UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C., 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) April 21, 2000
Commission file number 000-29165
HIGH SPEED NET SOLUTIONS, INC.
(Exact name of registrant as specified in charter)
Florida 65-0185306
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Two Hanover Square, Suite 2120
434 Fayetteville Street Mall
Raleigh, NC 27601
(Address of Principal Executive Office) (Zip Code)
(919) 807-0507
(Registrant's Executive Office Telephone Number)
<PAGE>
ITEM 1. CHANGES IN CONTROL OF REGISTRANT
(a) On April 17, 2000. Anthony N. DeMint purchased all of the 672,000 shares of
J.S.J. Capital Corp's issued and outstanding Common Stock from 3 of the
Company's stockholders for total consideration of $200,000.
On April 18, 2000 J.S.J. Capital Corp. accepted the resignations of Jeff
P. Ploen, James W. Toot and Lawrence Deitler as Officers and Directors and
Anthony N. DeMint became Sole Director, President, Secretary, Treasurer and
the only stockholder of record.
Pursuant to an Agreement and Plan of Merger (the "Merger Agreement")
dated as of April 18, 2000 between High Speed Net Solutions, Inc., ("HSNS"),
a Florida corporation, and J.S.J Capital Corp. ("JSJ"), a Nevada corporation,
HSNS has acquired all the outstanding shares of common stock of JSJ from the
sole stockholder thereof in an exchange for 50,000 shares of 144 restricted
common stock of HSNS in a transaction in which HSNS was the successor
corporation.
The Merger was approved by the unanimous consent of the Board of
Directors of HSNS on April 18, 2000.
Pursuant to Rule 12g-3(a) of the General Rules and Regulations of the
Securities and Exchange Commission, HSNS is the successor issuer to JSJ for
reporting purposes under the Securities Exchange Act of 1934, as amended (the
"Act").
A copy of the Merger Agreement and Certificate of Merger are filed as
exhibits to this Current Report and is incorporated in its entirety herein.
(b) The following table sets forth the only stockholders known by HSNS to be
the beneficial owners, of more than five percent (5%) of the outstanding shares
of Common Stock of HSNS.
<TABLE>
SHARES PERCENT OF
BENEFICIALLY SHARES
NAME AND ADDRESS OWNED OUTSTANDING
- ---------------- ------------ -----------
<S> <C> <C>
Summus Ltd. 10,151,527 (1)(2) 48.2%
Two Hanover Square, Suite 2120
434 Fayetteville St. Mall
Raleigh, NC 27601
Dr. Bjorn Jawerth 10,151,527 (1)(2) 48.2%
Two Hanover Square, Suite 2120
434 Fayetteville St. Mall
Raleigh, NC 27601
</TABLE>
The persons and entities named in the above table have sole voting and
investment power with respect to all shares shown as beneficially owned by
them, except as noted below.
(1) Includes 8,574,360 shares beneficially owned by Summus Ltd. Dr.
Jawerth owns 53.6% of the outstanding shares of Summus Ltd., and is the
President and Chairman of the Board of Directors of Summus Ltd. Dr. Jawerth
exercises shared voting and investment power with respect to all HSNS shares
owned by Summus Ltd.
<PAGE>
(2) Includes 1,577,167 shares for which Summus has voting power through
voting agreements with and/or proxies from 14 persons.
(c) The table below gives the number of shares of HSNS Common Stock
beneficially owned as of April 13, 2000 by persons who were members of the Board
of Directors and executive officers of HSNS during 1999 or who are currently
members of our Board of Directors or are executive officers.
<TABLE>
SHARES PERCENT OF
BENEFICIALLY SHARES
NAME OWNED OUTSTANDING
- -------------------- -------------- --------------
<S> <C> <C>
Andrew L. Fox
Director, Acting President and
Chief Executive
Officer, and Executive Vice President 80,000 (1)(2) *
Dr. Bjorn Jawerth
Chairman of the Board of Directors 10,151,527 (3) 48.2%
Richard F Seifert
Director 250,000 (4)(5) 1.2%
Herman Rush
Director 0 *
Alan Kleinmaier
Executive Vice President, Acting Chief
Financial Officer, Secretary, and Treasurer 90,000 (6) *
Michael M. Cimino
Former Director, President, Secretary
and Treasurer 500,000 (7) 2.4%
Michael Kim
Former President and Chief Executive Officer 265,000 (8) 1.3%
Peter Rogina
Former President and Chief Executive Officer 200,000 (9) *
All current directors and executive
officers as a group (6 Persons) 10,571,527 (10) 50.2% (11)
</TABLE>
* Represents beneficial ownership of less than one percent (1%) of
Common Stock.
The persons and entities named in the table have sole voting and
investment power with respect to all shares shown as beneficially owned by
them, except as noted below. Share ownership also includes shares of Common
Stock issuable within 60 days upon exercise of outstanding options.
(1) These shares do not include 240,000 shares that Mr. Fox may acquire
pursuant to stock options exercisable over three years in equal installments
from the anniversary date of August 25, 1999.
<PAGE>
(2) These shares represent 80,000 shares that Mr. Fox may acquire
pursuant to an agreement with Summus that Summus will transfer 80,000 HSNS
shares in exchange for 10,000 Summus shares owned by Mr. Fox.
(3) These shares include 8,574,360 shares owned by Summus Ltd. Dr.
Jawerth owns 53.6% of the outstanding shares of Summus Ltd. and is the
President and Chairman of the Board of Directors of Summus Ltd. Dr. Jawerth
exercises shared voting and investment power with respect to all HSNS shares
owned by Summus Ltd. These shares also include 1,577,167 shares for which
Summus has voting power through voting agreements with and/or proxies from 14
persons.
(4) These shares include 50,000 shares that Mr. Seifert may immediately
acquire pursuant to stock options.
(5) These shares include 200,000 shares that are beneficially owned
with his wife, Karen Seifert.
(6) These shares include 20,000 shares that Mr. Kleinmaier owns with
Pamela B. Kleinmaier, the wife of Mr. Kleinmaier. These shares include 50,000
shares that Mr. Kleinmaier may acquire pursuant to stock options immediately
exercisable.
(7) These shares include shares that Mr. Cimino beneficially owns with
his wife, Gina M. Cimino.
(8) These shares include 65,000 shares that Mr. Kim may immediately
acquire pursuant to stock options.
(9) These shares include 200,000 shares that Mr. Rogina may immediately
acquire pursuant to stock options, but does not include stock options
exercisable for 40,000 shares of Common Stock after July 1, 2000.
(10) This total counts the percentage of ownership attributable to the
Summus shares only once.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
(a) The consideration exchanged pursuant to the Merger Agreement was
negotiated between HSNS and JSJ. In evaluating the Merger, JSJ used criteria
such as the value of assets of HSNS, HSNS's ability to compete in the
marketplace, HSNS's current and anticipated business operations, and HSNS
management's experience and business plan. In evaluating JSJ, HSNS placed a
primary emphasis on JSJ status as a reporting company under Section 12(g) of
the Securities Exchange Act of 1934, as amended, and JSJ's facilitation of
HSNS's becoming a reporting company under the Securities Exchange Act.
BUSINESS
GENERAL
In this filing references to "HSNS", "we", "us", and "our", refer to
High Speed Net Solutions, Inc., post merger.
<PAGE>
We are launching a new business of providing clients with a service of
delivering audio, video, and graphics content and advertising over the
Internet. This business will utilize technology licensed from Summus Ltd.
See "New Agreements with Summus."
As of April 13, 2000, Summus held 8,574,360 shares (40.7% of our
outstanding Common Stock, and 38.5% on a fully diluted basis). Summus also
has the power to vote an additional 1,577,167 shares of our Common Stock
through voting agreements with and/or proxies from 14 persons. Summus' total
voting power is 48.2% of our outstanding Common Stock.
HISTORY OF HSNS
We were incorporated as a Florida corporation in 1984 under the original
name of EMN Enterprises, Inc. HSNS is a development stage company and our
auditors have raised substantial doubt about our ability to continue
operations as a going concern. From our inception in 1984 until mid-1998
HSNS was inactive and had no significant operations.
In September of 1998, we changed our name from EMN Enterprises to
ZZAP.NET, Inc., in association with a transaction in which we acquired all of
the assets and liabilities of Marketers World, Inc., in exchange for issuing
9,275,000 shares of our Common Stock, a transaction which was accounted for
as a reverse acquisition. While under the name of ZZAP.NET, our Common Stock
began trading on the NASD's Over the Counter Bulletin Board (OTCBB). On
January 25, 1999, we changed our trading symbol from ZZNT to HSNS to reflect
our new name, High Speed Net Solutions, Inc.
During 1998, we operated our business based on the assets of Marketers
World. Marketers World's principal operations were to lease computer systems
to businesses and to distribute Internet oriented products and perform
related services. During 1998, we were not able to execute these planned
activities, other than the sale of pilot products and services. By the end
of 1998, all business operations based on Marketer's World assets had ceased.
During 1999, our operations were limited to obtaining financing and changing
our business plan. In 1998 we had a net loss of $1,640,806 and in 1999 we had
a net loss of $10,197,376
In February 1999, Summus Ltd., and HSNS entered into the Marketing
License Agreement, in which we obtained the right to distribute certain
Summus products and technology. The term of the Marketing License Agreement
was three years. In exchange for these rights, we agreed to make an upfront
payment of $3,000,000 dollars in several installments during the first year
of the Marketing License Agreement. We made payments of $2,250,00 in cash
toward payment of the $3,000,000. We satisfied the final $750,000 due under
the Marketing License Agreement by issuing 1,500,000 shares of our Common
Stock to Summus. We terminated the Marketing License Agreement on February
18, 2000 and on that same date entered into new agreements with Summus to
support the requirements of our new business plan. The new agreements are
for a six year term and give us rights to use certain Summus products and
rights to maintenance and support for these products. For a description of
the new agreements, see "Business - New Agreements with Summus."
In August 1999, Summus acquired 9,542,360 shares of our Common Stock (at
that time, approximately 51% of our outstanding shares, and approximately 49%
on a fully diluted basis) from the shareholders who obtained our stock in our
<PAGE>
acquisition of Marketers World. As of April 13, 2000, Summus held 8,574,360
shares (40.7% of our outstanding Common Stock, and 38.5% on a fully diluted
basis). Summus also has the power to vote an additional 1,577,167 shares of
our Common Stock through voting agreements with and/or proxies from 14
persons. Summus' total voting power is 48.2.0% of our outstanding Common
Stock.
Andrew L. Fox became our acting president and chief executive officer in
August of 1999 to develop and start our business operations. In September of
1999, we moved our operations from Florida to Raleigh, North Carolina into
office space at 434 Fayetteville St. Mall, Suite 2120.
HSNS AND SUMMUS RELATIONSHIP
Our business is to deliver audio, video, and graphics content and
advertising over the Internet for our clients. We plan to offer this service
under the brand name of Rich Media Direct. Summus is currently developing
some of the software products we will use to accomplish this delivery for our
customers. We have licensed from Summus the suite of software products
labeled MaxxSystem. The MaxxSystem products enable us to incorporate audio,
video, and graphics content and advertising into emails for delivery over the
Internet. To license MaxxSystem from Summus under the new agreements, we pay
Summus ten percent (10%) of the revenue we generate from the use of
MaxxSystem for revenue amounts above $10 million dollars. We have the right
to all future versions of MaxxSystem as part of the maintenance and support
fee of $180,000 that we pay to Summus in years two through six of the term of
the license.
We launched our service to deliver content and advertising over the
Internet on January 14, 2000. In order to ramp up our business operations
and satisfy anticipated future customer demand, we will borrow resources from
Summus to satisfy basic business needs such as operations, communications,
website development and product management. This borrowing of resources is
meant to temporarily support our operations until qualified individuals can
be hired to operate these functions. HSNS is borrowing these resources from
Summus under an oral agreement and we will pay to Summus, without interest,
the value of the resources we have borrowed. HSNS is currently in the
process of recruiting these individuals.
RICH MEDIA DIRECTSM SERVICE.
We announced our Rich Media Direct service in January of 2000. Rich
Media Direct is an Internet direct marketing service that delivers
advertising and content over the Internet to targeted demographic groups
through applications such as opt-in email. This service allows customers to
distribute content and advertisements for purposes such as creating or
increasing (1) product or brand awareness, (2) customer traffic to web
properties, and (3) revenue for Internet web sites. Our Rich Media Direct
service will provide customers with dedicated bandwidth and a distributed
infrastructure to efficiently distribute content and advertisements to
targeted audiences. Our service will allow our customers to provide to us
the list of email recipients. We will then deliver content or advertising to
the recipients on the list. Alternatively, we can identify a targeted group
and purchase distribution lists from third-parties, provided that these lists
contain individuals who have requested that content and advertising be sent
to them.
<PAGE>
INTELLECTUAL PROPERTY
We do not hold any patents nor do we hold any trademark or servicemark
registrations. We do not have any U.S. patent applications pending. We
recently filed a US servicemark application for Rich Media DirectSM and we
intend to file applications for the same mark in some foreign countries.
There is no assurance, however, that our servicemark application will result
in our service mark being approved.
Our success and ability to compete are substantially dependent upon
technology and intellectual property. While we will rely on copyright, trade
secret and trademark law to protect our technology and intellectual property,
we believe that factors such as the technological and creative skills of our
personnel, new service developments and frequent service enhancements are
more essential than establishing and maintaining an intellectual property
leadership position.
NEW AGREEMENTS WITH SUMMUS
To facilitate the implementation of our business plan, in February of
2000, we entered into a Master Agreement with Summus Ltd. ("Summus"). The
Master Agreement includes a Software License Agreement ("SLA"), a Software
Maintenance Agreement ("SMA") and a Revenue Sharing Agreement ("RSA")
(collectively with the Master Agreement and a letter agreement between High
Speed and Summus, dated March 13, 2000, the "New Agreements"). The New
Agreements entirely replace the Marketing License Agreement and the related
agreements incorporated by it or referenced by it, and replace the various
letter agreements between Summus and us concerning one potential customer,
Samsung Electronics of America, Inc. (collectively, the "Terminated
Agreements"). Under the terminated Marketing License Agreement, we made
payments of $2,250,000 in cash toward payment of the $3,000,000. We
satisfied the final $750,000 due under the Marketing License Agreement by
issuing 1,500,000 shares of our Common Stock to Summus.
The New Agreements give us a nonexclusive license to a suite of products
Summus has labeled MaxxSystem. MaxxSystem allows us to perform various
services for our customers. We can create audio, video, animation, and
graphical content. With MaxxSystem, we can manage, categorize, and track
this content to organize it for delivery to recipient lists. We will deliver
this content for our customers over the Internet or over private networks
using MaxxSystem. To perform this delivery, MaxxSystem uses a compression
technique developed by Summus and marketed under the brand name of Dynamic
Wavelets.
PROPERTIES
Our headquarters is in 1,900 square feet of office space located at 434
Fayetteville Street Mall, Suite 2120, in Raleigh, North Carolina. Our lease
expires September 30, 2004. We pay $31,054 on an annualized basis. We
believe the terms are consistent with local market conditions. We plan to
lease an additional 2,100 square feet in the same building in the second
quarter of 2000.
The space that we currently occupy, combined with the planned additional
space, is adequate for our projected growth needs over the next 12 months.
<PAGE>
CURRENT DIRECTORS
The following table sets forth information regarding the members of our
Board of Directors:
<TABLE>
First Year Elected as Term
Name Director Expires Age
- --------------------------- --------- --------- -----
<S> <C> <C> <C>
Dr. Bjorn Jawerth 2000 2001 47
William Bradford Silvernail 2000 2001 41
Andrew L. Fox 2000 2001 36
Richard F. Seifert 1999 2001 49
Herman Rush 2000 2001 70
</TABLE>
EXECUTIVE OFFICERS
Executive Officers are elected annually and serve at the pleasure of the
Board of Directors. Our current executive officers are as follows:
<TABLE>
Name Office Officer Since Age
- ------------- ------------------------------------------ ------- ----
<S> <C> <C> <C>
Andrew L. Fox Acting President and Chief Executive Officer 1999 36
Executive Vice President
Alan Kleinmaier Executive Vice President, Acting Chief
Financial Officer, Secretary, and Treasure 2000 52
</TABLE>
BIOGRAPHIES OF DIRECTORS AND EXECUTIVE OFFICERS
Andrew L. Fox is our acting President and Chief Executive Officer and
our Executive Vice President. Before coming to HSNS, Mr. Fox spent over 2
1/2 years at RealNetworks as a Senior Marketing Manager where he managed
marketing and sales operations for the corporate enterprise division of
RealNetworks. Before RealNetworks, Mr. Fox spent 10 years at IBM in a
variety of sales, marketing and product management roles. He was responsible
for marketing and sales for IBM's Wireless Data Division and was a product
manager at IBM's Networking Hardware Division. Summus Ltd. also employed Mr.
Fox from August 1999 until January 2000 as its Executive Vice President of
Sales and Marketing during which time Mr. Fox also served as a member on the
board of directors of Summus. Mr. Fox has an MBA degree from Duke
University's Fuqua School of Business and an undergraduate degree in Computer
Science and Electrical Engineering from Duke's School of Engineering
Dr. Bjorn Jawerth, Chairman, President and Founder of Summus Ltd.,
received an M.Sc. In Mathematics and Statistics, as well as an M.Sc. In
Technical Physics and Electrical Engineering in 1974 from Lund Institute of
Technology, Lund, Sweden. He also received his Ph.D. in Mathematics from
Lund Institute in 1977. Dr. Jawerth is the David W. Robinson Palmetto
Professor, Professor of Mathematics and Adjunct Professor of Computer Science
at the University of South Carolina. Dr. Jawerth founded Summus Ltd. in 1991
and has been employed with Summus since that time. He directs a group of
approximately 50 researchers in Mathematics, Computer Science, Mechanical
Engineering and Chemistry at the University of South Carolina and Chalmers
University of Technology in Gothenburg, Sweden. Dr. Jawerth has more than 25
years of experience as a consultant in the areas of image processing and
finite element analysis. Dr. Jawerth has over 90 publications to his credit
in books and referred journals. He has won and administered numerous grant
awards from both industry and government agencies such as the Office of Naval
Research, the Air Force Office of Scientific Research, the Army's NVESD, the
NSF and DARPA. His research interests include computational harmonic
analysis and partial differential equations, image processing and pattern
recognition.
<PAGE>
Alan Kleinmaier is our Executive Vice President, Acting Chief Financial
Officer, Secretary, and Treasurer. Mr. Kleinmaier has more than 20 years of
management experience. From 1976 to 1992, he served as President and CEO of
Specialty Retail Concepts, Inc., a retail chain of more than 400
confectioneries and coffee stores which he founded in 1976. From 1993 to
1998, Mr. Kleinmaier was a principal and consultant for EK Retail Group,
Inc., a privately held management and consulting firm. Mr. Kleinmaier is
currently the Acting Chief Financial Officer of Summus Ltd. He joined Summus
in May 24, 1999. Mr. Kleinmaier is a graduate of the University of North
Carolina, Chapel Hill, where he was a Morehead Scholar. Mr. Kleinmaier is
also a graduate of University of North Carolina School of Business Executive
Program and holds his North Carolina Real Estate Broker's license.
W. Bradford Silvernail is the Chief Executive Officer of Summus Ltd. Mr.
Silvernail joined Summus in May 1999 and brings a strong background in
general management, technology and product management and marketing and
sales. Mr. Silvernail's most recent position before joining Summus Ltd. was
General Manager, Metering Systems, ABB Power T&D Company that developed
energy information solutions for the deregulating electric utility industry.
Mr. Silvernail was employed at ABB from 1997 to 1999. In a little over two
years, Mr. Silvernail put in place a management team and a functional
business with software development, product management and marketing and
sales with a staff of over 50. Prior to joining ABB, Mr. Silvernail spent
more than fifteen years with IBM Corporation in a variety of business unit
management, product management and sales positions associated with wireless,
mobile computing and networking products. Mr. Silvernail received a B.A. in
Communications from Auburn University in 1980 and an M.S. in
Telecommunications from Syracuse University in 1981.
Richard Seifert is a Director at HSNS, having joined us in March of 1999
as the Vice President of Operations. In late 1999 Mr. Seifert discontinued
his operational role but continued to serve us as a member of our board of
directors. Under and advisory and consulting agreement with us, Mr. Seifert
has been involved in formulating strategic partnerships and raising capital
for us. Mr. Seifert has over 20 years experience in the areas of business
development, finance, strategic planning and marketing. Mr. Seifert began his
career in the aviation industry where he flew and ran operations for several
private and commercial airlines, including Summit Airlines, Air Indiana,
Nevada Airlines, and the Royal Family of Saudi Arabia. Mr. Seifert holds a
degree in Business Administration from Montgomery County College and Penn
State University.
Herman Rush is a Director at HSNS, having joined us in March of 2000.
Mr. Rush is recognized as a leader in the entertainment industry with over 30
years experience in executive, production and sales position. He was the CEO
and President of Columbia Pictures Television Group from 1966 to 1976. Mr.
Rush was responsible for creating and producing such shows as The Montel
Williams Show, and remains an executive producer to the series. He also
previously served as Chairman and CEO of Coca-Cola Telecommunications, senior
vice president of the Entertainment Business Sector of The Coca-Cola Company,
and as a member of the Board of Directors of Columbia Pictures Industries.
Mr. Rush is currently the Chairman of New Tech Entertainment, and Internet
Production company, that, in association with American Interactive Media, is
currently producing nine Internet program sites.
Executive officers are appointed by the board of directors on an annual
basis and serve until their successors have been duly elected and qualified.
There are no family relationships among any of our directors or executive
officers.
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table and the narrative text disclose the compensation
paid during 1999, 1998, and 1997 to the various individuals who served as our
President and Chief Executive Officer 1999. The table also shows the three
(3) other highest paid executive officers whose annual salary and bonuses
exceeded $100,000 during 1999, including individuals who were not serving as
an executive officer at the end of 1999.
<TABLE>
Summary Compensation Table
Annual Compensation Long Term Compensation
Awards
-------
Other AnnualRestricted Options/ All Other
Name and SalaryBonusCompensation Stock SARS Compensation
Principal Position Year ($) ($) (1) ($) Awards (#) ($)
- -------------------------- ---- ------ ------- ----- ----- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Andrew L. Fox 1999 66,100 55,000 30,891 (2) 240,000 (2)
Director, Acting President 1998 -- -- -- -- -- --
And 1997 -- -- -- -- -- --
Chief Executive Officer,
Executive Vice President
Alan Kleinmaier 1999 (2) (2) 13,300 (2) 50,000 (2)
Executive Vice President, 1998 -- -- -- -- -- --
Acting Chief Financial 1997 -- -- -- -- -- --
Officer, Secretary, and
Treasurer
Michael Cimino 1999 (2) (2) 50,879 425,000 (2) (2)
Former President and Chief 1998 (2) (2) 11,000 705,000 (2) (2)
Executive Officer, 1997 -- -- -- -- -- --
Secretary, and Treasurer
Michael Kim 199966,346 (2) 12,153 (2) 265,000 100,000
Former President and Chief 1998 -- -- -- -- -- --
Executive Officer 1997 -- -- -- -- -- --
Peter Rogina 199917,308 (2) 8,895 (2) 240,000 110,000
Former President and Chief 1998 -- -- -- -- -- --
Executive Officer 1997 -- -- -- -- -- --
Richard Seifert 199924,000 (2) 112,646 (2) 250,000 (2)
Former Vice President of 1998 -- -- -- -- -- --
Operations 1997 -- -- -- -- -- --
</TABLE>
(1) Amounts in this column include amounts earned during the year
specified but deferred for payment either the following year or thereafter.
(2) No compensation of this type received.
<PAGE>
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market Information
Our Common Stock, $.001 par value, is traded in the over-the-counter
market and is quoted on the NASD Over The Counter Bulletin Board ("OTCBB")
under the symbol "HSNS." Prior to January 25, 1999, we were quoted on the
OTCBB under the symbol "ZZNT."
The following tables set forth the high and low daily bid prices for
each quarter during the entire trading history of our Common Stock as
reported by the OTCBB. Such quotations reflect inter-dealer prices without
markup, markdown or commissions and may not necessarily represent actual
transactions.
<TABLE>
2000 LOW HIGH
- --------- ------- --------
<S> <C> <C>
First Quarter $11.750 $32.375
Second Quarter through $ 6.880 $13.25
April 13, 2000
1999 LOW HIGH
- -------- -------- --------
First Quarter $ 1.125 $ 2.250
Second Quarter $ 1.250 $ 4.750
Third Quarter $ 1.440 $ 6.590
Fourth Quarter $ 4.062 $18.125
1998 LOW HIGH
- ------- ------- --------
First Quarter Not Traded Not Traded
Second Quarter Not Traded Not Traded
Third Quarter $ 2.125 $ 7.250
Fourth Quarter $ 2.125 $5.875
</TABLE>
The OTCBB is a regulated quotation service that displays real-time
quotes and volume information in over-the-counter (OTC) equity securities.
The OTCBB does not impose listing standards or requirements, does not provide
automatic trade executions and does not maintain relationships with quoted
issuers. Stocks traded on the OTCBB may face a loss of market makers, lack
of readily available bid and ask prices for its stock, experience a greater
spread between the bids and ask price of its stock and a general loss of
liquidity with its stock. In addition, certain investors have policies
against purchasing or holding OTC securities. Both trading volume and the
market value of our securities have been, and will continue to be, materially
affected by the trading on the OTCBB.
DESCRIPTION OF REGISTRANT'S SECURITIES
In accordance with our amended and restated certificate of
incorporation, we are authorized to issue up to 50,000,000 shares of Common
Stock, par value $0.001 per share, and 5,000,000 shares of preferred stock,
par value $0.001 per share. As of April 13, 2000, there were 21,062,149
shares of Common Stock outstanding. As of April 13, 2000, there were 2000
shares issued and outstanding of our Series A Convertible Preferred Stock.
We have no other class or series of preferred stock.
<PAGE>
COMMON STOCK
As of April 13, 2000, there were 21,062,149 shares of Common Stock
outstanding. In addition, as of April 13, 2000, there were outstanding stock
options to purchase 1,070,000 shares of Common Stock. If the 2,000 shares of
Series A Convertible Preferred Stock issued and outstanding were to convert
to Common Stock, then an additional 140,449 shares of our Common Stock would
be issued and outstanding. Based upon the number of shares outstanding as of
April 13, 2000, and giving effect to the issuance of Common Stock upon the
exercise of all outstanding stock options, assuming that these options fully
vest, and the conversion of all of the Series A Convertible Preferred Stock
into Common Stock, there would be 22,272,598 shares of Common Stock
outstanding.
Each share of Common Stock entitles the holder to one vote on all
matters submitted to a vote of stockholders, including the election of
directors. Holders of Common Stock are entitled to receive ratably the
dividends, if any, declared from time to time by the board of directors out
of legally available funds. Holders of Common Stock have no conversion,
redemption or preemptive rights to subscribe to any of our securities. In
the event of any liquidation, dissolution or winding-up of our affairs,
holders of Common Stock will be entitled to share ratably in our assets
remaining after provision for payment of liabilities to creditors. The
rights, preferences and privileges of holders of Common Stock may be subject
to the rights of the holders of any shares of preferred stock, which we may
issue in the future.
PREFERRED STOCK
As of April 13, 2000, there were 2000 shares issued and outstanding of
our Series A Convertible Preferred Stock. We have no other class or series
of preferred stock. Before February 28, 2000, we had never issued any shares
of preferred stock.
We have recently amended and restated our articles of incorporation to
eliminate the specific rights and privileges originally associated with our
preferred stock. We have replaced these specific rights and privileges with
language in our articles of incorporation granting the board of directors the
power to determine by resolution at a future date the designations, rights
and privileges of the preferred stock.
The board of directors, without further action by shareholders, may from
time to time authorize the issuance of shares of preferred stock in one or
more series and with certain limitations, rights, preferences,
qualifications, or restrictions thereon and the number of shares constituting
such series and the designation of such series. Satisfaction of any dividend
preferences on outstanding preferred stock would reduce the amount of funds
available for the payment of dividends on our Common Stock. Holders of
preferred stock would normally be entitled to receive a preference payment in
the event of any liquidation, dissolution, or winding up of HSNS before any
payment is made to the holders of Common Stock. In addition, under certain
circumstances, the issuance of such preferred stock may render more difficult
or tend to discourage a change in control of HSNS. The board of directors of
HSNS, without shareholder approval, may issue preferred stock with voting and
conversion rights, which could adversely affect the rights of holders of
Common Stock.
On February 28, 2000, we designated a series of Preferred Stock called
Series A Convertible Preferred Stock consisting of 10,000 shares. The rights
of the Series A Convertible Preferred Stock include the following rights:
(i) a cumulative dividend of $80 each year per share of Series A Convertible
Preferred Stock, and we have the right to pay this dividend by issuing
additional shares of Series A Convertible Preferred Stock; (ii) no voting
rights except for the right to approve by a majority vote of the holders of
the Series A Convertible Preferred Stock our issuance of any shares of a
series or class of preferred stock that ranks senior to the Series A
Convertible Preferred Stock and any voting rights required under Florida law;
(iii) the right to convert the Series A Convertible Preferred Stock into
shares of our Common Stock at a conversion price of $14.24 divided into the
liquidation preference, subject to anti dilution adjustment in the case of
Common Stock dividends, splits and reorganizations; and (iv) a liquidation
preference of $1,000 per share of Series A Convertible Preferred Stock, plus
accrued unpaid dividends, payable in the event of any liquidation,
dissolution, or winding up of High Speed. After March 1, 2002, we have the
right to redeem any outstanding shares of the Series A Convertible Preferred
Stock at a redemption price of $1,000 per share of Series A Convertible
Preferred Stock plus accrued dividends that have not been paid.
On February 28, 2000 we issued 2,000 shares of our Series A Convertible
Preferred Stock for consideration of $2,000,000. If the 2,000 shares of
Series A Convertible Preferred Stock issued and outstanding were to convert
to Common Stock, then an additional 140,449 shares of our Common Stock would
be issued and outstanding. If we sold the total authorized 10,000 shares of
Series A Convertible Preferred Stock, and if all 10,000 shares were to
convert to Common Stock, then an additional 702,247 shares of our Common
Stock would be issued and outstanding.
CHANGES IN ACCOUNTANTS
In November of 1999 we engaged Ernst and Young LLP as our independent
public accountants to prepare audited financials. Our prior management had
most recently prepared financial statements in mid-1998 and these
financials were audited and reviewed by a sole practitioner CPA whose office
was located in the State of Nevada. Our new management desired to have
accounting services provided by an accounting firm with experience with
public reporting companies and, therefore, we engaged Ernst and Young.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP
Not applicable.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 5. OTHER EVENTS
Successor Issuer.
<PAGE>
Pursuant to Rule 12g-3(a) of the General Rules and Regulations of the
Securities and Exchange Commission, the Company is the successor issuer to
JSJ for reporting purposes under the Securities Exchange Act of 1934,
ITEM 6. RESIGNATIONS OF DIRECTORS AND EXECUTIVE OFFICERS
On April 18, 2000 JSJ accepted the resignations of Jeff P. Ploen, James
W. Toot and Lawrence Deitler, as Officers and Directors and Anthony N. DeMint
became Sole Director, President, Secretary, Treasurer and the only
stockholder of record.
Pursuant to the merger the Officers and Directors of HSNS, the successor
corporation, will remain the same. (see Item 2 - "Current Directors" and
"Executive Officers.")
ITEM 7. FINANCIAL STATEMENTS
Audited financial statements of HSNS are filed herewith along with
Proforma financial statements.
ITEM 8. CHANGE IN FISCAL YEAR
JSJ has a fiscal year that ends on October 31. HSNS, as the surviving
corporation, has a fiscal year that ends on December 31. Therefore, as of
the date of the merger, April 24, 2000, the fiscal year end is December 31
and any report covering any transition period required to be covered will be
filed on HSNS' next filing on Form 10-Q.
EXHIBITS
1.1* Agreement and Plan of Merger between High Speed Net Solutions, Inc. and
J.S.J. Capital Corp.
1.2* Certificate of Merger between High Speed Net Solutions, Inc. and J.S.J.
Capital Corp.
1.3* Unanimous consent of Stockholder
1.4* Audited Financials Statements of High Speed Net Solutions, Inc.
1.5* Proforma Financial Statements after Merger.
______
*Filed herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Current Report on Form 8-K to be signed on
its behalf by the undersigned hereunto duly authorized.
HIGH SPEED NET SOLUTIONS, INC.
Date: May 5, 2000
By/s/ Andrew Fox
Andrew Fox, President
ACQUISITION AGREEMENT AND PLAN OF MERGER
DATED AS OF APRIL 19, 2000
BETWEEN
HIGH SPEED NET SOLUTIONS, INC.
AND
J.S.J. CAPITAL CORP.
TABLE OF CONTENTS
ARTICLE 1. The Merger
Section 1.1. The Merger
Section 1.2. Effective Time
Section 1.3. Closing of the Merger
Section 1.4. Effects of the Merger
Section 1.5. Board of Directors and Officers of HSNS
Section 1.6. Conversion of Shares
Section 1.7. Exchange of Certificates
Section 1.8. Taking of Necessary Action; Further Action
ARTICLE 2. Representations and Warranties of HSNS
Section 2.1. Organization and Qualification
Section 2.2. Capitalization of HSNS
Section 2.3.Authority Relative to this Agreement; Recommendation.
Section 2.4. SEC Reports; Financial Statements
Section 2.5. Information Supplied
Section 2.6. Consents and Approvals; No Violations
Section 2.7. No Default
Section 2.8. No Undisclosed Liabilities; Absence of Changes
Section 2.9. Litigation
Section 2.10. Compliance with Applicable Law
Section 2.11. Employee Benefit Plans; Labor Matters
Section 2.12. Environmental Laws and Regulations
Section 2.13. Tax Matters
Section 2.14. Title To Property
Section 2.15. Intellectual Property
Section 2.16. Insurance
Section 2.17. Vote Required
Section 2.18. Tax Treatment
Section 2.19. Affiliates
Section 2.20. Certain Business Practices
Section 2.21. Insider Interests
Section 2.22. Opinion of Financial Adviser
Section 2.23. Brokers
Section 2.24. Disclosure
Section 2.25. No Existing Discussion
Section 2.26. Material Contracts
<PAGE>
ARTICLE 3. Representations and Warranties of JSJ.
Section 3.1. Organization and Qualification
Section 3.2. Capitalization of JSJ
Section 3.3.Authority Relative to this Agreement; Recommendation
Section 3.4. SEC Reports; Financial Statements
Section 3.5. Information Supplied
Section 3.6. Consents and Approvals; No Violations
Section 3.7. No Default
Section 3.8 No Undisclosed Liabilities; Absence of Changes
Section 3.9. Litigation
Section 3.10. Compliance with Applicable Law
Section 3.11. Employee Benefit Plans; Labor Matters
Section 3.12. Environmental Laws and Regulations
Section 3.13. Tax Matters
Section 3.14. Title to Property
Section 3.15. Intellectual Property
Section 3.16. Insurance
Section 3.17. Vote Required
Section 3.18. Tax Treatment
Section 3.19. Affiliates
Section 3.20. Certain Business Practices
Section 3.21. Insider Interests
Section 3.22. Opinion of Financial Adviser
Section 3.23. Brokers
Section 3.24. Disclosure
Section 3.25. No Existing Discussions
Section 3.26. Material Contracts
ARTICLE 4. Covenants
Section 4.1. Conduct of Business of HSNS
Section 4.2. Conduct of Business of JSJ
Section 4.3. Preparation of 8-K
Section 4.4. Other Potential Acquirers
Section 4.5. Meetings of Stockholders
Section 4.6. NASD OTC:BB Listing
Section 4.7. Access to Information
Section 4.8. Additional Agreements; Reasonable Efforts.
Section 4.9. Indemnification
Section 4.10. Notification of Certain Matters
ARTICLE 5. Conditions to Consummation of the Merger
Section 5.1. Conditions to each Party's Obligation to Effect the Merger
Section 5.2. Conditions to the Obligations of HSNS
Section 5.3. Conditions to the Obligations of JSJ
<PAGE>
ARTICLE 6. Termination; Amendment; Waiver
Section 6.1. Termination
Section 6.2. Effect of Termination
Section 6.3. Fees and Expenses
Section 6.4. Amendment
Section 6.5. Extension; Waiver
ARTICLE 7. Miscellaneous
Section 7.1. Nonsurvival of Representations and Warranties
Section 7.2. Entire Agreement; Assignment
Section 7.3. Validity
Section 7.4. Notices
Section 7.5. Governing Law
Section 7.6. Descriptive Headings
Section 7.7. Parties in Interest
Section 7.8. Certain Definitions
Section 7.9. Personal Liability
Section 7.10. Specific Performance
Section 7.11. Counterparts
<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement"), dated as of April
19, 2000, is between HIGH SPEED NET SOLUTIONS, INC., a Florida corporation
("HSNS"), and J.S.J. CAPITAL CORP., a Nevada corporation ("JSJ").
Whereas, the Boards of Directors of HSNS and JSJ each have, in light of
and subject to the terms and conditions set forth herein, (i) determined that
the Merger (as defined below) is fair to their respective stockholders and in
the best interests of such stockholders and (ii) approved the Merger in
accordance with this Agreement;
Whereas, for Federal income tax purposes, it is intended that the Merger
qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
Whereas, HSNS and JSJ desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also
to prescribe various conditions to the Merger.
Now, therefore, in consideration of the promises and the
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, HSNS and JSJ hereby agree as follows:
ARTICLE I
The Merger
Section 1.1. The Merger. At the Effective Time (as defined below) and
upon the terms and subject to the conditions of this Agreement and in
accordance with the General Corporation Law of the State of Nevada (the
"NGCL") and the General Corporation Law of the State of Florida (the "FGCL"),
JSJ shall be merged with and into HSNS (as defined below) (the ``Merger").
Following the Merger, HSNS shall continue as the surviving corporation (the
"Successor Corporation"), shall continue to be governed by the laws of the
jurisdiction of its incorporation or organization and the separate corporate
existence of JSJ shall cease to exist. Prior to the Effective Time, the
parties hereto shall mutually agree as to the name of the Successor
Corporation; however, initially the Successor Corporation shall be named HIGH
SPEED NET SOLUTIONS, INC., a Florida corporation. The Merger is intended to
qualify as a tax-free reorganization under Section 368 of the Code as relates
to the non-cash exchange of stock referenced herein.
Section 1.2. Effective Time. Subject to the terms and conditions set
forth in this Agreement, a Certificate of Merger (the "Merger Certificate")
shall be duly executed and acknowledged by each of JSJ and HSNS, and
thereafter the Merger Certificate reflecting the Merger shall be delivered to
the Secretary of State of the State of Nevada for filing pursuant to the NGCL
and to the Secretary of State of the State of Florida for filing pursuant to
the FGCL on the Closing Date (as defined in Section 1.3). The Merger shall
become effective at such time as a properly executed and certified copy of
the Merger Certificate is duly filed by the Secretary of State of the State
of Nevada in accordance with the NGCL and by the Secretary of State of the
State of Florida in accordance with the FGCL or such later time as the
parties may agree upon and set forth in the Merger Certificate (the time at
which the Merger becomes effective shall be referred to herein as the
"Effective Time").
Section 1.3. Closing of the Merger. The closing of the Merger (the
"Closing") will take place at a time and on a date to be specified by the
parties, which shall be no later than the second business day after
satisfaction of the latest to occur of the conditions set forth in Article 5
(the "Closing Date"), at the offices of Sperry Young & Stoecklein, 1850 E.
Flamingo Rd., Suite 111, Las Vegas, Nevada, unless another time, date or
place is agreed to in writing by the parties hereto.
Section 1.4. Effects of the Merger. The Merger shall have the effects
set forth in the NGCL and FGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the properties,
rights, privileges, powers of JSJ shall vest in the Successor Corporation,
and all debts, liabilities and duties of JSJ shall become the debts,
liabilities and duties of the Successor Corporation.
<PAGE>
Section 1.5. Board of Directors and Officers of HSNS. At or prior to the
Effective Time, each of JSJ and HSNS agrees to take such action as is
necessary (i) to cause the number of directors comprising the full Board of
Directors of HSNS to remain the same
Section 1.6. Conversion of Shares. At the Effective Time, each share of
common stock, par value $.0001 per share of JSJ (individually a "JSJ Share"
and collectively, the "JSJ Shares") issued and outstanding immediately prior
to the Effective Time shall, by virtue of the Merger and without any action
on the part of JSJ, HSNS, or the holder thereof, be converted into and shall
become fully paid and nonassessable HSNS common shares determined by issuing
one (1) share of HSNS common share for every 13.44 shares of JSJ.
Section 1.7. Exchange of Certificates.
(a) Prior to the Effective Time, HSNS shall enter into an agreement
with, and shall deposit with, Sperry Young & Stoecklein, or such other agent
or agents as may be satisfactory to HSNS and JSJ (the "Exchange Agent'), for
the benefit of the holders of JSJ Shares, for exchange through the Exchange
Agent in accordance with this Article I: (i) certificates representing the
appropriate number of HSNS Shares to be issued to holders of JSJ Shares
issuable pursuant to Section 1.6 in exchange for outstanding JSJ Shares.
(b) As soon as reasonably practicable after the Effective Time, the
Exchange Agent shall mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding JSJ Shares (the "Certificates") whose shares were converted into
the right to receive HSNS Shares pursuant to Section 1.6: (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such
other provisions as JSJ and HSNS may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing HSNS Shares. Upon surrender of a
Certificate to the Exchange Agent, together with such letter of transmittal,
duly executed, and any other required documents, the holder of such
Certificate shall be entitled to receive in exchange therefore a certificate
representing that number of whole HSNS Shares, which such holder has the
right to receive pursuant to the provisions of this Article I, and the
Certificate so surrendered shall forthwith be canceled. In the event of a
transfer of ownership of JSJ Shares which are not registered in the transfer
records of JSJ, a certificate representing the proper number of HSNS Shares
may be issued to a transferee if the Certificate representing such JSJ Shares
is presented to the Exchange Agent accompanied by all documents required by
the Exchange Agent or HSNS to evidence and effect such transfer and by
evidence that any applicable stock transfer or other taxes have been paid.
Until surrendered as contemplated by this Section 1.7, each Certificate shall
be deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the certificate representing HSNS Shares as
contemplated by this Section 1.7.
(c) No dividends or other distributions declared or made after the
Effective Time with respect to HSNS Shares with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate
with respect to the HSNS Shares represented thereby until the holder of
record of such Certificate shall surrender such Certificate.
(d) In the event that any Certificate for JSJ Shares or HSNS Shares
shall have been lost, stolen or destroyed, the Exchange Agent shall issue in
exchange therefore, upon the making of an affidavit of that fact by the
holder thereof such HSNS Shares and cash in lieu of fractional HSNS Shares,
if any, as may be required pursuant to this Agreement; provided, however,
that HSNS or the Exchange Agent, may, in its respective discretion, require
the delivery of a suitable bond, opinion or indemnity.
(e) All HSNS Shares issued upon the surrender for exchange of JSJ Shares
in accordance with the terms hereof shall be deemed to have been issued in
full satisfaction of all rights pertaining to such JSJ Shares. There shall be
no further registration of transfers on the stock transfer books of JSJ of
the JSJ Shares which were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates of JSJ are presented to HSNS
for any reason, they shall be canceled and exchanged as provided in this
Article I.
<PAGE>
(f) No fractional HSNS Shares shall be issued in the Merger, but in lieu
thereof each holder of JSJ Shares otherwise entitled to a fractional HSNS
Share shall, upon surrender of its, his or her Certificate or Certificates,
be entitled to receive an additional share to round up to the nearest round
number of shares.
Section 1.8. Taking of Necessary Action; Further Action. If, at any time
after the Effective Time, JSJ or HSNS reasonably determines that any deeds,
assignments, or instruments or confirmations of transfer are necessary or
desirable to carry out the purposes of this Agreement and to vest HSNS with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of JSJ, the officers and directors of HSNS and JSJ are
fully authorized in the name of their respective corporations or otherwise to
take, and will take, all such lawful and necessary or desirable action.
ARTICLE 2
Representations and Warranties of HSNS
Except as set forth on the Disclosure Schedule delivered by HSNS to JSJ
(the "HSNS Disclosure Schedule"), HSNS hereby represents and warrants to JSJ
as follows:
Section 2.1. Organization and Qualification.
(a) HSNS is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation or organization, has 300 or
more round lot (100 or more shares) stockholders and has all requisite power
and authority to own, lease and operate its properties and to carry on its
businesses as now being conducted, except where the failure to be so
organized, existing and in good standing or to have such power and authority
would not have a Material Adverse Effect (as defined below) on HSNS. When
used in connection with HSNS, the term "Material Adverse Effect" means any
change or effect (i) that is or is reasonably likely to be materially adverse
to the business, results of operations, condition (financial or otherwise) or
prospects of HSNS, other than any change or effect arising out of general
economic conditions unrelated to any business in which HSNS is engaged, or
(ii) that may impair the ability of HSNS to perform its obligations hereunder
or to consummate the transactions contemplated hereby.
(b) HSNS has heretofore delivered to JSJ accurate and complete copies of
the Articles of Incorporation and Bylaws (or similar governing documents), as
currently in effect, of HSNS. Except as set forth on Schedule 2.1 of the HSNS
Disclosure Schedule, HSNS is duly qualified or licensed and in good standing
to do business in each jurisdiction in which the property owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification or licensing necessary, except in such jurisdictions where the
failure to be so duly qualified or licensed and in good standing would not
have a Material Adverse Effect on HSNS.
Section 2.2. Capitalization of HSNS.
(a) The authorized capital stock of HSNS consists of: (i) Fifty Million
(50,000,000) Authorized Shares of Common Stock, $0.001 par value, 21,062,149
Common shares are issued and outstanding as of February 10, 2000, and held by
300 or more round lot (100 or more shares) stockholders; (ii) Five Million
(5,000,000) Authorized Shares of Preferred Stock, $0.001 par value, no
Preferred Shares have been issued. Pursuant to the Merger Agreement HSNS will
issue 50,000 shares of 144 restricted common stock to the stockholder of JSJ.
All of the outstanding HSNS Shares have been duly authorized and validly
issued, and are fully paid, nonassessable and free of preemptive rights.
Except as set forth herein, as of the date hereof, there are no outstanding
(i) shares of capital stock or other voting securities of HSNS, (ii)
securities of HSNS convertible into or exchangeable for shares of capital
stock or voting securities of HSNS, (iii) options or other rights to acquire
from HSNS, except as set forth in 2.2(a) of the Disclosure Schedule, and, no
obligations of HSNS to issue, any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting
securities of HSNS, and (iv) equity equivalents, interests in the ownership
or earnings of HSNS or other similar rights (collectively, "HSNS
Securities"). As of the date hereof, except as set forth on Schedule 2.2(a)
of the HSNS Disclosure Schedule there are no outstanding obligations of HSNS
or its subsidiaries to repurchase, redeem or otherwise acquire any HSNS
Securities or stockholder agreements, voting trusts or other agreements or
understandings to which HSNS is a party or by which it is bound relating to
the voting or registration of any shares of capital stock of HSNS. For
purposes of this Agreement, ``Lien" means, with respect to any asset
(including, without limitation, any security) any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such
asset.
<PAGE>
(b) The HSNS Shares constitute the only class of equity securities of
HSNS registered or required to be registered under the Exchange Act.
(c) HSNS does not own directly or indirectly more than fifty percent
(50%) of the outstanding voting securities or interests (including membership
interests) of any entity, other than as specifically disclosed in the
disclosure documents.
Section 2.3. Authority Relative to this Agreement; Recommendation. HSNS
has all necessary corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of HSNS (the "HSNS Board") and no other corporate
proceedings on the part of HSNS are necessary to authorize this Agreement or
to consummate the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by HSNS and constitutes a valid,
legal and binding agreement of HSNS, enforceable against HSNS in accordance
with its terms.
Section 2.4. SEC Reports; Financial Statements. SEC Reports; Financial
Statements.
(a) HSNS filed a Form 10 with the Securities and Exchange Commission
(the "SEC") on February 22, 2000 and a Form 10/A on March 13, 2000, which
have complied in all material respects with all applicable requirements of
the Securities Act of 1933, as amended (the "Securities Act"), and the
Exchange Act (and the rules and regulations promulgated thereunder,
respectively), as in effect on the date such form was filed. HSNS has
heretofore delivered or promptly will deliver prior to the Effective Date to
JSJ, in the form filed with the SEC (including any amendments thereto but
excluding any exhibits), (i) its Form 10 filed February 22, 2000, (ii) its
Form 10/A filed March 13, 2000, (iii) all definitive proxy statements
relating to HSNS's meetings of stockholders (whether annual or special) held
since March 13, 2000, if any, and (iv) all other reports or registration
statements filed by HSNS with the SEC since March 13, 2000 (all of the
foregoing, collectively, the "HSNS SEC Reports"). None of such HSNS SEC
Reports, including, without limitation, any financial statements or schedules
included or incorporated by reference therein, contained, when filed, any
untrue statement of a material fact or omitted to state a material fact
required to be stated or incorporated by reference therein or necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading. The audited financial statements of
HSNS included in the HSNS SEC Reports fairly present, in conformity with
generally accepted accounting principles applied on a consistent basis
(except as may be indicated in the notes thereto), the financial position of
HSNS as of the dates thereof and its results of operations and changes in
financial position for the periods then ended. All material agreements,
contracts and other documents required to be filed as exhibits to any of the
HSNS SEC Reports have been so filed.
(b) HSNS has heretofore made available or promptly will make available
to JSJ a complete and correct copy of any amendments or modifications which
are required to be filed with the SEC but have not yet been filed with the
SEC, to agreements, documents or other instruments which previously had been
filed by HSNS with the SEC pursuant to the Exchange Act.
Section 2.5. Information Supplied. None of the information supplied or
to be supplied by HSNS for inclusion or incorporation by reference in
connection with the Merger will at the date presented to the stockholder of
JSJ and at the times of the meeting or meetings of stockholders of HSNS to be
held in connection with the Merger, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
Section 2.6. Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Securities Act, the Exchange Act, state
securities or blue sky laws, the Hart-Scott-Rodino Antitrust Improvements Act
of 1916, as amended (the ``HSR Act''), the rules of the National Association
of Securities Dealers, Inc. ("NASD"), the filing and recordation of the
<PAGE>
Merger Certificate as required by the NGCL, and as set forth on Schedule 2.6
of the HSNS Disclosure Schedule no filing with or notice to, and no permit,
authorization, consent or approval of, any court or tribunal or
administrative, governmental or regulatory body, agency or authority (a
"Governmental Entity") is necessary for the execution and delivery by HSNS of
this Agreement or the consummation by HSNS of the transactions contemplated
hereby, except where the failure to obtain such permits, authorizations,
consents or approvals or to make such filings or give such notice would not
have a Material Adverse Effect on HSNS.
Except as set forth in Section 2.6 of the HSNS Disclosure Schedule,
neither the execution, delivery and performance of this Agreement by HSNS nor
the consummation by HSNS of the transactions contemplated hereby will (i)
conflict with or result in any breach of any provision of the respective
Articles of Incorporation or Bylaws (or similar governing documents) of HSNS,
(ii) result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right of
termination, amendment, cancellation or acceleration or Lien) under, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
lease, license, contract, agreement or other instrument or obligation to
which HSNS is a party or by which any of its properties or assets may be
bound, or (iii) violate any order, writ, injunction, decree, law, statute,
rule or regulation applicable to HSNS or any of its properties or assets,
except in the case of (ii) or (iii) for violations, breaches or defaults
which would not have a Material Adverse Effect on HSNS.
Section 2.7. No Default. Except as set forth in Section 2.7 of the HSNS
Disclosure Schedule, HSNS is not in breach, default or violation (and no
event has occurred which with notice or the lapse of time or both would
constitute a breach default or violation) of any term, condition or provision
of (i) its Articles of Incorporation or Bylaws (or similar governing
documents), (ii) any note, bond, mortgage, indenture, lease, license,
contract, agreement or other instrument or obligation to which HSNS is now a
party or by which any of its respective properties or assets may be bound or
(iii) any order, writ injunction, decree, law, statute, rule or regulation
applicable to HSNS or any of its respective properties or assets, except in
the case of (ii) or (iii) for violations, breaches or defaults that would not
have a Material Adverse Effect on HSNS. Except as set forth in Section 2.7 of
the HSNS Disclosure Schedule, each note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument or obligation to which HSNS
is now a party or by which its respective properties or assets may be bound
that is material to HSNS and that has not expired is in full force and effect
and is not subject to any material default thereunder of which HSNS is aware
by any party obligated to HSNS thereunder.
Section 2.8. No Undisclosed Liabilities; Absence of Changes. Except as
and to the extent disclosed in the December 31, 1999 audited financial
statements, none of HSNS or its subsidiaries had any liabilities or
obligations of any nature, whether or not accrued, contingent or otherwise,
that would be required by generally accepted accounting principles to be
reflected on a consolidated balance sheet of HSNS and its consolidated
subsidiaries (including the notes thereto) or which would have a Material
Adverse Effect on HSNS. Except as disclosed by HSNS, none of HSNS or its
subsidiaries has incurred any liabilities of any nature, whether or not
accrued, contingent or otherwise, which could reasonably be expected to have,
and there have been no events, changes or effects with respect to HSNS or its
subsidiaries having or which could reasonably be expected to have, a Material
Adverse Effect on HSNS. Except as and to the extent disclosed by HSNS there
has not been (i) any material change by HSNS in its accounting methods,
principles or practices (other than as required after the date hereof by
concurrent changes in generally accepted accounting principles), (ii) any
revaluation by HSNS of any of its assets having a Material Adverse Effect on
HSNS, including, without limitation, any write-down of the value of any
assets other than in the ordinary course of business or (iii) any other
action or event that would have required the consent of any other party
hereto pursuant to Section 4.2 of this Agreement had such action or event
occurred after the date of this Agreement.
Section 2.9. Litigation. Except as set forth in Schedule 2.9 of the HSNS
Disclosure Schedule there is no suit, claim, action, proceeding or
investigation pending or, to the knowledge of HSNS, threatened against HSNS
or any of its subsidiaries or any of their respective properties or assets
before any Governmental Entity which, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect on HSNS or could
reasonably be expected to prevent or delay the consummation of the
transactions contemplated by this Agreement. Except as disclosed by HSNS,
none of HSNS or its subsidiaries is subject to any outstanding order, writ,
injunction or decree which, insofar as can be reasonably foreseen in the
future, could reasonably be expected to have a Material Adverse Effect on
HSNS or could reasonably be expected to prevent or delay the consummation of
the transactions contemplated hereby.
<PAGE>
Section 2.10. Compliance with Applicable Law. Except as disclosed by
HSNS, HSNS and its subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals of all Governmental Entities necessary for
the lawful conduct of their respective businesses (the "HSNS Permits"),
except for failures to hold such permits, licenses, variances, exemptions,
orders and approvals which would not have a Material Adverse Effect on HSNS.
Except as disclosed by HSNS, HSNS and its subsidiaries are in compliance with
the terms of the HSNS Permits, except where the failure so to comply would
not have a Material Adverse Effect on HSNS. Except as disclosed by HSNS, the
businesses of HSNS and its subsidiaries are not being conducted in violation
of any law, ordinance or regulation of any Governmental Entity except that no
representation or warranty is made in this Section 2.10 with respect to
Environmental Laws and except for violations or possible violations which do
not, and, insofar as reasonably can be foreseen, in the future will not, have
a Material Adverse Effect on HSNS. Except as disclosed by HSNS no
investigation or review by any Governmental Entity with respect to HSNS or
its subsidiaries is pending or, to the knowledge of HSNS, threatened, nor, to
the knowledge of HSNS, has any Governmental Entity indicated an intention to
conduct the same, other than, in each case, those which HSNS reasonably
believes will not have a Material Adverse Effect on HSNS.
Section 2.11. Employee Benefit Plans; Labor Matters.
(a) Except as set forth in Section 2.11(a) of the HSNS Disclosure
Schedule with respect to each employee benefit plan, program, policy,
arrangement and contract (including, without limitation, any "employee
benefit plan," as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), maintained or contributed to at
any time by HSNS or any entity required to be aggregated with HSNS pursuant
to Section 414 of the Code (each, a "HSNS Employee Plan"), no event has
occurred and to the knowledge of HSNS, no condition or set of circumstances
exists in connection with which HSNS could reasonably be expected to be
subject to any liability which would have a Material Adverse Effect on HSNS.
(b) (i) No HSNS Employee Plan is or has been subject to Title IV of
ERISA or Section 412 of the Code; and (ii) each HSNS Employee Plan intended
to qualify under Section 401(a) of the Code and each trust intended to
qualify under Section 501(a) of the Code is the subject of a favorable
Internal Revenue Service determination letter, and nothing has occurred which
could reasonably be expected to adversely affect such determination.
(c) Section 2.11(c) of the HSNS Disclosure Schedule sets forth a true
and complete list, as of the date of this Agreement, of each person who holds
any HSNS Stock Options, together with the number of HSNS Shares which are
subject to such option, the date of grant of such option, the extent to which
such option is vested (or will become vested as a result of the Merger), the
option price of such option (to the extent determined as of the date hereof),
whether such option is a nonqualified stock option or is intended to qualify
as an incentive stock option within the meaning of Section 422(b) of the
Code, and the expiration date of such option. Section 2.11(c) of the HSNS
Disclosure Schedule also sets forth the total number of such incentive stock
options and such nonqualified options. HSNS has furnished JSJ with complete
copies of the plans pursuant to which the HSNS Stock Options were issued.
Other than the automatic vesting of HSNS Stock Options that may occur without
any action on the part of HSNS or its officers or directors, HSNS has not
taken any action that would result in any HSNS Stock Options that are
unvested becoming vested in connection with or as a result of the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby.
(d) HSNS has made available to JSJ (i) a description of the terms of
employment and compensation arrangements of all officers of HSNS and a copy
of each such agreement currently in effect; (ii) copies of all agreements
with consultants who are individuals obligating HSNS to make annual cash
payments in an amount exceeding $60,000; (iii) a schedule listing all
officers of HSNS who have executed a non-competition agreement with HSNS and
a copy of each such agreement currently in effect; (iv) copies (or
descriptions) of all severance agreements, programs and policies of HSNS with
or relating to its employees, except programs and policies required to be
maintained by law; and (v) copies of all plans, programs, agreements and
other arrangements of HSNS with or relating to its employees which contain
change in control provisions all of which are set forth in Section 2.11(d) of
the HSNS Disclosure Schedule.
(e) There shall be no payment, accrual of additional benefits,
acceleration of payments, or vesting in any benefit under any HSNS Employee
Plan or any agreement or arrangement disclosed under this Section 2.11 solely
by reason of entering into or in connection with the transactions
contemplated by this Agreement.
<PAGE>
(f) There are no controversies pending or, to the knowledge of HSNS,
threatened, between HSNS and any of their employees, which controversies have
or could reasonably be expected to have a Material Adverse Effect on HSNS.
Neither HSNS nor any of its subsidiaries is a party to any collective
bargaining agreement or other labor union contract applicable to persons
employed by HSNS or any of its subsidiaries (and neither HSNS nor any of its
subsidiaries has any outstanding material liability with respect to any
terminated collective bargaining agreement or labor union contract), nor does
HSNS know of any activities or proceedings of any labor union to organize any
of its or employees. HSNS has no knowledge of any strike, slowdown, work
stoppage, lockout or threat thereof, by or with respect to any of its
employees.
Section 2.12. Environmental Laws and Regulations.
(a) Except as publicly disclosed by HSNS in the HSNS SEC Reports, (i)
HSNS is in material compliance with all applicable federal, state, local and
foreign laws and regulations relating to pollution or protection of human
health or the environment (including, without limitation, ambient air,
surface water, ground water, land surface or subsurface strata)
(collectively, "Environmental Laws"), except for non-compliance that would
not have a Material Adverse Effect on HSNS, which compliance includes, but is
not limited to, the possession by HSNS of all material permits and other
governmental authorizations required under applicable Environmental Laws, and
compliance with the terms and conditions thereof; (ii) HSNS has not received
written notice of, or, to the knowledge of HSNS, is the subject of, any
action, cause of action, claim, investigation, demand or notice by any person
or entity alleging liability under or non-compliance with any Environmental
Law (an ``Environmental Claim") that could reasonably be expected to have a
Material Adverse Effect on HSNS; and (iii) to the knowledge of HSNS, there
are no circumstances that are reasonably likely to prevent or interfere with
such material compliance in the future.
(b) Except as publicly disclosed by HSNS, there are no Environmental
Claims which could reasonably be expected to have a Material Adverse Effect
on HSNS that are pending or, to the knowledge of HSNS, threatened against
HSNS or, to the knowledge of HSNS, against any person or entity whose
liability for any Environmental Claim HSNS has or may have retained or
assumed either contractually or by operation of law.
Section 2.13. Tax Matters.
(a) Except as set forth in Section 2.13 of the HSNS Disclosure Schedule:
(i) HSNS has filed or has had filed on its behalf in a timely manner (within
any applicable extension periods) with the appropriate Governmental Entity
all income and other material Tax Returns (as defined herein) with respect to
Taxes (as defined herein) of HSNS and all Tax Returns were in all material
respects true, complete and correct; (ii) all material Taxes with respect to
HSNS have been paid in full or have been provided for in accordance with GAAP
on HSNS's most recent balance sheet which is part of the HSNS SEC Documents.
(iii) there are no outstanding agreements or waivers extending the statutory
period of limitations applicable to any federal, state, local or foreign
income or other material Tax Returns required to be filed by or with respect
to HSNS; (iv) to the knowledge of HSNS none of the Tax Returns of or with
respect to HSNS is currently being audited or examined by any Governmental
Entity; and (v) no deficiency for any income or other material Taxes has been
assessed with respect to HSNS which has not been abated or paid in full.
(b) For purposes of this Agreement, (i) "Taxes" shall mean all taxes,
charges, fees, levies or other assessments, including, without limitation,
income, gross receipts, sales, use, ad valorem, goods and services, capital,
transfer, franchise, profits, license, withholding, payroll, employment,
employer health, excise, estimated, severance, stamp, occupation, property or
other taxes, customs duties, fees, assessments or charges of any kind
whatsoever, together with any interest and any penalties, additions to tax or
additional amounts imposed by any taxing authority and (ii) "Tax Return"
shall mean any report, return, documents declaration or other information or
filing required to be supplied to any taxing authority or jurisdiction with
respect to Taxes.
Section 2.14. Title to Property. HSNS has good and defensible title to
all of its properties and assets, free and clear of all liens, charges and
encumbrances except liens for taxes not yet due and payable and such liens or
other imperfections of title, if any, as do not materially detract from the
value of or interfere with the present use of the property affected thereby
or which, individually or in the aggregate, would not have a Material Adverse
<PAGE>
Effect on HSNS; and, to HSNS's knowledge, all leases pursuant to which HSNS
leases from others real or personal property are in good standing, valid and
effective in accordance with their respective terms, and there is not, to the
knowledge of HSNS, under any of such leases, any existing material default or
event of default (or event which with notice of lapse of time, or both, would
constitute a default and in respect of which HSNS has not taken adequate
steps to prevent such a default from occurring) except where the lack of such
good standing, validity and effectiveness, or the existence of such default
or event, would not have a Material Adverse Effect on HSNS.
Section 2.15. Intellectual Property.
(a) HSNS owns, or possesses adequate licenses or other valid rights to
use, all existing United States and foreign patents, trademarks, trade names,
service marks, copyrights, trade secrets and applications therefore that are
material to its business as currently conducted (the "HSNS Intellectual
Property Rights").
(b) The validity of the HSNS Intellectual Property Rights and the title
thereto of HSNS is not being questioned in any litigation to which HSNS is a
party.
(c) Except as set forth in Section 2.15(c) of the HSNS Disclosure
Schedule, the conduct of the business of HSNS as now conducted does not, to
HSNS's knowledge, infringe any valid patents, trademarks, trade names,
service marks or copyrights of others. The consummation of the transactions
completed hereby will not result in the loss or impairment of any HSNS
Intellectual Property Rights.
(d) HSNS has taken steps it believes appropriate to protect and maintain
its trade secrets as such, except in cases where HSNS has elected to rely on
patent or copyright protection in lieu of trade secret protection.
Section 2.16. Insurance. HSNS currently maintains general liability and
other business insurance.
Section 2.17. Vote Required. Approval of this Agreement and Plan of
Merger by the Stockholders of HSNS is not required pursuant to current Nevada
law.
Section 2.18. Tax Treatment. Neither HSNS nor, to the knowledge of HSNS,
any of its affiliates has taken or agreed to take action that would prevent
the Merger from constituting a reorganization qualifying under the provisions
of Section 368(a) of the Code.
Section 2.19. Affiliates. Except for the directors and executive
officers of HSNS, each of whom is listed in Section 2.19 of the HSNS
Disclosure Schedule, there are no persons who, to the knowledge of HSNS, may
be deemed to be affiliates of HSNS under Rule 1-02(b) of Regulation S-X of
the SEC (the "HSNS Affiliates").
Section 2.20. Certain Business Practices. None of HSNS or any directors,
officers, agents or employees of HSNS has (i) used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties
or campaigns or violated any provision of the Foreign Corrupt Practices Act
of 1977, as amended (the "FCPA"), or (iii) made any other unlawful payment.
Section 2.21. Insider Interests. Except as set forth in Section 2.21 of
the HSNS Disclosure Schedule, neither any officer or director of HSNS has any
interest in any material property, real or personal, including without
limitation, any computer software or HSNS Intellectual Property Rights, used
in or pertaining to the business of HSNS, expect for the ordinary rights of a
stockholder or employee stock optionholder.
Section 2.22. Opinion of Financial Adviser. No advisers, as of the date
hereof, have delivered to the HSNS Board a written opinion to the effect
that, as of such date, the exchange ratio contemplated by the Merger is fair
to the holders of HSNS Shares.
Section 2.23. Brokers. No broker, finder or investment banker (other
than the HSNS Financial Adviser, a true and correct copy of whose engagement
agreement has been provided to JSJ) is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of HSNS.
<PAGE>
Section 2.24. Disclosure. No representation or warranty of HSNS in this
Agreement or any certificate, schedule, document or other instrument
furnished or to be furnished to JSJ pursuant hereto or in connection herewith
contains, as of the date of such representation, warranty or instrument, or
will contain any untrue statement of a material fact or, at the date thereof,
omits or will omit to state a material fact necessary to make any statement
herein or therein, in light of the circumstances under which such statement
is or will be made, not misleading.
Section 2.25. No Existing Discussions. As of the date hereof, HSNS is
not engaged, directly or indirectly, in any discussions or negotiations with
any other party with respect to any Third Party Acquisition (as defined in
Section 4.4).
Section 2.26. Material Contracts.
(a) HSNS has delivered or otherwise made available to JSJ true, correct
and complete copies of all contracts and agreements (and all amendments,
modifications and supplements thereto and all side letters to which HSNS is a
party affecting the obligations of any party thereunder) to which HSNS is a
party or by which any of its properties or assets are bound that are,
material to the business, properties or assets of HSNS taken as a whole,
including, without limitation, to the extent any of the following are,
individually or in the aggregate, material to the business, properties or
assets of HSNS taken as a whole, all: (i) employment, product design or
development, personal services, consulting, non-competition, severance,
golden parachute or indemnification contracts (including, without limitation,
any contract to which HSNS is a party involving employees of HSNS); (ii)
licensing, publishing, merchandising or distribution agreements; (iii)
contracts granting rights of first refusal or first negotiation; (iv)
partnership or joint venture agreements; (v) agreements for the acquisition,
sale or lease of material properties or assets or stock or otherwise entered
into since December 31, 1999; (vi) contracts or agreements with any
Governmental Entity. and (vii) all commitments and agreements to enter into
any of the foregoing (collectively, together with any such contracts entered
into in accordance with Section 4.1 hereof, the "HSNS Contracts"). HSNS is
not a party to or bound by any severance, golden parachute or other agreement
with any employee or consultant pursuant to which such person would be
entitled to receive any additional compensation or an accelerated payment of
compensation as a result of the consummation of the transactions contemplated
hereby.
(b) Each of the HSNS Contracts is valid and enforceable in accordance
with its terms, and there is no default under any HSNS Contract so listed
either by HSNS or, to the knowledge of HSNS, by any other party thereto, and
no event has occurred that with the lapse of time or the giving of notice or
both would constitute a default thereunder by HSNS or, to the knowledge of
HSNS, any other party, in any such case in which such default or event could
reasonably be expected to have a Material Adverse Effect on HSNS.
(c) No party to any such HSNS Contract has given notice to HSNS of or
made a claim against HSNS with respect to any breach or default thereunder,
in any such case in which such breach or default could reasonably be expected
to have a Material Adverse Effect on HSNS.
ARTICLE 3
Representations and Warranties of JSJ
Except as set forth on the Disclosure Schedule delivered by JSJ to HSNS
(the "JSJ Disclosure Schedule"), JSJ hereby represents and warrants to HSNS
as follows:
Section 3.1. Organization and Qualification.
(a) Each of JSJ and its subsidiaries is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation
or organization and has all requisite power and authority to own, lease and
operate its properties and to carry on its businesses as now being conducted,
except where the failure to be so organized, existing and in good standing or
to have such power and authority would not have a Material Adverse Effect (as
defined below) on JSJ. When used in connection with JSJ, the term "Material
Adverse Effect'' means any change or effect (i) that is or is reasonably
likely to be materially adverse to the business, results of operations,
condition (financial or otherwise) or prospects of JSJ and its subsidiaries,
taken as a whole, other than any change or effect arising out of general
economic conditions unrelated to any businesses in which JSJ and its
subsidiaries are engaged, or (ii) that may impair the ability of JSJ to
consummate the transactions contemplated hereby.
<PAGE>
(b) JSJ has heretofore delivered to HSNS accurate and complete copies of
the Articles of Incorporation and Bylaws (or similar governing documents), as
currently in effect, of JSJ. Each of JSJ and its subsidiaries is duly
qualified or licensed and in good standing to do business in each
jurisdiction in which the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification or licensing
necessary except in such jurisdictions where the failure to be so duly
qualified or licensed and in good standing would not have a Material Adverse
Effect on JSJ.
Section 3.2. Capitalization of JSJ.
(a) As of April 18, 2000, the authorized capital stock of JSJ consists
of Fifty Million (50,000,000) JSJ common Shares, $0.0001 par value, of which
672,000 common Shares are issued and outstanding. All of the outstanding JSJ
Shares have been duly authorized and validly issued, and are fully paid,
nonassessable and free of preemptive rights.
(b) Except as set forth in Section 3.2(b) of the JSJ Disclosure
Schedule, JSJ is the record and beneficial owner of all of the issued and
outstanding shares of capital stock of its subsidiaries.
(c) Except as set forth in Section 3.2(c) of the JSJ Disclosure
Schedule, between December 31, 1999 and the date hereof, no shares of JSJ's
capital stock have been issued and no JSJ Stock options have been granted.
Except as set forth in Section 3.2(a) above, as of the date hereof, there are
no outstanding (i) shares of capital stock or other voting securities of JSJ,
(ii) securities of JSJ or its subsidiaries convertible into or exchangeable
for shares of capital stock or voting securities of JSJ, (iii) options or
other rights to acquire from JSJ or its subsidiaries, or obligations of JSJ
or its subsidiaries to issue, any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting
securities of JSJ, or (iv) equity equivalents, interests in the ownership or
earnings of JSJ or its subsidiaries or other similar rights (collectively,
"JSJ Securities"). As of the date hereof, there are no outstanding
obligations of JSJ or any of its subsidiaries to repurchase, redeem or
otherwise acquire any JSJ Securities. There are no stockholder agreements,
voting trusts or other agreements or understandings to which JSJ is a party
or by which it is bound relating to the voting or registration of any shares
of capital stock of JSJ.
(d) Except as set forth in Section 3.2(d) of the JSJ Disclosure
Schedule, there are no securities of JSJ convertible into or exchangeable
for, no options or other rights to acquire from JSJ, and no other contract,
understanding, arrangement or obligation (whether or not contingent)
providing for the issuance or sale, directly or indirectly, of any capital
stock or other ownership interests in, or any other securities of, any
subsidiary of JSJ.
(e) The JSJ Shares constitute the only class of equity securities of JSJ
or its subsidiaries.
(f) Except as set forth in Section 3.2(f) of the JSJ Disclosure
Schedule, JSJ does not own directly or indirectly more than fifty percent
(50%) of the outstanding voting securities or interests (including membership
interests) of any entity.
Section 3.3. Authority Relative to this Agreement; Recommendation.
(a) JSJ has all necessary corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly and validly authorized by
the Board of Directors of JSJ (the "JSJ Board"), and no other corporate
proceedings on the part of JSJ are necessary to authorize this Agreement or
to consummate the transactions contemplated hereby, except, as referred to in
Section 3.17, the approval and adoption of this Agreement by the holders of
at least a majority of the then outstanding JSJ Shares. This Agreement has
been duly and validly executed and delivered by JSJ and constitutes a valid,
legal and binding agreement of JSJ, enforceable against JSJ in accordance
with its terms.
(b) The JSJ Board has resolved to recommend that the stockholders of JSJ
approve and adopt this Agreement.
<PAGE>
Section 3.4. SEC Reports; Financial Statements.
(a) JSJ has filed all required forms, reports and documents with the
Securities and Exchange Commission (the "SEC") since January 26, 2000, each
of which has complied in all material respects with all applicable
requirements of the Securities Act of 1933, as amended (the "Securities
Act"), and the Exchange Act (and the rules and regulations promulgated
thereunder, respectively), each as in effect on the dates such forms, reports
and documents were filed. JSJ has heretofore delivered or promptly will
deliver prior to the Effective Date to JSJ, in the form filed with the SEC
(including any amendments thereto but excluding any exhibits), (i) its
initial Registration Statement on Form 10SB12G filed January 26, 2000, (ii)
all definitive proxy statements relating to JSJ's meetings of stockholders
(whether annual or special) held since January 26, 2000, if any, and (iii)
all other reports or registration statements filed by JSJ with the SEC since
January 26, 2000 (all of the foregoing, collectively, the "JSJ SEC Reports").
None of such JSJ SEC Reports, including, without limitation, any financial
statements or schedules included or incorporated by reference therein,
contained, when filed, any untrue statement of a material fact or omitted to
state a material fact required to be stated or incorporated by reference
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
financial statements of JSJ included in the JSJ SEC Reports fairly present,
in conformity with generally accepted accounting principles applied on a
consistent basis (except as may be indicated in the notes thereto), the
financial position of JSJ as of the dates thereof and its results of
operations and changes in financial position for the periods then ended. All
material agreements, contracts and other documents required to be filed as
exhibits to any of the JSJ SEC Reports have been so filed.
(b) JSJ has heretofore made available or promptly will make available to
HSNS a complete and correct copy of any amendments or modifications which are
required to be filed with the SEC but have not yet been filed with the SEC,
to agreements, documents or other instruments which previously had been filed
by JSJ with the SEC pursuant to the Exchange Act.
Section 3.5. Information Supplied. None of the information supplied or
to be supplied by JSJ for inclusion or incorporation by reference to the 8-K
will, at the time the 8-K is filed with the SEC and at the time it becomes
effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading.
Section 3.6. Consents and Approvals; No Violations. Except as set forth
in Section 3.6 of the JSJ Disclosure Schedule, and for filings, permits,
authorizations, consents and approvals as may be required under, and other
applicable requirements of, the Securities Act, the Exchange Act, state
securities or blue sky laws, the HSR Act, the rules of the NASD, and the
filing and recordation of the Merger Certificate as required by the NGCL, no
filing with or notice to, and no permit, authorization, consent or approval
of, any Governmental Entity is necessary for the execution and delivery by
JSJ of this Agreement or the consummation by JSJ of the transactions
contemplated hereby, except where the failure to obtain such permits,
authorizations consents or approvals or to make such filings or give such
notice would not have a Material Adverse Effect on JSJ.
Neither the execution, delivery and performance of this Agreement by JSJ
nor the consummation by JSJ of the transactions contemplated hereby will (i)
conflict with or result in any breach of any provision of the respective
Articles of Incorporation or Bylaws (or similar governing documents) of JSJ
or any of JSJ's subsidiaries, (ii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default
(or give rise to any right of termination, amendment, cancellation or
acceleration or Lien) under, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, lease, license, contract, agreement or
other instrument or obligation to which JSJ or any of JSJ's subsidiaries is a
party or by which any of them or any of their respective properties or assets
may be bound or (iii) violate any order, writ, injunction, decree, law,
statute, rule or regulation applicable to JSJ or any of JSJ's subsidiaries or
any of their respective properties or assets, except in the case of (ii) or
(iii) for violations, breaches or defaults which would not have a Material
Adverse Effect on JSJ.
Section 3.7. No Default. None of JSJ or any of its subsidiaries is in
breach, default or violation (and no event has occurred which with notice or
the lapse of time or both would constitute a breach, default or violation) of
any term, condition or provision of (i) its Articles of Incorporation or
Bylaws (or similar governing documents), (ii) any note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument or
obligation to which JSJ or any of its subsidiaries is now a party or by which
any of them or any of their respective properties or assets may be bound or
(iii) any order, writ, injunction, decree, law, statute, rule or regulation
applicable to JSJ, its subsidiaries or any of their respective properties or
assets, except in the case of (ii) or (iii) for violations, breaches or
<PAGE>
defaults that would not have a Material Adverse Effect on JSJ. Each note,
bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which JSJ or any of its subsidiaries is now a
party or by which any of them or any of their respective properties or assets
may be bound that is material to JSJ and its subsidiaries taken as a whole
and that has not expired is in full force and effect and is not subject to
any material default thereunder of which JSJ is aware by any party obligated
to JSJ or any subsidiary thereunder.
Section 3.8. No Undisclosed Liabilities; Absence of Changes. Except as
set forth in Section 2.8 of the JSJ Disclosure Schedule and except as and to
the extent publicly disclosed by JSJ in the JSJ SEC Reports, as of December
31, 1999, JSJ does not have any liabilities or obligations of any nature,
whether or not accrued, contingent or otherwise, that would be required by
generally accepted accounting principles to be reflected on a balance sheet
of JSJ (including the notes thereto) or which would have a Material Adverse
Effect on JSJ. Except as publicly disclosed by JSJ, since December 31, 1999,
JSJ has not incurred any liabilities of any nature, whether or not accrued,
contingent or otherwise, which could reasonably be expected to have, and
there have been no events, changes or effects with respect to JSJ having or
which reasonably could be expected to have, a Material Adverse Effect on JSJ.
Except as and to the extent publicly disclosed by JSJ in the JSJ SEC Reports
and except as set forth in Section 2.8 of the JSJ Disclosure Schedule, since
December 31, 1999, there has not been (i) any material change by JSJ in its
accounting methods, principles or practices (other than as required after the
date hereof by concurrent changes in generally accepted accounting
principles), (ii) any revaluation by JSJ of any of its assets having a
Material Adverse Effect on JSJ, including, without limitation, any write-down
of the value of any assets other than in the ordinary course of business or
(iii) any other action or event that would have required the consent of any
other party hereto pursuant to Section 4.1 of this Agreement had such action
or event occurred after the date of this Agreement.
Section 3.9. Litigation. Except as publicly disclosed by JSJ in the JSJ
SEC Reports, there is no suit, claim, action, proceeding or investigation
pending or, to the knowledge of JSJ, threatened against JSJ or any of its
subsidiaries or any of their respective properties or assets before any
Governmental Entity which, individually or in the aggregate, could reasonably
be expected to have a Material Adverse Effect on JSJ or could reasonably be
expected to prevent or delay the consummation of the transactions
contemplated by this Agreement. Except as publicly disclosed by JSJ in the
JSJ SEC Reports, JSJ is not subject to any outstanding order, writ,
injunction or decree which, insofar as can be reasonably foreseen in the
future, could reasonably be expected to have a Material Adverse Effect on JSJ
or could reasonably be expected to prevent or delay the consummation of the
transactions contemplated hereby.
Section 3.10. Compliance with Applicable Law. Except as publicly
disclosed by JSJ in the JSJ SEC Reports, JSJ holds all permits, licenses,
variances, exemptions, orders and approvals of all Governmental Entities
necessary for the lawful conduct of their respective businesses (the `'JSJ
Permits"), except for failures to hold such permits, licenses, variances,
exemptions, orders and approvals which would not have a Material Adverse
Effect on JSJ. Except as publicly disclosed by JSJ in the JSJ SEC Reports,
JSJ is in compliance with the terms of the JSJ Permits, except where the
failure so to comply would not have a Material Adverse Effect on JSJ. Except
as publicly disclosed by JSJ in the JSJ SEC Reports, the business of JSJ is
not being conducted in violation of any law, ordinance or regulation of any
Governmental Entity except that no representation or warranty is made in this
Section 2.10 with respect to Environmental Laws (as defined in Section 2.12
below) and except for violations or possible violations which do not, and,
insofar as reasonably can be foreseen, in the future will not, have a
Material Adverse Effect on JSJ. Except as publicly disclosed by JSJ in the
JSJ SEC Reports, no investigation or review by any Governmental Entity with
respect to JSJ is pending or, to the knowledge of JSJ, threatened, nor, to
the knowledge of JSJ, has any Governmental Entity indicated an intention to
conduct the same, other than, in each case, those which JSJ reasonably
believes will not have a Material Adverse Effect on JSJ.
Section 3.11. Employee Benefit Plans; Labor Matters.
(a) With respect to each employee benefit plan, program, policy,
arrangement and contract (including, without limitation, any "employee
benefit plan," as defined in Section 3(3) of ERISA), maintained or
contributed to at any time by JSJ, any of its subsidiaries or any entity
required to be aggregated with JSJ or any of its subsidiaries pursuant to
<PAGE>
Section 414 of the Code (each, a "JSJ Employee Plan"), no event has occurred
and, to the knowledge of JSJ, no condition or set of circumstances exists in
connection with which JSJ or any of its subsidiaries could reasonably be
expected to be subject to any liability which would have a Material Adverse
Effect on JSJ.
(b) (i) No JSJ Employee Plan is or has been subject to Title IV of ERISA
or Section 412 of the Code; and (ii) each JSJ Employee Plan intended to
qualify under Section 401(a) of the Code and each trust intended to qualify
under Section 501(a) of the Code is the subject of a favorable Internal
Revenue Service determination letter, and nothing has occurred which could
reasonably be expected to adversely affect such determination.
(c) Section 3.11(c) of the JSJ Disclosure Schedule sets forth a true and
complete list, as of the date of this Agreement, of each person who holds any
JSJ Stock Options, together with the number of JSJ Shares which are subject
to such option, the date of grant of such option, the extent to which such
option is vested (or will become vested as a result of the Merger), the
option price of such option (to the extent determined as of the date hereof),
whether such option is a nonqualified stock option or is intended to qualify
as an incentive stock option within the meaning of Section 422(b) of the
Code, and the expiration date of such option. Section 3.11(c) of the JSJ
Disclosure Schedule also sets forth the total number of such incentive stock
options and such nonqualified options. JSJ has furnished HSNS with complete
copies of the plans pursuant to which the JSJ Stock Options were issued.
Other than the automatic vesting of JSJ Stock Options that may occur without
any action on the part of JSJ or its officers or directors, JSJ has not taken
any action that would result in any JSJ Stock Options that are unvested
becoming vested in connection with or as a result of the execution and
delivery of this Agreement or the consummation of the transactions
contemplated hereby.
(d) JSJ has made available to HSNS (i) a description of the terms of
employment and compensation arrangements of all officers of JSJ and a copy of
each such agreement currently in effect; (ii) copies of all agreements with
consultants who are individuals obligating JSJ to make annual cash payments
in an amount exceeding $60,000; (iii) a schedule listing all officers of JSJ
who have executed a non-competition agreement with JSJ and a copy of each
such agreement currently in effect; (iv) copies (or descriptions) of all
severance agreements, programs and policies of JSJ with or relating to its
employees, except programs and policies required to be maintained by law; and
(v) copies of all plans, programs, agreements and other arrangements of the
JSJ with or relating to its employees which contain change in control
provisions.
(e) Except as disclosed in Section 3.11(e) of the JSJ Disclosure
Schedule there shall be no payment, accrual of additional benefits,
acceleration of payments, or vesting in any benefit under any JSJ Employee
Plan or any agreement or arrangement disclosed under this Section 3.11 solely
by reason of entering into or in connection with the transactions
contemplated by this Agreement.
(f) There are no controversies pending or, to the knowledge of JSJ
threatened, between JSJ or any of its subsidiaries and any of their
respective employees, which controversies have or could reasonably be
expected to have a Material Adverse Effect on JSJ. Neither JSJ nor any of its
subsidiaries is a party to any collective bargaining agreement or other labor
union contract applicable to persons employed by JSJ or any of its
subsidiaries (and neither JSJ nor any of its subsidiaries has any outstanding
material liability with respect to any terminated collective bargaining
agreement or labor union contract), nor does JSJ know of any activities or
proceedings of any labor union to organize any of its or any of its
subsidiaries' employees. JSJ has no knowledge of any strike, slowdown, work
stoppage, lockout or threat thereof by or with respect to any of its or any
of its subsidiaries' employees.
Section 3.12. Environmental Laws and Regulations.
(a) Except as disclosed by JSJ, (i) each of JSJ and its subsidiaries is
in material compliance with all Environmental Laws, except for non-compliance
that would not have a Material Adverse Effect on JSJ, which compliance
includes, but is not limited to, the possession by JSJ and its subsidiaries
of all material permits and other governmental authorizations required under
applicable Environmental Laws, and compliance with the terms and conditions
thereof; (ii) none of JSJ or its subsidiaries has received written notice of,
or, to the knowledge of JSJ, is the subject of, any Environmental Claim that
could reasonably be expected to have a Material Adverse Effect on JSJ; and
(iii) to the knowledge of JSJ, there are no circumstances that are reasonably
likely to prevent or interfere with such material compliance in the future.
<PAGE>
(b) Except as disclosed by JSJ, there are no Environmental Claims which
could reasonably be expected to have a Material Adverse Effect on JSJ that
are pending or, to the knowledge of JSJ, threatened against JSJ or any of its
subsidiaries or, to the knowledge of JSJ, against any person or entity whose
liability for any Environmental Claim JSJ or its subsidiaries has or may have
retained or assumed either contractually or by operation of law.
Section 3.13. Tax Matters. Except as set forth in Section 3.13 of the
JSJ Disclosure Schedule: (i) JSJ and each of its subsidiaries has filed or
has had filed on its behalf in a timely manner (within any applicable
extension periods) with the appropriate Governmental Entity all income and
other material Tax Returns with respect to Taxes of JSJ and each of its
subsidiaries and all Tax Returns were in all material respects true, complete
and correct; (ii) all material Taxes with respect to JSJ and each of its
subsidiaries have been paid in full or have been provided for in accordance
with GAAP on JSJ's most recent balance sheet which is part of the JSJ SEC
Documents; (iii) there are no outstanding agreements or waivers extending the
statutory period of limitations applicable to any federal, state, local or
foreign income or other material Tax Returns required to be filed by or with
respect to JSJ or its subsidiaries; (iv) to the knowledge of JSJ none of the
Tax Returns of or with respect to JSJ or any of its subsidiaries is currently
being audited or examined by any Governmental Entity; and (v) no deficiency
for any income or other material Taxes has been assessed with respect to JSJ
or any of its subsidiaries which has not been abated or paid in full.
Section 3.14. Title to Property. JSJ and each of its subsidiaries have
good and defensible title to all of their properties and assets, free and
clear of all liens, charges and encumbrances except liens for taxes not yet
due and payable and such liens or other imperfections of title, if any, as do
not materially detract from the value of or interfere with the present use of
the property affected thereby or which, individually or in the aggregate,
would not have a Material Adverse Effect on JSJ; and, to JSJ's knowledge, all
leases pursuant to which JSJ or any of its subsidiaries lease from others
real or personal property are in good standing, valid and effective in
accordance with their respective terms, and there is not, to the knowledge of
JSJ, under any of such leases, any existing material default or event of
default (or event which with notice or lapse of time, or both, would
constitute a material default and in respect of which JSJ or such subsidiary
has not taken adequate steps to prevent such a default from occurring) except
where the lack of such good standing, validity and effectiveness, or the
existence of such default or event of default would not have a Material
Adverse Effect on JSJ.
Section 3.15. Intellectual Property.
(a) Each of JSJ and its subsidiaries owns, or possesses adequate
licenses or other valid rights to use, all existing United States and foreign
patents, trademarks, trade names, services marks, copyrights, trade secrets,
and applications therefore that are material to its business as currently
conducted (the "JSJ Intellectual Property Rights").
(b) Except as set forth in Section 3.15(b) of the JSJ Disclosure
Schedule the validity of the JSJ Intellectual Property Rights and the title
thereto of JSJ or any subsidiary, as the case may be, is not being questioned
in any litigation to which JSJ or any subsidiary is a party.
(c) The conduct of the business of JSJ and its subsidiaries as now
conducted does not, to JSJ's knowledge, infringe any valid patents,
trademarks, tradenames, service marks or copyrights of others. The
consummation of the transactions contemplated hereby will not result in the
loss or impairment of any JSJ Intellectual Property Rights.
(d) Each of JSJ and its subsidiaries has taken steps it believes
appropriate to protect and maintain its trade secrets as such, except in
cases where JSJ has elected to rely on patent or copyright protection in lieu
of trade secret protection.
Section 3.16. Insurance. JSJ currently does not maintain general
liability and other business insurance.
Section 3.17. Vote Required. The affirmative vote of the holders of at
least a majority of the outstanding JSJ Shares is the only vote of the
holders of any class or series of JSJ's capital stock necessary to approve
and adopt this Agreement and the Merger.
<PAGE>
Section 3.18. Tax Treatment. Neither JSJ nor, to the knowledge of JSJ,
any of its affiliates has taken or agreed to take any action that would
prevent the Merger from constituting a reorganization qualifying under the
provisions of Section 368(a) of the Code.
Section 3.19. Affiliates. Except for the directors and executive
officers of JSJ, each of whom is listed in Section 3.19 of the JSJ Disclosure
Schedule, there are no persons who, to the knowledge of JSJ, may be deemed to
be affiliates of JSJ under Rule 1-02(b) of Regulation S-X of the SEC (the
"JSJ Affiliates").
Section 3.20. Certain Business Practices. None of JSJ, any of its
subsidiaries or any directors, officers, agents or employees of JSJ or any of
its subsidiaries has (i) used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity, (ii)
made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns or
violated any provision of the FCPA, or (iii) made any other unlawful payment.
Section 3.21. Insider Interests. Except as set forth in Section 3.21 of
the JSJ Disclosure Schedule, no officer or director of JSJ has any interest
in any material property, real or personal, including without limitation, any
computer software or JSJ Intellectual Property Rights, used in or pertaining
to the business of JSJ or any subsidiary, except for the ordinary rights of a
stockholder or employee stock optionholder.
Section 3.22. Opinion of Financial Adviser. No advisers, as of the date
hereof, have delivered to the JSJ Board a written opinion to the effect that,
as of such date, the exchange ratio contemplated by the Merger is fair to the
holders of JSJ Shares.
Section 3.23. Brokers. No broker, finder or investment banker (other
than the JSJ Financial Adviser, a true and correct copy of whose engagement
agreement has been provided to HSNS) is entitled to any brokerage, finders or
other fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of JSJ.
Section 3.24. Disclosure. No representation or warranty of JSJ in this
Agreement or any certificate, schedule, document or other instrument
furnished or to be furnished to HSNS pursuant hereto or in connection
herewith contains, as of the date of such representation, warranty or
instrument, or will contain any untrue statement of a material fact or, at
the date thereof, omits or will omit to state a material fact necessary to
make any statement herein or therein, in light of the circumstances under
which such statement is or will be made, not misleading.
Section 3.25. No Existing Discussions. As of the date hereof, JSJ is not
engaged, directly or indirectly, in any discussions or negotiations with any
other party with respect to any Third Party Acquisition (as defined in
Section 5.4).
Section 3.26. Material Contracts.
(a) JSJ has delivered or otherwise made available to HSNS true, correct
and complete copies of all contracts and agreements (and all amendments,
modifications and supplements thereto and all side letters to which JSJ is a
party affecting the obligations of any party thereunder) to which JSJ or any
of its subsidiaries is a party or by which any of their properties or assets
are bound that are, material to the business, properties or assets of JSJ and
its subsidiaries taken as a whole, including, without limitation, to the
extent any of the following are, individually or in the aggregate, material
to the business, properties or assets of JSJ and its subsidiaries taken as a
whole, all: (i) employment, product design or development, personal services,
consulting, non-competition, severance, golden parachute or indemnification
contracts (including, without limitation, any contract to which JSJ is a
party involving employees of JSJ); (ii) licensing, publishing, merchandising
or distribution agreements; (iii) contracts granting rights of first refusal
or first negotiation; (iv) partnership or joint venture agreements; (v)
agreements for the acquisition, sale or lease of material properties or
assets or stock or otherwise. (vi) contracts or agreements with any
Governmental Entity; and (vii) all commitments and agreements to enter into
any of the foregoing (collectively, together with any such contracts entered
into in accordance with Section 5.2 hereof, the `JSJ Contracts"). Neither JSJ
nor any of its subsidiaries is a party to or bound by any severance, golden
parachute or other agreement with any employee or consultant pursuant to
which such person would be entitled to receive any additional compensation or
an accelerated payment of compensation as a result of the consummation of the
transactions contemplated hereby.
<PAGE>
(b) Each of the JSJ Contracts is valid and enforceable in accordance
with its terms, and there is no default under any JSJ Contract so listed
either by JSJ or, to the knowledge of JSJ, by any other party thereto, and no
event has occurred that with the lapse of time or the giving of notice or
both would constitute a default thereunder by JSJ or, to the knowledge of
JSJ, any other party, in any such case in which such default or event could
reasonably be expected to have a Material Adverse Effect on JSJ.
(c) No party to any such JSJ Contract has given notice to JSJ of or made
a claim against JSJ with respect to any breach or default thereunder, in any
such case in which such breach or default could reasonably be expected to
have a Material Adverse Effect on JSJ.
ARTICLE 4
Covenants
Section 4.1. Conduct of Business of HSNS. Except as contemplated by this
Agreement or as described in Section 4.1 of the HSNS Disclosure Schedule,
during the period from the date hereof to the Effective Time, HSNS will
conduct its operations in the ordinary course of business consistent with
past practice and, to the extent consistent therewith, with no less diligence
and effort than would be applied in the absence of this Agreement, seek to
preserve intact its current business organization, keep available the service
of its current officers and employees and preserve its relationships with
customers, suppliers and others having business dealings with it to the end
that goodwill and ongoing businesses shall be unimpaired at the Effective
Time. Without limiting the generality of the foregoing, except as otherwise
expressly provided in this Agreement or as described in Section 4.1 of the
HSNS Disclosure Schedule, prior to the Effective Time, HSNS will not, without
the prior written consent of JSJ:
(a) amend its Articles of Incorporation or Bylaws (or other similar
governing instrument);
(b) amend the terms of any stock of any class or any other securities
(except bank loans) or equity equivalents.
(c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its capital
stock, make any other actual, constructive or deemed distribution in respect
of its capital stock or otherwise make any payments to stockholders in their
capacity as such, or redeem or otherwise acquire any of its securities;
(d) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization of HSNS (other than the Merger);
(e) (i) incur or assume any long-term or short-term debt or issue any
debt securities except for borrowings or issuances of letters of credit under
existing lines of credit in the ordinary course of business; (ii) assume,
guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations of any other person.
(iii) make any loans, advances or capital contributions to, or investments
in, any other person; (iv) pledge or otherwise encumber shares of capital
stock of HSNS; or (v) mortgage or pledge any of its material assets, or
create or suffer to exist any material Lien thereupon (other than tax Liens
for taxes not yet due);
(f) except as may be required by law, enter into, adopt or amend or
terminate any bonus, profit sharing, compensation, severance, termination,
stock option, stock appreciation right, restricted stock, performance unit,
stock equivalent, stock purchase agreement, pension, retirement, deferred
compensation, employment, severance or other employee benefit agreement,
trust, plan, fund or other arrangement for the benefit or welfare of any
director, officer or employee in any manner, or increase in any manner the
compensation or fringe benefits of any director, officer or employee or pay
any benefit not required by any plan and arrangement as in effect as of the
date hereof (including, without limitation, the granting of stock
appreciation rights or performance units); provided, however, that this
paragraph (f) shall not prevent HSNS from (i) entering into employment
<PAGE>
agreements or severance agreements with employees in the ordinary course of
business and consistent with past practice or (ii) increasing annual
compensation and/or providing for or amending bonus arrangements for
employees for fiscal 2000 in the ordinary course of year-end compensation
reviews consistent with past practice and paying bonuses to employees for
fiscal 2000 in amounts previously disclosed to JSJ (to the extent that such
compensation increases and new or amended bonus arrangements do not result in
a material increase in benefits or compensation expense to HSNS);
(g) acquire, sell, lease or dispose of any assets in any single
transaction or series of related transactions (other than in the ordinary
course of business);
(h) except as may be required as a result of a change in law or in
generally accepted accounting principles, change any of the accounting
principles or practices used by it;
(i) revalue in any material respect any of its assets including, without
limitation, writing down the value of inventory or writing-off notes or
accounts receivable other than in the ordinary course of business;
(j) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof or any equity interest therein; (ii) enter into any contract
or agreement other than in the ordinary course of business consistent with
past practice which would be material to HSNS; (iii) authorize any new
capital expenditure or expenditures which, individually is in excess of
$1,000 or, in the aggregate, are in excess of $5,000; provided, however that
none of the foregoing shall limit any capital expenditure required pursuant
to existing contracts;
(k) make any tax election or settle or compromise any income tax
liability material to HSNS;
(l) settle or compromise any pending or threatened suit, action or claim
which (i) relates to the transactions contemplated hereby or (ii) the
settlement or compromise of which could have a Material Adverse Effect on
HSNS;
(m) commence any material research and development project or terminate
any material research and development project that is currently ongoing, in
either case, except pursuant to the terms of existing contracts or in the
ordinary course of business; or
(n) take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.1(a) through 4.1(m) or any action which would make
any of the representations or warranties of contained in this Agreement
untrue or incorrect.
Section 4.2. Conduct of Business of JSJ. Except as contemplated by this
Agreement or as described in Section 4.2 of the JSJ Disclosure Schedule
during the period from the date hereof to the Effective Time, JSJ will
conduct its operations in the ordinary course of business consistent with
past practice and, to the extent consistent therewith, with no less diligence
and effort than would be applied in the absence of this Agreement, seek to
preserve intact its current business organization, keep available the service
of its current officers and employees and preserve its relationships with
customers, suppliers and others having business dealings with it to the end
that goodwill and ongoing businesses shall be unimpaired at the Effective
Time. Without limiting the generality of the foregoing, except as otherwise
expressly provided in this Agreement or as described in Section 4.2 of the
JSJ Disclosure Schedule, prior to the Effective Time, JSJ will not, without
the prior written consent of:
(a) amend its Articles of Incorporation or Bylaws (or other similar
governing instrument);
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any
stock of any class or any other securities (except bank loans) or equity
equivalents (including, without limitation, any stock options or stock
appreciation rights;
(c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its capital
stock, make any other actual, constructive or deemed distribution in respect
of its capital stock or otherwise make any payments to stockholders in their
capacity as such, or redeem or otherwise acquire any of its securities;
<PAGE>
(d) adopt a plan of complete or partial liquidation, dissolution, merger
consolidation, restructuring, recapitalization or other reorganization of JSJ
(other than the Merger);
(e) (i) incur or assume any long-term or short-term debt or issue any
debt securities except for borrowings or issuances of letters of credit under
existing lines of credit in the ordinary course of business. (ii) assume,
guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations of any other person;
(iii) make any loans, advances or capital contributions to or investments in,
any other person; (iv) pledge or otherwise encumber shares of capital stock
of JSJ or its subsidiaries; or (v) mortgage or pledge any of its material
assets, or create or suffer to exist any material Lien thereupon (other than
tax Liens for taxes not yet due);
(f) except as may be required by law, enter into, adopt or amend or
terminate any bonus, profit sharing, compensation, severance, termination,
stock option, stock appreciation right, restricted stock, performance unit
stock equivalent, stock purchase agreement, pension, retirement, deferred
compensation, employment, severance or other employee benefit agreement,
trust, plan, fund or other arrangement for the benefit or welfare of any
director, officer or employee in any manner, or increase in any manner the
compensation or fringe benefits of any director, officer or employee or pay
any benefit not required by any plan and arrangement as in effect as of the
date hereof (including, without limitation, the granting of stock
appreciation rights or performance units); provided, however, that this
paragraph (f) shall not prevent JSJ or its subsidiaries from (i) entering
into employment agreements or severance agreements with employees in the
ordinary course of business and consistent with past practice or (ii)
increasing annual compensation and/or providing for or amending bonus
arrangements for employees for fiscal 2000 in the ordinary course of yearend
compensation reviews consistent with past practice and paying bonuses to
employees for fiscal 2000 in amounts previously disclosed to (to the extent
that such compensation increases and new or amended bonus arrangements do not
result in a material increase in benefits or compensation expense to JSJ);
(g) acquire, sell, lease or dispose of any assets in any single
transaction or series of related transactions other than in the ordinary
course of business;
(h) except as may be required as a result of a change in law or in
generally accepted accounting principles, change any of the accounting
principles or practices used by it;
(i) revalue in any material respect any of its assets, including,
without limitation, writing down the value of inventory of writing-off notes
or accounts receivable other than in the ordinary course of business;
(j) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership, or other business organization or
division thereof or any equity interest therein; (ii) enter into any contract
or agreement other than in the ordinary course of business consistent with
past practice which would be material to JSJ; (iii) authorize any new capital
expenditure or expenditures which, individually, is in excess of $1,000 or,
in the aggregate, are in excess of $5,000: provided, however that none of the
foregoing shall limit any capital expenditure required pursuant to existing
contracts;
(k) make any tax election or settle or compromise any income tax
liability material to JSJ and its subsidiaries taken as a whole;
(l) settle or compromise any pending or threatened suit, action or claim
which (i) relates to the transactions contemplated hereby or (ii) the
settlement or compromise of which could have a Material Adverse Effect on
JSJ;
(m) commence any material research and development project or terminate
any material research and development project that is currently ongoing, in
either case, except pursuant to the terms of existing contracts or except in
the ordinary course of business; or
(n) take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.2(a) through 4.2(m) or any action which would make
any of the representations or warranties of the JSJ contained in this
Agreement untrue or incorrect.
<PAGE>
Section 4.3. Preparation of 8-K. JSJ and HSNS shall promptly prepare
and file with the SEC an 8-K disclosing this merger with audited financials
of HSNS along with pro forma combined statements.
Section 4.4. Other Potential Acquirers.
(a) JSJ, its affiliates and their respective officers, directors,
employees, representatives and agents shall immediately cease any existing
discussions or negotiations, if any, with any parties conducted heretofore
with respect to any Third Party Acquisition.
Section 4.5. Meetings of Stockholders. JSJ shall take all action
necessary, in accordance with the respective General Corporation Law of its
respective state, and its respective Articles of Incorporation and bylaws, to
duly call, give notice of, convene and hold a meeting of its stockholders as
promptly as practicable, to consider and vote upon the adoption and approval
of this Agreement and the transactions contemplated hereby. The stockholder
votes required for the adoption and approval of the transactions contemplated
by this Agreement. JSJ will, through its Boards of Directors, recommend to
their respective stockholders approval of such matters
Section 4.6. NASD OTC:BB Listing. The parties shall use all reasonable
efforts to cause the HSNS Shares, subject to Rule 144, to be traded on the
Over-The-Counter Bulletin Board (OTC:BB).
Section 4.7. Access to Information.
(a) Between the date hereof and the Effective Time, HSNS will give JSJ
and its authorized representatives, and JSJ will give HSNS and its authorized
representatives, reasonable access to all employees, plants, offices,
warehouses and other facilities and to all books and records of itself and
its subsidiaries, will permit the other party to make such inspections as
such party may reasonably require and will cause its officers and those of
its subsidiaries to furnish the other party with such financial and operating
data and other information with respect to the business and properties of
itself and its subsidiaries as the other party may from time to time
reasonably request.
(b) Between the date hereof and the Effective Time, HSNS shall furnish
to JSJ, and JSJ will furnish to HSNS, within 25 business days after the end
of each quarter, quarterly statements prepared by such party in conformity
with its past practices) as of the last day of the period then ended.
(c) Each of the parties hereto will hold and will cause its consultants
and advisers to hold in confidence all documents and information furnished to
it in connection with the transactions contemplated by this Agreement.
Section 4.8. Additional Agreements, Reasonable Efforts. Subject to the
terms and conditions herein provided, each of the parties hereto agrees to
use all reasonable efforts to take, or cause to be taken, all action, and to
do, or cause to be done, all things reasonably necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including, without limitation,
(i) cooperating in the preparation and filing of the 8-K, any filings that
may be required under the HSR Act, and any amendments to any thereof; (ii)
obtaining consents of all third parties and Governmental Entities necessary,
proper or advisable for the consummation of the transactions contemplated by
this Agreement; (iii) contesting any legal proceeding relating to the Merger
and (iv) the execution of any additional instruments necessary to consummate
the transactions contemplated hereby. Subject to the terms and conditions of
this Agreement, JSJ and HSNS agree to use all reasonable efforts to cause the
Effective Time to occur as soon as practicable after the stockholder votes
with respect to the Merger. In case at any time after the Effective Time any
further action is necessary to carry out the purposes of this Agreement, the
proper officers and directors of each party hereto shall take all such
necessary action.
Section 4.9. Indemnification.
(a) To the extent, if any, not provided by an existing right under one
of the parties' directors and officers liability insurance policies, from and
after the Effective Time, HSNS shall, to the fullest extent permitted by
applicable law, indemnify, defend and hold harmless each person who is now,
or has been at any time prior to the date hereof, or who becomes prior to the
Effective Time, a director, officer or employee of the parties hereto or any
subsidiary thereof (each an "Indemnified Party" and, collectively, the
``Indemnified Parties") against all losses, expenses (including reasonable
attorneys' fees and expenses), claims, damages or liabilities or, subject to
the proviso of the next succeeding sentence, amounts paid in settlement
<PAGE>
arising out of actions or omissions occurring at or prior to the Effective
Time and whether asserted or claimed prior to, at or after the Effective
Time) that are in whole or in part (i) based on, or arising out of the fact
that such person is or was a director, officer or employee of such party or a
subsidiary of such party or (ii) based on, arising out of or pertaining to
the transactions contemplated by this Agreement. In the event of any such
loss expense, claim, damage or liability (whether or not arising before the
Effective Time), (i) HSNS shall pay the reasonable fees and expenses of
counsel selected by the Indemnified Parties, which counsel shall be
reasonably satisfactory to HSNS, promptly after statements therefore are
received and otherwise advance to such Indemnified Party upon request
reimbursement of documented expenses reasonably incurred, in either case to
the extent not prohibited by the NGCL or its Articles of Incorporation or
bylaws, (ii) HSNS will cooperate in the defense of any such matter and (iii)
any determination required to be made with respect to whether an Indemnified
Party's conduct complies with the standards set forth under the NGCL and
HSNS's Articles of Incorporation or bylaws shall be made by independent
counsel mutually acceptable to HSNS and the Indemnified Party; provided,
however, that HSNS shall not be liable for any settlement effected without
its written consent (which consent shall not be unreasonably withheld). The
Indemnified Parties as a group may retain only one law firm with respect to
each related matter except to the extent there is, in the opinion of counsel
to an Indemnified Party, under applicable standards of professional conduct,
c conflict on any significant issue between positions of any two or more
Indemnified Parties.
(b) In the event HSNS or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity or such consolidation or merger
or (ii) transfers all or substantially all of its properties and assets to
any person, then and in either such case, proper provision shall be made so
that the successors and assigns of HSNS shall assume the obligations set
forth in this Section 4.9.
(c) To the fullest extent permitted by law, from and after the Effective
Time, all rights to indemnification now existing in favor of the employees,
agents, directors or officers of HSNS and JSJ and their subsidiaries with
respect to their activities as such prior to the Effective Time, as provided
in HSNS's and JSJ's Articles of Incorporation or bylaws, in effect on the
date thereof or otherwise in effect on the date hereof, shall survive the
Merger and shall continue in full force and effect for a period of not less
than six years from the Effective Time.
(d) The provisions of this Section 4.9 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party, his or her
heirs and his or her representatives.
Section 4.10. Notification of Certain Matters. The parties hereto shall
give prompt notice to the other parties, of (i) the occurrence or
nonoccurrence of any event the occurrence or nonoccurrence of which would be
likely to cause any representation or warranty contained in this Agreement to
be untrue or inaccurate in any material respect at or prior to the Effective
Time, (ii) any material failure of such party to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder, (iii) any notice of, or other communication relating to, a default
or event which, with notice or lapse of time or both, would become a default,
received by such party or any of its subsidiaries subsequent to the date of
this Agreement and prior to the Effective Time, under any contract or
agreement material to the financial condition, properties, businesses or
results of operations of such party and its subsidiaries taken as a whole to
which such party or any of its subsidiaries is a party or is subject, (iv)
any notice or other communication from any third party alleging that the
consent of such third party is or may be required in connection with the
transactions contemplated by this Agreement, or (v) any material adverse
change in their respective financial condition, properties, businesses,
results of operations or prospects taken as a whole, other than changes
resulting from general economic conditions; provided, however, that the
delivery of any notice pursuant to this Section 4.10 shall not cure such
breach or non-compliance or limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
<PAGE>
ARTICLE 5
Conditions to Consummation of the Merger
Section 5.1. Conditions to Each Party's Obligations to Effect the
Merger. The respective obligations of each party hereto to effect the Merger
are subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) this Agreement shall have been approved and adopted by the requisite
vote of the stockholders of JSJ;
(b) this Agreement shall have been approved and adopted by the Board of
Directors of HSNS and JSJ;
(c) no statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or enforced by any
United States court or United States governmental authority which prohibits,
restrains, enjoins or restricts the consummation of the Merger;
(d) any waiting period applicable to the Merger under the HSR Act shall
have terminated or expired, and any other governmental or regulatory notices
or approvals required with respect to the transactions contemplated hereby
shall have been either filed or received; and
Section 5.2. Conditions to the Obligations of HSNS. The obligation of
HSNS to effect the Merger is subject to the satisfaction at or prior to the
Effective Time of the following conditions:
(a) the representations of JSJ contained in this Agreement or in any
other document delivered pursuant hereto shall be true and correct (except to
the extent that the breach thereof would not have a Material Adverse Effect
on JSJ) at and as of the Effective Time with the same effect as if made at
and as of the Effective Time (except to the extent such representations
specifically related to an earlier date, in which case such representations
shall be true and correct as of such earlier date), and at the Closing JSJ
shall have delivered to HSNS a certificate to that effect;
(b) each of the covenants and obligations of JSJ to be performed at or
before the Effective Time pursuant to the terms of this Agreement shall have
been duly performed in all material respects at or before the Effective Time
and at the Closing JSJ shall have delivered to HSNS a certificate to that
effect;
(d) JSJ shall have obtained the consent or approval of each person whose
consent or approval shall be required in order to permit the Merger as
relates to any obligation, right or interest of JSJ under any loan or credit
agreement, note, mortgage, indenture, lease or other agreement or instrument,
except those for which failure to obtain such consents and approvals would
not, in the reasonable opinion of HSNS, individually or in the aggregate,
have a Material Adverse Effect on JSJ;
(e) there shall have been no events, changes or effects with respect to
JSJ or its subsidiaries having or which could reasonably be expected to have
a Material Adverse Effect on JSJ; and
Section 5.3. Conditions to the Obligations of JSJ. The respective
obligations of JSJ to effect the Merger are subject to the satisfaction at or
prior to the Effective Time of the following conditions:
(a) the representations of HSNS contained in this Agreement or in any
other document delivered pursuant hereto shall be true and correct (except to
the extent that the breach thereof would not have a Material Adverse Effect
on HSNS) at and as of the Effective Time with the same effect as if made at
and as of the Effective Time (except to the extent such representations
specifically related to an earlier date, in which case such representations
shall be true and correct as of such earlier date), and at the Closing HSNS
shall have delivered to JSJ a certificate to that effect;
(b) each of the covenants and obligations of HSNS to be performed at or
before the Effective Time pursuant to the terms of this Agreement shall have
been duly performed in all material respects at or before the Effective Time
and at the Closing HSNS shall have delivered to JSJ a certificate to that
effect;
<PAGE>
(c) there shall have been no events, changes or effects with respect to
HSNS having or which could reasonably be expected to have a Material Adverse
Effect on HSNS.
ARTICLE 6
Termination; Amendment; Waiver
Section 6.1. Termination. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, whether
before or after approval and adoption of this Agreement by HSNS's or JSJ's
stockholders:
(a) by mutual written consent of HSNS and JSJ;
(b) by JSJ or HSNS if (i) any court of competent jurisdiction in the
United States or other United States Governmental Entity shall have issued a
final order, decree or ruling or taken any other final action restraining,
enjoining or otherwise prohibiting the Merger and such order, decree, ruling
or other action is or shall have become nonappealable or (ii) the Merger has
not been consummated by May 1, 2000; provided, however, that no party may
terminate this Agreement pursuant to this clause (ii) if such party's failure
to fulfill any of its obligations under this Agreement shall have been the
reason that the Effective Time shall not have occurred on or before said
date;
(c) by HSNS if (i) there shall have been a breach of any representation
or warranty on the part of JSJ set forth in this Agreement, or if any
representation or warranty of JSJ shall have become untrue, in either case
such that the conditions set forth in Section 5.2(a) would be incapable of
being satisfied by May 1, 2000 (or as otherwise extended), (ii) there shall
have been a breach by JSJ of any of their respective covenants or agreements
hereunder having a Material Adverse Effect on JSJ or materially adversely
affecting (or materially delaying) the consummation of the Merger, and JSJ,
as the case may be, has not cured such breach within 20 business days after
notice by HSNS thereof, provided that HSNS has not breached any of its
obligations hereunder, (iii) HSNS shall have convened a meeting of its
stockholders to vote upon the Merger and shall have failed to obtain the
requisite vote of its stockholders; or (iv) HSNS shall have convened a
meeting of its Board of Directors to vote upon the Merger and shall have
failed to obtain the requisite vote;
(d) by JSJ if (i) there shall have been a breach of any representation
or warranty on the part of HSNS set forth in this Agreement, or if any
representation or warranty of HSNS shall have become untrue, in either case
such that the conditions set forth in Section 5.3(a) would be incapable of
being satisfied by May 1, 2000 (or as otherwise extended), (ii) there shall
have been a breach by HSNS of its covenants or agreements hereunder having a
Material Adverse Effect on HSNS or materially adversely affecting (or
materially delaying) the consummation of the Merger, and HSNS, as the case
may be, has not cured such breach within twenty business days after notice by
JSJ thereof, provided that JSJ has not breached any of its obligations
hereunder, (iii) the HSNS Board shall have recommended to HSNS's stockholders
a Superior Proposal, (iv) the HSNS Board shall have withdrawn, modified or
changed its approval or recommendation of this Agreement or the Merger, or
hold a stockholders' meeting to vote upon the Merger, or shall have adopted
any resolution to effect any of the foregoing, (v) JSJ shall have convened a
meeting of its stockholders to vote upon the Merger and shall have failed to
obtain the requisite vote of its stockholders.
Section 6.2. Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 6.1, this Agreement shall
forthwith become void and have no effect, without any liability on the part
of any party hereto or its affiliates, directors, officers or stockholders,
other than the provisions of this Section 6.2 and Sections 4.7(c) and 6.3
hereof. Nothing contained in this Section 6.2 shall relieve any party from
liability for any breach of this Agreement.
Section 6.3. Fees and Expenses. Except as specifically provided in this
Section 6.3, each party shall bear its own expenses in connection with this
Agreement and the transactions contemplated hereby.
Section 6.4. Amendment. This Agreement may be amended by action taken by
HSNS and JSJ at any time before or after approval of the Merger by the
stockholders of HSNS and JSJ (if required by applicable law) but, after any
such approval, no amendment shall be made which requires the approval of such
stockholders under applicable law without such approval. This Agreement may
not be amended except by an instrument in writing signed on behalf of the
parties hereto.
<PAGE>
Section 6.5. Extension; Waiver. At any time prior to the Effective Time,
each party hereto may (i) extend the time for the performance of any of the
obligations or other acts of any other party, (ii) waive any inaccuracies in
the representations and warranties of any other party contained herein or in
any document, certificate or writing delivered pursuant hereto or (iii) waive
compliance by any other party with any of the agreements or conditions
contained herein. Any agreement on the part of any party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party hereto to
assert any of its rights hereunder shall not constitute a waiver of such
rights.
ARTICLE 7
Miscellaneous
Section 7.1. Nonsurvival of Representations and Warranties. The
representations and warranties made herein shall not survive beyond the
Effective Time or a termination of this Agreement. This Section 7.1 shall not
limit any covenant or agreement of the parties hereto which by its terms
requires performance after the Effective Time.
Section 7.2. Entire Agreement; Assignment. This Agreement (a)
constitutes the entire agreement between the parties hereto with respect to
the subject matter hereof and supersedes all other prior agreements and
understandings both written and oral, between the parties with respect to the
subject matter hereof and (b) shall not be assigned by operation of law or
otherwise.
Section 7.3. Validity. If any provision of this Agreement, or the
application thereof to any person or circumstance, is held invalid or
unenforceable, the remainder of this Agreement, and the application of such
provision to other persons or circumstances, shall not be affected thereby,
and to such end, the provisions of this Agreement are agreed to be severable.
Section 7.4. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by
facsimile or by registered or certified mail (postage prepaid, return receipt
requested), to each other party as follows:
If to JSJ:
J S J CAPITAL CORP.
Attn: Anthony N. DeMint, President
1850 East Flamingo Rd. Suite 111
Las Vegas, Nevada 89119
with a copy to:
Donald J. Stoecklein
Sperry Young & Stoecklein
1850 East Flamingo Rd. Suite 111
Las Vegas, Nevada 89119
(702) 792-2590
if to HSNS:
Andrew Fox, President
HIGH SPEED NET SOLUTIONS, INC.
Two Hanover Square, Suite 2120
434 Fayetteville Street Mall
Raleigh, NC 27601
(919) 807-0507
<PAGE>
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
Section 7.5. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Nevada, without regard
to the principles of conflicts of law thereof.
Section 7.6. Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of
or to affect the meaning or interpretation of this Agreement.
Section 7.7. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto and its successors and
permitted assigns, and except as provided in Sections 4.9 and 4.11, nothing
in this Agreement, express or implied, is intended to or shall confer upon
any other person any rights, benefits or remedies of any nature whatsoever
under or by reason of this Agreement.
Section 7.8. Certain Definitions. For the purposes of this Agreement,
the term:
(a) "affiliate" means (except as otherwise provided in Sections 2.19 and
3.19 a person that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with,
the first mentioned person;
(b) "business day" means any day other than a day on which Nasdaq is
closed;
(c) "capital stock" means common stock, preferred stock, partnership
interests, limited liability company interests or other ownership interests
entitling the holder thereof to vote with respect to matters involving the
issuer thereof;
(d) "knowledge'' or "known'' means, with respect to any matter in
question, if an executive officer of HSNS or JSJ or its subsidiaries, as the
case may be, has actual knowledge of such matter;
(e) "person" means an individual, corporation, partnership, limited
liability company, association, trust, unincorporated organization or other
legal entity; and
(f) "subsidiary" or "subsidiaries" of HSNS, JSJ or any other person,
means any corporation, partnership, limited liability company, association,
trust, unincorporated association or other legal entity of which HSNS, JSJ or
any such other person, as the case may be (either alone or through or
together with any other subsidiary), owns, directly or indirectly, 50% or
more of the capital stock, the holders of which are generally entitled to
vote for the election of the board of directors or other governing body of
such corporation or other legal entity.
Section 7.9. Personal Liability. This Agreement shall not create or be
deemed to create or permit any personal liability or obligation on the part
of any direct or indirect stockholder of HSNS, JSJ or any officer, director,
employee, agent, representative or investor of any party hereto.
Section 7.10. Specific Performance. The parties hereby acknowledge and
agree that the failure of any party to perform its agreements and covenants
hereunder, including its failure to take all actions as are necessary on its
part to the consummation of the Merger, will cause irreparable injury to the
other parties for which damages, even if available, will not be an adequate
remedy. Accordingly, each party hereby consents to the issuance of injunctive
relief by any court of competent jurisdiction to compel performance of such
party's obligations and to the granting by any court of the remedy of
specific performance of its obligations hereunder; provided, however, that,
if a party hereto is entitled to receive any payment or reimbursement of
expenses pursuant to Sections 6.3(a), (b) or (c), it shall not be entitled to
specific performance to compel the consummation of the Merger.
Section 7.11. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all
of which shall constitute one and the same agreement.
<PAGE>
In Witness Whereof, each of the parties has caused this Agreement to be
duly executed on its behalf as of the day and year first above written.
HIGH SPEED NET SOLUTIONS, INC.
By:/s/ Andrew Fox
Name: Andrew Fox
Title: President
J.S.J. CAPITAL CORP.
By:/s/ Anthony DeMint
Name: Anthony N. DeMint
Title: President
<PAGE>
HSNS DISCLOSURE SCHEDULE
Schedule 2.1 Organization See Amended Articles/Bylaws
Schedule 2.2(a) Options, Stock Preference Rights See Form 10 and Form 10/A
Schedule 2.6 Consents & Approvals None Provided
Schedule 2.7 No Default Not Applicable
Schedule 2.8 No Undisclosed Liability None Exist
Schedule 2.9 Litigation See Form 10 and Form 10/A
Schedule 2.10 Compliance with Applicable Law None
Schedule 2.11 Employee Benefit Plans See Form 10 and Form 10/A
Schedule 2.12 Environmental Laws and Regs Not Applicable
Schedule 2.13 Tax Matters None Exist
Schedule 2.14 Title to Property None Exist
Schedule 2.15 Intellectual Property See Form 10 and Form 10/A
Schedule 2.16 Insurance None Exist
Schedule 2.17 Vote Required None Required
Schedule 2.18 Tax Treatment Not Applicable
Schedule 2.19 Affiliates Andrew Fox
Dr. Bjorn Jawerth
Richard F Seifert
William Bradford Silvernail
Alan Kleinmaier
Michael M. Cimino
Michael Kim
Peter Rogina
Summus Ltd.
Schedule 2.20 Certain Business Practices None Exist
Schedule 2.21 Insider Interest See 2.19
Schedule 2.22 Opinion of Financial Adviser Waived - None Exist
Schedule 2.23 Broker None Exist
Schedule 4.1 Conduct of Business None Provided
<PAGE>
JSJ DISCLOSURE SCHEDULE
Schedule 3.2(b) Subsidiary Stock None Exist
Schedule 3.2(c) Capital Stock Rights None Exist other than as in
Articles
Schedule 3.2(d) Securities conversions None Exist
Schedule 3.2 (f) Subsidiaries None Exist
Schedule 3.6 Consents & Approvals Provided
Schedule 3.7 No Default Not Applicable
Schedule 3.8 No Undisclosed Liability None Exist
Schedule 3.9 Litigation None Exist
Schedule 3.10 Compliance with Applicable Law Not Applicable - full
disclosed in 10SB
Schedule 3.11 Employee Benefit Plans Section 3.11( c)No Options
Exist
Section 3.11(e) No Agreements Exist
Schedule 3.12 Environmental Laws and Regs Not Applicable
Schedule 3.13 Tax Matters None Exist
Schedule 3.14 Title to Property None Exist
Schedule 3.15(b) Intellectual Property None Exist
Schedule 3.16 Insurance None Exist
Schedule 3.17 Vote Required See Shareholder Meeting
Certificate
Schedule 3.18 Tax Treatment Not Applicable
Schedule 3.19 Affiliates Anthony N. DeMint
Schedule 3.20 Certain Business Practices None Exist
Schedule 3.21 Insider Interest None Exist
Schedule 3.22 Opinion of Financial Adviser Waived - None Exist
Schedule 3.23 Broker None Exist
Schedule 4.2 Conduct of Business See Amended & Restated Articles
CERTIFICATE OF MERGER
OF
HIGH SPEED NET SOLUTIONS, INC.
a Florida corporation
and
J.S.J. CAPITAL CORP.
a Nevada corporation
The undersigned corporations, HIGH SPEED NET SOLUTIONS, INC., a Florida
corporation ("HSNS"), and J.S.J. CAPITAL CORP., a Nevada corporation ("JSJ"),
do hereby certify:
1. HSNS is a corporation duly organized and validly existing under the
laws of the State of Florida. Articles of Incorporation were originally
filed on May 10, 1984.
2. JSJ is a corporation duly organized and validly existing
under the laws of the State of Nevada. Articles of Incorporation were
originally filed on October 6, 1999.
3. HSNS and JSJ are parties to a Merger Agreement, pursuant to which
JSJ will be merged with and into HSNS. Upon completion of the merger HSNS
will be the surviving corporation in the merger and JSJ will be dissolved.
Pursuant to the Merger Agreement the stockholders of JSJ will receive stock
in HSNS. For purposes of service, the address for HSNS is Corporation
Service Company, 1201 Hays Street, Tallahassee, Florida 32301.
4. The Articles of Incorporation and Bylaws of HSNS as existing prior
to the effective date of the merger shall continue in full force as the
Articles of Incorporation and Bylaws of the surviving corporation.
5. The complete executed Agreement and Plan of Merger dated as of
April 21, 2000, which sets forth the plan of merger providing for the merger
of JSJ with and into HSNS is on file at the corporate offices of HSNS.
6. A copy of the Merger Agreement will be furnished by HSNS on request
and without cost to any stockholder of any corporation which is a party to
the merger.
7. The plan of merger as set forth in the Agreement and Plan of
Merger, has been approved by a majority of the Board of Directors of JSJ at a
meeting held April 21, 2000.
8. JSJ has 672,000 shares of common stock issued, outstanding
and entitled to vote on the merger. At a meeting of the Shareholders of JSJ
held April 21, 2000 all 672,000 shares voted in favor of the merger.
9. The plan of merger as set forth in the Agreement and Plan of
Merger, was approved by a majority of the Board of Directors of HSNS at a
meeting held April 21, 2000.
<PAGE>
10. Stockholder approval of the Agreement and Plan of Merger by the
Stockholders of HSNS is not required pursuant to Section 607.1103(7) of the
Business Corporation Act of the State of Florida.
11. The manner in which the exchange of issued shares of HSNS shall be
affected is set forth in the Agreement and Plan of Merger.
IN WITNESS WHEREOF, the undersigned have executed these Certificate of
Merger this 21ST day of April, 2000.
J.S.J. CAPITAL CORP. HIGH SPEED NET SOLUTIONS, INC.
a Nevada Corporation a Florida Corporation
By/s/ Anthony DeMint By/s/ Andrew Fox
ANTHONY N. DeMINT, President ANDREW FOX, President
By/s/ Anthony DeMint By/s/ Alan Kleinmaier
ANTHONY N. DeMINT, Secretary ALAN KLEINMAIER, Secretary
STATE OF NC )
) SS:
COUNTY OF Orange )
On 4-21-00 before me, a Notary Public, personally appeared ANDREW
FOX who is the President of HIGH SPEED NET SOLUTIONS, INC., and who is
personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person whose name is subscribed to the within instrument
and acknowledged to me that he executed the same in his authorized capacities
and that, by his signatures on the instrument, the person or the entity upon
behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Wood
________________________________
Notary Public
STATE OF NC )
) SS:
COUNTY OF Orange )
On 4-20-00 before me, a Notary Public, personally appeared ALAN
KLEINMAIER who is the Secretary of HIGH SPEED NET SOLUTIONS, INC., and who
is personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person whose name is subscribed to the within instrument
and acknowledged to me that she executed the same in her authorized
capacities and that, by her signatures on the instrument, the person or the
entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Wood
________________________________
Notary Public
STATE OF NEVADA )
) SS:
COUNTY OF CLARK )
On 4-21-00 before me, a Notary Public, personally appeared ANTHONY
N. DeMINT who is the President and Secretary of J.S.J. CAPITAL CORP. and who
is personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person whose name is subscribed to the within instrument
and acknowledged to me that he executed the same in his authorized capacities
and that, by his signatures on the instrument, the person or the entity upon
behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Debra Amigone
________________________________
Notary Public
RESOLUTION IN LIEU OF STOCKHOLDERS MEETING
THE UNDERSIGNED, being the Stockholders of J.S.J. CAPITAL CORP., a
Nevada Corporation, in lieu of a Stockholders meeting, hereby consent to the
following resolutions:
RESOLVED, that the Corporation enter into an Agreement and
Plan of Merger with HIGH SPEED NET SOLUTIONS, INC. (A copy of which
is attached) with HIGH SPEED NET SOLUTIONS, INC. remaining as the
surviving corporation, and be it
FURTHER RESOLVED, that the Corporation officers are hereby
authorized to execute any and all documents necessary to accomplish
the merger.
DATED: April 21, 2000
/s/ Anthony DeMint
_________________________________
ANTHONY N. DeMINT
Audited Financial Statements
High Speed Net Solutions, Inc.
(A Development Stage Company)
Years ended December 31, 1999 and 1998
with Report of Independent Auditors
<PAGE>
High Speed Net Solutions, Inc.
(A Development Stage Company)
Audited Financial Statements
Years ended December 31, 1999 and 1998
Contents
Report of Independent Auditors 1
Audited Financial Statements
Balance Sheets 2
Statements of Operations 3
Statements of Stockholders' Equity (Deficit) 4
Statements of Cash Flows 6
Notes to Financial Statements 8
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareholders
High Speed Net Solutions, Inc.
We have audited the accompanying balance sheets of High Speed Net Solutions,
Inc. (a development stage company) as of December 31, 1999 and 1998, and the
related statements of operations, stockholders' equity (deficit), and cash
flows for the years ended December 31, 1999 and 1998 and for the period from
January 2, 1998 (inception) to December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of High Speed Net Solutions,
Inc. (a development stage company) at December 31, 1999 and 1998, and the
results of its operations and its cash flows for the years ended December 31,
1999 and 1998 and for the period from January 2, 1998 (inception) to December
31, 1999 in conformity with accounting principles generally accepted in the
Unites States.
The accompanying financial statements have been prepared assuming that High
Speed Net Solutions, Inc. (a development stage company) will continue as a
going concern. As more fully described in Note 2, the Company has incurred
operating losses since inception and will require additional capital in 2000
to continue operations. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 2. The financial
statements do not include any adjustments to reflect the possible future
effects on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.
/s/ ERNST & YOUNG LLP
February 15, 2000
Raleigh, North Carolina
<PAGE>
<TABLE>
High Speed Net Solutions, Inc.
(A Development Stage Company)
Balance Sheets
December 31
1998 1999
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $18,609 $248,740
Accounts receivable 7,559 -
---------- -----------
Total current assets 26,168 248,740
Furniture and equipment, net - 3,720
Investment in common stock of related party - 1,894,127
Prepaid royalties - 4,528,125
Licensing rights, less accumulated amortization
of $8,610 and $25,830 in 1998 and 1999 68,890 43,060
---------- -----------
Total assets $95,058 $6,717,772
========== ===========
</TABLE>
<TABLE>
Liabilities and stockholders' equity (deficit)
<S> <C> <C>
Payables to related parties $295,558 $589,815
Accounts payable and accrued expenses 8,457 99,876
Loss contingency accrual - 800,000
----------- -----------
Total current liabilities 304,015 1,489,691
Stockholders' equity (deficit):
Preferred stock, $0.001 par value; 5,000,000
shares authorized, no shares issued and
outstanding - -
Common stock, $.001 par value, authorized
50,000,000 shares; issued and outstanding
16,601,700 and 21,062,149 shares 16,602 21,062
Additional paid-in capital 1,642,866 17,272,820
Deficit accumulated during the development stage (1,640,806) (11,838,182)
Treasury stock, at cost (38,500 shares) (227,619) (227,619)
----------- ------------
Total stockholders' equity (deficit) (208,957) 5,228,081
----------- ------------
$95,058 $6,717,772
=========== ============
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
High Speed Net Solutions, Inc.
(A Development Stage Company)
Statements of Operations
Period from
January 2,
1998
(inception)
Year ended December 31 to December
31
1998 1999 1999
<S> <C> <C> <C>
Selling, general and $374,841 $7,541,627 $7,916,468
administrative expenses
Interest expense - 2,655,749 2,655,749
------------ ------------- -------------
Loss from continuing operations (374,841) (10,197,376) (10,572,217)
Discontinued operations (Note
1):
Loss from discontinued -
operations (1,265,965) (1,265,965)
------------- -------------- -------------
Net loss $(1,640,806) $(10,197,376) $(11,838,182)
============== ============== =============
Per share amounts (basic and
diluted):
Loss from continuing operations $(0.03) $(0.54) $(0.74)
============== ============= =============
Loss from discontinued
operations $(0.11) $- $(0.09)
============== ============= =============
Net loss $(0.14) $(0.54) $(0.83)
============= ============= ============
Weighted average shares
outstanding 11,848,867 19,030,492 14,274,778
=============== ============= =============
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
High Speed Net Solutions, Inc.
(A Development Stage Company)
Statements of Stockholders' Equity (Deficit)
Date of Common Stock
Transaction Shares Par
Value
<S> <C> <C> <C>
Balance at January 2, 1998 (inception)
reflecting the recapitalization of the 9,275,000 $9,275
Company
Founders shares issued for no Jan.1998 100 -
consideration
Shareholders capital contributions June- - -
July1998
Common stock issued to acquire net
assets of Marketers World, Inc. Aug.1998 1,000,000 1,000
Common stock sold for cash at $0.08 per Sept.1998 3,766,600 3,767
share
Common stock issued for payment of debt
to a shareholder at $0.10 per share Sept.1998 1,550,000 1,550
Treasury stock acquired for cash - -
Common stock issued to acquire licensing
rights at $0.10 per share (Note 5) Sept.1998 775,000 775
Common stock issued for services at
$0.10 per share (Note 8) Sept.1998 765,000 765
Net loss for the year ended December 31, - -
1998
Cancellation of compensatory stock Sept.1998 (530,000) (530)
---------- ------
Balance at December 31, 1998 16,601,700 16,602
Compensation expense related to grant of
stock option to purchase 1,000,000
shares at no exercise price (Note 8) Feb.1999 - -
Common stock sold for cash at $1.08 per
share March 1999 118,188 118
Common stock sold for cash at $1.00 per
share April 1999 220,000 220
Compensation expense related to grant of
options to purchase 825,000 shares at
$.01 per share (Note 8) May 1999 - -
Common stock issued for investment in
related party at $2.25 per share (Note
8) May 1999 795,001 795
Common stock issued for services at
$1.53 per share (Note 8) July1999 85,500 85
Common stock issued for advance royalty
payment at $1.52 per share (Note 4) July1999 1,500,000 1,500
Common stock issued in exchange for
convertible debentures at $0.55 per
share Aug.1999 4,852,860 4,853
Beneficial conversion feature related to
convertible debt (Note 6) Aug.1999 - -
Common stock canceled in connection with
merger between High Speed Net Solutions,
Inc. and Marketers World, Inc. in August
1998 (Note 8) Aug.1999 (5,161,100) (5,161)
Cancellation of compensatory stock Aug.1999 (25,000) (25)
Stock option exercises Aug.1999 1,825,000 1,825
Common stock issued in conjunction with
subscription agreement, 250,000 shares
at $1.00 per share (Note 8) Aug.1999 250,000 250
Compensation expense related to grant of
option to purchase 240,000 shares at
$.01 per share (Note 8) Sept.1999 - -
Net loss for the year ended December 31,
1999 - -
----------- -------
Balance at December 31, 1999 21,062,149 $21,062
=========== =======
</TABLE>
<PAGE>
<TABLE>
Deficit
Accumula
ted
During
the
Paid-in Development Treasury
Capital Stage Stock Total
<S> <C> <C> <C>
$(9,275) $- $- $-
- - - -
1,091,648 - - 1,091,648
(1,000) - - -
313,233 - - 317,000
148,270 - - 149,820
- - (227,619) (227,619)
76,725 - - 77,500
75,735 - - 76,500
- (1,640,806) - (1,640,806)
(52,470) - - (53,000)
---------------- ------------- ----------- ------------
1,642,866 (1,640,806) (227,619) (208,957)
2,000,000 - - 2,000,000
127,382 - - 127,500
219,780 - - 220,000
1,640,000 - - 1,640,000
1,791,332 - - 1,792,127
130,729 - - 130,814
2,276,625 - - 2,278,125
2,650,896 - - 2,655,749
2,655,749 - - 2,655,749
5,161 - - -
(38,225) - - (38,250)
(1,825) - - -
1,094,750 - - 1,095,000
1,077,600 - - 1,077,600
- (10,197,376) - (10,197,376)
--------------- ------------- ----------- ------------
$17,272,820 $(11,838,182) $(227,619) $5,228,081
================ ============= =========== ============
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
High Speed Net Solutions, Inc.
(A Development Stage Company)
Statements of Cash Flows
Period from
January 2,
1998
(inception)
to December
Year ended December 31 31
1998 1999 1999
<S> <C> <C> <C>
Operating activities
Loss from continuing operations $(374,841) $(10,197,376) $(10,572,217)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Loss on disposal of equipment 36,858 - -
Non cash compensation and
consulting charges relating to
stock awards and stock
subscriptions - 5,698,038 5,698,038
Depreciation and amortization 21,900 26,162 48,062
Common stock issued for services 23,500 92,564 116,064
Interest expense relating to
beneficial conversion feature of
convertible debt - 2,655,749 2,655,749
Changes in operating assets and
liabilities:
Prepaid royalties - (60,000) (60,000)
Accounts receivable (7,559) 7,559 -
Accounts payable and accrued
expenses 8,457 91,419 99,876
Loss contingency - 800,000 800,000
----------- ------------ -------------
Net cash used in operating
activities from continuing
operations (291,685) (885,885) (1,177,570)
Net cash used in discontinued
operations (1,265,965) - (1,265,965)
----------- ------------- ------------
Total net cash used in operating
activities (1,557,650) (885,885) (2,443,535)
Investing activities
Capital expenditures (50,148) (4,052) (54,200)
Cash investment in related party - (102,000) (102,000)
----------- ----------- ------------
Net cash used in investing
activities (50,148) (106,052) (156,200)
Financing activities
Proceeds from sale of common
stock 317,000 242,062 559,062
Shareholder capital contributions 1,091,648 - 1,091,648
Advances from stockholders 445,378 430,852 876,230
Repayments to stockholders - (9,486) (9,486)
Proceeds from issuance of
convertible debentures - 558,640 558,640
Purchase of treasury stock (227,619) - (227,619)
----------- ------------- -------------
Net cash provided by financing
activities 1,626,407 1,222,068 2,848,475
---------- ------------ ------------
Net increase in cash and cash
equivalents 18,609 230,131 248,740
Cash and cash equivalents at
beginning of period - 18,609 -
----------- ------------- ------------
Cash and cash equivalents at end $18,609 $248,740 $248,740
of period
=========== ============ ===========
</TABLE>
<PAGE>
<TABLE>
High Speed Net Solutions, Inc.
(A Development Stage Company)
Statements of Cash Flows (continued)
Period from
January 2,
1998
(inception)
Year ended December to December
31 31
1998 1999 1999
<S> <C> <C> <C>
Noncash investing and financing
activities
Common shares issued for investment in
related party $- $1,792,127 $1,792,127
========= ========= ==========
Common stock issued in exchange for
convertible debentures $- $2,665,749 $2,665,749
========= ========= ==========
Common stock issued for prepaid $- $2,278,125 $2,278,125
royalties
========= ========= ==========
Debentures issued for shareholder
advances on behalf of company $- $2,097,109 $2,097,109
========= ========= ==========
Common stock issued for licensing rights $77,500 $- $77,500
========= ========= ==========
Common stock issued for payment of debt
to stockholder $149,820 $- $149,000
========= ========= ==========
</TABLE>
See accompanying notes.
<PAGE>
1. Business, Organization and Development Stage Company
High Speed Net Solutions, Inc. ("the Company" or "HSNS") was incorporated in
1984 and was inactive until it merged with Marketers World, Inc. ("MWI") on
August 24, 1998. Prior to the merger, HSNS was a non-operating public shell
and MWI was a private operating company. In legal form, this merger was
effected by HSNS issuing its shares in exchange for the net assets of MWI.
Total outstanding shares of HSNS common stock subsequent to the merger were
10,275,000, which consisted of the 1,000,000 shares outstanding prior to the
merger and the 9,275,000 shares issued to acquire the net assets of MWI. At
the time of the merger, HSNS had no assets or liabilities, and accordingly,
the transaction was accounted for as a recapitalization of HSNS, and the
outstanding shares are recorded accordingly.
MWI was incorporated in January 1998 and its planned principal operations
were to lease computer systems to businesses and to distribute Internet
oriented products and perform related services. During 1998, MWI was not able
to execute its planned activities, other than the sale of pilot products and
services, and consequently ceased all operating activities in December 1998.
MWI was subsequently legally dissolved in September 1999. Accordingly, the
operating results of MWI have been presented as discontinued operations for
the year ended December 31, 1998. Revenues of MWI during the year ended
December 31, 1998 were approximately $1,335,300, the loss totaled $1,265,965.
As of December 31, 1998, the Company had completed its disposal of the
discontinued operations of MWI. There were no remaining assets or
liabilities related to MWI at December 31, 1998. Results for the year ended
December 31, 1999 represent solely the activity of HSNS which primarily
related to raising capital and establishing strategic relationships. Since
the Company has not yet commenced its planned principal operations and since
MWI also never commenced its planned principal operations, the accompanying
financial statements are presented as those of a development stage company.
In 1984, the Company was incorporated under the name EMN Enterprises, Inc.
The Company was inactive from the time of its incorporation in 1984 until the
time of the MWI transaction in 1998. In September 1998, in conjunction with
the MWI merger, the Company changed its name to ZZAP.NET, Inc. and in January
1999 the name changed to High Speed Net Solutions, Inc.
<PAGE>
1. Business, Organization and Development Stage Company (continued)
In August 1999, Summus Ltd. ("Summus") acquired 51% of the outstanding common
stock of the Company. Subsequently, Summus sold certain of the shares it
acquired and at December 31, 1999, Summus owned 40.7% of the Company's
outstanding common stock. The Company's operating and business strategy is
dependent on the development of Summus' technology and products under the
terms of various agreements between both parties. Summus is developing media
compression and delivery software that the Company intends to use to deliver
its services to its customers.
2. Basis of Presentation
The accompanying financial statements have been prepared on the basis that
High Speed Net Solutions, Inc. will continue as a going concern. The Company
has incurred operating losses since inception and has experienced negative
cash flows and expects these losses and negative cash flow to continue into
the foreseeable future. The Company's ability to continue operations as a
going concern is predicated on its ability to continue to raise capital,
including significant new capital in 2000, the successful completion of its
operational plan and, ultimately, upon achieving profitable operations.
3. Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Equipment and Furniture
Equipment and furniture is stated at cost. Depreciation, as recorded by MWI,
was computed using the straight-line method over the estimated useful lives
of the assets beginning when assets were placed in service. Depreciation
expense amounted to $13,290 for the year ended December 31, 1998. Based on
the discontinuance of MWI's operations in 1998, along with no future
alternative use, the net book value of MWI's equipment and furniture at
December 31, 1998, totaling $36,858, was written off.
<PAGE.
3. Significant Accounting Policies (continued)
Prepaid Royalties and Licensing Rights
Prepaid royalties represent prepayments made to Summus under various
agreements further described in Note 4. As future revenues from services
subject to the provisions of these agreements are earned, the prepaid
royalties will be charged to royalty expense over the terms of the various
agreements.
Licensing rights represent the cost of acquiring the right to license certain
products developed by Summus. These costs are being amortized on a straight-
line basis over the term of the related agreements, which was initially a
three-year agreement. The term of the licensing agreement was extended to
six years in January 2000 (see Note 4). At the time the new agreements
become effective in 2000, the net book value of the capitalized license
rights will be amortized in accordance with the terms of the new agreement.
Management continuously evaluates the future realization of the prepaid
royalties and licensing rights and currently anticipates fully recovering
these costs and, accordingly, no valuation adjustment has been recorded to
date. The carrying value of the intangible assets is reviewed by management
to determine if facts and circumstances exist which would suggest that the
intangible asset may be impaired.
Cash and Cash Equivalents
Cash and cash equivalents consist of unrestricted cash accounts and highly
liquid investments with an original maturity of three months or less when
purchased.
Stock Based Compensation
The Company accounts for stock based compensation under the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and related interpretations. In accordance with APB
25, the Company has valued employee stock awards and stock issued to
employees for services performed based on the traded value of the Company's
common stock, or its estimated fair value prior to it becoming traded, at the
measurement date of the stock options and awards.
<PAGE>
3. Significant Accounting Policies (continued)
Income Taxes
Income taxes are accounted for using the liability method in accordance with
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes (See Note 10).
Loss Per Share
Loss per share has been calculated in accordance with Statement of Financial
Accounting Standards No. 128 "Earnings per Share." The Company has potential
common stock equivalents related to its outstanding stock options. These
potential common stock equivalents were not included in loss per share for
all periods because the effect would have been antidilutive.
Investment in Common Stock of Related Party
Investment in common stock of related party represents the Company's 14.0%
ownership interest in Summus (see Note 8). The Company accounts for its
investment in Summus using the cost method. Under this method, the
investment is recorded at its historical cost. Although the market value of
this investment is not readily determinable, management believes its fair
value is not less than its carrying amount.
Revenue Recognition
Revenue was recognized by MWI when products were shipped and services were
performed. Operating activity for MWI has been presented as discontinued
operation for the year ended December 31, 1998. To date, no revenues have
been generated by HSNS.
<PAGE>
3. Significant Accounting Policies (continued)
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No.
133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"), which is required to be adopted in years beginning after June 15,
2000. Because of the Company's minimal use of derivatives, management does
not anticipate that the adoption of the new statement will have a significant
effect on operations or the financial position of the Company.
Advertising
MWI expensed advertising costs as incurred. Advertising expense was
approximately $128,000 for the year ended December 31, 1998. To date, High
Speed Net Solutions has not incurred any advertising expense.
4. Prepaid Royalties
In February 1999, the Company entered into a Marketing and Licensing
Agreement ("MLA") with Summus. As consideration for this agreement, the
Company prepaid royalty payments to Summus. The amount of prepaid royalties
consists of cash payments of $2,250,000 ($2,190,000 of which was made by a
stockholder on behalf of the Company) and the issuance of 1,500,000 shares of
the Company's common stock valued at $2,278,125, for a total aggregate value
of $4,528,125. The value assigned to the 1,500,000 common shares was based
on the traded value of the Company's common stock on the date of the
transaction. This amount is presented as a non-current asset in the
accompanying balance sheet as of December 31, 1999.
The shareholder of the Company who made the cash payments to Summus on behalf
of the Company controlled a trust which owned 8.2% of Summus Technologies,
Inc. On August 16, 1999, Summus Technologies, Inc. and Summus, Ltd. merged
(see Note 8). The Company recorded a payable to the shareholder which was
subsequently offset by debentures issued to the shareholder (see Note 6).
In January 2000, the Company and Summus entered into a Master Agreement,
which includes a Software License Agreement ("SLA"), a Software Maintenance
Agreement ("SMA") and an Agency and a Revenue Sharing Agreement ("RSA")
(collectively with the Master License Agreement, the "New Agreements"). The
New Agreements entirely replace the MLA entered in February 1999.
<PAGE>
4. Prepaid Royalties (continued)
The SLA gives the Company the right to license Summus' current and future
products for digital content management solutions for rich media
distribution. Additionally, the SLA gives the Company non-exclusive rights
to distribute wavelet encoded content over the Internet or over private
network environments for the purposes of advertising or content delivery.
The Company will be credited for the $1.0 million upfront license fee due
under the SLA from the prepayments made under the MLA. Upon the commencement
of the SLA, this $1.0 million will be amortized on a straight-line basis over
the six-year term of the SLA. The remaining amount of the Prepaid Royalties
will be charged to royalty expense on a systematic basis, as revenues are
earned, over the term of the agreement. The Company is also required to make
ongoing payments equal to 10% of revenues generated from the use of the
Summus' products, as defined in the agreement. The Company was granted a $1.0
million credit, from the prepayments made under the MLA, for such payments.
The Company has been granted other rights under the SLA which are defined in
the agreement. The SLA has a term of six years.
The RSA entitles the Company to receive 20% of all revenues that Summus
receives from third party licenses of its products for rich media
distribution. For all customers that the Company refers to Summus for
technology licensing, consulting or other product or services sales, the
Company will receive 15% of the first year revenue earned by Summus. The RSA
also provides for revenue sharing with respect to sales to a potential
customer by either the Company or Summus. Revenue earned from this customer
in the first two years by either the Company or Summus will be shared equally
between both parties. Beginning in the third year, 40% of revenue earned by
the Company will be remitted to Summus decreasing to 20% in the final two
years. Conversely, 40% of revenue earned by Summus in the third year and 20%
of revenue earned by Summus in years four, five and six will be shared with
the Company.
Under the new agreements discussed above, the Company is required to make
annual payments to Summus for approximately $190,000 in return for software
maintenance and upgrades. The payment for the first year beginning February
2000 has been waived. The Company will recognize the aggregate amount of the
annual fees on a straight-line basis over the entire six-year term of the
agreements.
<PAGE>
5. Licensing Rights
In Septemer 1998, the Company issued 775,000 shares of its common stock,
valued at $77,500 for all of the issued and outstanding common stock of Brad
Richdale Direct, Inc. ("BRD"). The primary purpose of this transaction was
to obtain certain licensing and marketing rights held by BRD for certain
products to be developed by Summus. Since BRD had nominal assets and
operations, this transaction was accounted for as an acquisition of licensing
rights, rather than as a business combination. The value of this transaction
was based on recent transactions in the Company's common stock on the date of
the transaction, and has been recorded as an intangible asset in the
accompanying balance sheet. Subsequent to this transaction, the Company has
negotiated new terms and agreements with Summus relating to the licensing and
marketing of certain products developed by Summus (see Note 4).
6. Convertible Debentures
During 1999, the Company issued $2,655,749 in convertible debentures (the
"debentures") to officers, stockholders and third parties. These debentures
were issued in exchange for both cash of $558,640 and in partial satisfaction
of advances of $2,097,109 from a stockholder of the Company. The debentures
were convertible into the Company's common stock at conversion prices ranging
from $0.25 to $1.33 per share (all of which were substantially "in-the-money"
at date of issuance).
Shortly after the issuance of the debentures, the debenture holders exercised
the conversion feature and converted all outstanding debentures into
4,852,860 shares of the Company's common stock. The debentures were
convertible at the date of issuance. Since the conversion price of the
debentures was below the fair market value of the common stock, the Company
recorded a $2,655,749 beneficial conversion feature as debt discount and
additional paid-in-capital on the date the debentures were issued. The
resulting interest expense was immediately recognized because the debentures
were convertible upon issuance.
As of December 31, 1999, all debentures had been converted.
<PAGE>
7. Related Party Transactions
As of December 31, 1999 Summus holds a 40.7% ownership interest in the
Company. The Company's operating and business strategy is dependent on the
development of Summus' technology and products under the New Agreements.
Summus is developing media compression and delivery software that the Company
has rights to use to deliver services to its customers under its various
agreements with Summus.
During 1999, Summus has been funding certain expenses of the Company. For the
year ended December 31, 1999, Summus paid $154,000 of operating expenses on
behalf of the Company. This amount is owed to Summus and is included in
Payables to Related Parties in the accompanying balance sheet at December 31,
1999.
Payables to related parties, also includes advances made to the Company from
a former majority shareholder during 1998 and 1999. These amounts are
unsecured and are payable on demand.
8. Stockholders' Equity
On June 20, 1998, the Company amended its articles of incorporation to
increase the number of authorized shares of its $.001 par value common stock
to 50,000,000 and to effect a 200 for one stock split thereby increasing its
issued and outstanding shares to 1,000,000. The Company has 5,000,000
authorized shares of $.001 par value preferred stock. No preferred shares
have ever been issued and outstanding as of December 31, 1999.
During the year ended December 31, 1998 the Company issued 765,000 shares of
its stock to employees for services rendered. These shares were valued at
$76,500 based on the estimated fair value of the common stock, as determined
by a recent sale of the Company's common stock. At that time, the Company's
common stock was not publicly traded. During the year ended December 31,
1999, the Company issued 85,500 shares of common stock to employees for
services rendered. These shares were valued at $130,814 based on the traded
value of the common stock.
<PAGE>
8. Stockholders' Equity (continued)
During 1998, the Company acquired 38,500 shares of its common stock for
$227,619 in cash and currently holds these shares as treasury stock.
In August 1999, the Company issued 795,001 shares of its common stock valued
at $1,792,127, along with a cash payment of $102,000, to acquire 1,000,182
shares of common stock, or 19%, of Summus Technologies Inc. The value
assigned to these shares was based on the traded value of the Company's
common stock. Subsequently, Summus Technologies, Inc. and Summus Ltd.
merged. Summus Ltd. was the surviving entity. The Company's ownership in
Summus Ltd. after the merger was 16.7% and as of December 31, 1999 was 14.0%.
The Company's shares of Summus Ltd. are subject to a shareholder agreement
which restricts the Company's ability to transfer or sell its shares without
first granting Summus Ltd. the opportunity to purchase them.
In August 1999, former management of the Company entered into a stock
subscription agreement with a related party. The agreement provided for the
Company to sell 250,000 shares of its common stock for $1.00 per share.
Since the subscription price was below the fair market value of the
underlying stock on the date of the agreement, $845,000 of expense related to
this transaction has been charged to the statement of operations in 1999.
<PAGE>
8. Stockholder' equity (continued)
Stock Options
During 1999, the Company granted to certain employees and directors 2,520,000
stock options that had exercise prices below the fair value of the underlying
common stock. Compensation expense of $4,717,600 has been recognized based
upon the difference between the exercise price and the traded value of the
common stock on the date of grant. These options vested immediately upon
issuance and 1,825,000 of these options were exercised during 1999.
Unexercised options expire between 5 and 10 years from date of grant.
In connection with a 200,000 stock option grant, the optionee received
protection from potential dilution resulting from future issuances of the
Company's securities, as defined. The maximum number of common shares
issuable under this agreement is 400,000.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123; "Accounting for Stock-Based
Compensation." As permitted by the provisions of SFAS No. 123, the Company
continues to follow Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" and related interpretations for its stock-
based awards.
A summary of the Company's stock option activity is as follows:
<TABLE>
Weighted
Average
Exercise
Shares Price
<S>/ <C> <C>
Outstanding - December 31, 1998 - $-
Granted 2,520,000 1.21
Exercised (1,825,000) 0.06
------------ ----------
Outstanding - December 31, 1999 695,000 2.29
============= ==========
</TABLE>
<PAGE>
8. Stockholders' Equity (continued)
The following table summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
Options Outstanding
Range of Number Outstanding Weighted Average Weighted
Exercise Prices Contractual Life Average
Exercise
Price
<S> <C> <C> <C>
$.01 240,000 5 years $.01
2.00 - 4.38 295,000 6.9 years 3.45
10.00 - 13.00 160,000 7 years 13.00
----------------
695,000 6.4 years 5.70
=============
</TABLE>
<TABLE>
Options Exercisable
Range of Number Weighted Average
Exercise Prices Exercisable Exercise Price
<S> <C> <C>
$.01 240,000 $.01
2.00 - 4.38 165,000 4.00
10.00 - 13.00 - -
--------------
405,000 1.18
=========
</TABLE>
In accordance with SFAS 123, the fair value of each option grant was
determined by using the Black-Scholes option pricing model with the following
weighted average assumptions for the twelve month period ended December 31,
1999: dividend yield of 0%; volatility of 2.054; risk free interest rate of
4.25% and expected option lives of 5 years. The weighted average fair value
at the date of grant was $2.29 per option. Had compensation cost for the
Company's stock options been determined based on the fair value at the date
of grant consistent with the provisions of SFAS 123, the Company's net loss
and net loss per share would have been $13.5 million and $.71 for the twelve
months ended December 31, 1999.
<PAGE>
8. Stockholders' Equity (continued)
During August 1999, the Company negotiated and Board of Directors approved
the cancellation of 5,161,100 shares of its common stock which were
originally issued in connection with the merger between the Company and MWI.
This cancellation was a result of MWI ceasing its operations in 1998. Both
the majority holder of these shares and the Company agreed that the initial
purchase price was over valued and accordingly, the shares were voluntarily
returned to the Company and the Company then canceled the shares. Since no
value was ascribed to the initial shares issued in connection with the MWI
merger, no value was ascribed to the subsequent cancellation. Also during
1999, the Company executed the cancellation of 555,000 shares of its common
stock, 530,000 of which were originally issued in 1998 and 25,000 issued in
1999 for services rendered by an employee for a total value of $91,250.
During 1999, it was determined that these services had not been performed
satisfactorily and therefore the common stock was voluntarily returned to the
Company and canceled.
9. Leases
During 1999, the Company established it headquarters in Raleigh, North
Carolina and entered into a noncancelable lease for office space and certain
office equipment. Rent expense incurred during the twelve months ended
December 31, 1999 was approximately $11,375.
The following is a schedule of future minimum lease payments for operating
leases :
2000 $32,973
2001 32,973
2002 32,973
2003 32,973
2004 32,973
---------
$164,865
=========
During 1998, MWI leased its office facility and certain office equipment
under noncancelable operating leases, all which were terminated in 1998.
Total rent expense incurred in 1998 by MWI was approximately $40,000.
<PAGE>
10. Income Taxes
No provision for income taxes has been recorded during the current year due
to the Company's significant losses.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax assets are as follows:
<TABLE>
December 31 December 31
1998 1999
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $29,300 $206,000
Start-up expenses 134,000 100,500
Related party expenses 178,000 234,000
Other deductible temporary differences 79,000 79,000
----------- ----------
Total deferred tax assets 420,000 619,500
Deferred tax asset valuation allowance (420,000) (619,500)
------------ ----------
Net deferred taxes $- $-
============ ==========
</TABLE>
Management has determined that a 100% valuation allowance for existing
deferred tax assets is appropriate given the uncertainty regarding the
ultimate realization of any such assets.
At December 31, 1999, the Company had federal and state net operating loss
carryforwards of approximately $515,000 for income tax purposes. The tax
benefit of these carryforwards are reflected in the above table of deferred
tax assets. If not used, these carryforwards begin to expire in 2018 for
federal tax purposes and in 2003 for state tax purposes. U. S. tax rules
impose limitations on the use of net operating losses following certain
changes in ownership. If such a change occurs, the limitation could reduce
the amount of these benefits that would be available to offset future taxable
income each year, starting with the year of ownership change.
<PAGE>
11. Commitments
In December 1999, the Company entered into a consulting agreement whereby the
consulting firm received option rights to purchase up to 200,000 shares of
the Company's common stock at an exercise price of $10.00 per share. The
options vest and become exercisable in increments of 50,000 shares based on
the achievement of certain levels of revenue earned by the Company. As of
December 31, 1999, no options were vested under this agreement. These
options will be accounted for under the provisions of FAS 123.
In October 1999, the Company entered into a consulting agreement whereby the
consultant will receive the rights to purchase 2,000 shares of the Company's
common stock based on the achievement of revenue, as defined, from a
potential customer of the Company and Summus. The Company is also obligated
to pay the consultant 4% of all revenue the Company earns from this potential
customer. As revenues earned from this potential customer increase, the
consultant has the right to proportionally receive more shares based on the
higher levels of revenues earned. As of December 31, 1999, no amounts have
been earned under this agreement. As the options are granted, they will be
accounted for under the provisions of FAS 123.
12. Subsequent Event
In January 2000, a former shareholder of Summus Technologies, Inc. who
received 350,000 shares of HSNS common stock and $100,000 in cash in exchange
for his shares of Summus Technologies, Inc. stock (see Note 8) has filed a
lawsuit against the Company, seeking damages of $13.3 million resulting from
the Company's alleged failure to register such shares under the Securities
Act of 1933 (the "Act"). Under an agreement between the former shareholder
and the Company, the Company is required to issue and include in a
registration statement under the Act an additional 25,000 shares of the
Company's common stock for each additional month that passes subsequent to
the Company's initial deadline date to register the 350,000 shares.
Management is attempting to settle this matter out-of-court. The Company as
accrued $800,000 for settlement of this matter, representing management's
best estimate of the ultimate outcome. However, the ultimate exposure could
be more or less, depending on the outcome of settlement discussions, the
length of time that passes prior to the effectiveness of a registration
statement covering shares of the Company held by the plaintiff and the
ultimate value of the Company's shares on the date of settlement. Because
the matter is expected to be resolved by issuing additional shares, the
ultimate outcome is not expected to have an adverse impact on the Company's
liquidity or cash flow.
PRO FORMA FINANCIAL INFORMATION
On April 21, 2000, High Speed Net Solutions, Inc., a Florida Corporation
("HSNS") acquired 100% of the issued and outstanding shares of common stock
of JSJ Capital Corp., a Nevada Corporation ("JSJ"), in exchange for 50,000
shares of 144 restricted common stock of HSNS and $400,000 in cash. As a
result of HSNS's 100% ownership of JSJ, the Board of Directors of HSNS
approved the merger of JSJ into HSNS whereby HSNS will be the surviving
corporation.
The pro forma exhibits include a combining consolidated balance sheet as of
December 31, 1999 that reflects the effect of the stock issued and cash paid
for legal service in connection with the acquisition. The acquisition has
been accounted for as an issuance of HSNS common stock in exchange for the net
monetary assets of JSJ, accompaniedlization. In addition, a combining
consolidated statement of operations is included which presents loss from opera
tions for the year ended December 31, 1999.
<PAGE>
<TABLE>
High Speed Net Solutions
Pro Forma Combined Balance
Sheet (Unaudited)
December 31, 1999
10/31/99 Pro Forma Pro Forma
Audited JSJ Combined
Capital Adjustment
Corp
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Equivalents 248,740 30 (400,000) (a)
1,642,202 (b) 1,490,972
Other Current Assets - -
------------------------------------------------------
TOTAL CURRENT ASSETS 248,740 30 1,242,202 1,490,972
Fixed Assets, Net 3,720 3,720
Investment in Common
Stock
of Related Party 1,894,127 1,894,127
Licensing Rights 43,060 43,060
Prepaid Royalties 4,528,125 4,528,125
TOTAL ASSETS 6,717,772 30 1,242,202 7,960,004
=========================================================
LIABILITIES AND
STOCKHOLDERS' EQUITY
Accounts Payable and
Accrued Expenses 899,876 899,876
Payables to Related
Parties 589,815
-------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,489,691 1,489,691
Stockholders' Equity
(Deficit):
Series A Convertible
Preferred Stock,
$0.0001 par value,
5,000 shares authorized
2,000 shares issued and
outstanding
on a pro forma basis
Common Stock, $0.001 par
value, 50,000,000 1,642,202 (b) 1,642,202
shares authorized,
21,062,149 issued
and outstanding at
December 31, 1999 and 21,062 67 (67) (c)
21,112,149, pro forma 50 (d) 21,112
Additional Paid-in
Capital 17,272,820 233 67 (c)
(50) (d)
(270) (e) 17,272,800
Deficit accumulated
during development stage (11,838,182) (270) (400,000) (a)
270 (e) (12,238,182)
Treasury Stock, at cost (227,619) (227,619)
----------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 5,228,081 30 1,242,202 6,470,313
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY 6,717,772 30 1,242,202 7,960,004
====================================================
</TABLE>
(a) Represents $400,000 in legal fees paid to the sole in connection with
the merger. As this amount exceeds the net assets of the acquired Company, this
charge will be recognized in earnings upon consummation of the acquisition.
(b) Reflects the issuance of 2,000 shares of preferred stock for net cash
proceeds of $1.6 million in February, 2000.
(c) Reflects the elimination of the historical common stock of JSJ Capital
Corporation.
(d) Records the issuance of 50,000 restricted common shares of HSNS to
effect the recapitalization.
(e) Reflects the elimination of the historical accumulated deficit of JSJ
Capital Corporation.
<PAGE>
<TABLE>
High Speed Net Solutions
Pro Forma Combined Income Statement
(Unaudited)
Year ended December 31,
1999
10/31/99 Pro Pro Forma
Forma
Audited JSJ Combined
Capital Adjust
Corp ment
<S> <C> <C> <C> <C> <C>
Selling, general and $7,541,627 $270 $- (b) $7,541,897
administrative expenses
Interest Expense 2,655,749 - 2,655,749
------------ --------- ---- --- ------------
Loss from operations (10,197,376) 270 - (10,197,106)
Net loss $(10,197,376) $270 $- (b) $(10,197,106)
============== ========= ==== === =============
Per share amounts (basic -
and diluted)
Loss from operations (0.54) - (0.53)
Net loss (0.54) - (0.53)
Weighted average shares
outstanding 19,030,492 50,000 (a) 19,080,492
============== ======== ====== === ============
</TABLE>
(a) The adjustment records the effect of the acquisition and merger which
resulted in an increase in the weighted average shares outstanding.
(b) Upon consummation of the merger, the Company will recognize $400,000
in legal expenses representing legal fees paid in connection with the merger
in excess of net assets of JSJ acquired. This charge is not included as a
pro forma adjustment as it is not expected to have a continuing impact on
the Company.
