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HIGH SPEED NET SOLUTIONS, INC.
434 FAYETTEVILLE STREET MALL
SUITE 2120
RALEIGH, NC 27601
August 31, 2000
Summus, Ltd.
Two Hannover Square
Suite 600
Raleigh, NC 27601
Gentlemen:
This letter (the "Letter") sets forth our mutual intentions with
respect to the proposed acquisition (the "Transaction") by High Speed Net
Solutions, Inc. ("HSNS") of all of the assets of Summus Ltd. ("Summus").
Based on preliminary discussions between HSNS and Summus, and subject
to the completion of appropriate due diligence and the execution of definitive
agreements containing customary representations, warranties, covenants,
indemnities and conditions (the "Definitive Agreements"), the parties intend
that HSNS or a subsidiary of HSNS will acquire all of the assets of Summus on
the terms and conditions set forth in Exhibit A attached hereto and incorporated
herein by this reference.
In addition, the parties agree as follows:
1. Investigation and Access. The parties shall provide each other's
officers, independent certified public accountants, legal counsel and other
representatives reasonable access to their respective properties, books,
records, personnel and independent accountants in order that each may have full
opportunity to make such investigation as it reasonably desires to make in
connection with the Transaction. The parties shall promptly proceed to negotiate
in good faith to complete the Definitive Agreements before thirty days after the
date of this Letter.
2. Disclosure. The parties will not make, and will cause their
respective representatives, officers, directors, employees and affiliates not to
make, any public disclosure regarding the Transaction, and will not disclose any
information concerning the other party or this Letter or the transactions
contemplated hereby to any individual or any organization other than the
respective professional advisors of the parties, without the prior written
consent of the other party, unless required to do so under applicable law (in
which event the disclosing party shall provide to the other reasonable prior
notice of the content of the disclosure and the opportunity to review and
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Term Sheet -- High Speed and Summus 2
31 August 2000
comment on the disclosure). It is the intent of the parties (x) to file a single
joint press release regarding the Transaction (the "Joint Press Release"), in
form and content reasonably acceptable to each party, subject to applicable law,
and (y) to refrain from, and cause their respective representatives, officers,
directors, employees and affiliates to refrain from, making any other public
disclosure from the date of this Letter until the consummation of the
Transaction; provided, however, that HSNS shall have sole authority at its
discretion (i) to make any changes to the Joint Press Release and to control the
timing of the Joint Press Release to the extent necessary to comply with
applicable law and/or (ii) to file a Form 8-K with the Securities and Exchange
Commission ("SEC") describing the Transaction and to make disclosures in other
filings with the SEC and provided, however, that Summus shall have sole
authority at its discretion to amend its Schedule 13D as necessary to comply
with applicable law. Notwithstanding the foregoing, communications with
customers shall not be considered public disclosure to the extent that such
communications are of a type necessary to maintain good relationships with such
customers and do not disclose any information which would be relevant to such
customers as investors.
3. Exclusivity. For a period of 30 days from the date of this Letter,
neither Summus nor any of its directors or officers (or any advisors or other
representatives of Summus or any of the foregoing persons) shall: (i) directly
or indirectly, solicit, initiate, encourage (including by way of furnishing
information) or take any other action to facilitate any inquiry or the making of
any proposal which constitutes, or may reasonably be expected to lead to, any
acquisition or purchase (or exclusive license) of a substantial amount of assets
of, or any merger with, or any equity interest in (except employment related
stock and/or options and estate planning transfers), or making of any other
investment (collectively, "Acquisition Proposal") in Summus, (ii) provide any
non-public information concerning Summus to any person (other than HSNS or any
professional advisors or consultants to HSNS) with respect to a possible
Acquisition Proposal, or (iii) enter into an agreement with any person (other
than HSNS) with respect to a possible Acquisition Proposal. Notwithstanding the
foregoing, during such 30 day period Summus may sell securities of Summus to
provide working capital if such transaction does not transfer "control" of
Summus as defined in the rules and regulations of the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended.
4. Conduct of Business. Between the signing of this Letter and
execution of the Definitive Agreements, each of Summus and HSNS will operate its
business only in the ordinary course consistent with past practice and will
perform its obligations under all material contracts and will comply in all
material respects with all laws, rules and regulations applicable to its
business.
5. Governing Law. This Letter shall be governed by the laws of the
State of North Carolina regardless of the laws that might otherwise govern under
applicable principles of conflict of laws.
Except for paragraphs numbered 1 through 5 above, this Letter is not a
legally binding agreement and the failure to execute and deliver the Definitive
Agreements shall impose no liability on either party provided such party has
complied with its respective obligations under paragraph 1 above. Each party
covenants not to institute or participate in any proceeding
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Term Sheet -- High Speed and Summus 3
31 August 2000
seeking to establish a contrary position. Notwithstanding the previous two
sentences, paragraphs numbered 1, 3 and 4 above shall terminate 30 days after
the date hereof.
We are excited about the prospect of working with you. If this Letter
correctly describes your intentions, please so acknowledge by signing in the
space indicated below and returning the enclosed copy of this letter to us. This
Letter may be executed by fax and in counterparts, each of which shall be deemed
to be an original and all of which, taken together, shall constitute the same
Letter.
This offer may be accepted at any time by Summus returning an executed
copy to HSNS at any time before 12:00 noon on September 1, 2000. If not accepted
by that time, this offer is automatically revoked.
Yours very truly,
HIGH SPEED NET SOLUTIONS, INC.
By: _____________________________
ACCEPTED AND AGREED AS OF
THE DATE FIRST WRITTEN ABOVE:
SUMMUS, LTD.
By: _________________________
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Term Sheet -- High Speed and Summus 4
31 August 2000
CONFIDENTIAL
Term Sheet - 31 August 2000
#1
Category: Company Value
The parties agree that the two companies have equal value.
#2
Category: High Speed Shares to Summus
Eight million (8 million) additional shares will be issued by High Speed to
Summus shareholders other than High Speed. A total of 500,000 warrants will be
issued by High Speed at a $5.50 strike price to all Summus shareholders except
Bjorn Jawerth and High Speed. At completion of the transaction, non-High Speed
Summus shareholders shall own approximately 16,474,360 shares, comprising
current ownership of approximately 8,474,360 plus 8 million outlined in this
paragraph. Currently, there are 21,729,128 shares in High Speed. If High Speed
sells shares prior to closing of the transaction, both Summus and HSNS
shareholders will be diluted on an equal basis reflecting the proportions
described here. All shares owned by Bjorn Jawerth or whose votes are directed by
him or will be deposited in a voting trust with Stuart Diamond as voting
trustee. Shares shall be released from the voting trust at the rate of
one-twelfth of the total shares at the end of each month after closing.
#3
Category: High Speed Compensation to Bjorn Jawerth
(a) Bjorn Jawerth will receive $500,000 in cash from High Speed within 30 days
after closing. (b) Bjorn Jawerth will sell $2.5 mm of his High Speed shares in a
private sale arranged by High Speed's investment banker immediately following
closing (5 business days). (c) At the time of the sale of his High Speed shares,
Bjorn Jawerth will be issued 3 times as many warrants by High Speed as shares he
sold; the strike price of the shares will be $5.50 per share; warrants to last 3
years. (d) Bjorn and the inventing team receive a 5% royalty on gross revenues
from the sale of new technology and applications produced from intellectual
property that the team develops and which result in new revenues. Allocation of
royalties to inventors to be made by the board of directors per Bjorn Jawerth
recommendations which shall be final unless disapproved by 75% of the Board;
provision for arbitration in case of a disagreement. (e) Bjorn Jawerth receives
$250,000 annual compensation in 2000, with compensation to rise proportional
with other senior management including options. (f) Stock issued from warrants
would be nonvoting (as described above) unless sold in arms-length transaction.
In return,
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Term Sheet -- High Speed and Summus 5
31 August 2000
Bjorn Jawerth will sign a noncompete and an employment agreement, will
relinquish control of Summus and will assigns rights in current and future
technology to the merged company.
#4
Category: Contemporaneous New Investment
Ron Pieters' group commits to raise $15 million on a best efforts basis within
60 days for investment in the merged company. Upon signing of the letter of
intent, $500,000 to be loaned immediately by High Speed to Summus to meet Summus
payroll and related expenses. When the definitive transaction documents are
signed, High Speed to loan Summus another $500,000 to meet payroll and related
expenses. Term of each loan to be 60 days, may be extended at High Speed option.
Loans to be collateralized by Summus with 2.5 times the principal amount in HSNS
stock in escrow in event of default, assets to be sold to cover amount owed,
rest returned to Summus. Other loan terms to be consistent with normal business
practice. During the transaction process, no sale of High Speed shares by Summus
w/o High Speed approval. Summus use of funds from loan and disbursements to be
approved in advance by Summus Special Committee of the Board. To the extent that
High Speed incurs any dilution before transaction closes from sale of stock,
this dilution will be spread proportionally among both High Speed and Summus at
the closing of the transaction.
#5
Category: Clearing Up Regulatory Issues
At the time of closing HSNS shares must be quoted for trading on the OTC
Bulletin Board with or without an "E". Both parties to use best efforts,
separately and jointly as needed, to comply with SEC requests for information
separate and joint efforts. The transaction will be effectuated as an
acquisition of all the assets of Summus by High Speed so that the issuance of
High Speed shares in exchange for Summus assets will not be taxable to Summus.
The transaction must be approved by the Board of Directors of High Speed and by
the Board of Directors and shareholders of Summus.
#6
Category: Fiscal Restraint
Summus and High Speed to use best efforts to reduce burn rate. A limited number
of outside experts to assist as needed.
#7
Category: Board of Directors
The board of merged company shall include 3 outside and 1 inside director (Bjorn
Jawerth) from Summus and 3 outside and 1 inside director from High Speed. Both
parties shall agree
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Term Sheet -- High Speed and Summus 6
31 August 2000
unanimously to the Board composition. If High Speed hires a new CEO, the new CEO
will be the ninth director. Until closing of the transaction, each company
agrees that it shall maintain a Board having a majority of outside directors.
Existing HSNS board may remain at HSNS discretion.
#8
Category: Lawsuits & Claims
Summus and High Speed will each drop claims against one another and sign
releases. Key shareholders of each company also must release both companies and
their officers.
#9
Category: Management Status Quo
Two outside directors from each company will be appointed as a committee to
evaluate management changes and additions. Current management to remain, unless
outside board members decide otherwise. There will be no significant strategy
changes without outside board member approval. Andy Fox will be the CEO of the
merged company. All contracts above $50,000 to require board approval for each
company. For Summus, Special Committee of Board will set guidelines for
expenditures and must approve any proposed deviation from these guidelines
before an expenditure is made. Gary Ban and Andy Fox will work together to
integrate the companies.
#10
Category: Cooperation
Pending closing, any dispute between the two companies shall be submitted to 2
outside directors from each company for resolution. The parties shall use their
best efforts to cooperate.
#11
Category: Bar on Stock Sales
Any new purchaser of High Speed shares at a discount will be required to have
restrictions on sale appropriate to the discount, consistent with normal stock
practices. Previous lockups will remain in force until they expire. A list of
lock-ups will be provided.
#12
Category: Due Diligence
This agreement is subject to financial and technology due diligence by both
parties. Technology due diligence will be done through a mutually agreed upon
third party expert in
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Term Sheet -- High Speed and Summus 7
31 August 2000
compression technology or through a mutually agreed upon customer who can
validate the compression technology and is willing to license the technology.
#13
Schedule
Parties will use best efforts to sign documents and close by September 15, 2000.
Parties will be kept closely informed of progress and will work quickly to
resolve any issues that may arise during drafting.
