SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
AMENDMENT NO. 1
TO
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR 12(G) OF THE
SECURITIES EXCHANGE ACT OF 1934
HIGH SPEED NET SOLUTIONS, INC.
(Exact Name of Registrant as Specified in Its Charter)
FLORIDA 65-0185306
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
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Two Hanover Square, Suite 2120, 434 Fayetteville Street Mall, Raleigh, NC 27601
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(Address of Principal Executive Offices) (Zip Code)
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(919) 807-0507
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(Registrant's Telephone Number, including Area Code)
Securities to be registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
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None N/A
Securities to be registered under Section 12(g) of the Act:
Common Stock $.001 Par Value
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(Title of Class)
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SUMMARY TABLE OF CONTENTS
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ITEM 1. BUSINESS.................................................................................................5
RISK FACTORS............................................................................................17
ITEM 2. FINANCIAL INFORMATION...................................................................................35
ITEM 3. PROPERTIES..............................................................................................43
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..........................................44
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS........................................................................47
ITEM 6. EXECUTIVE COMPENSATION..................................................................................50
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..........................................................58
ITEM 8. LEGAL PROCEEDINGS.......................................................................................63
ITEM 9. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS................................................64
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.................................................................66
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.................................................71
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS...............................................................74
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.............................................................75
ITEM 14. CHANGES IN ACCOUNTANTS..................................................................................76
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.......................................................................77
SIGNATURES.......................................................................................................80
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This Form 10 and the documents incorporated herein by reference contain
forward-looking statements that have been made pursuant to the provisions of the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements are based on current expectations, estimates and projections about
High Speed's industry, management's beliefs, and certain assumptions made by
management. Words such as "anticipates," "expects," "intends," "plans,"
"believes," "seeks" and "estimates" and similar expressions are intended to
identify forward-looking statements. These statements are not guarantees of
future performance and actual actions or results may differ materially. These
statements are subject to certain risks, uncertainties and assumptions that are
difficult to predict, including those set forth in Item 1 "Business - Risk
Factors." High Speed undertakes no obligation to update publicly any
forward-looking statements as a result of new information, future events or
otherwise, unless required by law. Readers should, however, carefully review the
risk factors included herein or in other reports or documents to be filed by
High Speed from time to time with the Securities and Exchange Commission,
particularly the Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and
any Current Reports on Form 8-K.
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Item 1. Business.
ITEM 1. BUSINESS.
GENERAL
We are launching a new business of providing clients with Internet
service for rich media (audio/video/graphics) direct marketing and content
delivery services over the Internet. This business will utilize technology
licensed from Summus Ltd., which owns shares of our Common Stock. See "New
Agreements with Summus."
HISTORY OF HIGH SPEED NET SOLUTIONS (HIGH SPEED)
We were incorporated as a Florida corporation in 1984 under the
original name of EMN Enterprises, Inc. To the best of our knowledge from our
inception in 1984 until mid-1998 High Speed 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. By the end of 1998, however, 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 February 1999, we and Summus Ltd., entered into the Marketing
License Agreement, in which we obtained the right to distribute certain Summus
products and technology. 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 recently terminated the Marketing
License Agreement and entered into new agreements with Summus to support the
requirements of our new business plan. For a description of the new agreements,
see Item 1 "Business - New Agreements with Summus."
In August 1999, Summus acquired 9,542,360 shares of our Common Stock
(approximately 51% of our outstanding shares, and approximately 49% on a fully
diluted basis) from the shareholders who obtained our stock in our acquisition
of Marketers World. As of February 10, 2000, Summus held 8,574,360 shares (40.7%
of our outstanding Common Stock, and 39.1% on a fully diluted basis). Summus
also has the power to vote an additional 2,792,167 shares of our Common Stock
through voting agreements with and/or proxies from 17 persons. Summus' total
voting power is 54.0% of our outstanding Common Stock.
Andrew L. Fox became our acting president and chief executive officer
in August of 1999 to develop a new business strategy 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.
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Item 1. Business.
BUSINESS STRATEGY
In September of 1999, we began investigating Internet opportunities to
generate revenue as a service business using Summus' solution for digital
content management and distribution. This research and subsequent discussions
with potential customers and strategic partners led us to launch our new service
called Rich Media Direct(SM) on January 24, 2000. Rich Media Direct is an
Internet service for rich media (media that contains one or more of the
following: audio/video/graphics/animation) direct marketing, where users can
target customers' that have specific demographic characteristics. Our Rich Media
Direct service will utilize Summus' technology but will not be wholly dependent
on it. Our Rich Media Direct service is intended to provide services to web
commerce companies and other entities on the Internet that desire to increase
traffic, awareness and e-commerce revenue.
We believe that the creation, delivery and consumption of rich media on
the Internet is increasing substantially. During the past few years many
advertisers have shifted part of their advertising away from mass medium radio
and television to the Internet in an effort to increase distribution beyond
their traditional channels. However, the Internet is evolving into a collection
of distinct communities and individuals with specific wants and needs. High
Speed's service will deliver rich media advertisements and content to defined
groups of individuals based on their preferences, a concept known as
microcasting. If people only receive what they favor, it increases the
probability of a response. Initially, we intend to use e-mail applications to
deliver advertising to targeted individuals and demographic groups. However, we
plan to expand from e-mail to other applications.
Because of our license agreement with Summus, we have access to, among
other things, multimedia compression known as Dynamic Wavelet(TM) technology. We
believe that Dynamic Wavelet technology will give us competitive advantages as a
service provider for rich media direct marketing and content delivery. We will
seek to partner with market leading providers of complementary services and
solutions to offer customers a total solution. Targeted partners include telecom
and network service providers, e-mail list vendors and brokers, advertising
agencies, broadcast and entertainment companies, content creation agencies and
Internet portals. In addition, we may partner with developers of other
compression technologies such as MP3, MPEG4 and RealNetworks.
HIGH SPEED AND SUMMUS RELATIONSHIP
Our business strategy depends initially on our nonexclusive rights to
Summus' Dynamic Wavelet and information access technology and products under our
license agreement with Summus. Summus develops media compression, information
access and delivery software. We intend to use Summus' software to deliver our
services. In addition, Summus has indicated it intends to search for, find, and
validate additional customer requirements to sustain fundamental research and
improve the media compression information access software it is developing.
We are in the initial stages of launching our service. In order to
quickly ramp up our business operations and satisfy anticipated future customer
demand, we will utilize 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. High Speed
is currently in the process of recruiting these individuals. For a description
of Summus and Dynamic Wavelet technology, see Item 1 "Business - Summus Ltd.
Overview."
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Item 1. Business.
RICH MEDIA DIRECT(SM) SERVICE.
We announced our Rich Media Direct service in February of 2000 based on
Summus' wavelet technology. Rich Media Direct is an Internet direct marketing
service that delivers rich media advertising and content to targeted demographic
groups through applications such as opt-in email. This service allows customers
to distribute rich media advertisements for purposes such as creating or
increasing (1) product or brand awareness, (2) customer traffic to web
properties, and (3) e-commerce revenue for Internet e-commerce offerings. Our
Rich Media Direct network will provide customers with dedicated bandwidth and a
distributed infrastructure to efficiently distribute rich media advertisements
to targeted audiences. In addition, our Rich Media Direct service will offer
customers the following features after we are able to hire additional employees
and establish our operational capability:
- 7x24 service and support
- Content packaging and compression
- Online tracking and reporting of campaigns
- Customized videomail player graphical user interfaces
for brand extension and hyperlinks
- Online repeat campaign and list selection
- Truste' compliance (to maintain the privacy of
customer data)
- Streaming services
We believe that our Rich Media Direct service will enable our clients
to achieve a higher response rate in the market than traditional Internet banner
advertisements. Our Rich Media Direct advertisements will initially be in the
form of a rich media commercial (audio, video, graphics) attached to an `opt-in'
email message. This will offer advertisers, publishers and media buyers an
advertising distribution medium through e-mail attachments which affords the
ability to: (1) target a demographically selective audience; (2) focus on the
first application that Internet users typically open; and (3) take advantage of
the tendency of many users to forward relevant information to friends and family
(a concept known as viral marketing), thereby extending the effective reach of
the campaign.
COMPETITION
We believe that the primary competitive factors in the rich media
content and advertising delivery services market will include:
- pricing and licensing terms;
- compatibility with new and existing media formats;
- compatibility with the user's existing network components and
software systems;
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Item 1. Business.
- scalability of rich media content and advertising deliver
technology and cost per user;
- the quality and reliability of the overall rich media
advertisement or content;
- access to distribution channels necessary to achieve broad
distribution and use of our services;
- the availability of content for delivery over the Internet and
access to necessary intellectual property rights;
- the ability to license or develop and support secure formats
for digital media delivery, particularly video;
- the ability to license and support popular and emerging media
formats for digital media delivery, particularly video, in a
market where competitors may control the intellectual property
rights for these formats;
- the size of the active audience for rich media advertisements
and its appeal to content providers and advertisers;
- features for creating, editing and adapting content for the
Internet;
- ease of use and interactive user features in products;
- ease of finding and accessing content over the Internet;
- challenges caused by bandwidth constraints and other
limitations of the Internet infrastructure.
Our failure to adequately address any of the above factors could harm
our business strategy and operating results.
We believe that the quality and robustness of Summus' Dynamic Wavelet
technology and information access solution will allow us to provide our clients
with a higher quality advertisement content than our competitors who do not use
wavelet technology. Because wavelet technology has superior compression
capabilities versus older, traditional compression solutions, we expect to be
able to offer rich media advertisements that are higher in quality and smaller
in file size than comparable solutions. Users will benefit from a faster and
more engaging experience, which we expect, will lead to a higher percentage of
clickthroughs.
In addition, Summus' Dynamic Wavelet technology is capable of
displaying media at substantially lower processing cycles than current industry
standard compression. This may allow our rich media advertisements to reach low
power processing devices, such as Internet appliances and other networked
devices.
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Item 1. Business.
Finally, Summus' technology can offer a wide-array of rich media data
types that will offer content creators a dynamic medium on which to convert
existing advertising content or create new advertising content.
If wavelet technology proves to be superior to other technologies, we
expect our competition will switch to wavelet technologies. Summus is not the
only provider of wavelet technology. In addition, since our license rights are
nonexclusive, Summus may provide wavelet technology to our competition.
Therefore, our ability to compete will ultimately depend on aggressive marketing
and providing quality service efficiently.
The marketplace for rich media advertisement delivery is extremely
competitive and rapidly evolving. Traditional Internet advertisement network
companies such as CMGI, 24/7 Media and DoubleClick have included rich media
advertisements, through banner ads, as part of their product mix. These rich
media ads have typically utilized animation (Enliven), streaming audio and video
(RealNetworks and Microsoft) and Java.
We believe our service will be more like direct response marketing than
pure advertising and will not initially compete directly with these companies,
although we recognize that these companies may change their products and
services and compete with us in the future.
We will compete with many companies in the Internet direct marketing
space, including companies that currently utilize e-mail (specifically `opt-in'
e-mail) as a way to target specific demographic groups. These companies include
Message Media, Digital Impact, YesMail, Juno Mail Services, E-commercial.com and
others. Several companies, such as E-commercial.com and RadicalMail are focusing
more specifically on rich media delivery.
We may experience additional competition from Internet service
providers, advertising and direct marketing agencies and other large established
businesses such as America Online, DoubleClick, Microsoft, IBM, AT&T, Yahoo!,
and RealNetworks. Each of these companies possesses large, existing customer
bases, substantial financial resources and established distribution channels and
could develop, market or resell a rich media direct marketing service that could
target customer demographic groups through applications like e-mail. These
potential competitors may also choose to enter this marketplace by acquiring one
of our existing competitors or by forming strategic alliances with these
competitors or others, including alliances with Summus.
MARKET OPPORTUNITY
According to Jupiter Communications, a leading consultant on online
advertising, use of e-mail is the number one activity on the web (95.7% of all
users) followed by searching (87.5%) and research products (71.7%). Advertisers
are well aware of the role that the Internet could play in influencing purchases
and creating awareness, and are increasing their spending for Internet
advertising.
ADVERTISING ON THE WEB. Internet advertising budgets in the US and
elsewhere continue to grow at a healthy pace as companies' demand for media
exposure continues to increase. Industry trends indicate that users are staying
on the Internet for longer lengths of time, which has caused online advertising
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Item 1. Business.
to grow as a percentage of all media advertising. Although Internet advertising
was only 1.25% of the total amount spent by advertisers in 1998, by 2003 Jupiter
Communications expects Internet advertising to be 5.3% of the total amount spent
by advertisers in all media. Jupiter Communications believes that online
advertising will grow from $2.1 billion in 1998 to $11.5 billion in 2003, fueled
by increases in the online population, time spent online, and Internet commerce
adoption.
Other studies also predict aggressive growth in Web advertising revenue
through the year 2002. On the low side, Yankee Group projects advertising
revenue to go from $2.2 billion in year 2000 to $6.5 billion in year 2002. On
the high side, The Forester Group predicts advertising revenue to go from
$4.1 billion in year 2000 to $8.1 billion in year 2002.
The nature of web advertising is competitive and in a state of flux.
Nielson/NetRatings, in a report published on May 17, 1999, found that typical
web surfers saw 120 banners on average and clicked on only 1.2 banners. This is
a click-through rate of 1%, which is half the rate of just two years ago. We
believe that rich-media advertising (advertising with multimedia) will increase
the average click on rate compared to traditional banner advertising. In
addition, as online advertising evolves into a more sophisticated and more
effective targeting media, CPM rate (cost per thousand impressions times
percentage of inventory sold) is expected by Forester Research to increase from
$2.60 in 1998 to $4.80 in 2003.
DIRECT RESPONSE MARKETING ON THE WEB. While online advertising can be
an effective branding device, Internet Direct Response marketing will play a
critical role in driving revenue for web properties. Forester Research expects
direct response marketing on the web (mainly through e-mail) to make up 60% of
all Internet advertising by 2003, compared to 15% in 1998.
According to the Direct Marketing Association, over $160 billion was
spent on direct marketing in 1998 in all media, including the Internet,
television and radio. While there were no reports for revenue generated through
the web, as opposed to traditional direct response marketing through the mail,
90% of DMA members report having a website for the purposes of distributing
information about their company, and 50% utilize the web for sales and
e-commerce activities.
While only 21% indicated that they have combined digital media
(audio/video) into their Internet applications, this represents a 133% increase
over 1998. Of that group, 75% combined audio/video (up from 42% one year ago)
into their web site applications. (DMA Electronic Media Survey). As direct
response marketing migrates to the Internet, we expect that rich media will play
an increasingly significant role.
MARKET SEGMENTS. Our ability to offer a rich media direct marketing
service through applications such as `opt-in e-mail' will position us to provide
services for a number of broad industry segments that are looking to increase
product and brand recognition, web traffic and e-commerce revenue. We expect
that these segments will include:
- Media/Entertainment - expected by Jupiter
Communications to account for $1.5 billion
in Internet advertising by 2003.
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Item 1. Business.
- Financial Services - expected by Jupiter
Communications to account for $1.5 billion in
Internet advertising by 2003.
- Automotive - expected by Jupiter Communications to
account for $1.2 billion in
Internet advertising by 2003.
- Computer hardware and software - expected by Jupiter
Communications to account for $900 million in
Internet advertising by 2003.
- Travel - expected by Jupiter Communications to
account for $800 million in Internet advertising by
2003.
- Consumer Packaged Goods - expected by Jupiter
Communications to account for $650 million in
Internet advertising by 2003.
SALES AND MARKETING
We currently have no contracts with customers nor any orders from
customers. We have been actively marketing our services since December of 1999,
and have several customer prospects in development or negotiation stage. We
currently have two sales personnel, one full time sales representative and one
part time sales representative. We intend to sell our rich media direct
marketing services through a combination of both inside and outside sales
forces, as well as resellers.
We intend to focus our marketing efforts on dedicated Internet
companies with web properties, as well as traditional companies seeking to take
advantage of the commercial opportunities afforded by Internet direct marketing.
We intend to use a range of marketing activities to pursue our objectives,
including trade shows, trade advertisements, selected media events and our own
website and service. We intend to publish additional marketing materials to
support the sales process, including company brochures, feature descriptions,
technology research papers and client case studies. Currently, we lack funding
for such activities and will need to raise substantial capital to implement our
plans.
RESEARCH AND DEVELOPMENT
We do not invest in research and development of wavelet technology
information access or media distribution products. Instead, we rely on a close
relationship with Summus Ltd., a leader in wavelet compression solutions for
multimedia. Summus Ltd. was founded by Dr. Bjorn Jawerth, the founder and a
pioneer of the field of wavelet mathematics. Summus Ltd. has been applying
wavelet theory for military and commercial applications. We believe Summus'
Dynamic Wavelet technology is currently more advanced than the wavelet
technology of Summus' competition.
As a service provider using leading edge media delivery technology to
implement and differentiate our services, our potential for success is
substantially tied to Summus' research and development progress. However, we
anticipate our services will use both proprietary technology licensed from
Summus and generally available, licensable Internet technology
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Item 1. Business.
Summus has a limited track record in developing generally available
commercial software products; however, it has applied its Dynamic Wavelet
technology and intelligent information access expertise in defense-related and
contract research projects with success. In the last two years, Summus has
focused on commercial applications. In doing so, it has not developed commercial
products as quickly as we anticipated in 1999 when we first entered into
agreements with Summus. Summus is currently developing a suite of products
labeled MaxxSystem. To develop MaxxSystem, Summus has recently expanded its
management team and product development organization to develop this suite of
software products. Limited financial resources may limit Summus' ability to
develop products.
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 Direct(SM) and we intend to
file applications for the same mark in strategic 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.
We anticipate entering into confidentiality agreements with our
employees and consultants. We will implement confidentiality agreements, which
require our employees and consultants to hold in confidence and not disclose any
of our proprietary information. Despite our efforts to protect our proprietary
information, unauthorized parties may attempt to obtain and use our proprietary
information. Policing unauthorized use of our proprietary information is
difficult, and the steps we will take might not prevent misappropriation,
particularly in foreign countries where the laws may not protect our proprietary
rights as fully as do the laws of the United States.
We will collect and use data derived from our clients, within the
limits assigned by Truste - an online privacy rights organization. This creates
the potential for claims to be made against us, either directly or through
contractual indemnification provisions with customers, including copyright or
trademark infringement, invasion of privacy, or other legal theories. Our
insurance may not cover potential claims of this type or may not be adequate to
protect us for all liability that may be imposed.
Substantial litigation regarding intellectual property rights exists in
the technology industry. From time to time, third parties have asserted and may
assert exclusive patent, copyright, trademark and other intellectual property
rights to technologies and related standards that are important to us or to
Summus. We and/or Summus may increasingly face infringement claims as the number
of competitors in our industry segments grows and the functionality of products
and services in different industry segments overlaps. In addition, we believe
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Item 1. Business.
that many of our competitors have filed or intend to file patent applications
that may claim infringement via intellectual property developed by Summus.
Although we have not been party to any litigation asserting claims that allege
infringement of intellectual property rights, we may be party to litigation in
the future. Any third party claims, with or without merit, could be
time-consuming to defend, result in costly litigation, divert management's
attention and resources or require us to enter into royalty or licensing
agreements. Such royalty or licensing agreements, if required, may not be
available on terms acceptable to us, if at all. A successful claim of
infringement against us or Summus could harm our future competitiveness and
profitability.
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").
The New Agreements with Summus give us a nonexclusive license to
Summus' current and future products for digital content management solutions for
rich media distribution through the ability to create multiple rich media data
types (audio, video, animation, and graphics). Summus' system leverages the high
compression, high quality nature of Dynamic Wavelets and intelligent information
access technology. Summus' solution implementing these features is called
MaxxSystem. MaxxSystem allows rich media advertising to be attached to e-mails
or streamed from websites. The New Agreements give us non-exclusive rights to
distribute dynamic wavelet encoded content over the Internet or over private
network environments, using MaxxSystem for the purposes of advertising or
content delivery.
Our use of MaxxSystem requires us to make ongoing royalty payments of
ten percent (10%) of the revenues we generate from the use of Summus'
technology. No royalty is payable by us until our cumulative revenue exceeds $10
million.
Under the New Agreements we also have: (i) rights to maintenance,
support, and any new versions of MaxxSystem at an annual fee, although this fee
is waived for the first year; and (ii) the right to make a public announcement
of our use of MaxxSystem two weeks in advance of our competition. The
capabilities of MaxxSystem will allow us to offer a variety of customized
services for advertising and content delivery.
The term of the New Agreements is six years, three years longer than
the Terminated Agreements. The New Agreements give us access to software support
and upgrades from Summus Ltd. We had no maintenance support rights under the
Terminated Agreements.
Under the New Agreements, we have the right to maintenance and all
upgrades for six years. For software support and upgrades, we will pay, on an
annual basis, a percentage of the upfront license fee. Use of MaxxSystem
requires that we pay an upfront license fee, however, this upfront fee was
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Item 1. Business.
waived in consideration for payments we made under the Terminated Agreements. We
will pay $180,000 annually for maintenance and upgrades. This amount cannot
increase at a rate greater than a U.S. government published inflationary index.
Summus waived this fee for the first year. Support from Summus will include the
following:
- Level 2 and 3 support
- Upgrades or `dot' releases of the software system or
components of the software system. These are upgrades
that increment to the right of the 'dot' (i.e.
Version 1.2 to 1.3)
- Generational releases of the software system. These
are upgrades to the left of the 'dot' (i.e. Version
2.0 to 3.0)
We do not have an exclusive license to MaxxSystem or any other Summus
product or technology. Instead, Summus has agreed to pay us 20% of all revenues
that Summus receives during the six year term of the New Agreements from third
party licensees of MaxxSystem who also operate as a service bureau. Summus has
agreed that neither Summus or its affiliates will operate as an internet
advertising service bureau during the term of the new Agreements. Further,
Summus has also agreed that until July 1, 2001, it will not license MaxxSystem
to others for internet advertising service bureau use. Summus has not generated
any revenue with MaxxSystem because the system is still under development.
During the six year term of the New Agreements, for all qualified
engagements that we refer to Summus for technology licensing, consulting or
other products and/or service sales, Summus will pay us 15% of the revenue
received from such engagements during the first year of the agreement between
Summus and the customer.
Under the New Agreements, we and Summus have agreed to a mutual revenue
sharing arrangement for all revenues derived from Samsung Electronics of
America, Inc. We have entered into a letter of intent by and among Samsung,
Summus, and High Speed. There can be no assurance that the letter of intent will
result in an agreement with Samsung or actual revenues for us. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Recent Developments."
Under the Samsung provisions, Summus will pay us 50% of the revenue it
receives from Samsung during the first and second years of an agreement between
Summus and Samsung; Summus will pay us 40% of the revenue it receives during the
third year; and Summus will pay us 20% of the revenue it receives during the
fourth, fifth, and sixth years. Similarly, we will pay Summus 50% of the revenue
we receive from Samsung during the first and second years of an agreement
between High Speed and Samsung; we will pay Summus 40% of the revenue we receive
during the third year; and we will pay Summus 20% of the revenue we receive
during the fourth, fifth, and sixth years. There can be no assurance that either
Summus or High Speed will enter into any agreement with Samsung.
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Item 1. Business.
TERMINATION OF THE MARKETING LICENSE AGREEMENT
The New Agreements replace entirely the Terminated Agreements. The
Terminated Agreements gave us certain exclusive and non-exclusive rights to
market and distribute Summus products and technology. We no longer have these
rights. Our former rights included:
- Exclusive rights to license a streaming product
demonstration utilizing Summus wavelet technology
- Non-exclusive rights to license maxxNote 1.0 and 2.0
(a videomail product)
- Non-exclusive rights to license 4U2C - an image
compression tool
- Non-exclusive rights to license version 1.0 of a
video conferencing product
To date we have not used these rights to generate revenue in the
marketplace.
SUMMUS LTD. OVERVIEW.
This section describes material information concerning the business and
products of Summus. This information is included because our future ability to
deliver our services and execute our business plan depends in part upon Summus
products and technology.
HISTORY OF SUMMUS LTD. Historically, since its founding in 1991,
Summus' business has focused on contract engineering and research and
development for the Department of Defense. These projects included battlefield
and armament imaging and object recognition. Other public sector projects
include real-time imaging from vehicles over limited-bandwidth private radio
systems and applying Summus' wavelet technology to space programs where it
achieved large scale image compression for a space probe scheduled to launch for
a comet investigation.
As of January 31, 2000, Summus employs 45 persons on a full time basis
and has one part time employee. A majority of Summus' shares are owned by its
founder, Dr. Bjorn Jawerth, and there is no public market for Summus shares.
Summus is a private corporation in the state of Delaware. Although we own
167,000 shares of Summus Common Stock and Summus owns 8,574,360 shares of our
Common Stock, Summus is an independent entity from High Speed. Except as
provided in the agreements between us and Summus that are described in this
document, we have no rights to any products or technology of Summus. Our 167,000
shares of Summus Common Stock constituted approximately 14.0% of the issued and
outstanding shares of Summus at January 31, 2000. When options, warrants and
convertible securities are taken into account, we owned only 12.8% of Summus'
shares on a fully diluted basis at January 31, 2000. Summus will continue to
seek to raise capital to support its investment in research and product
development. Therefore, there is potential future dilution to our ownership
position in Summus.
In 1998, Summus commercialized some of its technology through software
development kits and licensed its technology using the software development kits
to companies such as Corel, Fuji and Symbol. Summus' business plan calls for
continued commercialization of its technology and expansion into the commercial
products market and Internet solution business. Specific Summus' objectives
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Item 1. Business.
include creating widespread use and ubiquity of its wavelet technology through
licensing and distribution and completion of its MaxxSystem for digital media
distribution and management.
SUMMUS DYNAMIC WAVELET TECHNOLOGY. Summus' wavelet solutions utilize
image outlines or edges as the basis for information processing in a way similar
to how human vision works. This natural basis for compression and decompression
allows Summus to achieve compression ratios that are among the highest in the
industry, while preserving image and video quality. Most standard Internet
compression solutions utilize Discrete Cosine Transforms ("DCT") or fractal
compression that results in a blocky affect after compression. In contrast,
Summus' wavelet solution maintains a fidelity that is void of blocky artifacts
and is visually appealing. In addition, Summus' wavelet solution gives the user
powerful and faster functionality for manipulating the image after compression,
for applications such as pattern recognition, motion compensation and contrast
adjustments.
In summary, Summus' Dynamic Wavelets can:
- Allow fast upload and download of media over existing
connections
- Require less buffering for streaming and produce faster
rendering for browsers
- Provide higher quality compression than existing encoders
- Lower file storage footprint for existing media
- Reduce end-user and hosted server storage costs
- Reduce end-user and hosted network data load costs
- Require less CPU processing cycles
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Risk Factors
RISK FACTORS
This Form 10 contains forward-looking statements. These forward-looking
statements are based on current expectations, estimates and projections about
our industry, management's beliefs, and certain assumptions made by management.
Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks"
and "estimates" and similar expressions are intended to identify forward-looking
statements. These statements are not guarantees of future performance and actual
actions or results may differ materially. These statements are subject to
certain risks, uncertainties and assumptions that are difficult to predict. We
undertake no obligation to update publicly any forward-looking statements as a
result of new information, future events or otherwise, unless required by law.
You should carefully consider the risks described below, together with
all of the other information included in this Form 10, before making an
investment decision. The risks and uncertainties described below are not the
only ones we face. If any of the following risks actually occurs, our business,
financial condition or operating results could be harmed. In such case, the
trading price of our Common Stock could decline, and you could lose all or part
of your investment.
RISKS RELATED TO SUMMUS LTD.
OUR CURRENT SYSTEM REQUIRES ENHANCEMENTS TO ALLOW US TO PROVIDE
SERVICES THAT WILL REMAIN ATTRACTIVE TO POTENTIAL CUSTOMERS.
Our current system only allows us to provide services for customers to
attach rich media advertising to e-mails. We believe this capability will need
to be enhanced for us to remain competitive.
WE DO NOT DEVELOP THE TECHNOLOGY NECESSARY TO EXECUTE OUR BUSINESS
PLAN.
All the technology we currently use has been developed by Summus Ltd.
We have no technology development capability and all enhancements and new
technology we need to execute our business plan will depend upon Summus or third
parties being able to develop such enhancements and new technology. Any
unfavorable developments at Summus that may delay or prevent development of
Summus' products would have a material adverse effect on us.
OUR TECHNOLOGY SUPPLIER, SUMMUS, HAS NO CONTRACTUAL OBLIGATION TO
DELIVER NEW TECHNOLOGY OR ENHANCEMENTS TO US.
The agreements between Summus and us give us nonexclusive rights to
certain technology of Summus if it is developed, but the agreements create no
contractual obligation by Summus to develop technology for us other than
MaxxSystem. Summus may fail to develop technology in time for us to sell
products and generate revenue and future delays could have a material adverse
effect on our business.
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Risk Factors
WE HAVE LIMITED RIGHTS TO SUMMUS TECHNOLOGY AND OUR RIGHTS ARE
NONEXCLUSIVE.
Our rights to Summus' technology are limited to those rights defined in
the agreements between Summus and us. In addition, our rights are nonexclusive.
After July 1, 2001, Summus is free to license MaxxSystem to our competitors.
CONFLICTS OF INTEREST BETWEEN SUMMUS AND US MAY LIMIT OUR
OPPORTUNITIES.
As of February 10, 2000, Summus held 8,574,360 shares of our Common
Stock (40.7% of our outstanding Common Stock, and 39.1% on a fully diluted
basis). Summus also has the right to vote an additional 2,792,167 shares of our
Common Stock under voting agreements with and/or proxies from 17 persons. Total
Summus voting power is 54.0% of our outstanding Common Stock. Two members of our
Board of Directors are officers of Summus. In addition, one of our officers owns
Summus stock and stock options and both of our officers were formerly employed
by Summus. Furthermore, Alan Kleinmaier, who is our Acting CFO and our Executive
Vice President, Secretary and Treasurer, is the Acting CFO of Summus. If Summus
decides that our business conflicts with the interests of Summus, conflict of
interests between us and our major shareholder, our Board members, and our
officers, may limit our ability to operate in a way that is contrary to the
interest of Summus.
If Summus changes its technology development direction, we could be
deprived of vital technology.
Even if Summus grows and is successful, Summus could decide to dedicate
its development resources to applications that are not useful to us. In that
case, we would not benefit from improvements that are necessary for us to remain
competitive.
OUR RELATIONSHIP WITH SUMMUS MAY PREVENT US FROM ENTERING INTO
STRATEGIC RELATIONSHIPS WITH OTHER COMPANIES.
It may be in our interest to enter into strategic relationships with
companies that are competitive with Summus or that otherwise would not want to
have a relationship with us because of our relationship with Summus. Our
relationship with Summus, therefore, could cause us to miss opportunities to
enter into strategic alliances with other companies that would be of greater
value to us.
SALES OF OUR SHARES BY SUMMUS MAY HAVE AN ADVERSE EFFECT ON THE MARKET
PRICE OF OUR COMMON STOCK.
As of February 10, 2000, Summus owns 8,574,360 shares of our Common
Stock. Summus has sold 2,415,000 shares of our Common Stock since August 25,
1999 for prices ranging from $1.35 to $8.50 per share. Our shares are the
primary liquid asset of Summus, which may sell more of our shares to finance its
own operations. Future sales of our shares by Summus could adversely affect the
market price of our Common Stock.
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Risk Factors
SHAREHOLDERS MAY BE UNABLE TO EXERCISE CONTROL BECAUSE SUMMUS OWNS A
LARGE PERCENTAGE OF OUR STOCK.
As of February 10, 2000, our strategic partner and technology source,
Summus, owns 8,574,360 shares of our Common Stock (40.7% of our outstanding
Common Stock, and 39.1% on a fully diluted basis). Dr. Bjorn Jawerth, the
founder and chairman of the Board of Summus, beneficially owns approximately
39.1% of our Common Stock. Summus also has the right to vote an additional
2,792,167 shares of our Common Stock under voting agreements with and/or proxies
from 17 persons. Total Summus voting power is 54.0% of our outstanding Common
Stock. As a result, Dr. Jawerth and Summus will have significant influence to:
- Elect or defeat the election of our directors;
- Amend or prevent amendment of our articles of
incorporation or bylaws;
- Effect or prevent a merger, sale of assets or other
corporate transaction; and
- Control the outcome of any other matter submitted to
the shareholders for vote.
WE NEED TO ENTER INTO ADDITIONAL STRATEGIC RELATIONSHIPS TO IMPLEMENT
OUR BUSINESS PLAN.
In addition to our relationship with Summus, we believe we will need
strategic relationships with other entities to help us:
- Maximize adoption of our services through
distribution arrangements;
- Increase the type of rich media content developed or
hosted;
- Increase the amount and availability of compelling
media content available for our rich media direct
marketing services to help boost demand for our
services;
- Enhance our brand;
- Expand the range of commercial activities based on
our technology;
- Expand the distribution of our rich media direct
marketing without a degradation in fidelity; and
- Increase the performance and utility of our services.
Many of these goals are beyond our resources. We anticipate that the
efforts of our strategic partners will become more important as the multimedia
experience over the Internet matures. For example, we may become more reliant on
strategic partners to provide multimedia content, provide more secure and
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Risk Factors
easy-to-use electronic commerce solutions and build out the necessary
infrastructure for media delivery. We may not be successful in forming strategic
relationships. In addition, the efforts of our strategic partners may be
unsuccessful. Furthermore, these strategic relationships may be terminated
before we realize any benefit.
RISK RELATED TO OTCBB STATUS AND MARKET FACTORS
OUR STOCK MAY CEASE TO BE QUOTED IN THE OTCBB.
Under current rules, our Common Stock will cease to be quoted on the
OTCBB if our Form 10 filed with the Securities and Exchange Commission does not
clear comments and become effective on or before May 17, 2000. There can be no
assurance our Form 10 will become effective before this date. If our stock
ceases to be quoted on the OTCBB, our shareholders are likely to lose liquidity,
and as trading volume decreases the market price of our stock is likely to
decrease substantially. In addition, if our Form 10 does not become effective on
or before April 17, 2000, our stock will trade with a warning that it may cease
to be quoted on the OTCBB. If that occurs, some shareholders may sell their
shares and price of our stock may decline as a result even if our stock
continues to be quoted on the OTCBB.
OUR STOCK PRICE MAY BE VOLATILE.
The trading price of our Common Stock has been and is likely to
continue to be highly volatile. For example, during the 52-week period ended
January 29, 2000, the price of our Common Stock ranged from $1.125 to $31.875
per share. We are not aware of any reason for the increase in the price of our
stock. Our stock price could be subject to wide fluctuations in response to
factors such as:
- Actual or anticipated variations in quarterly
operating results;
- Announcements of technological innovations, new
products or services by us or our competitors;
- Changes in financial estimates or recommendations by
securities analysts;
- The addition or loss of strategic relationships;
- Conditions or trends in the Internet, rich media
delivery and on-line commerce markets;
- Changes in the market valuations of other Internet,
on-line service or software companies;
- Announcements by us or our competitors of significant
acquisitions, strategic partnerships, joint ventures
or capital commitments;
- Legal or regulatory developments;
- Additions or departures of key personnel;
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Risk Factors
- Sales of our Common Stock;
- General market conditions;
- Better understanding of our business by the investing
public as the information disclosed in this document
becomes available to the market.
In addition, the stock market in general, and the Over the Counter
Bulletin Board (OTCBB) and the market for Internet and technology companies in
particular, have experienced extreme price and volume fluctuations that have
often been unrelated or disproportionate to the operating performance of these
companies. These broad market and industry factors may reduce our stock price,
regardless of our operating performance. The trading prices of the stocks of
many technology companies are at or near historical highs and reflect
price-earnings ratios substantially above historical levels. These trading
prices and price-earnings ratios may not be sustained.
THE OTCBB MAY LIMIT THE VALUE OF OUR STOCK.
Our shares are traded on the Over the Counter Bulletin Board (OTCBB),
an electronic quotation service. Approximately 23 broker-dealer firms are
currently market makers for our Common Stock. 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 bid and ask price of its
stock and a general loss of liquidity with its stock. In addition, many
investors have policies against purchasing or holding OTCBB securities. Both
trading volume and the market value of the securities have been, and will
continue to be, affected by trading on the OTCBB.
As an OTCBB company, the market price of our securities has the
potential to be very volatile as a result of many factors, some of which are
outside of our control, including, but not limited to, quarterly variations in
financial results, announcements by us, our competitors, partners, customers,
potential customers or government agencies and predictions by industry analysts,
as well as general economic conditions. Sales by our existing stockholders
(including Summus), trading by short-sellers and other market factors may
adversely affect the market price of our securities. Any or all these risks have
had and are likely to have a material adverse affect on the market price of our
securities. With the potential for substantially lower trading volumes that may
occur because we are an OTCBB company, the foregoing factors would then have a
greater adverse impact on the market price of the our securities.
RISKS RELATED TO FINANCIAL RESULTS AND CONDITION
WE HAVE A LIMITED OPERATING HISTORY, WHICH MAKES IT DIFFICULT TO
EVALUATE OUR BUSINESS.
We have a limited operating history because we terminated operations in
all market segments during the fourth quarter 1998. In the third quarter of
1999, we began preparations to enter the Internet rich media delivery services
market. We have extremely limited financial results on which future performance
can be predicted. Our prospects must be considered in light of the risks,
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Risk Factors
expenses and difficulties frequently encountered by companies in new and rapidly
evolving markets, such as, Internet advertising, media delivery systems and
electronic commerce.
To address the risks and uncertainties we face, we must:
- establish and maintain market acceptance of our
services and convert that acceptance into direct and
indirect sources of revenues;
- establish target markets and channels of
distributions to those markets;
- establish, maintain and develop our brand name;
- timely and successfully develop new services and
increase the value of existing services;
- successfully respond to competition; and
- develop and maintain strategic relationships to
enhance the distribution, features and utility of our
services.
Our business strategy may be unsuccessful and we may be unable to
address the risks we face in a cost-effective manner, if at all. Our inability
to successfully address these risks will harm our business.
WE LACK SUFFICIENT FINANCIAL RESOURCES TO IMPLEMENT OUR BUSINESS PLAN.
At January 31, 2000, we had approximately $200,000 of cash. Summus has
advanced us $154,000 since August 25, 1999 to allow us to pay our expenses. We
have no commitment from Summus to continue to advance money to sustain
operations. Therefore, to implement our business plan we will need to raise
additional capital in the near future from investors other than Summus. There
can be no assurance that we will be able to raise capital on terms that are
favorable to us. We may be forced to sell shares at prices below the market
price of our stock on the OTCBB. Our sale of shares of capital stock to finance
implementation of our business plan will dilute the ownership of our existing
shareholders.
WE HAVE A HISTORY OF LOSSES AND MAY NOT BECOME PROFITABLE.
We have not yet generated any revenue in the rich media delivery
services market and we may never become profitable. As of December 31, 1999, we
had an accumulated deficit of approximately $11.8 million dollars. We will
devote significant resources to enhancing, selling, marketing and delivering our
services. As a result, we will need to generate significant revenues to achieve
profitability. We may not achieve a growth pattern or generate sufficient
revenues to begin, sustain or increase profitability on a quarterly or annual
basis in the future.
OUR OPERATING RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY.
As a result of our limited operating history and the rapidly changing
nature of the markets in which we compete, our quarterly and annual revenues and
operating results are likely to fluctuate from period to period. These
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Risk Factors
fluctuations may be caused by a number of factors, many of which are beyond our
control. These factors include the following, as well as others discussed
elsewhere in this section:
- How and when we introduce new services and enhance
these services;
- The timing and success of our brand building and
marketing campaigns;
- Our ability to establish and maintain strategic
relationships;
- Our ability to attract, train and retain key
personnel;
- The demand for Internet advertising and sponsorships;
- The emergence and success of new and existing
competition;
- Varying operating costs and capital expenditures
related to the expansion of our business operations
and infrastructure, including the hiring of new
employees;
- Technical difficulties with our services, system
downtime, system failures or interruptions in
Internet access;
- Costs related to the acquisition of businesses or
technology; and
- Costs of litigation and intellectual property
protection.
In addition, because the market for our services is relatively new and
rapidly changing, it is difficult to predict future financial results. Our sales
and marketing efforts, and business expenditures generally, are partially based
on predictions regarding certain developments for rich media delivery services.
To the extent that these predictions prove inaccurate, our revenues and
operating expenses may fluctuate.
For these reasons, investors should not rely on period-to-period
comparisons of our financial results as indications of future results. Our
future operating results could fall below the expectations of public market
analysts or investors and significantly reduce the market price of our Common
Stock. Fluctuations in our operating results will likely increase the volatility
of our stock price.
RISKS RELATED TO OUR OPERATIONS
WE MAY BE UNABLE TO SUCCESSFULLY COMPETE IN THE RICH MEDIA DIRECT
MARKETING MARKET.
The market for software and services for rich media advertising and
direct marketing over the Internet is relatively new, constantly changing and
competitive. Rich media direct marketing services are a specialized form of
Internet media delivery, regardless of whether such delivery is via downloading
or streaming.
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Risk Factors
Our services may apply a direct response advertising model to Internet
e-mail advertising by adding media content to enhance the viewer's experience
and give the viewer the option to choose to obtain more information, provide
feedback, or even make a purchase decision. We do not know whether the direct
response model will be accepted for Internet e-mail advertising. Furthermore, we
do not know whether there is a sustainable market for these services. Even if
that market exists, we may be unable to develop a revenue model or sufficient
demand to take advantage of the market opportunity.
Our business success depends on the general growth of Internet
advertising and website content distribution. While Internet advertising
revenues across the industry continue to grow, the number of services competing
for advertising revenues is also growing. Other Internet content and advertising
services that compete with our service may be more attractive to advertisers,
which would harm our business.
Our rich media delivery service will also compete with traditional
media such as television, radio and print for a share of advertisers' total
advertising budgets. Our advertising sales force and infrastructure are still in
early stages of development relative to those of our competitors. We cannot be
certain that advertisers will place advertising with us or that revenues derived
from such advertising will be meaningful. If we lose advertising customers, fail
to attract new customers, are forced to reduce advertising rates or otherwise
modify our rate structure to retain or attract customers, our business could be
harmed.
Increased competition may result in price reductions, reduced margins,
loss of market share, loss of customers, and a change in our business and
marketing strategies, any of which could harm our business.
WE MAY BE UNABLE TO SUCCESSFULLY COMPETE WITH OTHER COMPANIES THAT
OPERATE IN THE BROADER MEDIA DELIVERY MARKET.
Our rich media delivery services are a specialized form of Internet
media delivery because our services target multimedia messages to end users
based on user preferences - a concept known as microcasting. In contrast, the
broader general media delivery market offers capability to deliver media over
the Internet for a variety of purposes, including the potential capability to
deliver media in a similar fashion. The technology providing the foundation for
our Rich Media Direct Service competes in this general media delivery market.
As media delivery evolves into a central component of the Internet
experience, more companies are entering the market for, and are expending
increasing resources to develop, media delivery software and services. We expect
that competition will continue to intensify in the general media delivery
market. This increases the chance that companies operating in the general media
delivery market will target niche applications such as the one that we intend to
enter.
Many of our potential competitors have longer operating histories,
greater name recognition, more employees and significantly greater financial,
technical, marketing, public relations and distribution resources than we do.
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Risk Factors
The competitive environment may require us to make changes in our services or
marketing to maintain and extend our current brand and technology franchise.
Price concessions or the emergence of other pricing or distribution strategies
of competitors may diminish our revenues, impact our margins or lead to a
reduction in our market share, any of which will harm our business.
WE MAY NOT SUCCESSFULLY DEVELOP NEW SERVICES.
To date, technology we license from Summus only allows rich media
messages to be attached to emails. Our growth depends on our ability to license
from Summus other media distribution and management solutions. Our business and
operating results would be harmed if we fail to develop services that achieve
widespread market acceptance or that fail to generate significant revenues to
offset development costs. We may not timely and successfully identify, develop
and market new service opportunities. If we introduce new services, they may not
attain broad market acceptance or contribute meaningfully to our revenues or
profitability.
Because the markets for our services are rapidly changing, we must
develop new offerings quickly. Delays and cost overruns could affect our ability
to respond to technological changes, evolving industry standards, competitive
developments or customer requirements. Our services also may contain undetected
errors that could cause increased development costs, loss of revenues, adverse
publicity, reduced market acceptance of the services or lawsuits by customers.
WE DEPEND ON KEY PERSONNEL WHO MAY LEAVE US AT ANY TIME.
Our success substantially depends on the continued employment of our
executive officers and key employees, particularly Andrew Fox, our acting CEO
and President. The loss of the services of Mr. Fox or any of our other executive
officers or key employees could harm our business.
None of our executive officers has a contract that guarantees
employment. Summus will provide "key person" life insurance policies on Mr. Fox
and Mr. Kleinmaier for us until we put our own policy in place. We do not have
noncompete clauses in our contracts with our officers.
WE DO NOT HAVE THE KEY EMPLOYEES REQUIRED TO IMPLEMENT OUR BUSINESS
PLAN AND WE MUST RECRUIT AN ENTIRE NEW TEAM.
We have only three employees. Key officers, including Andrew Fox,
acting President and CEO, and Alan Kleinmaier, (acting CFO), will have to be
replaced with a permanent CEO and CFO. In addition, an entire marketing, service
and financial staff must be recruited. There is a very limited number of people
with experience in Internet marketing and service. In addition, since we lack an
operating history or financial resources, people we desire to recruit may not
find us to be an attractive employer. Therefore, we may not be able to recruit
the team required to implement our business plan.
Our success also depends on our ability to attract, train and retain
qualified personnel, specifically those with management and service provider
skills. In particular, we must hire skilled technology employees to establish
our service business. Competition for such personnel is intense, particularly in
high-technology centers such as the Research Triangle Park and surrounding
cities of Raleigh, Durham, and Chapel Hill, North Carolina.
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Risk Factors
In making employment decisions, particularly in the Internet and
high-technology industries, job candidates often consider the value of stock
options they may receive in connection with their employment. As a result of
potential volatility in our stock price because we are an OTCBB company, we may
be disadvantaged in competing with companies that have not experienced similar
volatility or that have not yet sold their stock publicly. If we do not succeed
in attracting new personnel or retaining and motivating our current personnel,
our business could be harmed.
WE CURRENTLY LACK EQUIPMENT AND SYSTEMS TO IMPLEMENT OUR BUSINESS PLAN.
We are entering a new market with a new business plan. We currently
lack the underlying infrastructure and service network as well as employees
needed to manage these systems. Our inability to successfully implement these
systems in a timely fashion could impede our ability to grow our business and
could harm revenue generation.
We are in the process of implementing new management information
software systems. This will affect many aspects of our business, including our
accounting, operations, electronic commerce, customer service, purchasing, sales
and marketing functions. The purchase, implementation and testing of these
systems will require significant capital expenditures and could disrupt our
day-to-day operations. If these systems are not implemented as expected, our
ability to provide services to our customers on a timely basis will suffer and
delays in the recording and reporting of our operating results could occur.
OUR BUSINESS WILL SUFFER IF OUR SYSTEMS FAIL OR BECOME UNAVAILABLE.
A reduction in the performance, reliability and availability of our
websites and network infrastructure once acquired will harm our ability to
distribute our services to our users, as well as our reputation and ability to
attract and retain users, customers, advertisers and content providers. Our
systems and operations could be damaged or interrupted by fire, flood, power
loss, telecommunications failure, Internet breakdown, earthquake and similar
events. Our systems are also subject to break-ins, sabotage, intentional acts of
vandalism and similar misconduct. Our computer and communications infrastructure
is located at a single leased facility in Raleigh. Due to insufficient capital,
we do not plan to have fully redundant systems. We currently lack a formal
disaster recovery plan, and we do not carry adequate business interruption
insurance to compensate us for losses that may occur from a system outage.
Our electronic commerce and digital distribution activities will be
managed by sophisticated software and computer systems to be acquired when we
raise capital. We may encounter delays in developing or upgrading these systems,
and the systems may contain undetected errors that could cause system failures.
Any system error or failure that causes interruption in availability of our
services or content or an increase in response time could result in a loss of
potential or existing business services customers, users, advertisers or content
providers. If we suffer sustained or repeated interruptions, our services and
websites could be less attractive to such entities or individuals and our
business would be harmed.
A sudden and significant increase in traffic on our websites could
strain the capacity of the software, hardware and telecommunications systems
that we deploy or use. This could lead to slower response times or system
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Risk Factors
failures. Our operations will also depend on receipt of timely content feeds
from our content providers, and any failure or delay in the transmission or
receipt of such content feeds could disrupt our operations. We will depend on
Web browsers, ISPs and on-line service providers who have experienced
significant outages in the past, and could experience outages, delays and other
difficulties due to system failures unrelated to our systems. In addition, ISPs
could temporarily interrupt our website operations in response to a heavy load
of rich media content transmission. These types of interruptions could continue
or increase in the future.
OUR NETWORK WILL BE SUBJECT TO SECURITY RISKS THAT COULD HARM OUR
REPUTATION AND EXPOSE US TO LITIGATION OR LIABILITY
On-line commerce and communications depend on the ability to transmit
confidential information securely over public networks. Any compromise of our
ability to transmit confidential information securely, and costs associated with
preventing or eliminating any problems, could harm our business. On-line
transmissions are subject to a number of security risks, including:
- our own or licensed encryption and authentication technology
may be compromised, breached or otherwise be insufficient to
ensure the security of customer information;
- we could experience unauthorized access, computer viruses and
other disruptive problems, whether intentional or accidental;
- a third party could circumvent our security measures and
misappropriate proprietary information or interrupt
operations; and
- credit card companies could restrict on-line credit card
transactions.
The occurrence of any of these or similar events could damage our
reputation and expose us to litigation or liability. We may also be required to
expend significant capital or other resources to protect against the threat of
security breaches or to alleviate problems caused by such breaches.
WE WILL RELY ON CONTENT PROVIDED BY THIRD PARTIES TO INCREASE MARKET
ACCEPTANCE OF OUR SERVICES.
If third parties do not develop or offer compelling content to be
delivered over the Internet, our business will be harmed and our services may
not achieve or sustain broad market acceptance. We and our advertisers and
content creators will rely on third-party content providers, such as radio and
television stations, record labels, media companies, websites and other
companies, to develop and offer content in our formats that can be delivered
using our media delivery services and viewed using our microcasting services. We
cannot guarantee that third-party content providers will decide to rely on our
technology or offer compelling content in our formats to encourage and sustain
broad market acceptance of our services. Their failure to do so would harm our
business.
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Risk Factors
RISKS RELATED TO OUR INDUSTRY
THE GROWTH OF OUR BUSINESS DEPENDS ON THE INCREASED USE OF THE INTERNET
FOR COMMUNICATIONS, ELECTRONIC COMMERCE AND ADVERTISING.
The growth of our business will depend on the continued growth of the
Internet as a medium for communications, electronic commerce and advertising.
Our business will be harmed if Internet usage does not continue to grow,
particularly as a source of media information and entertainment and as a vehicle
for commerce in goods and services. Our success will also depend on the efforts
of third parties to develop the infrastructure and complementary products and
services necessary to maintain and expand the Internet as a viable commercial
medium. The Internet may not be accepted as a viable commercial medium for
broadcasting multimedia content or media delivery for a number of reasons,
including:
- potentially inadequate development of the necessary
infrastructure to accommodate growth in the number of users
and Internet traffic;
- lack of acceptance of the Internet as a medium for
distributing streaming media content or for media delivery;
- unavailability of compelling multimedia content;
- inadequate commercial support for Internet-based advertising;
and
- delays in the development or adoption of new technological
standards and protocols or increased governmental regulation,
which could inhibit the growth and use of the Internet.
In addition, we believe that other Internet-related issues, such as
security, reliability, cost, ease of use and quality of service and privacy
remain largely unresolved and may affect the amount of business that is
conducted over the Internet.
If Internet usage grows, the Internet infrastructure may not be able to
support the demands placed on it by such growth, specifically the demands of
delivering high-quality media content. As a result, its performance and
reliability may decline. In addition, websites have experienced interruptions in
service as a result of outages and other delays occurring throughout the
Internet network infrastructure. If these outages or delays occur frequently in
the future, Internet usage, as well as the usage of our services and websites,
could grow more slowly or decline.
OUR INDUSTRY IS EXPERIENCING CONSOLIDATION THAT MAY INTENSIFY
COMPETITION.
The Internet industry has recently experienced substantial
consolidation and a proliferation of strategic transactions. We expect this
consolidation and strategic partnering to continue. Acquisitions or strategic
relationships could harm us in a number of ways. For example:
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<PAGE>
Risk Factors
- competitors could acquire or partner with companies with which
we have strategic relationships and discontinue our
relationship, resulting in the loss of these distribution
channels;
- competitors could obtain exclusive access to desirable
multimedia content and prevent that content from being
available in our formats, thus decreasing the use of our
services to distribute and experience the content that
audiences most desire, and hurting our ability to attract
advertisers to our rich media advertising offerings;
- a competitor could be acquired by a party with significant
resources and experience that could increase the ability of
the competitor to compete with our services;
- A competitor could acquire similar wavelet intellectual
property and develop a similar business and offering.
Recent announcements and consolidations that could adversely affect our
business include:
- Microsoft's strategic investments in broadband initiatives,
including its recently announced $5 billion investment in
AT&T;
- AT&T's acquisition of TCI and its announcement that it will
acquire MediaOne Communications;
- At Home's acquisition of Excite;
- Yahoo!'s acquisitions of Broadcast.com and GeoCities;
- The Walt Disney Company's recent announcement that it intends
to combine its Internet assets with, and acquire a majority
ownership of, Infoseek, and create a single business called
go.com;
- NBC's announcement that it intends to merge its Internet
assets with XOOM.com, Inc. and Snap.com, a subsidiary of CNET;
- RealNetworks announcement of a strategic partnership with
DoubleClick;
- IBM's recent announcement of a partnership with Olgivy &
Mathers; and
- AOL and Time-Warner's announced merger.
CHANGES IN NETWORK INFRASTRUCTURE, TRANSMISSION METHODS AND BROADBAND
TECHNOLOGIES POSE RISKS TO OUR BUSINESS.
We believe that increased Internet use may depend on the availability
of greater bandwidth or data transmission speeds (also known as broadband
transmission). If broadband access becomes widely available, we believe it
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<PAGE>
Risk Factors
presents a significant business challenge for us. Development of rich media
services for a broadband transmission infrastructure involves a number of
additional risks, including:
- changes in content delivery methods and protocols;
- the emergence of new competitors, such as traditional media
advertising companies as well as broadcast and cable
television companies, which have significant control over
access to content, substantial resources and established
relationships with media providers;
- the development of relationships by our current competitors
with companies that have significant access to or control over
the broadband transmission infrastructure or content;
- the need to establish new relationships with non-PC based
providers of broadband access, such as providers of television
set-top boxes and cable television, some of which may compete
with us; and
- the general risks of new service development, including the
challenges to develop error-free enhancements, develop
compelling services and achieve market acceptance for these
services.
We will depend on the efforts of third parties to develop and provide a
successful infrastructure for broadband transmission. Even if broadband access
becomes widely available, heavy use of the Internet may negatively impact the
quality of media delivered through broadband connections. If these third parties
experience delays or difficulties establishing a widespread broadband
transmission infrastructure or if heavy usage limits the broadband experience,
the release of our rich media services for broadband transmission could be
delayed. Even if a broadband transmission infrastructure is developed for
widespread use, our services may not achieve market acceptance or generate
sufficient revenues to offset our development costs.
RISKS RELATED TO LEGAL UNCERTAINTY
WE ARE SUBJECT TO RISKS ASSOCIATED WITH GOVERNMENTAL REGULATION AND
LEGAL UNCERTAINTIES.
Few existing laws or regulations specifically apply to the Internet,
other than laws and regulations generally applicable to businesses. Certain U.S.
export controls and import controls of other countries, including controls on
the use of encryption technologies, may apply to our services. However, it is
likely that a number of laws and regulations may be adopted in the United States
and other countries with respect to the Internet. These laws may relate to areas
such as content issues (such as obscenity, indecency and defamation), copyright
and other intellectual property rights, encryption, use of key escrow data,
caching of content by servers, electronic authentication or "digital
signatures," personal privacy, advertising, taxation, electronic commerce
liability, e-mail, network and information security and the convergence of
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<PAGE>
Risk Factors
traditional communication services with Internet communications, including the
future availability of broadband transmission capability. Other countries and
political organizations are likely to impose or favor more and different
regulation than that which has been proposed in the United States, thus
furthering the complexity of regulation. The adoption of such laws or
regulations, and uncertainties associated with their validity and enforcement,
may affect the available distribution channels for and costs associated with our
services, and may affect the growth of the Internet. Such laws or regulations
may therefore harm our business.
We do not know for certain how existing laws governing issues such as
property ownership, copyright and other intellectual property issues, taxation,
illegal or obscene content, retransmission of media and personal privacy and
data protection apply to the Internet. The vast majority of such laws were
adopted before the advent of the Internet and related technologies and do not
address the unique issues associated with the Internet and related technologies.
Most of the laws that relate to the Internet have not yet been interpreted.
Changes to or the interpretation of these laws could:
- limit the growth of the Internet;
- create uncertainty in the marketplace that could reduce demand
for our services;
- increase our cost of doing business;
- expose us to significant liabilities associated with content
available on our websites or distributed or accessed through
our services; or
- lead to increased service delivery costs, or otherwise harm
our business.
On October 28, 1998, the Digital Millennium Copyright Act (DMCA) was
enacted. The DMCA includes statutory licenses for the performance of sound
recordings and for the making of recordings to facilitate transmissions. Under
these statutory licenses, we and customers or our rich media services will be
required to pay licensing fees for sound recordings we deliver in original and
archived programming. The DMCA does not specify the rate and terms of the
licenses, which will be determined either through voluntary inter-industry
negotiations or arbitration. We currently anticipate that representatives of the
webcasting industry will engage in arbitration with the Recording Industry
Association of America to determine what, if any, licensee fee should be paid.
Depending on the rates and terms adopted for the statutory licenses, our
business could be harmed both by increasing our own cost of doing business, as
well as by increasing the cost of doing business for our customers.
The Child Online Protection Act and the Child Online Privacy Protection
Act (COPA) were enacted in October 1998. The COPA impose civil and criminal
penalties on persons distributing material harmful to minors (e.g., obscene
material) over the Internet to persons under the age of 17, or collecting
personal information from children under the age of 13. We do not knowingly
collect and disclose personal information from such minors. The manner in which
the COPA may be interpreted and enforced cannot be fully determined, and future
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<PAGE>
Risk Factors
legislation similar to the COPA could subject us to potential liability, which
in turn could harm our business. Such laws could also damage the growth of the
Internet generally and decrease the demand for our services.
OUR EFFORTS TO PROTECT OUR TRADEMARKS MAY NOT BE ADEQUATE TO PREVENT
THIRD PARTIES FROM MISAPPROPRIATING OUR INTELLECTUAL PROPERTY RIGHTS.
The protective steps we have taken in the past have been, and may in
the future continue to be, inadequate to deter misappropriation of our trademark
rights. Although we do not believe that we have suffered any material harm from
misappropriation to date, we may be unable to detect the unauthorized use of, or
take appropriate steps to enforce our trademark rights. We have filed for
registration of one of our servicemarks in the United States. In the future we
may file for registration of our marks in Europe and Canada and other countries.
Effective trademark protection may not be available in every country in which we
offer or intend to offer our products and services. Failure to adequately
protect our trademark rights could damage or even destroy our Rich Media
Direct(SM) brand and our company name and impair our ability to compete
effectively. Furthermore, defending or enforcing our trademark rights could
result in the expenditure of significant financial and managerial resources.
WE MAY BE SUBJECT TO ASSESSMENT OF SALES AND OTHER TAXES FOR THE SALE
OF OUR SERVICES.
We may have to pay past sales or other taxes that we have not collected
from our customers. We do not currently collect sales or other taxes on the sale
of our services in states and countries other than those in which we have
offices or employees.
In October 1998, the Internet Tax Freedom Act (ITFA) was signed into
law. Among other things, the ITFA imposes a three-year moratorium on
discriminatory taxes on electronic commerce. Nonetheless, foreign countries or,
following the moratorium, one or more states, may seek to impose sales or other
tax obligations on companies that engage in such activities within their
jurisdictions. Our business would be harmed if one or more states or any foreign
country were able to require us to collect sales or other taxes from current or
past sales of services, particularly because we would be unable to go back to
customers to collect sales taxes for past sales and may have to pay such taxes
out of our own funds.
YEAR 2000 COMPLIANCE ISSUES COULD HARM OUR BUSINESS.
We are in the process of assessing any potential Year 2000 issues
associated with our envisioned services, and the computer systems, software,
other property and equipment we plan to purchase and use. Despite our efforts,
our envisioned services and systems, and those of third parties, including
content providers, advertisers, affiliates and end users, may contain errors or
faults with respect to the year 2000. Known or unknown errors or defects that
affect the operation of our services and systems or those of third parties could
result in delay or loss of revenues, interruptions of services, cancellation of
customer contracts, diversion of development resources, damage to our
reputation, increased service and warranty costs and litigation costs, any of
which could harm our business.
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<PAGE>
Risk Factors
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS.
We have made forward-looking statements in this document, all of which
are subject to risks and uncertainties. Forward-looking statements include
information concerning our possible or assumed future business success or
financial results. Such forward-looking statements include, but are not limited
to, statements as to our expectations regarding:
- the future development and growth of, and opportunities for
rich media advertising and content distribution services, the
Internet and the on-line media delivery market;
- the future adoption of our planned future services and
technologies;
- future revenue opportunities;
- the establishment and future growth of our customer base;
- our ability to successfully develop and introduce future
services;
- future international revenues;
- future expense levels (including cost of revenues, research
and development, sales and marketing and general and
administrative expenses);
- future sales and marketing efforts;
- future capital needs;
- the future of our relationships with Summus and other
companies;
- the effect of past and future acquisitions;
- the future effectiveness of our intellectual property rights
should we acquire any such rights;
- the effect of any litigation in which we would become
involved; and
- the effect of the Year 2000 situation.
When we use words such as "believe," "expect" and "anticipate" or
similar words, we are making forward-looking statements.
You should note that an investment in our Common Stock involves certain
risks and uncertainties that could affect our future business success or
financial results. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in this "Risk Factors" section and elsewhere in this
Form 10.
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<PAGE>
Risk Factors
We believe that it is important to communicate our expectations to our
investors. However, there may be events in the future that we are not able to
predict accurately or over which we have no control. Before you invest in our
Common Stock, you should be aware that the occurrence of the events described in
this "Risk Factors" section and elsewhere in this Form 10 could materially and
adversely affect our business, financial condition and operating results.
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<PAGE>
Item 2. Financial Information
ITEM 2. FINANCIAL INFORMATION
A. SELECTED FINANCIAL DATA
We derived the statement of operations data for the years ended
December 31, 1998 and 1999 and the balance sheet data as of December 31, 1998
and December 31, 1999 from the audited financial statements included in this
document.
The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and related notes thereto included
elsewhere in this document. All amounts, except per share amounts, are presented
in dollars. No cash dividends have been declared or paid in any of the periods
presented.
We have been in existence since our original incorporation in 1984,
however, we have had no substantial operations until 1998. We have audited
financial statements of High Speed for 1996 and 1997. These audited financial
statements present the audited balance sheets as of December 31, 1996 and
December 31, 1997 and the related statements of operations and cash flows for
each the two years in the period ended December 31, 1997, however, they show no
assets or liabilities or no revenues or expenses and no activity in the capital
accounts. Consequently, we have not presented statement of operations or balance
sheet data for 1995, 1996, or 1997 in the following table of selected financial
data because any amounts presented for these time periods would show zero
amounts except for the outstanding shares of Common Stock. From the beginning of
1995 through the end of 1997, we had 5,000 shares of our Common Stock issued and
outstanding.
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<PAGE>
Item 2. Financial Information.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
Year Ended Year Ended
December 31, December 31,
1998 1999
---------------------------------------------------------------------------------------------
<S> <C> <C>
Statement of Operations Data :
------------------------------
Selling, general and administrative expenses $427,841 $7,488,627
Interest expense --- 2,655,749
---------------------------------
Loss from continuing operations (427,841) (10,144,376)
Loss from discontinued operations (1,265,965) ---
---------------------------------
Net loss $(1,693,806) $(10,144,376)
==================================
Per Share Amounts:
------------------
Loss from continuing operations $(0.06) $(0.53
Loss from discontinued operations $(0.20) ---
Net loss per share $(0.26) $(0.53)
==================================
Weighted average shares outstanding 6,438,508 19,030,492
=================================
Balance Sheet Data
------------------
Cash and Cash Equivalents $18,609 $248,740
Total Assets $95,058 6,717,722
Total Stockholders' (Deficit) Equity $(208,957) $5,228,081
=================================
</TABLE>
B. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYING NOTES, WHICH APPEAR ELSEWHERE
IN THIS DOCUMENT. IT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS, INCLUDING
THOSE DISCUSSED BELOW AND ELSEWHERE IN THIS DOCUMENT, PARTICULARLY UNDER THE
HEADING "RISK FACTORS."
OVERVIEW
We are a development stage company, and as stated in Item 1 "Business,"
we did not operate as an active business for the majority of 1999. The statement
of operations for the year ended December 31, 1999 reflect High Speed's efforts
to launch a marketing and distribution company focused on licensing and
reselling Summus Ltd. technology and products, granted through a Marketing
License Agreement. See Item 1 "Business." During 1998, High Speed acquired,
through an asset purchase, operated and terminated the business of Marketers
World, Inc.
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<PAGE>
Item 2. Financial Information.
In January of 2000, we launched a new Internet service for rich media
direct marketing and content delivery. We plan to derive our revenues from
providing a turnkey service for creation, hosting and delivery of rich media
advertisements and content for customer campaigns. In addition, we plan to
derive revenues from complementary services that are offered to customers such
as call center routing and Voice Over IP services.
We anticipate that revenues will result from revenue-sharing agreements
as well as fixed rate pricing and flat fees. Revenues will be recognized when
services are provided for initiating a campaign, when rich media advertisements
are delivered and when results of a campaign (such as `revenue' or `reach') are
reported.
Our prospects must be considered in light of our limited operating
history. We face all the risks and uncertainties of development-stage companies.
Our future success depends upon, among other things, our ability to generate
revenues from future customers. Specifically, we must:
- Generate sales of our Rich Media Direct service to web
properties, e-commerce companies and other entities interested
in direct marketing on the Internet
- Generate sales of our complementary service offerings such as
content hosting, streaming, Voice-over-IP services and call
center services
- Add personnel to establish and begin operating our sales and
marketing programs in connection with our Rich Media Direct
service
- Establish our ability to resell our services through reseller
channels
RECENT DEVELOPMENTS
We have recently accomplished a number of key milestones that are
strategic to our business and revenue generation. Since the beginning of January
2000 we have:
We have restructured our license agreement with Summus Ltd. See Item 1
"Business." The new agreements give High Speed a non-exclusive right to
distribute wavelet encoded content over the Internet or over private network
environments, for the purposes of advertising or content delivery. In addition,
our license agreements give us a number of revenue sharing arrangements with
third parties who license software from Summus for the same purpose. In
addition, the revenue sharing agreements give us a percentage of the revenue
Summus may derive from Samsung Electronics of America, Inc.
We have entered into a "Letter of Intent" with Samsung Electronics of
America, Inc. and Summus Ltd. The Letter of Intent covers certain business
relationships, joint development agreements and other similar arrangements to
integrate and optimize Summus Dynamic Wavelet technology on Samsung's DSP
platform. Our role in these negotiations is as a marketing partner with revenue
rights determined by the New Agreements that we have with Summus.
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<PAGE>
Item 2. Financial Information.
We have entered into a "Letter of Intent" with BuyitNow. Upon the
Letter of Intent becoming a definitive agreement we anticipate delivering rich
media advertisements for BuyitNow E-commerce campaigns.
There can be no assurance that any of these letters of intent will
result in actual agreements or revenues for us.
On February 28, 2000, we signed an agreement to sell 2,000 shares of
Series A Convertible Preferred Stock to an investor at a price of $1,000 per
share, resulting in $2,000,000 of financing. The rights of the Series A
Convertible Preferred Stock include the following rights: (i) a cumulative
dividend of $80.00 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) the right to convert the Series A
Convertible Preferred Stock into shares of our Common Stock at a conversion
price of $14.24, subject to antidilution adjustment in the case of Common Stock
dividends, splits and reorganizations; and (iii) 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. A total of 10,000 shares of Series A Convertible
Preferred Stock are authorized.
The remainder of this Management's Discussion and Analysis of Financial
Condition and Results of Operations should be read considering the brief history
of High Speed as summarized below.
High Speed was incorporated in 1984 and was inactive until it acquired
all of the assets of Marketers World, Inc. ("MWI") on August 24, 1998. The
acquisition was accounted for as reverse merger whereby MWI was treated for
accounting purposes as the acquirer and High Speed as the acquiree since the
sole shareholder of MWI owned approximately 90% of the outstanding shares of the
combined company after the merger. The results of MWI have been presented as
discontinued operations since all operating activity ceased as of December 31,
1998. The results of operations for the year ended December 31, 1999 relate
solely to the operations of High Speed. Marketers World had no operating
activity in 1999.
YEAR ENDED DECEMBER 31, 1999
REVENUE
We had no revenue during the year ended December 31, 1999, because we
had no products to sell nor any capacity to provide services during this period.
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<PAGE>
Item 2. Financial Information.
NET LOSS
Our net loss during the year ended December 31, 1999 was $10,144,376,
$.53 per share. The net loss was attributable to general and administrative
expenses and non-cash interest expense.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses were $7,488,627 for the year ended
December 31, 1999. Of this amount, $5,698,038 relates to non-cash compensation
and consulting costs related to the granting of stock options and stock awards
to employees and stockholders for services rendered and the execution of stock
subscription agreements with per share selling prices set below the traded value
of the common stock. The stock options and stock awards vested upon issuance and
had nominal or no exercise prices. Of this amount $91,250 has been netted
against the non-cash charges resulting from the cancellation in 1999 of 555,000
shares of Common Stock that were originally issued in 1998 and 1999 and valued
at $91,250. During 1999, it was determined that these services were not
satisfactorily performed in 1998 and 1999 and therefore the common stock was
voluntarily returned to us and canceled. The remaining balance of general and
administrative expenses incurred during this period of approximately $1,790,589
related primarily to salary and other operating costs.
INTEREST EXPENSE
Non-cash interest expense of $2,655,749 was incurred relating to the
issuance of convertible debentures during 1999 that included Common Stock
conversion prices which were below the fair market value of the Common Stock on
the date the debentures were issued. Since all of the debentures were
convertible into Common Stock upon their issuance, the beneficial conversion
feature of $2,655,749 that reflects the difference between the debentures'
conversion prices and the fair market value of the Common Stock has been
recorded as non-cash interest expense during the year ended December 31, 1999.
YEAR ENDED DECEMBER 31, 1998.
REVENUES
We had no revenues during the year ended December 31, 1998, because we
had no products to sell nor any capacity to provide services during this period.
NET LOSS
Our net loss for the year ended December 31, 1998 was $1,693,806, which
consisted of a net loss from continuing operations of $427,841 and a loss from
discontinued operations of $1,265,965.
The loss from continuing operations included non-cash compensation
costs of $76,500 related to the granting of stock to employees for services
rendered. The remaining loss was attributable to salary and other operating
costs.
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<PAGE>
Item 2. Financial Information.
The loss from discontinued operations of $1,265,965 reflects the
operating results of MWI for the year ended December 31, 1998. MWI ceased all
operating activity by the end of 1998. During 1998, MWI earned revenues of
$1,335,300 and generated a loss from operations of $1,265,965. MWI incurred no
operating costs subsequent to December 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Our operations to date have been primarily funded by private placements
of shares of our Common Stock, related party loans and debentures. As of
December 31, 1999, we had cash and cash equivalents of $248,740, and current
liabilities of $1,489,691, resulting in a working capital deficiency of
$1,240,951.
Summus has funded itself in part by selling shares of our Common Stock
that Summus owns. From August 25, 1999 to date, Summus has sold 2,415,000 shares
of our Common Stock for an aggregate of $6,134,100. With less than $2.61 million
of cash as of January 31, 2000, Summus lacks sufficient resources to continue to
make loans to us.
Net cash used in operating activities of $885,885 during the year ended
December 31, 1999 reflects cash paid for salaries and our other operating
expenses plus $60,000 paid to Summus as a prepaid royalty. The total amount of
prepaid royalties paid to Summus as of September 30, 1999 is $4,528,125, which
consists of: (i) the issuance of 1,500,000 shares of our Common Stock valued at
$2,278,125; (ii) the $60,000 cash payment made by us to Summus; and (iii)
$2,190,000 paid by our shareholders to Summus on our behalf and for which we
issued debentures that were converted into 3,968,640 shares of our Common Stock.
Net cash used in investing activities of $106,052 during the year ended
December 31, 1999 include $4,052 paid for office furniture, and $102,000 paid in
connection with the acquisition of our ownership interest in Summus. Our total
investment in Summus as of September 30, 1999 is $1,897,127, which consists of a
cash payment of $102,000 and the issuance of 795,001 shares of our Common Stock
valued at $1,792,127.
Net cash provided by financing activities of $1,222,068 during the year
ended December 31, 1999 resulted from the proceeds of the sale of our Common
Stock of $242,062, proceeds from the issuance of convertible debentures of
$558,640 and net advances from stockholders totaling $421,366. During 1999,
$2,097,109 of convertible debentures were issued to a stockholder as partial
settlement for cash advances made by the stockholder to Summus, on our behalf,
for the payment of royalties.
Net cash used in operating activities from continuing operations during
the year ended December 31, 1998 of $291,685, resulted from the payment of
salaries and other operating costs. Net cash used in discontinued operations of
$1,265,965 represents the net cash used to operate MWI during 1998. Net
investing activities for the year ended December 31, 1998 included the purchase
of equipment. Net financing activities during the year ended December 31, 1998
of $1,626,407 included proceeds from the sale of our Common Stock of $317,000,
stockholder capital contributions of $1,091,648 and stockholder advances of
$445,378, less $227,619 used to acquire 38,500 shares of our stock.
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<PAGE>
Item 2. Financial Information.
We recently signed an agreement to sell $2,000,000 of convertible
preferred stock to an investor. We anticipate that the proceeds of this
offering, plus internally generated cash from operations will be sufficient to
fund our capital requirements for the next 12 months. However, we are also
engaged in discussions to raise additional capital. There can be no assurance
that additional equity or debt financing, if required, will be available on
terms that are acceptable, or at all.
The Company's continuation as a going concern is dependent upon its
ability to generate sufficient cash flow to meet its obligations on a timely
basis, to obtain additional financing as may be required, and ultimately to
attain profitability. Management expects that eventually we will obtain customer
orders for our services which will produce revenues to reduce our operating
losses. Management also expects additional capital can be raised to further fund
operations. However, there can be no assurances that management's plans will be
executed as anticipated.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging Activities.
SFAS 133 requires that derivative instruments be recognized as either assets or
liabilities in the consolidated balance sheet based on their fair values.
Changes in the fair values of such derivative instruments will be recorded
either in results of operations or in other comprehensive income, depending on
the intended use of the derivative instrument. The initial application of SFAS
133 will be reported as the effect of a change in accounting principle. SFAS 133
is effective for all fiscal years beginning after June 15, 2000. We have not yet
determined the effect that the adoption of SFAS will have on our consolidated
financial statements.
YEAR 2000
Because we have no operations and no material operational assets it has
not been necessary for us to undertake traditional Year 2000 measures such as
inventory, assessment, remediation and testing.
Our primary Year 2000 risk exists to the extent that suppliers of
products, service and systems that we anticipate purchasing in the future, and
others with whom we may transact business, do not have business systems or
products that comply with Year 2000 requirements. We plan to obtain assurances
from these future suppliers with regard to Year 2000 compliance of their
products and services as we engage with these suppliers. We believe that
obtaining these assurances will not produce additional material cost beyond the
ordinary and customary costs of interacting with suppliers.
Although we believe that our Year 2000 compliance plan is adequate to
address Year 2000 concerns, there can be no assurance that we will not
experience negative consequences as a result of undetected defects or the
non-compliance of third parties with whom we interact. If realized, these risks
could result in adverse affect on the business, results of operations and
financial condition.
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<PAGE>
Item 2. Financial Information.
C. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discusses our exposure to market risk related to changes
in interest rates, equity prices and foreign currency exchange rates. This
discussion contains forward-looking statements that are subject to risks and
uncertainties. Actual results could vary materially as a result of a number of
factors including those set forth in the section entitled "Risk Factors."
We do not use any derivative financial instruments for hedging,
speculative or trading purposes. We do not own any equity investments other than
the shares of Summus. Because Summus is a private company and is not traded on
any public market, our investment in Summus is not subject to market risk.
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<PAGE>
Item 3. Properties
ITEM 3. 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.
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<PAGE>
Item 4. Security Ownership of Certain Beneficial Owners and Management
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the only stockholders known by us to be
the beneficial owners, as of February 10, 2000, of more than five percent (5%)
of the outstanding shares of Common Stock of High Speed.
<TABLE>
<CAPTION>
SHARES PERCENT OF
BENEFICIALLY SHARES
NAME AND ADDRESS OWNED <F1> OUTSTANDING
- ---------------- ------------ -----------
<S> <C> <C> <C>
Summus Ltd. 11,366,527 <F2><F3> 54.0%
Two Hanover Square, Suite 2120
434 Fayetteville St. Mall
Raleigh, NC 27601
Dr. Bjorn Jawerth 11,366,527 <F2><F3> 54.0%
Two Hanover Square, Suite 2120
434 Fayetteville St. Mall
Raleigh, NC 27601
William Bradford Silvernail 11,366,527 <F3><F4> 54.0%
Two Hanover Square, Suite 2120
434 Fayetteville St. Mall
Raleigh, NC 27601
<FN>
<F1> 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.
<F2> 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 High Speed shares owned by
Summus Ltd.
<F3> Includes 2,792,167 shares for which Summus has voting power through
voting agreements with and/or proxies from 17 persons.
<F4> Includes 8,574,360 shares beneficially owned by Summus Ltd. Mr.
Silvernail is the Chief Executive Officer and is a member of the Board of
Directors of Summus Ltd. Mr. Silvernail exercises shared voting and investment
power with respect to all High Speed shares owned by Summus Ltd.
</FN>
</TABLE>
44/80
<PAGE>
Item 4. Security Ownership of Certain Beneficial Owners and Management
The table below gives the number of shares of our Common Stock
beneficially owned as of February 10, 2000 by persons who were members of the
Board of Directors and executive officers of High Speed during 1999 or who are
currently members of our Board of Directors or are executive officers.
<TABLE>
<CAPTION>
SHARES PERCENT OF
BENEFICIALLY SHARES
NAME OWNED <F1> OUTSTANDING
- ------------------------------------------------------ ---------------------- --------------------------
<S> <C> <C>
Andrew L. Fox
Director, Acting President and Chief Executive 80,000 <F2> <F3> *
Officer, and Executive Vice President
Dr. Bjorn Jawerth
Chairman of the Board of Directors 11,366,527 <F4> 54%
Richard F Seifert
Director 250,000 <F5> <F6> 1.1%
William Bradford Silvernail
Director 11,366,527 <F7> 54%
Alan Kleinmaier
Executive Vice President, Acting Chief Financial 90,000 <F8> *
Officer, Secretary, and Treasurer
Michael M. Cimino
Former Director, President, Secretary and Treasurer 500,000 <F9> 2.3%
Michael Kim
Former President and Chief Executive Officer 265,000 <F10> 1.2%
Peter Rogina
Former President and Chief Executive Officer 200,000 <F11> *
All current directors and executive
officers as a group (5 Persons) 11,786,527 <F12> 55.5% (12)
* Represents beneficial ownership of less than one percent (1%) of
Common Stock.
<FN>
<F1> 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 90 days upon exercise of outstanding
options.
<F2> 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.
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<PAGE>
Item 4. Security Ownership of Certain Beneficial Owners and Management
<F3> These shares represent 80,000 shares that Mr. Fox may acquire pursuant
to an agreement with Summus that Summus will transfer 80,000 High Speed
shares in exchange for 10,000 Summus shares owned by Mr. Fox.
<F4> 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 High Speed shares owned by Summus Ltd. These shares also include
2,792,167 shares for which Summus has voting power through voting
agreements with and/or proxies from 17 persons.
<F5> These shares include 50,000 shares that Mr. Seifert may immediately
acquire pursuant to stock options.
<F6> These shares include 200,000 shares that are beneficially owned with
his wife, Karen Seifert.
<F7> These shares include 8,574,360 shares owned by Summus Ltd. These shares
also include 2,792,167 shares for which Summus has voting power through
voting agreements with and/or proxies from 17 persons. Mr. Silvernail
is the Chief Executive Officer and is a member of the Board of
Directors of Summus Ltd. Mr. Silvernail exercises shared voting and
investment power with respect to all High Speed shares owned by Summus
Ltd.
<F8> 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.
<F9> These shares include shares that Mr. Cimino beneficially owns with his
wife, Gina M. Cimino.
<F10> These shares include 65,000 shares that Mr. Kim may immediately acquire
pursuant to stock options.
<F11> 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.
<F12> This total counts the percentage of ownership attributable to the
Summus shares only once.
</FN>
</TABLE>
46/80
<PAGE>
Item 5. Directors and Executive Officers
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
A. CURRENT DIRECTORS
The following table sets forth information regarding the members of our
Board of Directors:
<TABLE>
<CAPTION>
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
</TABLE>
B. EXECUTIVE OFFICERS OF THE REGISTRANT
Executive Officers are elected annually and serve at the pleasure of
the Board of Directors. Our current executive officers are as follows:
<TABLE>
<CAPTION>
Name Office Officer Since Age
---- ------ ------------- ---
<S> <S> <C> <C>
Andrew L. Fox Acting President and Chief Executive Officer; 1999 36
Executive Vice President
Alan Kleinmaier Executive Vice President, Acting Chief Financial 2000 52
Officer, Secretary, and Treasurer
</TABLE>
C. 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 High Speed, Mr. Fox spent over 2
1/2 years at RealNetworks as a Senior Marketing Manager responsible for
RealNetworks corporate enterprise business. He developed RealNetwork's entrance
into the corporate enterprise marketplace. He managed marketing and sales
operations for the corporate enterprise division of RealNetworks during a time
period when this division's business grew by multiple millions of dollars in
sales each year. 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 responsible for bringing Token ring,
Ethernet, Modems and Wireless Data products to market. Mr. Fox was also employed
by Summus Ltd. from August 1999 until January 2000 as its Executive Vice
President of Sales and Marketing and 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.
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<PAGE>
Item 5. Directors and Executive Officers
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. 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.
Alan Kleinmaier is our Executive Vice President, Acting Chief Financial
Officer, Secretary, and Treasurer. Mr. Kleinmaier has more than 20 years of
management experience. He has served as President and CEO of Specialty Retail
Concepts, Inc., a retail chain of more than 400 confectionery and coffee stores
which he founded in 1976. 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 UNC 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 was General Manager, Metering Systems, ABB
Power T&D Company, where he created a new business from the ground up developing
energy information solutions for the deregulating electric utility industry. 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. Under Mr. Silvernail's leadership, first year
revenues for this ABB division exceeded $10 million and the business unit
shipped four new hardware/software products during the first year of Mr.
Silvernail's tenure. 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 High Speed Net Solutions, 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
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<PAGE>
Item 5. Directors and Executive Officers
capital for us. Mr. Seifert has over 20 years experience in the areas of
business development, finance, strategic planning and marketing. Before coming
to High Speed, Mr. Seifert was involved in a number of entrepreneurial ventures
including the launching of Internet Plus, an Internet ISP, the launching of Cal
Sierra Airlines, and he was CEO of ERA Park Place, a real estate franchise.
While CEO of ERA Park Place, Seifert was also elected President of the
Philadelphia Regional Brokers Council, and was instrumental in expanding its
marketing and promotional activities. 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.
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.
D. COMPOSITION OF OUR BOARD OF DIRECTORS
Our bylaws provide that the number of members of our board of directors
will consist of at least one director and that the board has the power to
determine the number of directors, when not determined by the stockholders, and
to fill vacancies on the board. Currently, the number of directors is fixed at
four and we have four directors and no vacancies on the board of directors. All
directors are elected annually to serve until the next annual stockholders'
meeting following their election and until their successors are elected and
qualified.
The compensation committee of the board of directors reviews the
performance of all executive officers, determines the salaries and benefits for
all executive officers and administers our stock option plan. The members of the
compensation committee are Mr. Fox, Mr. Seifert, Dr. Jawerth and Mr. Silvernail.
49/80
<PAGE>
Item 6. Executive Compensation
ITEM 6. EXECUTIVE COMPENSATION
A. 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
$100,000 during 1999, including individuals who were not serving as an executive
officer at the end of 1999.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long Term Compensation
Awards <F3>
------------------------------------- ------------------------
Other Annual Restricted Options/ All Other
Name and Salary Bonus Compensation Stock SARS Compensation
Principal Position Year ($) ($) <F1> ($) Awards (#) <F2> ($)
------------------ ---- ------- ------- ------------ ----------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Andrew L. Fox <F5> 1999 66,100 55,000 30,891 <F4> 240,000 <F4>
Director, Acting President 1998 -- -- -- -- -- --
and 1997 -- -- -- -- -- --
Chief Executive Officer,
Executive Vice President
Alan Kleinmaier <F6> 1999 <F4> <F4> 13,300 <F4> 50,000 <F4>
Executive Vice President, 1998 -- -- -- -- -- --
Acting Chief Financial 1997 -- -- -- -- -- --
Officer, Secretary, and
Treasurer
Michael Cimino <F7> 1999 <F4> <F4> 50,879 425,000 <F4> <F4>
Former President and Chief 1998 <F4> <F4> 11,000 705,000 <F4> <F4>
Executive Officer, 1997 -- -- -- -- -- --
Secretary, and Treasurer
Michael Kim <F8> 1999 66,346 <F4> 12,153 <F4> 265,000 100,000 <F11>
Former President and Chief 1998 -- -- -- -- -- --
Executive Officer 1997 -- -- -- -- -- --
Peter Rogina <F9> 1999 17,308 <F4> 8,895 <F4> 240,000 110,000 <F11>
Former President and Chief 1998 -- -- -- -- -- --
Executive Officer 1997 -- -- -- -- -- --
Richard Seifert <F10> 1999 24,000 <F4> 112,646 <F4> 250,000 <F4>
Former Vice President of 1998 -- -- -- -- -- --
Operations 1997 -- -- -- -- -- --
<FN>
<F1> Amounts in this column include amounts earned during the year
specified but deferred for payment either the following year or thereafter.
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<PAGE>
Item 6. Executive Compensation
<F2> Number of shares of Common Stock issuable upon exercise of options
granted during 1999. We did not grant any Stock Appreciation Rights during 1999.
<F3> Long Term Incentive Plan compensation for executive officers is not
reported because we did not pay any compensation of this type and we have never
had a Long Term Incentive Plan for our executive officers.
<F4> No compensation of this type received.
<F5> Mr. Fox has served as our Acting President and Chief Executive
Officer and Executive Vice President from August 25, 1999, to present.
<F6> Mr. Kleinmaier has served as our Acting Chief Financial Officer,
Secretary, Treasurer and Executive Vice President since August 25, 1999.
<F7> Mr. Cimino served as our President and Chief Executive Officer from
September 10, 1998 to March 1, 1999. He continued to be employed as Chairman of
the Board of Directors from September 10, 1998 to August 25, 1999.
<F8> Mr. Kim served as our President and CEO from April 20, 1999 to
August 25, 1999. We agreed to pay Mr. Kim a termination amount of $100,000 per a
verbal agreement. ($21,346.00 was disbursed to Mr. Kim in calendar 1999 and
$78,654 is scheduled to be disbursed in 2000. See footnote 11).
<F9> Mr. Rogina served as our President and CEO from March 15, 1999 to
April 20, 1999. We paid Mr. Rogina $110,000 in connection with the termination
of his employment contract, as well as 240,000 options on our Common Stock.
<F10> Rick Seifert served as our Vice President of Operations from
February 10, 1999 to August 25, 1999. The amount under Other Annual Compensation
for Mr. Seifert includes $62,500 that we paid to Mr. Seifert pursuant to our
agreement with him under which Mr. Seifert receives a fee for identifying
successful financing opportunities for us.
<F11> Represents disbursements in connection with termination of
employment, see footnote numbers 8 and 9.
</FN>
</TABLE>
B. EMPLOYMENT AGREEMENTS
We entered into an employment agreement with Andrew L. Fox by a letter
dated January 20, 2000 (the "Fox Employment Agreement"). Set forth below is a
summary of certain terms of the Fox Employment Agreement. This summary is not a
complete description of the terms and conditions of the Fox Employment Agreement
and is qualified in its entirety by reference to the Fox Employment Agreement, a
copy of which is filed as an exhibit to this registration statement.
In August of 1999, under an employment arrangement without a fixed term
that either party may terminate at any time, we employed Andrew Fox as our
acting president and chief executive officer and executive vice president and
elected him as a director. Under this agreement, Mr. Fox's base annual salary is
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<PAGE>
Item 6. Executive Compensation
$135,000 and he is eligible to receive a bonus initially targeted to be up to an
amount equal to his base annual salary. The bonus is based upon goals and
objectives to be established by the compensation committee of the board of
directors annually following our fiscal year-end. While employed as acting CEO,
Mr. Fox will receive an additional bonus of $2,500 per month. These bonuses may
be increased or decreased by the compensation committee. Mr. Fox will receive
COBRA reimbursement until we establish our health care plan, and will receive
life insurance coverage through Summus Ltd. until we establish life insurance
coverage. Finally, Mr. Fox receives a $600 per month car allowance. If we
terminate Mr. Fox's employment we are obligated to pay him six months of salary
paid monthly or in a lump sum.
Mr. Fox received an option to purchase 240,000 shares of High Speed
Common Stock that will vest in three equal installments over a three year period
beginning on August 25, 1999. The vesting of these options is dependent on the
attainment of certain performance goals such as revenue, EBITDA or other metrics
to be determined by our Board of Directors. The exercise price for the options
is Four Dollars and Thirty Eight Cents ($4.38) per share for Eighty Thousand
(80,000) of the Two Hundred Forty Thousand (240,000) shares of Common Stock, and
Thirteen Dollars ($13.00) per share for the remaining One Hundred and Sixty
Thousand (160,000) shares of our Common Stock.
We entered into an employment agreement with Alan R. Kleinmaier by a
letter dated February 7, 2000 (the "Kleinmaier Employment Agreement"). Set forth
below is a summary of certain terms of the Kleinmaier Employment Agreement. This
summary is not a complete description of the terms and conditions of the
Kleinmaier Employment Agreement and is qualified in its entirety by reference to
the Kleinmaier Employment Agreement, a copy of which is filed as an exhibit to
this registration statement.
In August of 1999, under an employment arrangement without a fixed term
that either party may terminate at any time, we employed Alan Kleinmaier as our
executive vice president, secretary, treasurer and acting chief financial
officer. Under this agreement, Mr. Kleinmaier's base annual salary is $100,000
and he is eligible to receive a bonus initially targeted to be up to an amount
equal to his base annual salary. The bonus is based upon goals and objectives to
be established by the compensation committee of the board of directors annually
following our fiscal year-end. These bonuses may be increased or decreased by
the compensation committee. Mr. Kleinmaier will receive full medical, dental and
vision for himself and his dependents. Finally, Mr. Kleinmaier receives a $600
per month car allowance. If we terminate Mr. Kleinmaier's employment, we are
obligated to pay him six months of salary.
Mr. Kleinmaier received an option to purchase 50,000 shares of High
Speed Common Stock that are fully vested as of August 25, 1999. The exercise
price for the options is Four Dollars ($4.00) per share of our Common Stock.
Mr. Kleinmaier is also employed by Summus and currently serves as Summus' Chief
Financial Officer. Mr. Kleinmaier allocates approximately 10% of his time to
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<PAGE>
Item 6. Executive Compensation
Summus and the remainder of his time to High Speed. Mr. Kleinmaier is paid
$25,000 annually by Summus and owns 5,000 shares of Summus common stock. He has
been granted an additional 5,000 shares of Summos stock which becomes fully
vested in May 2000. Additionally, he has options to purchase 10,000 shares of
Summus' Common Stock, which vests in May 2001.
C. STOCK OPTIONS GRANTED
The following table sets forth information about the stock options
granted to our executive officers during 1999. We did not grant any stock
options to our executive officers during 1998.
No stock appreciation rights have ever been exercised by any of our
executive officers because we have never granted any stock appreciation rights.
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
% of Total Market
Options Price on Fair Market
Granted to Exercise or Date of Annual Rates of Stock Value on
Options Employees in Base Price Grant Expiration Price Appreciation for February 11,
Name Granted Fiscal Year ($/Sh) ($/Sh) Date Option Term <F1> 2000
---- ------- ----------- ----------- ------ ---------- ---------------------- -------------
0% 5% 10%
-- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Michael Cimino 425,000 <F2> 24% $ 0.01 $2.375 01/01/05 $1,005,125 -- <F3> -- <F3> $10,992,625
Peter Rogina 200,000 <F4> 11% $ 0.01 $2.75 9/22/04 $548,000 $699,955 $883,781 $ 5,173,000
Peter Rogina 40,000 <F5> 2% $ 0.01 $2.75 9/22/04 $109,600 $139,991 $176,756 $ 1,034,600
Richard F. 50,000 <F6> 3% $ 4.00 $2.375 5/27/09 -- <F7> -- <F7> $108,007 $ 1,093,750
Seifert
Richard F. 200,000 <F6> 11% $ 0.01 $2.375 5/27/09 $473,000 -- <F3> -- <F3> $ 5,173,000
Seifert
Myung K. Kim 200,000 <F8> 11% $ 0.01 $2.375 4/12/09 $473,000 -- <F3> -- <F3> $ 5,173,000
Myung K. Kim 65,000 <F8> 4% $ 4.00 $2.375 4/12/09 -- <F7> -- <F7> $108,007 $ 1,421,875
Andrew Fox 160,000 <F9> 9% $13.00 $4.38 8/25/09 -- <F7> -- <F7> -- <F7> $ 2,060,000
Andrew Fox 80,000 <F9> 5% $ 4.38 $4.38 8/25/09 $0 $220,365 $558,447 $ 1,719,600
Alan Kleinmaier 50,000 <F10> 3% $ 4.00 $4.38 8/25/09 $19,000 $156,728 $368,030 $ 1,093,750
<FN>
<F1> The potential realizable value of the options reported above was
calculated by assuming 5% and 10% annual rates of appreciation of the price of
our Common Stock from the date of grant of the options until the expiration of
the options. These assumed annual rates of appreciation were used in compliance
with the rules of the Securities and Exchange Commission and are not intended to
forecast future price appreciation of our Common Stock. We chose not to report
the present value of the options because we do not believe any formula will
determine with reasonable accuracy a present value because of unknown or
volatile factors. The actual value realized from the options could be
substantially higher or lower than the values reported above, depending upon the
future appreciation or depreciation of the Common Stock during the option period
and the timing of exercise of the options. We have reported the 0% column to
describe the value of the options granted to the named executive on the date of
the grant.
<F2> These options were granted in May of 1999 per Mr. Cimino's verbal
employment agreement.
<F3> No value is reported because these options have been exercised.
These options are included in this table to show their value to the named
executive on the grant date because the options were granted at an exercise
price below the market price at the date of the grant.
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<PAGE>
Item 6. Executive Compensation
<F4> Pursuant to a settlement agreement with Peter Rogina, dated
September 22, 1999, we granted Mr. Rogina an option, exercisable in full on
September 22, 1999, to purchase 200,000 shares of Common Stock having an
exercise price of $0.01. The option may be exercised by Mr. Rogina at any time
during the five-year period commencing on September 22, 1999. The option
includes protection from dilution due to recapitalizations, issuances of
securities at less than 67% of fair market value, granting of other options or
similar rights, and dividend or distribution rights. We have not issued any new
diluting shares after the grant date of Mr. Rogina's option for 200,000 shares,
therefore, Mr. Rogina's option is now exercisable for 200,000 shares.
<F5> Pursuant to the settlement agreement with Mr. Rogina, dated
September 22, 1999, we granted Mr. Rogina an option to purchase 40,000 shares of
Common Stock having an exercise price of $0.01. The option may be exercised by
Mr. Rogina during the period commencing on July 1, 2000 and ending on September
22, 2004.
<F6> These options were granted on May 27, 1999 per Mr. Seifert's
verbal employment agreement.
<F7> There is no calculated potential realized value for these options
for the 5% and 10% annual rates of appreciation because at these rates the
exercise price remains higher than the market price during the entire period of
the options life.
<F8> Mr. Kim's options were originally granted as an option to purchase
200,000 shares at an exercise price of $0.01 per share of Common Stock and an
option to purchase 50,000 shares at an exercise price of $4.00 price per share.
Mr. Kim has exercised the option for 200,000 shares. The remaining option for
50,000 shares included protection from dilution due to recapitalizations,
issuances of securities at less than 67% of fair market value, granting of other
options or similar rights, and dividend or distribution rights. Mr. Kim has
agreed to exchange an additional 15,000 options for termination of his
antidilution rights. The additional 15,000 options are included in Mr. Kim's
total number of options in the above table. Based on this, Mr. Kim's option is
now exercisable for 65,000 shares of our Common Stock.
<F9> These options were granted on August 25, 1999 per Mr. Fox's
employment agreement and become exercisable, subject to continued employment, in
cumulative annual increments of one third each beginning on the date of grant
and the first, second and third anniversaries of the date of grant.
<F10> We employed Alan Kleinmaier in August of 1999 as our acting Chief
Financial Officer. We have granted Mr. Kleinmaier an option to purchase 50,000
shares of our Common Stock that are immediately exercisable.
</FN>
</TABLE>
D. STOCK OPTIONS EXERCISED AND YEAR END VALUES OF UNEXERCISED OPTIONS
The following table sets forth information about the stock options
exercised by our named executive officers during 1999.
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<PAGE>
Item 6. Executive Compensation
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN 1999
Number of Unexercised Value of Unexercised In-the-
Shares Acquired Value Options At Fy-End (#) Money Options At Fy-End ($)
On Exercise Realized -------------------------- -----------------------------
Name (#) ($)(1) Exercisable/Unexercisable Exercisable/unexercisable <F2>
---- --------------- ---------- -------------------------- ------------------------------
<S> <C> <C> <C> <C>
Michael Cimino 425,000 <F3> $952,000 <F3> 0/0 0/0
Richard F. Seifert 200,000 $448,000 50,000/0 $600,000/0
Michael Kim 200,000 $448,000 65,000/0 780,000/0
Peter Rogina 0 0 200,000/40,000 3,198,000/$639,600
Andrew L. Fox 0 0 0/240,000 0/$1,409,600
Alan Kleinmaier 0 0 50,000/0 600,000/0
<FN>
<F1> Upon exercise of the option an option holder did not receive the
amount reported above under the column Value Realized. The amounts reported
above under the column Value Realized merely reflect the amount by which the
value of our Common Stock, on the date the option was exercised, exceeded the
exercise price of the option. The option holder does not realize any cash until
the shares of Common Stock issued upon exercise of the options are sold.
<F2> The value of our Common Stock on December 31, 1999 was $16.00 per
share. Value was determined by taking the last sale price of our Common Stock on
that date as reported by OTCBB. The value of options was determined by
subtracting the aggregate exercise prices of the options from the value of the
Common Stock issuable upon exercise of the options.
<F3> This grant of an option to purchase 425,000 shares of Common Stock
was exercised by Mr. Cimino for all 425,000 shares. Later, the shares acquired
by Mr. Cimino were reduced to 95,000 shares of Common Stock through share
cancellations implemented by High Speed. The value realized amount at the grant
date would have been $213,750 if the original option grant had been for 95,000
shares of our Common Stock.
</FN>
</TABLE>
E. STOCK OPTION PLAN
The following summary description of Equity Compensation Plan is not
intended to be complete and is qualified by reference to the copy of the Equity
Compensation Plan, filed as an exhibit to this registration statement.
Our Equity Compensation Plan was adopted by our board of directors on
January 27, 2000, and approved by our stockholders on February 11, 2000. The
plan provides that the board may grant stock options to acquire our Common Stock
to officers, other employees, directors, consultants and independent contractors
who provide services to us pursuant to the terms of the plan. An aggregate of
2,000,000 shares of Common Stock is reserved for issuance under this plan, some
of which has been issued and is outstanding. If shares subject to outstanding
stock options are not purchased or are reacquired because of termination,
expiration or cancellation of such stock options or for other reasons, the plan
provides that those shares will be available for issuance pursuant to future
stock option grants under the plan. Shares of Common Stock subject to the stock
option plan are made available from authorized and unissued shares of our Common
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<PAGE>
Item 6. Executive Compensation
Stock. As of February of 2000, all of the outstanding options that we have
issued were issued to our executive officers and are detailed in Part D of this
Item 6.
The plan is currently administered by the compensation committee of the
board of directors. The compensation committee may interpret the plan and may
prescribe, amend and rescind rules and make all other determinations necessary
or desirable for the administration of the plan. The stock option plan permits
the compensation committee to select the eligible parties who will receive stock
option awards under the plan and generally to determine the terms and conditions
of those awards.
We may issue two types of stock options under this plan: incentive
stock options, which are intended to qualify for certain tax treatment under
section 422 of the Internal Revenue Code of 1986, as amended, and which may be
granted only to eligible parties who are employees; and nonqualified stock
options, which may be granted to all types of eligible parties. The plan
contains special provisions applicable to incentive stock options granted under
the plan, including but not limited to the requirement that the exercise price
of each incentive stock option be at least equal to the fair market value of a
share of Common Stock on the date the incentive stock option is granted. Stock
options granted under the plan are generally not transferable by the optionees.
If a reorganization, recapitalization, reclassification, stock split,
stock dividend, or consolidation of shares of our Common Stock, merger or
consolidation of High Speed or sale or other disposition by us of all or a
portion of its assets, other change in our corporate structure, or any
distribution to shareholders other than a cash dividend results in the
outstanding shares of our Common Stock, or any securities exchanged therefor or
received in their place, being exchanged for a different number or class of
shares of our Common Stock or other securities we might issue, or for shares of
Common Stock or other securities of any other corporation, or new, different or
additional shares or other securities of the company or of any other corporation
being received by the holders of outstanding shares of Common Stock, then the
compensation committee of our board of directors shall make equitable
adjustments in the limitation on the aggregate number of shares of Common Stock
that may be awarded as stock option grants under the plan, the number and class
of stock that may be subject to the grant of stock options under the plan and
which have not been issued or transferred under outstanding stock options, and
the terms, conditions or restrictions of any stock option or the corresponding
award agreement (including the exercise price thereunder). However, the plan
requires that all such adjustments shall be made such that incentive stock
options granted under the plan shall continue to constitute incentive stock
options within the meaning of section 422 of the Internal Revenue Code of 1986,
as amended. The plan provides that our board of directors may amend or terminate
this plan at any time, provided, however, that certain types of amendments
require approval of our stockholders and no such action may be taken which
adversely affects any rights under outstanding stock options without the
holder's consent.
F. COMPENSATION OF DIRECTORS
Directors who are not full-time employees of High Speed: (i) are
reimbursed for reasonable travel expenses incurred in attending meetings of the
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<PAGE>
Item 6. Executive Compensation
Board or committees of the Board; (ii) are paid a fee of $ 1000 for each day on
which the Board and/or committee meets or is in conference, which such Directors
attend, except for committee meetings held on the same date as a Board meeting
or conference; and (iii) in the future may be granted stock options pursuant to
the terms of our Equity Compensation Plan.
G. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
We have only recently put the compensation committee in place, and
currently all members of the board of directors serve on the compensation
committee. The compensation committee made recent decisions concerning the
compensation of our recently appointed executive officers, one of which, Andrew
L. Fox, serves on our board of directors. Mr. Fox is the former Executive Vice
President of Sales and Marketing and served as a member on the board of
directors of Summus.
Several of the members of our board of directors and our compensation
committee are members of the board of directors of Summus. Dr. Bjorn Jawerth and
William Bradford Silvernail serve on our board of directors and on our
compensation committee. Dr. Jawerth is the Chairman of the board of directors of
Summus, our controlling shareholder. Mr. Silvernail is an executive officer of
Summus and is a member of the board of directors of Summus. Also, one of our
executive officers, Alan Kleinmaier, is a member of the board of directors of
Summus.
Other than the interlocking relationships with Summus, no other
interlocking relationships exist.
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<PAGE>
Item 7. Certain Relationships and Related Transactions
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Summus directors and executive officers serve on our board of
directors. Dr. Bjorn Jawerth, the Chairman, President, and majority shareholder
of Summus, is the Chairman of the Board of High Speed. William Bradford
Silvernail, the CEO of Summus, is a director of High Speed.
OUR OWNERSHIP IN SUMMUS
We own 167,000 shares of Summus Ltd. Our shares represent approximately
14.0% of the outstanding Common Stock of Summus, but represent only 12.8% of
Summus' Common Stock on a fully diluted basis. We acquired 1,000,182 shares of
the Common Stock of Summus Technologies, Inc. during the first half of 1999. We
acquired these Summus Technologies, Inc., shares from transactions with
individuals who owned shares of Summus Technologies, Inc. in exchange for cash
and shares of our Common Stock. In August of 1999 Summus Technologies, Inc. and
Summus Ltd merged. Pursuant to the merger, our 1,000,182 shares of Summus
Technologies, Inc. were converted into 167,000 shares of Summus Ltd. In
conjunction with the merger, we entered into a shareholders agreement in August
of 1999 where under certain conditions we cannot transfer our shares without
first granting Summus the opportunity to purchase our shares. The shareholders
agreement obligates parties to the agreement to vote on certain matters as
directed by Dr. Bjorn Jawerth, however, High Speed is exempted from these voting
provisions of the shareholder agreement.
THE ASSET PURCHASE OF MARKETERS WORLD, INC.
In August 1998, we acquired the business and assets of, and assumed the
liabilities of, Marketers World, Inc. To pay the sole shareholder of Marketers
World, Mr. Bradford Richdale, we issued 9,275,000 shares of Common Stock to
Marketers World, Inc. Immediately before issuing these 9,275,000 shares of
Common Stock there were 1,000,000 shares of our Common Stock issued and
outstanding. In addition to the issuance of these shares, the president and then
sole director and sole corporate officer of High Speed, Mr. Rene Hamouth,
transferred 725,000 shares of his personal High Speed Common Stock to Marketers
World to effect the transaction. The transaction was accounted for as a reverse
merger whereby Marketers World was treated as the accounting acquirer and High
Speed as the acquiree. At the time of the merger High Speed had no assets or
liabilities and accordingly, the transaction was accounted for as a
recapitalization of High Speed. Subsequently, the 10,000,000 shares that
Marketers World received in the transaction were assigned by Mr. Richdale as
follows: (i) 6,835,000 shares to Ormond Trust, an entity established by Mr.
Richdale; (ii) 140,000 shares to Mr. Cimino; and (iii) the remaining 3,025,000
shares to 24 other persons.
Marketers World was incorporated in January 1998. The Marketers World
officer executing the asset purchase agreement as president of Marketers World
was Mr. Michael Cimino, who subsequently was elected the sole director and
executive officer of High Speed.
Immediately after and as a result of the foregoing transaction, Mr.
Bradford Richdale became our primary shareholder. No independent valuation was
made of this transaction. Subsequent to the transaction, we decided not to
continue in the line of business we acquired in the transaction. We do not
believe that the transaction added value to our company on an ongoing basis.
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<PAGE>
Item 7. Certain Relationships and Related Transactions
1998 OFFERING
In September of 1998 we issued 1,550,000 shares of our Common Stock to
Mr. Bradford Richdale as forgiveness of a debt valued at $149,820 that we owed
to him. Mr. Richdale loaned us these funds to finance our operations. We also
issued 1,100,000 shares of Common Stock to StoneLeigh Ltd., an entity
established by Mr. Richdale, and we issued 2,330,000 shares of Common Stock to
Rene Hamouth. These shares of our Common Stock were issued in conjunction with
shares issued to thirty other investors. The aggregate consideration we received
for these issuances was $317,000, including forgiveness of debt.
BRD ACQUISITION
In September of 1998 we acquired Brad Richdale Direct, Inc., ("BRD").
In exchange for all of the outstanding and issued stock of Brad Richdale Direct
we issued: (i) 775,000 shares of Common Stock to Ormond Trust, Brad Richdale
Direct's major shareholder, and an entity established by Mr. Bradford Richdale;
and (ii) 225,000 shares of Common Stock to Mr. Michael Cimino, who at the
execution of the transaction was president of Brad Richdale Direct and president
of High Speed. The transaction was accounted for as an acquisition of licensing
rights rather than a business combination because at the time of the acquisition
BRD's primary asset was marketing and licensing rights for Summus technology. In
connection with this transaction, in February of 1999 we issued an immediately
vested option for 1,000,000 shares of Common Stock to Mr. Bradford Richdale,
exercisable at a price of $0.01 per share. Also, in connection with this
transaction, in September of 1998, we issued 140,000 shares of our Common Stock
to Mike Cimino. Finally, we issued 100,000 shares to Mr. Cimino as consideration
for his services in effecting this transaction. BRD was incorporated in August
of 1997. The acquisition of BRD was a transaction between us and a company owned
by our primary shareholder. No independent valuation was made. Subsequent to the
transaction we decided not to operate the business we acquired in the
transaction. Other than the licensing rights for Summus technology, we do not
believe that the transaction added value to our company on an ongoing basis.
NATIONAL DIRECT CORPORATION AND HEALTHTEC ACQUISITION
In September of 1998, under a stock purchase agreement, we issued
300,000 shares of Common Stock for the purpose of acquiring HealthTec, Inc., and
National Direct Corporation. We issued 100,000 of these shares to Mr. Bradford
Richdale and we issued 100,000 of these shares to Mr. Michael Cimino. The final
100,000 shares were issued to an unrelated party. This transaction was rescinded
in November of 1998 and in August of 1999 we implemented the cancellation of the
300,000 shares issued for this acquisition.
VR MALL AND GOLF VACATIONS RESORT ACQUISITION
In September of 1998, under a stock purchase agreement, we agreed to
issue 200,000 shares of Common Stock to Mr. Bradford Richdale for the purpose of
acquiring all of the stock of VR Mall, Inc. In September of 1998, under a stock
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<PAGE>
Item 7. Certain Relationships and Related Transactions
purchase agreement, we agreed to issue 600,000 shares of Common Stock to Mr.
Bradford Richdale for the purpose of acquiring all of the stock of Golf
Vacations Resort. These two transactions were canceled in November of 1998. The
Common Stock issuances contemplated by these transactions were never
implemented.
ADVISORY AGREEMENT WITH A DIRECTOR
In February of 1999 we entered into an advisory agreement with Mr.
Richard F. Seifert under which Mr. Seifert provides advisory services for
investor relations and identification of funding and revenue opportunities. Mr.
Seifert is a member of our board of directors. For successful funding
opportunities introduced by Mr. Seifert, we pay 10% of the amount secured for
non-debt funding and revenue opportunities, and for introductions which result
in successful debt funding we pay 5% of the amount secured. As of February 2000,
Mr. Seifert has been paid $62,500 under this agreement.
ISSUANCE OF CONVERTIBLE DEBENTURES
During the period between March 3, 1999 and May 24, 1999, we issued
$1,636,858 principal amount of convertible debentures. The debentures boar
interest at a rate of 8% per annum and were convertible into shares of our
Common Stock at a conversion rate of $0.50 per share. The principal on these
debentures was due July 31, 2000. The aggregate consideration we received by
issuing these debentures was $1,636,858. All of these debentures were issued to
Mr. Bradford Richdale or to entities established by Mr. Richdale: Ormond Trust
and StoneLeigh Ltd. On May 24, 1999, all holders converted these debentures into
shares of our Common Stock and we issued 3,273,716 shares of our Common Stock
upon conversion of these debentures.
On July 15, 1999, we issued a $62,500 principal amount convertible
debenture to Mr. Bradford Richdale. The debenture bore interest at a rate of 8%
per annum and were convertible into shares of our Common Stock at a conversion
rate of $0.25 per share. The principal on these debentures was due July 15,
2000. The consideration we received for this debenture was $62,500. On July 15,
1999, the holder converted this debenture into shares of our Common Stock and we
issued 250,000 shares of our Common Stock upon conversion of this debenture.
In August of 1999 we issued $458,640 principal amount of convertible
debentures to Mr. Bradford Richdale and to Ormond Trust, an entity established
by Mr. Richdale. The debentures bore interest at a rate of 8% per annum and were
convertible into shares of our Common Stock at a conversion rate of $1.00 per
share. The principal on these debentures was due August 5, 2000 and August 12,
2000. The consideration we received for these three debentures was $458,640. On
the date they were issued, the holder converted these debentures into shares of
our Common Stock and we issued 458,640 shares of our Common Stock upon
conversion of these debentures.
The convertible debentures described above were issued as partial
consideration for $2,190,000 that was directly paid by Mr. Bradford Richdale to
Summus to cover a portion of the first three payments that we were obligated to
make to Summus under the Marketing License Agreement. Under the Marketing
License Agreement, we were to make four payments of $750,000 each for our rights
under the agreement.
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<PAGE>
Item 7. Certain Relationships and Related Transactions
ISSUANCE OF SHARES FOR BRD OPTION
In August of 1999, we issued 1,000,000 shares of our Common Stock when
Mr. Bradford Richdale exercised his Common Stock option which were issued with
an exercise price of $0.01 per share. We waived payment of the exercise price in
exchange for Mr. Richdale transferring to us certain marketing rights to Summus
technology. Mr. Richdale received these stock options in connection with the
purchase by High Speed of all of the stock of Brad Richdale Direct, Inc., as
discussed above.
CANCELLATION OF PRIOR ACQUISITIONS
In August of 1999, we canceled 5,461,100 shares of Common Stock for the
following transactions. We canceled 300,000 shares of Common Stock because we
rescinded the acquisitions of National Direct Corporation and HealthTec.
Furthermore, we canceled 5,161,100 shares of Common Stock as part of a partial
voluntary unwinding of the Marketers World acquisition subsequent to Marketers
World ceasing operations.
PAYMENTS TO SUMMUS UNDER THE MARKETING LICENSE AGREEMENT
During February of 1999 we entered into a Marketing License Agreement
with Summus. During 1999, we made payments of $2,250,000 in cash and a payment
in the form of 1,500,000 shares of our Common Stock, valued at $2,278,125, for
the purpose of making the final payment to Summus under the Marketing License
Agreement as described in Item 1 "Business." As described in Item 1 "Business,"
we have replaced the Marketing License Agreement and its related agreements with
new agreements under which we will have to make future payments to Summus for
our use of their software products. The new agreements include: a Master
Agreement, a Software License Agreement, a Revenue Sharing Agreement, and a
Software Maintenance Agreement.
In August of 1999, we issued the payment in the form of 1,500,000
shares of our Common Stock to Summus Ltd. as part of the payment for our rights
under the Marketing License Agreement. These shares were issued in lieu of
paying Summus the final of four $750,000 payments due to Summus under the
Marketing License Agreement.
ISSUANCE OF COMMON STOCK TO AFFILIATES OF A DIRECTOR
In August of 1999, we issued 250,000 shares of our Common Stock at
$1.00 per share to two investors under a subscription agreement. These investors
are the parents of Mr. Richard F. Seifert, a member of our board of directors.
LOANS DUE TO A SHAREHOLDER.
As of December 31, 1999, we owe $435,815 to entities controlled by Mr.
Bradford Richdale. We owe these amounts to Mr. Richdale for loans that he
extended to us to finance our operations. The loans are unsecured and are
payable on demand.
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<PAGE>
Item 7. Certain Relationships and Related Transactions
LOANS DUE TO SUMMUS.
Since August of 1999, Summus has advanced $154,000 to us to provide us
with funds to operate. The loans are unsecured and are payable on demand.
SUMMUS OWNERSHIP OF HIGH SPEED
In August of 1999, under a stock purchase agreement, Summus purchased
9,542,360 shares of our Common Stock from Mr. Bradford Richdale in exchange for
132,888 shares of Summus Ltd. Under amendment number 1 to this agreement, Mr.
Richdale agreed that he would not serve on the board of directors of High Speed
without Summus written consent. Amendment number 2 to this agreement states that
the purchase of the High Speed shares by Summus is conditioned upon Mr. Michael
Cimino resigning as a member of the board of directors of High Speed and Summus,
and upon Mr. Michael Cimino signing a release in favor of High Speed for any
claims, past or future. As of February 10, 2000, Summus held 8,574,360 shares of
our Common Stock (40.7% of our outstanding Common Stock, and 39.1% on a fully
diluted basis). Summus also has the power to vote 2,792,167 shares of our Common
Stock through voting agreements with and/or proxies from 17 persons. Total
Summus voting power is 54.0% of our outstanding Common Stock.
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<PAGE>
Item 8. Legal Proceedings
ITEM 8. LEGAL PROCEEDINGS
In January 2000, Mr. William R. Dunavant filed a lawsuit against us in
the circuit court of the eleventh judicial circuit of Dade county, Florida. The
lawsuit seeks damages of $13,330,000 resulting from our alleged failure to
register 350,000 shares of our Common Stock that Mr. Dunavant owns under the
Securities Act of 1933, as amended, and from our alleged failure to deliver to
Mr. Dunavant two allotments of 25,000 shares of stock as an alleged penalty for
our failure to register Mr. Dunavant's shares. Under our agreement with Mr.
Dunavant, for each month his shares remain unregistered, we must issue and
include in the registration an additional 25,000 shares of our Common Stock to
Mr. Dunavant. Mr. Dunavant purchased the 350,000 shares of our Common Stock in
an asset purchase agreement, dated August 13, 1999. Under this agreement we
conveyed $100,000 in cash and issued 350,000 shares of our Common Stock in
exchange for 250,000 shares of Summus Technologies, Inc., Common Stock owned by
Mr. Dunavant. We are incurring the costs of defense against Mr. Dunavant's
claims. Our present understanding of these claims is preliminary. Based on our
present understanding, however, management does not believe that the outcome of
Mr. Dunavant's lawsuit or claims will have a material adverse effect on our
financial condition or results of operations.
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<PAGE>
Item 9. Market for Common Equity and Related Stockholder Matters.
ITEM 9. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
A. 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.
2000 LOW HIGH
- ---- --- ----
First Quarter through $11.750 $32.375
February 9, 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
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 bid 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.
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<PAGE>
Item 9. Market for Common Equity and Related Stockholder Matters.
B. HOLDERS
As of February 10, 2000, there were 138 holders of record of the High
Speed's Common Stock. As of February 10, 2000 we had 21,062,149 shares of Common
Stock issued and outstanding.
As of February 10, 2000, an amount of 895,000 shares of our Common
Stock are subject to outstanding options.
C. DIVIDENDS
We have never paid any cash dividends on our capital stock. We
anticipate that we will retain earnings, if any, to finance the growth and
development of our business. Therefore, we do not expect to pay cash dividends
on our Common Stock for the foreseeable future. Any future determination to pay
cash dividends will be at the discretion of the board of directors and will be
dependent upon our financial condition, operating results, capital requirements
and such other factors as the board of directors deems relevant.
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<PAGE>
Item 10. Recent Sales of Unregistered Securities.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
As of January 1, 1997, 5,000 shares of our Common Stock were issued and
outstanding. Of this 5,000 shares, High Speed's sole director and corporate
officer at this time owned beneficially 4,875 shares of Common Stock and 25
non-affiliates of High Speed each owned 5 shares of our Common Stock. From our
inception through July 21, 1998, our articles of incorporation authorized the
issuance of up to 5000 shares of Common Stock.
Since January 1, 1997, we have issued the following securities as
described below. In the summary below, all references to "High Speed," "us,"
"we," or "our" refer to High Speed Net Solutions, Inc. under any of its prior
corporate names (ZZAP.NET Inc., and EMN Enterprises, Inc.).
(1) During the period commencing on January 1, 1997, and ending on June 20,
1998, no Common Stock was issued.
(2) On June 20, 1998, the outstanding 5000 shares of Common Stock were
split 200:1, creating an issued and outstanding capitalization of
1,000,000 shares of our Common Stock.
(3) In August 1998, we issued 1,550,000 shares of Common Stock to Mr.
Bradford Richdale as forgiveness of a debt valued at $149,820 that we
owed to him. Mr. Richdale loaned us these funds to enable us to finance
our operations.
(4) In August of 1998, we issued 3,766,600 shares of Common Stock for an
aggregate consideration of $317,000. Included in these issuances were:
(i) issuance of 1,100,000 shares to StoneLeigh Ltd., and entity
established by Mr. Richdale; (ii) issuance of 2,330,000 shares to Mr.
Rene Hamouth, the sole director and sole corporate officer of High
Speed; (iii) issuance of 116,600 shares to 24 investors; and (iv)
issuance of 220,000 shares to six investors. The proceeds from these
transactions were used to finance operations.
(5) In August 1998, we acquired the business and assets of, and assumed the
liabilities of, Marketers World, Inc. To pay Marketers World, we issued
9,275,000 shares of Common Stock to Marketers World, Inc. Mr. Bradford
Richdale was the sole shareholder of Marketers World. In addition, the
president and then sole director and sole corporate officer of High
Speed, Mr. Hamouth, transferred 725,000 shares of his personal Common
Stock to Marketers World to effect the transaction. No independent
valuation was made of the amount of assets we acquired and the
liabilities we assumed. The value of assets obtained from Marketers
World was $420,259. The Marketers World officer executing the asset
purchase agreement was Mr. Michael Cimino, who subsequently was elected
the sole director and officer of High Speed. Subsequently, the
10,000,000 shares that Marketers World received in the transaction were
assigned by Mr. Richdale as follows: (i) 6,835,000 shares to Ormond
Trust, an entity established by Mr. Richdale; (ii) 140,000 shares to Mr.
Cimino; and (iii) the remaining 3,025,000 shares to 24 other persons.
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<PAGE>
Item 10. Recent Sales of Unregistered Securities.
(6) In September of 1998 we acquired the business, assets and liabilities of
Brad Richdale Direct, Inc. In exchange for all of the outstanding and
issued stock of Brad Richdale Direct we issued: (i) 775,000 shares of
Common Stock to Ormond Trust, Brad Richdale Direct's major shareholder,
and an entity established by Mr. Bradford Richdale; and (ii) 225,000
shares of Common Stock to Mr. Michael Cimino, who at the execution of
the transaction was President of Brad Richdale Direct and President of
High Speed.
In connection with this transaction, in February of 1999 we issued an
immediately vested option for 1,000,000 shares of Common Stock to Mr.
Bradford Richdale, exercisable at a price of $0.01 per share. As
discussed below, this option was later exercised in August of 1999.
Also, in connection with this transaction, in September of 1999, we
issued 140,000 shares of Common Stock to Mike Cimino. Finally, we issued
100,000 shares to Mr. Cimino as consideration for his services in
effecting this transaction.
(7) In September of 1998, we issued 300,000 shares of Common Stock for the
purpose of acquiring HealthTec, Inc., and National Direct Corporation.
We issued 100,000 of these shares to Mr. Bradford Richdale and we issued
100,000 of these shares to Mr. Michael Cimino. This transaction was
rescinded in November of 1998 and in August of 1999 we implemented the
cancellation of the 300,000 shares issued for this acquisition. In
September of 1998, under a stock purchase agreement, we agreed to issue
200,000 shares of Common Stock to Mr. Bradford Richdale for the purpose
of acquiring all of the stock of VR Mall, Inc. In September of 1998,
under a stock purchase agreement, we agreed to issue 600,000 shares of
Common Stock to Mr. Bradford Richdale for the purpose of acquiring all
of the stock of Golf Vacations Resort. These two transactions were
rescinded in November of 1998. The Common Stock issuances contemplated
by these transactions were never implemented.
(8) In February of 1999 we issued 157,323 shares of Common Stock to GEM
Singapore for an agreement that GEM Singapore pay us $471,987. On July
16, 1999, we canceled these shares for lack of consideration because the
transaction did not close.
(9) From February to April of 1999 we issued 338,188 shares of our Common
Stock to 16 individuals for a price per share ranging from $1.00 to
$2.50 per share and we received an aggregate investment of $347,500 for
these shares. The proceeds from these investments were used to finance
operations.
(10) In May of 1999, we issued 795,001 shares of Common Stock in exchange for
a 16.7% investment in Summus Technologies, Inc. Subsequent to this
transaction, Summus Technologies merged with Summus Ltd. giving us a
16.7% ownership in Summus Ltd. We issued the 795,001 shares to 5
individuals for their shares of Summus Technologies. Except for one
individual, we gave no other consideration for the Summus Technologies
shares beyond the issuance of our Common Stock. Of the 795,001 shares
issued, 350,000 shares were issued to Mr. Roger Dunavant under a stock
purchase agreement. In addition to the issuance of the 350,000 shares,
we also paid Mr. Dunavant $100,000 in cash. In return we received
250,000 shares of the Common Stock of Summus Technologies.
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<PAGE>
Item 10. Recent Sales of Unregistered Securities.
(11) In May of 1999, we issued 200,000 shares of our Common Stock when Myung
K. Kim exercised his Common Stock options for an exercise price of
$0.01 per share. Mr. Kim received these stock options under his
employment agreement as our President.
(12) In May of 1999, we issued 200,000 shares of our Common Stock when
Richard F. Seifert exercised his Common Stock options for an exercise
price of $0.01 per share. Mr. Seifert received these stock options under
his verbal employment agreement as our Vice President.
(13) In May of 1999, we issued 425,000 shares of our Common Stock when Mike
Cimino exercised his Common Stock options for an exercise price of $0.01
per share. Mr. Cimino received these stock options under his verbal
employment agreement as our President.
(14) During the four month period between February 1, 1999 and May 24, 1999,
we issued 17 convertible debentures at 8% per annum at a $0.50 per share
conversion rate. The aggregate consideration we received by issuing
these debentures was $1,986,858. Except for one debenture in the amount
of $350,000, all of these debentures were issued to Mr. Bradford
Richdale or to entities established by Mr. Richdale: Ormond Trust and
StoneLeigh Ltd. On May 24, 1999, all holders converted these debentures
into shares of our Common Stock and we issued 3,973,720 shares of our
Common Stock upon conversion of these debentures.
(15) From July 1, 1999 through July 15, 1999 we issued 6 convertible
debentures at 8% per annum at $0.50 per share conversion rate. The
aggregate consideration we received by issuing these debentures was
$47,750. On July 15, 1999, all holders converted these debentures into
shares of our Common Stock and we issued 95,500 shares of our Common
Stock upon conversion of these debentures.
(16) On July 15, 1999 we issued 1 convertible debentures to Mr. Bradford
Richdale at 8% per annum at a $0.25 per share conversion rate. The
consideration we received for this debenture was $62,500. On July 15,
1999, the holder converted this debenture into shares of our Common
Stock and we issued 250,000 shares of our Common Stock upon conversion
of this debenture.
(17) In August of 1999 we issued 1 convertible debenture to Mr. Bradford
Richdale and 2 convertible debentures to Ormond Trust, an entity
established by Mr. Richdale, all at 8% per annum at a $1.00 per share
conversion rate. The consideration we received for these three
debentures was $458,640. On the date they were issued, the holder
converted these debentures into shares of our Common Stock and we issued
458,640 shares of our Common upon conversion of these debentures.
(18) On August 5, 1999 we issued 1 convertible debenture at 8% per annum at a
$1.50 per share conversion rate. The consideration for this debenture
was $100,000. On the date it was issued, the holder converted this
debenture into shares of our Common Stock and we issued 75,000 shares of
our Common Stock upon conversion of this debenture.
68/80
<PAGE>
Item 10. Recent Sales of Unregistered Securities.
To summarize the debenture issuances, the total aggregate consideration
for all 28 convertible debentures issued was $2,655,748. Of the amounts
given above for issuance of the convertible debentures, $2,190,000 was
directly paid by Mr. Bradford Richdale to Summus to cover a portion of
the first three payments that we were obligated to make to Summus under
the Marketing License Agreement. Under the Marketing License Agreement,
we were obligated to make four payments of $750,000 each for our rights
under the agreement. The remaining $558,640 was used to finance
operations. As discussed in the items above, all of these debentures
were converted shortly after their issuance by the respective holders to
an aggregate of 4,852,856 shares of Common Stock.
(19) In July of 1999, we issued 500 shares of our Common Stock to Mr. Jason
Parsons in exchange for Mr. Parson's services in developing our company
logo.
(20) In July of 1999, we issued 50,000 shares of our Common Stock to Ron De
Jong as payment for his services as a consultant to us.
(21) In July of 1999, we issued 25,000 shares of our Common Stock to Mr.
Bradford Richdale beneficially in exchange for Mr. Richdale's assistance
in the Roger Dunavant Summus Technology stock acquisition.
(22) In July of 1999, we issued 10,000 shares of our Common Stock to Mr.
Greg Catinella in exchange for Mr. Catinella's fundraising services.
(23) In August of 1999, we issued 1,000,000 shares of our Common Stock when
Mr. Bradford Richdale exercised his Common Stock options which we issued
with an exercise price of $0.01 per share. We waived payment of the
exercise price in exchange for Mr. Richdale transferring to us certain
marketing rights to Summus technology. Mr. Richdale received these stock
options in connection with the purchase by High Speed of all of the
stock of Brad Richdale Direct, Inc.
(24) In August of 1999, we implemented the cancellation of 5,873,423 shares
of Common Stock for lack of consideration for to the following
acquisitions and investments. We canceled 300,000 shares of Common Stock
because we rescinded the acquisitions of National Direct Corporation and
Healthtec. We canceled 5,161,100 shares of Common Stock as part of a
voluntary rollback of the Marketers World acquisition subsequent to
Marketers World ceasing operations. We canceled the 25,000 shares issued
to Mr. Bradford Richdale for his assistance with the Roger Dunavant
transaction. We canceled the 230,000 shares issued to Mr. Michael Cimino
for his services. Finally, we canceled 157,323 shares due to lack of
consideration for a transaction involving GEM Singapore.
(25) In August of 1999, we issued 1,500,000 shares of our Common Stock to
Summus Ltd. as part of the payment for our rights under a Marketing
License Agreement. These shares were issued in lieu of paying Summus the
final of four $750,000 payments due to Summus under the Marketing
License Agreement.
(26) In August of 1999, we issued 250,000 shares of our Common Stock at $1.00
per share to two investors under a subscription agreement. These
investors are the parents of Mr. Richard F. Seifert, a member of our
board of directors.
69/80
<PAGE>
Item 10. Recent Sales of Unregistered Securities.
(27) On February 28, 2000, we sold 2,000 shares of Series A Convertible
Preferred Stock to an investor at a price of $1,000 per share, for an
aggregate consideration of $2,000,000. The sale and issuance of the
Series A Convertible Preferred Stock was made in reliance on Rule 506
of Regulation D.
The sales and issuances of securities in the above transactions were
made in reliance on the exemptions from registration under the Securities Act of
1933, as amended (the "Securities Act"), provided by Section 4(2) thereof,
and/or Regulation D and/or Rule 701 thereunder.
The purchasers of restricted securities represented their intention to
acquire the securities for investment only and not with a view to the
distribution thereof. Appropriate legends were affixed to the stock certificates
issued in such transactions. We believe that all recipients of restricted
securities had adequate access, through employment or other relationships, to
information about High Speed to make an informed investment decision.
Sales of shares of our Common Stock and Preferred Stock were made as
follows:
(i) 1,390,000 shares of our Common Stock were issued to persons who were
officers, directors or employees of High Speed in exchange for
services valued at $1,687,551 in transactions that were exempt under
Rule 701.
(ii) 1,285,500 shares of our Common Stock were issued to persons who were
consultants and advisors in exchange for services valued at $2,147,646
in transactions that were exempt under Rule 701.
(iii) 1,120,500 shares of our Common Stock were sold for $747,450 to 10
persons not in the foregoing categories in transactions that were
exempt under Section 4(2).
(iv) 11,550,000 shares of our Common Stock were issued to acquire the
assets of two companies owned by Mr. Bradford Richdale and to acquire
rights under agreements with Summus in transactions that were exempt
under Section 4(2).
(v) 3,982,356 shares of our Common Stock were sold for $2,158,299 to Mr.
Bradford Richdale, the founder of High Speed, and related parties in
transactions that were exempt under Section 4(2).
(vi) 795,001 shares of our Common Stock were issued in exchange for Summus
shares valued at $1,792,127 in transactions that were exempt under
Section 4(2).
(vii) 5,654,788 shares of our Common Stock were sold for $814,320 to 46
persons in transactions that were exempt under Rule 504.
(viii) 2,000 shares of our Series A Convertible Preferred Stock were sold for
$2,000,000 to one investor in a transaction that wax exempt under
Rule 506 of Regulation D.
70/80
<PAGE>
Item 11. Description of Registrant's Securities to be Registered
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
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 February 10, 2000, there were 21,062,149 shares of
Common Stock outstanding and no shares of preferred stock outstanding.
The following summary description of our capital stock is not intended
to be complete and is qualified by reference to our amended and restated
certificate of incorporation and our amended and restated bylaws, filed as
exhibits to this registration statement, and is qualified by the applicable
provisions of the Florida Business Corporation Act (the "FBCA").
COMMON STOCK
As of February 10, 2000, there were 21,062,149 shares of Common Stock
outstanding held by 138 stockholders of record. In addition, as of February 10,
2000, there were outstanding stock options to purchase 895,000 shares of Common
Stock. Based upon the number of shares outstanding as of that date and giving
effect to the issuance of Common Stock upon the exercise of all outstanding
stock options, assuming that these options fully vest, there will be 21,957,149
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
Prior to February 10, 2000, there were no issued and outstanding shares
of our preferred stock and before that date we have 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. We have taken this action to prepare
generally for the future possibility of issuing preferred stock in a financing
transaction.
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
71/80
<PAGE>
Item 11. Description of Registrant's Securities to be Registered
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 High Speed 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 High Speed. The board of directors of High Speed, 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, subject to antidilution 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.
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.
REGISTRATION RIGHTS
The following summary description of registration rights outstanding on
some of our Common Stock is not intended to be complete and is qualified by
reference to certain exhibits filed with this registration statement.
We entered into an agreement with Mr. William R. Dunavant on August 13,
1999 under whom Mr. Dunavant has a claim or right with respect to the
registration of our shares under the Securities Act of 1933, as amended. The
agreement grants Mr. Dunavant registration rights for 350,000 shares of our
Common Stock. The agreement specifies that we must register Mr. Dunavant's
shares as of a date a certain number of days from the date of the agreement.
72/80
<PAGE>
71/79
<PAGE>
Item 11. Description of Registrant's Securities to be Registered
Under our agreement with Mr. Dunavant, for each month his shares remain
unregistered, we must issue and include in the registration an additional 25,000
shares of our Common Stock to Mr. Dunavant. Mr. Dunavant claims that his rights
for additional shares will continue to accrue at a per month rate of 25,000
shares until we have satisfied our obligations under this agreement. As of the
date of this registration, under the agreement Mr. Dunavant has a claim for
registration of 50,000 additional shares.
Under a stock option agreement with Mr. Bradford Richdale, we granted
Mr. Richdale piggyback registration rights for 1,000,000 shares of Common Stock
that Mr. Richdale later purchased by exercising the option. In general, Mr.
Richdale's registration rights are for a Securities Act registration, such as a
registration on form S-1.
Under stock options granted in 1999 to former executive officers and
consultants of High Speed who served during 1999 we granted piggyback
registration rights for up to 950,00 shares of our Common Stock. Under
debentures dated in April through August of 1999 and issued to Mr. Bradford
Richdale and related parties we granted piggyback registration rights for up to
3,968,640 shares of our Common Stock.
Under debentures granted to 8 individuals we granted piggyback
registration rights for up to 316,500 shares of our Common Stock, to be effected
upon our first Securities Act registration. Under the debentures we must
register the remaining shares derived from the debentures, 104,000 shares, in
subsequent Securities Act registrations.
RIGHTS TO COMMON STOCK AND OPTIONS FOR COMMON STOCK IN EXCHANGE FOR SERVICES
We have a consulting agreement dated September 24, 1999 with Mr. Kyoung
Park under which Mr. Park receives the rights to 2,000 shares of our Common
Stock for revenue we derive from a potential customer of High Speed and Summus.
Under this consulting agreement we also pay Mr. Park 4% of all revenue we
receive from this customer. If revenues with this potential customer in 2000 are
$1,000,000 then Mr. Park would receive 20,000 shares. As revenue levels rise Mr.
Park has the right to proportionally receive more shares for higher revenue
levels. To date, we have no agreement with this potential customer.
Consequently, we have not paid Mr. Park any funds nor issued Mr. Park any shares
under this agreement.
We have a consulting agreement dated December 15, 1999 with RPC
Consulting under which RPC Consulting receives option rights to purchase up to
200,000 shares of our Common Stock at an exercise price of $10.00 per share for
certain levels of business revenue we may derive. RPC Consulting's options shall
vest and become exercisable in increments of 50,000 shares in accordance with a
revenue-based vesting schedule starting at $2,000,000 and ending at $20,000,000.
To date, none of RPC Consulting's options have vested.
73/80
<PAGE>
Item 12. Indemnification of Directors and Officers
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The following summary description of indemnification and limitation of
liability for our officers is not intended to be complete and is qualified by
reference to our amended and restated certificate of incorporation and our
amended and restated bylaws, filed as exhibits to this registration statement,
and is qualified by the applicable provisions of the Florida Business
Corporation Act (the "FBCA").
Our Articles of Incorporation and Bylaws provide for indemnification of
officers and directors to the fullest extent permitted by Florida law and, to
the extent permitted by such law, eliminate, or limit the personal liability of
directors to High Speed and its shareholders for monetary damages for certain
breaches of fiduciary duties. The liability of a director is not eliminated or
limited (i) for any breach of the director's duty of loyalty to High Speed or
its shareholders; (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law; (iii) for any improper
distribution under the FBCA; or (iv) for any transaction from which the director
derived an improper personal benefit. Insofar as indemnification for liabilities
under the Securities Act may be permitted to directors, officers, or persons
controlling High Speed pursuant to the foregoing provisions, we have been
informed that, in the opinion of the Commission, such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
We intend to obtain liability insurance for our directors and officers.
At present, there is no pending litigation or proceeding involving any director,
officer, employee or agent as to which indemnification will be required or
permitted under the amended and restated certificate of incorporation. We are
not aware of any threatened litigation or proceeding that may result in a claim
for this type of indemnification.
74/80
<PAGE>
Item 13 Financial Statements and Supplementary Data.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Financial Statements and Supplementary Data required by this Item
are filed as part of this Form 10. See Index to Financial Statement Information
at Page F-1 of this Form 10.
75/80
<PAGE>
Item 14 Changes in Accountants
ITEM 14. CHANGES IN ACCOUNTANTS
In November of 1999 we engaged Ernst and Young LLP as our independent
public accountants to prepare audited financials for filing this registration
statement. 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.
76/80
<PAGE>
Item 15. Financial Statements and Exhibits.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
A. FINANCIAL STATEMENTS.
The information required by this item is contained in the "Index to
Financial Statements" on Page F-1 of this Form 10 registration statement and
such information is incorporated herein by reference.
B. INDEX TO EXHIBITS
Exhibit Number Exhibit Description
- -------------- -------------------
3.01 * Articles of Incorporation, dated April 30, 1984 (as formerly in
effect, as amended in Exhibits 3.02, 3.03, 3.04).
3.02 * Amendment to Articles of Incorporation, dated July 20, 1998.
3.03 * Amendment to Articles of Incorporation, dated August 24, 1998.
3.04 * Amendment to Articles of Incorporation, dated December 10, 1998
3.05 * Restated Articles of Incorporation, dated February 11, 2000 (as
currently in effect).
3.06 * Bylaws.
3.07 * Amended and Restated Bylaws.
3.08 Articles of Amendment regarding Statement of Rights and
Preferences of the 8% Series A Convertible Preferred Stock
4.01 * Specimen common stock certificate.
10.01 Master Agreement ("MA") with Summus, Ltd. ("Summus"), dated
February 18, 2000
10.02 Software License Agreement ("SLA") with Summus, dated
February 18, 2000
10.03 Software Maintenance Agreement ("SMA") with Summus, dated
February 18, 2000
10.04 Revenue Sharing Agreement ("RSA") with Summus, dated
February 18, 2000
10.05 * Equity Compensation Plan, effective January 31, 2000.
10.06 * Marketing License Agreement ("MLA") with Summus, including
Exhibit A and Exhibit E, dated as of February, 1999.
10.07 * First Amendment to MLA, dated August 16, 1999.
77/80
<PAGE>
Item 15. Financial Statements and Exhibits.
Exhibit Number Exhibit Description
- -------------- -------------------
10.08 * Letter Agreement among Bradford J. Richdale, Michael M. Cimino,
President of Zzap.net, Inc., predecessor in interest to High
Speed Net Solutions, Inc. ("HSNS"), and Dr. Bjorn Jawerth,
President of Summus, Ltd., and Summus Technologies, Inc., dated
January 14, 1999.
10.09 * First Amendment to Letter Agreement, dated August 16, 1999
10.10 * Letter to Samsung Electronics, dated March 25, 1999.
10.11 * Samsung Non-Circumvention Agreement with Summus, dated April 15,
1999.
10.12 * Letter to Samsung Electronics, dated August 9, 1999.
10.13 * Letter concerning Agency Agreement for Samsung negotiations,
dated March 25, 1999.
10.14 * Capital Associates Lease Agreement between HSNS and Phoenix
Limited Partnership of Raleigh, dated October 15, 1999.
10.15 * Stock Purchase Agreement with Mr. William R. Dunavant, dated
August 13, 1999.
10.16 * Supplement to Agreement by and Between HSNS and William
Dunavant, dated August 13, 1999.
10.17 * Advisory Agreement with R J Seifert Enterprises, dated
February 6, 1999.
10.18 * Non-Circumvention and Non-Disclosure Agreement with R J Seifert
Enterprises, dated February 6, 1999.
10.19 * Employment Offer Letter with Andrew Fox, dated January 20, 2000.
10.20 * Stock Option Award Agreement with Andrew Fox, dated August 25,
1999.
10.21 * Employment Offer Letter with Alan R . Kleinmaier, dated
February 7, 2000.
10.22 * Stock Option Award Agreement with Alan Kleinmaier, dated
August 25, 1999.
10.23 * Settlement Agreement with Peter Rogina, dated September 22,
1999.
10.24 * Employment and Stock Option Agreement with Peter Rogina, dated
March 1, 1999.
10.25 * Consulting Agreement with Kyoung Park, Summus, dated
September 24, 1999.
10.26 * Consulting Agreement with RPC International, dated December 15,
1999.
78/80
<PAGE>
Item 15. Financial Statements and Exhibits.
Exhibit Number Exhibit Description
- -------------- -------------------
10.27 * Shareholders' Agreement with Summus, Sharon Stairs, Ahmad
Moradi, Antonio Bianco, Joseph Peretta, Rich, Bahman & Berger,
David Anderson, Stephen Purkiss, Kerstin Jawerth, Ron Compton,
dated August 16, 1999.
10.28 * Letter of Intent among HSNS, Samsung Electronics of America,
Inc. and Summus, dated February 15, 2000.
10.29 Software Escrow Agreement with Summus and Fort Knox Escrow
Services, Inc., dated February 18, 2000.
10.30 Letter Agreement with Summus, Dated March 13, 2000
23.1 * Consent of Ernst & Young LLP.
27 * Financial Data Schedule.
- -------------------------------
* Included as an Exhibit (same number as herein) to Form 10-12G filed with the
Securities and Exchange Commission on February 18, 2000.
77/79
<PAGE>
<PAGE>
INDEX TO
High Speed Net Solutions, Inc.
(A DEVELOPMENT STAGE COMPANY)
Financial Statements
Years ended December 31, 1999 and 1998
CONTENTS
Report of Independent Auditors.............................................F-1
Financial Statements
Balance Sheet at December 31, 1998 and 1999................................F-2
Statements of Operations for the Year Ended December 31,
1998 and 1999 and for the Period of Inception to
December 31, 1999.......................................................F-3
Statements of Stockholders' Equity (Deficit)...............................F-4
Statements of Cash Flows for the Year Ended December 31,
1998 and 1999 and for the Period of Inception to
December 31, 1999.......................................................F-6
Notes to Financial Statements..............................................F-8
F-1
<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. 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
consolidated results of its operations and its cash flows for the years ended
December 31, 1999 and 1998 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>
High Speed Net Solutions, Inc.
(A DEVELOPMENT STAGE COMPANY)
Balance Sheets
<TABLE>
<CAPTION>
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 for
years ended 1998 and 1999 68,890 43,060
----------- ------------
Total assets $ 95,058 $ 6,717,722
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
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 17,131,700 and 21,062,149 shares
17,132 21,062
Additional paid-in capital 1,695,336 17,272,820
Deficit accumulated during the development stage (1,693,806) (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.
F-2
<PAGE>
High Speed Net Solutions, Inc.
(A DEVELOPMENT STAGE COMPANY)
Statements of Operations
<TABLE>
<CAPTION>
Period From
January 2, 1998
(Inception) to
December 31
Year Ended December 31
1998 1999 1999
----------- ------------ ------------
<S> <C> <C> <C>
Selling, general and administrative expenses $ 427,841 $ 7,488,627 $ 7,916,468
Interest expense -- 2,655,749 2,655,749
----------- ------------ ------------
Loss from continuing operations (427,841) (10,144,376) (10,572,217)
Loss from discontinued operations (1,265,965) -- (1,265,965)
----------- ------------ ------------
Net loss $(1,693,806) $(10,144,376) $(11,838,182)
=========== ============ ============
Per share amounts (basic and diluted):
Loss from continuing operations $ (0.06) $ (0.53) $ (0.83)
=========== ============ ============
Loss from discontinued operations $ (0.20) $ -- $ (0.10)
=========== ============ ============
Net loss $ (0.26) $ (0.53) $ (0.93)
=========== ============ ============
Weighted average shares outstanding 6,566,883 19,030,492 12,798,688
=========== ============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
High Speed Net Solutions, Inc.
(A DEVELOPMENT STAGE COMPANY)
Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Date of Common Stock
Transaction Shares Par Value
------------------ --------------- --------------
<S> <C> <C> <C>
Balance at January 2, 1998 (inception) - $ -
Stock sold for cash Jan. 1998 100 -
Shareholders capital contributions June-July 1998
Recapitalization upon reverse acquisition of High Speed Net
Solutions, Inc. Aug. 1998 10,275,000 10,275
Common stock sold for cash Sept. 1998 3,766,600 3,767
Common stock issued for payment of debt to a shareholder Sept. 1998 1,550,000 1,550
Treasury stock acquired for cash - -
Common stock issued to acquire licensing rights Sept. 1998 775,000 775
Common stock issued for services Sept. 1998 765,000 765
Net loss for the year ended December 31, 1998 - -
--------------- --------------
Balance at December 31, 1998 17,131,700 17,132
Compensation expense related to grant of stock option to
purchase 1,000,000 shares at no exercise price Feb. 1999 - -
Common stock sold for cash March 1999 118,188 118
Common stock issued to shareholder for advances made on
behalf of the Company April 1999 220,000 220
Compensation expense related to grant of options to purchase
825,000 shares at $.01 per share May 1999 - -
Common stock issued for investment in related party May 1999 795,001 795
Common stock issued for services July 1999 85,500 85
Common stock issued for advance royalty payment Aug. 1999 1,500,000 1,500
Common stock issued in exchange for convertible debentures
Aug. 1999 4,852,860 4,853
Beneficial conversion feature related to convertible debt Aug. 1999 - -
Common stock canceled in connection with merger between High
Speed Net Solutions, Inc. and Marketers World, Inc. in
August 1998 Aug. 1999 (5,161,100) (5,161)
Cancellation of compensatory stock issued in 1998 and 1999 Aug. 1999 (555,000) (555)
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 Aug. 1999 250,000 250
Compensation expense related to grant of option to purchase
240,000 shares at $.01 per share Sept. 1999 - -
Net loss for the year ended December 31, 1999 - -
--------------- --------------
Balance at December 31, 1999 21,062,149 $ 21,062
=============== ==============
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
Deficit
Accumulated
During the
Paid-in Development Treasury
Capital Stage Stock Total
----------------- ----------------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
Balance at January 2, 1998 (inception) $ - $ - $ - $ -
Stock sold for cash - - - -
Shareholders capital contributions 1,091,648 - - 1,091,648
Recapitalization upon reverse acquisition of High Speed Net (10,275) - - -
Solutions, Inc. 313,233 - - 317,000
Common stock sold for cash
Common stock issued for payment of debt to a shareholder 148,270 - - 149,820
Treasury stock acquired for cash - - (227,619) (227,619)
Common stock issued to acquire licensing rights 76,725 - - 77,500
Common stock issued for services 75,735 - - 76,500
Net loss for the year ended December 31, 1998 - (1,693,806) - (1,693,806)
----------------- ----------------- -------------- -----------------
Balance at December 31, 1998 1,695,336 (1,693,806) (227,619) (208,957)
Compensation expense related to grant of stock option to
purchase 1,000,000 shares at no exercise price 2,000,000 - - 2,000,000
Common stock sold for cash 127,382 - - 127,500
Common stock issued to shareholder for advances made on
behalf of the Company 219,780 - - 220,000
Compensation expense related to grant of options to purchase 1,640,000 - - 1,640,000
825,000 shares at $.01 per share
Common stock issued for investment in related party 1,791,332 - - 1,792,127
Common stock issued for services 130,729 - - 130,814
Common stock issued for advance royalty payment 2,276,625 - - 2,278,125
Common stock issued in exchange for convertible debentures 2,650,896 - - 2,655,749
Beneficial conversion feature related to convertible debt 2,655,749 - - 2,655,749
Common stock canceled in connection with merger between High
Speed Net Solutions, Inc. and Marketers World, Inc. in
August 1998 5,161 - - -
Cancellation of compensatory stock issued in 1998 and 1999 (90,695) - - (91,250)
Stock option exercises (1,825) - - -
Common stock issued in conjunction with subscription
agreement, 250,000 shares at $1.00 per share 1,094,750 - - 1,095,000
Compensation expense related to grant of option to purchase
240,000 shares at $.01 per share 1,077,600 - - 1,077,600
Net loss for the year ended December 31, 1999 - (10,144,376) - (10,144,376)
----------------- ----------------- -------------- -----------------
Balance at December 31, 1999 $ 17,272,820 $(11,838,182) $ (227,619) $ 5,228,081
================= ================= ============== =================
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
<TABLE>
<CAPTION>
High Speed Net Solutions, Inc.
(A DEVELOPMENT STAGE COMPANY)
Statements of Cash Flows
Period From
January 2, 1998
(Inception) to
Year Ended December 31 December 31
1998 1999 1999
----------- ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Loss from continuing operations $ (427,841) $(10,144,376) $(10,572,217)
Adjustments to reconcile net loss to net cash used in operating
activities:
Loss on disposal of equipment 36,858 -- 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 76,500 39,564 116,064
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 year -- 18,609 --
----------- ------------ ------------
Cash and cash equivalents at end of year $ 18,609 $ 248,740 $ 248,740
=========== ============ ============
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
High Speed Net Solutions, Inc.
(A DEVELOPMENT STAGE COMPANY)
Statements of Cash Flows
Period From
January 2, 1998
(Inception) to
Year Ended December 31 December 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 royalties $ -- $ 2,278,125 $2,278,125
========= ================ ==========
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
========= ================ ==========
Common stock issued for stockholder advances on behalf of Company
$ -- $ 220,000 $ 220,000
========= ================ ==========
</TABLE>
SEE ACCOMPANYING NOTES.
F-7
<PAGE>
High Speed Net Solutions, Inc.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
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. In legal form, this merger was effected by HSNS issuing its
shares in exchange for the net assets of MWI. However, the transaction was
accounted for as a reverse merger whereby MWI was treated as the accounting
acquirer and HSNS as the acquiree, because the sole shareholder of MWI owned
approximately 90% of the outstanding shares of the combined company after the
merger. 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. The accompanying
1998 financial statements include the operating results of MWI since its
inception on January 2, 1998 and the results of HSNS from the merger date,
August 24, 1998.
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. Earned revenues during the year ended December 31, 1998 of
MWI were approximately $1,335,300 and the loss totaled $1,265,965. 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.
F-8
<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. The strategic relationship with Summus is such that
the Company will bring customer requirements to Summus for inclusion into future
releases of the various products. In addition, Summus plans to search and
validate additional customer requirements to create market leading media
compression and delivery software.
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
termination 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.
F-9
<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.
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. This
conclusion is based on management's expectation of significant future revenues
from products covered under these agreements and rights. This process
necessarily involves significant management judgment. Should management
determine in the future that permanent diminution in value of these assets has
occurred, a charge against operating results would be recorded for the amount of
the decline in value.
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.
F-10
<PAGE>
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Income taxes are accounted for using the liability method in accordance with
FASB Statement 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.
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 earnings or
the financial position of the Company.
F-11
<PAGE>
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. This
amount is presented as a non-current asset in the accompanying balance sheet as
of December 31, 1999.
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.
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. The Company is also required to make ongoing
payments equal to 10% of revenues generated from 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.
F-12
<PAGE>
4. PREPAID ROYALTIES (CONTINUED)
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.
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).
F-13
<PAGE>
6. CONVERTIBLE DEBENTURES (CONTINUED)
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.
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 under its
various agreements with Summus to use to deliver services to its customers.
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.
F-14
<PAGE>
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, which at the time 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.
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. 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 is 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 has been charged to the statement of
operations in 1999.
F-15
<PAGE>
8. STOCKHOLDER' EQUITY (CONTINUED)
STOCK OPTIONS
During 1999, the Company granted to certain employees and directors 2,705,000
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.
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 shares 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 rules 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.
During 1999, the Company issued options to purchase 2,705,000 shares of its
common stock at exercise prices less than market value and recognized $4.2
million in compensation expense related to these options.
A summary of the Company's stock option activity is as follows:
Weighted
Average
Shares Exercise Price
--------- --------------
Outstanding - December 31, 1998 -- $ --
Granted 2,720,000 1.21
Exercised 1,825,000 0.06
Forfeited -- .00
--------- --------
Outstanding - December 31, 1999 895,000 2.29
========= ========
F-16
<PAGE>
8. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding
- ------------------------------------------------------------------------------------------------------------
Range of Number Weighted Average Weighted Average
Exercise Prices Outstanding Contractual Life Exercise Price
--------------- ----------- ---------------- ----------------
<S> <C> <C> <C> <C>
$ .01 240,000 5 years $ .01
2.00 - 4.38 295,000 6.9 years 3.45
10.00 - 13.00 360,000 7 years 11.33
--------
895,000 6.4 years 5.70
========
</TABLE>
Options Exercisable
---------------------------------------
Range of Number Weighted Average
Exercise Prices Exercisable Exercise Price
--------------- ----------- --------------
$ .01 240,000 $ .01
2.00 - 4.38 165,000 4.00
10.00 - 13.00 - -
-------
405,000 1.18
=======
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.
F-17
<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 voluntary 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
negotiated and the Board of Directors approved the cancellation of 555,000
shares of its common stock which were originally issued in 1998 and 1999 for
services rendered by an employee valued at $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.
F-18
<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:
DECEMBER 31 DECEMBER 31
1998 1999
--------- ---------
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 $ -- $ --
========= =========
Management has determined that a 100% valuation allowance for existing deferred
tax assets is appropriate given 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.
F-19
<PAGE>
11. COMMITMENTS
In December 1999, the Company entered into a consulting agreement whereby the
consulting firm received options 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.
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.
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.
F-20
<PAGE>
<PAGE>
Signatures
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this amendment to the registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
HIGH SPEED NET SOLUTIONS, INC.
By: /s/ Andrew L. Fox
Andrew L. Fox
Acting President and CEO, and
Executive Vice President
Date: March 13, 2000
<PAGE>
EXHIBIT INDEX
Exhibit Number Exhibit Description
- -------------- -------------------
3.08 Articles of Amendment regarding Statement of Rights and
Preferences of the 8% Series A Convertible Preferred Stock
10.01 Master Agreement ("MA") with Summus, Ltd. ("Summus"), dated
February 18, 2000
10.02 Software License Agreement ("SLA") with Summus, dated
February 18, 2000
10.03 Software Maintenance Agreement ("SMA") with Summus, dated
February 18, 2000
10.04 Revenue Sharing Agreement ("RSA") with Summus, dated
February 18, 2000*
10.29 Software Escrow Agreement with Summus and Fort Knox Escrow
Services, Inc., dated February 18, 2000.
10.30 Letter Agreement with Summus, dated March 13, 2000
Exhibit 3.06
ARTICLES OF AMENDMENT
(Pursuant to Sections 607.0601 of the Business Corporation Act
of the State of Florida)
High Speed Net Solutions, Inc. (the "Corporation"), a corporation
organized and existing under the laws of the State of Florida, hereby certifies
as follows:
1. The name of the corporation is High Speed Net Solutions, Inc.
2. The terms and provisions of Statement Of Rights and Preferences of
8% Series A Convertible Preferred Stock have been duly approved by written
consent of the board of directors of the Corporation pursuant to Section 607.601
of the Florida General Corporation Act.
3. The text of the resolution establishing and designating the 8%
Series A Convertible Preferred Stock, and fixing and determining the relative
rights and preferences of the 8% Series A Convertible Preferred Stock is
attached hereto as EXHIBIT A.
IN WITNESS WHEREOF, the Corporation has caused this statement relating
to the Statement of Rights and Preferences of 8% Series A Convertible Preferred
Stock to be executed in its name and on its behalf by its President and attested
to by its Secretary this 24th day of February, 2000, hereby declaring and
certifying that this is the act and deed of the Corporation and that the
statements contained herein are affirmed as true under penalties of perjury.
HIGH SPEED NET SOLUTIONS, INC.
[CORPORATE SEAL]
By: /s/ Andrew Fox
ATTEST: Andrew Fox, Acting President
By: /s/ Alan Kleinmaier
Alan Kleinmaier, Secretary
<PAGE>
Exhibit A to Exhibit 3.06
EXHIBIT A
WRITTEN CONSENT
OF THE BOARD OF DIRECTORS
OF
HIGH SPEED NET SOLUTIONS, INC.
The undersigned, being all of the Directors of High Speed Net
Solutions, Inc., a Florida corporation, (the "Corporation"), do hereby adopt the
following resolutions by signing their written consent hereto, which action by
written consent is taken in lieu of holding a special meeting of the Board of
Directors of the Corporation:
APPROVAL OF THE ARTICLES OF AMENDMENT
WHEREAS, the Directors of the Corporation have been presented with the
form of a Statement of Rights and Preferences of the 8% Series A Convertible
Preferred Stock (the "Statement"), a copy of which is attached hereto which
describes the terms of the 8% Series A Convertible Preferred Stock; and
WHEREAS, the Directors of the Corporation believe that the adoption of
the Statement is in the best interests of the Corporation;
NOW, THEREFORE, BE IT RESOLVED, that the Statement be, and hereby is,
approved and adopted in the form attached hereto; and
RESOLVED, FURTHER, that the officers of the Corporation be, and hereby
are, authorized to execute a Statement of Rights of Preferred Stock of the
Corporation and to file such Certificate with the Department of State of the
State of Florida as is required by the Florida General Corporation Act.
These actions and resolutions are effective as of the 24th day of
February, 2000. This written consent may be executed in several counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
- ---------------------------------- ----------------------------------
Rick Seifert William Bradford Silvernail
- ---------------------------------- ----------------------------------
Andrew Fox Dr. Bjorn Jawerth
ALL OF THE DIRECTORS
<PAGE>
STATEMENT OF RIGHTS AND PREFERENCES OF THE
8% SERIES A CONVERTIBLE PREFERRED STOCK
OF HIGH SPEED NET SOLUTIONS, INC.
1. NUMBER AND DESIGNATION. A series consisting initially of Ten Thousand
(10,000) shares of the authorized preferred stock of the corporation,
no par value, is designated "8% Series A Convertible Preferred Stock"
(the "Series A Preferred Stock"). The number of shares of Series A
Preferred Stock shall not be increased but may be decreased from time
to time by resolution of the Board of Directors; PROVIDED, that the
number of authorized shares of Series A Preferred Stock shall be
increased by the number of shares of Series A Preferred Stock issued in
respect of dividends pursuant to Section 3(b) hereof.
2. RANKING. For purposes of this Statement of Rights and Preferences, any
stock of any class or classes of the corporation shall be deemed to
rank:
(a) prior to the Series A Preferred Stock, either as to
dividends or upon liquidation, if the holders of such class or classes
shall be entitled to the receipt of dividends or of amounts
distributable upon dissolution, liquidation or winding up of the
corporation, as the case may be, in preference or priority to the
holders of Series A Preferred Stock (such stock is hereinafter referred
to as "Senior Stock");
(b) on a parity with Series A Preferred Stock, either as to
dividends or upon liquidation, whether or not the dividend rates,
dividend payment dates or redemption or liquidation prices per share or
sinking fund provisions, if any, shall be different from those of
Series A Preferred Stock, if the holders of such stock shall be
entitled to the receipt of dividends or of amounts distributable upon
dissolution, liquidation or winding up of the corporation, as the case
may be, without preference or priority, one over the other, as between
the holders of such stock and the holders of Series A Preferred Stock
(such stock is hereinafter referred to as "Parity Stock"); or
(c) junior to Series A Preferred Stock, either as to dividends
or upon liquidation, if such class shall be the common stock, $.001 par
value, of the corporation (the "Common Stock") or if the holders of
Series A Preferred Stock shall be entitled to receipt of dividends or
of amounts distributable upon dissolution, liquidation or winding up of
the corporation, as the case may be, in preference or priority to the
holders of shares of such class or classes (such stock is hereinafter
referred to as "Junior Stock").
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3. DIVIDEND AND DISTRIBUTIONS.
--------------------------
(a) For each semi-annual dividend period (a "Dividend Period")
dividends payable on each share of Series A Preferred Stock shall be
payable at a rate of 8% per annum of the initial liquidation preference
of $1,000 per share divided by two. Each Dividend Period shall commence
on the April 1 and October 1 following the last day of the preceding
Dividend Period and shall end on and include the day next preceding the
first day of the next Dividend Period. Dividends shall be cumulative
from the date of original issue and shall be payable, when, as and if
declared by the Board of Directors or by a duly authorized committee
thereof, on March 31 and September 30 of each year, commencing on
September 30, 2000. Each such dividend shall be paid to the holders of
record of shares of Series A Preferred Stock as they appear on the
stock register of the corporation on such record date, not exceeding 45
days preceding the payment date thereof, as shall be fixed by the Board
of Directors of the corporation or by a duly authorized committee
thereof. Dividends on account of arrears for any past Dividend Periods
may be declared and paid at any time, without reference to any regular
dividend payment date, to holders of record on such date, not exceeding
45 days preceding the payment date thereof, as may be fixed by the
Board of Directors of the corporation or by a duly authorized committee
thereof.
(b) Dividends payable on shares of Series A Preferred Stock
for any period greater or less than a full Dividend Period, shall be
computed on the basis of a 360-day year consisting of twelve 30-day
months and the actual number of days elapsed in the period.
Notwithstanding paragraph (a) of this Section 3, any dividends payable
on the shares of Series A Preferred Stock may be paid in additional
shares of Series A Preferred Stock at the option of the corporation.
The corporation shall pay such dividend by issuing to such holder of
Series A Preferred Stock additional shares of Series A Preferred Stock
having an aggregate initial liquidation preference equal to the amount
of cash dividends otherwise payable to such holder.
(c) No full dividends shall be declared or paid or set apart
for payment on the Preferred Stock of any series ranking, as to
dividends, on a parity with or junior to the Series A Preferred Stock
for any period unless full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for such payment on the
Series A Preferred Stock for all Dividend Periods terminating on or
prior to the date of payment of such full cumulative dividends. When
dividends are not paid in full, as aforesaid, upon the shares of Series
A Preferred Stock and any other series of Parity Stock, all dividends
declared upon shares of this Series and such other series of Parity
Stock shall be declared pro rata so that the amount of dividends
declared per share on the Series A Preferred Stock and such other
Parity Stock shall in all cases bear to each other the same ratio that
2
<PAGE>
accrued and unpaid dividends per share on the shares of Series A
Preferred Stock and such other Parity Stock bear to each other. Holders
of shares of Series A Preferred Stock shall not be entitled to any
dividend, whether payable in cash, property or stock, in excess of full
cumulative dividends, as herein provided, on the Series A Preferred
Stock. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on the Series A
Preferred Stock which may be in arrears.
(d) So long as any shares of Series A Preferred Stock are
outstanding, no dividend (other than a dividend in Common Stock or in
any other stock ranking junior to this series as to dividends and upon
liquidation and other than as provided in paragraph (c) of this Section
3) shall be declared or paid or set aside for payment or other
distribution declared or made upon the Common Stock or upon any other
stock ranking junior to or on a parity with this Series as to dividends
or upon liquidation, nor shall any Common Stock or any other stock of
the corporation ranking junior to or on a parity with this Series as to
dividends or upon liquidation be redeemed, purchased or otherwise
acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any shares of any
such stock) by the corporation (except by conversion into or exchange
for stock of the corporation ranking junior to the Series A Preferred
Stock as to dividends and upon liquidation) unless, in each case, the
full cumulative dividends on all outstanding shares of Series A
Preferred Stock shall have been paid in cash or shares of Series A
Preferred Stock or declared and set aside for payment for all past
Dividend Periods.
4. VOTING RIGHTS.
(a) Except as otherwise expressly provided herein or as
required by law, the holders of each share of Series A Preferred Stock
shall not be entitled to vote on matters submitted to shareholders for
voting. However, the approval of holders of a majority of the
outstanding shares of Series A Preferred Stock shall be required prior
to the corporation's issuing any shares of a class of preferred stock
that ranks senior to the Series A Preferred Stock. The corporation may
not amend or alter any provision of this Statement of Rights and
Preferences without the approval of the holders of a majority of the
outstanding Series A Preferred Stock.
5. RIGHT TO CONVERT. Each share of Series A Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the
date of issuance of such share at the office of the corporation or any
transfer agent for such stock, into such number of fully paid and
nonassessable shares of Common Stock as is equal to the Liquidation
Preference on the date of conversion divided by $14.24, as adjusted
pursuant to Section 5(e) below (the "Conversion Price").
(a) MECHANICS OF CONVERSION. To convert shares of Series A
Preferred Stock into shares of Common Stock, the holder of such shares
of Series A Preferred Stock shall (A) surrender the certificate or
certificates therefor, duly endorsed, at the office of the corporation
or of any transfer agent for such stock, (B) give written notice to the
3
<PAGE>
corporation at such office that it elects to convert the same, and (C)
state therein the name or names in which it wishes the certificate or
certificates for shares of Common Stock to be issued. The corporation
shall, as soon as practicable thereafter and at its expense, issue and
deliver to such holder a certificate or certificates for the number of
shares of Common Stock to which such holder is entitled. Such
conversion shall be deemed to have been made immediately prior to the
close of business on the date of surrender of the shares of Series A
Preferred Stock to be converted, and the person or persons entitled to
receive the shares of Common Stock issuable upon such conversion shall
be treated for all purposes as the record holder or holders of such
shares of Common Stock on such date.
(b) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, free of preemptive
rights, solely for the purpose of effecting the conversion of the
shares of Series A Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of Series A Preferred Stock; and if at any
time the number of authorized but unissued shares of Common Stock shall
not be sufficient to effect the conversion of all then outstanding
shares of Series A Preferred Stock, the corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose, including,
without limitation, engaging in best efforts to obtain the requisite
shareholder approval of any necessary amendment to these Articles of
Incorporation.
(c) FRACTIONAL SHARES. No fractional share shall be issued
upon the conversion of any share or shares of Series A Preferred Stock.
All shares of Common Stock (including fractions thereof) issuable upon
conversion of more than one share of Series A Preferred Stock by a
holder thereof shall be aggregated for purposes of determining whether
the conversion would result in the issuance of any fractional share.
If, after the aforementioned aggregation, the conversion would result
in the issuance of a fraction of a share of Common Stock, the
corporation shall, in lieu of issuing any fractional share, pay the
holder otherwise entitled to such fraction a sum in cash equal to the
same fraction of the fair market value per share as of the date of
conversion.
(d) NO IMPAIRMENT. The corporation will not, by amendment of
its Articles of Incorporation or through any reorganization, transfer
of assets, consolidation, merger, share exchange, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed
or performed hereunder by the corporation, including without limitation
the adjustments required under this Section 5, and will at all times in
good faith assist in the carrying out of all the provisions of this
Section 5 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of
Series A Preferred Stock set forth in this Section 5 against
impairment.
4
<PAGE>
(e) ADJUSTMENT TO CONVERSIO PRICE. The Conversion Price
shall be adjusted as follows:
(i) If, at any time during the period when the Series
A Preferred Stock remains outstanding, the corporation shall
declare and pay on shares of Common Stock a dividend payable
in shares of Common Stock or shall split the then outstanding
shares of Common Stock into a greater number of shares, then
the number of shares of Common Stock which the holders of the
Series A Preferred Stock would receive upon conversion
thereof, as in effect at the time of taking of a record for
such dividend or at the time of such stock split, shall be
proportionately increased and the Conversion Price shall be
proportionately decreased, and conversely, if at any time the
corporation shall contract or reduce the number of outstanding
shares of Common Stock by combining such shares into a smaller
number of shares, then the number of shares which may be
purchased upon the conversion of the Series A Preferred Stock
at the time of such action shall be proportionately decreased
as of such time, and the Conversion Price shall be
proportionately increased.
(ii) Whenever the Conversion Price shall be adjusted
as provided in this Section 5(e), the corporation shall as
soon as practicable thereafter file at its principal office, a
statement signed by its Chief Financial Officer, showing in
reasonable detail the basis for such adjustment and the actual
Conversion Price that shall be in effect after such adjustment
and shall cause a copy of such statement to be sent to the
holders of the Series A Preferred Stock at their addresses on
the books and records of the corporation.
(f) CHANGES IN COMMON STOCK. In case at any time the
corporation shall initiate any transaction or be a party to any
transaction (including, without limitation, a merger, consolidation,
share exchange, sale, lease or other disposition of all or
substantially all of the corporation's assets, charter amendment,
recapitalization or reclassification of the Common Stock) in connection
with which the previously outstanding Common Stock shall be changed
into or exchanged for different securities of the corporation or
capital stock or other securities of another corporation or interests
in a non-corporate entity or other property (including cash) or any
5
<PAGE>
combination of the foregoing (each such transaction being herein called
a "Transaction"), then, as a condition of the consummation of the
Transaction, lawful, enforceable and adequate provision shall be made
so that the holders of Series A Preferred Stock shall be entitled to
receive upon conversion of their shares of Series A Preferred Stock at
any time on or after the consummation of the Transaction, in lieu of
the shares of Common Stock issuable upon such conversion prior to such
consummation, the securities or other property (including cash) to
which such holders of Series A Preferred Stock would have been entitled
upon consummation of the Transaction if such holders had converted
their shares of Series A Preferred Stock immediately prior thereto
(subject to adjustments from and after the consummation date as nearly
equivalent as possible to the adjustments provided for in this Section
5). The corporation will not effect any Transaction unless prior to the
consummation thereof each corporation or entity (other than the
corporation) which may be required to deliver any securities or other
property upon the conversion of Series A Preferred Stock as provided
herein shall assume, by written instrument delivered to the holders of
Series A Preferred Stock, the obligation to deliver to such holders
such securities or other property as in accordance with the foregoing
provisions such holders may be entitled to receive.
(g) OTHER ACTION AFFECTING COMMON STOCK. In case at any time
or from time to time the corporation shall take any action affecting
the Common Stock, other than an action described in Section 5(f)
hereof, then, unless in the opinion of the Board of Directors of the
corporation such action will not have a material adverse effect upon
the rights of the holders of Series A Preferred Stock (taking into
consideration, if necessary, any prior actions which the Board of
Directors deemed not to materially adversely affect the rights of the
holders), the conversion formula set forth in Section 5(a) shall be
adjusted in such manner and at such time as the Board of Directors of
the corporation may in good faith determine to be equitable in the
circumstances.
(h) Any shares of Series A Preferred Stock which shall at any
time have been converted pursuant to this Section 5 shall, after such
conversion, have the status of authorized but unissued shares of
preferred stock, without designation as to series until such shares are
once more designated as part of a particular series by the Board.
6. LIQUIDATION PREFERENCE.
(a) SERIES A PREFERRED STOCK. In the event of any liquidation,
dissolution or winding up of the corporation, either voluntary or
involuntary, the holders of the Series A Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of any
of the assets or surplus funds of the corporation to the holders of any
stock ranking junior to the Series A Preferred Stock, an amount equal
to $1,000 per share plus the amount of accrued and unpaid dividends
thereon (the "Liquidation Preference")(such Liquidation Preference to
be adjusted for any combinations, consolidations, stock distributions
or stock dividends with respect to shares of the Series A Preferred
Stock). Upon the occurrence of any such liquidation, dissolution or
winding up of the corporation, the funds and assets of the corporation
shall be used first to repay all indebtedness and other obligations,
then to pay the liquidation preferences of any Senior Stock and then to
pay the liquidation preferences of Series A Preferred Stock and Parity
Stock. If the assets and funds to be distributed among the holders of
the Series A Preferred Stock and the holders of Parity Stock shall be
insufficient to permit the payment to such holders of the full
liquidation preference, then the entire assets and funds of the
corporation legally available for distribution (after payment of any
amounts due and owing to holders of any Senior Stock) shall be
distributed ratably among the holders of Series A Preferred Stock and
any Parity Stock based upon the relative liquidation preferences of the
Series A Preferred Stock and shares of Parity Stock then held by them.
6
<PAGE>
Any funds or assets legally available for distribution after payment in
full of the liquidation preferences of the Series A Preferred Stock and
any Parity Stock shall be distributed among the holders of Junior Stock
in accordance with the liquidation rights of the Junior Stock.
(b) CONSOLIDATION, MERGER, ETC. NOT A LIQUIDATION. The
consolidation or merger of the corporation with or into any other
entity, the acquisition of the capital stock of the corporation in a
share exchange or the sale, lease or other disposition of all or
substantially all of the assets, property or business of the
corporation shall not be deemed to be a liquidation, dissolution or
winding up of the corporation within the meaning of this Section 6.
(c) VALUATION OF SECURITIES. Any securities to be distributed
pursuant to this Section 6 in a liquidation, dissolution or winding up
of the corporation shall be the fair market value thereof, as
determined in good faith by the Board of Directors of the corporation.
(d) NOTICE. Written notice (the "Notice") of any such
liquidation, dissolution or winding up of the corporation within the
meaning of this Section 6, which states the payment date, the place
where said payments shall be made and the date on which conversion
rights (as defined in Section 5) terminate as to such shares (which
shall be not less than 20 days after the date such notice is given),
shall be given by first class mail, postage prepaid, or by telecopy,
facsimile or recognized overnight courier, not less than 30 nor more
than 60 days prior to the payment date stated therein, to the then
holders of record of Series A Preferred Stock and Common Stock, such
Notice to be addressed to each such holder at its address as shown on
the records of the corporation.
7. REDEMPTION RIGHTS.
(a) The corporation shall have the right at any time after
March 1, 2002 to redeem, out of funds legally available therefor, any
outstanding shares of Series A Preferred Stock, in whole or in part,
for a redemption price equal to the Liquidation Preference per share of
the Series A Preferred Stock (calculated as if the corporation
liquidated on the date of redemption).
(b) In the event that fewer than all the outstanding Series A
Preferred Stock are to be redeemed, except as otherwise provided by
law, the number of shares to be redeemed shall be determined by the
Board and the shares to be redeemed shall be determined by lot or pro
rata as may be determined by the Board or by any other method as may be
determined by the Board in its sole discretion to be equitable.
7
<PAGE>
(c) In the event the corporation shall redeem shares of Series
A Preferred Stock, notice of such redemption shall be given by first
class mail, postage prepaid, mailed not less than 30 nor more than 60
days prior to the redemption date, to each holder of record of the
shares to be redeemed, at such holder's address as the same appears on
the stock register of the Corporation. Each such notice shall state:
(i) the redemption date; (ii) the number of shares of Series A
Preferred Stock to be redeemed and, if fewer than all the shares held
by such holder are to be redeemed, the number of such shares to be
redeemed from such holder; (iii) the redemption price; and (iv) the
place or places where certificates for such shares are to be
surrendered for payment of the redemption price.
(d) Notice having been mailed as aforesaid, from and after the
redemption date (unless default shall be made by the corporation in
providing money for the payment of the redemption price), the redeemed
shares of Series A Preferred Stock shall no longer be deemed to be
outstanding, and all rights of the holders thereof as stockholders of
the corporation (except the right to receive from the corporation the
redemption price) shall cease. Upon surrender in accordance with said
notice of the certificates for any shares so redeemed (properly
endorsed or assigned for transfer, if the Board shall so require and
the notice shall so state), such shares shall be redeemed by the
corporation at the redemption price aforesaid. In case fewer than all
the shares represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares without
cost to the holder thereof.
(e) Any shares of Series A Preferred Stock which shall at any
time have been redeemed shall, after such redemption, have the status
of authorized but unissued shares of preferred stock, without
designation as to series until such shares are once more designated as
part of a particular series by the Board.
MASTER AGREEMENT
This Master Agreement (the "Agreement") is made and entered into as of
this 18th day of February, 2000 (the "Effective Date"), by and between Summus,
Ltd., a Delaware corporation ("Summus"), and High Speed Net Solutions, Inc., a
Florida corporation ("HSNS"):
1. Summus and HSNS have previously entered into a Marketing License
Agreement ("MLA") dated in February of 1999 and certain Related
Agreements. "Related Agreements" means agreements between Summus
and HSNS related to or incorporated by the MLA and agreements
based on either Summus' or HSNS's rights and obligations under the
MLA, including, but not limited to, the Letter Agreement
incorporated by the MLA and any agreements relating to or arising
from opportunities to sell or license products or services to
Samsung.
2. The MLA contemplated that HSNS will act as a reseller of Summus
products. The parties have concluded that it would be to their
mutual benefit, instead, for HSNS to primarily use Summus products
and services to conduct a service bureau business and for HSNS and
Summus to share revenues derived from each party's business
activity with Summus' products. As a service bureau, HSNS will not
act as a reseller of Summus' products.
3. In order to enable the proposed service bureau business of HSNS
and proposed revenue sharing between the parties, Summus and HSNS
hereby agree to enter into the Software License Agreement,
Software Maintenance Agreement, and Revenue Sharing Agreement
attached to this Agreement as Exhibits A, B, and C respectively
(collectively, the "New Agreements"). Terms not otherwise defined
herein shall have the meanings specified in the New Agreements.
4. Upon execution of the New Agreements, the MLA and the Related
Agreements shall terminate and have no further force or effect.
Neither party shall have any obligation of further performance
under the MLA or the Related Agreements.
5. "License Fee Credit" - shall mean the amount of One Million
Dollars ($1,000,000) as a one-time credit granted Customer by
Licensor in recognition of payments made under the MLA. The
License Fee Credit shall be applied against license fees due under
the Software License Agreement.
6. "Revenue Based Fee Credit" - shall mean the amount of One Million
Dollars ($1,000,000) as a one-time credit granted the Customer by
Licensor in recognition of payments made under the MLA. The
Revenue Based Fee Credit shall be applied against Revenue Based
Fee payments due from Customer to Licensor under the Software
License Agreement.
<PAGE>
7. "Annual Maintenance Fee Credit" - shall mean the amount of One
Hundred Fifty Thousand Dollars ($150,000) as a one-time credit
granted to the Customer by Licensor in recognition of payments
made under the MLA. The Annual Maintenance Fee Credit may be
applied against payments due from Customer to Licensor under the
Software Maintenance Agreement.
8. "Customer Credit" - shall mean any amounts to be paid to the
Customer by the Licensor as a result of the Revenue Sharing
Agreement, Exhibit C, in excess of amounts to be paid to the
Licensor by the Customer as a result of the Revenue Fee in the
Software License Agreement, Exhibit A. Such Customer Credit may be
used at the discretion of the Customer to pay any charges due to
Licensor in connection with the New Agreements.
9. Any portion of the Customer Credit that is not credited against
payments due to Licensor shall be available to Customer to be
applied against purchase of other products and/or services of
Licensor. In the event that the Software License Agreement is
terminated by Customer for material failure of Licensor to deliver
(including the cure period of 60 days) the products as described
in Exhibit A.1, the License Fee Credit, Revenue Based Fee Credit,
and Annual Maintenance Fee Credit shall increase by 1.5% per month
for up to twelve (12) months or until such time as Customer
selects other products and/or services of Licensor to be paid
through the application of the Credit, whichever occurs first.
Customer and Licensor shall cooperate to select such other
products or services of Licensor promptly in order to apply the
credits without undue delay, but Customer shall not be required to
apply the credits against products and/or services that are not
needed or useful in Customer's business.
10. Licensor will provide to Customer additional resource support
through provision of ancillary services, in an approximate fair
market value of Two Hundred Fifty Thousand Dollars ($250,000). The
ancillary services may consist of, at the discretion of Licensor,
cash payments, credits against charges due for services under the
New Agreements, computer hardware, third party software licenses,
or other services requested by Customer. Licensor shall provide
the ancillary services reasonably requested by Customer in prompt
commercial fashion. The total value of all ancillary services
provided, whether delivered in cash, services, or products, shall
be deemed to be an advance amount to be offset by payments due
Customer from Licensor under the Revenue Sharing Agreement and
shall be accounted for without interest or any other charges
whatsoever. To the extent any Customer Credit amounts are
available, Customer may at its sole discretion apply such amounts
to reduce the ancillary service advance amount total.
11. This Agreement shall be construed and enforced in accordance with
the laws of the State of North Carolina, but without giving effect
to its laws or rules relating to conflicts of laws. In the event
of any dispute or controversy arising under or in connection with
this Agreement or any New Agreement, the dispute resolution
procedures set forth in Exhibit A shall be followed
<PAGE>
12. Any dispute or controversy arising under or in connection with
this Agreement shall be settled in Wake County, North Carolina.
The parties hereby generally submit to the in personam
jurisdiction of the Superior Court of the State of North Carolina
and the Federal District Court for the Eastern District of North
Carolina located in Wake County.
13. This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original, but all of which together
shall constitute one and the same instrument.
14. This Agreement and the New Agreements contain the full
understanding of the parties and supersede all prior or
contemporaneous agreements and understandings, written or oral,
between the parties with respect to the subject matter of this
Agreement; and there are no representations, warranties,
agreements or understandings other than those expressly contained
herein. No alteration, modification, variation or waiver of this
Agreement, or any of the provisions hereof shall be effective
unless executed by both parties in writing.
SUMMUS, LTD. HIGH SPEED NET SOLUTIONS, INC.
By: /s/ Dr. Bjorn Jawerth By: /s/ Andrew L. Fox
(Signature) (Signature)
Date: March 13, 2000 Date: February 18, 2000
Name: Dr. Bjorn Jawerth Name: Andrew L. Fox
Title: CEO Title: Acting President and
CEO, Executive Vice
President
<PAGE>
EXHIBIT A
SOFTWARE LICENSE AGREEMENT
<PAGE>
EXHIBIT B
SOFTWARE MAINTENANCE AGREEMENT
<PAGE>
EXHIBIT C
REVENUE SHARING AGREEMENT
SOFTWARE LICENSE AGREEMENT
This Software License Agreement (the "Agreement") is made and entered into as of
this 18th day of February, 2000 (the "Effective Date"), by and between Summus,
Ltd., a Delaware corporation ("Licensor"), and High Speed Net Solutions, Inc., a
Florida corporation ("Customer"), with reference to the following facts and
circumstances:
A. Licensor has developed certain software programs and anticipates developing
certain software programs and will promote licensing of such programs through
the distribution of materials substantially in the form as those attached to
this Agreement as Exhibit A.1 ("Description Materials"). In reliance on such
Description Materials, Customer desires to license such software.
B. Licensor and Customer envision a close working relationship with respect to
Licensor's software such that Customer anticipates regularly: (i) acting as a
beta-version user of Licensor's software; (ii) providing prospective licensees
for Licensor's software; and (iii) providing references for or demonstrations of
Licensor's software. Licensor desires to create an incentive for Customer to
participate in these activities and, as such, Customer desires that Licensor
share with Customer revenues received from third party users of Licensor's
software and pay Customer for certain agency activities. To effect these
incentives, Licensor and Customer have entered into a Revenue Sharing Agreement
simultaneously with executing this Agreement.
C. Licensor desires to grant certain software license rights to Customer
in return for certain fees and on the terms and conditions contained in this
Agreement.
NOW THEREFORE, based on the above premises and in consideration of the mutual
covenants and agreements contained herein, the parties agree as follows:
1. DEFINITIONS.
As used herein, the following terms, when used in the singular, plural, or
possessive form shall have the respective meanings set forth below:
1.1 "Designated Activities" shall mean operating the MaxxSystem, any of the
MaxxSystem functional components, or the Reader Software, either alone or in any
combination, to perform any of the activities described by Exhibit A.1 or the
functional equivalents thereof, for clients/customers of Customer or for
Customer's own benefit, including but not limited to, creating content for,
developing, sending, tracking, viewing, receiving, reading cataloging,
distributing and streaming Rich Media Messages or other digital content as may
be supported, and distributing Reader Software to clients/customers and members
of the public.
1.2 "Documentation" shall mean the complete set of operating manuals
necessary to enable Customer to properly use the Licensed Software. The initial
documentation to be provided by Licensor shall include a Users Manual and a
<PAGE>
Reference Manual for each of the components of the Licensed Server Software and
Reader Software. Such manuals may be provided in electronic form as help files
or in other electronic format.
1.3 "Fees" shall mean the total of the following fees (all as defined
either in this Section 1.3 or below in the text of this Agreement, including
Exhibits): "License Fee," "Software Maintenance Fee," and "Revenue Based Fee."
1.4 "License Fees" shall have the meaning given in Section 3.1.
1.5 "Licensed Server Software" shall mean the Licensed Software other
than the Reader Software.
1.6 "Licensed Software" shall mean the Licensed Server Software and Reader
Software collectively, consisting of the first generally available version of
the MaxxSystem program, as more fully described on Exhibit A, in Object Code
form, and any released New Versions provided under this Agreement.
1.7 "New Versions" shall mean any versions of the Licensed Software that
Licensor releases after the Effective Date of this Agreement including (a) error
corrections, maintenance releases, and major and minor releases and products
that supersede the Licensed Software; (b) any migration aids for users migrating
from the prior version of the Licensed Software; and (c) any Documentation
related to either (a) or (b). A product shall be considered to supersede the
Licensed Software if (i) Licensor ceases actively marketing the Licensed
Software, (ii) persons inquiring about licensing the Licensed Software are
offered the new product instead, and (iii) the new product handles creation
and/or delivery of Rich Media Messages.
1.8 "Object Code" shall mean the code that can be executed directly or
indirectly by a computer's central processing unit, which may include without
limitation such things as compiled machine readable binary code, human readable
scripts, and interpreted code or other code that does not need to be compiled
before execution. Object Code shall not include code in human-readable form that
would normally be compiled before execution on a computer.
1.9 "Premier Partner" shall mean a customer, including Customer, with whom
we envision a close working relationship and with whom the Licensor desires to
create incentives to participate in certain activities to such as beta testing
or demonstration of the Licensed Software. The incentives may include certain
exclusive and non-exclusive marketing benefits or payments.
1.10 "Quarterly Period" shall mean each calendar quarter (i.e., a period of
three (3) consecutive calendar months commencing on January 1, April 1, July 1
or October 1 of each year) during the term of this Agreement, with the exception
of the first Quarterly Period, which shall commence on the Effective Date and
end on the last day of that calendar quarter. The last Quarterly Period shall
end on the date of expiration or termination of this Agreement, thereby possibly
comprising fewer than three (3) months.
<PAGE>
1.11 "Reader Software" shall mean any version of any part or component of
the MaxxSystem program or a separate program designed to be used in conjunction
with MaxxSystem or inter-operate with MaxxSystem, in Object Code form and any
released New Versions and/or Software Updates, that is: (i) distributed or
intended to be distributed by the Licensed Server Software with a Rich Media
Messages or other digital content as may be supported; (ii) is downloaded or
sent from the Licensed Server Software to a remote computer or
internet-connected device for execution in connection with viewing or
interacting with a Rich Media Messages or other digital content as may be
supported; or (iii) installable or required to be installed on the recipient's
computer or internet-connected device to enable the recipient of the Rich Media
Messages to view Rich Media Content, including but not limited to a `thin' or
`thick' client player, any self-extracting executable files with embedded Rich
Media Content, any plug-ins or applets, or any similar viewing technology.
1.12 "Related Agreements" shall mean agreements between Licensor and
Customer related to or incorporated by the MLA and agreements based on either
Licensor or Customer's rights and obligations under the MLA, including, but not
limited to, the Letter Agreement incorporated by the MLA and any agreements
relating to or arising from the Samsung opportunity.
1.13 "Revenue Based Fee" shall have the meaning given in Section 3.2 of this
Agreement.
1.14 "Rich Media Content" shall mean any visual or graphic or multi-media
content and user interaction metaphor beyond a plain ASCII text representation
of information, including but not limited to video, still images of any format
or type, audio, streaming content, compressed content, animation, and color
graphics, any of which may contain interactive controls, user response/selection
targets and hotspots, dialog and information display capabilities, voice
response capability, and similar user interaction features.
1.15 "Rich Media Message" shall mean electronic Rich Media Content delivery
transmitted in any manner and through any portion of the Internet or any
entities' internal network that delivers and presents Rich Media Content for the
intended recipient.
1.16 "Software Maintenance Agreement" shall mean the agreement for
maintenance of the Licensed Software entered into between Customer and Licensor
concurrently with this Agreement.
1.17 "Software Maintenance Fee" shall mean the Maintenance Fee payable under
the Software Maintenance Agreement.
1.18 "Source Code" shall mean the human-readable code that produces the
compiled machine readable form of Object Code.
1.19 "Use Level Percentage" shall mean ten percent (10%).
1.20 "Virus" shall mean any computer code intentionally designed to disrupt,
disable, harm, or otherwise impede in any manner, including aesthetical
disruptions or distortions, the operation of the computer program, or any other
associated software, firmware, hardware, or computer system (including local
area or wide-area networks), in a manner not intended by its creator(s).
<PAGE>
1.21 "Volume of Use" shall mean unlimited use of the Licensed Software for
the Designated Activities
2. LICENSE.
2.1 LICENSED SERVER SOFTWARE. Subject to Customer fulfilling its
obligations hereunder, Licensor hereby grants to Customer a world-wide,
non-exclusive, irrevocable (subject to the termination provisions set forth
herein) license (1) to use the Licensed Server Software in Object Code form
only, and Documentation to perform the Designated Activities at the Volume of
Use; (2) to use the Licensed Server Software and the Documentation in connection
with backup and disaster recovery procedures in the event of destruction or
corruption of the Licensed Server Software or disasters or emergencies which
require Customer to initiate disaster recovery procedures; and (3) to make,
reproduce and internally distribute copies of the Licensed Server Software and
related Documentation, either electronically or otherwise, as reasonably
required to support Customer's use of the Licensed Server Software for backup
purposes. Customer shall not have the right or license to make any derivative
works (within the meaning of 17 U.S.C 101) incorporating or based on any of the
Licensed Server Software, or any portion thereof, except as may be necessary for
the use of the Licensed Server Software for its normal, intended use.
2.2 READER SOFTWARE LICENSE. Subject to the Customer fulfilling its
obligations hereunder, Licensor hereby grants to Customer a world-wide,
non-exclusive, non-transferable irrevocable license to (1) to use the Reader
Software, in Object Code form only, to perform the Designated Activities at the
Volume of Use; (2) to use the Reader Software and the Documentation in
connection with backup and disaster recovery procedures in the event of
destruction or corruption of the Reader Software or disasters or emergencies
which require Customer to initiate disaster recovery procedures; (3) to make,
reproduce and distribute to the public-at-large an unlimited number of copies of
the Reader Software and any related Documentation, either electronically or
otherwise, to the extent necessary to fully utilize the license rights granted
in (1) through (2); and (4) to authorize third party vendors to make, reproduce
and distribute to the public-at-large an unlimited number of copies of the
Reader Software and any related Documentation, either electronically or
otherwise, together with the products of such third party vendors. Customer
shall not have the right or license to make any derivative works (within the
meaning of 17 U.S.C 101) incorporating or based on any of the Reader Software,
or any portion thereof, except as may be necessary for the use of the Reader
Software for its normal, intended use.
2.3 NEW VERSIONS. New Versions will be provided to Customer under the
terms of the Software Maintenance Agreement. When provided to Customer under the
Software Maintenance Agreement, New Versions will be treated as Licensed
Software under this Agreement.
<PAGE>
2.4 OUTSOURCING. Customer shall not have the right to sublicense to
third parties any or all of the license rights granted to Customer hereunder;
provided, however, that Customer may outsource to a third party performance of
Designated Activities for Customer under Customer's license.
2.5 SOFTWARE PLATFORM PORTABILITY. Customer shall have the right, under
the grant of license rights in this Article 2, to operate the Licensed Software
on any operating systems for which Licensor makes a generally available version
of the Licensed Software generally available to its customers. Customer shall
have the right to receive the Licensed Software version for each such operating
system. At Customer's request Licensor shall promptly deliver the Licensed
Software version for such operating systems to Customer.
2.6 READER SOFTWARE MODIFICATIONS. Upon request of Customer, Licensor
shall perform in prompt commercial fashion modifications of the Reader Software
requested by Customer in order to allow the Reader Software to function in
integrated fashion with the software products of a customer of Customer.
Customer shall pay Licensor's standard consulting fees for such service, subject
to the Most Favored Customer clause of this Agreement.
3. LICENSE FEE.
3.1 LICENSED SOFTWARE. In partial consideration of licenses granted
hereunder, Customer shall pay to Licensor a one- time license fee of One Million
Dollars ($1,000,000) at the Volume of Use (the "License Fee").
3.2 REVENUE BASED FEE. In addition to the License Fee, Customer shall
pay to Licensor an ongoing use fee (the "Revenue Based Fee") for the Licensed
Software in an amount equal to the greater of: (a) the gross revenues generated
by Customer with the Licensed Software multiplied by the Use Level Percentage;
or (b) the amount equal to Three Cents (3(cent)) multiplied by the number of
Rich Media Messages actually delivered to recipients. The Customer shall
reconcile accounts each Quarterly Period and shall pay the Revenue Based Fee
within one month following the end of the Quarterly Period. The Customer shall
have the right at its sole discretion to apply any Customer Credit amounts in
lieu of paying the Revenue Based Fee until any such Customer Credit as defined
in the Master Agreement amounts are exhausted.
4. DELIVERY.
4.1 DELIVERABLES; TIMETABLE. For each of the components of MaxxSystem,
as described in Exhibit A.1, on the "Release Dates" described in Exhibit A.3
Licensor shall deliver to Customer the Licensed Software and Documentation in a
form and with sufficient reliability to constitute a commercial release of the
Licensed Software ("Deliver" or "Delivery").
4.2 OBLIGATION AND RIGHT TO TEST. If before the Release Date Licensor
requests Customer to perform tests of the software in alpha version, and tests
of the software in beta version, Customer shall use its best efforts to perform
<PAGE>
such tests, provided, however, Customer shall not be required to perform more
than one such test in a one (1) month period. Regardless of whether Licensor
requests Customer to perform such tests, Customer shall have the right to
perform one (1) test of a beta version of the Licensed Software before the
Release Date. Customer shall promptly notify Licensor in writing of the results
of any tests performed pursuant to this Section 4.2. During such "beta" test
period, Licensor shall dedicate Level III support resources to Customer;
4.3 DELIVERY DELAY. In the event that Licensor fails to Deliver each
component of the Licensed Software within 90 days of the date stipulated in
Exhibit A.3, , Licensor shall be deemed in material breach of this Agreement and
Customer shall have the option at its sole discretion to terminate this
Agreement.
5. MARKETING BENEFITS.
5.1 TIME TO MARKET. In consideration of the Customer being a Premier
Partner:
o Licensor shall provide the "beta" version of MaxxSystem, under
licensing instructions appropriate to beta testing, to
Customer for a period of not less than 30 days prior to
production (general) availability. During such "beta" test
period, Licensor shall dedicate Level III support resources to
Customer;
o Licensor shall use its commercially reasonable efforts to
cause all other licensees of the Licensed Software to be
limited as to the date upon which such licensees can publicly
announce their use of the Licensed Software. Licensor shall
further provide Customer with the right and opportunity to
publicly announce Customer's use of the Licensed Software,
such announcement being on or before a date two weeks in
advance of the date upon which Licensor allows such other
licensees to announce their use.
6. COMPLIANCE WITH LAWS. Licensor shall modify the Licensed Software on a
timely basis in the event that any change in the laws, rules, or
regulations reflected in any features of the Licensed Software make
such modification necessary and shall provide such modification to
Customer as a New Version.
7. TERMINATION OF MLA AND RELATED AGREEMENTS.
7.1 TERMINATION OF PRIOR AGREEMENTS. By this Agreement, Licensor and
Customer specifically terminate the MLA and the Related Agreements and all
obligations, rights and interests of the parties thereunder; provided, however,
that provisions related to confidentiality and limitation of liability shall
survive.
<PAGE>
8. PROPRIETARY RIGHTS.
8.1 SCOPE. All right, title, and interest to the Licensed Software
shall remain with Licensor and Customer obtains only the license as specified in
Article 2 hereof.
8.2 LEGENDS. Customer shall not remove, deface, or otherwise obscure
any copyright, patent, trademark, service mark, or other proprietary legend
("Proprietary Legends") on either the Licensed Software or Documentation.
Furthermore, Customer shall include such Proprietary Legends in any
reproductions of either the Licensed Software or Documentation that Customer is
permitted to make. Customer's obligation under this Section 8.2 shall survive
the expiration or termination of this Agreement for any reason.
9. INDEMNIFICATION.
9.1 SCOPE. Licensor shall indemnify and hold harmless Customer, and its
directors, officers, employees, agents, successors, assigns, licensees and
customers against any and all claims, penalties, losses, liabilities, judgments,
settlements, awards, damages and costs (including but not limited to reasonable
legal fees, expert witness fees and expenses) arising out of or related to any
claim of patent, trademark or copyright infringement and claims of unfair
competition or trade secret violation, and any other claim arising out of the
sale, possessions or use of the Licensed Software (collectively "Claims") and
will reimburse Customer from time to time for any reasonable legal fees, expert
witness fees or other expenses (including the reasonable value of the services
of in-house counsel) reasonably incurred by Customer in connection with
investigating any such action or Claim as such expenses are incurred.
Customer shall indemnify and hold harmless Licensor, and its directors,
officers, employees, agents, successors, assignees, licensees and customers
against any and all claims, penalties, losses, liabilities, judgements,
settlements, awards, damages and costs (including but not limited to reasonable
legal fees, experts witness fees and expenses) arising out of or related to its
use of the Licensed Software, except for Claims covered by the preceding
paragraph, unless such Claims are Excepted Claims (as defined below). Customer
expressly indemnifies Licensor for any and all claims, penalties, losses,
liabilities, judgements, settlements, awards, damages, and costs (including but
not limited to reasonable legal fees, experts witness fees and expenses) arising
our of or related to any claim of patent, trademark or copyright infringement
and claims of unfair competition or trade secret violation, and any other claim
arising out of the development, sale, possession, use or distribution of
MaxxNote or MaxxAd content, Customer's web site content and the like. Customer
will reimburse Licensor from time to time for any legal fees, expert witness
fees or other expenses (including the reasonable value of the services of
in-house counsel) reasonably incurred by Licensor in connection with
investigating any such action or claim as such expenses are incurred.
9.2 ADDITIONAL INDEMNITY TERMS. Moreover, Licensor shall defend, at its
expense, any action or proceeding brought against Customer based upon a Claim,
including the payment of reasonable attorney's fees, expert witness fees and
costs of suit incurred thereby. In defending or settling any such Claim,
<PAGE>
Licensor may elect to (i) obtain the right of continued use of Licensed
Software, or part thereof, which is alleged to be infringing, or (ii) replace or
modify the Licensed Software, or part thereof, so as to avoid such Claim and
thereupon Customer shall cease to use the version of the Licensed Software, or
part thereof, that was replaced or modified. Licensor will not be obligated to
indemnify, defend or settle any Claim resulting from or related to any
additions, modifications, or changes to the Licensed Software made by Customer,
its affiliates, successors or assigns, or resulting from the use of the Licensed
Software with any third party materials (collectively, the "Excepted Claims").
Licensor shall have the option to control such defense with counsel of its
choice, but shall not settle any such Claim without the consent of Customer,
which shall not be unreasonably withheld, unless such settlements involve only
the payment of money damages for which Customer is fully indemnified. Customer
shall provide reasonable cooperation, at Licensor's expense, to Licensor with
respect thereto. Customer may participate in such defense at its own expense
subject at all times to Licensor's right to control the defense of the
proceeding.
9.3 FAILURE OF INDEMNIFICATION PROVISIONS. If for any reason the
foregoing indemnification is unavailable to Customer or insufficient to hold it
harmless, then Licensor shall reimburse Customer for all amounts paid or payable
by Customer as a result of such Claims, which shall include, for example, the
costs of defending against any Claims because of Licensor's failure to provide
the defense specified in Section 9.2 above.
9.4 DUTIES. Each party's right to indemnification under Sections 9.1
and 9.2 above is conditioned upon the indemnified party (i) promptly notifying
the indemnifying party in writing of any Claim, (ii) providing the indemnifying
party with all reasonable assistance for the defense or settlement of such
Claims, (iii) with respect to Claims, Customer granting to Licensor reasonable
authority and control for the defense or settlement of such Claims, and (iv)
each party fully observing all material terms and conditions of this Agreement.
9.5 WORK AROUND. With respect to a Claim, if a final injunction is
obtained against Customer, Licensor will, at Licensor's option and expense,
either (i) procure for Customer the right to continue using the Licensed
Software or (ii) replace or modify the infringing portion of the Licensed
Software so that it becomes non-infringing yet functionally equivalent, or, if
the foregoing options are not available without undue expense, or (iii) refund
all monies paid by Customer to Licensor with respect to that portion of the
Designated Activities affected by such injunction under this Agreement; provided
that any such procurement, modification or refund by Licensor will not relieve
it of any other liability under this Agreement.
10. WARRANTIES.
10.1 TITLE. Licensor represents and warrants that it has full title to
and ownership of the Licensed Software, Reader Software, and Documentation and
all intellectual property rights embodied in or used in connection therewith,
free and clear of liens (except those that may be established by this
Agreement), claims and encumbrances, and that it has full power and authority to
grant the licenses in Article 2 above.
<PAGE>
10.2 CONFORMITY TO REPRESENTATIONS. Licensor represents and warrants
that the Licensed Software is in material compliance with all specifications and
all other statements or claims found in the Description Materials of Licensor
given in Exhibit A.1, and found in the Documentation. The Documentation fully
describes the proper procedure for using the Licensed Software and is
comprehensive enough to enable a person of average intelligence to operate the
Licensed Software in an efficient manner.
10.3 WARRANTY. Licensor represents and warrants that the Licensed
Software shall operate and function in material compliance with the
Documentation. Notwithstanding the foregoing, Licensor makes no warranty that
all errors have been or can be eliminated from the Licensed Software.
10.4 PHYSICAL MEDIA. Licensor represents and warrants each copy of the
Licensed Software, including New Versions, is and will be free from physical
defects in the media that tangibly embodies the Licensed Software for a period
of ninety (90) days after delivery.
10.5 VIRUS FREE; NO DISABLING CODE. Licensor hereby represents,
warrants and covenants that the Licensed Software delivered under this Agreement
shall contain no Viruses. Licensor hereby represents, warrants and covenants
that the Licensed Software does not and will not contain any computer code that
would disable the Licensed Software or impair in any way its operation based on
the elapsing of a period of time, exceeding an authorized number of copies,
advancement to a particular date or other numeral, or other similar self-
destruct mechanisms (sometimes referred to as "time bombs", "time locks", or
"drop dead" devices) or that would permit Licensor to access the Licensed
Software to cause such disablement or impairment (sometimes referred to as a
"trap door" device). Licensor agrees that in the event of a breach or alleged
breach of this Section 10.5 that Customer shall not have an adequate remedy at
law, including monetary damages, and that Customer shall consequently be
entitled to seek a temporary restraining order, injunction, or other form of
equitable relief against the continuance of such breach, in addition to any and
all remedies to which Licensor shall be entitled.
10.6 MOST FAVORED CUSTOMER. Licensor represents and warrants that,
taken in the aggregate, all prices, charges, benefits, credits, warranties and
terms granted to Customer pursuant to this Agreement are comparable to, or more
favorable to, Customer than the prices, charges, benefits, credits, warranties
and terms in the aggregate that Licensor has heretofore offered to any person or
entity for the Licensed Software, maintenance for the Licensed Software, and
Documentation covered by this Agreement. If at any time during this Agreement,
Licensor shall contract with any other person or entity for (a) license fees for
service bureau use of Licensed Software; (b) maintenance fees for maintenance of
licensed software; (c) warranty and/or indemnity terms; or (d) prices, charges,
benefits, warranties or other terms taken in the aggregate; that are more
favorable to such person or entity than the corresponding provisions of this
Agreement or the Software Maintenance Agreement, Licensor shall notify Customer
of such more favorable provisions and Customer, at its option, may require that
such more favorable provisions be available to Customer under this Agreement or
the Software Maintenance Agreement.
<PAGE>
10.7 NO OTHER WARRANTIES. OTHER THAN AS PROVIDED IN THIS ARTICLE 10,
LICENSOR DISCLAIMS ALL OTHER WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING
BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE, WITH RESPECT TO THE LICENSED SOFTWARE, SOFTWARE UPGRADES, AND THE
DOCUMENTATION.
11. LIMITATION OF LIABILITY.
11.1 EXCLUDED LIABILITY. NEITHER PARTY SHALL BE LIABLE TO THE OTHER
PARTY, ITS AFFILIATES, OR ANY THIRD PARTY BENEFICIARY, FOR CONSEQUENTIAL DAMAGES
OF ANY KIND (INCLUDING WITHOUT LIMITATION, DAMAGES FOR LOSS OF BUSINESS PROFITS,
BUSINESS INTERRUPTION, OR LOSS OF BUSINESS INFORMATION), REGARDLESS OF WHETHER
THE PARTY LIABLE OR ALLEGEDLY LIABLE WAS ADVISED, HAD REASON TO KNOW, OR IN FACT
KNEW OF THE POSSIBILITY THEREOF.
12. ESCROW AGREEMENT.
12.1 FORM OF ESCROW AGREEMENT. The parties hereto will promptly upon
the execution of this Agreement enter into an escrow agreement in a form
substantially similar to the one attached to this Agreement as Exhibit A.4
("Escrow Agreement") with Fort Knox Escrow Services as an escrow agent.
13. CONFIDENTIALITY. This Article 13 sets forth the procedures by which
information regarded as confidential by one party hereto (a "Disclosing Party")
may be disclosed to the other party hereto (the "Receiving Party").
13.1 GENERAL REQUIREMENTS AND EXCLUSIONS. During the term of this
Agreement and at all times thereafter, the parties will not, except as permitted
by the terms of this Agreements, disclose or use, either for itself or for the
benefit of any third party (whether in competition with Licensor of Customer or
otherwise), any confidential information of the other party or its business or
affairs, nor will any party assist any person or entity other than the
Disclosing Party to secure any benefit from such confidential information. Any
oral, written, graphic, or electronically transmitted information not generally
available to the public shall be construed as confidential for purposes of this
Agreement, which information shall include, without limitation, information
relating to a Disclosing Party's products, processes, techniques, technology,
formulas, research data, passwords, passcodes, user identification numbers,
e-mail addresses, programming methods, know-how, trade secrets, customers and
suppliers, information relating to sales and profits, other financial data, and
the terms and conditions of this Agreements. All such information shall be
collectively referred to herein as "Confidential Information." The provisions of
this paragraph, however, shall not prevent the Receiving Party from use or
disclosure of information (i) as necessary in the ordinary course of such
party's performance under this Agreement, (ii) that is in the public domain
(other than information in the public domain as a result of a violation of this
Agreement by the Receiving Party), (iii) that the Receiving Party can
<PAGE>
demonstrate that it acquired outside of its affiliation with the disclosing
Party from a third party in rightful possession of such information and who was
not prohibited from disclosing such information, or (iv) disclosure of which is
required by law or court order. The parties acknowledge that the Object Code of
generally available versions of the Licensed Software are not required to be
treated as Confidential Information, but that Object Code of versions not
generally available to the public of Licensed Software will be Confidential
Information. In the event that the Receiving Party is requested or required (by
oral question or request for information or documents in any legal proceeding,
interrogatory, subpoena, civil investigative demand, or similar process) to
disclose Confidential Information, the Receiving Party will notify the
Disclosing Party promptly of such request or requirement so that the Disclosing
Party may seek an appropriate protective order, and if, in the absence of a
protective order, the Receiving Party is, on the advice of counsel, compelled to
disclose any Confidential Information to any tribunal or else stand liable for
contempt, the Receiving Party may disclose Confidential Information to such
tribunal; provided, however, that the Receiving Party shall use its best efforts
to obtain an order or other assurance that confidential treatment will be
accorded to such portion of the Confidential Information required to be
disclosed. Customer shall be entitled to file this Agreement as an exhibit to
one or more filings with the SEC, as recommended by its counsel, in which case
Customer shall consult with Licensor concerning the redaction of terms of this
Agreement under a confidentiality request associated with such filing, but the
implementation of any such redaction shall be at the SEC's discretion. The
obligation of confidentiality stated above shall survive termination of this
Agreement.
13.2 OUTSOURCERS. Notwithstanding Section 13.1 above, Customer shall
have the right to discuss the scope of the license granted by Licensor under
this Agreement and the maintenance obligations of Licensor under the Software
Maintenance Agreement with any third party that potentially may perform
information processing services for Customer.
13.3 NO UNAUTHORIZED COPYING. Except as may be otherwise permitted by
this Agreement, the Receiving Party shall not copy, duplicate, reverse engineer,
reverse compile, disassemble, record, or otherwise reproduce any part of the
Disclosing Party's Confidential Information or any of the Licensed Software, nor
attempt to do any of the foregoing, without the prior written consent of the
Disclosing Party. Any tangible embodiments of the Disclosing Party's
Confidential Information that may be generated by a Receiving Party, either
pursuant to or in violation of this Agreement, will be deemed to the sole
property of the Disclosing Party and fully subject to the obligation of
confidence set forth in this Article 13.
13.4 NO REMOVAL OF PROPRIETARY LEGENDS. No Receiving Party shall
remove, obscure, or deface any proprietary legend relating to the Disclosing
Party's rights, on or from any tangible embodiment of any of the Disclosing
Party's Confidential Information, without the Disclosing Party's prior written
consent.
13.5 REPORTS OF THIRD-PARTY MISAPPROPRIATION. A Receiving Party shall
immediately report to the Disclosing Party any attempt by any third party of
which the Receiving Party has knowledge to use or disclose any of the Disclosing
Party's Confidential Information without authorization from the Disclosing
Party.
<PAGE>
13.6 POST-TERMINATION PROCEDURES. Upon any termination of the Receiving
Party's right to possess and/or use Confidential Information through either
termination or expiration of this Agreement, the Receiving Party shall turn over
to the Disclosing Party (or, if agreed by the Disclosing Party, destroy) any
disks, tapes, Documentation, drawings, blueprints, notes, memoranda,
specifications, devices, documents, or any other tangible embodiments of any
Confidential Information of the Disclosing Party, except for Source Code
available to Customer under the terms of the Escrow Agreement described in
Section 12.
14. TERM AND TERMINATION.
14.1 TERM. This Agreement shall become effective as of the Effective
Date hereof and shall continue in force until the sixth (6th) anniversary of the
Effective Date, unless earlier terminated in accordance with this Article 14.
After this initial term, this Agreement shall be automatically renewed for
additional one (1) year periods unless thirty (30) days prior to the expiration
of this Agreement, either party provides written notice to the other party of
its intent to terminate this Agreement.
14.2 DEFAULT. Subject to the dispute resolution procedures set forth in
Exhibit A.5, the non-defaulting party shall be entitled to terminate this
Agreement at any time prior to the expiration of its term upon written notice to
the defaulting party if the defaulting party breaches any material obligation
hereunder, which breach continues or remains uncured for a period of sixty (60)
days after receipt of written notice from the non-defaulting party, unless such
breach cannot by its nature be cured, in which event the defaulting party shall
be deemed in default hereof upon the occurrence of such breach. Notwithstanding
the foregoing, if Customer shall be in breach of its obligation to make any
payment owing to Licensor hereunder, Licensor may terminate this Agreement upon
ten (10) days prior written notice to Customer. Any such termination shall not
relieve Customer of any such obligation to pay.
14.3 FAILURE TO DELIVER. Customer shall be entitled to terminate this
Agreement in the event Licensor has not Delivered the Licensed Software within
sixty (60) days after the date specified in this Agreement.
14.4 EFFECT OF TERMINATION. Upon the expiration or termination, for any
reasons, of this Agreement, the license and rights granted hereunder shall
immediately terminate as of the effective date of such expiration or
termination. Survival of any provisions of this Agreement shall be set forth in
Section 17.8 hereof.
15. EXPORT CONTROLS. Customer shall cooperate with Licensor as reasonably
requested and at Licensor's expense to permit Licensor to comply with the laws
and administrative regulations of the United States controlling the export of
commodities and technical data ("Export Laws"). Licensor shall prepare
<PAGE>
reasonable instructions for its licensees concerning actions licensees of the
Licensed Software should take to comply with all Export Laws prior to exporting
the Licensed Software, whether by remote access or otherwise, to a destination
outside the United States. Customer shall comply with Licensor's reasonable
instructions concerning such Export Laws. Notwithstanding any other provision of
this Agreement, Customer agrees not to export, directly or indirectly, any
United States source technical data acquired from Licensor or any products
utilizing such data to any countries outside of the United States, if such
export would be in violation of the United States Export Control Laws or
Regulations then in effect.
16. SALES TAXES; SHIPPING; RISK OF LOSS. In addition to all other amounts due to
Licensor hereunder, Customer shall pay to or reimburse Licensor for all federal,
state, local, or other taxes (exclusive of income, business privilege, or
similar tax) including, but not limited to, sales, use, value added, lease, or
similar taxes or assessments, based on the License Fee(s) or other charges
payable hereunder, the Licensed Software's use, or services performed hereunder.
Customer shall have the right to contest the imposition of any such taxes or
assessments and Licensor shall provide Customer with reasonable cooperation in
contesting such taxes or assessments. Licensor shall, however, pay for all
shipping or transportation costs for delivery of all Licensed Software and all
copies of the Documentation purchased by Customer. Prior to Delivery of the
Licensed Software, Licensor and its insurers shall accept responsibility for
loss or damage.
17. GENERAL PROVISIONS.
17.1 CONSTRUCTION AND VALIDITY; DISPUTE RESOLUTION. This Agreement
shall be construed and enforced in accordance with the laws of the State of
North Carolina (including its Uniform Commercial Code), but without giving
effect to its laws or rules relating to conflicts of laws or to the United
Nations Convention on Contracts for the International Sale of Goods. In the
event of any conflict or inconsistency between the provisions of this Agreement
and the provisions of any Exhibit annexed hereto or any document referred to in
this Agreement or in any Exhibit hereto, the provisions of this Agreement shall
prevail and govern its interpretation and construction. In the event of any
dispute or controversy arising under or in connection with this Agreement, the
dispute resolution procedures set forth in Exhibit A.5 shall be followed.
Pending resolution of any such dispute or controversy, both parties will
continue their performance under this Agreement including but not limited to the
payment of all amounts due to the other party that are not in dispute (provided
that Customer may make such payments under protest, reserving any rights it may
have to seek reimbursement from Licensor).
17.2 ATTORNEYS' FEES. In the event of any dispute, controversy,
litigation or other proceedings (including proceedings in bankruptcy) concerning
or related to this Agreement, the prevailing party shall be entitled to
reimbursement of all of its costs, including reasonable attorney and expert
witnesses fees and costs (including the reasonable value of the services of
in-house counsel), and court or arbitration fees and costs.
17.3 VENUE. Any dispute or controversy arising under or in connection
with this Agreement shall be settled in Wake County, North Carolina. The parties
hereby generally submit to the in personam jurisdiction of the Superior Court of
the State of North Carolina and the Federal District Court for the Eastern
District of North Carolina.
<PAGE>
17.4 NO JOINT VENTURE. Nothing contained in this Agreement shall be
construed as creating a joint venture, partnership or employment relationship
among the parties hereto nor shall any party have the right, power or authority
to create any obligation or duty, express or implied, on behalf of any other
party.
17.5 ASSIGNMENT. Neither party hereto shall assign any of its rights
under this Agreement nor delegate its duties hereunder to another person or
legal entity without the prior written consent of the other party, which consent
shall not be unreasonably withheld. This Agreement shall inure to the benefit of
and be binding upon the parties hereto, their respective trustees, successors,
permitted assigns and legal representatives.
17.6 NON-WAIVER. A failure of any party hereto to exercise any right
given to it hereunder, or to insist upon strict compliance by another party of
any obligation hereunder, shall not constitute a waiver of the first party's
right to exercise such a right, or to exact compliance with the terms hereof.
Moreover, waiver by any party of a particular default by another party shall not
be deemed a continuing waiver so as to impair the aggrieved party's rights in
respect to any subsequent default of the same or a different nature.
17.7 CAPTIONS AND PARAGRAPH HEADINGS. Captions and paragraph headings
used in this Agreement are for convenience only and are not a part of this
Agreement and shall not be used in construing it.
17.8 SURVIVAL. Any terms or conditions of this Agreement which by their
express terms extend beyond termination or expiration of this Agreement or which
by their nature should so extend shall survive and continue in full force and
effect after any termination or expiration of this Agreement. Without limiting
the generality of the foregoing, the following articles and sections shall
survive this Agreement: 2.2, 7, 8, 9, 10.1, 10.5, 10.7, 11, 13, 15, and 17.
17.9 AUTHORIZATION. Customer and Licensor represent that all necessary
corporate proceedings have been taken by each party to authorize the
transactions contemplated by this Agreement and that this Agreement has been
executed by a duly-authorized representative of each party and upon such
execution shall constitute a valid and binding Agreement.
17.10 EXHIBITS INCORPORATED. All Exhibits referenced in this Agreement
are hereby incorporated into this Agreement by this reference and made part of
this Agreement.
17.11 NOTICES. All notices or other communications that shall or may be
given pursuant to this Agreement, shall be in writing, in English, shall be sent
by certified or registered air mail with postage prepaid, return receipt
requested, by facsimile, telex or cable communication, or by hand delivery. Such
communications shall be deemed given and received upon confirmation of receipt,
if sent by facsimile, telex, or cable communication; or upon delivery if hand
delivered; or upon receipt of mailing, if sent by certified or registered mail,
and shall be addressed to the parties to such addresses as the parties may
designate in writing from time to time.
<PAGE>
17.12 INVALIDITY. Should any of the non-material provisions of this
Agreement, or portions thereof, be found invalid by any court of competent
jurisdiction, the remainder of this Agreement shall nonetheless remain in full
force and effect.
17.13 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
17.14 ENTIRE AGREEMENT. This Agreement and the Revenue Sharing
Agreement contain the full understanding of the parties and supersedes all prior
or contemporaneous agreements and understandings, written or oral, between the
parties with respect to the subject matter hereof; and there are no
representations, warranties, agreements or understandings other than those
expressly contained herein. No alteration, modification, variation or waiver of
this Agreement, or any of the provisions hereof shall be effective unless
executed by both parties in writing.
(The remainder of this page is left intentionally blank.)
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed on the dates indicated below.
SUMMUS, LTD. ("LICENSOR") HIGH SPEED NET SOLUTIONS, INC. ("CUSTOMER")
By:_/s/ Dr. Bjorn Jawerth By: /s/ Andrew L. Fox
(Signature) (Signature)
Date: March 13, 2000 Date: February 18, 2000
Name: Dr. Bjorn Jawerth Name: Andrew L. Fox
Title: CEO Title: Acting President and CEO,
Executive Vice President
<PAGE>
EXHIBIT A.1
LICENSOR'S DESCRIPTION MATERIALS
MAXXSYSTEM SUMMARY
The Summus Ltd. online advertising microcast media product suite,
MaxxSystem, provides digital content management solutions for targeted
media distribution. The product suite establishes an easily integrated
infrastructure to increase the effectiveness of digital advertising,
direct marketing, campaigns and content distribution. While these
products showcase the benefits of faster wavelet technology, they also
integrate well with existing media compression, streaming and
manipulation tools in the marketplace. In addition, other forms of
media such as flash, animations, and audio content will be fully
integrated into the product suite over time.
These products are based on a `permission marketing' approach.
Customers opt in to participate and are encouraged to do so because
they have self-solicited interest in the content provided. The user
experience is enhanced through faster downloads and adaptive
transmission of media to the user's environment. All media is
distributed through a single player, regardless of media type. The
player can be customized (`re-skinned') to meet the needs of the
client.
The MaxxSystem product suite version 1.0 will have five components.
Refer to the diagram below for more information:
1. MAXXNOTE Version 2.5 - this is the currently available Summus
video e-mail software. MaxxNote allows the user to import,
create and compress content, bundle a player, then e-mail it
via a MAPI compliant software program to distribution lists.
MaxxNote Version 2.5 is available for Windows 95/98/NT
2. The MAXXAD itself - this will be the advertisement that is
built and sent to an end user via e-mail. MAXXADS are targeted
e-mails that encapsulate rich media (images, video, slide
shows, text) with electronic commerce capabilities, web site
referrals and campaign effectiveness measurement collection. A
maxxAd is rendered directly in an e-mail, therefore no
executable (.exe) files are sent. The MaxxAd contains content
and code streamed to the client on demand. MaxxAd Version 1.0
will be available for Windows 95/98/NT.
3. MAXXSHOW Version 1.0 is a completely integrated media
presentation, designed to be launched from a web site. It
encapsulates rich media (images, video, slide shows, text)
with electronic commerce capabilities, web site referrals and
e-commerce sales effectiveness measurement collection.
MaxxShow is rendered directly from product selection on a web
page, delivered via caching (release 1) and streaming based on
bandwidth (release 2). MaxxShow is available for the Windows
NT/95/98 platforms with support for Internet Explorer 4.0,
Netscape 4.05 and AOL 4.0 browsers and above. Support for the
Macintosh platform is planned for late 2Q00.
<PAGE>
4. The MAXXSERVER infrastructure - MaxxServer will stream and
cache JAVA-code and media content to MaxxAd. The server will
collect and process measurement information, handle opt-in and
opt-outs, integrate with existing online advertising tools and
process e-commerce transactions and links to web sites.
Additionally, the MaxxServer infrastructure may handle
forwarding of MaxxAdvertisements to ensure measurement
tracking for forwarded MaxxAds is counted and measured. As
needed, advertisements will be cached for faster rendering and
distribution of content.
5. The MAXXORCHESTRATOR product will allow the content creators
to format existing content into MaxxAds, allowing them to
combine text, images, slide shows and video into a compelling
advertisement utilizing the benefits of Summus wavelet
technology or inserting banners and flash as required. It will
allow the user to test the MaxxAd and request distribution
through an e-mail list server. MaxxOrchestrator Version 1.0
will be available for Windows 98/NT
The MaxxSystem also includes related Reader Software to the extent not
included above.
<PAGE>
EXHIBIT A.2
VOLUME-BASED PRICING STRUCTURE FOR THE LICENSED SOFTWARE
SERVICE BUREAU USE
LICENSE TERRITORY - WORLDWIDE
<TABLE>
<CAPTION>
- ------------------------------------------ -------------------------------------- ------------------------------------
VOLUME OF USE LICENSE FEE USE LEVEL PERCENTAGE
(Rich Media Messages) (one-time licensing payment) (multiply by gross revenue)
- ------------------------------------------ -------------------------------------- ------------------------------------
<S> <C> <C>
the right to deliver an unlimited number $1,000,000 10.0%
per month
- ------------------------------------------ -------------------------------------- ------------------------------------
</TABLE>
Any licensee of the License Software for Service Bureau use shall pay the
License Fee to Licensor to initially gain the rights to use the Licensed
Software, and shall also pay an ongoing Revenue Based Fee to the Licensor, which
whall be the greater of: (a) the gross revenuew generated by the Licensee with
the Licensed Software multiplied by the Use Level Percentage; or (b) the amount
equal to Three Cents ($.03) multiplied by the number of Rich Media Messages
actually delivered to recipients.
<PAGE>
EXHIBIT A.3
DELIVERY SCHEDULE
Product Delivery
1. MaxxNote Version 2.5 Upon the execution of this agreement
2. MaxxAd Version 1.0 September 1, 2000
3. MaxxServer Version 1.0 July 1, 2000
4. MaxxOrchestrator Version 1.0 September 1, 2000
5. MaxxShow Version 1.0 July 1, 2000
<PAGE>
EXHIBIT A.4
ESCROW AGREEMENT
<PAGE>
EXHIBIT A.5
DISPUTE RESOLUTION PROCEDURES
1. With respect to any dispute or disagreement between the parties arising out
of this Agreement other than a claim for rescission of the Agreement (a
"Disputed Matter"), the following internal mediation procedures shall be
followed:
(a) Either party shall have the right to submit a Disputed Matter to
Licensor's Chief Operating Officer and Customer's Chief Operating Officer or
such other senior executives as may be mutually agreed upon by the parties from
time to time. Such submission shall be delivered to such executives for both
parties in writing with a reasonably detailed explanation of the nature of the
Disputed Matter and its impact on the obligations under the Agreement. If such
executives do not agree upon a decision within fifteen (15) business days after
submission of the Disputed Matter to them by the party submitting the Disputed
Matter, then
(b) The Disputed Matter may be escalated by either party by submitting
it to Licensor's Chief Executive Officer and Customer's Chief Executive Officer
or such other senior executives as may be mutually agreed upon by the parties
from time to time. If such senior executives do not agree upon a decision within
ten (10) business days after submission of the Disputed Matter to them, then
(c) either party may initiate the binding arbitration procedures set
forth below.
ARBITRATION PROVISIONS
1. Rules; Jurisdiction. Any Disputed Matter shall be settled by final and
binding arbitration in the County of Wake, and, except as herein specifically
stated, in accordance with the commercial arbitration rules of the American
Arbitration Association ("AAA Rules") then in effect, subject to the provisions
of the United States Arbitration Act, 9 U.S.C. ss. 1 et seq. ("Title 9"). To the
extent the AAA Rules conflict with, or are supplemented by, the provisions of
Title 9, the provisions of Title 9 shall govern and be applicable. However, in
all events these Arbitration Provisions shall govern over any conflicting rules
which may now or hereafter be contained in either the AAA Rules or Title 9. Any
judgment upon the award rendered by the arbitrators may be entered in any court
having jurisdiction of the subject matter thereof. The arbitrators shall have
the authority to grant any equitable and legal remedies that would be available
in any judicial proceeding instituted to resolve a disputed matter. The parties
hereby submit to the in personam jurisdiction of the Superior Court of the State
of North Carolina and the Federal District Court for the Eastern District of
North Carolina for purposes of confirming any such award and entering judgment
thereon.
2. Compensation of Arbitrators. Any such arbitration shall be conducted before a
panel of three arbitrators who shall be compensated for their services at a rate
to be determined by the parties, or lacking such determination by the American
<PAGE>
Arbitration Association, but based upon normal and reasonable hourly or daily
consulting rates for the neutral arbitrator in the event the parties are not
able to agree upon his or her rate of compensation.
3. Selection of Arbitrators. Within five (5) business days of notice by a party
seeking arbitration under this provision, the party requesting arbitration shall
appoint one person as an arbitrator and within fifteen (15) business days
thereafter the other party shall appoint the second arbitrator. Within twenty
(20) business days after the appointment of the second arbitrator, the two
arbitrators so chosen shall mutually agree upon the selection of the third
impartial and neutral arbitrator, who must be a partner or principal of a
nationally recognized firm of independent certified public accountants from the
management advisory services department (or comparable department or group) of
such firm; provided, however, that such firm cannot be the firm of certified
public accountants then auditing the books and records of either party or
providing management or advisory services for either party.
In the event the chosen arbitrators cannot agree upon the selection of the third
arbitrator, the AAA Rules for the selection of such an arbitrator shall be
followed, except that the selection shall be from such departments or groups and
certified accounting firms as are described in the immediately preceding
paragraph. If the other party shall fail to designate the second arbitrator, the
sole arbitrator appointed shall have the power to appoint, in his or her sole
discretion, both the second and third arbitrators. If a party fails to appoint a
successor to its appointed arbitrator within ten (10) business days of the
death, resignation or other incapacity of such arbitrator, the remaining two
arbitrators shall appoint such successor. The majority decision of the
arbitrators will be final and conclusive upon the parties hereto.
4. Payment of Costs. Each party hereby agrees to pay one-half (1/2) of the
compensation to be paid to the arbitrators in any such arbitration and one-half
(1/2) of the costs of transcripts and other expenses of the arbitration
proceedings; provided, however, that the prevailing party in any arbitration
shall be entitled to an award of attorneys' fees and costs, arbitrators' fees
and costs, fees and costs of expert witnesses and all other costs of arbitration
(including the reasonable value of the services of in-house counsel) to be paid
by the losing party.
5. Evidence and Discovery. The arbitrators shall be instructed to conduct the
arbitration in as expeditious a manner as reasonably possibly, consistent with
the parties' intention to have a full and fair hearing on the merits of the
dispute. Each party agrees to supply the arbitrators in accordance with a
timetable to be established by the arbitrators such materials as the arbitrators
may reasonably require in order to render a decision, including those requested
by either party which the arbitrators determine are appropriate to consider, but
subject to appropriate claims of privilege. Each party shall supply to the other
party hereto copies of any and all materials which are supplied to the
arbitrators concurrently with delivery of such materials to the arbitrators.
Upon the written request of either party, the arbitrators shall conduct a
hearing at which representatives of both parties shall have the right to be
present and to make oral presentations to the arbitrators. Each party shall
supply to the other party at least twenty (20) business days prior to the
commencement of any arbitration proceeding copies of any and all documents which
such party intends to introduce or upon which such party intends to rely in
connection with such proceeding, as well as a list of any and all witnesses
whose testimony such party intends to introduce in connection with such
proceeding. Additional documents or witnesses may be introduced only if the
<PAGE>
arbitrators determine that good cause has been shown. Deposing of witnesses in
advance of such proceeding shall be permitted to the extent determined by the
arbitrators. Each party shall also have the right to submit written briefs to
the arbitrators in accordance with a timetable to be established by the
arbitrators. To the extent either party maintains in good faith that any
documents submitted or testimony introduced in connection with such arbitration
contain confidential information or trade secrets, the parties shall negotiate
in good faith in an effort to reach agreement regarding terms and conditions for
keeping such materials and testimony confidential. If the parties are unable to
agree upon such terms, the arbitrators shall have the right to impose
appropriate restrictions to maintain the confidentiality of any confidential
information or trade secrets in connection with the arbitration.
6. Burden of Proof. For any claim submitted to arbitration, the burden of proof
shall be as it would be if the claim were litigated in a judicial proceeding.
All testimony of witnesses shall be taken under oath and shall be subject to the
Federal Rules of Evidence.
7. Judgment. Upon the conclusion of any arbitration proceedings, hereunder, the
arbitrators shall render findings of fact and conclusions of law and a written
opinion setting forth the basis and reasons for any decision reached by them and
shall deliver such documents to each party to the Agreement along with a signed
copy of the award.
8. Terms of Arbitration. The arbitrators chosen in accordance with these
provisions shall not have the power to alter, amend or otherwise affect the
terms of these arbitration provisions or the provisions of the Agreement.
9. Exclusive Remedy. Except as specifically provided in this exhibit or in the
agreement to which it is attached, arbitration shall be the sole and exclusive
remedy of the parties for any disputed matter arising out of such agreement.
SOFTWARE MAINTENANCE AGREEMENT
BETWEEN
SUMMUS LIMITED AND HIGH SPEED NET SOLUTIONS
434 FAYETTEVILLE STREET MALL 434 FAYETTEVILLE STREET MALL
SUITE 600 SUITE 2120
RALEIGH, NORTH CAROLINA 27601 RALEIGH, NORTH CAROLINA 27601
(LICENSOR) (LICENSEE)
THIS SOFTWARE MAINTENANCE AGREEMENT (this "Agreement") is by and between Summus
Limited ("Licensor") and High Speed Net Solutions "HSNS" ("Licensee") and is
effective this 18th day of February, 2000. Licensor will provide Software
Maintenance Service for the MaxxSystem product suite (the "MaxxSystem Program")
licensed to Licensee pursuant to that certain Software License Agreement, dated
of even date herewith, by and between Licensor and Licensee (the "License
Agreement"). Capitalized terms herein not otherwise defined shall have the
meaning set forth in the License Agreement. The terms and conditions of the
License Agreement shall govern Licensee's use of the Program.
1. This Agreement shall serve as the exclusive definition of the
Maintenance Services for the MaxxSystem Program.
2. The term of this Agreement shall be coincident and conterminous with
the License Agreement (the "Term"). Maintenance Services shall be
provided without charge for the first year, and for a charge (the
"Maintenance Fee") of $ 180,000 for the second year. The Maintenance
Fee is payable in advance each year. Licensor shall invoice Licensee at
least thirty days prior to the renewal date, with the Maintenance Fee
payable on the renewal date. Licensor shall not be required to continue
providing Maintenance Services if Licensee is more than thirty days
late in payment. Licensor may increase the Maintenance Fee each year
after the second year by the increase in the Employment Cost Index of
the U.S. Bureau of Labor Statistics, for non- seasonally adjusted
private industry compensation for professional and technical
occupations, using the calendar year ending in the second year of
maintenance or the base year. Licensee may reinstate lapsed support and
maintenance for MaxxSystem Programs licensed from Licensor upon payment
for all support and maintenance fees in arrears and all costs invoiced
by Licensor on a time and materials basis for updating Licensee's
MaxxSystem Program to the then-current version.
3. During the Term, Licensee shall perform the Maintenance Services set
forth herein provided Licensee is not in breach of the terms of this
Agreement or the License Agreement. "MaxxSystem Program Upgrades" shall
mean bug fixes, new versions, and upgrades provided by Licensor to
Licensee under the License Agreement. those new versions of or
additions to the MaxxSystem Program together with such additional
Documentation as Licensor deems appropriate, which have been developed
by Licensor to enhance the MaxxSystem Program's operating performance
without changing its basic function and which may be provided to
Licensee under the Support Agreement.
4 Maintenance Services shall consist of the following:
A. SOFTWARE UPDATE SERVICE
Standard support only covers the latest version of the
Licensor developed software deliverables and third-party
software originally supplied by Licensor ("Covered
Third-Party Software") under the License Agreement.
Maintenance for other third-party software such as the
computer operating system must be obtained from the
supplier and are the responsibility of the Licensee.
Licensor will specify the third party version (operating
system, ORACLE, etc.) required for each MaxxSystem Program
release.
SOFTWARE UPDATE SERVICE INCLUDES:
<PAGE>
o distribution and application of Covered Third-Party
Software maintenance modifications and enhancements,
when available from the third party vendors.
o delivery to Licensee on or before delivery to any
other customers of generally available versions of
the MaxxSystem Program and its component programs
that Licensor releases after the effective date of
the License Agreement, including (a) error
corrections, maintenance releases, major and minor
releases, and products that Licensor releases after
the effective date of the License Agreement that
supersede the MaxxSystem Program or its component
programs; (b) any migration aids for users migrating
from the prior version of the MaxxSystem Program; and
(c) any Documentation related to either (a) or (b).
Minor releases, containing incremental improvements
and minor new functionality, will be provided not
less than once a year.
B. SOFTWARE SUPPORT
MAXXSYSTEM PROGRAM support covers the latest version of
the Licensor developed software deliverables provided to
Licensee under the License Agreement and are defined by
the Casual Consulting services. Casual Consulting services
for the MAXXSYSTEM PROGRAM includes the following
services:
o Level 2 and Level 3 technical assistance regarding
installation and operation of the MaxxSystem Program.
o Level 2 and Level 3 Telephone 5 X 8 (5 days a week, 8
hours a day) support in accordance with published
Summus Limited holidays.
o Replication of errors reported by Licensee, if
reasonably practical..
o Creation of a test case that generates the reported
error.
o Includes application updates and application upgrades
to current licensed functionality.
o Provide incident report and resolution time frame
statistics on technical support calls.
o Creation and supply of error corrections on a prompt
commercial basis.
Support is provided via telephone or web during normal
business hours Monday through Friday (8:00 AM to 12:00,
1:00 PM - 5:00 PM, Eastern Time) except for Summus Limited
holidays.
Support will be provided according to the following
severity schemes for both production and BETA release
software:
- Severity 1: System is not operational and is causing
revenue impact to the customer. Response time due
within one hour. A fix must be provided within 24
hours.
- Severity 2: A portion of the system is not
operational and is causing business impact to the
customer. Response time due within 4 hours. A fix
must be provided within 3 days.
- Severity 3: A portion of the system is down with
limited to no impact on the customer's business
operations. Response time due within one business
day. A fix must be provided within 2 weeks.
<PAGE>
- Severity 4: Cosmetic problems. Response timE due
within 3 business days. A fix must be provided within
three months.
The following items, among others, are specifically excluded from
Casual Consulting:
o Interpretation of the MaxxSystem Program's results.
o Supply of typical or representative data.
o Assistance with computer hardware and peripheral
questions not related to the MaxxSystem Program's
use.
o Assistance with computer operating system questions
not directly pertinent to the MaxxSystem Program.
o Data debugging and/or correcting.
o Services necessitated as a result of any cause other
than the MaxxSystem Program's ordinary, proper use by
Licensee, including but not limited to neglect,
abuse, unauthorized maintenance, or electrical, fire,
water, or other damage.
o Special applications of the MaxxSystem Program not
part of its intended, normal use.
o On-Site Maintenance.
o Guidance on the MaxxSystem Program's intended, normal
use.
o Services resulting from the failure of Licensee to
provide a suitable environment for the MaxxSystem
Program or as associated equipment.
o Service on any release of the MaxxSystem Program
prior to the latest release provided to Licensee
under the License Agreement.
5. Customer agrees that if Licensor performs the maintenance services
designated hereunder at Customer's site and Licensor determines that a
problem with the Licensed Software, or an apparent problem with the
Licensed Software, is or has been caused by (i) any software other than
the Licensed Software, or (ii) by hardware not provided by Licensor,
then Customer shall reimburse Licensor for its labor costs for such on-
site services at the Licensor's customary rates then in effect. In such
an event, Customer shall not be responsible for Licensor's labor costs
associated with other than on-site labor or for any travel costs
associated with such on-site labor.
6. The maximum liability of Licensor for any direct damages sustained by
the Licensee under this Software Maintenance Agreement arising from
Licensor negligence shall in no circumstance exceed the amount of the
annual maintenance fee payable by the Licensee to Licensor, plus the
fees paid by Licensee (including application of credits) under the
License Agreement depreciated on a straight-line basis over a six year
term. The Licensee and Licensor shall in no event be liable one to the
other for loss of revenue, profit, anticipated profit or indirect,
incidental, special or consequential damages, including but not limited
to, any losses to Licensee resulting from lost computer time or the
destruction or damage of records, or any claims or demands made against
the Licensee by a third party. Licensor shall maintain general
liability and property damage insurance in reasonable limits and shall
maintain proper worker's compensation insurance covering all employees
performing work under this Agreement and, upon request by Licensee,
shall furnish Certificates of Insurance evidencing such coverage.
<PAGE>
7. During the term of this Agreement, Licensee shall:
A. Provide Licensor with modem connection to Licensee's computer
systems for the sole purpose of performing Maintenance
Services. Such connection shall be made only at times mutually
agreed by Licensee and Licensor. Licensor agrees that with
respect to any access of Licensee's computer system by
Licensor, whether in person or through modem connection,
Licensor shall not (i) access portions of the system that are
not necessary for performance of Maintenance Services; (ii)
access any data of customers of Licensee; (iii) disable any
virus checker or security program; or (iv) provide to
Licensee, through download or CD-ROM or other media, software
or data in electronic form that has not been examined with an
up-to-date commercial virus checking program shortly before
delivery to Licensee.
B. Provide adequate Level 1 support for MaxxSystem Program to
support Licensee customer base;
C. Ensure that only personnel properly trained in the operation
and use of the MaxxSystem Program and its associated equipment
call Licensor for direct phone support and that such personnel
have sufficient access and computer time when using such
service in order to implement the corrections suggested by
Licensor;
D. Install all application updates and MaxxSystem Program
Upgrades within 90 days of delivery of same, provided that
Licensee is not obligated to install or use any upgrade for
which Licensor requires an extra fee that Licensee has not
agreed to pay;
E. Perform and install all diagnostic activities and routines
recommended by Licensor;
F. Ensure the proper MaxxSystem Program environment is maintained
and that Licensee's personnel who have access to the
MaxxSystem Program are properly trained in the operation and
usage of the MaxxSystem Program and the associated equipment;
and
G. Provide, at no cost to Licensor, adequate safeguards for the
protection of Licensee's data and files while the Maintenance
Services are being performed on the MaxxSystem Program.
8. Licensee shall be solely responsible to ensure that all of its files
and data are adequately duplicated or documented, and Licensor shall in
no way be responsible for Licensee's failure to do so, nor for the
costs or expenses of reconstructing data which are lost, destroyed or
otherwise damaged or rendered useless during the course of or as the
result of the performance of any services under this Agreement.
9. All data or other information of Licensee or Licensee's customers to
which Licensor is exposed in the course of providing Maintenance
Services shall be treated as confidential in accordance with the terms
of the article on confidentiality in the License Agreement.
10. Licensor warrants that the services provided under this Agreement will
be performed in professional fashion and in accordance with good
quality practices in the software industry.
<PAGE>
EXCEPT AS PROVIDED HEREIN, LICENSOR MAKES NO OTHER REPRESENTATIONS OR
WARRANTIES UNDER THIS AGREEMENT WHATSOEVER WHETHER STATUTORY, EXPRESSED OR
IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OR MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE AND ALL WARRANTIES ARISING FROM COURSE OF
DEALING OR USAGE OF TRADE.
(the remainder of this page is left intentionally blank)
<PAGE>
IN WITNESS WHEREOF each of the parties has caused its duly authorized
officer to execute this Agreement as of the date and year first above written.
LICENSOR LICENSEE
SUMMUS, LTD. HIGH SPEED NET SOLUTIONS, INC.
By: /s/ Dr. Bjorn Jawerth By: /s/ Andrew L. Fox
(Signature)
Date: March 13, 2000 Date: February 18, 2000
Name: Dr. Bjorn Jawerth Name: Andrew L. Fox
Title: CEO Title: Acting President and CEO,
Executive Vice President
REVENUE SHARING AGREEMENT
This Revenue Sharing Agreement (the "Agreement") is made and entered
into as of this 18th day of February, 2000 (the "Effective Date"), by and
between Summus, Ltd., a Delaware corporation ("Licensor"), and High Speed Net
Solutions, Inc., a Florida corporation ("Customer"), with reference to the
following facts and circumstances:
A. Licensor has developed certain software programs and anticipates developing
certain software programs and will promote licensing of such Licensed Software
as described in the Software License Agreement executed simultaneously with this
Agreement.
B. Licensor and Customer envision a close working relationship with respect to
Licensor's software such that Customer anticipates regularly: (i) acting as a
beta-version user of Licensor's software; (ii) providing prospective licensees
for Licensor's software; and (iii) providing references for or demonstrations of
Licensor's software. Licensor desires to create an incentive for Customer to
participate in these activities and as such Customer desires that Licensor share
with Customer revenues received from third party users of Licensor's software
and pay Customer for certain agency activities.
C. Therefore, to effect these incentives, Licensor and Customer have entered
into this Agreement simultaneously with executing the Software License
Agreement, and Customer desires to receive such payments and revenue sharing in
consideration for Customer's efforts on behalf of Licensor and on the terms and
conditions contained in this Agreement.
NOW THEREFORE, based on the above premises and in consideration of the
mutual covenants and agreements contained herein, the parties agree as follows:
1. DEFINITIONS.
As used herein, the following terms, when used in the singular, plural,
or possessive form shall have the respective meanings set forth below:
1.1 "Agency Payment" shall have the meaning given in Section 2.2 of
this Agreement.
1.2 "Licensed Software" shall have the meaning given in the Software
License Agreement executed simultaneously with this Agreement.
1.3 "Quarterly Period" shall mean each calendar quarter (i.e., a period
of three (3) consecutive calendar months commencing on January 1, April 1, July
1 or October 1 of each year) during the term of this Agreement, with the
exception of the first Quarterly Period, which shall commence on the Effective
Date and end on the last day of that calendar quarter. The last Quarterly Period
shall end on the date of expiration or termination of this Agreement, thereby
possibly comprising fewer than three (3) months.
<PAGE>
1.4 "Related Agreements" shall mean agreements between Licensor and
Customer related to or incorporated by the MLA and agreements based on either
Licensor or Customer's rights and obligations under the MLA, including, but not
limited to, the Letter Agreement incorporated by the MLA and any agreements
relating to or arising from business with Samsung or its affiliates.
1.5 "Revenue Sharing Payment" shall have the meaning given in Section
2.1 of this Agreement.
1.6 "Samsung Payment" shall have the meaning given in Section 2.3 of
this Agreement.
2. LICENSOR PAYMENTS TO CUSTOMER.
2.1 REVENUE SHARING. During the term of this Agreement, Licensor shall
pay to Customer twenty percent (20%) of all revenue received by Licensor in
connection with (i) licensing of the Licensed Software, or of the product
functionality contained in the Licensed Software, for creation and/or delivery
of Rich Media Content, for service bureau use or (ii) use by Licensor or any
affiliate of Licensor of the Licenseed Software, or the product functionality
contained in the Licensed Software, for the creation and/or delivery of Rich
Media content for service bureau use by Licensor or any affiliate of Licensor
("Revenue Sharing Payment"). For this purpose, "service bureau use" shall mean
use to provide Designated Activities (as defined in the Software License
Agreement) to or for the benefit of a licensee's unaffiliated customers;
provided, however, that service bureau use shall not include use by enterprise
licensees. An "enterprise licensee" is a licensed entity that provides the
Designated Activities on a not-for-profit basis in furtherance of the entity's
promotional goals, or those of its affiliates, and does not include the
circumstance where an entity provides the Designated Activities for an
unaffiliated third party. "Service bureau use" includes circumstances where a
licensee the Designated Activities through use of the Licensed Software, unless
the licensee and the outsource services provider are part of the same
wholly-owned corporate group. For the purpose of this Section 2.1, "affiliate"
is a person or entity that directly or indirectly controls, is controlled by, or
is under common control with a specified person.
2.2 AGENCY PAYMENTS. During the term of this Agreement, upon Customer
identifying to Licensor a qualified prospect that subsequently becomes a new
customer of Licensor within one year of such identification, Licensor shall pay
to Customer fifteen percent (15%) of all revenue received by Licensor until the
end of the first year of revenue receipts for such new customer (the "Agency
Payment"). The first year of revenue receipts shall be the time period beginning
on the date when Licensor signs an agreement with such new customer, and ending
on the first anniversary of such date.
2.3 SAMSUNG PAYMENTS. During the term of this Agreement, Licensor shall
pay to Customer the percentage, as given in the table below for progressive
years under this Agreement, of all revenues accruing to Licensor, excluding
non-recurring expenses, from business activity arising from Samsung or its
affiliates, including but not limited to, license fees, maintenance fees,
support fees, and royalties (the "Samsung Payment").
<PAGE>
YEAR PERCENTAGE PAID TO CUSTOMER
---- ---------------------------
1 Fifty Percent (50%)
2 Fifty Percent (50%)
3 Forty Percent (40%)
4 through 6 Twenty Percent (20%)
2.4 QUARTERLY RECONCILIATION. Licensor shall reconcile accounts each
Quarterly Period and shall pay the Revenue Sharing Payment, Agency Payment, and
Samsung Payment within one month following the end of the Quarterly Period. [TO
FACILITATE TRANSACTING SUCH PAYMENTS, LICENSOR SHALL KEEP ACCOUNTING RECORDS
ACCORDING TO GENERALLY ACCEPTED ACCOUNTING PRINCIPLES TO DOCUMENT ALL REVENUES
OF LICENSOR AND TO ALLOCATE GROSS REVENUES AMONG REVENUES GENERATED WITH THE
LICENSED SOFTWARE AND OTHER GROSS REVENUES.] Customer or its authorized agent or
representative shall have the right, at its expense and upon at least forty-five
(45) business days written notice to Licensor and during Licensor's normal
business hours and no more often than once during any twelve (12) month period,
to enter Licensor's premises for purposes of auditing all books of account,
documents, records, papers, and files, whether in printed or electronic form,
relating to Licensor's revenues from the Licensed Software, and Licensor shall
make all such items available to Customer or its authorized agent or
representative for that purpose. If such audit reveals that sufficient payments
have not been paid by Licensor, then Licensor shall pay any additional amount
found to be owed to Customer. Customer shall bear the expense of any such audit
unless such audit reveals that the payments actually paid by Customer in any
twelve (12) month period are less than what should have been paid to Customer by
an amount greater than five percent (5%) of the amount actually paid, in which
event the costs of such audit shall be borne by Licensor.
3. TERMINATION OF MLA AND RELATED AGREEMENTS.
3.1 TERMINATION OF PRIOR AGREEMENTS. By this Agreement and the
Software License Agreement, Licensor and Customer specifically terminate the MLA
and the Related Agreements.
4. LIMITATION OF LIABILITY.
4.1 EXCLUDED LIABILITY. NEITHER PARTY SHALL BE LIABLE TO THE OTHER
PARTY , ITS AFFILIATES OR ANY THIRD PARTY BENEFICIARY FOR CONSEQUENTIAL DAMAGES
OF ANY KIND (INCLUDING WITHOUT LIMITATION, DAMAGES FOR LOSS OF BUSINESS PROFITS,
BUSINESS INTERRUPTION, OR LOSS OF BUSINESS INFORMATION), REGARDLESS OF WHETHER
THE PARTY LIABLE OR ALLEGEDLY LIABLE WAS ADVISED, HAD REASON TO KNOW, OR IN FACT
KNEW OF THE POSSIBILITY THEREOF.
5. CONFIDENTIALITY. This Article 5 sets forth the procedures by which
information regarded as confidential by one party hereto (a "Disclosing Party")
may be disclosed to the other party hereto (the "Receiving Party").
<PAGE>
5.1 GENERAL REQUIREMENTS AND EXCLUSIONS. During the term of this
Agreement and at all times thereafter, the parties will not, except as permitted
by the terms of this Agreements, disclose or use, either for itself or for the
benefit of any third party (whether in competition with Licensor or Customer or
otherwise), any confidential information of the other party or its business or
affairs, nor will any party assist any person or entity other than the
Disclosing Party to secure any benefit from such confidential information. Any
oral, written, graphic, or electronically transmitted information not generally
available to the public shall be construed as confidential for purposes of this
Agreement, which information shall include, without limitation, information
relating to a Disclosing Party's products, processes, techniques, technology,
formulas, research data, passwords, passcodes, user identification numbers,
e-mail addresses, programming methods, know-how, trade secrets, customers and
suppliers, information relating to sales and profits, other financial data, and
the terms and conditions of this Agreements. All such information shall be
collectively referred to herein as "Confidential Information." The provisions of
this paragraph, however, shall not prevent the Receiving Party from use or
disclosure of information (i) as necessary in the ordinary course of such
party's performance under this Agreement, (ii) that is in the public domain
(other than information in the public domain as a result of a violation of this
Agreement by the Receiving Party), (iii) that the Receiving Party can
demonstrate that it acquired outside of its affiliation with the disclosing
Party from a third party in rightful possession of such information and who was
not prohibited from disclosing such information, or (iv) disclosure of which is
required by law or court order. In the event that the Receiving Party is
requested or required (by oral question or request for information or documents
in any legal proceeding, interrogatory, subpoena, civil investigative demand, or
similar process) to disclose Confidential Information, the Receiving Party will
notify the Disclosing Party promptly of such request or requirement so that the
Disclosing Party may seek an appropriate protective order, and if, in the
absence of a protective order, the Receiving Party is, on the advice of counsel,
compelled to disclose any Confidential Information to any tribunal or else stand
liable for contempt, the Receiving Party may disclose Confidential Information
to such tribunal; provided, however, that the Receiving Party shall use its best
efforts to obtain an order or other assurance that confidential treatment will
be accorded to such portion of the Confidential Information required to be
disclosed. Customer shall be entitled to file this Agreement as an exhibit to
one or more filings with the SEC, as recommended by its counsel, in which case
Customer shall consult with Licensor concerning the redaction of terms of this
Agreement under a confidentiality request associated with such filing, but the
implementation of any such redaction shall be at the SEC's discretion. The
obligation of confidentiality stated above shall survive termination of this
Agreement.
6. TERM AND TERMINATION.
6.1 TERM. This Agreement shall become effective as of the Effective
Date hereof and shall continue in force until the Termination, for any reason,
of the software license agreement executed of even date herewith.
6.2 DEFAULT. Subject to the dispute resolution procedures set forth in
Exhibit 0, the non-defaulting party shall be entitled to terminate this
Agreement at any time prior to the expiration of its term upon written notice to
<PAGE>
the defaulting party if the defaulting party breaches any material obligation
hereunder, which breach continues or remains uncured for a period of thirty (30)
days after receipt of written notice from the non-defaulting party, unless such
breach cannot by its nature be cured, in which event the defaulting party shall
be deemed in default hereof upon the occurrence of such breach.
7. GENERAL PROVISIONS.
7.1 CONSTRUCTION AND VALIDITY; DISPUTE RESOLUTION. This Agreement shall
be construed and enforced in accordance with the laws of the State of North
Carolina (including its Uniform Commercial Code), but without giving effect to
its laws or rules relating to conflicts of laws or to the United Nations
Convention on Contracts for the International Sale of Goods. In the event of any
conflict or inconsistency between the provisions of this Agreement and the
provisions of any Exhibit annexed hereto or any document referred to in this
Agreement or in any Exhibit hereto, the provisions of this Agreement shall
prevail and govern its interpretation and construction. In the event of any
dispute or controversy arising under or in connection with this Agreement, the
dispute resolution procedures set forth in an exhibit to the Software License
Agreement shall be followed. Pending resolution of any such dispute or
controversy, both parties will continue their performance under this Agreement
including but not limited to the payment of all amounts due to the other party
that are not in dispute (provided that Customer may make such payments under
protest, reserving any rights it may have to seek reimbursement from Licensor).
7.2 ATTORNEYS' FEES. In the event of any dispute, controversy,
litigation or other proceedings (including proceedings in bankruptcy) concerning
or related to this Agreement, the prevailing party shall be entitled to
reimbursement of all of its costs, including reasonable attorney and expert
witnesses fees and costs (including the reasonable value of the services of
in-house counsel), and court or arbitration fees and costs.
7.3 VENUE. Any dispute or controversy arising under or in connection
with this Agreement shall be settled in Wake County, North Carolina. The parties
hereby generally submit to the in personam jurisdiction of the Superior Court of
the State of North Carolina and the Federal District Court for the Eastern
District of North Carolina.
7.4 NO JOINT VENTURE. Nothing contained in this Agreement shall be
construed as creating a joint venture, partnership or employment relationship
among the parties hereto nor shall any party have the right, power or authority
to create any obligation or duty, express or implied, on behalf of any other
party.
7.5 ASSIGNMENT. Neither party hereto shall assign any of its rights
under this Agreement nor delegate its duties hereunder to another person or
legal entity without the prior written consent of the other party, which consent
shall not be unreasonably withheld. This Agreement shall inure to the benefit of
and be binding upon the parties hereto, their respective trustees, successors,
permitted assigns and legal representatives.
7.6 NON-WAIVER. A failure of any party hereto to exercise any right
given to it hereunder, or to insist upon strict compliance by another party of
any obligation hereunder, shall not constitute a waiver of the first party's
<PAGE>
right to exercise such a right, or to exact compliance with the terms hereof.
Moreover, waiver by any party of a particular default by another party shall not
be deemed a continuing waiver so as to impair the aggrieved party's rights in
respect to any subsequent default of the same or a different nature.
7.7 CAPTIONS AND PARAGRAPH HEADINGS. Captions and paragraph headings
used in this Agreement are for convenience only and are not a part of this
Agreement and shall not be used in construing it.
7.8 SURVIVAL. Any terms or conditions of this Agreement which by their
express terms extend beyond termination or expiration of this Agreement or which
by their nature should so extend shall survive and continue in full force and
effect after any termination or expiration of this Agreement.
7.9 AUTHORIZATION. Customer and Licensor represent that all necessary
corporate proceedings have been taken by each party to authorize the
transactions contemplated by this Agreement and that this Agreement has been
executed by a duly-authorized representative of each party and upon such
execution shall constitute a valid and binding Agreement.
7.10 NOTICES. All notices or other communications that shall or may be
given pursuant to this Agreement, shall be in writing, in English, shall be sent
by certified or registered air mail with postage prepaid, return receipt
requested, by facsimile, telex or cable communication, or by hand delivery. Such
communications shall be deemed given and received upon confirmation of receipt,
if sent by facsimile, telex, or cable communication; or upon delivery if hand
delivered; or upon receipt of mailing, if sent by certified or registered mail,
and shall be addressed to the parties to such addresses as the parties may
designate in writing from time to time.
7.11 INVALIDITY. Should any of the non-material provisions of this
Agreement, or portions thereof, be found invalid by any court of competent
jurisdiction, the remainder of this Agreement shall nonetheless remain in full
force and effect.
7.12 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.13 ENTIRE AGREEMENT. This Agreement and the Master Agreement,
Software License Agreement and Software Maintenance Agreement contain the full
understanding of the parties and supersedes all prior or contemporaneous
agreements and understandings, written or oral, between the parties with respect
to the subject matter hereof; and there are no representations, warranties,
agreements or understandings other than those expressly contained herein. No
alteration, modification, variation or waiver of this Agreement, or any of the
provisions hereof shall be effective unless executed by both parties in writing.
(The remainder of this page is left intentionally blank.)
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed on the dates indicated below.
SUMMUS, LTD. ("LICENSOR") HIGH SPEED NET SOLUTIONS, INC. ("CUSTOMER")
By: /s/ Dr. Bjorn Jawerth By: /s/ Andrew L. Fox
(Signature) (Signature)
Date: March 13, 2000 Date: February 18, 2000
Name: Dr. Bjorn Jawerth Name: Andrew L. Fox
Title: CEO Title: Acting President and CEO,
Executive Vice President
SOFTWARE ESCROW AGREEMENT
This Escrow Agreement ("Agreement") is made as of this 18th day of
February, 2000, by and between Summus, Ltd. ("Licensor"), Fort Knox Escrow
Services, Inc. ("Fort Knox") and High Speed Net Solutions, Inc. ("Licensee").
PRELIMINARY STATEMENT. Licensor and Licensee have entered into a
Software License Agreement and Software Maintenance Agreement, both dated
February 18, 2000 (together, the "License Documents"), pursuant to which
Licensee has rights to receive Licensor's MaxxSystem software product, including
New Versions as defined in the License Documents (all together, the "Licensed
Software"). Licensor intends to deliver to Fort Knox a sealed package containing
magnetic tapes, disks, disk packs, or other forms of media, in machine readable
form, and the written documentation prepared in connection therewith, containing
the source code of the Licensed Software (the "Deposit Materials"). Licensor
desires Fort Knox to hold the Deposit Materials, and, upon certain events,
deliver the Deposit Materials to Licensee, in accordance with the terms hereof.
Now, therefore, in consideration of the foregoing, of the mutual
promises hereinafter set forth, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
1. DELIVERY BY LICENSOR. Within thirty (30) days of each delivery of
each new object code version of Licensed Software to Licensee, Licensor shall
provide to Fort Knox a new set of Deposit Materials containing the complete
source code for the then current version of Licensed Software provided to
Licensee under the License Documents, together with a copy of Exhibit B to this
Agreement, completed with a description of the Deposit Materials. Each set of
Deposit Materials shall contain commented source code, proprietary Summus tools
and lists of any commercially available products required to compile the source
code, and all information in human-readable form and on suitable media to enable
a reasonably skilled programmer or analyst to understand, maintain and correct
the Licensed Software without the assistance of any other person. Licensor shall
be solely responsible for delivering to Fort Knox the Deposit Materials. Fort
Knox shall hold the Deposit Materials in accordance with the terms hereof. Fort
Knox shall have no obligation to verify the completeness or accuracy of the
Deposit Materials.
2. DUPLICATION. Fort Knox may duplicate the Deposit Materials by any
means in order to comply with the terms and provisions of this Agreement,
provided that Licensee shall bear the expense of duplication. Alternatively,
Fort Knox, by notice to Licensor, may require Licensor to reasonably promptly
duplicate the Deposit Materials.
3. NOTIFICATION OF DEPOSITS. Simultaneous with the delivery to Fort
Knox of each set of Deposit Materials, Licensor shall deliver to Fort Knox and
to Licensee a written statement specifically identifying all items deposited and
stating that the Deposit, so deposited have been inspected by Licensor and are
complete and accurate.
4. DELIVERY BY FORT KNOX
<PAGE>
4.1 DELIVERY BY FORT KNOX TO LICENSEE. Fort Knox shall deliver
the Deposit Materials, or a copy thereof, to Licensee only in the event that:
(a) Licensor notifies Fort Knox to effect such
delivery to Licensee at a specific address, the notification being accompanied
by a check payable to Fort Knox in the amount of one hundred dollars ($100.00);
or
(b) Fort Knox receives from Licensee:
(i) written notification that Licensor
has failed in a material respect to
support the Licensed Software as
required by the License Documents or
that Licensor has otherwise
defaulted in a material respect
under the License Documents
("Licensor Default") and any
applicable cure period under the
License Documents has expired;
(ii) evidence satisfactory to Fort Knox
that Licensee has previously
notified Licensor of such Licensor
Default in writing;
(iii) a written demand that the Deposit
Materials be released and delivered
to Licensee;
(iv) a written undertaking from the
Licensee that the Deposit Materials
being supplied to the Licensee will
be used only as permitted under the
terms of the License Agreement;
(v) specific instructions from the
Licensee for this delivery; and
(vi) a check payable to Fort Knox in the
amount of one hundred dollars
($100.00).
(c) If the provisions of paragraphs 4.1(a) or
4.1(b) are satisfied, and Fort Knox does not receive an Objection Notice within
the Objection Period pursuant to paragraph (d) below, Fort Knox shall, within
five (5) business days after receipt of the notification and check specified in
paragraph 4.1(a) and expiration of the Objection Period, deliver the Deposit
Materials in accordance with the applicable instructions. Fort Knox shall not
release the Deposit Materials if it receives an Objection Notice within the
Objection Period absent a court order, final order of arbitration or joint
written instructions of the Licensor and Licensee.
(d) Fort Knox shall, within five (5) business
days after receipt of all the documents specified in paragraph 4.1(b), send by
certified mail to Licensor a photostatic copy of all such documents. Licensor
shall have fifteen (15) days from the date on which Licensor receives such
documents ("Objection Period") to notify Fort Knox of its objection ("Objection
Notice") to the proposed release of the Deposit Materials to Licensee and to
request that the issue of Licensee's entitlement to a copy of the Deposit
Materials be submitted to arbitration in accordance with the following
provisions:
<PAGE>
(i) If Licensor shall send an Objection
Notice to Fort Knox during the
Objection Period, the matter shall
be submitted to, and settled by
arbitration by, a panel of three
(3) arbitrators chosen by the
Atlanta Regional Office of the
American Arbitration Association in
accordance with the rules of the
American Arbitration Association.
The arbitrators shall apply Georgia
law. At least one (1) arbitrator
shall be reasonably familiar with
the computer software industry. The
decision of the arbitrators shall
be binding and conclusive on all
parties involved, and judgment upon
their decision may be entered in a
court of competent jurisdiction.
All costs of the arbitration
incurred by Fort Knox, including
reasonable attorneys' fees and
costs, shall be paid by the party
which does not prevail in the
arbitration; provided, however, if
the arbitration is settled prior to
a decision by the arbitrators, the
Licensor and Licensee shall each
pay 50% of all such costs.
(ii) The parties shall proceed in good
faith and with all due speed to
complete arbitration within one
month of the receipt by Fort Knox of
the Objection Notice. The
arbitrators shall have authority to
reasonably alter the arbitration
rules to achieve that goal. There
shall be no discovery, except as
directed by the arbitrators, and the
period for oral arguments shall be
limited to two days.
(iii) Licensor may, at any time prior to
the commencement of arbitration
proceedings, notify Fort Knox that
Licensor has withdrawn the Objection
Notice.
(e) Upon receipt of the Deposit Materials,
Licensee may use the Deposit Materials solely for the purpose of maintaining the
Licensed Software. The Deposit Materials will be considered confidential
information of Licensor to be treated by Licensee in accordance with the
confidentiality provisions of the License Documents.
(f) Both Licensor and Licensee agree that Fort
Knox shall not be required to deliver Deposit Materials until all such fees then
due Fort Knox have been paid.
4.2 DELIVERY BY FORT KNOX TO LICENSOR. Fort Knox shal
release and deliver the Deposit Materials to Licensor upon termination of this
Agreement in accordance with paragraph 7(a) hereof.
5. INDEMNITY. Licensor and Licensee shall, jointly and severally,
indemnify and hold harmless Fort Knox and each of its directors, officers,
agents, employees and stockholders ("Fort Knox Indemnities") absolutely and
forever, from and against any and all claims, actions, damages, suits,
liabilities, obligations, costs, fees, charges, and any other expenses
whatsoever, including reasonable attorneys' fees and costs, that may be asserted
against any Fort Knox Indemnitee in connection with this Agreement or the
performance of Fort Knox or any Fort Knox Indemnitee hereunder.
<PAGE>
6. DISPUTES AND INTERPLEADER.
(a) Fort Knox may submit any matter in an interpleader or
similar action other than a matter submitted to arbitration after Fort Knox's
receipt of an Objection Notice under Section 4 and the parties under this
Agreement submit the matter to such arbitration as described in Section 4 of
this Agreement. Any and all costs incurred by Fort Knox in connection therewith,
including reasonable attorneys' fees and costs, shall be borne 50% by each of
Licensor and Licensee.
(b) Fort Knox shall perform any acts ordered by any court of
competent jurisdiction, without any liability or obligation to any party
hereunder by reason of such act.
7. TERM AND RENEWAL.
(a) The term of this Agreement shall be coincident and
coterminous with the License Documents. [This Agreement shall be automatically
extended for an additional term of one year ("Additional Term") at the end of
the Initial Term and at the end of each Additional Term hereunder unless, on or
before ninety (90) days prior to the end of the Initial Term or an Additional
Term, as the case may be, any party notifies the other parties that it wishes to
terminate the Agreement at the end of such term.] At such time of termination,
all fees due under this Agreement to Fort Knox must be paid prior to
termination.
(b) In the event of termination of this Agreement in
accordance with paragraph 7(a) hereof, Licensee shall pay all fees due Fort Knox
and shall promptly notify Licensor that this Agreement has been terminated and
that Fort Knox shall return to Licensor all copies of the Deposit Materials then
in its possession.
8. FEES. Licensor and Licensee shall pay to Fort Knox the
applicable fees in accordance with Exhibit A as compensation for Fort Knox's
services under this Agreement. The first years fees are due upon receipt of the
signed contract or Deposit Materials, whichever comes first and shall be paid in
U.S. Dollars.
(a) PAYMENT. Fort Knox shall issue an invoice to Licensee
following execution of this Agreement ("Initial Invoice"), on the commencement
of any Additional Term hereunder, and in connection with the performance of any
additional services hereunder. Payment is due upon receipt of invoice,
irrespective of when the Deposit Materials are received. All fees and charges
are exclusive of, and Licensee is responsible for the payment of, all sales, use
and like taxes. Fort Knox shall have no obligations under this Agreement until
the Initial Invoice has been paid in full by Licensee.
(b) NONPAYMENT. In the event of non-payment of any fees or
charges invoiced by Fort Knox, Fort Knox shall give notice of non-payment of any
fee due and payable hereunder to the Licensee and, in such an event, the
Licensee shall have the right to pay the unpaid fee within ten (10) days after
receipt of notice from Fort Knox. If Licensee fails to pay in full all fees due
during such ten (10) day period, Fort Knox shall give notice of non-payment of
any fee due and payable hereunder to Licensor and, in such event, Licensor shall
have the right to pay the unpaid fee within ten (10) days of receipt of such
notice from Fort Knox. Upon payment of the unpaid fee by either the Licensor or
<PAGE>
Licensee, as the case may be, this Agreement shall continue in full force and
effect until the end of the applicable term. Failure to pay the unpaid fee under
this paragraph 8(b) by both Licensor and Licensee shall result in termination of
this Agreement.
9. OWNERSHIP OF DEPOSIT MATERIALS. The parties recognize and
acknowledge that ownership of the Deposit Materials shall remain with Licensor
at all times.
10. AVAILABLE VERIFICATION SERVICES. Upon receipt of a written request
from Licensee, Fort Knox and Licensee may enter into a separate agreement
pursuant to which Fort Knox will agree, upon certain terms and conditions, to
inspect the Deposit Materials for the purpose of verifying its relevance,
completeness, currency, accuracy and functionality ("Technical Verification
Agreement"). Upon written request from Licensor, Fort Knox will issue to
Licensor a copy of any written technical verification report rendered in
connection with such engagement. If Fort Knox and Licensee enter into such
Technical Verification Agreement, Licensor shall reasonably cooperate with Fort
Knox by providing its facilities, computer systems, and technical and support
personnel for technical verification whenever reasonably necessary. If requested
by Licensee, Licensor shall permit one employee of Licensee to be present at
Licensor's facility during any such verification of the Deposit Materials.
11. BANKRUPTCY. Licensor and Licensee acknowledge that this Agreement
is an "agreement supplementary to" the License Agreement as provided in Section
365 (n) of Title 11, United States Code (the "Bankruptcy Code"). Licensor
acknowledges that if Licensor as a debtor in possession or a trustee in
Bankruptcy in a case under the Bankruptcy Code rejects the License Agreement or
this Agreement, Licensee may elect to retain its rights under the License
Agreement and this Agreement as provided in Section 365 (n) of the Bankruptcy
Code. Upon written request of Licensee to Licensor or the Bankruptcy Trustee,
Licensor or such Bankruptcy Trustee shall not interfere with the rights of
Licensee as provided in the License Agreement and this Agreement, including the
right to obtain the Deposit Material from Fort Knox.
12. MISCELLANEOUS.
(a) REMEDIES. Except for intentional misrepresentation, gross
negligence or intentional misconduct, Fort Knox shall not be liable to Licensor
or to Licensee for any act, or failure to act, by Fort Knox in connection with
this Agreement. Any liability of Fort Knox regardless of the cause shall be
limited to the fees exchanged under this Agreement. Fort Knox will not be liable
for special, indirect, incidental or consequential damages hereunder.
(b) NATURAL DEGENERATION; UPDATED VERSION. In addition, the
parties acknowledge that as a result of the passage of time alone, the Deposit
Materials are susceptible to loss of quality ("Natural Degeneration"). It is
further acknowledged that Fort Knox shall have no liability or responsibility to
any person or entity for any Natural Degeneration. For the purpose of reducing
the risk of Natural Degeneration, Licensor shall deliver to Fort Knox a new copy
of the Deposit Materials at least once every three years.
(c) PERMITTED RELIANCE AND ABSTENTION. Fort Knox may rely and
shall be fully protected in acting or refraining from acting upon any notice or
other document believed by Fort Knox in good faith to be genuine and to have
been signed or presented by the proper person or entity. Fort Knox shall have no
duties or responsibilities except those expressly set forth herein.
<PAGE>
(d) INDEPENDENT CONTRACTOR. Fort Knox is a independent
contractor, and is not an employee or agent of either the Licensor or Licensee.
(e) AMENDMENTS. This Agreement shall not be modified or
amended except by another agreement in writing executed by the parties hereto.
(f) ENTIRE AGREEMENT. This Agreement, including all exhibits
hereto, supersedes all prior discussions, understandings and agreements between
the parties with respect to the matters contained herein, and constitutes the
entire agreement between the parties with respect to the matters contemplated
herein. All exhibits attached hereto are by this reference made a part of this
Agreement and are incorporated herein.
(g) COUNTERPARTS; GOVERNING LAW. This Agreement may be
executed in counterparts, each of which when so executed shall be deemed to be
an original and all of which when taken together shall constitute one and the
same Agreement. This Agreement shall be construed and enforced in accordance
with the laws of the State of Georgia.
(h) CONFIDENTIALITY. Fort Knox will hold and release the
Deposit Materials only in accordance with the terms and conditions hereof, and
will maintain the confidentiality of the Deposit Materials.
(i) NOTICES. All notices, requests, demands or other
communications required or permitted to be given or made under this Agreement
shall be in writing and shall be delivered by hand or by commercial overnight
delivery service which provides for evidence of receipt, or mailed by certified
mail, return receipt requested, postage prepaid. If delivered personally or by
commercial overnight delivery service, the date on which the notice, request,
instruction or document is delivered shall be the date on which delivery is
deemed to be made, and if delivered by mail, the date on which such notice,
request, instruction or document is received shall be the date on which delivery
is deemed to be made. Any party may change its address for the purpose of this
Agreement by notice in writing to the other parties as provided herein.
(j) SURVIVAL. Paragraphs 5, 6, 8, 9 and 11 shall survive
any termination of this Agreement.
(k) NO WAIVER. No failure on the part of any party hereto to
exercise, and no delay in exercising any right, power or single or partial
exercise of any right, power or remedy by any party will preclude any other or
further exercise thereof or the exercise of any other right, power or remedy. No
express waiver or assent by any party hereto to any breach of or default in any
term or condition of this Agreement shall constitute a waiver of or an assent to
any succeeding breach of or default in the same or any other term or condition
hereof.
<PAGE>
IN WITNESS WHEREOF each of the parties has caused its duly authorized
officer to execute this Agreement as of the date and year first above written.
Fort Knox Escrow Services, Inc.
2100 Norcross Pkwy. Suite 150 Phone Number 1 770-239-9200
Norcross, Georgia 30071 Fax Number 770-239-9201
Attn: Keith Mobley
By:_______________________________
Print Name:_______________________ Title:_______________________________
Licensor
Address: ______________________________
______________________________
______________________________
Phone: _______________________________ Fax: _____________
Licensee
Address: ______________________________
______________________________
______________________________
Phone: _______________________________ Fax: _____________
<PAGE>
EXHIBIT A
FEE SCHEDULE
Fees to be paid by Licensee shall be as follows:
Initialization fee (one time only) $ 850
($ 765 for current clients)
Annual maintenance fee
includes two Deposit Material updates $ 1000 product
includes one cubic foot of storage space
International (outside of U.S.) - $ 1000/product
Additional Updates $ 150
(above two per year)
Additional Storage Space $ 150/cubic foot
Payable by Licensee or Licensor:
Due Upon Licensee's or Licensor's
Request for Release of Deposit Materials $100 for initial 2 hrs
$50/hour for
additional hours
A ten percent discount is credited towards the initialization fee for current
Fort Knox clients. Fees due upon receipt of signed contract or Deposit Material,
whichever comes first and shall be paid in U.S. Dollars. The renewal date for
this Agreement will occur on the anniversary of the first invoice. Thereafter,
fees shall be subject to their current pricing, provided that such prices shall
not increase by more than 10% per year.
<PAGE>
EXHIBIT B
B1. Product Name: ___________________________________________________
Version #:_______________________________________________________
Prepared and Confirmed by: ______________________________________________
Title: _________________________________________ Date: _______________
Signature: _______________________________________________________________
Type of deposit:
____ Initial Deposit
____ Update Deposit to replace current deposits
____ Other (please describe)____________________________
ITEMS DEPOSITED:
Quantity Media Type Description of Material
A) ___________ ____________ _____________________________________
B) ___________ ____________ ____________________________________
C) __________ ____________ ____________________________________
B2. Product Name: ____________________________________________________
Version #: _______________________________________________________
Prepared and Confirmed by: _______________________________________________
Title: _________________________________________ Date: ________________
Signature: _______________________________________________________________
Type of deposit:
____ Initial Deposit
____ Update Deposit to replace current deposits
____ Other (please describe) ___________________________
ITEMS DEPOSITED:
Quantity Media Type Description of Material
A) ___________ ____________ ___________________________________
B) ___________ ____________ ___________________________________
C) ___________ ____________ ___________________________________
(please copy page as necessary)
March 13, 2000
Mr. Andrew Fox
Acting President and CEO
High Speed Net Solutions, Inc.
434 Fayetteville Street Mall, Suite 2120
Raleigh, NC 27601
Dear Andy:
Summus, Ltd. ("Summus") hereby agrees that during the term of the Software
License Agreement (the "SLA") entered into between Summus, Ltd., and High Speed
Net Solutions, Inc. ("HSNS"), dated February 18, 2000, neither Summus nor any of
its Affiliates will directly engage in any use of the MaxxSystem Software or of
the product functionality contained in the MaxxSystem Software, either alone or
in any combination, for a purpose that is directly competitive with the business
of HSNS as it is presently constituted. Affiliate is a person or entity that
directly or indirectly controls, is controlled by, or is under common control
with Summus.
Furthermore, Summus hereby agrees that from the date of the SLA through the
earlier of July 1, 2001, or the effective date of termination of the SLA, Summus
shall not sell, license or grant any other rights to use the MaxxSystem software
or the product functionality contained in the MaxxSystem Software to entities
other than Summus for any use that is directly competitive with the business of
HSNS as presently constituted. In the case of Summus Affiliates, the restriction
contained in the preceding sentence shall continue throughout the term of the
SLA. Without limiting the foregoing, the prohibition in this paragraph shall not
apply to licenses of the MaxxSystem software to an entity solely for the purpose
of such entity marketing, advertising and/or promoting such entity's own
products, services or views and opinions.
In consideration for the above described commitments by Summus, HSNS agrees to
pay Summus $1,000 dollars concurrently with the execution of this letter and to
implement commercially viable sales and marketing facilities to promote its
Service Bureau use (as defined in the Revenue Sharing Agreement dated February
18, 2000) of the MaxxSystem Software.
Agreed to by: Agreed to by:
Dr. Bjorn Jawerth Andrew Fox
President and Chairman of the Board Acting President and CEO,
Summus, Ltd. Executive Vice President
High Speed Net Solutions, Inc.
