelope provided for that
purpose prior to the date of the Special Meeting. The proxy represented by the
Proxy Card may be revoked at any time prior to the time that it is voted at the
Special Meeting. The Board of Directors has set November 7, 2000 as the record
date for determining the stockholders entitled to notice of and to vote at the
Special Meeting or any adjournments thereof. Only stockholders of record at the
close of business on November 7, 2000 will be entitled to vote at the Special
Meeting.
You are cordially invited to attend the Special Meeting. You may vote
in person even though you have returned your Proxy Card.
By Order of the Board of Directors
/s/ John G. Hundley
------------------------------------
John G. Hundley
Secretary
Littleton, Colorado
November 10, 2000
<PAGE> 4
[HIGH SPEED ACCESS CORP. LOGO]
High Speed Access Corp.
10901 West Toller Drive
Littleton, CO 80127
(720) 922-2500
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation
of proxies for use at the Special Meeting of stockholders of High Speed Access
Corp. ("HSA") to be held at HSA's principal executive offices, located at 10901
West Toller Drive, Littleton, CO 80127, on December 4, 2000 at 2:00 p.m.
Mountain time and at any adjournments thereof. The accompanying proxy is
solicited on behalf of the Board of Directors of HSA and is revocable by the
stockholder at any time before it is voted. For more information concerning the
procedure for revoking the proxy, see "Voting and Proxy Procedures" below. This
Proxy Statement and the accompanying proxy were first mailed to HSA's
stockholders on or about November 10, 2000. HSA's principal executive offices
are located at 10901 West Toller Drive, Littleton, CO 80127, telephone (720)
922-2500.
Outstanding Shares and Voting Rights
Only holders of record of HSA's common stock, $.01 par value,
outstanding at the close of business on November 7, 2000 (the "Record Date") are
entitled to receive notice of and to vote at the Special Meeting.
As of the Record Date, 58,684,132 shares of common stock were
outstanding and will be entitled to vote at the Special Meeting. Each share of
common stock is entitled to one vote on all matters.
Voting and Proxy Procedures
The presence, in person or by proxy, of the holders of a majority of
the shares of common stock issued and outstanding and entitled to vote at the
Special Meeting is necessary to constitute a quorum at the Special Meeting. The
affirmative vote of a majority of the shares of common stock present in person
or represented by proxy at the Special Meeting and entitled to vote thereon,
whether or not a quorum is present when a vote is taken, is required for
approval of Proposal No. 1. Abstentions and broker non-votes will be counted to
determine whether a quorum is present. Abstentions will be counted as votes
against any given proposal, whereas broker non-votes will not be counted in
determining whether a particular proposal has been approved by the stockholders.
<PAGE> 5
The Board of Directors has selected John G. Hundley and Daniel J.
O'Brien, and each or either of them, to act as proxies with full power of
substitution. With respect to Proposal No. 1, stockholders may (i) vote "for",
(ii) vote "against" or (iii) abstain from voting as to such matter. All properly
executed proxy cards delivered by stockholders and not revoked will be voted at
the Special Meeting in accordance with the directions given. IF NO SPECIFIC
INSTRUCTIONS ARE GIVEN WITH REGARD TO THE MATTERS TO BE VOTED UPON, THE SHARES
REPRESENTED BY A PROPERLY EXECUTED PROXY CARD WILL BE VOTED "FOR" PROPOSAL NO.
1. Management knows of no other matters that may come before the Special Meeting
for consideration by the stockholders.
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by
filing with HSA's Secretary prior to the date of the Special Meeting written
notice of revocation bearing a later date than the proxy, by duly executing and
delivering to HSA's Secretary, prior to the date of the Special Meeting, a
subsequent proxy relating to the same shares of common stock or by attending the
Special Meeting and voting in person. Attendance at the Special Meeting will not
in and of itself constitute revocation of a proxy unless the stockholder votes
his shares of common stock in person at the Special Meeting. To be valid, any
notice revoking a proxy should be sent to HSA's Secretary, John G. Hundley, High
Speed Access Corp., at 10901 West Toller Drive, Littleton, CO 80127, in a manner
designed to ensure that it is received by the Secretary prior to the date of the
Special Meeting.
Solicitation of Proxies
HSA will bear the cost of soliciting proxies. In addition to the use of
mailings, proxies may be solicited by personal interview or telephone, by
directors, officers and regular employees of HSA, without special compensation
therefor. HSA has retained Corporate Investor Communications ("CIC") to assist
it in its solicitation of proxies, for which CIC will receive a fee of
approximately $6,500, plus all reasonable expenses. In addition, HSA expects to
reimburse banks, brokers and other persons for their reasonable out-of-pocket
expenses in handling proxy materials for beneficial owners of the common stock.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth the beneficial ownership of HSA's common
stock as of September 15, 2000 by:
o each current director and executive officer named in the
summary compensation table of the proxy statement for our
2000 annual meeting;
o directors and executive officers as a group; and
o each other person or group that HSA knows to be the owner of
more than 5% of HSA common stock.
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Unless otherwise indicated, the named persons exercise sole voting and
investment power over the shares that are shown as beneficially owned by them.
Shares of Common Stock
Beneficially Owned
<TABLE>
<CAPTION>
Name of Number (1) Percent (2)
Beneficial Owner
<S> <C> <C>
Paul G. Allen(3) 21,563,010 36.7%
Irving W. Bailey, II(4) 1,350,312 2.3%
Michael E. Gellert(5) 573,093 1.0%
David A. Jones, Jr.(6) 2,094,421 3.6%
Jerald L. Kent(7) 42,252 *
Robert S. Saunders(8) 465,445 *
William D. Savoy(9) 20,253,720 34.5%
Stephen E. Silva(10) 58,000 *
Daniel J. O'Brien(12) 187,500 *
Gregory G. Hodges(12) 12,500 *
John G. Hundley(11)(12) 14,281 *
George E. Willett(12) 90,654 *
Directors and executive officers 25,142,178 42.5%
as a group(11 persons)(12)
</TABLE>
---------
*Less than 1%
(1) In accordance with the rules of the Securities and Exchange Commission,
includes all shares of common stock that such person has the right to
acquire within the next 60 days, including upon the exercise of
outstanding options.
(2) The ownership percentage for each stockholder is calculated by dividing
(i) the number of shares of common stock deemed to be beneficially
owned by such stockholder as of September 15, 2000 by (ii) the sum of
(A) the number of shares of common stock outstanding as of September
15, 2000 plus (B) the number of shares of common stock issuable upon
the exercise of options or warrants held by such stockholder which were
exercisable as of September 15, 2000 or will become exercisable within
60 days after September 15, 2000.
(3) Includes 20,222,139 shares of common stock held by Vulcan Ventures
Incorporated ("Vulcan") and 1,340,871 shares of common stock issuable
under warrants held by Charter Communications, Inc. ("Charter"). Mr.
Allen is the controlling stockholder of both Vulcan and Charter. Mr.
Allen's address is 110 110th Avenue N.E., Bellevue, WA 98004.
(4) Includes 4,800 shares held by Mr. Bailey's wife and 38,750 shares
issuable upon exercise of options.
(5) Includes 173,515 shares held by Mr. Gellert's wife and 34,552 shares
issuable upon exercise of options.
(6) Includes 1,527,106 shares held by a partnership with respect to which
Mr. Jones shares voting and dispositive power, 1,540 shares held by Mr.
Jones' wife as custodian under the Uniform Gift to Minors' Act and
31,581 shares issuable upon exercise of options.
(7) Includes 34,552 shares issuable upon exercise of options.
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(8) Includes 400 shares held by Mr. Saunders' wife, 1,500 shares held by
Mr. Saunders' children and 31,581 shares issuable upon exercise of
options.
(9) Includes 20,222,139 shares held by Vulcan and 31,581 shares issuable
upon exercise of options. Mr. Savoy is the President of Vulcan. Mr.
Savoy's address is 110 110th Avenue, N.E., Bellevue, WA 98004.
(10) Includes 38,750 shares issuable upon exercise of options.
(11) Includes 1,230 shares held by Mr. Hundley's wife and 765 shares held by
Mr. Hundley as custodian under the Uniform Gift to Minors Act.
(12) Includes, as applicable, shares issuable upon exercise of options as
follows: Mr. O'Brien - 187,500; Mr. Hodges - 12,500; Mr. Hundley -
8,906; Mr. Willett - 89,004 and all directors and executive officers
as a group - 539,257.
PROPOSAL NO. 1 -- ISSUANCE OF THE CONVERTIBLE PREFERRED STOCK
TO APPROVE THE ISSUANCE TO VULCAN VENTURES INCORPORATED AND CHARTER
COMMUNICATIONS VENTURES, LLC, AN AFFILIATE OF CHARTER COMMUNICATIONS,
INC., OF 75,000 SHARES OF SERIES D CONVERTIBLE PREFERRED STOCK, AT A
PRICE OF $1,000 PER SHARE, THAT IS INITIALLY CONVERTIBLE INTO
14,943,960 SHARES OF COMMON STOCK (AT AN INITIAL CONVERSION PRICE OF
$5.01875 PER SHARE).
PARTIES
Vulcan Ventures Incorporated
Vulcan Ventures Incorporated of Bellevue, Washington ("Vulcan") was
founded by Paul G. Allen in 1986 to research and implement his investments.
Through Vulcan, Mr. Allen invests in over 140 companies which offer products,
services or technologies that fit his Wired World strategy and can contribute to
or benefit from the technology and strategy of other companies within the
group's extensive investment portfolio.
Charter Communications, Inc.
Charter Communications, Inc. ("Charter") owns and operates cable
systems serving approximately 6.2 million customers. Charter currently offers
its customers a full array of traditional cable television services and advanced
high bandwidth services such as digital video and related enhancements,
interactive video programming, Internet access through television-based service,
dial-up telephone modems and high-speed cable modem service.
Charter Communications Ventures, LLC
Charter Communications Ventures, LLC ("Charter Ventures") is an
indirect subsidiary of Charter.
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<PAGE> 8
THE TRANSACTION
On October 19, 2000, HSA entered into a Stock Purchase Agreement with
Vulcan and Charter Ventures (the "Purchase Agreement"). A copy of the Purchase
Agreement was filed as an exhibit to HSA's Form 8-K filed on October 23, 2000.
Upon satisfaction of the conditions set forth in the Purchase Agreement
(including stockholder approval of the proposal), Vulcan and Charter Ventures
will purchase 38,000 and 37,000 shares, respectively, of our Series D
Convertible Preferred Stock (the "Convertible Preferred Stock"), at a price of
$1,000 per share, for an aggregate purchase price of $38,000,000 and
$37,000,000, respectively. Paul G. Allen controls Vulcan and Charter Ventures.
The shares of Convertible Preferred Stock initially are convertible at a
conversion price of $5.01875 per share into 14,943,960 shares of common stock.
The terms of the transaction are more fully described below.
The By-laws of the National Association of Securities Dealers (the
"NASD") require stockholder approval in connection with a transaction involving
the issuance of securities when such issuance will result in a change of control
(the "NASD Change of Control Rule"). In addition, NASD By-laws require
stockholder approval in connection with a transaction, other than a public
offering, involving the sale or issuance of common stock or securities
convertible into common stock equal to 20% or more of a company's outstanding
common stock whenever the sale price of the newly issued shares of common stock
is less than the greater of book value or market value of the common stock on
the date of issuance (the "NASD 20% Rule").
Mr. Allen may be deemed to have beneficial ownership of 36.7% of HSA's
common stock before the transaction. If the transaction is completed, Mr. Allen
may be deemed to have beneficial ownership of approximately 49.6% of the voting
power of HSA's common stock. As described below, a conversion price adjustment
or the payment of dividends in the form of additional shares of common stock or
securities convertible into common stock could cause additional shares to be
issued to Vulcan and Charter Ventures, thereby causing Mr. Allen's beneficial
ownership of HSA's common stock to exceed 50%. Also, Charter has the opportunity
to earn warrants to purchase up to 10,659,129 additional shares of common stock
under existing commercial arrangements with HSA, which, if granted, could cause
Mr. Allen's beneficial ownership of HSA's common stock to exceed 50%. Moreover,
Vulcan and Charter Ventures, as owners of the Convertible Preferred Stock, will
have the right to appoint three (3) of the eight (8) members of HSA's Board of
Directors immediately after the transaction, and upon the written request of
Vulcan, HSA will increase the size of the Board of Directors to nine (9)
members. Under these circumstances, HSA believes that the transaction could be
deemed to be a "change of control" under the NASD Change of Control Rule,
thereby requiring stockholder approval.
As of September 15, 2000, HSA has issued and outstanding 58,684,132
shares of common stock. The shares of common stock initially issuable upon
conversion of the Convertible Preferred Stock, therefore represent approximately
25.5% of HSA's common
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<PAGE> 9
stock prior to the transaction. On August 8, 2000, the last full trading day
prior to the date on which representatives of HSA, Vulcan and Charter Ventures
reached a tentative agreement on the terms of the transaction, the closing sale
price of HSA's common stock, as reported on the Nasdaq National Market
("Nasdaq"), was $5.313 per share. On October 18, 2000, the last full trading day
prior to the execution and delivery of the Purchase Agreement, the closing price
of HSA's common stock, as reported by Nasdaq, was $2.00 per share. Upon the
closing date of the transaction, the price per share of our common stock may be
greater than $5.01875 per share. Because the conversion price of the Convertible
Preferred Stock could be deemed to be below fair market value for purposes of
the NASD 20% Rule, HSA is also seeking stockholder approval under the NASD 20%
Rule.
IF THE STOCKHOLDERS APPROVE THIS PROPOSAL, THE STOCKHOLDERS WILL BE
APPROVING THE SALE AND ISSUANCE TO VULCAN AND CHARTER VENTURES, BOTH OF
WHICH ARE AFFILIATES OF PAUL G. ALLEN, OF A TOTAL OF 75,000 SHARES OF
CONVERTIBLE PREFERRED STOCK WHICH ARE IMMEDIATELY CONVERTIBLE INTO
14,943,960 SHARES OF COMMON STOCK. AS A RESULT OF SUCH APPROVAL, THE
STOCKHOLDERS WILL THEREBY APPROVE (I) THE ISSUANCE OF SECURITIES OF HSA
WHICH MAY BE DEEMED TO RESULT IN A CHANGE OF CONTROL OF HSA FOR
PURPOSES OF THE NASD CHANGE OF CONTROL RULE AND (II) THE ISSUANCE OF
SECURITIES OF HSA EXCEEDING TWENTY PERCENT (20%) OF HSA'S OUTSTANDING
COMMON STOCK WHICH MAY BE DEEMED TO REQUIRE STOCKHOLDER APPROVAL UNDER
THE NASD 20% RULE.
Background of the Transaction
HSA needs a significant amount of cash to fund its operations, to
finance its investments in equipment and corporate infrastructure, to enhance
and expand the range of its services and to respond to competitive pressures and
potential opportunities. Our available cash, cash equivalents and short term
investments, together with the proceeds from unused lease facilities are only
sufficient to fund our operations and other liquidity needs into 2001. To
increase liquidity and provide funds for our operations, we have been seeking
additional capital. We approached Vulcan and Charter for this purpose based on
our historical and ongoing commercial relationships, as well as their
familiarity with us and our business model. Vulcan and Charter Ventures, an
affiliate of Charter, offered to invest $75 million in the Convertible Preferred
Stock. On August 9, 2000, we reached a tentative agreement with Vulcan and
Charter Ventures as to the terms of the transaction and issued a press release
announcing the transaction. Thereafter, we negotiated the terms of the
definitive agreements with Vulcan and Charter Ventures. On September 29, 2000,
those members of our Board of Directors who are not affiliated with Vulcan or
Charter unanimously approved the final terms of the transaction and we
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<PAGE> 10
entered into the Purchase Agreement with Vulcan and Charter Ventures on October
19, 2000.
Effect of this Transaction and Risk Factors
If the transaction is completed, Paul G. Allen may be deemed to
beneficially own approximately 49.6% of our outstanding common stock and Mr.
Allen will be able to exercise effective control over any matter requiring
approval of our stockholders, including the election of directors and the
approval of significant corporate transactions. This concentration of ownership
may also have the effect of delaying or preventing a change in control. In
addition, conflicts of interest may arise as a consequence of Mr. Allen's
control relationship with us, including:
o conflicts between Vulcan, Charter Ventures or other affiliates
of Mr. Allen and our other stockholders, whose interests may
differ with respect to, among other things, our strategic
direction or significant corporate transactions,
o conflicts related to corporate opportunities that could be
pursued by us, on the one hand, or by Vulcan, Charter Ventures
or other affiliates of Mr. Allen, on the other hand, or
o conflicts related to existing or new contractual relationships
between us, on the one hand, and Mr. Allen and his affiliates,
such as Vulcan and Charter Ventures, on the other hand. In
particular, Mr. Allen controls Charter, our largest cable
partner.
As a result of this transaction, HSA will receive $75,000,000 in
funding from Vulcan and Charter Ventures, which we will use to fund our
operations and execute our current business plan. We expect these funds to last
into 2002. However, we anticipate that we will need to seek additional equity or
debt financing to execute our current business plan. Such financing could
involve the issuance, or deemed issuance, of additional shares of capital stock
at a price below the Conversion Price (as defined below), which would result in
a downward adjustment of the Conversion Price. In the event of such an
adjustment, the number of shares of common stock issuable upon conversion of the
Convertible Preferred Stock would be increased pursuant to the weighted average
formula described below (See "Description of the Convertible Preferred Stock" -
"Adjustments to Conversion Price"). Further, if additional financing is not
available on acceptable terms, we may be forced to curtail our operations, which
could have a material adverse effect on our business and financial results and
may require us to delay the deployment of our services. Furthermore, additional
equity or debt financing could give rise to any or all of the following:
o additional dilution to our current stockholders,
o the issuance of debt or equity securities with rights,
preferences or privileges senior to those of the existing
holders of our common stock, and
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<PAGE> 11
o the issuance of securities with covenants imposing
restrictions on our operations.
As described below under the caption "Description of the Convertible
Preferred Stock," the transaction will place significant restrictions on our
activities in the future. Among other things, these constraints will require us
to:
o obtain the approval of Vulcan and Charter Ventures before
declaring a dividend, entering into a merger, acquisition,
consolidation, business combination, or other similar
transaction, or issuing any debt or equity securities,
o provide Vulcan and Charter Ventures with a right of first
refusal to purchase any shares of stock, common or otherwise,
that we may offer in the future, and
o offer and make available to Vulcan, Charter Ventures and their
affiliates licensing and business arrangements relating to
HSA's technologies, products and services, or any combination
thereof, on terms and conditions at least as favorable as
those agreed to with any third party at substantially the same
level of purchase or other financial commitment.
You should be aware that conversion of the Convertible Preferred Stock
into shares of common stock will have a dilutive effect on earnings per share
and the relative voting power of HSA's present stockholders. In addition, you
should note that HSA may issue additional shares of common stock in connection
with the payment of dividends or conversion price adjustments on the Convertible
Preferred Stock, which may increase the number of shares of common stock issued
in connection with the transaction described in this Proposal No. 1.
Description of the Convertible Preferred Stock
The following summarizes the principal features of the Convertible
Preferred Stock. Because it is only a summary, it may not contain all of the
provisions that may be important to you. As a result, you may want to read the
certificate of designations, which is the legal document that sets out all of
the terms of the Convertible Preferred Stock, prior to making your decision on
Proposal No. 1. A copy of the certificate of designations is attached as an
exhibit to HSA's Form 8-K filed on October 23, 2000.
Dividends. Shares of the Convertible Preferred Stock are not entitled
to receive dividends unless and until (and only when) the Board of Directors
declares a dividend in respect of the common stock or any other series of
preferred stock (whether in existence now or created at a future date). Holders
of two-thirds (2/3) of the outstanding shares of Convertible Preferred Stock
must approve any dividend declaration payable on the common stock or any other
stock of HSA, unless the dividend is a stock on stock
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dividend and the Conversion Price is adjusted accordingly. Such approval will
result in a simultaneous declaration or payment, as applicable, of a cash or
property dividend upon the Convertible Preferred Stock.
Declaration of a dividend, other than a stock on stock dividend, upon
shares of common stock or preferred stock (whether in existence now or created
at a future date) will result in the declaration of a dividend upon each share
of the Convertible Preferred Stock in an amount equal to:
o In the case of a dividend on the common stock, the aggregate
dividend payable upon that number of shares of common stock
acquirable upon conversion of a share of the Convertible
Preferred Stock immediately before declaration of the
dividend, with the conversion being based on the effective
conversion price, the formula for which is described below, as
of the record date for the dividend on the common stock.
o In the case of a dividend on any class or series of preferred
stock that is convertible into common stock, the amount
declared upon each share of the Convertible Preferred Stock
divided by the number of shares of common stock acquirable
upon conversion of a share of the Convertible Preferred Stock,
will equal the amount of the dividend declared upon each share
of such class or series of preferred stock, divided by the
number of shares of common stock acquirable upon conversion of
a share of such class or series of preferred stock, in each
case assuming such conversion occurred immediately before the
declaration of the dividend.
No dividend will be declared or paid upon any other class or series of
preferred stock that is not convertible into common stock, unless the holders of
at least two-thirds (2/3) of the outstanding shares of the Convertible Preferred
Stock have approved the amount of the dividend declared upon each share of the
Convertible Preferred Stock.
Liquidation. Upon a liquidation, whether voluntary or involuntary,
dissolution or winding up of HSA, the holders of the Convertible Preferred Stock
then outstanding will be entitled to be paid out of the assets of HSA available
for distribution to its stockholders, after and subject to the payment in full
of all amounts required to be distributed to the holders of any senior stock of
HSA, but before any payment is made to the holders of any junior stock of HSA,
including common stock, an amount equal to the sum of (i) $1,000 per share,
subject to adjustment for a stock split, stock dividend, stock distribution or
combination with respect to the Convertible Preferred Stock (the "Liquidation
Preference"), and (ii) the amount of all declared but unpaid dividends on the
Convertible Preferred Stock. If, upon any such liquidation, dissolution or
winding up of HSA, the remaining assets of HSA available for distribution to its
stockholders after payment in full of amounts required to be paid or distributed
to holders of any other senior stock are insufficient to pay the holders of the
Convertible Preferred Stock the full amount to which they are entitled, the
holders of the Convertible Preferred Stock, and any class or series of stock
ranking on a liquidation parity with the Convertible Preferred
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Stock, will share ratably in any distribution of the remaining assets and funds
of HSA in proportion to the respective amounts which would otherwise be payable
with respect to the shares held by them upon such distribution if all amounts
payable on or with respect to these shares were paid in full. Except as
described in this paragraph, holders of the Convertible Preferred Stock shall
not be entitled to any distribution in the event of a liquidation, dissolution
or winding up of HSA.
The merger or consolidation of HSA with or into any other company or
entity, or the sale or conveyance of all or substantially all of the assets of
HSA, will not be deemed to be a liquidation, dissolution or winding up of HSA
for purposes of the Liquidation Preference.
Conversion. Shares of the Convertible Preferred Stock are convertible
at any time, at the option of the holder, into the number of fully paid,
non-assessable shares of common stock that is obtained by dividing (i) the sum
of (A) the aggregate Liquidation Preference of all shares of the Convertible
Preferred Stock to be converted plus (B) any accrued or declared but unpaid
dividends on such shares, by (ii) the Conversion Price (as defined below). The
initial conversion price is $5.01875, and is subject to adjustment as set forth
below (the "Conversion Price"). Shares of the Convertible Preferred Stock are
convertible into a whole number of shares of common stock. A holder surrendering
shares of Convertible Preferred Stock will be entitled to receive cash at the
current market value in lieu of any fractional interest upon conversion.
Automatic Conversion. If a holder of shares of the Convertible
Preferred Stock transfers some or all of its shares other than to an affiliate
of the holder, each transferred share of the Convertible Preferred Stock will
automatically convert into the number of shares of common stock into which the
share is then convertible pursuant to the formula outlined above. This automatic
conversion does not apply when a holder of Convertible Preferred Stock pledges
the Convertible Preferred Stock to secure a mortgage or loan until the lender
forecloses on the pledged shares.
Adjustments to Conversion Price. The conversion price and the number of
shares of common stock issuable upon conversion of the Convertible Preferred
Stock are subject to adjustment from time to time upon the issuance of
additional shares of common stock where the consideration per share for the
additional common stock issued or deemed to be issued by HSA is less than the
Conversion Price for the shares of Convertible Preferred Stock immediately prior
to the issuance, with certain exceptions.
An issuance of additional shares of common stock includes not only the
issuance of common stock, but also the issuance of options or other securities
convertible into common stock; provided, in either event, that the consideration
for the additional common stock is less than the Conversion Price then in
effect.
If there is an issuance of additional shares of common stock for
consideration below the Conversion Price, the Conversion Price for all shares of
the Convertible Preferred Stock will be adjusted to a price determined by the
following formula:
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o Conversion Price multiplied by the quotient obtained by
dividing (A) the sum of the number of shares of common stock
outstanding (determined on a fully diluted basis) immediately
prior to such issue plus the number of shares of common stock
that could be purchased at the Conversion Price with the
consideration received from the issuance of the additional
common stock by (B) the number of shares of common stock
outstanding (determined on a fully diluted basis) immediately
prior to such issue plus the number of such additional shares
of common stock so issued.
If HSA issues additional shares of common stock by dividend or
distribution or subdivides or reclassifies the outstanding shares of common
stock into a greater number of shares or combines or reclassifies the
outstanding common stock into a smaller number of shares, the Conversion Price
in effect at the time of the record date for such dividend or distribution or
the effective date of a subdivision, combination or reclassification will be
proportionately adjusted so that the holder of any shares of Convertible
Preferred Stock surrendered for conversion after that date will be entitled to
receive the number of shares of common stock which the holder would have owned
or been entitled to receive if the holder's shares of Convertible Preferred
Stock had been converted immediately prior to that date. Successive adjustments
in the Conversion Price will be made whenever any event specified above occurs.
If HSA fixes a record date for a distribution to all holders of shares
of its common stock of (i) shares of any class or series other than its common
stock, (ii) evidence of HSA indebtedness or indebtedness of any HSA subsidiary,
(iii) assets, or (iv) rights or warrants, in each such case, all holders of
shares of the Convertible Preferred Stock will receive a distribution of (i)
shares of any class or series other than common stock, (ii) evidence of HSA
indebtedness or the indebtedness of any HSA subsidiary, (iii) assets, or (iv)
rights or warrants, as applicable, equal in amount to the distribution which
they would have received had such holders converted their shares of Convertible
Preferred Stock into common stock immediately prior to the distribution.
Merger, Consolidation, Sale of Assets. If HSA consolidates with, or
merges with or into, any other company or entity or engages in any
reorganization, recapitalization, sale of all or substantially all of HSA's
assets to any entity or any other transaction which is effected in a manner so
that the holders of common stock will receive stock, securities or assets with
respect to or in exchange for common stock (an "Event"), then each share of the
Convertible Preferred Stock will after the date of such Event be convertible
into the number of shares of stock or other securities or property (including
cash) to which the common stock issuable (at the time of the Event) upon
conversion of the share of the Convertible Preferred Stock would have been
entitled upon the occurrence of an Event. In these cases, HSA is required to
ensure that the conversion provisions thereafter are applicable to the
Convertible Preferred Stock and to the shares of stock, securities or assets
received by each holder upon the occurrence of the Event. HSA may not effect any
Event unless, before doing so, the successor company (if other than HSA)
resulting from a consolidation, merger or purchase of HSA's assets, as the case
may be, assumes
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by written instrument, the obligation to deliver to each holder of the
Convertible Preferred Stock, shares of stock, securities or assets as, in
accordance with the foregoing provisions, the holder may be entitled to acquire.
Voting Rights. Each holder of the Convertible Preferred Stock will have
the right to one vote for each share of common stock into which the holder's
shares of Convertible Preferred Stock could then be converted. With respect to
voting, each holder of the Convertible Preferred Stock will have full voting
rights and powers equal to the voting rights and powers of the holders of common
stock, except as otherwise provided below, or as required by law, and will be
entitled to receive notice of any stockholders' meeting in accordance with the
Bylaws of HSA, and will be entitled to vote, together with holders of common
stock, with respect to any question upon which holders of common stock have the
right to vote.
Furthermore, unless the vote or consent of a greater number of shares
is required by law, the consent of holders of at least two-thirds (2/3) of the
outstanding shares of the Convertible Preferred Stock, voting separately as a
single class, is necessary to:
o amend, modify or repeal any provision of HSA's Certificate of
Incorporation (including any provision of the certificate of
designation of the Convertible Preferred Stock) or Bylaws in
any manner (including by merger, consolidation, operation of
law or otherwise) which would adversely affect the powers,
preferences or special rights of the Convertible Preferred
Stock (the authorization or creation of any shares of any
class or series of junior stock of HSA or the reclassification
of any authorized stock of HSA into any junior stock, or the
creation or authorization of any obligation or security
convertible into or evidencing the right to purchase shares of
any junior stock will be deemed not to adversely affect the
powers, preferences or special rights of the Convertible
Preferred Stock; and a merger, consolidation or other
transaction pursuant to which the Convertible Preferred Stock
is converted into cash, stock or other property will be deemed
to adversely affect the powers, preferences and special rights
of the Convertible Preferred Stock);
o authorize or create any shares of any class or series of
senior stock or parity stock of HSA or reclassify any
authorized stock of HSA into senior stock or parity stock, or
create or authorize any obligation or security convertible
into or evidencing the right to purchase shares of any such
senior stock or parity stock;
o approve, or adopt a plan for a liquidation, winding up or
dissolution of HSA;
o to commence a voluntary case or proceeding under applicable
bankruptcy laws or any other insolvency, receivership,
reorganization, moratorium or similar laws providing relief to
debtors;
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o to effect any redemption or repurchase or other acquisition by
HSA or a subsidiary of HSA of any junior stock or parity stock
or any securities convertible into junior stock or parity
stock, other than the repurchase of shares in connection with
the termination of employees, consultants, directors or
advisors of HSA pursuant to rights under written agreements;
and
o declare or pay a dividend on the common stock (other than
dividends payable upon the common stock solely in additional
shares of common stock, provided that an appropriate
adjustment to the Conversion Price of the Convertible
Preferred Stock is made pursuant to the adjustment provisions
outlined above) or any other stock of HSA, whether junior
stock, parity stock or senior stock.
So long as Vulcan and Charter Ventures, together with their affiliates,
hold of record or beneficially own at least 50% of the Convertible Preferred
Stock and 15% of HSA's common stock (assuming conversion of the Convertible
Preferred Stock held of record or beneficially owned by Vulcan and Charter
Ventures and their affiliates) (the "Agreed Percentage"), unless the vote or
consent of a greater number of shares shall then be required by law, the consent
of holders of at least two-thirds (2/3) of the outstanding shares of the
Convertible Preferred Stock, voting separately as a single class, shall be
necessary to authorize or effect each of the following:
o any proposed sale, lease, transfer or other disposition of
assets (including, without limitation, by merger) having a
fair market value of at least 30% of the fair market value of
the assets of HSA and its subsidiaries on a consolidated
basis;
o a merger, consolidation, business combination or other similar
transaction where the stockholders of HSA immediately prior to
such transaction hold less than 66 2/3% of the voting
securities of the surviving entity immediately after such
merger, consolidation, business combination or other similar
transaction;
o any proposed acquisition by HSA or any subsidiary thereof of
another entity or business whether by means of a purchase of
equity interests or the purchase of all or substantially all
of the assets of such entity or business or by merger,
consolidation, reorganization, issuance or exchange of
securities or otherwise where the consideration involved
(including, without limitation, non-cash consideration) has a
value of at least $50,000,000; and
o any proposed issuance of any debt or equity securities of HSA
in excess of $25,000,000.
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So long as Vulcan and Charter Ventures, together with their affiliates,
hold of record or beneficially own the Agreed Percentage, the holders of the
Convertible Preferred Stock, voting separately as a single class, shall be
entitled to:
o elect that number of directors to serve on the Board of
Directors at any annual or special meeting of stockholders to
serve until the next annual meeting, equal to the product of
the total number of directors on the Board of Directors
multiplied by the percentage of common stock held of record or
beneficially owned by Vulcan, Charter Ventures and their
affiliates (assuming conversion into common stock, at the
effective conversion price, of all shares of the Convertible
Preferred Stock held of record or beneficially owned by
Vulcan, Charter Ventures and their affiliates) rounded down to
the nearest whole number; and
o have that number of directors serve on HSA's Executive
Committee, Nominating Committee or any other committee of the
Board of Directors that is similar to any of the foregoing
equal to the product of the total number of directors on such
committee multiplied by the percentage of common stock held of
record or beneficially owned by Vulcan, Charter Ventures and
their affiliates (assuming conversion into common stock, at
the effective conversion price, of all shares of the
Convertible Preferred Stock held of record or beneficially
owned by Vulcan, Charter Ventures and their affiliates)
rounded down to the nearest whole number, provided, however,
that a majority of holders of the Convertible Preferred Stock
may waive this provision.
If at any time a vote of the holders of the Convertible Preferred Stock
is necessary pursuant to this section, a proper officer of HSA may, and upon the
written request of the holders of record of at least twenty-five percent (25%)
of the outstanding shares of Convertible Preferred Stock addressed to the
Secretary of HSA will, call a special meeting of the holders of the Convertible
Preferred Stock, for the purpose of electing the directors which such holders
are entitled to elect; and if the meeting is not called by a proper officer of
HSA within twenty (20) days after personal service of the written request upon
HSA's Secretary, or personal service of the written request upon HSA's Secretary
at its principal executive offices, the holders of at least twenty-five percent
(25%) of the outstanding shares of Convertible Preferred Stock may designate in
writing one of their number to call a meeting at the expense of HSA, and the
meeting may be called by the persons so designated upon the notice required for
HSA's annual meeting of stockholders. Any holder of the Convertible Preferred
Stock so designated will have, and HSA will provide access to the lists of
stockholders to be called pursuant to these provisions.
Additional Covenants. In connection with the issuance of the
Convertible Preferred Stock, HSA has agreed to the following covenants:
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o Additional Issuances of Securities; Right of First Refusal. At
any time after the sale of the Convertible Preferred Stock, so
long as Vulcan, Charter Ventures and their affiliates hold of
record or beneficially own the Agreed Percentage, in the event
that HSA issues any capital stock, including securities of any
type that are, or may become convertible into or exercisable
or exchangeable for capital stock of HSA ("Additional
Securities"), Vulcan and Charter Ventures will have the right
to purchase all or any portion of such Additional Securities
("Right of First Refusal"), except as provided below.
o The Right of First Refusal will not apply to Additional
Securities issued to employees, officers or directors of, or
consultants or advisors to HSA or any subsidiary, pursuant to
any stock purchase plan, HSA's or other equity plans or
arrangements approved by the Board; pursuant to any options,
warrants, conversion rights or other rights or agreements
outstanding as of the date of the issuance of the Convertible
Preferred Stock or pursuant to the conversion of the shares of
the Convertible Preferred Stock; in connection with any stock
split, stock dividend or recapitalization by HSA; in an
underwritten public offering of Additional Securities;
Additional Securities offered to HSA's joint venture partners
in exchange for interests in the relevant joint venture,
provided, however, that Vulcan and Charter Ventures will have
the right to subscribe for and to purchase up to that number
of Additional Securities such that Vulcan or Charter Ventures,
as the case may be, holds the same percentage of HSA's
outstanding capital stock immediately prior to and immediately
following such issuance; and Additional Securities offered in
connection with an acquisition of a business or assets or a
strategic alliance, provided, however, that Vulcan and Charter
Ventures will have the right to subscribe for and to purchase
up to that number of Additional Securities such that Vulcan or
Charter Ventures, as the case may be, holds the same
percentage of HSA's outstanding capital stock immediately
prior to and immediately following such issuance.
o So long as Vulcan and Charter Ventures, together with their
affiliates, hold of record or beneficially own the Agreed
Percentage, HSA will offer and make available to them
licensing and business arrangements relating to HSA's
technologies, products and services, or any combination
thereof, on terms and conditions at least as favorable as
those agreed to with any third party for similar technologies,
products and services at substantially the same level of
purchase or other financial commitment. In connection with
this agreement, HSA will provide to Vulcan, Charter Ventures
or their affiliates information regarding the terms and
conditions on which HSA's technologies, products and services
are being offered or have been made available to any third
party. Vulcan and Charter Ventures have the right, no more
than twice each calendar year, to request any certified public
accountant, during normal business hours, to examine, audit
and
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reproduce all of HSA's books and records regarding this
agreement. These materials will be provided to the designated
certified public accountant under a non-disclosure agreement
for the sole purpose of verifying that HSA has complied with
its obligations under this agreement. The costs and expenses
of the certified public accountant will be paid by the holder
of Convertible Preferred Stock requesting such audit. If it is
discovered that HSA has failed to comply with this agreement,
the costs and expenses of such examination, audit and
reproduction will be borne by HSA.
o HSA will set the number of the members of the Board of
Directors at eight (8). So long as Vulcan, Charter Ventures
and their affiliates hold of record or beneficially own the
Agreed Percentage, HSA will not increase the size of the Board
to greater than eight (8) members without the written consent
of the purchasers; provided that upon the written request of
Vulcan, HSA will increase the size of the Board of Directors
to nine (9) members.
o So long as Vulcan and Charter Ventures, together with their
affiliates, hold of record or beneficially own the Agreed
Percentage, unless the vote or consent of a greater number of
shares shall then be required by law, the consent of holders
of at least two-thirds (2/3) of the outstanding shares of the
Convertible Preferred Stock, voting separately as a single
class, shall be necessary to authorize or effect HSA's annual
and quarterly budgets. For purposes of approving HSA's annual
and quarterly budgets, as applicable, approval of at least
two-thirds (2/3) of the outstanding shares of the Convertible
Preferred Stock will be deemed to have been obtained if HSA
does not receive notices of disapproval from the holders of
one-third (1/3) or more of the outstanding shares of the
Convertible Preferred Stock within ten business days after the
delivery of such annual or quarterly budgets, as applicable,
to such holders.
Registration Rights Agreement. In connection with the sale of the
Convertible Preferred Stock, which stock is not registered under the Securities
Act of 1933, as amended (the "Securities Act"), we are entering into a
registration rights agreement (the "Registration Rights Agreement") with Vulcan
and Charter Ventures which will provide Vulcan, Charter Ventures and their
affiliates with demand and piggyback registration rights for common stock owned
of record or beneficially by Vulcan, Charter Ventures or their affiliates
(including common stock issuable upon conversion of the Convertible Preferred
Stock) and any shares received with respect to or in replacement of such shares
by reason of splits, dividends, recapitalizations or other changes in HSA's
capital structure ("Registrable Securities"). Pursuant to the terms of the
Registration Rights Agreement, the holders of a majority of Registrable
Securities held by Vulcan, Charter Ventures or their affiliates are entitled to
demand that we register their Registrable Securities under the Securities Act.
We are not required to effect more than four (4) registrations pursuant to these
demand registration rights. In addition, Vulcan, Charter Ventures or their
affiliates are entitled to demand that we register their Registrable
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Securities under the Securities Act on Form S-3 or any successor short form
registration statement, provided that the anticipated aggregate offering price
of the securities to be registered exceeds $2,500,000. Vulcan, Charter Ventures
or their affiliates are also entitled to require us to include their Registrable
Securities in future registration statements that we may file. These
registration rights are subject to various conditions and limitations, including
the right of the underwriters of an offering to limit the number of Registrable
Securities that may be included in the offering. In addition, these registration
rights may not be exercised until 180 days after the date on which this
transaction is completed. We are generally required to bear all of the expenses
of these registrations, except underwriting discounts and selling commissions.
Representations and Warranties. Under the Purchase Agreement, HSA made
certain representations and warranties. HSA represented and warranted to Vulcan
and Charter Ventures concerning, among other things, corporate existence,
corporate power and authority concerning the Purchase Agreement and Registration
Rights Agreement, authorized capital stock, government approvals,
enforceability, accuracy of SEC filings and financial statements thereto and
litigation matters. In addition, HSA warranted that the shares of the
Convertible Preferred Stock and common stock, when issued upon conversion, will
be validly issued, fully paid and nonassessable.
Conditions to Closing. The obligations of HSA, Vulcan and Charter
Ventures under the Purchase Agreement are conditioned on, among other things,
the execution and delivery of the Registration Rights Agreement, the truth and
correctness of the representations and warranties made by HSA, Vulcan and
Charter Ventures, the performance by HSA, Vulcan and Charter Ventures, in all
material respects, of all covenants and obligations set forth in the Purchase
Agreement, the receipt of all material consents permits and waivers, no material
adverse change in the business, properties, results of operation or financial
condition of HSA and its subsidiaries taken as a whole and approval by HSA's
stockholders.
Termination. The obligations of HSA, Vulcan and Charter Ventures under
the Purchase Agreement may be terminated at any time prior to the closing of the
transaction (i) by mutual agreement of each of HSA, Vulcan and Charter Ventures;
(ii) by either HSA, Vulcan or Charter Ventures if (A) the Purchase Agreement is
not consummated by December 31, 2000, unless extended by mutual agreement or
unless the failure to consummate the Purchase Agreement is attributable to a
failure on the part of the party seeking to terminate the Purchase Agreement to
perform any obligation required to be performed by such party at or prior to the
closing, (B) the required vote of HSA's stockholders is not obtained at the
Special Meeting, (C) any governmental body shall have issued an injunction,
order or decree (a "Restraint"), or taken any other action permanently
enjoining, restraining or otherwise prohibiting the consummation of the
transaction and such Restraint or other action shall become final and
non-appealable, provided the party seeking to terminate the Purchase Agreement
shall have used its best efforts to prevent entry of and to remove such
Restraint; (iii) by either Vulcan or Charter Ventures if HSA shall have breached
or failed to perform in any material respect any of its representations or
warranties, or covenants or other agreements contained in the
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Purchase Agreement, which breach or failure to perform could not be or has not
been cured within ten days after the giving of written notice to HSA of such
breach and which, as a result of such breach, considered either individually or
in the aggregate, any condition to Vulcan's or Charter Ventures' obligations to
consummate the closing of the transaction would not at that time be satisfied
(provided that Vulcan or Charter Ventures, as the case may be, are not in
material breach of any representation, warranty, covenant or other agreement
contained in the Purchase Agreement); and (iv) by HSA if Vulcan and Charter
Ventures shall have breached or failed to perform in any material respect any of
their representations or warranties, or covenants or other agreements contained
in the Purchase Agreement, which breach or failure to perform could not or has
not been cured within ten days after the giving of written notice to each of
Vulcan and Charter Ventures of such breach and which, as a result of such
breach, considered either individually or in the aggregate, any condition to
HSA's obligations to consummate the closing of the transaction would not at that
time be satisfied (provided that HSA is not then in material breach of any
representation, warranty, covenant or other agreement contained in the Purchase
Agreement). In the event of termination of the Purchase Agreement pursuant to
the above clauses (i) through (iv), the Purchase Agreement shall become void and
have no effect, without any liability on the part of any party or its directors,
officers and stockholders, except as set forth below under "Fees and Expenses."
Notwithstanding the foregoing, no party shall be relieved of liability for fraud
in connection with the Purchase Agreement, and in the event of a termination of
the Purchase Agreement by either Vulcan or Charter Ventures (the "Terminating
Purchaser"), the other purchaser may elect by written notice to HSA to purchase
the shares of Convertible Preferred Stock to be purchased by the Terminating
Purchaser under the Purchase Agreement (subject to the same terms and
conditions) and in such event the Purchase Agreement shall become void and have
no effect only as to the Terminating Purchaser, except as set forth below under
"Fees and Expenses."
Fees and Expenses. All costs and expenses incurred in connection with
the Purchase Agreement and the consummation of the transactions contemplated
thereby shall be paid by the party incurring such expenses; provided, however,
that HSA shall, within three business days after receipt of an invoice from
Vulcan or Charter Ventures, reimburse Vulcan and Charter Ventures for their
documented out-of-pocket fees and expenses incurred in connection with the
transactions contemplated by the Purchase Agreement.
Interest of Certain Persons in Proposal No. 1
Paul G. Allen, who controls Vulcan and Charter, currently beneficially
owns approximately 36.7% of HSA's common stock. If the transaction is completed,
Mr. Allen will beneficially own approximately 49.6% of HSA's common stock. See
"Security Ownership of Certain Beneficial Owners and Management." Three of HSA's
directors, Jerald L. Kent of Charter, Stephen E. Silva of Charter, and William
D. Savoy of Vulcan, are executives of either Vulcan or Charter. Upon completion
of the transaction, Vulcan and Charter Ventures will have the right to appoint
three (3) directors
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to HSA's Board of Directors. See "Description of Convertible Preferred Stock -
Voting."
Charter is our largest cable partner. We have entered into several
agreements with Charter, including two network services agreements. The first
network services agreement was entered into in November 1998 and the second in
May 2000.
Pursuant to the terms of the May 2000 agreement, Charter committed to
provide HSA exclusive rights to provide network services related to the delivery
of Internet access to homes passed in certain cable systems. We will provide
partial turnkey services or "Network Services," including system monitoring and
security as well as call center support. Charter will receive the warrants
described in the following paragraph as an incentive to provide us additional
homes passed, although it is not obligated to do so. Charter can terminate these
exclusivity rights, on a system-by-system basis, if we fail to meet performance
specifications or otherwise breach the agreement. The agreement has an initial
term of five years and may be renewed at Charter's option for additional
successive five-year terms.
In connection with the May 2000 network services agreement, HSA and
Charter entered into an amended and restated warrant under which Charter may
purchase up to 12,000,000 shares of our common stock at an exercise price of
$3.23 per share and which terminated two warrants that had been issued to
Charter in November 1998. The new warrant becomes exercisable at the rate of
1.55 shares for each home passed committed to us by Charter (in excess of
750,000 homes passed, which threshold has been met) under the network services
agreement entered into by Charter and us in November 1998. The warrant also
becomes exercisable at the rate of .775 shares for each home passed committed to
us by Charter under the network services agreement entered into in May 2000 for
up to 5,000,000 homes passed, and at a rate of 1.55 shares for each home passed
in excess of 5,000,000. Charter also has the opportunity to earn additional
warrants to purchase shares of our common stock upon any renewal of the May 2000
agreement. Such a renewal warrant will have an exercise price of $10 per share
and will be exercisable to purchase one-half of a share for each home passed in
the systems for which the May 2000 agreement is renewed. With respect to each
home passed launched or intended to be launched on or before the second
anniversary date of the May 2000 network services agreement, we will pay
Charter, at Charter's option, a launch fee of $3.00 per home passed committed.
As of June 30, 2000, Charter had requested payment of approximately $2.7 million
in launch fees related to systems to be deployed in the near future. Our
significant commercial relationship with Charter means that Charter's interests
are not necessarily aligned with those of our other stockholders.
We have a programming content agreement with Vulcan. Pursuant to this
programming content agreement, Vulcan has the right to require us to carry, on
an exclusive basis in all cable systems we serve, content it designates. Vulcan
content may include start-up and related web pages, electronic programming
guides, other multimedia information and telephony services. We will not share
in any revenues Vulcan may earn through the content or telephony services it
provides. We must provide all equipment necessary for the delivery of Vulcan
content, although Vulcan will reimburse us for any
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costs we incur in excess of $3,000 per cable head end. Vulcan cannot charge us
for any Vulcan content through November 2008. After November 2008, we will be
obligated to pay Vulcan for this content at the lowest fee charged to any
Internet service provider who subscribes to Vulcan content. Vulcan has the right
to prohibit us from providing content or telephony services that compete with
Vulcan content in Vulcan's discretion and can require us to remove competing
content. Many industry analysts believe that Internet access will become
increasingly reliant upon revenues from content due to competitive pressures to
provide low cost or even free Internet access. If Vulcan were to require us to
remove our content or substitute its telephony services for any we might
provide, we could lose a source of additional revenues and might not recover all
related costs of providing our content or telephony services. Vulcan's ability
to prohibit us from providing content and telephony services means that Vulcan's
interests are not necessarily aligned with those of our other stockholders.
For a further discussion of our agreements with Vulcan and Charter,
please refer to the periodic reports we file with the Securities and Exchange
Commission.
Fairness/Commercially Reasonable Opinion
Lehman Brothers has been engaged to deliver its opinion to HSA with
respect to this transaction. On October 19, 2000, Lehman Brothers delivered to
HSA's Board of Directors its opinion as of the date thereof with respect to (i)
the commercial reasonableness of the financial terms of the Convertible
Preferred Stock and (ii) the fairness, from a financial point of view, to HSA of
the consideration to be received by HSA in this transaction.
THE FULL TEXT OF LEHMAN BROTHERS' WRITTEN OPINION DATED OCTOBER 19,
2000 IS ATTACHED AS EXHIBIT A TO THIS PROXY STATEMENT (THE "LEHMAN OPINION") AND
IS INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS MAY READ THE LEHMAN OPINION
FOR A DISCUSSION OF ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN BY LEHMAN BROTHERS IN RENDERING ITS OPINION. THE SUMMARY OF
THE LEHMAN OPINION SET FORTH IN THIS PROXY STATEMENT IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE LEHMAN OPINION.
Lehman Brothers' advisory services and opinion were provided for the
information and assistance of HSA's Board of Directors in connection with its
consideration of this transaction. The Lehman Opinion does not constitute a
recommendation to any HSA stockholder as to how such stockholder should vote
with respect to this transaction. Lehman Brothers was not requested to opine as
to, and the Lehman Opinion does not address, HSA's underlying business decision
to proceed with or effect this transaction or any of the commercial arrangements
between HSA and Vulcan or Charter.
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In arriving at its opinion, Lehman Brothers reviewed and analyzed:
o the Purchase Agreement, the certificate of designation
relating to the Convertible Preferred Stock, the Registration
Rights Agreement, and the specific terms of the Convertible
Preferred Stock and this transaction;
o such publicly available information concerning HSA that Lehman
Brothers believed to be relevant to its analysis, including
its Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 and its Quarterly Reports on Form 10-Q for
the quarters ended March 31, 2000 and June 30, 2000;
o financial and operating information with respect to the
business, operations and prospects of HSA furnished to Lehman
Brothers by it;
o a trading history of HSA's common stock from its initial
public offering on June 4, 1999 to the present and a
comparison of that trading history with those of other
companies that Lehman Brothers deemed relevant;
o a comparison of the historical financial results and present
financial condition of HSA with those of other companies that
Lehman Brothers deemed relevant;
o a comparison of the financial terms of the Convertible
Preferred Stock with the financial terms of certain other
recently issued private convertible preferred securities that
Lehman Brothers deemed relevant;
o a comparison of the financial terms of this transaction with
the financial terms of certain other recent transactions that
Lehman Brothers deemed relevant; and
o alternatives available to HSA on a stand-alone basis to fund
its future capital and operating requirements.
In addition, Lehman Brothers had discussions with the management of HSA
concerning its business, operations, assets, financial condition and prospects
and have undertaken such other studies, analyses and investigations as Lehman
Brothers deemed appropriate.
For its opinion, Lehman Brothers relied upon and assumed the accuracy
and completeness of all of the financial and other information that was
available or provided to it without assuming any responsibility for independent
verification of such information. Lehman Brothers has further relied upon the
assurances of management of HSA that they are not aware of any facts or
circumstances that would make such information inaccurate or misleading. With
respect to the financial projections of HSA, upon the advice of HSA, Lehman
Brothers has assumed that the projections have been reasonably prepared on the
basis reflecting the best currently available estimates and judgments of the
management of HSA as to its future financial performance and that HSA will
perform substantially in accordance with such projections. Lehman Brothers does
not assume any responsibility for making an independent evaluation of HSA's
assets
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or liabilities or any independent verification of any of the information
reviewed by it. The Lehman Opinion is based upon economic, market, financial and
other conditions and information on the date of the Lehman Opinion. Lehman
Brothers does not have any obligation to update, revise or reaffirm its opinion.
The preparation of a fairness opinion or a commercially reasonable
opinion involves determinations about the most appropriate and relevant methods
of financial analysis and the application of these methods to the particular
circumstances, and therefore, such opinions are not readily susceptible to
summary description. Lehman Brothers did not form a conclusion as to whether any
individual analysis supported or failed to support its opinion, but rather made
qualitative judgements as to the significance and relevance of each analysis and
factor. Accordingly, even though the separate analyses are summarized below,
Lehman Brothers believes that its analyses must be considered as a whole. Lehman
Brothers believes that selected portions of its analyses, without considering
all analyses, could create an incomplete or misleading view of the evaluation
process underlying its opinion. In its analyses, Lehman Brothers made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of HSA. Any
estimates in these analyses do not indicate actual values or future results.
These may be significantly more or less favorable than suggested by the
analyses.
The following is a summary of the material financial analyses used by
Lehman Brothers in connection with providing its opinion to HSA's Board of
Directors as to the commercial reasonableness of the financial terms of the
Convertible Preferred Stock.
Share Price Performance. Lehman Brothers analyzed the share price
performance of HSA from June 4, 1999, the first trading day following its
initial public offering, to October 19, 2000. During this period, the closing
prices on the Nasdaq National Market ranging from a high of $47.69 to a low of
$2.00. The average price for the thirty days preceding October 19, 2000 was
$3.75 and the share price on October 19, 2000 was $2.03.
Financing Alternatives Analysis. Lehman Brothers analyzed the potential
ability for HSA to raise alternative types of financing at this time other than
the consummation of the sale of the Convertible Preferred Stock, including bank
debt, high yield debt, convertible equity, common equity and other potential
sources. Lehman Brothers analyzed the significant market and company-specific
requirements for consummating such transactions. Lehman Brothers determined that
the opportunity to raise any of the alternative types of financing at this time
other than the Convertible Preferred Stock would have been on terms less
favorable to HSA than the terms of the Convertible Preferred Stock if these
alternatives were available at all.
Selected Comparable Transactions Analysis. Lehman Brothers analyzed and
compared financial terms for the Convertible Preferred Stock to corresponding
terms for certain other private equity transactions for public entities. Lehman
Brothers calculated and compared various financial and non-financial
characteristics of the comparable
22
<PAGE> 26
transactions to the characteristics of the Convertible Preferred Stock and
determined that, on the average, the transaction characteristics of those other
transactions were comparable to this transaction.
The following is a summary of the material financial analyses used by
Lehman Brothers in connection with providing its opinion to HSA's Board of
Directors as to the fairness, from a financial point of view, to HSA of the
consideration to be received by HSA in this transaction. Certain of the
summaries of financial analyses include information presented in tabular format.
In order to fully understand the financial analyses used by Lehman Brothers, the
tables must be read together with the text of each summary. The tables alone do
not constitute a complete description of the financial analyses. Accordingly,
the analyses listed in the tables and described below must be considered as a
whole.
Comparable Public Company Analysis. Lehman Brothers analyzed and
compared financial information for HSA to corresponding information for nineteen
other publicly traded companies operating in four comparable sectors,
specifically the Business ISP sector, the DSL Providers sector, the Inbuilding
Access sector, and the OSP/Cable sector. Lehman Brothers calculated the ratio of
firm value to revenue estimates for the calendar year 2001 as provided by third
party research reports or estimates by third party research analysts. Firm value
means the market value of common equity, plus the book value of debt, less cash
and other assets. Lehman Brothers then analyzed those ratios for the selected
companies to determine a range of ratios for HSA in order to imply a share price
range. The following table presents the mean and median revenue multiples for
the comparable sectors and the ratios implied for HSA.
<TABLE>
<CAPTION>
Firm Value as a Multiple of
2001E Revenues
---------------------------------
<S> <C> <C> <C> <C>
Low.................................... 0.3x
High................................... 12.4x
Mean................................... 4.1x
Median................................. 2.6x
FV/2001E Revenue....................... 2.0x 3.0x 4.0x
Implied HSA Price per Share............ $3.75 $4.43 $5.11
</TABLE>
Because of the inherent differences between the businesses, operations,
financial conditions and prospects of HSA and the businesses, operations,
financial conditions and prospects of the comparable companies included in the
comparable company group, Lehman Brothers believed that it was inappropriate to,
and therefore did not, rely solely on the quantitative results of the analysis,
and accordingly, also made qualitative judgments concerning differences between
the financial and operating characteristics of HSA and the companies in their
respective comparable company groups that would affect the public trading values
of HSA and the comparable companies.
23
<PAGE> 27
Comparable Transaction Analysis. The comparable transaction analysis
provides a market benchmark based on the consideration paid in transactions
involving comparable companies. Lehman Brothers reviewed publicly available
information in order to determine the purchase prices and multiples paid in
certain transactions that were publicly announced since January 1999 in the
telecommunications industry involving target companies which were similar to HSA
in terms of business objectives and operating characteristics. Lehman Brothers
then determined a range of multiples for HSA in order to imply a share price
rage. The following table presents the foreward year revenue multiples for the
selected transactions and the multiples implied for HSA.
<TABLE>
<CAPTION>
Firm Value as a Multiple of
Forward Year Revenues
---------------------------------------
<S> <C> <C> <C> <C>
Low................................................... 3.9x
High.................................................. 5.1x
Mean.................................................. 4.5x
Median................................................ 4.5x
FV/Forward Revenue.................................... 4.0x 4.5x 5.0x
Implied HSA Price per Share........................... $5.11 $5.45 $5.79
</TABLE>
Because the reasons for and the circumstances surrounding each of the
transactions analyzed were so diverse and because of the inherent differences in
the businesses, operations, financial conditions and prospects of HSA and the
businesses, operations, and financial conditions of the companies included in
the comparable transactions group, Lehman Brothers believed that a purely
quantitative comparable transaction analysis would not be particularly
meaningful in the context of this transaction. Lehman Brothers believed that the
appropriate use of a comparable transaction analysis in this instance would
involve qualitative judgments concerning the differences between the
characteristics of these transactions and this transaction which would affect
the acquisition values of the acquired companies and the value of HSA.
Ten-Day Trading History. Lehman Brothers analyzed the ten-day trading
history for the period ended two days prior to the announcement of the parties
intention to enter into this transaction, which occurred on August 8, 2000.
During this period, the closing prices on the Nasdaq National Market ranged from
a high of $5.69 to a low of $4.63. The average price for this period was $5.02.
Lehman Brothers also analyzed the ten-day trading history for the
period ended two days prior to the signing of this transaction. During this
period, the closing prices on the Nasdaq National Market ranged from a high of
$3.63 to a low of $2.38. Lehman Brothers also noted that the share price for HSA
on the date of the signing of this transaction was $2.03.
24
<PAGE> 28
Research Analyst Estimates. Lehman Brothers compiled and analyzed
current third party research analyst estimates for HSA's future share price from
various investment banks published reports. Specifically, Lehman Brothers
analyzed the reports from CIBC World Markets dated August 10, 2000, JP Morgan
dated August 10, 2000 and Bank of America dated August 10, 2000. After
eliminating one report as an outlier, the research estimates ranged from $16.00
to $17.00 and were discounted to October 1, 2000 at an assumed weighted average
cost of capital of 22.5%. The resulting implied share price for HSA ranges from
$15.21 to $16.16. Lehman Brothers also notes that since the research was
published, the Nasdaq has fallen 15.6%, the comparable universe has fallen 22.1%
and HSA has fallen 65.8%.
Discounted Cash Flow Analysis. The discounted cash flow analysis
provides a net present valuation of management projections of the projected
after-tax unlevered free cash flows (defined as operating cash flow available
after working capital, capital spending, tax and other operating requirements)
based upon HSA's financial projections. Assuming a free cash flow growth rate of
4.0% and 6.0%, a weighted average cost of capital of 22.5% and a private to
public market discount of 30%, the analysis discounted to the date thereof
indicates an implied per share valuation for HSA of $6.46 - $6.85.
Lehman Brothers is an internationally recognized investment banking
firm and, as part of its investment banking services, is regularly engaged in
the valuation of businesses and securities in connection with mergers,
acquisitions, underwritings, sales and distributions of listed an unlisted
securities, private placements and for estate, corporate and other purposes.
HSA's Board of Directors selected Lehman Brothers because of its expertise,
reputation and familiarity with HSA and the telecommunications industry
generally and because its investment banking professionals have substantial
experience in transactions comparable to this transaction.
As compensation for its services in connection with this transaction,
HSA has agreed to pay Lehman Brothers a customary fee. In addition, HSA has
agreed to reimburse Lehman Brothers for reasonable out-of-pocket expenses
incurred in connection with this transaction and to indemnify Lehman Brothers
for certain liabilities that may arise out of its engagement by HSA and the
rendering of the Lehman Opinion. Lehman Brothers has performed investment
banking and other services for HSA and companies affiliated with Vulcan in the
past and has been paid for these services. In the ordinary course of Lehman
Brothers' business, Lehman Brothers may actively trade in the equity securities
of HSA and Charter for its own account and for the accounts of Lehman Brothers'
customers and, accordingly, may at the time hold a long or short position in
such securities.
Voting Agreements
Vulcan and Charter Ventures have agreed, as part of the Purchase
Agreement, to vote (or cause to be voted) all of the shares owned beneficially
or of record by them in favor of Proposal No. 1.
25
<PAGE> 29
Additionally, the four members of our board of directors who are not
affiliated with Vulcan or Charter, Irving W. Bailey, II, Michael E. Gellert,
David A. Jones, Jr. and Robert S. Saunders, have each entered into voting
agreements with Vulcan and Charter whereby they have agreed to vote their shares
(a) in favor of (i) the transaction, and (ii) any matter that could reasonably
be expected to facilitate the transaction and any other transaction contemplated
by the Purchase Agreement; and (b) against (i) any action that would be
inconsistent with the covenants, representations, warranties, or other
obligations contained in the Purchase Agreement; and (ii) any action or
agreement that is intended to or would have the adverse effect of impeding,
delaying, interfering with or postponing or discouraging the transaction or any
other transaction contemplated by the Purchase Agreement.
Currently, the shares of Messrs. Saunders, Gellert, Jones and Bailey
combined with those of Vulcan equal approximately 41.2% of our outstanding
common stock.
Board Recommendation
THE DISINTERESTED MEMBERS OF THE BOARD OF DIRECTORS HAVE UNANIMOUSLY
APPROVED THE ISSUANCE OF THE CONVERTIBLE PREFERRED STOCK (PROPOSAL NO.1 ON THE
PROXY CARD) AND RECOMMEND A VOTE FOR APPROVAL OF PROPOSAL NO.1.
OTHER MATTERS
The Board of Directors knows of no other matters to be brought before
the Special Meeting. If matters other than the foregoing should properly come
before the Special Meeting, it is intended that the shares represented by
proxies will be voted in accordance with the judgment of the persons named in
the proxy as to the best interests of HSA.
STOCKHOLDERS' PROPOSALS
Any stockholder proposals intended to be presented at HSA's 2001 Annual
Meeting of Stockholders must be received in writing by HSA at its principal
office no later than January 5, 2001. Any proposal submitted after that date
will be considered untimely. It will not be included in our proxy statement and
form of proxy relating to the 2001 Annual Meeting, and, if raised at the annual
meeting, management proxies would be allowed to use their discretionary voting
authority to vote on the proposal even though there is no discussion of the
proposal in the proxy statement.
INDEPENDENT ACCOUNTANTS
The Company has selected PricewaterhouseCoopers LLP, independent
accountants of the Company for its most recently completed fiscal year ended
December 31, 1999, as its independent accountants for the fiscal year ending
December 31, 2000. Representatives of PricewaterhouseCoopers LLP are expected to
attend the Special
26
<PAGE> 30
Meeting and will have an opportunity to make a statement if they choose to and
to respond to appropriate questions from stockholders.
INCORPORATION BY REFERENCE
HSA's Annual Report on Form 10-K for the fiscal year ended December 31,
1999, its Quarterly Reports on Form 10-Q for the quarters ended March 31, 2000
and June 30, 2000, and its Current Report filed on Form 8-K on October 23, 2000
(including the exhibits thereto) are incorporated by reference in this Proxy
Statement. All documents filed with the Commission pursuant to section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Proxy
Statement and prior to the date of the Special Meeting or any adjournment
thereof shall be deemed to be incorporated by reference in this Proxy Statement
and to be a part hereof from the date of filing such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
shall be deemed to be modified or superseded for purposes of this Proxy
Statement to the extent that a statement contained herein or in any other
subsequently filed document that also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement modified
or superseded shall not be deemed, except as modified or superseded, to
constitute part of this Proxy Statement.
Upon request, HSA will provide without charge to each person to whom a
copy of this Proxy Statement has been delivered a copy of any documents
incorporated by reference herein (other than exhibits unless exhibits are
specifically incorporated by reference into this Proxy Statement). Requests
should be directed to John G. Hundley, Secretary, High Speed Access Corp., at
10901 West Toller Drive, Littleton, CO 80127.
By Order of the Board of Directors
/s/ John G. Hundley
------------------------------------
John G. Hundley
Secretary
Dated: November 10, 2000
27
<PAGE> 31
High Speed Access Corp.
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF HIGH SPEED ACCESS CORP.
Special Meeting: December 4, 2000
STOCKHOLDER'S PROXY
The undersigned hereby appoints John G. Hundley and Daniel J. O'Brien,
and each or either of them, as true and lawful agents and proxies, with full
power of substitution in each, to represent the undersigned in all matters
coming before the Special Meeting of Stockholders of High Speed Access Corp. to
be held at HSA's principal executive offices, located 10901 West Toller Drive,
Littleton, CO, 80127 on December 4, 2000 at 2:00 p.m., Mountain Standard Time,
and any adjournments thereof, and to vote all shares owned of record by the
undersigned as designated below.
UNLESS OTHERWISE DIRECTED, THIS PROXY WILL BE VOTED "FOR" PROPOSAL NO.
1 AND WILL BE VOTED IN THE DISCRETION OF THE PROXIES ON SUCH OTHER MATTERS AS
MAY PROPERLY COME BEFORE THE SPECIAL MEETING.
THE DISINTERESTED MEMBERS OF THE BOARD OF DIRECTORS HAVE UNANIMOUSLY
APPROVED THE ISSUANCE OF THE CONVERTIBLE PREFERRED STOCK (PROPOSAL NO. 1) AND
RECOMMEND A VOTE FOR APPROVAL OF PROPOSAL NO. 1.
(Continued and to be dated and signed on the reverse side.)
<PAGE> 32
High Speed Access Corp.
10901 West Toller Drive
Littleton, CO 80127
To approve the issuance to Vulcan Ventures Incorporated and Charter
Communications Ventures, LLC, an affiliate of Charter Communications,
Inc., of 75,000 shares of Series D Convertible Preferred Stock at a
price of $1,000 per share, that is initially convertible into
14,943,960 shares of common stock (at an initial conversion price of
$5.01875 per share).
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(Please sign exactly as name appears to the
left, date and return. If shares are held by
joint tenants, both should sign. When signing
as an attorney, executor, administrator,
trustee or guardian, please give full title
as such. If a corporation, please sign in
full corporate name by president or other
authorized officer. If a partnership, please
sign in partnership name by authorized
person.)
Please Date:
___________________________________________
Sign Here:
___________________________________________
___________________________________________
Signature (if held jointly)
___________________________________________
Capacity (Title or Authority, i.e.,
President, Partner, Executor, Trustee)
PLEASE SIGN AND DATE AND RETURN YOUR PROXY TODAY. VOTES MUST BE INDICATED (X) IN
BLACK OR BLUE INK.
<PAGE> 33
EXHIBIT A
[LEHMAN BROTHERS LOGO] LEHMAN BROTHERS
October 19, 2000
Board of Directors
High Speed Access Corp.
10300 Ormsby Park Place
Louisville, KY 40223
Members of the Board:
We understand that High Speed Access Corp. ("HSA" or the "Company")
intends to enter into a Stock Purchase Agreement (the "Agreement") with certain
of its principal shareholders (the "Participating Shareholders") pursuant to
which the Participating Shareholders will purchase from the Company 75,000
shares of Series D Convertible Preferred Stock with a liquidation preference of
$1,000 per share (the "Preferred Stock") for a purchase price of $75 million in
cash (the "Proposed Transaction"). The Participating Shareholders include Vulcan
Ventures, Inc. ("Vulcan") and Charter Communications Ventures, LLC ("Charter"),
which together pro forma for the Proposed Transaction would own 51.6% of the
common stock of the Company ("Common Stock") on a fully diluted basis assuming
exercise of all outstanding options and warrants. The Preferred Stock is
convertible into Common Stock at any time at the option of the holders at
$5.01875 per share (the "Conversion Price"). At the Conversion Price, the
Preferred Stock will be convertible into 14,943,960 shares of Common Stock,
representing 16.3% of the Common Stock on a fully diluted basis assuming
exercise of all outstanding options and warrants. The Preferred Stock will have
no maturity date and the Company will have no redemption rights. There is no
stated dividend on the Preferred Stock. Finally, the Conversion Price will be
subject to adjustment on a weighted average basis in the event that the Company
issues additional shares of its Common Stock at a purchase price less than the
Conversion Price. The terms and conditions of the Proposed Transaction are set
forth in more detail in the Agreement and the Certificate of Designation.
We have been requested by the Board of Directors of the Company to
render our opinion with respect to (i) the commercial reasonableness of the
financial terms of the Preferred Stock and (ii) the fairness, from a financial
point of view, to the Company of the consideration to be received by the Company
in the Proposed Transaction. We have not been requested to opine as to, and our
opinion does not in any manner address, the Company's underlying business
decision to proceed with or effect the Proposed Transaction or any of the
commercial arrangements between HSA and the Participating Shareholders.
In arriving at our opinion, we reviewed and analyzed: (1) the Agreement,
the Certificate of Designation, the registration rights agreement and the
specific terms of the Preferred Stock and the Proposed Transaction, (2) publicly
available information concerning the Company that we believe to be
<PAGE> 34
relevant to our analysis, including the Annual Report on Form 10-K for the
fiscal year ended December 31, 1999 and Quarterly Reports on Form 10-Q for the
quarters ended March 31, 2000 and June 30, 2000, (3) financial and operating
information with respect to the business, operations and prospects of the
Company furnished to us by the Company, (4) a trading history of the Company's
common stock from its initial public offering on June 4, 1999 to the present and
a comparison of that trading history with those of other companies that we
deemed relevant, (5) a comparison of the historical financial results and
present financial condition of the Company with those of other companies that we
deemed relevant, (6) a comparison of the financial terms of the Preferred Stock
with the financial terms of certain other recently issued private convertible
preferred securities that we deemed relevant, (7) a comparison of the financial
terms of the Proposed Transaction with the financial terms of certain other
recent transactions that we deemed relevant, and (8) alternatives available to
the Company on a stand-alone basis to fund its future capital and operating
requirements. In addition, we have had discussions with the management of the
Company concerning its business, operations, assets, financial condition and
prospects and have undertaken such other studies, analyses and investigations as
we deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy
and completeness of the financial and other information used by us without
assuming any responsibility for independent verification of such information and
have further relied upon the assurances of management of the Company that they
are not aware of any facts or circumstances that would make such information
inaccurate or misleading. With respect to the financial projections of the
Company, upon advice of the Company we have assumed that such projections have
been reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the management of the Company as to the future
financial performance of the Company and that the Company will perform
substantially in accordance with such projections. In addition, in connection
with the Proposed Transaction, we have not been authorized to contact, and we
have not so contacted, any third parties with respect to their interest in
making an investment in, or otherwise providing financing to, the Company. Our
opinion necessarily is based upon market, economic and other conditions as they
exist on, and can be evaluated as of, the date of this letter.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, (i) the financial terms of the Preferred Stock are
commercially reasonable and (ii) from a financial point of view, the
consideration to be received by the Company in the Proposed Transaction is fair
to the Company.
The Company has agreed to indemnify us for certain liabilities that may
arise out of the rendering of this opinion. We also have performed various
investment banking services for the Company in the past (including serving as
lead manager for the Company's initial public offering) and have received
customary fees for such services. In the ordinary course of our business, we
actively trade in the equity securities of the Company for our own account and
for the accounts of our customers and, accordingly, may at any time hold a long
or short position in such securities.
This opinion is for the use and benefit of the Board of
Directors of the Company and is rendered to the Board of Directors in connection
with its consideration of the Proposed Transaction. This opinion is not intended
to be and does not constitute a recommendation to any stockholder of the Company
as to how such stockholder should vote with respect to the Proposed Transaction.
Very truly yours,
/s/ Glenn H. Schiffman
______________________
Glenn H. Schiffman
Managing Director
LEHMAN BROTHERS
