<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 11, 1999
REGISTRATION NO. 333-75807
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
STUDENT ADVANTAGE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 8699 04-3263743
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
280 SUMMER STREET
BOSTON, MASSACHUSETTS 02210
(617) 912-2011
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
RAYMOND V. SOZZI, JR.
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER
STUDENT ADVANTAGE, INC.
280 SUMMER STREET
BOSTON, MASSACHUSETTS 02210
(617) 912-2011
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
MARK G. BORDEN, ESQ. LAWRENCE S. WITTENBERG, ESQ.
HALE AND DORR LLP TESTA, HURWITZ & THIBEAULT, LLP
60 STATE STREET 125 HIGH STREET
BOSTON, MASSACHUSETTS 02109 BOSTON, MASSACHUSETTS 02110
TELEPHONE: (617) 526-6000 TELEPHONE: (617) 248-7000
TELECOPY: (617) 526-5000 TELECOPY: (617) 248-7100
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date hereof.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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- -----------------------------------------------------------------------------------------------------------------------------
PROPOSED
MAXIMUM PROPOSED AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE MAXIMUM AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE(3)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value per share... 6,900,000 $12.00 82,800,000 23,019
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 900,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(a) under the Securities Act of 1933,
as amended.
(3) A registration fee of $22,379 was previously paid by the Registrant upon its
initial filing of this Registration Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES, IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MAY 11, 1999
[STUDENT ADVANTAGE LOGO]
6,000,000 SHARES
COMMON STOCK
Student Advantage, Inc. is offering 6,000,000 shares of its common stock.
This is Student Advantage's initial public offering and no public market
currently exists for its shares. We have applied for approval for quotation on
the Nasdaq National Market under the symbol "STAD" for the shares we are
offering. We anticipate that the initial public offering price will be between
$10.00 and $12.00 per share.
------------------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
------------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to Student Advantage............................... $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Student Advantage has granted the underwriters a 30-day option to purchase
up to an additional 900,000 shares of common stock to cover over-allotments.
BancBoston Robertson Stephens Inc. expects to deliver the shares of common stock
to purchasers on , 1999.
------------------------------
BANCBOSTON ROBERTSON STEPHENS
PRUDENTIAL SECURITIES
VOLPE BROWN WHELAN & COMPANY
The date of this Prospectus is , 1999.
<PAGE> 3
[The inside front cover depicts five computer screen shots of Student
Advantage's Web site. The Student Advantage logo is at the top of the page and
the heading beneath the logo is "Studentadvantage.com." The top computer screen
shot depicts the home page of www.studentadvantage.com. The two middle screens
show content provided by "College News" through the U-Wire news feed and
services available from many corporate partners via "E-Commerce." The bottom two
screens depict other resources available such as "Bulletin Boards" and "Address
book & E-mail" screens.]
<PAGE> 4
The graphic covering the gatefold pages depicts various products and
services provided to the three communities served by Student Advantage. The
heading Student Advantage is centered across the top of the two pages. The upper
left corner with the heading "Students" depicts a graphic of the 1998 - 1999
Student Advantage membership card. In the lower left corner is a graphic of four
covers of the Student Advantage magazine. A graphic of five computer screens
described on the inside front cover is centered across the middle of the two
pages. In the upper right corner is the heading, universities. Beneath this is a
graphic of the U-Wire logo. A map of the United States and the heading
"Businesses" are centered on the bottom of the page. Logos from the following
corporate sponsors are placed on the map: Amtrak, Tower Records, AT&T, America
Online, Lexis, Nexis, USA Today and Excite.
<PAGE> 5
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS. IN THIS PROSPECTUS, "STUDENT ADVANTAGE," "WE," "US"
AND "OUR" REFER TO STUDENT ADVANTAGE, INC.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary..................................................... 4
Risk Factors................................................ 7
Forward-Looking Statements.................................. 16
Use of Proceeds............................................. 17
Dividend Policy............................................. 17
Capitalization.............................................. 18
Dilution.................................................... 19
Selected Financial Data..................................... 20
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 21
Business.................................................... 32
Management.................................................. 44
Certain Transactions........................................ 51
Principal Stockholders...................................... 54
Description of Capital Stock................................ 56
Shares Eligible for Future Sale............................. 58
Underwriting................................................ 60
Legal Matters............................................... 62
Experts..................................................... 62
Additional Information...................................... 62
Index to Financial Statements............................... F-1
</TABLE>
3
<PAGE> 6
SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary may not contain all of the information that you should consider
before investing in our common stock. You should read the entire prospectus
carefully, including "Risk Factors" and the financial statements and the related
notes.
STUDENT ADVANTAGE
Our Business............Student Advantage is dedicated to serving the needs of
college students through our leading membership program
and studentadvantage.com Web site. With our national
fee-based membership program, we have created a
community of over 1,000,000 student members. Our members
receive a variety of services and benefits, including
ongoing discounts on products and services offered by
national and local vendors. With studentadvantage.com,
we seek to enhance our brand online and provide
additional services to our members, businesses and
colleges with the objective of becoming the leading
online destination for college students.
We believe that Student Advantage appeals to students,
businesses and schools because we provide a combination
of the following benefits:
- For students, a valuable program that offers ongoing
discounts, as well as online content, community and
e-commerce targeted at their particular needs,
- For businesses, targeted online and offline access to
an attractive demographic group through a trusted
brand, and
- For schools, a useful resource that they may offer to
their students.
Our position at the intersection of these three groups
has enabled us to create a powerful vehicle for
advertising and commerce directed at the student market.
We generated total revenue of $17.4 million in 1998 and
$4.2 million in the first quarter of 1999, and incurred
a net loss of $5.1 million in 1998 and $2.2 million in
the first quarter of 1999.
Our Products and
Services..............Membership in Student Advantage provides students with
discounts on products and services offered by over 40
national sponsors, including Amtrak, AT&T, Foot Locker,
Greyhound, Staples and Tower Records, and over 12,000
local sponsors in 115 local markets. Student members
also receive SAM, the Student Advantage magazine.
A key component of our strategy is to make our Web site
the centerpiece of our membership program. We currently
offer content and services to all students through
studentadvantage.com, including our proprietary U-WIRE
news feed and the Virtual Backpack, a service which
includes free e-mail, an online calendar, and online
document storage; community through online bulletin
boards and articles offering advice on student life; and
e-commerce through sponsors including Egghead.com,
1-800-FLOWERS.com and Rockport Interactive. In order to
receive discounts on the products offered through our
Web site, students must join our membership program. We
believe that our primary role as a provider of
information and services to students, along with the
Web-savvy nature of our student membership base, makes
the Internet ideally suited for our business.
4
<PAGE> 7
We also provide tailored marketing services for
businesses seeking to market their products to college
students. Through our membership program and Web site,
we provide businesses a platform through which they can
reach a large, demographically attractive market. These
businesses benefit from targeted and continued access to
the student market, as well as our expertise in
designing and implementing effective marketing programs
to reach college students.
Our Market..............College students represent an attractive market
opportunity for businesses because of their significant
purchasing power and their tendency to retain brand
loyalties after graduation. According to Student Monitor
LLC, a market research company, total discretionary
spending by college students in the 1997-1998 academic
year exceeded $105 billion.
In the United States, there are over 15 million
full-time and part-time undergraduate and graduate
students at more than 3,500 university and college
campuses. This population is expected to grow as there
are currently 40 million children and young adults from
ages 10 to 19.
Our Strategy............Our objective is to be the leading online and offline
resource for college students. The key elements of our
strategy include the following:
- Strengthen our online destination for students,
- Continue to build the Student Advantage brand,
- Aggressively grow our membership,
- Enhance relationships with students, businesses and
schools, and
- Continue to pursue strategic acquisitions and
alliances.
Recent Development......On May 7, 1999, we entered into an agreement to acquire
University Netcasting, Inc. in a transaction that will
be accounted for as a pooling of interests. University
Netcasting is a leading operator of official athletic
Web sites for colleges, universities and college sports
associations. Through its FANSonly Network,
FANSonly.com, University Netcasting provides sports fans
with comprehensive online information and analysis on
college sports. University Netcasting operates the
official athletic Web sites of over 30 universities and
college sports associations, including universities from
the PAC-10, ACC, SEC, Big 10, Big 12 and Big East
conferences. We believe that the acquisition of
University Netcasting will enable us to strengthen our
online destination.
------------------------
Student Advantage's principal executive offices are located at 280 Summer
Street, Boston, Massachusetts 02210 and our telephone number at that location is
(617) 912-2011. Our Web site is located at www.studentadvantage.com. Information
contained on our Web site is not part of this prospectus.
------------------------
Except as otherwise noted, all information in this prospectus:
- Reflects the automatic conversion of all of our outstanding shares of
convertible preferred stock into an aggregate of 8,241,108 shares of
common stock upon completion of this offering,
- Reflects a three-for-one stock split of all of our outstanding shares of
common stock to be effected before completion of this offering, and
- Assumes no exercise of the underwriters' over-allotment option.
5
<PAGE> 8
THE OFFERING
Common stock offered.................... 6,000,000 shares
Common stock to be outstanding after the
offering................................ 30,497,061 shares(1)
Use of proceeds......................... To fund continued growth and
expansion of its business, capital
expenditures, product development,
potential acquisitions and other
general corporate purposes. See
"Use of Proceeds."
Proposed Nasdaq National Market
symbol.................................. STAD
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Set forth below are summary statements of operations data for the years
ended December 31, 1994, 1995, 1996, 1997 and 1998, and for three months ended
March 31, 1998 and 1999, and summary balance sheet data as of March 31, 1999, on
an actual basis and on a pro forma basis as adjusted to give effect to (1) the
sale by Student Advantage of shares of common stock in this offering at an
assumed initial offering price of $11.00 per share, after deducting the
estimated underwriting discounts and commissions and offering expenses payable
by Student Advantage, and the application of the net proceeds from this
offering, and (2) the conversion of our convertible preferred stock upon
completion of this offering. This information should be read in conjunction with
the Financial Statements and Notes thereto appearing elsewhere in this
prospectus. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------------------- -------------------------
1994 1995 1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Total revenue................... $ 155 $ 448 $ 1,730 $ 3,792 $17,443 $ 3,396 $ 4,225
Total costs and expenses........ 230 412 2,386 6,973 22,560 3,716 6,496
Net income (loss)............... (75) 36 (657) (3,152) (5,115) (305) (2,209)
Basic and diluted net income
(loss) per share.............. $ (0.01) $ 0.00 $ (0.05) $ (0.21) $ (0.32) $ (0.02) $ (0.14)
Shares used in computing basic
and diluted net income (loss)
per share..................... 14,184 14,184 14,184 15,295 15,957 15,424 16,143
Unaudited pro forma basic and
diluted net loss per
share(2)...................... $ (0.24) $ (0.09)
Shares used in computing
unaudited pro forma basic and
diluted net loss per share.... 21,128 24,384
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999
-------------------------
PRO FORMA
ACTUAL AS ADJUSTED
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents................................... $ 3,491 $63,771
Working capital............................................. (4,143) 56,137
Total assets................................................ 7,779 68,059
Deferred revenue............................................ 5,455 5,455
Redeemable convertible preferred stock...................... 10,196 --
Stockholders' equity (deficit).............................. (12,637) 57,839
</TABLE>
- ---------------
(1) This information is based on the number of shares outstanding as of March
31, 1999. Excludes 2,237,736 shares subject to outstanding options as of
March 31, 1999 at a weighted average exercise price of $0.36 per share.
(2) Pro forma information is based on the conversion of all outstanding shares
of our convertible preferred stock into shares of common stock.
6
<PAGE> 9
RISK FACTORS
You should carefully consider the following risks before making an
investment decision. The risks described below are not the only ones that we
face. Additional risks that are not yet identified or that we currently think
are immaterial may also impair our business operations. Our business, operating
results and financial condition could be adversely affected by any of the
following risks. The trading price of our common stock could decline due to any
of these risks, and you could lose all or part of your investment. You should
also refer to the other information set forth in this prospectus, including our
financial statements and the related notes.
WE HAVE EXPERIENCED LOSSES IN THE PAST AND EXPECT FUTURE LOSSES
We have not achieved profitability and expect to continue to incur
operating losses for the foreseeable future. We incurred net losses of $3.2
million in 1997, $5.1 million in 1998 and $2.2 million in the first quarter of
1999. As of March 31, 1999, our accumulated deficit was $13.8 million. We expect
to continue to incur significant operating and capital expenditures and, as a
result, we will need to generate significant revenue to achieve and maintain
profitability.
We cannot assure you that we will achieve sufficient revenue for
profitability. Even if we do achieve profitability, we cannot assure you that we
can sustain or increase profitability on a quarterly or annual basis in the
future. If revenue grows more slowly than we anticipate, or if operating
expenses exceed our expectations or cannot be adjusted accordingly, our
business, results of operations and financial condition will be materially and
adversely affected.
WE ARE DEPENDENT UPON AT&T FOR A LARGE PERCENTAGE OF OUR REVENUE AND A DECLINE
IN REVENUE FROM AT&T WOULD ADVERSELY AFFECT OUR RESULTS
We have an exclusive relationship with AT&T through which AT&T pays us for
a variety of goods and services, including:
- memberships provided free to students with an AT&T calling card,
- marketing services,
- advertising in our media products, such as our Web site and SAM, the
Student Advantage magazine, and
- sponsorship of certain of our products and services, such as the Virtual
Backpack.
In 1997, we derived $2.4 million, or 62%, of our total revenue from AT&T.
In 1998, we derived $11.8 million, or 68%, of our total revenue from AT&T. In
the first quarter of 1999, we derived $2.9 million, or 69%, of our total revenue
from AT&T. Our relationship with AT&T has accounted for most of our members to
date. We obtain these members as a result of AT&T's distribution of free Student
Advantage memberships to students who enroll for an AT&T telecommunications
service. In addition, most of our commerce revenue is currently attributable to
fees that we earn from AT&T for obtaining completed calling card applications
from students. There can be no assurance that we will be successful in expanding
our membership base independent of our relationship with AT&T.
The termination dates of our current agreements with AT&T have been
extended until June 2001. However, AT&T may terminate these agreements upon 120
days' prior notice, subject to payment of a termination fee in certain cases. In
addition, AT&T can terminate the current agreements if Raymond V. Sozzi, Jr. is
no longer employed as our president, or if he no longer owns at least five
percent of our capital stock. The termination of our relationship with AT&T
would have a material adverse effect on our business.
7
<PAGE> 10
WE HAVE A LIMITED OPERATING HISTORY AND MAY FACE DIFFICULTIES ENCOUNTERED BY
EARLY STAGE COMPANIES IMPLEMENTING AN INTERNET STRATEGY
We have a limited operating history on which an investor can evaluate our
business. Our operations began in 1992. An investor in our common stock must
consider the risks and difficulties frequently encountered by early stage
companies implementing an Internet strategy. These risks include our possible
inability to:
- sustain historical revenue growth rates,
- generate sufficient revenue to achieve and maintain profitability,
- implement our business model,
- maintain the satisfaction of our members,
- introduce new and enhanced Web and offline content, products and
services, and
- respond to competitive developments.
If we do not successfully manage these risks, our business, results of
operations and financial condition will be materially adversely affected. We
cannot assure you that we will successfully address these risks or that our
business strategy will be successful.
OUR BUSINESS IS HIGHLY DEPENDENT UPON OUR PRESIDENT AND CHIEF EXECUTIVE OFFICER
We are highly dependent on our president and chief executive officer,
Raymond V. Sozzi, Jr., the loss of whom would adversely affect our future
success. If Mr. Sozzi is no longer employed as our president, AT&T can terminate
its agreements with us.
OUR RELATIONSHIP WITH AT&T COULD HINDER OUR ABILITY TO ATTRACT ADDITIONAL
SPONSORS
Our agreement with AT&T prevents us from providing our goods and services
to other telecommunications companies. Our agreement with AT&T also precludes us
from entering into a relationship with another sponsor that will distribute our
memberships free to students as an incentive or through any promotion. Our
relationship with AT&T could hinder our ability to attract additional national
sponsors, in particular sponsors who may be interested in purchasing memberships
for distribution to students.
WE MAY NOT SUCCESSFULLY IMPLEMENT OUR INTERNET STRATEGY
In order to successfully implement our Internet strategy, we must:
- establish our Web site as the primary vehicle for delivery of our
products and services, including member registration and renewal,
information regarding national and local sponsors, and customer service,
- expand our Web site to include more content and services for students and
encourage our members to use the site so that it becomes more attractive
for advertisers, and
- establish our Web site as an effective e-commerce platform.
Our failure to successfully implement our Internet strategy could have a
material adverse effect on our business.
OUR ABILITY TO GENERATE SIGNIFICANT REVENUES FROM ONLINE ACTIVITIES AND INTERNET
ADVERTISING IS UNCERTAIN
It is unclear whether companies implementing an Internet community business
model will generate sufficient revenues to achieve and maintain profitability.
Our ability to generate significant revenues from advertisers, sponsors and
other businesses in connection with online activities will depend, in part, on
our ability to generate sufficient user traffic with demographic characteristics
attractive to our advertisers. The intense competition among Web sites that sell
online advertising has led to the creation of a number of pricing alternatives
for online advertising. These alternatives make it difficult for us to project
future levels
8
<PAGE> 11
of advertising and other Internet-related revenue and applicable gross margins
related to our online offerings that can be sustained by us or the online
advertising industry in general. Although we do not currently derive a
substantial portion of our revenue from Internet advertising and other
Internet-related activities, our business model depends in part on increasing
the amount of such revenue.
OUR BUSINESS IS SUBJECT TO SEASONAL FLUCTUATIONS, WHICH MAY AFFECT OUR REVENUES
AND OPERATING RESULTS
Our operating results are dependent upon the college student market and we
expect them to vary seasonally based upon the typical school year. We tend to
sell most of our memberships in the beginning of the fall and winter academic
terms. All of these memberships expire on August 31 of each year. Because the
aggregate number of memberships within a school year increases as new members
are added beginning on September 1, and we recognize revenue from memberships
ratably over the period from the time of subscription until the end of our
membership year, our subscription revenue will typically be higher in the first
and second quarters than in the fourth quarter of each fiscal year. It is
difficult to determine how the third quarter will typically compare, since it
includes two calendar months from the end of a membership year and the first
month of the subsequent membership year.
Our limited operating history and rapid growth make it difficult for us to
more fully assess the impact of seasonal factors on our business. Nevertheless,
because our business is dependent upon the student market, we expect that our
other revenue may be subject to seasonal fluctuations associated with the
typical school year. In particular, other revenue can be expected to be higher
during the third and fourth quarters due to increased activity associated with
the commencement of the school year. Conversely, the second quarter may have the
least amount of other revenue since it includes the months at the end of a
school year.
In 1998, our other revenue was higher in the third and fourth quarters than
in other quarters due in part to the seasonality factor noted above and in part
to the commencement of activities under the AT&T marketing agreement, under
which we receive fees for obtaining calling card applications from students. The
Student Advantage Magazine, SAM, began publication in the fourth quarter of
1998. Other revenue and the cost of other revenue were each affected in the
fourth quarter of 1998 and the first quarter of 1999 by the publication of two
issues of SAM in each of those quarters.
Partly because of the seasonality factor noted above and partly because the
next issue of SAM will not be published until the third quarter, other revenue
in the second quarter of 1999 should be significantly less than it was in the
third and fourth quarters of 1998 and the first quarter of 1999.
OUR QUARTERLY REVENUES AND OPERATING RESULTS ARE NOT INDICATIVE OF FUTURE
PERFORMANCE AND ARE DIFFICULT TO FORECAST
In addition to the seasonal fluctuations described above, our revenues and
operating results may vary from quarter to quarter for a variety of other
reasons, such as the timing of revenues from corporate sponsors or non-recurring
charges incurred in connection with acquisitions.
You should not rely on quarter-to-quarter comparisons of our operating
results or our operating results for any particular quarter as indicative of our
future performance. It is possible that in some future periods our operating
results may be below the expectations of public market analysts and investors.
In this event, the price of our common stock might fall.
OUR OPERATING RESULTS DEPEND ON SELLING NEW MEMBERSHIPS EVERY YEAR
A significant portion of our revenue is derived from membership fees.
Members must join our program each year. A significant percentage of our members
graduate each year and, therefore, do not renew their memberships. Our revenue
growth is highly dependent upon our ability to market the value of our
membership to college students and to retain members on a yearly basis. A
failure to acquire new members or renew current members could have a material
adverse effect on our business.
9
<PAGE> 12
OUR OPERATING RESULTS DEPEND ON OUR ABILITY TO MAINTAIN AND INCREASE BUSINESS
ALLIANCES AND UNIVERSITY RELATIONSHIPS
We are dependent upon our sponsors, both national and local, to provide our
members with discounts on their products and services. We are also dependent on
maintaining college and university relationships to market and sell our products
and services. Our ability to maintain these alliances and relationships and to
develop new alliances and relationships is critical to our ability to maintain
our members. A failure to acquire or maintain sponsors and relationships could
have a material adverse effect on our business. In addition, our agreements with
a number of our sponsors preclude us from entering into similar arrangements
with their competitors. This restriction may prevent us in some cases from
offering attractive additional discounts to our members.
COLLEGES AND UNIVERSITIES ARE INCREASINGLY RELUCTANT TO PERMIT BUSINESSES TO
MARKET PRODUCTS AND SERVICES ON CAMPUS
Colleges and universities are becoming increasingly wary of businesses
which market products and services to their students. Many colleges and
universities are seeking to decrease or eliminate such marketing. In particular,
colleges and universities are concerned that many students have incurred
substantial levels of credit card debt. As a result, colleges and universities
often attempt to prevent credit card companies and other companies that offer
credit from marketing to their students. We are sometimes mistaken for a credit
card company because we give students a plastic card and a unique identification
number to represent their membership. This sometimes makes it difficult for us
to gain access to college and university students. Any inability to directly
contact students on campus could have a material adverse effect on our business.
WE FACE SIGNIFICANT COMPETITION ON THE INTERNET, WHICH COULD ADVERSELY AFFECT
OUR BUSINESS
Many Web sites compete for consumers' and advertisers' attention and
spending. We believe that our ability to compete depends upon many factors,
including the following:
- the market acceptance of our Web site and online services,
- the success of our brand building and sales and marketing efforts,
- the performance, price and reliability of services developed by us or our
competitors,
- the effectiveness of our customer service efforts,
- the ability of our competitors to maintain or establish cooperative
relationships among themselves or with strategically aligned third
parties, and
- the emergence of new competitors.
We compete for members and advertisers online with the following types of
companies:
- online services or Web sites targeted at college students, and
- Web search and retrieval and other online service companies, commonly
referred to as portals, such as Alta Vista, Excite, Infoseek, Lycos and
Yahoo!.
The number of Web sites competing for the attention and spending of
advertisers and consumers, including college students, has increased and we
expect it to continue to increase. This market is rapidly evolving and barriers
to entry are low, enabling newcomers to launch competing sites at relatively low
cost.
Increased competition could result in price reductions, reduced margins or
loss of market share, any of which could adversely affect our business. Please
see "Business -- Competition."
OUR MEMBERSHIP PROGRAM EXPERIENCES SIGNIFICANT COMPETITION FROM OTHER MARKETING
ACTIVITIES
We compete for client marketing budget dollars with other marketing
activities and, in particular, other forms of direct marketing activities, such
as direct mail. In recent years, there have been significant advances in new
forms of direct marketing, such as the development of interactive shopping and
data
10
<PAGE> 13
collection through television, the Internet and other media. Many industry
experts predict that electronic interactive commerce, such as shopping and
information exchange via the Internet, will proliferate significantly in the
foreseeable future. To the extent such proliferation occurs, it could have a
material adverse effect on the demand for membership programs.
WE MAY BE UNABLE TO MAKE ATTRACTIVE ACQUISITIONS OR INTEGRATE ACQUIRED COMPANIES
As part of our business strategy, we plan to acquire or make investments in
complementary businesses, products, services or technologies to increase our
online traffic and obtain new technologies. However, we cannot assure you that
we will be able to identify suitable acquisition or investment candidates. Even
if we do identify suitable candidates, we cannot assure you that we will be able
to make such acquisitions or investments on commercially acceptable terms. If we
buy a business, we could have difficulty in assimilating that company's
personnel, operations, products, services or technologies into our operations.
These difficulties could disrupt our ongoing business, distract our management
and employees, increase our expenses and adversely affect our results of
operations. Furthermore, we may incur debt or issue equity securities to pay for
any future acquisitions. The issuance of equity securities could be dilutive to
our existing stockholders.
We recently entered into an agreement to acquire University Netcasting,
Inc., a leading operator of official athletic Web sites for colleges,
universities and college sports associations. Consummation of the acquisition is
subject to various conditions, including approval of the acquisition by the
stockholders of University Netcasting. We cannot be certain that the acquisition
will be completed. Achieving the anticipated benefits of the acquisition will
depend in part upon whether the integration of University Netcasting's business
is accomplished in an efficient, effective and timely manner. The difficulty
associated with integrating University Netcasting's business may be increased by
the necessity of coordinating geographically separated organizations. There can
be no assurance that the anticipated benefits of the acquisition will be
achieved.
WE MAY BE UNABLE TO SUCCESSFULLY MANAGE CHANGES IN OUR BUSINESS
We have experienced a period of significant growth. This growth has placed
significant demands on our management and strains on our resources. Revenue
increased from approximately $1.7 million in 1996 to $17.4 million in 1998.
During that same time period we increased from fewer than 50 to more than 150
employees.
Our ability to manage changes in our business will depend on our ability to
continue to enhance our operating, financial and management information systems.
We cannot assure you that our personnel, systems and controls will be adequate
to support our growth, if any. If we are unable to manage change effectively,
maintain the quality of our products and services and retain key personnel, our
operating results and financial condition could be significantly affected.
OUR CURRENT FINANCIAL AND MANAGEMENT INFORMATION SYSTEMS MAY BE INADEQUATE TO
SUPPORT FUTURE OPERATIONS
We do not expect our current financial and management information systems
to be adequate to support our operations in the future. We expect to replace our
current accounting system within the next year. If we incur delays or
difficulties in implementing an appropriate accounting system, our business
could be adversely affected.
OUR MANAGEMENT TEAM HAS NO EXPERIENCE IN RUNNING A PUBLIC COMPANY
Our management team has not had any experience in a leadership role in a
public company. We cannot assure you that the management team as currently
configured will be able to successfully transition into the leadership role of a
public company. The failure of the management team to adequately handle this
challenge could have a material adverse effect on our business.
11
<PAGE> 14
WE MUST ATTRACT AND RETAIN HIGHLY-QUALIFIED PERSONNEL IN A COMPETITIVE LABOR
MARKET
We need to hire additional members of our management team and other key
employees. Competition for such personnel is intense. We have experienced, and
we expect to continue to experience in the future, difficulty in hiring highly
skilled employees with the appropriate qualifications. If we do not succeed in
attracting new personnel or retaining and motivating our current personnel, our
business could be adversely affected.
TO EXPAND OUR BUSINESS, WE MAY NEED ADDITIONAL CAPITAL, AND THE FUTURE FUNDING
OF THESE CAPITAL NEEDS IS UNCERTAIN
We require substantial working capital to fund our business. While we
believe that this offering will provide us with sufficient funding for the
foreseeable future, if capital requirements vary materially from those currently
planned, we may require additional financing.
Additional funds raised through the issuance of equity securities may have
the following negative effects on the then current common stockholders:
- dilution in percentage of ownership in Student Advantage, and
- the rights, preferences or privileges of the new security holders may be
senior to those of the common stockholders.
Additional financing may not be available when needed on terms favorable to
us or at all. Our failure to raise additional funds, if needed, may result in
our inability to:
- develop or enhance our services,
- take advantage of future opportunities, or
- respond to competitive pressures.
OUR SYSTEMS MAY FAIL OR EXPERIENCE A SLOWDOWN
Substantially all of our communications hardware and certain of our other
computer hardware operations are located at USWeb Corporation's facilities in
New York. Fire, floods, earthquakes, power loss, telecommunications failures,
break-ins and similar events could damage these systems. Computer viruses,
electronic break-ins or other similar disruptive problems could also adversely
affect our Web site. Our business could be adversely affected if our systems
were affected by any of these occurrences. Our insurance policies may not
adequately compensate us for any losses that may occur due to any failures or
interruptions in our systems. We do not presently have any secondary "off-site"
systems or a formal disaster recovery plan.
Our Web site must accommodate a high volume of traffic and deliver
frequently updated information. Our Web site has in the past and may in the
future experience slower response times or decreased traffic for a variety of
reasons. These types of occurrences could cause users to perceive our Web site
as not functioning properly and therefore cause them to use another Web site or
other methods to obtain information.
In addition, our users depend on Internet service providers, online service
providers and other Web site operators for access to our Web site. Many of them
have experienced significant outages in the past, and could experience outages,
delays and other difficulties due to system failures unrelated to our systems.
WE ARE DEPENDENT ON THIRD PARTIES FOR SOFTWARE, SYSTEMS AND RELATED SERVICES
We are dependent on various third parties for software, systems and related
services. For example, a third party provides warehousing, distribution,
fulfillment, mail and data processing services for us. As a result, our ability
to deliver various services to our users may be adversely affected by the
failure of these third parties to provide reliable software, systems and related
services to us.
12
<PAGE> 15
We have in the past and may in the future experience slower response times
or delays in the processing of applications for students and the delivery of
membership identification cards to our members. Many of these delays have been
caused by third parties upon which we rely for fulfillment services. If we are
unsuccessful in providing our members with membership identification cards or
delivering products and services on a timely basis, our business may be
adversely affected.
WE MAY BE SUED FOR INFORMATION RETRIEVED FROM THE INTERNET
Inappropriate use of our Internet services
We may be subjected to claims for defamation, negligence, copyright or
trademark infringement, personal injury or other legal theories relating to the
information we publish on our Web site or in our magazine. These types of claims
have been brought, sometimes successfully, against online services as well as
other print publications in the past. We could also be subjected to claims based
upon the content that is accessible from our Web site through links to other Web
sites or through content and materials that may be posted by members in chat
rooms or bulletin boards. We also offer e-mail services, which may subject us to
potential risks, such as liabilities or claims resulting from unsolicited
e-mail, lost or misdirected messages, illegal or fraudulent use of e-mail or
interruptions or delays in e-mail service. Our insurance may not adequately
protect us against these types of claims.
Misappropriation of personal information
Any penetration of our network security or other misappropriation of our
members' personal or credit card information could subject us to liability. We
may be liable for claims based on unauthorized purchases with credit card
information, impersonation or other similar fraud claims. Claims could also be
based on other misuses of personal information, such as for unauthorized
marketing purposes. These claims could result in litigation. In addition, the
Federal Trade Commission and several states have investigated the use by certain
Internet companies of personal information. We could incur expenses if new
regulations regarding the use of personal information are introduced or if our
privacy practices were investigated.
THE INABILITY TO IDENTIFY OUR WEB SITE VISITORS MAY LIMIT THE EFFECTIVENESS OF
OUR SALES AND MARKETING EFFORTS
Web sites typically place certain "cookies" on a user's hard drive without
the user's knowledge or consent. Cookies are small files of information about an
Internet user's movement through the Internet that are stored on the hard drive
of the user's computer. Student Advantage and other Web sites use cookies for a
variety of reasons, including the collection of data derived from the user's
Internet activity. Most currently available Web browsers allow users to remove
cookies at any time or to prevent cookies from being stored on their hard drive.
In addition, some commentators, privacy advocates and governmental bodies have
suggested limiting or eliminating the use of cookies. Any reduction or
limitation in the use of cookies could limit the effectiveness of our sales and
marketing efforts. In addition, the European Union recently adopted a directive
addressing data privacy that may limit the collection and use of certain
information regarding Internet users. This directive may limit our ability to
target advertising or collect and use information in certain European countries.
WE MAY BE UNABLE TO RESPOND TO THE RAPID TECHNOLOGICAL CHANGE IN OUR INDUSTRY
Our market is characterized by rapidly changing technologies, frequent new
product and service introductions and evolving industry standards. The recent
growth of the Internet and intense competition in our industry exacerbates these
market characteristics. To achieve our goals, we need to effectively integrate
the various software programs and tools required to enhance and improve our
product offerings and manage our business. Our future success will depend on our
ability to adapt to rapidly changing technologies by continually improving the
performance features and reliability of our services. We may experience
difficulties that could delay or prevent the successful development,
introduction or marketing of
13
<PAGE> 16
new products and services. In addition, our new enhancements must meet the
requirements of our current and prospective members and must achieve significant
market acceptance. We could also incur substantial costs if we need to modify
our service or infrastructures to adapt to these changes.
OUR INTELLECTUAL PROPERTY RIGHTS MAY BE VIOLATED OR SUBJECT TO LITIGATION AND WE
MAY INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS
We believe that protection of our copyrights, service marks, trademarks,
trade secrets, proprietary technology and similar intellectual property is
critical to our success. We rely on the following mechanisms to protect such
intellectual property:
- trademark and copyright law,
- trade secret protection, and
- confidentiality agreements with employees, customers, independent
contractors, sponsors and others.
Despite our best efforts, we cannot assure you that our intellectual
property rights will not be infringed, violated or legally imitated. Failure to
protect our intellectual property could have a material adverse effect on our
business.
We have been, and expect to be, sued or named as a defendant in the future
for infringement of the trademark and other intellectual property rights of
third parties. Any such proceedings or claims could have a material adverse
effect on our business, financial condition and results of operations.
THE FAILURE OF COMPUTER SYSTEMS AND SOFTWARE PROGRAMS TO BE YEAR 2000 COMPLIANT
COULD NEGATIVELY IMPACT OUR BUSINESS
Many currently installed computer systems and software products only accept
two digits to identify the year in any date. Thus, the year 2000 will appear as
"00", which the system might consider to be the year 1900 rather than the year
2000. This could result in system failures, delays or miscalculations causing
disruptions to our operations.
We are currently conducting an inventory of, and developing testing
procedures for, all software and other systems that we believe might be affected
by Year 2000 issues. Since third parties developed and currently support many of
the systems that we use, a significant part of this effort will be to ensure
that these third-party systems are Year 2000 compliant. We plan to confirm this
compliance through a combination of the representation by these third parties of
their products' Year 2000 compliance, as well as specific testing of these
systems. The failure of systems maintained by third parties to be Year 2000
compliant could cause us to incur significant expense to remedy any problems,
reduce our revenues from such third parties or otherwise seriously damage our
business. A significant Year 2000-related disruption of the network services or
equipment that third-party vendors provide to us could also cause our members or
other users to consider seeking alternate providers or cause an unmanageable
burden on our customer service and technical support.
Our failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, some of our normal business activities or
operations.
WE WILL HAVE BROAD DISCRETION OVER USE OF PROCEEDS FROM THIS OFFERING
A significant portion of the anticipated net proceeds to Student Advantage
from this offering have not been designated for specific uses. Accordingly, we
will have broad discretion with respect to the use of these funds.
14
<PAGE> 17
CERTAIN CURRENT STOCKHOLDERS OWN A LARGE PERCENTAGE OF OUR VOTING STOCK
Following the closing of this offering, our officers, directors and
affiliated entities together will beneficially own approximately 79% of our
outstanding common stock (77% if the underwriters' over-allotment option is
exercised in full). As a result, these stockholders will be able to control all
matters requiring stockholder approval and, thereby, our management and affairs.
Matters that typically require stockholder approval include:
- election of directors,
- merger or consolidation, and
- sale of substantially all of our assets.
This concentration of ownership may delay, deter or prevent acts that would
result in a change of control, which in turn could reduce the market price of
our common stock.
THE STOCK PRICE OF TECHNOLOGY COMPANIES, PARTICULARLY INTERNET-RELATED
COMPANIES, COULD BE EXTREMELY VOLATILE AND MAY RESULT IN LITIGATION AGAINST US
We cannot predict the extent to which investor interest in Student
Advantage will lead to the development of a trading market or how liquid that
market might become. The initial public offering price for the shares will be
determined by negotiations between us and the underwriters' representatives and
may not be indicative of prices that will prevail in the trading market. The
stock market has experienced significant price and volume fluctuations, and the
market prices of technology companies, particularly Internet-related companies,
have been highly volatile. Investors may not be able to resell their shares at
or above the initial public offering price.
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted. Litigation could result in substantial costs and a diversion of
management's attention and resources.
SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD ADVERSELY AFFECT OUR
STOCK PRICE
After this offering, there will be outstanding 30,497,061 shares of our
common stock (32,987,586 shares if the merger with University Netcasting is
completed). There will be an additional 900,000 shares outstanding if the
underwriters' over-allotment option is exercised in full. Of these shares, the
shares sold in this offering will be freely tradeable except for any shares
purchased by our "affiliates" as defined in Rule 144 under the Securities Act.
The remaining 24,497,061 shares of common stock held by existing stockholders
(26,987,586 shares if the merger with University Netcasting is completed) will
be "restricted securities" and all of such shares will become eligible for
public sale when registered or when they qualify for an exemption from
registration under the Securities Act. Upon expiration of lock-up agreements
with the underwriters, 180 days after the date of this prospectus, 24,408,561
shares of common stock will be eligible for resale in accordance with the
provisions of the Securities Act. We have agreed to register for public sale up
to 1,245,263 shares of common stock that will be issued to the University
Netcasting stockholders. We have agreed to use our reasonable best efforts to
register such shares on the earlier of: (1) the 180th day after the date of this
prospectus, and (2) the date any of Raymond V. Sozzi, Jr., Greylock IX Limited
Partnership, Marc Turtletaub or Princeton Review Publishing, L.L.C. sells
greater than 1% of the then outstanding shares of common stock (other than in an
underwritten secondary offering of common stock). Upon the effectiveness of any
such registration, all shares covered by the registration statement would be
freely transferable. In addition, certain stockholders holding an aggregate of
16,454,895 shares of common stock can require us to register their shares for
public sale.
If our stockholders sell substantial amounts of our common stock, including
shares issuable upon the exercise of outstanding options, in the public market
following this offering, the market price of our common stock could fall. These
sales also might make it more difficult for us to sell equity securities in the
future at a time and price that we deem appropriate.
15
<PAGE> 18
OUR CHARTER DOCUMENTS MAY INHIBIT A TAKEOVER
Provisions in our charter and bylaws may have the effect of delaying or
preventing a change of control or changes in our management that a stockholder
might consider favorable. These provisions include, among others:
- the division of the Board of Directors into three separate classes,
- the right of the Board to elect a director to fill a vacancy created by
the expansion of the Board, and
- the requirement that a special meeting of stockholders be called by the
Chairman of the Board, President or Board of Directors.
FORWARD-LOOKING STATEMENTS
Some of the statements under "Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and elsewhere in this prospectus constitute forward-looking
statements. These statements relate to future events or our future performance,
and are identified by terminology such as "may," "will," "should," "expects,"
"scheduled," "plans," "intends," "anticipates," "believes," "estimates,"
"potential" or "continue" or the negative of such terms or other comparable
terminology. These statements are only predictions. Actual events or results may
differ materially. In evaluating these statements, you should specifically
consider various factors, including the risks outlined under "Risk Factors."
These factors may cause our actual results to differ materially from any
forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements.
16
<PAGE> 19
USE OF PROCEEDS
The net proceeds we will receive from the sale of 6,000,000 shares of
common stock offered by us are estimated to be $60.3 million ($69.5 million if
the underwriters' over-allotment option is exercised in full) after deducting
the estimated underwriting discounts and commissions and offering expenses
payable by us and assuming an initial public offering price of $11.00.
We expect to use the net proceeds from this offering for working capital
and general corporate purposes, including capital expenditures, growth and
expansion of our business, product development and acquisitions. We currently
expect to use approximately $2.5 million to repay outstanding indebtedness under
our bank line of credit, which bears interest at 7.75% and is due on June 30,
2000, shortly after completion of this offering. As of April 30, 1999, the
outstanding balance of the line of credit was approximately $2.5 million. We
have not identified other specific uses for such proceeds and management will
have discretion over their use and investment. Pending such uses, we intend to
invest the net proceeds from this offering in investment grade, interest-bearing
securities or guaranteed obligations of the U.S. Government.
We intend to seek acquisitions of businesses, products and technologies
that are complementary to us, and a portion of the net proceeds may be used for
such acquisitions. While we discuss potential acquisitions from time to time, we
currently have no commitments or agreements, other than the agreement and plan
of merger for the University Netcasting merger, for any such acquisitions and
there can be no assurances that any acquisitions will be made.
DIVIDEND POLICY
We currently intend to retain earnings, if any, to fund the development and
growth of our business and do not anticipate paying cash dividends in the
foreseeable future. Payment of future dividends, if any, will be at the
discretion of our Board of Directors after taking into account various factors,
including our financial condition, operating results, current and anticipated
cash needs and plans for expansion. Our credit facility contains restrictive
covenants that limit our ability to pay cash dividends or make stock repurchases
without the prior written consent of the lender.
17
<PAGE> 20
CAPITALIZATION
The following table sets forth the capitalization of Student Advantage as
of March 31, 1999:
- on an actual basis,
- on a pro forma basis giving effect to the conversion of all outstanding
shares of convertible preferred stock into common stock upon completion
of the offering, and
- on a pro forma as adjusted basis to reflect the sale by Student Advantage
of 6,000,000 shares of common stock offered hereby at the initial public
offering price of $11.00 per share, after deducting estimated
underwriting discounts and commissions and offering expenses.
<TABLE>
<CAPTION>
MARCH 31, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(UNAUDITED, IN THOUSANDS)
<S> <C> <C> <C>
Borrowings under line of credit............................. $ 1,000 $ 1,000 $ --
-------- -------- --------
Redeemable convertible preferred stock, $1.00 par value:
4,000,000 shares authorized: 2,747,036 shares issued
and outstanding actual; no shares issued and
outstanding pro forma and pro forma as adjusted...... 10,196 -- --
-------- -------- --------
Stockholders' equity (deficit):
Common stock, $0.01 par value; 15,000,000 shares
authorized actual and pro forma and 150,000,000
shares authorized pro forma as adjusted; and
16,253,892 shares issued and outstanding actual;
24,495,000 shares issued and outstanding pro forma;
30,495,000 shares issued and outstanding pro forma as
adjusted............................................. 184 273 333
Additional paid-in capital............................. 4,959 15,066 75,286
Accumulated deficit.................................... (13,832) (13,832) (13,832)
Treasury stock (at cost)............................... (630) (630) (630)
Deferred compensation.................................. (3,318) (3,318) (3,318)
-------- -------- --------
Total stockholders' equity (deficit)........................ (12,637) (2,441) 57,839
-------- -------- --------
Total capitalization........................................ $ (1,441) $ (1,441) $ 57,839
======== ======== ========
</TABLE>
18
<PAGE> 21
DILUTION
The pro forma net tangible book value of Student Advantage at March 31,
1999 was $(2,882,000), or $(0.12) per share of common stock. Pro forma net
tangible book value per share represents the amount of total tangible assets
less total liabilities, divided by the number of pro forma shares of common
stock outstanding after giving effect to the conversion of all shares of
preferred stock. After giving effect to the sale of 6,000,000 shares of common
stock offered hereby by Student Advantage at the assumed initial offering price
of $11.00 per share and after deducting estimated underwriting discounts and
commissions and offering expenses, the pro forma net tangible book value as of
March 31, 1999 would have been $57,398,000 or $1.88 per share. This represents
an immediate increase in pro forma net tangible book value of $2.00 per share to
existing stockholders and an immediate dilution of $9.12 per share to new
investors purchasing shares of common stock in the offering. The following table
illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........ $11.00
Pro forma net tangible book value per share at March
31, 1999............................................ $(0.12)
Increase attributable to the offering................ 2.00
------
Pro forma net tangible book value per share after the
offering.............................................. 1.88
------
Net tangible book value dilution per share to new
investors in the offering............................. $ 9.12
======
</TABLE>
The following table summarizes as of March 31, 1999 on the pro forma basis
described above, the total number of shares and consideration paid to Student
Advantage and the average price per share paid by the existing stockholders and
by new investors purchasing shares of common stock in the offering at the
initial public offering price of $11.00 per share (before deducting the
estimated underwriting discounts and commissions and offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................... 24,495,000 80.3% $15,339,999 18.9% $ 0.63
New investors............................ 6,000,000 19.7 66,000,000 81.1 $11.00
---------- ----- ----------- -----
Totals......................... 30,495,000 100.0% $81,339,999 100.0%
========== ===== =========== =====
</TABLE>
None of the foregoing tables or calculations assumes that any options
outstanding as of March 31, 1999 will be exercised. If all outstanding options
were exercised on the date of the closing of this offering, investors purchasing
shares in the offering would suffer total dilution of $9.25 per share.
19
<PAGE> 22
SELECTED FINANCIAL DATA
The following selected financial data are derived from the financial
statements of Student Advantage, Inc. The selected financial data as of December
31, 1997 and 1998, and for each of the three years in the period ended December
31, 1998, are derived from financial statements which have been audited by
PricewaterhouseCoopers LLP, independent accountants. These financial statements
are included elsewhere in this prospectus. The selected financial data as of
December 31, 1996 are derived from financial statements which have been audited
by
PricewaterhouseCoopers LLP, and the balance sheet data for these financial
statements are not included elsewhere in this prospectus. The selected financial
data as of December 31, 1994 and 1995 and for each of the two years in the
period ended December 31, 1995 are derived from unaudited financial statements,
which are not included in this prospectus. The selected financial data as of
March 31, 1999, and for the three months ended March 31, 1998 and 1999 are
derived from unaudited financial statements included elsewhere in this
prospectus. In the opinion of management, the unaudited financial statements
have been prepared on a basis consistent with the audited financial statements
which appear elsewhere in this prospectus and include all adjustments, which are
only normal recurring adjustments, necessary for a fair presentation of the
financial position and results of operations for the unaudited periods. The
historical results presented are not necessarily indicative of future results.
The data 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 the related Notes included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------------------- -------------------------
1994 1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenue
Subscription.................. $ 131 $ 420 $ 1,093 $ 2,971 $ 7,174 $ 1,738 $ 1,668
Other......................... 24 28 637 821 10,269 1,658 2,557
------ ------ ------- ------- ------- ------- -------
Total revenue............... 155 448 1,730 3,792 17,443 3,396 4,225
------ ------ ------- ------- ------- ------- -------
Costs and expenses
Cost of subscription
revenue..................... 126 160 543 2,628 2,442 302 320
Cost of other revenue......... -- -- 506 309 7,331 1,515 2,503
Product development........... 19 62 507 1,469 2,588 485 573
Sales and marketing........... 57 110 356 843 4,717 746 1,366
General and administrative.... 27 79 437 1,485 3,647 508 1,193
Depreciation and
amortization................ 1 1 37 239 1,027 160 268
Stock-based compensation...... -- -- -- -- 808 -- 273
------ ------ ------- ------- ------- ------- -------
Total costs and expenses.... 230 412 2,386 6,973 22,560 3,716 6,496
------ ------ ------- ------- ------- ------- -------
Income (loss) from operations... (75) 36 (656) (3,181) (5,117) (320) (2,271)
Interest income (expense),
net........................... -- -- (1) 29 2 15 62
------ ------ ------- ------- ------- ------- -------
Net income (loss)............... $ (75) $ 36 $ (657) $(3,152) $(5,115) $ (305) $(2,209)
====== ====== ======= ======= ======= ======= =======
Basic and diluted net income
(loss) per share.............. $(0.01) $ 0.00 $ (0.05) $ (0.21) $ (0.32) $ (0.02) $ (0.14)
====== ====== ======= ======= ======= ======= =======
Shares used in computing basic
and diluted net income (loss)
per share..................... 14,184 14,184 14,184 15,295 15,957 15,424 16,143
====== ====== ======= ======= ======= ======= =======
Unaudited pro forma basic and
diluted net loss per share.... $ (0.24) $ (0.09)
======= =======
Shares used in computing
unaudited pro forma basic and
diluted net loss per share.... 21,128 24,384
======= =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------- MARCH 31,
1995 1996 1997 1998 1999
---- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents................................... $ 8 $ 26 $ 1,904 $ 5,048 $ 3,491
Working capital............................................. (389) (667) (4,836) (2,247) (4,143)
Total assets................................................ 97 256 2,745 9,934 7,779
Deferred revenue............................................ 183 276 5,668 6,666 5,455
Redeemable convertible preferred stock...................... -- 54 111 10,196 10,196
Stockholders' deficit....................................... (302) (702) (4,335) (10,741) (12,637)
</TABLE>
20
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with Student Advantage's
financial statements and related notes and the other financial information
appearing elsewhere in this prospectus. In addition to historical information,
the following discussion and other parts of this prospectus contain
forward-looking information that involves risks and uncertainties. Student
Advantage's actual results could differ materially from those anticipated by
such forward-looking information due to factors discussed under "Risk Factors"
and elsewhere in this prospectus.
OVERVIEW
Student Advantage is dedicated to serving the needs of college students
through its leading membership program and Web site. Our revenue is generated
from subscription revenue and other revenue.
Subscription revenue is derived from membership sales. Memberships are sold
in three different ways. Most are sold to AT&T and distributed in conjunction
with an AT&T calling card. The membership cards associated with these membership
sales are co-branded and serve as both the Student Advantage membership
identification card and an AT&T calling card. In certain cases, renewal of a
co-branded membership card is subject to a minimum level of usage of AT&T
services during the prior twelve months. We earn a fee from AT&T for each of
these memberships, with a current minimum commitment by AT&T of 1.25 million
memberships per academic year. During 1997 and 1998 and the first quarter of
1999, AT&T accounted for approximately 77%, 95% and 94% of subscription revenue.
Memberships are also sold by Student Advantage to colleges, universities and
university organizations for distribution free of charge to students. In the
1998-1999 academic year, five colleges, universities and university
organizations purchased memberships for distribution free of charge to students.
In addition, Student Advantage sells memberships directly to students for a
membership fee that is currently $20 per year. Subscription revenue is
recognized ratably from the date of subscription to the end of the annual
membership period, which ends on August 31 of each year.
Other revenue includes advertising, marketing service and commerce revenue.
Advertising revenue consists primarily of fees for advertisements placed in SAM,
the Student Advantage magazine, sponsorship fees paid by vendors for inclusion
in the member guide, and fees for banner advertisements and sponsorships on our
Web site. Marketing services revenue is derived primarily from providing
tailored marketing services to businesses seeking to market their products and
services to college students. These services include organizing and executing
marketing tours that travel to college campuses, staffing tables in college
locations to solicit potential student customers on behalf of businesses and
providing media planning and placement. Commerce revenue includes primarily
transaction-based fees earned for reselling products and services on behalf of
other businesses. To date, commerce revenue has included primarily fees that we
receive from AT&T for obtaining completed applications from students for AT&T
calling cards. In connection with each application accepted by AT&T, we also
earn membership fees that are included in subscription revenue.
We began operations in 1992 as a sole proprietorship, converted to a
general partnership in 1995, converted to a limited liability company in 1996
and became a C Corporation in 1998. From inception through December 1997, our
revenue was derived primarily from annual membership fees. Since that time, we
have expanded our product and service offerings through internal growth as well
as acquisitions.
In December 1997, we completed our acquisition of The Main Quad, Inc. which
owned and operated Web sites focused on providing content for students. These
Web sites serve as the basis for Student Advantage's current online activities.
We acquired substantially all the assets of The Main Quad for $272,000 and the
issuance of 1,275,048 shares of common stock. In January 1998, we completed our
acquisition of Collegiate Advantage, Inc. a provider of marketing and
promotional services to businesses targeting college students. The acquisition
of Collegiate Advantage marked our entrance into the marketing services
business. We acquired substantially all the assets of Collegiate Advantage for
$651,000 and the assumption of $275,000 in liabilities. We are also required to
make payments totalling $ to Collegiate Advantage in installments ending
on . These acquisitions were accounted for under
21
<PAGE> 24
the purchase method of accounting, and the results of operations of each of the
acquired companies have been included in our financial statements since their
respective dates of acquisition. Goodwill and other intangible assets in the
aggregate amount of $1.4 million were recorded in connection with these and
other acquisitions and are being amortized over the economic lives of the
related assets, ranging from two to five years. As of March 31, 1999, a balance
of approximately $441,000 remained to be amortized. The amortization of goodwill
and other intangibles will have a negative impact on our future earnings.
On April 1, 1999, Student Advantage completed its acquisitions of The
Travel Holding Group, LLC and The Campus Agency, LLC. The Campus Agency provides
media planning and strategy consulting services to the U.S. student travel
market. The Travel Holding Group is a reseller of Eurail passes. We acquired
substantially all of the assets of The Campus Agency and The Travel Holding
Group for a promissory note in the amount of $330,000. These acquisitions have
been accounted for under the purchase method of accounting, and the results of
operations of each company will be included in our results beginning on the
acquisition date. Goodwill and other intangible assets in the aggregate amount
of $305,000 were recorded in connection with these acquisitions and will be
amortized over three years. The amortization of goodwill and other intangibles
will have a negative impact on our future earnings. Because the historical
results of Campus Agency and Travel Holding Group are not material, pro forma
financial information has not been presented.
In the future we may pursue additional acquisitions to obtain complementary
products, services and technologies. There are no assurances that the
acquisitions we already have completed, or any acquisitions that we may complete
in the future, will produce the anticipated revenue, earnings or business
synergies.
We recorded deferred compensation of $4.2 million in the year ended
December 31, 1998 and $228,000 in the first quarter of 1999, representing the
difference between the exercise price of stock options granted and the fair
market value of the underlying common stock at the date of grant. The difference
is recorded as a reduction of stockholders' equity and is being amortized over
the vesting period of the applicable options, typically four years. Of the total
deferred compensation amount, $808,000 had been amortized as of December 31,
1998 and an additional $273,000 had been amortized as of March 31, 1999. The
amortization of deferred compensation is recorded as an operating expense. We
currently expect to amortize the following remaining amounts of deferred
compensation as of March 31, 1999 in the periods indicated:
<TABLE>
<S> <C>
April 1, 1999 -- December 31, 1999..................... $ 888,000
January 1, 2000 -- December 31, 2000................... 1,073,000
January 1, 2001 -- December 31, 2001................... 1,015,000
January 1, 2002 -- December 31, 2002................... 388,000
</TABLE>
Student Advantage has experienced substantial net losses since 1996 and, as
of March 31, 1999, had an accumulated deficit of $13.8 million. Student
Advantage expects to increase its expenditures in all areas in order to execute
its business plan. As a result, Student Advantage believes that it will continue
to incur operating losses and negative cash flows from operations for the
foreseeable future and that the rate at which such losses will be incurred may
increase from current levels.
Student Advantage does not believe that it has any material market risk
exposure with respect to derivative or other financial instruments.
RECENT EVENTS
On May 7, 1999, we entered into an agreement to acquire University
Netcasting, Inc. in a transaction that will be accounted for as a pooling of
interests. University Netcasting is a leading operator of official athletic Web
sites for colleges, universities and college sports associations. Through its
FANSonly Network, FANSonly.com, University Netcasting provides sports fans with
comprehensive online
information and analysis on college sports. In connection with the acquisition,
we will issue 2,490,525 shares of common stock to the stockholders of University
Netcasting. The agreement provides that 249,053 of the shares of common stock
will be held in escrow to secure the indemnification obligations of the
22
<PAGE> 25
University Netcasting stockholders for a period ending on the earlier of the
date one year after the closing of the merger and the date of issuance of the
first independent audit report of Student Advantage after the closing of the
merger. In addition, all outstanding options to purchase University Netcasting
common stock will be converted into options to purchase an aggregate of 20,975
shares of Student Advantage common stock. We also agreed to pay expenses, in an
amount not to exceed $825,000, incurred by University Netcasting in connection
with the transaction. We have agreed to use our reasonable best efforts to
register for public sale up to 1,245,263 shares of common stock that will be
issued to the stockholders of University Netcasting such shares on the earlier
of: (1) the 180th day after the date of this prospectus, and (2) the date any of
Raymond V. Sozzi, Jr., Greylock IX Limited Partnership, Marc Turtletaub or
Princeton Review Publishing, L.L.C. sells greater than 1% of the then
outstanding shares of common stock (other than in an underwritten secondary
offering of common stock).
The consummation of the acquisition is subject to various conditions,
including approval by the stockholders of University Netcasting, the ability of
the parties to treat the transaction as a pooling of interests for accounting
purposes and other customary conditions.
RESULTS OF OPERATIONS
The following table sets forth results of operations data for Student
Advantage as a percentage of total revenue for the periods presented:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- --------------------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue
Subscription........................... 63.2% 78.3% 41.1% 51.2% 39.5%
Other.................................. 36.8 21.7 58.9 48.8 60.5
----- ----- ----- ----- -----
Total revenue....................... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Costs and expenses
Cost of subscription revenue........... 31.4 69.3 14.0 8.9 7.6
Cost of other revenue.................. 29.2 8.2 42.0 44.6 59.2
Product development.................... 29.3 38.7 14.8 14.2 13.6
Sales and marketing.................... 20.6 22.2 27.1 22.0 32.3
General and administrative............. 25.3 39.2 20.9 15.0 28.2
Depreciation and amortization.......... 2.1 6.3 5.9 4.7 6.4
Stock-based compensation............... -- -- 4.6 -- 6.5
----- ----- ----- ----- -----
Total costs and expenses............ 137.9 183.9 129.3 109.4 153.8
----- ----- ----- ----- -----
Loss from operations..................... (37.9) (83.9) (29.3) (9.4) (53.8)
Interest income (expense), net........... (0.1) 0.8 0.0 0.4 1.5
----- ----- ----- ----- -----
Net loss................................. (38.0)% (83.1)% (29.3)% (9.0)% (52.3)%
===== ===== ===== ===== =====
</TABLE>
COMPARISON OF QUARTER ENDED MARCH 31, 1999 WITH QUARTER ENDED MARCH 31, 1998
Revenue. Total revenue increased from $3.4 million in the first quarter of
1998 to $4.2 million in the first quarter of 1999. This increase was due
primarily to an increase in other revenue from $1.7 million in the first quarter
of 1998 to $2.6 million in the first quarter of 1999, mostly due to increases in
commerce and advertising revenue. Advertising revenue in the first quarter of
1999 included revenue from advertising in two issues of the Student Advantage
magazine, which had not yet been published in the first quarter of 1998, and
commerce revenue in the first quarter of 1999 included revenue from the AT&T
marketing
23
<PAGE> 26
agreement which was not in effect in the first quarter of 1998. The increase in
commerce and advertising revenue was offset by a decrease in marketing services
revenue during the first quarter of 1999.
AT&T accounted for approximately 49% and 69% of total revenue for the first
quarter of 1998 and the first quarter of 1999. Additionally, AT&T accounted for
approximately 96% and 94% of subscription revenue in the first quarter of 1998
and 1999, and 53% of other revenue for the first quarter of 1999. No other
single customer accounted for 10% or more of total revenues for the first
quarter of 1998 or the first quarter of 1999.
Cost of Subscription Revenue. Cost of subscription revenue consists of the
costs associated with the fulfillment of membership subscriptions and customer
service. Cost of subscription revenue increased from $302,000 in the first
quarter of 1998 to $320,000 in the first quarter of 1999, due primarily to an
increase in costs related to the fulfillment of membership subscriptions.
Cost of Other Revenue. Cost of other revenue consists of the cost of
advertising, marketing services and commerce. Advertising costs include
production and mailing costs for the magazine, as well as costs incurred for the
Student Advantage Web site. Marketing services costs include the direct and
indirect costs associated with planning and implementing events and promotions,
media placement and other marketing services. Commerce costs include
personnel-related costs associated primarily with acquiring calling card
customers. Cost of other revenue increased from $1.5 million in the first
quarter of 1998 to $2.5 million in the first quarter of 1999. This increase was
due primarily to the launch of the Student Advantage magazine, of which two
issues were distributed in the first quarter of 1999. Additionally, costs
related to the AT&T marketing agreement, which were first incurred in the third
quarter of 1998, under which Student Advantage visits college campuses to
acquire calling card customers for AT&T, contributed in part to the increase.
Product Development. Product development expenses consist primarily of
personnel-related costs associated with the development and enhancement of the
membership products, which include the Student Advantage membership card, the
Student Advantage magazine and the studentadvantage.com Web site. Product
development expenses increased from $485,000 in the first quarter of 1998 to
$573,000 in the first quarter of 1999. The increase was primarily due to
increased investment in enhancing and improving the functionality of our Web
site.
Sales and Marketing. Sales and marketing expenses consist primarily of
personnel and other costs related to our sales and marketing programs. These
expenses increased from $746,000 in the first quarter of 1998 to $1.4 million in
the first quarter of 1999. The increase in sales and marketing expenses was due,
in large part, to increased expenditures related to building brand awareness,
expanding and servicing the customer base of sponsors, selling more online
advertising, and supporting the marketing services business.
General and Administrative. General and administrative expenses consist
primarily of costs related to general corporate functions, including executive
management, finance, human resources, facilities, and legal. General and
administrative expenses increased from $508,000 in the first quarter of 1998 to
$1.2 million in the first quarter of 1999. The increase in general and
administrative expenses was primarily due to greater facilities and
personnel-related costs.
Depreciation and Amortization. Depreciation and amortization expenses
increased from $160,000 in the first quarter of 1998 to $268,000 in the first
quarter of 1999. Amortization expense was virtually unchanged quarter over
quarter. Depreciation expense increased primarily as a result of fixed asset
purchases in the later part of 1998.
Stock-Based Compensation. As described above, we recorded additional
deferred compensation of $228,000 in the first quarter of 1999 and amortized
$273,000 of total deferred compensation as an expense in the first quarter of
1999. The remaining total deferred compensation is being amortized over the
vesting period of the individual options.
Loss from Operations. Loss from operations increased from $305,000 in the
first quarter of 1998 to $2.2 million in the first quarter of 1999. The increase
in loss from operations is due to an increase in total
24
<PAGE> 27
costs and expenses from $3.7 million in the first quarter of 1998 to $6.5
million in the first quarter of 1999, which was offset in part by an increase in
total revenue from $3.4 million in the first quarter of 1998 to $4.2 million in
the first quarter of 1999.
Interest Income (Expense), Net. Interest income, net includes interest
income from cash balances and interest expense related to Student Advantage's
financing obligations. Interest income, net increased from $15,000 in the first
quarter of 1998 to $62,000 in the first quarter of 1999. The increase is a
result of interest income earned on a higher average cash and cash equivalents
balance during the first quarter of 1999 compared to such balance during the
first quarter of 1998. Borrowings under a line of credit were $1.0 million at
March 31, 1999.
COMPARISON OF YEAR ENDED DECEMBER 31, 1998 WITH YEAR ENDED DECEMBER 31, 1997
Revenue. Total revenue increased from $3.8 million in 1997 to $17.4 million
in 1998. The increase in revenue was due in part to the significant increase in
subscription revenue from $3.0 million in 1997 to $7.2 million in 1998, mostly
due to memberships purchased by AT&T. The increase in other revenue was
attributable primarily to both: (1) the addition of Student Advantage's
marketing services business, which was acquired from Collegiate Advantage on
January 1, 1998, and (2) an increase in commerce revenue due primarily to fees
for obtaining calling card applications for AT&T, which began in the third
quarter of 1998. The increase in other revenue was attributable to a lesser
extent to increased advertising revenues related to the Student Advantage
magazine and the Student Advantage Web site. The first two issues of the Student
Advantage magazine shipped in the fourth quarter of 1998.
AT&T accounted for approximately 62% and 68% of total revenue for 1997 and
1998. Additionally, AT&T accounted for approximately 77% and 95% of subscription
revenue for 1997 and 1998, and 9% and 49% of other revenue for 1997 and 1998. No
other single customer accounted for 10% or more of total revenues for 1997 or
1998.
Cost of Subscription Revenue. Cost of subscription revenue decreased from
$2.6 million in 1997 to $2.4 million in 1998, due primarily to decreased costs
associated with fulfilling membership subscriptions.
Cost of subscription revenue as a percentage of subscription revenue
decreased from 88.5% in 1997 to 34.1% in 1998. This decrease was due primarily
to the timing of the recognition of revenue and expenses associated with the
commencement of activities under the AT&T membership agreement in 1997.
Membership fulfillment costs, which are recorded when the membership is
fulfilled, increased significantly as the volume of memberships increased in the
Fall of 1997. However, because the revenue associated with these memberships is
recognized over the remaining term of the memberships, much of the revenue
associated with the memberships fulfilled in the Fall of 1997 was not recognized
until 1998.
Cost of Other Revenue. Cost of other revenue increased from $309,000 in
1997 to $7.3 million in 1998. The increase in cost of other revenue was due
primarily to the addition of Collegiate Advantage and its marketing services
business in 1998 and the commencement of activities under the AT&T marketing
agreement, entered into in the third quarter of 1998, under which Student
Advantage visits college campuses to acquire calling card customers for AT&T.
Costs associated with the production of SAM, which shipped for the first time in
the fourth quarter of 1998, also contributed to the increase.
Cost of other revenue as a percentage of other revenue increased from 37.6%
in 1997 to 71.4% in 1998. This increase was due primarily to a larger portion of
other revenue consisting of lower margin activities associated with the
marketing services business acquired from Collegiate Advantage and the services
delivered under the AT&T marketing agreement. The increase in cost of other
revenues as a percentage of total revenue is also due to costs associated with
the production of SAM, which exceeded revenue from the production of SAM.
Product Development. Product development expenses increased from $1.5
million in 1997 to $2.6 million in 1998. The increase was primarily due to
increased investment in enhancing and improving the functionality of our Web
site and other related costs.
25
<PAGE> 28
Sales and Marketing. Sales and marketing expenses increased from $843,000
in 1997 to $4.7 million in 1998. The increase in sales and marketing expenses
was due, in large part, to increased expenditures related to building brand
awareness, expanding and servicing the customer base of sponsors, selling more
online advertising, and supporting the marketing services business. In 1998, we
incurred additional sales and marketing expenses as a result of the acquisition
of the Collegiate Advantage business.
General and Administrative. General and administrative expenses increased
from $1.5 million in 1997 to $3.6 million in 1998. The increase in general and
administrative expenses was primarily due to facilities and personnel-related
costs.
Depreciation and Amortization. Depreciation and amortization expenses
increased from $239,000 in 1997 to $1.0 million in 1998. Amortization expense
increased as a result of the amortization over five years of goodwill and other
intangible assets related to the acquisitions of Collegiate Advantage and The
Main Quad. Depreciation expense increased primarily as a result of fixed asset
purchases in 1998.
Stock-Based Compensation. We recorded deferred compensation of $4.2
million in the year ended December 31, 1998. Of this amount, $808,000 was
recorded as an expense in 1998. The remainder is being amortized over the
remaining vesting period of the individual options.
Loss from Operations. Loss from operations increased from $3.2 million in
1997 to $5.1 million in 1998. The increase in loss from operations is due to an
increase in total costs and expenses from $7.0 million in 1997 to $22.6 million
in 1998, which was offset in part by an increase in total revenue from $3.8
million in 1997 to $17.4 million in 1998.
Interest Income (Expense), Net. Interest income, net includes interest
income from cash balances and interest expense related to Student Advantage's
financing obligations. Interest income, net decreased from $29,000 in 1997 to
$2,000 in 1998. The decrease was a result of interest due on borrowings under
our line of credit which was offset later in the year by interest income earned
on cash balances as a result of the issuance of convertible preferred stock in
October 1998, as well as interest from a promissory note to a stockholder.
Additionally, Student Advantage incurred interest expense related to loans from
the Chief Executive Officer, which were repaid in full in 1998.
Income Taxes. On October 20, 1998, Student Advantage converted from a
limited liability company to a C Corporation. Operating losses originating while
Student Advantage was a limited liability company do not carry over to the C
Corporation, although certain other timing items as a result of differences
resulting from accrual to cash basis adjustments will be available to Student
Advantage. For the period October 21, 1998 to December 31, 1998 Student
Advantage generated a net operating loss carryforward of $2.0 million. Student
Advantage's net operating loss carryforwards expire beginning in 2018. Certain
future changes in the share ownership of Student Advantage, as defined in the
Tax Reform Act of 1996, may restrict the utilization of carryforwards. A
valuation allowance has been recorded for the entire deferred tax asset as a
result of uncertainties regarding the utilization of the asset due to Student
Advantage's lack of earnings history.
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 WITH YEAR ENDED DECEMBER 31, 1996
Revenue. Total revenue increased from $1.7 million in 1996 to $3.8 million
in 1997. The increase in revenue was due primarily to an increase in
subscription revenue from $1.1 million in 1996 to $3.0 million in 1997. The
increase in subscriptions was due to the commencement of Student Advantage's
membership agreement with AT&T, under which AT&T purchased membership
subscriptions for distribution to students. Other revenue increased from
$637,000 in 1996 to $821,000 in 1997, due primarily to increased advertising
revenue and, to a lesser extent, an increase in commerce revenue.
AT&T accounted for approximately 62% of total revenues in 1997. No other
single customer accounted for 10% or more of revenues in 1996 or 1997.
Cost of Subscription Revenue. Cost of subscription revenue increased from
$543,000 in 1996 to $2.6 million in 1997. This increase was due primarily to the
increased costs associated with fulfilling new
26
<PAGE> 29
membership subscriptions, as well as costs related to the addition of personnel
to support the growth in revenues.
Cost of subscription revenue as a percentage of subscription revenue
increased from 49.6% in 1996 to 88.5% in 1997. This increase was due primarily
to the timing of the recognition of revenue and expenses associated with the
commencement of activities under the AT&T membership agreement in 1997.
Cost of Other Revenue. Cost of other revenue decreased from $506,000 in
1996 to $309,000 in 1997, due primarily to lower advertising costs.
Cost of other revenue as a percentage of other revenue decreased slightly
from 79.4% in 1998 to 71.4% in 1997 due primarily to the costs associated with
the increased commerce revenue.
Product Development. Product development expenses increased from $507,000
in 1996 to $1.5 million in 1997. The increase was primarily due to the continued
investment in the membership subscription business. During 1997, Student
Advantage continued to develop new products to offer to support the membership
subscription business as well as enhance and grow the base of corporate
sponsors.
Sales and Marketing. Sales and marketing expenses increased from $356,000
in 1996 to $843,000 in 1997. The increase in sales and marketing was due to
increased expenditures to support the membership subscription business, which
grew significantly in 1997 with the addition of the AT&T membership agreement.
General and Administrative. General and administrative expenses increased
from $437,000 in 1996 to $1.5 million in 1997. The increase in general and
administrative expenses was primarily due to the increase in facilities costs
and an increase in the number of personnel hired during the year to support the
growth in Student Advantage's business.
Depreciation and Amortization. Depreciation and amortization expenses
increased from $37,000 in 1996 to $239,000 in 1997, primarily due to the
amortization of goodwill and other intangible assets resulting from
acquisitions.
Loss from Operations. Loss from operations increased from $657,000 in 1996
to $3.2 million in 1997. The increase in loss from operations is due to an
increase in total costs and expenses from $2.4 million in 1996 to $7.0 million
in 1997, which was offset in part by an increase in total revenue from $1.7
million in 1996 to $3.8 million in 1997.
Interest Income (Expense), Net. Interest income (expense), net includes
interest income from Student Advantage's cash balances and interest expense
related to Student Advantage's financing obligations. Interest income increased
from $1,000 of net interest expense in 1996 to $29,000 of net interest income in
1997. The increase was primarily due to a higher average cash and cash
equivalents balance during 1997.
27
<PAGE> 30
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth unaudited quarterly statement of operations
data for each of the four quarters in the year ended December 31, 1998 and the
quarter ended March 31, 1999. In the opinion of management, the unaudited
financial statements have been prepared on a basis consistent with the audited
financial statements which appear elsewhere in this prospectus and include all
adjustments, which are only normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations for the
unaudited periods. The quarterly data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and the notes thereto appearing
elsewhere in this prospectus. The results of operations for any quarter are not
necessarily indicative of the results of operations for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1998 1998 1998 1998 1999
--------------- ------------- ------------- ------------ --------------
(UNAUDITED, IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenue
Subscription......................... $ 1,738 $ 2,274 $ 1,856 $ 1,306 $ 1,668
Other................................ 1,658 1,124 3,826 3,661 2,557
--------- --------- --------- ---------- ----------
Total revenue................ 3,396 3,398 5,682 4,967 4,225
--------- --------- --------- ---------- ----------
Costs and expenses
Cost of subscription revenue......... 302 413 951 776 320
Cost of other revenue................ 1,515 854 1,572 3,390 2,503
Product development.................. 485 812 596 695 573
Sales and marketing.................. 746 1,069 1,281 1,621 1,366
General and administrative........... 508 776 1,067 1,296 1,193
Depreciation and amortization........ 160 377 233 257 268
Stock-based compensation............. -- -- -- 808 273
--------- --------- --------- ---------- ----------
Total costs and expenses..... 3,716 4,301 5,700 8,843 6,496
--------- --------- --------- ---------- ----------
Loss from operations................... (320) (903) (18) (3,876) (2,271)
--------- --------- --------- ---------- ----------
Interest income (expense), net......... 15 (25) (33) 45 62
--------- --------- --------- ---------- ----------
Net loss............................... $ (305) $ (928) $ (51) $ (3,831) $ (2,209)
========= ========= ========= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUE
--------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue
Subscription................. 51.2% 66.9% 32.7% 26.3% 39.5%
Other........................ 48.8 33.1 67.3 73.7 60.5
------ ------ ------ ------- -------
Total revenue........ 100.0 100.0 100.0 100.0 100.0
------ ------ ------ ------- -------
Costs and expenses
Cost of subscription
revenue................... 8.9 12.2 16.7 15.6 7.6
Cost of other revenue........ 44.6 25.1 27.7 68.2 59.3
Product development.......... 14.2 23.9 10.5 14.0 13.6
Sales and marketing.......... 22.0 31.5 22.5 32.6 32.3
General and administrative... 15.0 22.8 18.8 26.1 28.2
Depreciation and
amortization.............. 4.7 11.1 4.1 5.2 6.4
Stock-based compensation..... -- -- -- 16.3 6.5
------ ------ ------ ------- -------
Total costs and
expenses........... 109.4 126.6 100.3 178.0 153.8
------ ------ ------ ------- -------
Loss from operations........... (9.4) (26.6) (0.3) (78.0) (53.8)
------ ------ ------ ------- -------
Interest income (expense),
net.......................... 0.4 (0.7) (0.6) 0.9 1.5
------ ------ ------ ------- -------
Net loss....................... (9.0)% (27.3)% (0.9)% (77.1)% (52.3)%
====== ====== ====== ======= =======
</TABLE>
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Our operating results are dependent upon the college student market and we
expect them to vary seasonally based upon the typical school year. We tend to
sell most of our memberships in the beginning of the fall and winter academic
terms. All of these memberships expire on August 31 of each year. Because the
aggregate number of memberships within a school year increases as new members
are added beginning on September 1, and we recognize revenue from memberships
ratably over the period from the time of subscription until the end of our
membership year, our subscription revenue will typically be higher in the first
and second quarters than in the fourth quarter of each fiscal year. It is
difficult to determine how the third quarter will typically compare, since it
includes two calendar months from the end of a membership year and the first
month of the subsequent membership year.
Our limited operating history and rapid growth make it difficult for us to
more fully assess the impact of seasonal factors on our business. Nevertheless,
because our business is dependent upon the student market, we expect that our
other revenue may be subject to seasonal fluctuations associated with the
typical school year. In particular, other revenue can be expected to be higher
during the third and fourth quarters due to increased activity associated with
the commencement of the school year. Conversely, the second quarter may have the
least amount of other revenue since it includes the months at the end of a
school year.
In 1998, our other revenue was higher in the third and fourth quarters than
in other quarters due in part to the seasonality factor noted above and in part
to the commencement of activities under the AT&T marketing agreement, under
which we receive fees for obtaining calling card applications from students. The
Student Advantage Magazine, SAM, began publication in the fourth quarter of
1998. Other revenue and the cost of other revenue were each affected in the
fourth quarter of 1998 and the first quarter of 1999 by the publication of two
issues of SAM in each of those quarters.
Partly because of the seasonality factor noted above and partly because the
next issue of SAM will not be published until the third quarter, other revenue
in the second quarter of 1999 should be significantly less than it was in the
third and fourth quarters of 1998 and the first quarter of 1999.
LIQUIDITY AND CAPITAL RESOURCES
Student Advantage has financed its operations primarily through the private
placement of securities, cash from operations, borrowings under its credit
facilities and loans from LLC members. In October 1998, Student Advantage
completed a private placement of equity securities to new investors and received
$9.9 million in net proceeds. As of March 31, 1999, Student Advantage had
approximately $3.5 million in cash and cash equivalents.
Net cash used for operating activities was $2.3 million for the first
quarter of 1999 and $2.7 million for 1998, and net cash provided by operating
activities was $3.0 million for 1997. The net cash used in the first quarter of
1999 was primarily a result of a net loss of $2.2 million and a decrease in
deferred revenue of $1.2 million and partially offset by a decrease in accounts
receivable of $841,000. The increase in net cash used for operations for 1998
resulted primarily from an increase in accounts receivable of $2.7 million in
1998 and an increase net loss for 1998. The increase was partially offset by the
timing of payments of accounts payable and accrued expenses and increased
depreciation and amortization expense. Net cash provided by operations in 1997
was affected by an increase in deferred revenue of $5.4 million. Deferred
revenues increased $1.0 million in 1998 over those of 1997. Deferred revenue
represents primarily payments for membership fees not yet recognized as revenue
and advance payments for purchases of memberships and other services.
Net cash used for investing activities was $650,000 in 1997, $1.7 million
in 1998 and $268,000 in the first quarter of 1999. This increase in 1998 was due
primarily to the purchase of fixed assets and the acquisition of Collegiate
Advantage in 1998. The net cash used for investing activities in the first
quarter of 1999 was primarily due to the purchase of fixed assets.
Net cash used for financing activities was $453,000 in 1997, and net cash
provided by financing activities was $7.5 million in 1998 and $1.0 million in
the first quarter of 1999. The net cash provided by financing
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activities in the first quarter of 1999 was primarily the result of borrowings
of $1.0 million under our line of credit. The increase in 1998 was primarily due
to net cash proceeds of $9.9 million from the sale of shares of Student
Advantage preferred stock, partially offset by a distribution of $2.3 million to
LLC members. In 1997, Student Advantage repurchased a member's LLC interest for
$630,000.
Student Advantage has a $2.75 million bank line of credit and equipment
lease credit facility, which expires on June 30, 2000. The line of credit bears
interest at a rate of LIBOR plus 2% or the bank's base rate. The line of credit
and equipment lease credit facility is secured by all of the assets of Student
Advantage. As of April 30, 1999, $2.5 million was outstanding under the line of
credit, and no amounts were outstanding under the equipment lease credit
facility.
Student Advantage has experienced a substantial increase in its
expenditures consistent with growth in operations and staffing, and anticipates
that this will continue for the foreseeable future. Additionally, Student
Advantage will continue to evaluate possible investments in businesses, products
and technologies, and plans to expand its Web infrastructure, sales and
marketing programs and aggressively promote its brand. Student Advantage
currently anticipates that its available cash resources combined with the net
proceeds from this offering will be sufficient to meet its anticipated needs for
working capital and capital expenditures for at least 24 months following this
offering.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is effective for
financial statements for years beginning after December 15, 1998. SOP 98-1
provides guidance for accounting for costs of software products developed or
purchased for internal use, including when costs should be capitalized. Student
Advantage does not expect the adoption of this standard to have a material
effect on Student Advantage's results of operation, financial position or cash
flows.
In April 1998, AcSEC issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"). SOP 98-5, which is effective for fiscal years
beginning after December 15, 1998, provides guidance on the financial reporting
of start-up costs and organization costs. It requires costs of start up
activities and organization costs to be expensed as incurred. As Student
Advantage has expensed these costs historically, the adoption of this standard
is not expected to have a significant impact on Student Advantage's results of
operations, financial position or cash flows.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities" ("SFAS No. 133"), which
establishes accounting and reporting standards for derivative instruments,
including derivative instruments embedded in other contracts, (collectively
referred to as derivatives) and for hedging activities. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
The adoption of SFAS No. 133 is not expected to have an impact on Student
Advantage's results of operations, financial position or cash flows.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and/or software used by many companies and governmental agencies may
need to be upgraded to comply with such Year 2000 requirements or risk system
failure or miscalculations causing disruptions of normal business activities.
State of Readiness. Student Advantage does not internally develop a
significant amount of software. Student Advantage has made a preliminary
assessment of the Year 2000 readiness of its operating financial and
administrative systems, including the hardware and software that support Student
Advantage's systems. Student Advantage's assessment plan consists of:
- contacting third-party vendors and licensors of material hardware,
software and services that are both directly and indirectly related to
the delivery of Student Advantage's services to its users,
- contacting vendors of third-party systems,
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- assessing repair or replacement requirements,
- implementing repair or replacement, and
- creating contingency plans in the event of Year 2000 failures.
Student Advantage is currently conducting an inventory of and reviewing all
software and other systems that it believes might be affected by Year 2000
issues. Since third parties developed and currently support many of the systems
that we use, a significant part of this effort will be to ensure that these
third-party systems are Year 2000 compliant. We plan to confirm this compliance
through a combination of the representation by these third parties of their
products' Year 2000 compliance, as well as reviews of Year 2000 readiness
documentation from our vendors. Student Advantage plans to complete this process
prior to the end of the second quarter of 1999. Until such reviews are completed
and such vendors and providers are contacted, Student Advantage will not be able
to completely evaluate whether its systems will need to be revised or replaced.
We currently expect to complete all required modifications and install necessary
replacement systems prior to December 31, 1999.
Costs. To date, Student Advantage has spent an immaterial amount on Year
2000 compliance issues but expects to incur an additional approximately $100,000
in connection with identifying, evaluating and addressing Year 2000 compliance
issues. We have not hired additional employees or retained consultants, and do
not currently expect to hire additional employees or retain consultants to work
on Year 2000 compliance matters. Most of Student Advantage's expenses have
related to, and are expected to continue to relate to, the operating costs
associated with time spent by existing employees in the evaluation process and
Year 2000 compliance matters generally. Such expenses, if higher than
anticipated, could have a material adverse effect on Student Advantage's
business, results of operations and financial condition.
Risks. Student Advantage is not currently aware of any Year 2000 compliance
problems relating to its systems that would have a material adverse effect on
Student Advantage's business, results of operations and financial condition,
without taking into account Student Advantage's efforts to avoid or fix such
problems. We have received certificates or reports from our significant third
party vendors indicating that their systems are Year 2000 compliant or
identifying remaining corrective actions. We cannot be certain that we will
discover all Year 2000 compliance problems in our systems. In addition, we
cannot be certain that none of the third-party software, hardware or services
incorporated into our material systems will need to be revised or replaced,
which could be time-consuming and expensive. The failure of Student Advantage to
fix or replace its internally developed proprietary software or third-party
software, hardware or services on a timely basis could result in lost revenues,
increased operating costs, the loss of customers and other business
interruptions, any of which could have a material adverse effect on Student
Advantage's business, results of operations and financial condition.
Student Advantage is heavily dependent on a significant number of
third-party vendors to provide both network services and equipment. A
significant Year 2000-related disruption of the network, services or equipment
that third-party vendors provide to Student Advantage could cause Student
Advantage's members and visitors to consider seeking alternate sites or cause an
unmanageable burden on its customer service, which in turn could materially and
adversely affect Student Advantage's business, financial condition and results
of operations.
In addition, there can be no assurance that governmental agencies, utility
companies, Internet access companies, third-party service providers and others
outside of Student Advantage's control will be Year 2000 compliant. The failure
by such entities to be Year 2000 compliant could result in a systemic failure
beyond the control of Student Advantage, such as a prolonged Internet,
telecommunications or electrical failure, which could also impair Student
Advantage's ability to deliver its services to its customers, decrease the use
of the Internet or prevent users from accessing its Web sites which could have a
material adverse effect on Student Advantage's business, results of operations
and financial condition.
Contingency Plan. As discussed above, Student Advantage is engaged in an
ongoing Year 2000 assessment and has not yet developed any contingency plans.
The results of Student Advantage's Year 2000 simulation testing and the
responses received from third-party vendors and service providers will be taken
into account in determining the nature and extent of any contingency plans.
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BUSINESS
OVERVIEW
Student Advantage, Inc. is dedicated to serving the needs of college
students through our leading membership program and studentadvantage.com Web
site. With our national fee-based membership program, we have created a
community of over 1,000,000 student members who receive benefits including
ongoing discounts on products and services offered by over 40 national sponsors
and 12,000 sponsors in 115 local markets. Student Advantage offers the only
ongoing discount available to college students for the products and services of
many of our sponsors. With studentadvantage.com, we seek to enhance our brand
online and provide additional services to our members, sponsors and colleges
with the objective of becoming the leading online destination for students. The
studentadvantage.com Web site currently offers content, community and e-commerce
targeted to college students.
INDUSTRY BACKGROUND
College students represent a large audience with needs and interests that
are specific to their group. These students are exposed, often for the first
time, to lifestyle decisions and other challenges unique to the college
experience. With so many new experiences to manage, these students seek
information and guidance from a trusted resource able to assist them in matters
such as:
- purchasing and budgeting decisions,
- selecting a major or a career, or finding a job,
- conducting academic research,
- making lifestyle and extracurricular decisions,
- finding economical travel arrangements for breaks or holidays, and
- understanding financial aid alternatives.
To meet the needs of this audience, businesses are offering an increasing
variety of products and services designed to capture their interest. College
students represent an attractive market opportunity for businesses because of
their significant spending power and their tendency to retain brand loyalties
after graduation. According to Student Monitor LLC, a market research company,
total discretionary spending by college students in the 1997-1998 academic year
exceeded $105 billion. In the United States, there are over 15 million full-time
and part-time undergraduate and graduate students at more than 3,500 university
and college campuses. The college student population is also expected to grow as
there are currently 40 million children and young adults from ages 10 to 19.
Businesses have recognized the importance of college students and have
dedicated significant advertising and marketing expenditures towards this group.
However, college students have been difficult to reach in a targeted fashion
because:
- they are transient, frequently changing their addresses,
- the college student population has significant turnover,
- colleges are increasingly seeking to limit direct marketing to students
on campus, and
- few national advertising vehicles are directed toward the college student
population.
The Internet has emerged as an attractive medium for advertisers because it
offers a level of targetability, flexibility, interactivity and measureability
not available in traditional media. College students are active users of the
Internet, highly computer literate and active in e-commerce. According to
Student Monitor, 90% of students use the Internet and 52% of these students use
the Internet at least daily. Student Monitor estimates that in 1998, 21% of
students made online purchases representing $890 million
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in e-commerce. According to Jupiter Communications, students will spend close to
$2.6 billion through e-commerce by the year 2002.
Student Advantage believes that businesses are seeking a nationally-focused
vehicle for targeting the attractive college demographic. Many businesses that
have tried to target college students have been unsuccessful, due to the
inherent difficulties in reaching this group. Marketing organizations seeking to
help businesses reach this market have had only limited success because they are
either restricted in their geographic scope or are not able to offer a wide
range of services and channels to reach students.
Furthermore, Student Advantage believes that while the Internet creates an
opportunity to reach targeted audiences, it has not been used effectively to
target college students. The major Internet navigational portal sites are
generally designed to appeal to a broad audience. These portals do not focus on
the issues that are relevant to college students, such as financial and
budgeting assistance, economical travel, lifestyle decisions and careers.
Student Advantage believes that there is a need for a comprehensive student
destination focused on the specific requirements of students for information,
guidance and other services.
THE STUDENT ADVANTAGE SOLUTION
Student Advantage is a leading resource and trusted advocate dedicated to
serving the needs of college students. As a result, we are positioned to serve
as a point of access to this market. Through our national membership program, we
have created a community of over 1,000,000 college student members who receive
benefits including ongoing discounts on products and services offered by over 40
national sponsors and 12,000 local sponsors. Student Advantage has also created
a comprehensive online destination for college students, studentadvantage.com.
College students can join the Student Advantage membership program:
- by obtaining, free of charge subject to credit approval by AT&T, a
co-branded card that serves as both a Student Advantage membership
identification card and an AT&T calling card,
- through programs under which universities, colleges or university
organizations purchase memberships in bulk for distribution free of
charge to their students, or
- by paying an annual membership fee of $20.
While our primary constituency is our student members, we also enable
businesses to reach the student market and enable colleges and universities to
provide a highly useful resource to students.
[DIAGRAM SHOWING STUDENT ADVANTAGE IN THE CENTER WITH ARROWS POINTING TO
CAPTIONS FOR STUDENTS, BUSINESSES AND UNIVERSITIES.]
Benefits to Student Members. The Student Advantage membership program
provides college students with ongoing discounts on products and services from
national sponsors including Amtrak, AT&T, Foot Locker, Greyhound, Staples and
Tower Records. For example, in 1998, our members spent $10.9 million on Amtrak
fares and saved over $1.9 million by using the Student Advantage discount. The
membership program also enables students to receive discounts for products and
services in 115 local markets.
Through our Web site, studentadvantage.com, we provide content, community
and e-commerce. The Web site offers services and information of particular
interest to college students, including discount purchasing, travel
alternatives, career and job searches, lifestyle and extracurricular decisions
and financial aid. Our Web site:
- enables access to college news from over 400 colleges and universities,
- provides online bulletin boards,
- provides free e-mail and an online address book, calendar and document
storage,
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- offers an e-commerce marketplace, and
- includes a searchable directory of sponsors who offer discounts for
Student Advantage members.
Student Advantage members also receive a subscription to SAM, the Student
Advantage magazine. SAM includes lifestyle and practical content for students
and updates on new discounts available to Student Advantage members.
Benefits to Sponsors. We provide a platform for our sponsors to market
their products and services to a large, demographically attractive market.
Student Advantage appeals to sponsors and advertisers because it combines:
- a large and attractive demographic group,
- database marketing capabilities,
- a trusted brand,
- program usage tracking,
- quality online content, and
- community interaction.
By maintaining contact with students throughout their college experience
and by establishing relationships with universities, we also benefit businesses
by allowing targeted and continued access for advertising and marketing efforts.
In addition, businesses that offer products and services through Student
Advantage benefit by being associated with the Student Advantage brand. For
example, according to Egghead.com, in 1998, Student Advantage members who
visited Egghead.com from studentadvantage.com were two times more likely to
purchase products than the average visitor and spent 55% more than the average
visitor.
Sponsors also benefit from our direct marketing knowledge and the expertise
of our management team in designing and implementing effective marketing
techniques to reach college students. AT&T, for example, utilizes Student
Advantage for a variety of marketing programs, primarily to increase the number
of students carrying AT&T calling cards. In part by contracting with us, AT&T
during the 1998-99 school year exceeded its prior year's sales of calling cards
to college students by more than 300%.
We maintain eight regional offices throughout the United States in order to
more effectively reach students and provide services in local markets. These
offices, which are managed by our headquarters in Boston, provide us with a
broad geographical presence and enable us to implement effective nationwide
marketing programs.
Benefits to Colleges and Universities. Colleges and universities can
generate goodwill and help reduce the cost of student life by making the Student
Advantage program readily available to students. Colleges, universities and
university organizations can endorse the membership program, co-market with us
and share in associated revenues. Schools can also purchase memberships in bulk
and offer them to their students free of charge. As colleges seek additional
revenue streams, Student Advantage can establish off-campus debit card programs
for students and enable colleges and universities to participate in debit-card
transaction revenue from off-campus transactions by their students. We also
fund, and enlist other businesses to sponsor, on-campus student activities and
events. For example, Student Advantage co-sponsored Midnight Madness at the
University of North Carolina--Charlotte, an event that marks the beginning of
the university's college basketball season.
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STRATEGY
Our objective is to be the leading online and offline resource for college
students. We intend to broaden and deepen our relationship with students by
serving the needs of our three key constituencies--students, businesses and
schools. The key elements of our strategy include the following:
Strengthen Online Destination for Students. We believe that our existing
1,000,000 members provide a platform for building the leading online destination
for students. Our goal is to establish our Web site, studentadvantage.com, as
the primary vehicle for delivery of our products and services to students. We
believe that the Internet is ideally suited for providing our products and
services and is a natural extension of our current business. Our Web site
currently offers content, community and e-commerce services targeted
specifically to college students. The Web site also allows students to enroll in
our membership program, receive customer service, and search our directory of
national and local sponsors who offer discounts. We intend to enhance our online
offerings by making additional content available and by expanding our e-commerce
marketplace with additional sponsors. We also expect to offer additional online
programming in order to personalize the Web site for particular college
campuses.
Continue to Build Brand. We believe that building our brand is critical to
attracting and expanding our membership and Internet user base. Our market
leadership position has been driven by our membership program and by partnering
with leading national and local sponsors and universities. We believe that
aggressive brand-building will become increasingly important to sustain our
leadership position. We have started to allocate some of our branding
expenditures toward online branding through partnerships and distribution
agreements with leading Internet-based companies and strategic alliances with
leading advertisers. We will also continue to enhance our offline branding both
directly and through co-marketing arrangements with our sponsors. Student
Advantage believes that it can build online brand awareness and attract traffic
by utilizing the reach of its student membership base.
Aggressively Grow Membership. We intend to continue to grow our membership
through a variety of initiatives including:
- increasing the rate of new memberships through our Web site by promoting
online membership sales and by increasing the number of e-commerce
sponsors to attract Web site visitors,
- increasing our number of corporate sponsors,
- expanding our relationships with colleges and universities, including
selling them memberships in bulk,
- expanding our on-campus tabling and marketing services,
- providing members-only premium services on our Web site by introducing
new content and services and transitioning portions of our existing
services and content to members-only status, and
- offering our program to high school students and college graduates.
Enhance Relationships with Students, Businesses and Schools. We intend to
continue to enhance our value to students by offering new products and services,
including online offerings for content, community and e-commerce. In addition to
increasing the number of national and local sponsors, Student Advantage will
provide additional services to sponsors, such as visitor tracking and membership
data which will allow Student Advantage to better target advertising, make
recommendations and provide for a more personalized and engaging experience.
Student Advantage will continue to establish and strengthen its relationships
with colleges and universities by continuing to provide marketing services and
by enabling schools to outsource certain online services, such as e-mail.
Continue to Pursue Strategic Acquisitions and Alliances. Since inception,
we have acquired and integrated eight complementary businesses in order to
expand and strengthen our offerings to students. We plan to continue to acquire
companies or enter into alliances that offer opportunities to increase our
online traffic and obtain new technologies.
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PRODUCTS AND SERVICES
We provide college students with discounts on a broad range of products and
services through our Student Advantage membership program, as well as valuable
resources through our Web site and other student-focused content and services
offerings. We also offer marketing services to businesses seeking to effectively
communicate with the college student population.
STUDENT ADVANTAGE MEMBERSHIP PROGRAM
Our membership program provides valuable savings opportunities, services
and information to college students. During the 1998-99 academic year, over
1,000,000 students at over 3,000 colleges and universities were members of the
Student Advantage program. Members typically subscribe for one-year memberships
that coincide with the academic year. Memberships are sold in three different
ways. Most are sold to AT&T and distributed in conjunction with an AT&T calling
card. These membership cards are co-branded and serve as both a Student
Advantage membership identification card and an AT&T calling card. Memberships
are also sold to colleges, universities and university organizations for
distribution free of charge to students. In addition, Student Advantage sells
memberships directly to students for a membership fee that is currently $20 per
year.
Upon enrollment, Student Advantage members receive a Student Advantage
membership identification card and a member guide describing the program and its
benefits. By presenting the Student Advantage card at participating retail
locations, or by providing their membership number online, Student Advantage
members receive attractive discounts throughout the year for products and
services from both national and local sponsors. We receive payments from certain
of our national sponsors when Student Advantage members purchase products and
services from them. Student Advantage currently offers discounts from over 40
national sponsors and 12,000 local sponsors in 115 local markets.
National discounts available to Student Advantage members include:
- 15% off Amtrak rail fares
- 15% off Greyhound bus fares
- 15% off purchases from Foot Locker, Lady Foot Locker and Kids Foot Locker
- 15% off purchases from American Eagle Outfitters
- $50 off any graduate school test preparation course at The Princeton
Review
STUDENT-FOCUSED CONTENT AND SERVICES
studentadvantage.com
Our Web site, studentadvantage.com, addresses the needs of college students
for content, community and e-commerce.
Content. Student Advantage's content offering includes up-to-date
information on topics of interest to students, including purchasing and
budgeting decisions, travel, career, education, entertainment, health,
lifestyles and financial aid. For example, students may access articles
that provide information on studying abroad or purchasing renters'
insurance. Our content is both developed by our editors and collected
from over 400 colleges using our U-WIRE news feed. In addition, our Web
site provides students with information customized for their local
market or college campus and a searchable online directory of national
and local discounts offered by our sponsors. Our Web site also includes
maps and directions to retail locations that offer discounts.
Community. The studentadvantage.com Web site offers students a number
of community-building services. Student Advantage's online bulletin
boards give students the opportunity to discuss topics such as
interviewing techniques and campus life. Our Virtual Backpack service
allows students to set up their own e-mail account, organize contact
information in an online
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address book, store documents and keep track of important dates on an
online calendar. We also enable students to send online greeting cards.
e-Commerce. Students can purchase a variety of products online with a
Student Advantage discount. Members can purchase products directly from
vendors through our marketplace or link to a Web page that is co-branded
with a sponsor. Products offered online include books, software, music,
footwear, magazines and flowers. In order to receive discounts on the
products offered through our Web site, students must join our membership
program. Companies whose products can be purchased online through links
from our Web site include Egghead.com, 1-800-FLOWERS.com and Rockport
Interactive.
U-WIRE (University Wire)
U-WIRE is a daily electronic news service providing college news, sports,
opinion and entertainment content collected from over 400 college newspapers.
U-WIRE can be accessed at studentadvantage.com. U-WIRE editors select news,
sports, opinion and entertainment articles from its member newspapers and
distribute content among the college newspapers for inclusion in their print and
online editions. Student Advantage has the exclusive right to syndicate most of
the U-WIRE content electronically, and to sell content from the college
newspapers to syndication clients, which currently include Yahoo!, Excite,
USAToday.com, Lexis-Nexis and Digital City, an affiliate of America Online.
SAM, The Student Advantage Magazine
The Student Advantage membership includes a subscription to SAM, the
Student Advantage magazine. SAM is a magazine that is mailed directly to our
members. SAM includes lifestyle and practical content for students, updates on
new discounts and privileges available to Student Advantage members and
interactive features, such as member surveys and contests. Articles are provided
primarily by freelance writers. We use feedback from our readers to tailor
future articles and offerings to their particular interests and needs.
Rail Connection
Through an arrangement with CIT Tours, Corp., a representative of the
Italian State Railways, we offer Eurail passes to student members and others. We
promote our Eurail passes to Student Advantage members in travel guide books,
through direct mail and in advertisements in campus publications.
CORPORATE MARKETING SERVICES
We provide tailored marketing services for businesses seeking to market
their products and services to college students. Our in-depth knowledge of the
college student market, our expertise in marketing to college students and our
extensive university relationships enable us to help businesses effectively and
efficiently reach college students. Student Advantage currently provides a
variety of marketing services to businesses, including the following:
- organizing and executing marketing tours that travel campus to campus,
- staffing tables at on-campus college locations, such as student unions,
to solicit potential student customers,
- developing and managing programs that recruit, train and supervise
students to represent businesses on campus,
- assisting marketers who desire to sponsor on-campus events, such as movie
screenings and concerts, and
- helping marketers place advertisements in college newspapers.
We also provide staffing for on-campus events and other activities for
businesses that have already designed a marketing program but lack
implementation resources and expertise at the campus level.
Our marketing services are typically offered to businesses on a fixed-cost
basis or hourly rate basis.
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Our marketing services group utilizes eight regional offices across the
United States. The broad geographical reach of our marketing services group
allows us to execute our services nationwide. In 1998, clients who purchased our
marketing services included Amtrak, AT&T, Coca-Cola and Visa.
ACQUISITION OF UNIVERSITY NETCASTING
On May 7, 1999, we entered into an agreement to acquire University
Netcasting, Inc. in a transaction that will be accounted for as a pooling of
interests. University Netcasting is a leading operator of official athletic Web
sites for colleges, universities and college sports associations. Through its
FANSonly Network, FANSonly.com, University Netcasting provides sports fans with
comprehensive online information and analysis on college sports. University
Netcasting operates the official athletic Web sites of over 30 universities and
college sports associations, including universities from the PAC-10, ACC, SEC,
Big 10, Big 12 and Big East conferences.
We believe that the acquisition of University Netcasting will enable us to
strengthen our online destination.
ALLIANCES
An important element of our strategy is to form alliances to assist us in
offering products and services to students and in offering businesses and
advertisers an effective channel for reaching college students.
AT&T
Our relationship with AT&T has enabled us to rapidly expand our membership
base and strengthen our presence on college campuses as a resource associated
with quality brand products and services.
In February 1997, Student Advantage and AT&T entered into a membership
agreement under which Student Advantage earns a fee from AT&T for each
membership issued in connection with a Student Advantage AT&T Calling Card, with
a minimum commitment by AT&T for 1.25 million Student Advantage memberships per
academic year. Student Advantage agreed that it would not enter into any
promotional or marketing activities with any credit card, telecommunications or
multipurpose college student identification card provider, other than AT&T. The
agreement provides that we will not allow any third party to offer a Student
Advantage membership to college students free of charge as an incentive or
through any promotion.
In February 1998, we entered into a marketing agreement with AT&T under
which we agreed to promote and market AT&T's calling card services to college
students. We also agreed to provide certain marketing services focused on the
college market to AT&T. AT&T appointed Student Advantage as the exclusive
provider, at certain colleges and universities designated by AT&T, of tabling
and non-tabling activities (which require a physical presence by its employees
on the college campus) with respect to the solicitation of college students for
the AT&T calling card service. In return, AT&T agreed to pay us for the
solicitation of each application for such service. In addition, AT&T agreed to
pay for additional marketing activities and to be the exclusive sponsor of
certain online offerings. We also granted AT&T a right of first and last refusal
to be the exclusive telecommunications advertiser for the first four issues of
the Student Advantage magazine. AT&T agreed to promote and market the Student
Advantage membership through television, mass media marketing or other mass
media advertising. We are also providing other marketing services to AT&T in the
college student market.
In July 1998, AT&T exercised an option to extend the original termination
dates of the membership agreement and the marketing agreement to June 1, 2001.
However, AT&T may terminate these agreements prior to such date upon 120 days
prior notice, subject to payment of a termination fee under certain
circumstances. AT&T may also terminate the agreements if Raymond V. Sozzi, Jr.
is no longer employed as President of Student Advantage, or if he no longer owns
a minimum five percent ownership interest in Student Advantage. AT&T accounted
for 62% of our total revenues in 1997, 68% of our total revenues in 1998 and 69%
of our total revenues in the first quarter of 1999. While we are not aware of
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plans by AT&T to terminate its use of our services, the termination of our
relationship with AT&T, or a material reduction in the use of our services by
AT&T, would have a material adverse effect on our business.
Sponsors
Student Advantage offers its members discounts on products and services
from over 40 national sponsors and over 12,000 local sponsors in 115 local
markets, including rail fares, bus fares, CDs, books and clothing.
Representative national sponsors and local markets include:
<TABLE>
<S> <C>
REPRESENTATIVE NATIONAL SPONSORS REPRESENTATIVE LOCAL MARKETS
-------------------------------- ----------------------------
1-800-FLOWERS.com Ann Arbor, Michigan
Auburn, Alabama
American Eagle Outfitters Austin, Texas
Amtrak Berkeley, California
Blimpie International Boston, Massachusetts
Choice Hotels Boulder, Colorado
Chapel Hill, North Carolina
Dollar Rent A Car Chicago, Illinois
Columbus, Ohio
Egghead.com Lawrence, Kansas
Foot Locker Los Angeles, California
Greyhound Madison, Wisconsin
Hostelling International New York, New York
IBM Philadelphia, Pennsylvania
Jostens Princeton, New Jersey
Linens 'n Things San Diego, California
Pearle Vision Tallahassee, Florida
Washington, D.C.
Rockport Company
Staples
The Wall Street Journal
Tower Records
</TABLE>
For many of our national sponsors, the Student Advantage discount is the
only ongoing discount offered specifically to college students. Many of our
national sponsors engage in co-marketing activities with Student Advantage.
Student Advantage seeks to identify and attract additional sponsors whose
products and services complement its offerings and who offer valuable ongoing
discounts to its members.
Advertisers
We provide advertisers with access to a large, demographically attractive
college student audience. We also provide advertisers with direct marketing
knowledge and expertise in designing and implementing effective advertising to
reach college students. Businesses which have purchased advertising from us,
such as advertising in SAM, sponsorship of portions of our Web site and banner
advertising, include Barnes & Noble, Ford Motor Company, Microsoft and Visa.
Unlike many competitors, we are able to combine print, on-campus and Web
site advertisements. We intend to expand our in-house sales force during 1999
and offer additional banner advertising and sponsorship opportunities on our Web
site.
UNIVERSITY RELATIONSHIPS
We believe that university relationships are critical to our success. An
important element of our strategy is to continue to develop relationships with
colleges, universities and university organizations to assist us in marketing
and selling our products and services. The Student Advantage membership program
has been endorsed by more than 30 colleges, universities and university
organizations. These schools and organizations typically agree to co-market the
Student Advantage membership program to their students, which includes sending
students a letter explaining the program and enclosing an application, and
receive a percentage of the associated membership fees.
Colleges and universities, or university organizations from these schools,
that have endorsed the Student Advantage membership program include:
Arkansas State University
Auburn University
Boston University
Emory University
University of California-Berkeley
University of North Carolina--Charlotte
Northwestern University
University of Pennsylvania
University of Utah
Villanova University
University of Nevada, Las Vegas
University of Virginia
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<PAGE> 42
In addition, in the 1998-1999 academic year, five colleges and universities
purchased Student Advantage memberships in bulk, at varying discounts depending
on volume, and distributed the memberships to their students free of charge.
Student Advantage has also established an off-campus debit card program for
New York University and American University. For these universities, we enroll
off-campus local merchants to participate in a debit-card program maintained by
the university.
SALES AND MARKETING
As of March 31, 1999, Student Advantage had a direct sales organization
consisting of 27 professionals. Five of these professionals are dedicated to the
AT&T relationship with an additional four professionals dedicated primarily to
managing our other significant sponsor relationships. The remaining 18
professionals are engaged in a variety of sales functions, including:
- selling advertising in SAM,
- selling banner advertising and sponsorships on studentadvantage.com,
- enlisting additional national sponsors for its discount program,
- seeking opportunities for corporate-sponsored events and promotions
targeted at college students, and
- managing existing sponsor relationships
In addition, we maintain a regional sales organization of 37 professionals
in eight regional offices focused primarily on enlisting and managing local
sponsors and providing marketing services. These offices, which are managed by
our headquarters in Boston, provide us with a broad geographical presence and
enable us to implement effective nationwide marketing programs.
Student Advantage uses a variety of online and traditional marketing
programs to increase brand awareness. Our marketing goals are to create and
enhance awareness of Student Advantage as the leading resource and trusted
advocate dedicated to serving the needs of college students, the most effective
way for marketers and advertisers to reach students, and a trusted and effective
resource for colleges and universities. Our marketing strategy for each contains
a mix of online advertising, programs which drive members to our Web site,
in-store advertising in local retail locations, on-campus direct solicitation of
students, outbound e-mail, co-marketing with colleges and universities through
on-campus posters and student mailbox drops, print advertising, new media banner
campaigns, and direct mail. Student Advantage's marketing department consisted
of 14 marketing professionals as of March 31, 1999.
TECHNOLOGY
Student Advantage has implemented a broad array of site management,
advertising management, customer interaction, registration systems,
transaction-processing and fulfillment systems using a combination of its own
proprietary technologies and commercially available, licensed technologies. Our
current strategy is to license commercially available technology whenever
possible rather than seek internally developed solutions. We use contractors to
develop the specialized software necessary for our business, such as the
software required to register members online.
Consistent with our preference for off-the-shelf software components, the
hardware systems that we utilize also consist of commercially available
components. Student Advantage believes that this architecture provides the
ability to increase scale quickly and reliably, and at a relatively low cost.
Although our existing infrastructure currently exceeds present demand, we have
plans for additional upgrades in anticipation of increased demand.
Our membership database is hosted at AERO Fulfillment Services and utilizes
Microsoft SQL database software. Our production servers utilize Sun
Microsystems, Inc. hardware and use Netscape Web server software. Student
Advantage's system hardware is hosted at USWeb Corporation (doing business as
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<PAGE> 43
USWeb/CKS), a third-party facility in New York. A group of systems
administrators and network managers at USWeb/CKS operate our Web site, network
operations and transaction-processing systems and monitor our systems 24 hours a
day.
Our operations are dependent upon USWeb/CKS's and AERO's ability to
maintain their systems in effective working order and to protect their systems
against damage from fire, natural disaster, power loss, telecommunications
failure or similar events. Student Advantage's servers are powered by an
uninterruptible power supply to provide a safeguard against unexpected power
loss. Our systems are copied to backup tapes each night and stored at an
off-site storage facility for one year. In addition, the servers are equipped
with redundant file systems, which allows for prompt replacement of defective
disks without interruption of service.
COMPETITION
The market for student members and Internet services and products is
relatively new, intensely competitive and rapidly changing. With no substantial
barriers to entry in the Web site market, we believe that competition will
continue to intensify. We compete, directly and indirectly, for members,
advertisers, sponsors and viewers with the following categories of companies:
- general purpose consumer online services such as America Online and
Microsoft Network, each of which provides access to student-related
content and services,
- Web search and retrieval services, such as AltaVista, Excite, Infoseek,
Lycos, and Yahoo!, and other high-traffic Web sites,
- Web sites targeted to students generally or to students of a particular
school,
- membership programs,
- publishers and distributors of traditional off-line media (such as
television, radio and print), including those targeted to college
students, many of which have established or may establish Web sites, and
- vendors of college student information, merchandise, products and
services distributed through other means, including retail stores, mail
and schools.
We believe that the principal competitive factors in attracting and
retaining members are:
- brand recognition,
- quality of content and service,
- critical mass of members and sponsors,
- number and type of discounts,
- relationships with universities,
- comprehensive geographic coverage,
- breadth of offerings, and
- cost of service.
We believe that the principal competitive factor in attracting and
retaining sponsors, merchandisers and content providers is our ability to offer
sufficient incremental revenue from online and offline sales of products and
services. We believe that the principal competitive factors in attracting
advertisers include the demographics of our membership and user base, the number
of readers of our magazine, the number of members and users of our Web site,
cost of advertising and creative implementation of advertisement placements
across our products and services. There can be no assurance that we will be able
to compete favorably with respect to these factors.
We believe that the strong Student Advantage brand combined with our
ability to deliver a targeted, demographically-attractive audience to
advertisers and sponsors, our existing base of over 1,000,000 members, our
national and local sponsors and our relationships with colleges and universities
are principal competitive advantages. However, many of our competitors, current
and potential, have significantly greater financial, technical or marketing
resources. In addition, providers of Internet tools and services may be
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acquired by, receive investments from, or enter into other commercial
relationships with larger, well-established and well-financed companies, such as
Microsoft or America Online. Greater competition resulting from such
relationships could have a material adverse effect on our business.
INTELLECTUAL PROPERTY AND PROPERTY RIGHTS
Student Advantage regards its copyrights, service marks, trademarks, trade
dress, trade secrets, proprietary technology and similar intellectual property
as critical to its success, and relies on trademark and copyright law, trade
secret protection and confidentiality and/or license agreements with its
employees, customers, independent contractors, sponsors, and others to protect
its proprietary rights. Student Advantage strategically pursues the registration
of its trademarks and service marks. However, effective trademark, service mark,
copyright and trade secret protection may not be available. There can be no
assurance that the steps taken by us to protect our proprietary rights will be
adequate or that third parties will not infringe or misappropriate our
copyrights, trademarks, trade secrets, trade dress and similar proprietary
rights. In addition, there can be no assurance that other parties will not
independently develop substantially equivalent intellectual property. A failure
by us to protect our intellectual property in a meaningful manner could have a
material adverse effect on our business, financial condition and results of
operations. In addition, litigation may be necessary in the future to enforce
our intellectual property rights, to protect our trade secrets or to determine
the validity and scope of the proprietary rights of others. Such litigation
could result in substantial costs and diversion of financial and managerial
resources, which could have a material adverse effect on our business.
Student Advantage has been subject to claims and expects to be subject to
legal proceedings and claims from time to time in the ordinary course of its
business, including claims of alleged infringement of the trademarks and other
intellectual property rights of third parties. Such claims, even if not
meritorious, could result in the expenditure of significant financial and
managerial resources. Further, if such claims are successful, Student Advantage
may be required to change its trademarks, alter its content and pay financial
damages. There can be no assurance that such changes of trademarks, alteration
of content or payment of financial damages will not adversely affect our
business.
We may be required to obtain licenses from others to refine, develop,
market and deliver new products and services. There can be no assurance that we
will be able to obtain any such license on commercially reasonable terms or at
all or that rights granted pursuant to any licenses will be valid and
enforceable.
"Student Advantage", "U-WIRE", "Virtual Backpack" and "The Main Quad" are
trademarks and service marks of Student Advantage. All other trademarks, service
marks or trade names referred to in this prospectus are the property of their
respective owners.
GOVERNMENT REGULATION
Student Advantage is subject to various laws and regulations relating to
its business. Although there are currently few laws or regulations directly
governing access to or commerce on the Internet, due to the increasing
popularity and use of the Internet, a number of laws and regulations may be
adopted regarding user privacy, pricing, acceptable content, taxation and
quality of products and services. In addition, several telecommunications
providers have petitioned the Federal Communications Commission to regulate and
impose fees on Internet service providers and online service providers in a
manner similar to long distance telephone carriers. The adoption of any such
laws or regulations could adversely affect the costs of communicating on the
Internet and adversely affect the growth in use of the Internet, or decrease the
acceptance of the Internet as a communications and commercial medium. Moreover,
it may take years to determine the extent to which existing laws relating to
issues such as property ownership, libel and personal privacy are applicable to
the Internet. Any new laws or regulations relating to the Internet could
decrease demand for our products and services or otherwise have a material
adverse effect on our business.
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EMPLOYEES
As of March 31, 1999, Student Advantage had a total of 175 full-time
employees. Student Advantage also hires temporary employees, particularly at the
beginning of each school semester, and contract service providers as necessary.
As we continue to grow and introduce additional products and services, we expect
to hire additional employees, particularly in online product development and
sales and marketing. None of our employees is represented by a labor union or is
the subject of a collective bargaining agreement. We believe that relations with
our employees are generally good. Competition for qualified personnel in our
industry is intense, particularly among sales, online product development and
technical staff. We believe that our future success will depend in part on our
continued ability to attract, hire and retain qualified personnel.
FACILITIES
Student Advantage is headquartered at 280 Summer Street in Boston,
Massachusetts, where it presently leases an aggregate of approximately 30,000
square feet. Our current leases for this facility expire at various times
through 2005. We also maintain regional offices and lease space in Atlanta,
Georgia; Berkeley, California; Chicago, Illinois; Dallas, Texas; Lawrence,
Kansas; Los Angeles, California; New York, New York and Washington, D.C.
We believe that our current facilities and other facilities that will be
available to us will be adequate to accommodate our needs for the foreseeable
future. There can be no assurance that we will be successful in obtaining
additional space, if required, or if such space is obtained that it will be on
terms acceptable to us.
LEGAL PROCEEDINGS
We are not presently subject to any material legal proceedings. We may from
time to time become a party to various legal proceedings arising in the ordinary
course of our business.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The directors, executive officers and other key employees of Student
Advantage, and their ages as of March 31, 1999 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Raymond V. Sozzi, Jr.*.................... 30 Chairman of the Board of Directors, President and
Chief Executive Officer
Andrea K. Abegglen*....................... 32 Vice President, Marketing Communications
Christopher B. Andrews*................... 43 Vice President, Finance and Administration, and
Chief Financial Officer
G. Todd Eichler*.......................... 31 Executive Vice President, Member Management
Ronald J. Kos*............................ 58 Chief Operating Officer
David M. Liniado*......................... 28 Vice President, Campus Development
Daniel G. Siegel*......................... 30 Vice President, Product Development
Michael T. Fuller......................... 37 Vice President, Market Development
Mason Myers............................... 28 Vice President, Business Development
Kevin Watters............................. 27 Vice President, Marketing
William S. Kaiser+........................ 43 Director
John Katzman+............................. 39 Director
Marc Turtletaub+.......................... 53 Director
</TABLE>
- ---------------
* Executive Officer.
+ Member of the Audit Committee and the Compensation Committee.
Raymond V. Sozzi, Jr. founded Student Advantage in 1992 and has served as
Chairman of the Board of Directors, President and Chief Executive Officer of
Student Advantage since its inception. Before founding Student Advantage, Mr.
Sozzi was employed by Bain & Company, a consulting company, as an associate
consultant. Mr. Sozzi received a B.A. from Dartmouth College in 1990.
Andrea K. Abegglen has served as Vice President, Marketing Communications,
of Student Advantage since May 1998. From November 1997 to April 1998, Ms.
Abegglen served as Vice President, Strategic Partnerships, of Student Advantage.
From May 1996 to October 1997, Ms. Abegglen served as Chief Operating Officer of
Student Advantage. From June 1993 to April 1996, Ms. Abegglen served as
President of Crimson & Brown Associates, a recruiting firm for minority students
and professionals, and as its Vice President from June 1991 to June 1993. Ms.
Abegglen received a B.A. from the University of Pennsylvania in 1989.
Christopher B. Andrews has served as Vice President and Chief Financial
Officer of Student Advantage since September 1998 and as Vice President, Finance
and Administration, of Student Advantage since January 1999. From January 1992
to August 1998, Mr. Andrews served as Vice President, Finance and
Administration, and from July 1996 to December 1996 also served as interim
President and Chief Executive Officer of Advanced Visual Systems Inc., a
visualization software company. Mr. Andrews received a J.D. from Boston College
Law School in 1981 and a B.A. from Harvard College in 1977.
G. Todd Eichler has served as Executive Vice President, Member Management,
of Student Advantage since January 1997 and served as Vice President, Marketing,
of Student Advantage from January 1995 to December 1996. From January 1991 to
December 1994, Mr. Eichler was employed by Bronner Slosberg Humphrey Inc., a
direct marketing and advertising agency, as an account supervisor. From 1989 to
1991 Mr. Eichler was employed by Bain & Company as an associate consultant. Mr.
Eichler received a B.A. from Duke University in 1989.
Ronald J. Kos has served as Chief Operating Officer of Student Advantage
since May 1999. From February 1998 to May 1999, Mr. Kos was Senior Vice
President, Marketing and Operations, of iVillage, Inc., an online women's
network. From September 1994 to February 1998, Mr. Kos was President of the
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Signal Ridge Group, a national consulting practice that he founded. From April
1991 to August 1994, Mr. Kos was Senior Vice President in charge of marketing
and sales services activities at Hasbro, Inc., a toy designer and manufacturer.
Mr. Kos received a M.B.A. from the University of Southern California and a B.S.
from the United States Air Force Academy.
David M. Liniado has served as Vice President, Campus Development, of
Student Advantage since January 1996. From September 1994 to December 1995, Mr.
Liniado was Director of the Southern Region of Student Advantage. In May 1992
Mr. Liniado founded College Discount Association, a student membership company,
and served as its President from May 1992 to August 1994. Mr. Liniado received a
B.A. from Emory University in 1993.
Daniel G. Siegel has served as Vice President, Product Development, of
Student Advantage since May 1997, and served as Director of Marketing of Student
Advantage from November 1992 to July 1995. From May 1996 to August 1996, Mr.
Siegel was employed by Microsoft Corporation, a software company, to conduct a
worldwide original equipment manufacturer market study. Mr. Siegel received an
M.B.A. from the Wharton School of Business at the University of Pennsylvania in
1997 and a B.A. from the University of Michigan in 1990.
Michael T. Fuller has served as Vice President, Market Development, of
Student Advantage since January 1999. From July 1995 to March 1999, Mr. Fuller
was President of both The Campus Agency, LLC, an advertising and custom
publishing company, and The Travel Holding Group, LLC, a travel marketing
company. From 1991 to June 1995, Mr. Fuller was Director, Sales and Marketing,
of Travel CUTS, a student travel company.
Mason Myers has served as Vice President, Business Development, of Student
Advantage since January 1999 and served as Senior Director, New Media, of
Student Advantage from December 1997 to December 1998. Mr. Myers co-founded The
Main Quad, Inc., a student-focused Internet site, in May 1995 and served as its
Co-President from May 1995 to December 1997. From August 1994 to May 1995, Mr.
Myers was employed as a project manager by Smart Valley, Inc., a non-profit
organization using the Internet to improve the community of Silicon Valley. From
January 1994 to July 1994, Mr. Myers was employed by MFS Communications, Inc., a
telecommunications company, in various public relations roles. Mr. Myers
received a B.A. from Duke University in 1993.
Kevin Watters has served as Vice President, Marketing, of Student Advantage
since April 1999 and served as Senior Director, New Media, of Student Advantage
from December 1997 to March 1999. Mr. Watters co-founded The Main Quad, Inc. in
May 1995 and served as its Co-President from May 1995 to December 1997. From
September 1993 to April 1995, Mr. Watters was employed by The Procter & Gamble
Company, a consumer products company, in its sales management program. Mr.
Watters received a B.A. from Duke University in 1993.
William S. Kaiser has served as a Director of Student Advantage since
October 1998. Since 1986, Mr. Kaiser has been an employee of Greylock Management
Corporation, a venture capital company, and he is a general partner of several
venture capital funds affiliated with Greylock. Mr. Kaiser currently serves as a
Director of Clarus Corporation and Open Market, Inc.
John Katzman has served as a Director of Student Advantage since March
1996. Mr. Katzman founded Princeton Review Publishing, L.L.C., a provider of
test preparation and admission services, and has served as its President since
1981.
Marc Turtletaub has served as a Director of Student Advantage since October
1998. Mr. Turtletaub has served as Chief Executive Officer of The Money Store,
Inc., a financial services company, since 1979.
Each executive officer serves at the discretion of the Board of Directors
and holds office until his or her successor is elected and qualified or until
his or her earlier resignation or removal. There are no family relationships
among any of the Directors or executive officers of Student Advantage. All of
the Directors were originally elected to the Board of Directors pursuant to
agreements that will terminate upon the consummation of this offering.
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BOARD COMPOSITION
Following this offering, the Board of Directors of Student Advantage will
be divided into three staggered classes, each of whose members will serve for a
three-year term. The Board will consist of one Class I Director (Mr. Katzman),
one Class II Director (Mr. Sozzi) and two Class III Directors (Messrs. Kaiser
and Turtletaub). At each annual meeting of stockholders, a class of directors
will be elected for a three-year term to succeed the directors of the same class
whose terms are then expiring. The terms of the Class I Director, Class II
Director and Class III Directors will expire upon the election and qualification
of successor directors at the annual meeting of stockholders to be held during
calendar years 2000, 2001 and 2002.
BOARD COMMITTEES
The Board of Directors has a Compensation Committee composed of Messrs.
Kaiser, Katzman and Turtletaub, which makes recommendations concerning salaries
and incentive compensation for employees of Student Advantage and administers
and grants stock options under Student Advantage's stock option plans. The Board
also has an Audit Committee composed of Messrs. Kaiser, Katzman and Turtletaub,
which reviews the results and scope of the audit and other services provided by
Student Advantage's independent public auditors.
DIRECTOR COMPENSATION
We do not currently compensate directors for attending meetings of the
Board of Directors or committee meetings of the Board of Directors. Directors
are reimbursed for reasonable expenses incurred in attending board meetings.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
during the year ended December 31, 1998 of Student Advantage's Chief Executive
Officer and all other executive officers whose salary and bonus for 1998 equaled
or exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------- ALL OTHER
NAME AND PRINCIPAL POSITIONS SALARY BONUS(1) COMPENSATION
- ---------------------------- -------- --------- ------------
<S> <C> <C> <C>
Raymond V. Sozzi, Jr........................................ $93,798 $150,000 $6,000(2)
Chairman of the Board of Directors,
President and Chief Executive Officer
G. Todd Eichler............................................. 106,475 50,000 --
Executive Vice President,
Member Management
</TABLE>
- ---------------
(1) Represents the bonus earned for services performed in 1998 based upon
Student Advantage's operating performance during 1998. Such amounts have not
yet been paid.
(2) Represents an automobile allowance of $6,000.
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OPTION GRANTS DURING FISCAL 1998
Student Advantage did not grant any options or stock appreciation rights
during 1998 to either of the executive officers named in the Summary
Compensation Table.
OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
Neither of the executive officers named in the Summary Compensation Table
exercised any options to purchase securities of Student Advantage during 1998 or
held any such options as of December 31, 1998.
STOCK PLANS
1998 Stock Incentive Plan
Student Advantage's 1998 Stock Incentive Plan and a related plan for
California employees, collectively referred to as the Incentive Plan, were
adopted by the Board of Directors and approved by the stockholders of Student
Advantage on December 10, 1998. As of April 30, 1999, 122,061 shares of common
stock had been issued upon exercise of options granted under the Incentive Plan.
As of that date, options to purchase 2,225,736 shares of common stock at a
weighted average exercise price of $0.36 per share were outstanding.
The Incentive Plan provides for the grant of incentive stock options
intended to qualify under Section 422 of the Internal Revenue Code of 1986, as
amended, non-statutory stock options, restricted stock awards and other
stock-based awards, collectively referred to as Awards. As of April 30, 1999, a
total of 5,152,203 shares of common stock were reserved for future grants under
the Incentive Plan.
All officers, employees, directors, consultants and advisors of Student
Advantage and its subsidiaries are eligible to receive Awards under the
Incentive Plan. Under present law, however, incentive stock options may only be
granted to employees.
Student Advantage may grant options at an exercise price less than, equal
to or greater than the fair market value of the common stock on the date of
grant. Under present law, incentive stock options and options intended to
qualify as performance-based compensation under Section 162(m) of the Internal
Revenue Code may not be granted at an exercise price less than the fair market
value of the common stock on the date of grant (or less than 110% of the fair
market value in the case of incentive stock options granted to optionees holding
more than 10% of the voting power of Student Advantage). The Incentive Plan
permits the Board of Directors to determine how optionees may pay the exercise
price of their options, including by cash, check or in connection with a
"cashless exercise" through a broker, by surrender to Student Advantage of
shares of common stock, by delivery to Student Advantage of a promissory note,
or by any combination of the permitted forms of payment.
The Board of Directors has the authority to adopt, amend and repeal the
administrative rules, guidelines and practices relating to the Incentive Plan.
It may delegate authority under the Incentive Plan to one or more committees of
the Board of Directors and, subject to certain limitations, to one or more
executive officers of Student Advantage. The Board of Directors has authorized
the Compensation Committee to administer the Incentive Plan, including the
granting of options to executive officers. Subject to any applicable limitations
contained in the Incentive Plan, the Board of Directors, the Compensation
Committee or any other committee or executive officer to whom the Board of
Directors delegates authority, as the case may be, selects the recipients of
awards and determines:
- the number of shares of common stock covered by options and the dates
upon which such options become exercisable,
- the exercise price of options,
- the duration of options, and
- the number of shares of common stock subject to any restricted stock or
other stock-based awards and the terms and conditions of such awards,
including the conditions for repurchase, issue price and repurchase
price.
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In the event of a merger or other acquisition event, the Board of Directors
is authorized to provide for outstanding options or other stock-based Awards to
be assumed or substituted for by the acquiror and if not so assumed the Board
shall provide for the acceleration of the vesting of awards. The option and
restricted stock agreements evidencing grants of Awards under the Incentive Plan
generally provide in the event of a change in control of Student Advantage for
the acceleration of the vesting of options and other stock-based Awards with
respect to the number of shares that would have vested on a monthly vesting
schedule through the date of the change in control and 50% of the remaining
unvested shares.
No Award may be granted under the Incentive Plan after December 2008, but
the vesting and effectiveness of Awards previously granted may extend beyond
that date. The Board of Directors may amend, suspend or terminate the Incentive
Plan or any portion thereof at any time.
1999 Employee Stock Purchase Plan
The Board of Directors adopted Student Advantage's 1999 Employee Stock
Purchase Plan in April 1999, subject to stockholder approval. The Purchase Plan
authorizes the issuance of up to a total of 450,000 shares of common stock to
participating employees.
All employees of Student Advantage, including directors of Student
Advantage who are employees, and all employees of any participating
subsidiaries:
- whose customary employment is more than 20 hours per week for more than
five months in a calendar year,
- who have been employed by Student Advantage for at least three months
prior to enrolling, and
- who are employed on the first day of a designated payroll deduction
period (the "offering period")
are eligible to participate in the Purchase Plan. Employees who would
immediately after the grant own five percent or more of the total combined
voting power or value of the stock of Student Advantage or any subsidiary are
not eligible to participate.
On the first day of an offering period, Student Advantage will grant to
each eligible employee who has elected to participate in the Purchase Plan an
option to purchase shares of common stock as follows: the employee may authorize
an amount (up to 10%, or such lesser amount as shall be determined by the Board,
of such employee's base pay) to be deducted by Student Advantage from such
employee's base pay during the offering period. On the last day of the offering
period, the employee is deemed to have exercised the option, at the option
exercise price, to the extent of accumulated payroll deductions. Under the terms
of the Purchase Plan, the option exercise price is an amount equal to 85% of the
closing price per share of the common stock on either the first day or the last
day of the offering period, whichever is lower. In no event may an employee
purchase in any one offering period a number of shares which exceeds the number
of shares determined by dividing the product of (1) $2,083 and (2) the number of
full months in the offering period by the closing market price of a share of
common stock on the first business day of the offering period or such other
number as may be determined by the Board prior to the commencement date of the
offering period. The Compensation Committee may, in its discretion, choose an
offering period of 12 months or less for each offering and may choose a
different offering period for each offering.
An employee who is not a participant on the last day of the offering
period, as a result of voluntary withdrawal or termination of employment or for
any other reason, is not entitled to exercise any option, and the employee's
accumulated payroll deductions will be refunded. However, upon termination of
employment because of death, the employee's beneficiary has certain rights to
elect to exercise the option to purchase the shares that the accumulated payroll
deductions in the participant's account would purchase at the date of death.
Because participation in the Purchase Plan is voluntary, Student Advantage
cannot now determine the number of shares of common stock to be purchased by any
particular current executive officer, by all current executive officers as a
group or by non-executive employees as a group.
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401(k) PLAN
Student Advantage has a 401(k) plan, which is intended to qualify under
Sections 401(a) and 401(k) of the Internal Revenue Code. Generally, all
employees are eligible to participate in the 401(k) plan after they complete one
year of service.
Eligible employees electing to participate in the 401(k) plan may defer a
portion of their compensation, on a pre-tax basis, by making a contribution to
the 401(k) plan. The maximum contribution is fixed in Section 401(k) of the
Internal Revenue Code. The contribution limit for 1998 was $10,000. In April
1998, Student Advantage began matching employee contributions to the 401(k)
plan. Student Advantage made matching contributions of $0.50 for each $1.00
contributed by the employee to the plan, up to 6% of the employee's gross
earnings in 1998, subject to the foregoing limit. Eligible employees who elect
to participate in the 401(k) plan are generally vested in Student Advantage's
matching contribution after four years of service. Student Advantage contributed
an aggregate of $61,000 in 1998 to the 401(k) plan.
EMPLOYMENT AGREEMENTS
In March 1996, Student Advantage entered into an employment agreement with
Mr. Sozzi, which was amended in October 1998. The employment agreement provides
for an initial term of employment expiring on January 1, 1999 and automatically
renews for successive one-year terms, unless terminated by either party prior to
such renewal. The employment agreement provides for a base salary of $150,000 in
1999, and a bonus at a target level of $75,000 to be determined in the
discretion of the Board of Directors. Pursuant to the employment agreement, if
we terminate Mr. Sozzi's employment without cause, Mr. Sozzi is entitled to
receive severance benefits, for a period of 18 months following his termination,
equal to (1) his base salary, (2) bonus payments at the fixed rate of $75,000
per year for each year or portion thereof, (3) continued participation in all
employee benefits, and (4) outplacement services. In addition, Mr. Sozzi has
agreed to certain confidentiality, noncompetition and nonsolicitation
provisions. Student Advantage has purchased and presently maintains a key person
life insurance policy in the amount of $20.0 million on the life of Mr. Sozzi.
In May 1999, Student Advantage entered into a letter agreement with Ronald
J. Kos and agreed to employ him as its Chief Operating Officer. Student
Advantage agreed to pay Mr. Kos an annual base salary of $150,000 and an annual
performance bonus with a target of $75,000, based upon the achievement of
certain performance objectives. We also agreed to grant Mr. Kos options to
purchase an aggregate of 650,000 shares of common stock at an exercise price of
$9.90 per share. If we terminate the employment of Mr. Kos without cause prior
to December 1, 1999, we will continue to pay him his base salary until December
1, 1999 and the vesting of options to purchase 162,500 shares held by him will
accelerate. The option agreements for Mr. Kos provide for the acceleration of
vesting in the event of a change in control of Student Advantage with respect to
the number of shares that would have vested on a monthly vesting schedule
through the date of the change in control and 50% of the remaining unvested
shares. If, following a change in control, the successor terminates the
employment of Mr. Kos without cause, vesting of the shares will accelerate in
full.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors consists of Messrs.
Kaiser, Katzman and Turtletaub, none of whom has been an officer or employee of
Student Advantage at any time since our inception. No executive officer of
Student Advantage serves as a member of the board of directors or compensation
committee (or other committee serving an equivalent function) of any other
entity that has one or more executive officers serving as a member of our Board
of Directors or compensation committee. Prior to the formation of the
Compensation Committee, the Board of Directors made decisions relating to the
compensation of executive officers.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our amended and restated certificate of incorporation limits the liability
of directors to the maximum extent permitted by Delaware law. Delaware law
provides that a corporation's certificate of incorporation may contain a
provision eliminating or limiting the personal liability of a director for
monetary damages
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<PAGE> 52
for breach of their fiduciary duties as directors, except for liability (1) for
any breach of their duty of loyalty to the corporation or its stockholders, (2)
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (3) for unlawful payments of dividends or
unlawful stock repurchases or redemptions as provided in Section 174 of the
Delaware General Corporation Law, or (4) for any transaction from which the
director derived an improper personal benefit.
Our amended and restated certificate of incorporation provides that we
shall indemnify our directors, officers and employee benefit plan fiduciaries to
the fullest extent permitted by law. Our amended and restated certificate of
incorporation permits us to advance expenses incurred by an indemnified director
or officer in connection with the defense of any action or proceeding arising
out of such director's or officer's status or service as a director or officer
of Student Advantage upon an undertaking by such director or officer to repay
such advances if it is ultimately determined that such director or officer is
not entitled to such indemnification.
We have entered into agreements to indemnify our directors and officers, in
addition to the indemnification provided for in our amended and restated
certificate of incorporation. These agreements, among other things, indemnify
our directors and officers for certain expenses (including attorneys' fees and
associated legal expenses), judgments, fines and amounts paid in settlement
amounts, actually and reasonably incurred by any such person's services as a
director or officer of Student Advantage or any other company or enterprise to
which the person provides services at the request of Student Advantage, if such
officer or director acted in good faith and in a manner which he or she
reasonably believed to be in, or not opposed to the best interests of Student
Advantage or with respect to any criminal proceeding, had no reasonable cause to
believe that his or her conduct was unlawful. We believe that these provisions
and agreements are necessary to attract and retain qualified directors and
officers.
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CERTAIN TRANSACTIONS
EQUITY FINANCING
On October 20, 1998, Greylock IX Limited Partnership and Marc Turtletaub
each purchased an aggregate of 625,000 preferred membership units (which
converted into 625,000 shares of Series A convertible preferred stock) for which
each of them paid $5.0 million. Greylock IX Limited Partnership and Mr.
Turtletaub purchased these membership units from certain members of Student
Advantage LLC, our predecessor LLC, including Messrs. Sozzi, Eichler, Siegel and
Liniado and Ms. Abegglen, each of whom is an executive officer of Student
Advantage, and The Main Quad, Inc., a holder of more than five percent of our
outstanding capital stock. Messrs. Sozzi, Eichler, Siegel, Liniado and
Turtletaub, Ms. Abegglen, The Main Quad and Greylock IX Limited Partnership then
exchanged the membership units held by each of them for convertible preferred
stock and common stock of Student Advantage. On October 20, 1998, Student
Advantage also sold 625,000 shares of convertible preferred stock to each of
Greylock IX Limited Partnership and Marc Turtletaub, for an aggregate purchase
price of $10.0 million. Mr. Kaiser, who is a General Partner of the General
Partner of Greylock IX Limited Partnership, and Mr. Turtletaub each became a
Director of Student Advantage in October 1998. Upon completion of this offering,
these outstanding shares of convertible preferred stock will automatically be
converted into an aggregate of 7,500,000 shares of common stock.
PRINCETON REVIEW PUBLISHING
In March 1996, we entered into an Investment Agreement with Princeton
Review Publishing, L.L.C. Pursuant to this agreement, Princeton Review purchased
2,479 membership units in the predecessor LLC for an aggregate purchase price of
$250,000. Mr. Katzman, a director of Student Advantage, is the President of
Princeton Review. In connection with this transaction, the predecessor LLC also:
- borrowed $75,000 and issued Princeton Review a convertible promissory
note bearing interest at 8.5% per year, which was paid in September 1997,
and
- borrowed $100,000 and issued Princeton Review a secured promissory note
bearing interest at 8.5% per year, which was paid in September 1998.
In September 1997, Student Advantage redeemed 1,498 of Princeton Review's
2,479 membership units in the predecessor LLC for an aggregate purchase price of
$630,000. In addition, Student Advantage borrowed $125,000 from Princeton
Review, which was repaid on October 23, 1998. In October 1998, Princeton
Review's remaining 981 membership units were converted into 1,450,587 shares of
common stock and 134,597 shares of convertible preferred stock (convertible into
403,791 shares of common stock).
In October 1998, Mr. Sozzi entered into an agreement with Princeton Review
requiring Mr. Sozzi to purchase up to 78,125 shares of convertible preferred
stock of Student Advantage at $8.00 per share upon the election of Princeton
Review. Princeton Review exercised this put option on November 24, 1998 and
consented to the purchase of the 78,125 shares of convertible preferred stock by
Mr. Siegel and Mr. Eichler, in addition to Mr. Sozzi.
Student Advantage entered into an agreement in March 1996 with Princeton
Review, pursuant to which:
- Princeton Review provides space on its Web site for Student Advantage to
market its programs,
- Princeton Review agreed to certain non-compete restrictions,
- Student Advantage agreed to promote certain of Princeton Review's
products, and
- Student Advantage agreed not to permit competitors of Princeton Review to
participate in certain Student Advantage programs.
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OTHER AGREEMENTS
In February 1995, Student Advantage entered into an agreement with David M.
Liniado d/b/a DML Enterprises. Mr. Liniado is an executive officer of Student
Advantage. Under this agreement, Student Advantage agreed to allow DML to market
discounts on products and services using the Student Advantage name in the
southeastern United States. In February 1996, Student Advantage acquired DML's
business and assets. DML received 111 membership units in the predecessor LLC
and the right to 35% of Student Advantage's pre-tax earnings derived from such
southeastern U.S. markets in 1996, 1997 and 1998. In April 1997, Student
Advantage issued an additional 239 membership units in complete satisfaction of
its obligation to pay DML 35% of its earnings derived from that region. On
October 20, 1998 the balance of DML's total membership units were converted into
517,536 shares of common stock and 16,698 shares of convertible preferred stock
(convertible into 50,094 shares of common stock).
In December 1997, Student Advantage entered into an asset purchase
agreement with The Main Quad, Inc. under which Student Advantage purchased
certain assets, including U-WIRE and Virtual Backpack, for $272,000 in cash and
270 membership units in the predecessor LLC. In connection with this agreement,
the predecessor LLC entered into an ancillary agreement entitling The Main Quad
to a certain number of additional membership interests, depending on the
valuation of Student Advantage in its initial public offering. In October 1998,
Student Advantage issued to The Main Quad an additional 480 membership units in
satisfaction of this obligation. The Main Quad's total membership units held as
of October 20, 1998 were converted into 1,109,013 shares of common stock and
55,345 shares of convertible preferred stock (convertible into 166,035 shares of
common stock). In connection with the asset purchase agreement, Student
Advantage entered into a three year employment agreement, dated May 1, 1997,
with Mr. Myers, co-founder of The Main Quad. Pursuant to the agreement, Mr.
Myers' base salary was $55,000 for the first year, $60,000 for the second year
and $65,000 for the third year of his employment. Student Advantage also entered
into an employment agreement with Kevin Watters, co-founder of The Main Quad, on
similar terms.
Mr. Sozzi, the Chairman of the Board of Directors, President and Chief
Executive Officer of Student Advantage, loaned Student Advantage $400,000 on
April 21, 1998 at an interest rate of 3% per year, which was repaid on August 3,
1998. Mr. Sozzi loaned $300,000 to Student Advantage on August 17, 1998,
$200,000 on August 31, 1998, $100,000 on September 4, 1998 and $250,000 on
September 18, 1998, all at an interest rate of approximately 6% per year.
Student Advantage repaid all of these loans on October 29, 1998.
Student Advantage loaned Mr. Siegel, Vice President, Product Development,
and an executive officer of Student Advantage, $60,000 on February 9, 1998 at an
interest rate per year of approximately 6% per year, which was paid in late
1998. Mr. Siegel loaned Student Advantage $100,000 on April 21, 1998 without
interest, which was repaid on May 11, 1998.
In January 1998, Ms. Abegglen, Vice President, Marketing Communications,
and an executive officer of Student Advantage, borrowed $164,914 from Student
Advantage in connection with the purchase of membership units in the predecessor
LLC. This borrowing, with interest at a rate of 5% per year, was repaid in
December 1998.
In December 1998, Student Advantage granted Christopher B. Andrews, Vice
President, Finance and Administration and an executive officer of Student
Advantage, an option under the 1998 Stock Incentive Plan to purchase 202,500
shares of common stock at an exercise price of $0.33 per share. This option
vests as to 16 2/3% of the shares on December 10, 1998, 8 1/3% of the shares on
September 22, 1999, and 25% on each September 22 for three years thereafter. In
December 1998, Student Advantage also granted David M. Liniado, Vice President,
Campus Development and an executive officer of Student Advantage, an option
under the 1998 Stock Incentive Plan to purchase 90,000 shares of common stock at
an exercise price of $0.33 per share. This option vests as to 25% of shares on
each of January 1, 2000, 2001, 2002 and 2003. The options granted to Messrs.
Andrews and Liniado are immediately exercisable in full, subject to repurchase
by Student Advantage at the exercise price upon termination of the executive
officer's employment prior to vesting in the shares. The option agreements for
each of Messrs. Andrews and
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Liniado provide for the acceleration of vesting in the event of a change in
control of Student Advantage with respect to the number of shares that would
have vested on a monthly vesting schedule through the date of the change in
control and 50% of the remaining unvested shares. If, following a change in
control, the successor terminates the employment of the executive officer
without cause or the executive officer terminates his employment for certain
reasons, vesting of the shares will accelerate in full.
All future transactions, including loans between us and our officers,
directors, principal stockholders and their affiliates will be approved by a
majority of the Board of Directors, including a majority of the disinterested
directors on the Board of Directors, and will be on terms no less favorable to
us than could be obtained from unaffiliated third parties.
DISTRIBUTIONS TO MEMBERS OF PREDECESSOR LIMITED LIABILITY COMPANY
During April 1998, the predecessor LLC distributed to its LLC members an
aggregate of approximately $1,043,000 so that they could pay their estimated tax
liability with respect to the 1997 taxable income of the predecessor LLC. These
LLC members included, among others, Mr. Sozzi, Mr. Eichler, Mr. Siegel,
Princeton Review, Ms. Abegglen, Mr. Liniado and The Main Quad. In November 1998,
Student Advantage distributed to the former members the remainder of the
predecessor LLC's 1997 taxable income (approximately $1,277,000). To the extent
Princeton Review's tax liability on the predecessor LLC's taxable income for
1997 and 1998 exceeds its estimated tax liability, Student Advantage agreed to
indemnify Princeton Review for such excess. Student Advantage also has agreed to
distribute to its former LLC members approximately 45% of the predecessor LLC's
1998 taxable income (expected to be a nominal amount) so that they can pay their
tax liability with respect to the 1998 taxable income of the predecessor LLC for
the period between January 1, 1998 and October 20, 1998, which was the date on
which the predecessor LLC was converted to a C Corporation.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of the common stock of Student Advantage as of April 30, 1999, and as
adjusted to reflect the sale of the shares of common stock offered by this
prospectus, by:
- each person or entity, or group of affiliated persons or entities, who
Student Advantage knows beneficially owns five percent or more of the
common stock,
- each director of Student Advantage and each executive officer named in
the Summary Compensation Table, and
- all directors and executive officers of Student Advantage as a group.
Unless otherwise indicated, (1) each person or entity named in the table
has sole voting power and investment power (or shares such power with his or her
spouse) with respect to all shares of capital stock listed as beneficially owned
by such person or entity and (2) the address of each beneficial owner is c/o
Student Advantage, Inc., 280 Summer Street, Boston, Massachusetts 02210. The
number of shares of common stock outstanding used in calculating the percentage
for each person listed includes the shares of common stock underlying options
held by such person that are exercisable within 60 days of April 15, 1999, but
excludes shares of common stock underlying options held by any other person.
Percentage of beneficial ownership is based on 24,497,061 shares of common stock
outstanding as of April 30, 1999, after giving effect to the conversion of the
convertible preferred stock, and 30,497,061 shares of common stock outstanding
after completion of this offering.
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON
STOCK OUTSTANDING
--------------------
SHARES BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED(1) OFFERING OFFERING
- ------------------------ ------------------- -------- --------
<S> <C> <C> <C>
Raymond V. Sozzi, Jr.(1).................................. 7,714,683 31.5% 25.3%
Greylock IX Limited Partnership(2)........................ 3,750,000 15.3 12.3
William S. Kaiser(2)...................................... 3,750,000 15.3 12.3
Marc Turtletaub........................................... 3,750,000 15.3 12.3
Daniel G. Siegel.......................................... 2,229,912 9.1 7.3
G. Todd Eichler........................................... 2,229,912 9.1 7.3
Princeton Review Publishing, L.L.C.(3).................... 1,620,003 6.6 5.3
John Katzman(3)........................................... 1,620,003 6.6 5.3
Mason Myers(4)(5)......................................... 1,335,048 5.4 4.4
Kevin Watters(4)(5)....................................... 1,323,048 5.4 4.3
The Main Quad, Inc.(4).................................... 1,275,048 5.2 4.2
All executive officers and directors as a group (9
persons)(6)............................................. 22,954,347 93.0% 74.8%
</TABLE>
- ---------------
(1) Consists of shares held of record by Mr. Sozzi. Does not include a total of
7,540,314 shares of common stock held by Ms. Abegglen, Messrs. Eichler,
Liniado and Siegel, The Main Quad, Inc., Thomas W. Haines and Mark Caputo,
over which Mr. Sozzi has voting control pursuant to an irrevocable proxy
granted under a Voting Agreement and Proxy dated October 20, 1998. Counting
these shares, Mr. Sozzi may be deemed to beneficially own a total of
15,254,997 shares, or 62.3% of the outstanding common stock prior to this
offering. The Voting Agreement and Proxy and the proxy granted thereunder
terminate upon the consummation of this offering.
(2) Consists of 3,750,000 shares held of record by Greylock IX Limited
Partnership. Mr. Kaiser is a general partner of Greylock IX GP Limited
Partnership, the general partner of Greylock IX Limited Partnership.
Greylock IX GP Limited Partnership has sole voting and investment power with
respect to these shares. Mr. Kaiser disclaims beneficial ownership of such
shares, except to the extent of his pecuniary interest therein. The address
for Greylock IX Limited Partnership and Greylock IX GP Limited Partnership
is One Federal Street, Boston, Massachusetts 02110.
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(3) Consists of 1,620,003 shares held of record by Princeton Review Publishing,
L.L.C. Mr. Katzman is the President of Princeton Review Publishing. Mr.
Katzman disclaims beneficial ownership of such shares, except to the extent
of his pecuniary interest therein. The address for Princeton Review
Publishing is 2315 Broadway, New York, New York 10024.
(4) Includes 1,275,048 shares held of record by The Main Quad, Inc. Messrs.
Myers and Watters are each stockholders, directors and officers of The Main
Quad, Inc. Messrs. Myers and Watters share investment and voting power with
respect to these shares. Messrs. Myers and Watters disclaim beneficial
ownership of such shares, except to the extent of their pecuniary interest
therein.
(5) Includes 60,000 shares subject to options held by Mr. Myers and 48,000
shares subject to options held by Mr. Watters, all of which are immediately
exercisable in full. Any shares acquired upon exercise are subject to
vesting over a four-year period and are subject to repurchase by Student
Advantage at the exercise price upon termination of the executive officer's
employment prior to vesting in the shares. In the event of a change in
control of Student Advantage, vesting of the shares will accelerate in part.
If, following a change in control, the successor terminates the employment
of the executive officer without cause or the executive officer terminates
his employment for certain reasons, vesting of the shares will accelerate in
full.
(6) See footnotes 1 through 5 above. Includes 172,500 shares subject to options
held by the executive officers which are immediately exercisable in full.
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DESCRIPTION OF CAPITAL STOCK
After this offering, the authorized capital stock of Student Advantage will
consist of 150,000,000 shares of common stock, $0.01 par value per share, and
5,000,000 shares of preferred stock, $0.01 par value per share. As of April 30,
1999, there were outstanding (1) 16,255,953 shares of common stock held by 12
stockholders of record, (2) 2,747,036 shares of convertible preferred stock
(convertible into 8,241,108 shares of common stock) held by 10 stockholders of
record and (3) options to purchase an aggregate of 2,225,736 shares of common
stock.
The following summary of certain provisions of our securities and various
provisions of our amended and restated certificate of incorporation and our
amended and restated bylaws is not intended to be complete and is qualified by
reference to the provisions of applicable law and to our amended and restated
certificate of incorporation and amended and restated bylaws included as
exhibits to the Registration Statement of which this prospectus is a part. See
"Additional Information."
COMMON STOCK
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive
proportionately any such dividends declared by the Board of Directors, subject
to any preferential dividend rights of outstanding preferred stock. Upon the
liquidation, dissolution or winding up of Student Advantage, the holders of
common stock are entitled to receive ratably the net assets of Student Advantage
available after the payment of all debts and other liabilities and subject to
the prior rights of any outstanding preferred stock. Holders of common stock
have no preemptive, subscription, redemption or conversion rights. The
outstanding shares of common stock are, and the shares offered by Student
Advantage in this offering will be, when issued and paid for, fully paid and
nonassessable. The rights, preferences and privileges of holders of common stock
are subject to the rights of the holders of shares of any series of preferred
stock which Student Advantage may designate and issue in the future. Certain
holders of common stock have the right to require Student Advantage to register
their shares of common stock under the Securities Act in certain circumstances.
See "Shares Eligible for Future Sale."
PREFERRED STOCK
Under the terms of our amended and restated certificate of incorporation,
the Board of Directors is authorized to issue such shares of preferred stock in
one or more series without stockholder approval. The Board has discretion to
determine the rights, preferences, privileges and restrictions, including voting
rights, dividend rights, conversion rights, redemption privileges and
liquidation preferences of each series of preferred stock.
The purpose of authorizing the Board of Directors to issue preferred stock
and determine its rights and preferences is to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could make it more difficult for a third party to
acquire, or could discourage a third party from acquiring, a majority of the
outstanding voting stock of Student Advantage. Student Advantage has no present
plans to issue any shares of preferred stock.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
Student Advantage is subject to the provisions of Section 203 of the
General Corporation Law of Delaware. In general, the statute prohibits a
publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Subject to certain exceptions,
an
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"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock.
The amended and restated bylaws provide for the division of the Board of
Directors into three classes as nearly equal in size as possible with staggered
three-year terms. Under the amended and restated bylaws, any vacancy on the
Board of Directors, including a vacancy resulting from an enlargement of the
Board of Directors, may only be filled by vote of a majority of the directors
then in office. The classification of the Board of Directors and the limitation
on and filling of vacancies could make it more difficult for a third party to
acquire, or discourage a third party from acquiring, control of Student
Advantage.
The amended and restated bylaws also provide that after this offering, any
action required or permitted to be taken by the stockholders of Student
Advantage at an annual meeting or special meeting of stockholders may only be
taken if it is properly brought before such meeting and may not be taken by
written action in lieu of a meeting. The amended and restated bylaws further
provide that special meetings of the stockholders may only be called by the
Chairman of the Board, the President or the Board of Directors. In order for any
matter to be considered "properly brought" before a meeting, a stockholder must
comply with certain requirements regarding advance notice and provide certain
information to Student Advantage. These provisions could have the effect of
delaying until the next stockholders meeting stockholder actions which are
favored by the holders of a majority of the outstanding voting securities of
Student Advantage. These provisions could also discourage a third party from
making a tender offer for the common stock, because even if it acquired a
majority of the outstanding voting securities of Student Advantage, it would be
able to take action as a stockholder (such as electing new directors or
approving a merger) only at a duly called stockholders' meeting and not by
written consent.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is BankBoston, N.A.
57
<PAGE> 60
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. We cannot predict the effect, if any, that sales of shares of common
stock to the public after completion of this offering or the availability of
shares for sale to the public after completion of this offering will have on the
market price of the common stock prevailing from time to time. Nevertheless, if
a significant number of shares of common stock are sold in the public market, or
if people believe that such sales may occur, the prevailing market price of our
common stock could decline and could impair our future ability to raise capital
through the sale of our equity securities.
Upon completion of this offering, we will have an aggregate of 30,497,061
shares of common stock outstanding (32,987,586 shares if the merger with
University Netcasting is completed), assuming no exercise of the underwriters'
over-allotment option and no exercise of options outstanding at April 30, 1999.
Of the outstanding shares, the shares sold in this offering will be freely
tradeable, without restriction under the Securities Act of 1933, except for any
such shares which may be acquired by an "affiliate" of Student Advantage, which
shares will be subject to the volume limitations of Rule 144 under the
Securities Act. As defined in Rule 144, an "affiliate" of an issuer is a person
who, directly or indirectly, through one or more intermediaries, controls or is
controlled by, or is under common control with, such issuer. The remaining
24,497,061 shares of common stock outstanding (26,987,586 shares if the merger
with University Netcasting is completed) will be "restricted securities" as that
phrase is defined in Rule 144 and may not be resold in the absence of
registration under the Securities Act or pursuant to an exemption from such
registration, including the exemption provided by Rule 144 under the Securities
Act.
In connection with this offering, our directors, officers and stockholders,
holding 24,495,000 shares ( shares if the merger with University
Netcasting is completed) in the aggregate, have agreed that, without the prior
written consent of BancBoston Robertson Stephens Inc. on behalf of the
underwriters, during the period ending 180 days after the date of this
prospectus, they will not directly or indirectly offer to sell, contract to
sell, or otherwise sell, dispose of, loan, pledge, or grant any right with
respect to, any shares of common stock or any securities convertible into or
exchangeable for shares of common stock, whether such shares or any such
securities are then owned by such person or are thereafter acquired directly
from us.
Subject to the foregoing and to the lock-up agreements, under Rule 144 as
currently in effect, beginning 180 days after the date of this prospectus,
holders of restricted securities will be entitled to sell a number of shares of
common stock within any three-month period equal to the greater of 1% of the
then outstanding shares of the common stock (approximately 304,970 shares
immediately following the offering (329,875 shares if the merger with University
Netcasting is completed)) or the average weekly reported volume of trading of
the common stock on the Nasdaq National Market during the four calendar weeks
preceding such sale, provided that certain manner of sale and notice
requirements and requirements as to the availability of current public
information concerning Student Advantage are satisfied.
Immediately after the offering, certain of our employees and former
employees will hold options to purchase approximately shares of common
stock outstanding ( shares if the merger with University Netcasting is
completed). Subject to the provisions of the lock-up agreements described below,
holders of these options may rely on the resale provisions of Rule 701 under the
Securities Act, which permits nonaffiliates to sell shares without having to
comply with the current public information, holding period, volume limitation or
notice provisions of Rule 144 and permits affiliates to sell their shares
without having to comply with the holding period provision of Rule 144, in each
case beginning 90 days after the consummation of this offering. In addition,
immediately after this offering, Student Advantage intends to file a
registration statement on Form S-8 covering all options granted under the 1998
Stock Incentive Plan and shares issued under the 1999 Employee Stock Purchase
Plan. Shares of common stock registered under such registration statement will,
subject to Rule 144 volume limitations applicable to affiliates, be available
for sale in the open market, unless such shares are subject to vesting
restrictions with Student Advantage or the lock-up agreements described above.
See "Management--Stock Plans--1998 Stock Incentive Plan."
58
<PAGE> 61
We have agreed not to sell or otherwise dispose of any shares of common
stock during the 180-day period following the date of the prospectus, except
that we may issue shares in connection with certain acquisitions and issue, and
grant options to purchase, shares of common stock under the 1998 Stock Incentive
Plan and the 1999 Employee Stock Purchase Plan.
If the merger with University Netcasting is completed, Student Advantage
has agreed to use its reasonable best efforts to register for public sale
1,245,263 shares that will be issued by Student Advantage in the merger on the
earlier of: (1) the 180th day after the date of this prospectus, and (2) the
date any of Raymond V. Sozzi, Jr., Greylock IX Limited Partnership, Marc
Turtletaub or Princeton Review Publishing, L.L.C. sells greater than 1% of the
then outstanding shares of common stock (other than in an underwritten secondary
offering of common stock).
In addition, following this offering, under specified conditions and
subject to customary exceptions, holders of 16,454,895 shares of common stock
will have demand registration rights with respect to their shares of common
stock (subject to the 180-day lock-up arrangement described above) to require us
to register their shares of common stock under the Securities Act, and they will
have rights to participate in any future registration of securities by us. We
are not required to effect more than two demand registrations on behalf of these
holders.
59
<PAGE> 62
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Prudential Securities Incorporated and Volpe
Brown Whelan & Company, LLC have severally agreed with us subject to the terms
and conditions of the underwriting agreement, to purchase from us the number of
shares of common stock set forth opposite their names below. The underwriters
are committed to purchase and pay for all such shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------- ----------
<S> <C>
BancBoston Robertson Stephens Inc. .........................
Prudential Securities Incorporated..........................
Volpe Brown Whelan & Company, LLC...........................
----------
Total............................................. 6,000,000
==========
</TABLE>
The underwriters' representatives have advised us that the underwriters
propose to offer the shares of common stock to the public at the initial public
offering price set forth on the cover page of this prospectus and to certain
dealers at such price less a concession not in excess of $ per share, of
which $ per share may be reallowed to other dealers. After the initial
public offering, the public offering price, concession, and reallowance to
dealers may be reduced by the representatives. No such reduction shall change
the amount of proceeds to be received by us as set forth on the cover page of
this prospectus.
The underwriters have informed us that they do not intend to confirm sales
to any accounts over which they exercise discretionary authority.
Over-Allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 900,000 additional shares of common stock at the same price per
share as we will be paid for the 6,000,000 shares that the underwriters have
agreed to purchase. To the extent that the underwriters exercise such option,
each of the underwriters will have a firm commitment to purchase approximately
the same percentage of such additional shares that the number of shares of
common stock to be purchased by it shown in the above table represents as a
percentage of the 6,000,000 shares offered hereby. If purchased, such additional
shares will be sold by the underwriters on the same terms as those on which the
6,000,000 shares are being sold. We will be obligated, pursuant to the option,
to sell shares to the extent the option is exercised. The underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of the shares of common stock offered hereby. If such option is exercised
in full, the total public offering price, underwriting discounts and commissions
and proceeds to Student Advantage will be $ million, $
million and $ million, respectively.
Expenses. The following table summarizes the compensation to be paid by
Student Advantage to the underwriters:
<TABLE>
<CAPTION>
TOTAL
--------------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------- -------------- --------------
<S> <C> <C> <C>
Public offering price................................. $ $ $
Underwriting discounts and commissions payable by
Student Advantage...................................
</TABLE>
Student Advantage estimates expenses payable by us in connection with this
offering, other than the underwriting discounts and commissions referred to
above, will be approximately $1.1 million.
60
<PAGE> 63
Directed Share Program. At our request, the underwriters have reserved up
to six percent of the common stock to be issued by us and offered for sale in
this offering, at the initial public offering price, to business associates and
certain persons otherwise connected to Student Advantage. The number of shares
of common stock available for sale to the general public will be reduced to the
extent such individuals purchase such reserved shares. Any reserved shares which
are not so purchased will be offered by the underwriters to the general public
on the same basis as the other shares offered in this offering.
Indemnity. Pursuant to the underwriting agreement, Student Advantage will
indemnify the underwriters against certain civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representation and warranties contained in the underwriting agreement.
Lock-Up Agreements. Each director, officer and stockholder of Student
Advantage and certain stockholders and option holders of University Netcasting
have agreed, during the period ending 180 days after the date of this prospectus
(the "lock-up period"), not to offer to sell, contract to sell, or otherwise
sell, dispose of, loan, pledge or grant any rights with respect to any shares of
common stock or any options, warrants to purchase any shares of common stock, or
any securities convertible into or exchangeable for shares of common stock owned
as of the date of this prospectus or thereafter acquired directly by such
holders or with respect to which they have the power of disposition, other than
shares acquired on the open market, without the prior written consent of
BancBoston Robertson Stephens Inc. However, the securities subject to the
lock-up agreement may be transferred (1) as a bona fide gift, (2) in a
distribution to stockholders or partners of such Student Advantage stockholder,
or (3) to certain trusts, if the transfer is not for value, provided, in each
case, that the proposed transferee agrees in writing to be bound by the
restrictions contained in the lock-up agreement. In addition, BancBoston
Robertson Stephens Inc. may, in its sole discretion and at any time without
notice, release all or any portion of securities subject to the lock-up
agreement. There are no existing agreements between the representatives of the
underwriters and any of our stockholders providing consent to the sale of shares
prior to the expiration of the lock-up period.
Future Sales. In addition, we have agreed that during the lock-up period
we will not, without the prior written consent of BancBoston Robertson Stephens
Inc., (1) consent to the disposition of any shares held by stockholders subject
to lock-up agreements prior to the expiration of the lock-up period or (2)
issue, sell, contract to sell, or otherwise dispose of, any shares of common
stock, any options to purchase any shares of common stock or any securities
convertible into, exercisable for or exchangeable for shares of common stock
other than (a) our sale of shares in this offering, (b) the issuance of common
stock upon the exercise of outstanding options and the issuance of options under
existing stock option and incentive plans, provided such common stock and the
common stock issuable upon the exercise of such options cannot be transferred
prior to the expiration of the lock-up period and (c) the issuance of shares in
connection with certain acquisitions that cannot be sold on the public market
during the lock-up period. See "Shares Eligible for Future Sale."
Listing. Application has been made to have the shares of common stock
approved for quotation on the Nasdaq National Market under the symbol "STAD."
Determination of Offering Price. Prior to this offering, there has been no
public market for the common stock. Consequently, the initial public offering
price for the common stock offered by this prospectus will be determined through
negotiations among us and the representatives of the underwriters. Among the
factors to be considered in such negotiations are prevailing market conditions,
certain of our financial information, market valuations of other companies that
we and the representatives of the underwriters believe to be comparable to us,
estimates of our business potential, the present state of our development and
other factors deemed relevant.
Stabilization. The underwriters have advised us that, pursuant to
Regulation M under the Securities Act, certain persons participating in the
offering may engage in transactions, including stabilizing bids, syndicate
covering transactions or the imposition of penalty bids, that may have the
effect of stabilizing or maintaining the market price of the common stock at a
level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of common stock on behalf of the
underwriters for the purpose of fixing or maintaining the price of the common
stock. A "syndicate covering transaction" is the bid for or the purchase of the
common stock on behalf of the underwriters to reduce a
61
<PAGE> 64
short position incurred by the underwriters in connection with this offering. A
"penalty bid" is an arrangement permitting the representatives to reclaim the
selling concession otherwise accruing to an underwriter or syndicate member in
connection with this offering if the common stock originally sold by such
underwriter or syndicate member is purchased by the representatives of the
underwriters in a syndicate covering transaction and has therefore not been
effectively placed by such underwriter or syndicate member. The representatives
of the underwriters have advised us that such transactions may be effected on
the Nasdaq National Market or otherwise and, if commenced, may be discontinued
at any time.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for Student Advantage by Hale and Dorr LLP, Boston, Massachusetts, and for
the underwriters by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts.
EXPERTS
The audited financial statements included in this Prospectus have been
audited by
PricewaterhouseCoopers LLP, independent accountants. The companies and periods
covered by these audits are indicated in the individual reports. Such financial
statements have been so included in reliance on the reports (with respect to the
report on University Netcasting, Inc., such report contains an explanatory
paragraph relating to University Netcasting's ability to continue as a going
concern as described in Note 1 to the University Netcasting, Inc. financial
statements) of PricewaterhouseCoopers LLP given on the authority of said firm as
experts in auditing and accounting.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-1. This prospectus, which is a part of the Registration
Statement, does not contain all of the information included in the Registration
Statement. Certain information is omitted and you should refer to the
Registration Statement and its exhibits. With respect to references made in this
prospectus to any contract, agreement or other document of Student Advantage,
such references are not necessarily complete and you should refer to the
exhibits attached to the Registration Statement for copies of the actual
contract, agreement or other document. You may review a copy of the Registration
Statement, including exhibits, at the Commission's public reference room at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 or Seven World
Trade Center, 13th Floor, New York, New York 10048 or Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Please call the Commission
at 1-800-SEC-0330 for further information on the operation of the public
reference rooms.
We will also file annual, quarterly and current reports, proxy statements
and other information with the Commission. You may read and copy any reports,
statements or other information on file at the public reference rooms. You can
also request copies of these documents, for a copying fee, by writing to the
Commission.
Our Commission filings and the Registration Statement can also be reviewed
by accessing the Commission's Internet site at http://www.sec.gov, which
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
62
<PAGE> 65
STUDENT ADVANTAGE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
STUDENT ADVANTAGE, INC.
Report of Independent Accountants........................... F-2
Balance Sheet as of December 31, 1997 and 1998 and as of
March 31, 1999 (unaudited)................................ F-3
Statement of Operations for the years ended December 31,
1996, 1997 and 1998 and the three months ended March 31,
1998 and March 31, 1999 (unaudited)....................... F-4
Statement of Changes in Redeemable Convertible Preferred
Stock and Stockholders' Deficit for the years ended
December 31, 1996, 1997 and 1998 and the three months
ended March 31, 1999 (unaudited).......................... F-5
Statement of Cash Flows for the years ended December 31,
1996, 1997 and 1998 and the three months ended March 31,
1998 and March 31, 1999 (unaudited)....................... F-6
Notes to Financial Statements............................... F-7
COLLEGIATE ADVANTAGE, INC.
Report of Independent Accountants........................... F-18
Balance Sheet as of December 31, 1997....................... F-19
Statement of Operations for the year ended December 31,
1997...................................................... F-20
Statement of Changes in Stockholders' Equity for the year
ended December 31, 1997................................... F-21
Statement of Cash Flows for the year ended December 31,
1997...................................................... F-22
Notes to Financial Statements............................... F-23
THE MAIN QUAD, INC.
Report of Independent Accountants........................... F-26
Balance Sheet as of December 6, 1997........................ F-27
Statement of Operations for the period from January 1, 1997
through December 6, 1997.................................. F-28
Statement of Changes in Stockholders' Deficit for the period
from January 1, 1997 through December 6, 1997............. F-29
Statement of Cash Flows for the period from January 1, 1997
through December 6, 1997.................................. F-30
Notes to Financial Statements............................... F-31
UNIVERSITY NETCASTING, INC.
Report of Independent Accountants........................... F-34
Balance Sheet as of March 31, 1998 and 1999................. F-35
Statement of Operations for the years ended March 31, 1998
and 1999.................................................. F-36
Statement of Changes in Redeemable Convertible Preferred
Stock and Stockholders' Deficit for the years ended March
31, 1998 and 1999......................................... F-37
Statement of Cash Flows for the years ended March 31, 1998
and 1999.................................................. F-38
Notes to Financial Statements............................... F-39
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Unaudited Pro Forma Combined Balance Sheet as of March 31,
1999...................................................... F-49
Unaudited Pro Forma Combined Statement of Operations for the
years ended December 31, 1996, 1997 and 1998 and for the
three months ended March 31, 1999......................... F-50
Notes to Unaudited Pro Forma Combined Financial
Information............................................... F-51
</TABLE>
F-1
<PAGE> 66
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Student Advantage, Inc.
The common stock split described in Note 1 to the financial statements has
not been consummated at May 7, 1999. When it has been consummated, we will be in
a position to furnish the following report:
"In our opinion, the accompanying balance sheet and the related statements
of operations, of changes in redeemable convertible preferred stock and
stockholders' deficit and of cash flows present fairly, in all material
respects, the financial position of Student Advantage, Inc. at December 31, 1997
and 1998, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above."
PricewaterhouseCoopers LLP
Boston, Massachusetts
May 7, 1999
F-2
<PAGE> 67
STUDENT ADVANTAGE, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------- MARCH 31, MARCH 31,
1997 1998 1999 1999
------- -------- ----------- -----------
(UNAUDITED)
(UNAUDITED) (NOTE 2)
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 1,904 $ 5,048 $ 3,491
Accounts receivable (net of allowance for doubtful
accounts of $70, at December 31, 1997 and December 31,
1998, respectively)..................................... 142 2,867 2,026
Prepaid expenses and other current assets................. 87 317 560
------- -------- --------
Total current assets................................ 2,133 8,232 6,077
Property and equipment, net................................. 235 1,085 1,261
Intangible assets, net...................................... 377 617 441
------- -------- --------
Total assets........................................ $ 2,745 $ 9,934 $ 7,779
======= ======== ========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' DEFICIT
Current liabilities
Borrowing under line of credit............................ $ -- $ -- $ 1,000
Accounts payable.......................................... 441 1,659 1,455
Accrued compensation...................................... 362 977 1,007
Other accrued expenses.................................... 273 1,177 1,303
Deferred revenue.......................................... 5,668 6,666 5,455
Notes payable to stockholder.............................. 225 -- --
------- -------- --------
Total current liabilities........................... 6,969 10,479 10,220
------- -------- --------
Series A redeemable convertible preferred stock; $1 par
value; Authorized: 4,000,000 shares; Issued: 1,588,688 and
2,952,568 shares at December 31, 1997 and 1998,
respectively and 2,952,568 shares at March 31, 1999
(unaudited); Outstanding: 1,383,156 and 2,747,036 shares
at December 31, 1997 and 1998 actual, respectively and
2,747,036 shares at March 31, 1999 (unaudited); no shares
issued and outstanding at December 31, 1998 pro forma
(unaudited)............................................... 111 10,196 10,196 $ --
------- -------- -------- --------
Commitments and contingencies (Notes 3 and 11)..............
Stockholders' deficit
Common stock, $.01 par value; Authorized: 15,000,000
shares; Issued: 17,121,651 and 18,348,957 at December
31, 1997 and 1998 and 18,468,957 shares at March 31,
1999 (unaudited), respectively; Outstanding: 14,906,586
and 16,133,892 shares at December 31, 1997 and 1998 and
16,253,892 shares at March 31, 1999 actual (unaudited),
respectively; 24,495,000 shares outstanding at March 31,
1999 pro forma (unaudited).............................. 171 183 184 273
Additional paid-in capital................................ 228 4,692 4,959 15,066
Accumulated deficit....................................... (4,104) (11,623) (13,832) (13,832)
Treasury stock (at cost).................................. (630) (630) (630) (630)
Deferred compensation..................................... -- (3,363) (3,318) (3,318)
------- -------- -------- --------
Total stockholders' deficit......................... (4,335) (10,741) (12,637) (2,441)
------- -------- -------- --------
Total liabilities, redeemable convertible preferred
stock and stockholders' deficit................... $ 2,745 $ 9,934 $ 7,779 $ 7,779
======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 68
STUDENT ADVANTAGE, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------- --------------------------
1996 1997 1998 1998 1999
------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue
Subscription......................................... $ 1,093 $ 2,971 $ 7,174 $ 1,738 $ 1,668
Other................................................ 637 821 10,269 1,658 2,557
------- ------- ------- ------- -------
Total revenue.................................. 1,730 3,792 17,443 3,396 4,225
------- ------- ------- ------- -------
Costs and expenses
Cost of subscription revenue......................... 543 2,628 2,442 302 320
Cost of other revenue................................ 506 309 7,331 1,515 2,503
Product development.................................. 507 1,469 2,588 485 573
Sales and marketing.................................. 356 843 4,717 746 1,366
General and administrative........................... 437 1,485 3,647 508 1,193
Depreciation and amortization........................ 37 239 1,027 160 268
Stock-based compensation............................. -- -- 808 -- 273
------- ------- ------- ------- -------
Total costs and expenses....................... 2,386 6,973 22,560 3,716 6,496
------- ------- ------- ------- -------
Loss from operations................................... (656) (3,181) (5,117) (320) (2,271)
Interest income (expense), net......................... (1) 29 2 15 62
------- ------- ------- ------- -------
Net loss............................................... $ (657) $(3,152) $(5,115) $ (305) $(2,209)
======= ======= ======= ======= =======
Basic and diluted net loss per share................... $ (0.05) $ (0.21) $ (0.32) $ (0.02) $ (0.14)
======= ======= ======= ======= =======
Shares used in computing basic and diluted net loss per
share................................................ 14,184 15,295 15,957 15,424 16,143
======= ======= ======= ======= =======
Unaudited pro forma basic and diluted net loss per
share................................................ $ (0.24) $ (0.09)
======= =======
Shares used in computing unaudited pro forma basic and
diluted net loss per share........................... 21,128 24,384
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 69
STUDENT ADVANTAGE, INC.
STATEMENT OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS'
DEFICIT
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
REDEEMABLE
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
--------------------- ---------------------- PAID-IN ACCUMULATED TREASURY
SHARES AMOUNT SHARES PAR VALUE CAPITAL DEFICIT STOCK
----------- ------- ---------- --------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996................ 1,031,914 $ 41 11,121,162 $111 $ (152) $ (295) $ --
Issuance of preferred and common
stock................................. 340,129 13 3,665,652 37 200 --
Net loss................................ (657) --
----------- ------- ---------- ---- ------ -------- -----
Balance, December 31, 1996.............. 1,372,043 54 14,786,814 148 48 (952) --
Issuance of preferred and common
stock................................. 119,368 19 1,286,452 13 56
Issuance of preferred and common stock
upon cancellation of notes payable.... 27,440 5 295,736 3 16
Issuance of preferred and common stock
in satisfaction of obligation to
stockholder........................... 32,792 9 353,404 3 30
Repurchase of 205,532 shares of
preferred stock and 2,215,065 shares
of common stock....................... (630)
Issuance of preferred and common stock
in connection with the acquisition of
The Main Quad......................... 37,045 24 399,245 4 78
Net loss................................ (3,152)
----------- ------- ---------- ---- ------ -------- -----
Balance, December 31, 1997.............. 1,588,688 111 17,121,651 171 228 (4,104) (630)
Issuance of preferred stock, net of
issuance costs of $84................. 1,250,000 10,000 (84)
Issuance of preferred and common stock
in connection with the acquisition of
The Main Quad......................... 65,858 49 709,768 7 169
Issuance of preferred and common stock
in exchange for note receivable....... 48,022 36 517,538 5 124
Distributions to stockholders........... (2,320)
Deferred compensation relating to grants
of stock options...................... 4,171
Compensation relating to grants of stock
options...............................
Net loss................................ (5,115)
----------- ------- ---------- ---- ------ -------- -----
Balance, December 31, 1998.............. 2,952,568 $10,196 18,348,957 $183 $4,692 $(11,623) $(630)
Exercise of employee stock options
(unaudited)........................... 120,000 1 39
Deferred compensation relating to grants
of stock options (unaudited).......... 228
Compensation relating to grants of stock
options (unaudited)...................
Net loss (unaudited).................... (2,209)
----------- ------- ---------- ---- ------ -------- -----
Balance, March 31, 1999 (unaudited)..... 2,952,568 $10,196 18,468,957 $184 $4,959 $(13,832) $(630)
=========== ======= ========== ==== ====== ======== =====
<CAPTION>
TOTAL
DEFERRED STOCKHOLDERS'
COMPENSATION DEFICIT
------------ -------------
<S> <C> <C>
Balance, January 1, 1996................ $ -- $ (336)
Issuance of preferred and common
stock................................. 237
Net loss................................ -- (657)
-------- --------
Balance, December 31, 1996.............. -- (756)
Issuance of preferred and common
stock................................. 69
Issuance of preferred and common stock
upon cancellation of notes payable.... 19
Issuance of preferred and common stock
in satisfaction of obligation to
stockholder........................... 33
Repurchase of 205,532 shares of
preferred stock and 2,215,065 shares
of common stock....................... (630)
Issuance of preferred and common stock
in connection with the acquisition of
The Main Quad......................... 82
Net loss................................ (3,152)
-------- --------
Balance, December 31, 1997.............. -- (4,335)
Issuance of preferred stock, net of
issuance costs of $84................. (84)
Issuance of preferred and common stock
in connection with the acquisition of
The Main Quad......................... 176
Issuance of preferred and common stock
in exchange for note receivable....... 129
Distributions to stockholders........... (2,320)
Deferred compensation relating to grants
of stock options...................... (4,171) --
Compensation relating to grants of stock
options............................... 808 808
Net loss................................ (5,115)
-------- --------
Balance, December 31, 1998.............. (3,363) $(10,741)
Exercise of employee stock options
(unaudited)........................... 40
Deferred compensation relating to grants
of stock options (unaudited).......... (228) --
Compensation relating to grants of stock
options (unaudited)................... 273 273
Net loss (unaudited).................... (2,209)
-------- --------
Balance, March 31, 1999 (unaudited)..... $ (3,318) $(12,637)
======== ========
</TABLE>
See Note 1 for information on stock split.
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 70
STUDENT ADVANTAGE, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- --------------------------
1996 1997 1998 1998 1999
----- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss............................................... $(657) $(3,152) $(5,115) $ (305) $(2,209)
Adjustments to reconcile net loss to net cash provided
by (used for) operating activities:
Depreciation and amortization........................ 37 239 1,027 164 268
Reserve for bad debts................................ -- 70 -- -- -
Compensation expense relating to issuance of
equity............................................. -- -- 808 -- 273
Changes in assets and liabilities:
Accounts receivable................................ (34) (44) (2,725) (125) 841
Prepaid expenses and other current assets.......... 7 (79) (230) (127) (243)
Accounts payable................................... 266 82 1,218 986 (204)
Accrued compensation............................... -- 273 615 -- 30
Accrued expenses................................... 17 199 704 993 126
Deferred revenue................................... 93 5,392 998 (1,666) (1,211)
----- ------- ------- ------- -------
Net cash provided by (used for) operating
activities....................................... (271) 2,980 (2,700) (80) (2,329)
===== ======= ======= ======= =======
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of fixed assets.............................. (16) (220) (1,037) (120) (284)
Acquisitions of businesses for cash.................... (135) (429) (655) (655) --
Proceeds from sale of fixed assets..................... -- -- -- -- 16
----- ------- ------- ------- -------
Net cash used for investing activities............. (151) (649) (1,692) (775) (268)
===== ======= ======= ======= =======
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of preferred stock, net............. 250 88 9,916 -- --
Proceeds from borrowings under line of credit.......... -- -- -- -- 1,000
Repayment of note from stockholder..................... -- -- 165 -- --
Proceeds from long-term debt........................... -- 39 -- -- --
Proceeds from short-term debt -- related party......... 190 50 1,410 -- --
Repayment of short-term debt -- related party.......... -- -- (1,635) -- --
Repurchase of common and preferred stock............... -- (630) -- -- --
Proceeds from sale of common stock..................... -- -- -- -- 40
Distributions to stockholders.......................... -- -- (2,320) -- --
----- ------- ------- ------- -------
Net cash provided by (used for) financing
activities....................................... 440 (453) 7,536 -- 1,040
----- ------- ------- ------- -------
Net increase (decrease) in cash and cash equivalents..... 18 1,878 3,144 (855) (1,557)
----- ------- ------- ------- -------
Cash and cash equivalents, beginning of year............. 8 26 1,904 1,904 5,048
----- ------- ------- ------- -------
Cash and cash equivalents, end of year................... $ 26 $ 1,904 $ 5,048 $ 1,049 $ 3,491
===== ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION AND NON-
CASH INVESTING AND FINANCING ACTIVITIES
Cash paid during the year for interest................... $ 1 $ 28 $ 87 $ 2 $ --
===== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 71
STUDENT ADVANTAGE, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION, NATURE OF BUSINESS AND BASIS OF PRESENTATION
Student Advantage, Inc. (the "Company") provides college students with
discounts on a broad range of products and services nationwide through the
Student Advantage membership program, as well as its Web site and magazine.
Student Advantage also offers marketing services to corporations seeking to
communicate effectively with the college student market.
Student Advantage, Inc. is the surviving entity of a reorganization of
Student Advantage LLC, a limited liability company. In October 1998, Student
Advantage LLC effected a recapitalization pursuant to which each of the 10,911
outstanding Members' Interests converted into 137 Preferred Members' Interests
and 1,479 Common Members' Interests, (or an aggregate of 1,497,036 Preferred
Members' Interests and 16,133,892 Common Members' Interests). Each Member
received the proportion of Preferred and Common Members' Interests that
corresponded to such Member's proportion of the 10,911 Members' Interests that
existed immediately prior to the recapitalization. Immediately following such
recapitalization, certain Members sold an aggregate of 1,250,000 Preferred
Members' Interests to two investors for aggregate consideration of $10 million.
Immediately following such transaction, the Company was reorganized from an
"LLC" to a "C" corporation, and as part of such reorganization, each Member
received the number of shares of common stock and of preferred stock of the
Company that was equal to the number of common and preferred Members' Interests
that such Member held immediately prior to the reorganization. The assets and
liabilities of the limited liability corporation were transferred to Student
Advantage at historical cost. The recapitalization and reorganization have been
accounted for retroactively in the accompanying financial statements.
Student Advantage operates in one segment and is subject to the risks and
uncertainties common to growing companies, including reliance on certain
customers, growth and commercial acceptance of the Internet, dependence on
principal products and services and third-party technology, activities of
competitors, dependence on key personnel such as Ray Sozzi, Student Advantage's
Chief Executive Officer, and limited operating history.
Student Advantage has also experienced substantial net losses since its
inception and, as of December 31, 1998, had an accumulated deficit of $11.6
million. Such losses and accumulated deficit resulted primarily from significant
costs incurred in the development of the Company's products and services and the
preliminary establishment of the Company's infrastructure. For the foreseeable
future, the Company expects to continue to experience growth in its operating
expenses in order to execute its current business plan. As a result, the
Company's business plan indicates that additional financing would be required to
support its planned expenditures. In the event that an initial public offering
is not completed on a timely basis, the Company would likely seek such funding
through a private financing.
On April 5, 1999, the Company declared a 3-for-1 stock split in the form of
a stock dividend, subject to stockholder approval. All periods presented have
been restated to reflect the stock dividend.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Student Advantage considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Student
Advantage invests its excess cash in money markets and certificates of deposit,
which are subject to minimal credit and market risk. Student Advantage's cash
equivalents are classified as available-for-sale and are recorded at cost which
approximates fair value.
F-7
<PAGE> 72
STUDENT ADVANTAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
The Company derives subscription revenue from membership fees related to
enrolling students in the Student Advantage Membership program. Subscription
income is recognized ratably over the remaining term of the membership
agreements. Other revenue includes advertising, marketing services, and
commerce. The Company derives revenue from advertisements placed in SAM, the
Student Advantage magazine, and on its Web site. Revenue from fees related to
advertisements placed in SAM are recognized when the magazine is shipped to
members. Web site advertising revenue is recognized as the related impressions
are displayed, provided that no significant obligations remain and collection of
the related receivable is probable. Marketing services revenue is derived from
providing tailored marketing services to corporations seeking to market their
products and services to college students. Fees from marketing services are
recognized as the related services are rendered, provided that no significant
obligations remain and collection of the related receivable is probable.
Commerce revenue includes primarily transaction-based fees earned from reselling
products and services on behalf of other businesses. This revenue is recognized
upon the completion of the related contractual obligations. Payments received in
advance of revenue being earned are recorded as deferred revenue.
Fair Value of Financial Instruments
The carrying amounts of Student Advantage's financial instruments, which
include cash equivalents, accrued expenses, notes payable and redeemable
convertible preferred stock, approximate their fair values at December 31, 1997
and 1998.
Concentrations of Credit Risk and Significant Customers
Financial instruments which potentially expose the Company to concentration
of credit risk primarily are comprised of trade accounts receivable. Management
believes its credit policies are prudent and reflect normal industry terms and
business risk. The Company does not anticipate non-performance by the
counterparties and, accordingly, does not require collateral. The Company
maintains reserves for potential credit losses and such losses, in the
aggregate, have not exceeded management's expectations. For the years ended
December 31, 1997 and 1998, one customer accounted for 62% and 68% of total
revenue, respectively. At December 31, 1997, three customers accounted for 62%
of accounts receivable, and at December 31, 1998, one customer accounted for 67%
of accounts receivable.
Product Development
Costs incurred in the product development by Student Advantage are expensed
as incurred.
Property and Equipment
Fixed assets are recorded at cost and depreciated over their estimated
useful lives, generally three to five years, using the straight-line method.
Repair and maintenance costs are expensed as incurred.
Intangible Assets
Intangible assets include the excess of the purchase price over
identifiable net assets acquired in acquisitions. Such assets include goodwill,
customer lists, noncompete agreements, Web sites and other intangible assets,
which are being amortized over the estimated economic lives of such assets
ranging from two to five years. Accumulated amortization was $231,000 and
$871,000 at December 31, 1997 and 1998, respectively.
F-8
<PAGE> 73
STUDENT ADVANTAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Accounting for Stock-Based Compensation
Student Advantage accounts for stock-based awards to employees using the
intrinsic value method as prescribed by Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. Accordingly, no compensation expense is recorded for options
issued to employees in fixed amounts and with fixed exercise prices at least
equal to the fair market value of Student Advantage's common stock at the date
of grant. Student Advantage has adopted the provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," through disclosure only (Note 8). All
stock-based awards to non-employees are accounted for at their fair value in
accordance with SFAS No. 123.
Income Taxes
Prior to its reorganization as a C Corporation in 1998 (Note 1), Student
Advantage was treated as a Limited Liability Corporation for federal and state
income tax purposes. Accordingly, no provision for corporate income taxes was
recorded during this period and all losses were passed through to Student
Advantage LLC's members. At the time of its reorganization, Student Advantage
adopted the liability method of accounting for income taxes as set forth in SFAS
No. 109, "Accounting for Income Taxes."
Advertising Expense
Student Advantage recognizes advertising expense as incurred. Advertising
expense was approximately $182,000, $158,000 and $371,000 for the years ended
December 31, 1996, 1997 and 1998, respectively.
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Unaudited Pro Forma Balance Sheet
Upon the closing of Student Advantage's anticipated initial public
offering, all 2,747,036 of the outstanding shares of Series A preferred stock
(Note 6) will automatically convert into 8,241,108 shares of common stock. This
conversion has been reflected in the unaudited pro forma balance sheet as of
March 31, 1999.
Cash Flow Information
During 1997, the Company issued 37,045 shares of Preferred Stock and
399,244 shares of Common Stock in connection with the acquisition of a company.
During 1997, the Company issued 27,440 shares of Preferred Stock and
295,736 shares of Common Stock in exchange for the cancellation of a $24,000
note payable.
During 1997, the Company issued 32,792 shares of Preferred Stock and
353,404 shares of Common Stock in satisfaction of an obligation to a
stockholder.
During 1998, the Company issued 65,858 shares of Preferred Stock and
709,768 shares of Common Stock in connection with a contingent payment relating
to a 1997 acquisition of a company.
F-9
<PAGE> 74
STUDENT ADVANTAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
During 1998, the Company issued 48,022 shares of Preferred Stock and
517,538 shares of Common Stock in exchange for a note receivable of $165,000.
Unaudited Interim Financial Data
The interim financial data as of March 31, 1999 and for the three months
ended March 31, 1998 and 1999 have been derived from unaudited financial
statements of the Company. Management believes the Company's unaudited financial
statements have been prepared on the same basis as the audited financial
statements and include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial position and
results of operations for such periods. Results for the three months ended March
31, 1998 and March 31, 1999 have not been audited and are not necessarily
indicative of results to be expected for the full fiscal year.
Net Loss Per Share and Unaudited Pro Forma Net Loss Per Share
Net loss per share is computed under SFAS No. 128, "Earnings Per Share".
Basic net loss per share is computed using the weighted average number of
shares. Diluted loss per share does not differ from basic loss per share since
potential common shares from conversion of preferred stock and exercise of stock
options are anti-dilutive for all periods presented. Pro forma basic and diluted
net loss per share have been calculated assuming the conversion of all
outstanding shares of Series A preferred stock into common shares, as if the
shares had converted immediately upon their issuance.
Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income". This statement establishes standards
for the reporting and display of comprehensive income and its components. SFAS
No. 130 was effective for Student Advantage's fiscal year ended December 31,
1998. Adoption of SFAS No. 130 is for presentation purposes only and had no
effect on Student Advantage's financial position or results of operations.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" which supersedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise". This statement changes the way
public business enterprises report segment information, including financial and
descriptive information about their selected segment information. Under SFAS No.
131, operating segments are defined as revenue-producing components of the
enterprise which are generally used internally for evaluating segment
performance. SFAS No. 131 is effective for Student Advantage's fiscal year
ending December 31, 1998 and will not affect Student Advantage's financial
position or results of operations.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits". SFAS No. 132 standardizes the
disclosure requirements for pensions and other postretirement benefits and is
effective for Student Advantage's fiscal year ended December 31, 1998. SFAS No.
132 relates to disclosure only and will not affect Student Advantage's financial
position or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The new standard establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999 and is effective
for Student Advantage's fiscal year ending December 31, 1999. Student Advantage
does not expect the adoption of SFAS No. 133 to have a material effect on its
financial position or results of operations.
F-10
<PAGE> 75
STUDENT ADVANTAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In March 1998, the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position ("SOP") 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is
effective for financial statements for years beginning after December 15, 1998.
SOP 98-1 provides guidance over accounting for computer software development or
obtained for internal use including the requirement to capitalize specified
costs and amortization of such costs. Student Advantage does not expect the
adoption of this standard to have a material effect on Student Advantage's
financial position or results of operation.
In April 1998, AcSEC issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities". Start-up activities are defined broadly as those one-time
activities related to opening a new facility, introducing a new product or
service, conducting business in a new territory, conducting business with a new
class of customer, commencing some new operation or organizing a new entity.
Under SOP 98-5, the cost of start-up activities should be expensed as incurred.
SOP 98-5 is effective for Student Advantage's fiscal 1999 financial statements
and Student Advantage does not expect its adoption to have a material effect on
its financial position or results of operations.
3. ACQUISITIONS
All acquisitions by Student Advantage, since its inception, have been
accounted for as purchases. Accordingly, the purchase price of each transaction
has been allocated to the assets acquired and liabilities assumed based on the
fair value of such assets and liabilities at the respective acquisition dates.
In March 1996, Student Advantage completed its acquisition of The Passport,
Inc. ("Passport"), a company that operated student discount programs. Student
Advantage paid $100,000 in cash and assumed liabilities of $35,000 in exchange
for the net assets of Passport, which consisted primarily of customer lists,
non-compete agreements and other intangible assets. Accordingly, the operating
results of Passport have been included in Student Advantage's financial
statements since the date of acquisition. Student Advantage is amortizing these
intangible assets on a straight-line basis over a three-year period.
In December 1997, Student Advantage completed its acquisition of The Main
Quad, Inc. ("Main Quad"), a company that owned and operated Web sites focused on
students. Student Advantage paid $272,000 in cash and issued 399,244 shares of
common stock and 37,045 shares of preferred stock with an aggregate estimated
fair value of $106,000 in exchange for the net assets of The Main Quad, which
consisted of certain office equipment as well as Web sites, customer lists,
non-compete agreements and other intangible assets. Student Advantage is
amortizing these tangible and intangible assets on a straight-line basis over a
two-year period. The agreement also provided for the payment of additional
consideration by Student Advantage upon the resolution of certain contingencies.
In 1998, the agreement was amended to eliminate the contingency provisions, and
Student Advantage agreed to issue an additional 709,768 shares of common stock
and 65,858 shares of preferred stock with an aggregate fair value of $225,000
which has been recorded as additional cost of the assets acquired. The operating
results of The Main Quad have been included in Student Advantage's financial
statements since the date of acquisition.
In December 1997, Student Advantage completed its acquisition of Loci, Inc.
("Loci"), a company that owned and operated a Web site focused on students.
Student Advantage paid approximately $100,000 in cash in exchange for the net
assets of Loci, which consisted of the Web site, customer lists, non-compete
agreements and other intangible assets. Accordingly, the operating results of
Loci have been included in Student Advantage's financial statements since the
date of acquisition. Student Advantage is amortizing these intangible assets on
a straight-line basis over a three-year period.
Student Advantage entered into an agreement effective January 1, 1998 for
the purchase of Collegiate Advantage, Inc., a provider of marketing and
promotional services to the college community. The cost of the acquisition
consisted of $601,000 in cash (including transaction costs) and the assumption
of liabilities
F-11
<PAGE> 76
STUDENT ADVANTAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
of $275,000. During 1998, the Company paid additional contingent consideration
of $50,000. Student Advantage may be required to pay additional consideration
based on future performance of the former Collegiate Advantage business. The
following unaudited pro forma data summarizes the results of operations for the
year ended December 31, 1997 as if the acquisition of Collegiate Advantage had
been completed on January 1, 1997. The pro forma data gives effect to actual
operating results prior to the acquisition and adjustments to interest income
and amortization of goodwill and other intangible assets. These pro forma
amounts do not purport to be indicative of the results that would have actually
been obtained if the acquisition had occurred on January 1, 1997 or that may be
obtained in the future.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1997
-------------------------
(UNAUDITED, IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C>
Net revenue............................................. $ 8,641
Net loss................................................ (3,560)
Net loss per common share:
Basic and diluted..................................... $ (0.23)
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- MARCH 31,
1997 1998 1999
---- ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and fixtures.................................. $ 17 $ 50 $ 75
Computer equipment and software......................... 164 673 746
Equipment............................................... 90 196 196
Leasehold improvements.................................. -- 389 555
---- ------ ------
271 1,308 1,572
Less: Accumulated depreciation and amortization......... 36 223 311
---- ------ ------
$235 $1,085 $1,261
==== ====== ======
</TABLE>
Depreciation and amortization expense with respect to property and
equipment for the years ended December 31, 1996, 1997 and 1998 was $3,000,
$20,000 and $187,000, respectively and for the three months ended March 31, 1999
was $88,000.
5. BORROWINGS
At December 31, 1997, the Company had two notes payable from a stockholder
in the aggregate amount of $225,000. These notes were fully repaid in 1998.
During 1998, the Company entered into a $1,250,000 line of credit agreement
with a bank expiring in April of 1999. The agreement is subject to certain
financial covenants as defined in the agreement, and the assets of the Company
collateralize the related obligation. Borrowings under the agreement bear
interest at the bank's rate, which at December 31, 1998 was 9.25%. During 1998,
the Company borrowed $1,250,000 under the agreement. There were no borrowing
outstanding at December 31, 1998. There was $1,000,000 outstanding at March 31,
1999.
In April 1999, this line of credit agreement was replaced with and
superseded by a new line of credit agreement which provides for borrowings of up
to $2.75 million, including a $250,000 equipment line of credit. The terms of
this line of credit agreement require the maintenance of certain minimum
financial ratios and conditions and includes other covenants similar to those in
the initial agreement. A termination
F-12
<PAGE> 77
STUDENT ADVANTAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
of the Company's agreements with AT&T would give the bank the right to terminate
the credit agreement. All borrowings under this line of credit agreement bear
interest at LIBOR plus 200 basis points or at the bank's rate, and expires in
June 2000.
6. PREFERRED STOCK
The Series A preferred stockholders have the following rights and
privileges:
Voting Rights
Each holder of the Series A preferred stock is entitled to a number of
votes equal to the number of shares of common stock into which each share of
such stock is convertible. With respect to the election of directors, the Series
A preferred stockholders, voting as a single class, may elect two directors.
Conversion
Each share of Series A preferred stock is convertible, at the option of the
holder, into three shares of common stock, subject to certain anti-dilution
adjustments. Each share of the Series A preferred stock will automatically
convert into three shares of common stock upon the closing of an underwritten
public offering of Student Advantage's common stock at a price to the public of
at least $4.10 per share resulting in aggregate proceeds to Student Advantage of
at least $15 million.
Dividend Rights
The Series A preferred stockholders are not entitled to receive any
dividends unless declared by Student Advantage's Board of Directors. In the
event that dividends are paid on the common stock, the Series A preferred
stockholders are entitled to receive dividends at the same rate and at the same
time as the common stockholders, with each share of Series A preferred stock
being treated as equal to the number of shares of common stock into which each
share of such stock is convertible.
Liquidation Preferences
In the event of any liquidation, dissolution or winding up of Student
Advantage, the Series A preferred stockholders are entitled to receive, in
preference to the holders of the common stock, an amount equal to the greater of
$8.00 per share, subject to certain anti-dilutive adjustments, or such amount as
would have been payable had such shares been converted to common stock just
prior to liquidation. Any assets remaining following the initial distribution to
the preferred stockholders shall be available for distribution ratably among the
common stockholders only.
Redemption
On October 16, 2003, at the request of at least one-third of the holders of
the Series A preferred stock, Student Advantage shall redeem the then
outstanding shares of Series A preferred stock from each holder that requests
redemption. Upon redemption, each holder of the Series A will be entitled to
receive a cash payment equal to $8.00 per share plus any declared but unpaid
dividends.
Undesignated Preferred Stock
On April 5, 1999, Student Advantage's Board of Directors approved, subject
to stockholder approval, 5,000,000 shares of undesignated preferred stock.
Issuances of the undesignated preferred stock may be made at the discretion of
the Board of Directors (without stockholder approval), in one or more series and
with such designations, rights and preferences as determined by the Board. As a
result, the undesignated preferred stock may have dividend, liquidation,
conversion, redemption, voting or other rights which may be more expansive than
the rights of holders of and the common stock.
F-13
<PAGE> 78
STUDENT ADVANTAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. COMMON STOCK
Authorized Shares
On April 5, 1999, Student Advantage's Board of Directors approved, subject
to stockholder approval, an increase in the authorized shares of common stock,
$0.01 par value, to 150,000,000.
8. STOCK AWARD PLANS
1998 Stock Incentive Plan
Under the 1998 Incentive Stock Plan, the Board of Directors may award
options and restricted stock or other stock-based awards. Incentive stock
options may not be granted at less than the fair market value of Student
Advantage's common stock at the date of grant, for a term not to exceed ten
years and generally vesting over a four-year period. The exercise price under
each non-qualified stock option shall be specified by the Board of Directors.
Awards made under the 1998 Stock Plan may be made at the discretion of the Board
of Directors with terms to be defined therein.
On April 5, 1999, the Board approved, subject to stockholder approval, an
increase in the 1998 Stock Plan providing for the issuance of up to an aggregate
7,500,000 shares of Student Advantage common stock to eligible employees,
officers, directors, consultants and advisors of Student Advantage.
Prior to 1998, there was no compensation expense recognized for stock
option grants made by Student Advantage under APB Opinion No. 25. For the year
ended December 31, 1998, compensation expense recognized for stock option grants
totaled $808,000. Had compensation cost for Student Advantage's option grants
been determined based on the fair value at the date of grant consistent with the
method prescribed by SFAS No. 123, Student Advantage's net loss and net loss per
share would have increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
---------------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C>
Net loss:
As reported...................................... $(5,115)
Pro forma........................................ (5,139)
Basic and diluted net loss per share...............
As reported...................................... (0.32)
Pro forma........................................ (0.32)
</TABLE>
Because the determination of the fair value of all options granted after
Student Advantage becomes a public entity will include an expected volatility
factor, because additional option grants are expected to be made subsequent to
December 31, 1998, and because most options vest over several years, the pro
forma effects of applying the fair value method may be material to the results
of operations in future years.
Under SFAS No. 123, the fair value of each employee option grant is
estimated on the date of grant using the Black-Scholes option pricing model to
apply the minimum value method with the following weighted-average assumptions
used for grants made during the year ended December 31, 1998: no dividend yield;
risk free interest rates of 4.54%; no volatility; and an expected option term of
4 years.
F-14
<PAGE> 79
STUDENT ADVANTAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Stock option activity during the year ended December 31, 1998 was as
follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
----------------------
WEIGHTED-
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
--------- ---------
<S> <C> <C>
Outstanding -- January 1, 1998
Granted (weighted average fair value of $1.86)....... 2,313,000 $0.33
Exercised............................................ --
Canceled............................................. --
--------- -----
Outstanding -- December 31, 1998....................... 2,313,000 $0.33
========= =====
</TABLE>
As of December 31, 1998, 1,887,000 shares were available for grant under
the 1998 Stock Plan.
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
VESTED AND EXERCISABLE
WEIGHTED-AVERAGE ----------------------------
REMAINING WEIGHTED-AVERAGE
EXERCISE NUMBER CONTRACTUAL LIFE NUMBER OF EXERCISE
PRICE OUTSTANDING (IN YEARS) SHARES PRICE
- -------- ----------- ---------------- --------- ----------------
<S> <C> <C> <C> <C>
$0.33 2,313,000 9.31 450,535 $0.33
</TABLE>
1999 Employee Stock Purchase Plan
On April 5, 1999, the Board of Directors authorized, subject to stockholder
approval, the 1999 Employee Stock Purchase Plan (the "Purchase Plan"). The
Purchase Plan provides for the issuance of up to 450,000 shares of Student
Advantage's common stock to eligible employees. Under the Purchase Plan, Student
Advantage is authorized to make one or more offerings during which employees may
purchase shares of common stock through payroll deductions made over the term of
the offering. The per-share purchase price at the end of each offering is equal
to 85% of the closing price of the common stock at the beginning or end of the
offering period (as defined by the Purchase Plan), whichever is lower.
Deferred Compensation
During 1998, Student Advantage granted stock options to purchase 2,313,000
shares of its common stock with an exercise price of $0.33 per share. Student
Advantage recorded compensation expense and deferred compensation relating to
these options totaling $808,000 and $4.2 million, respectively, representing the
differences between the estimated fair market value of the common stock on the
date of grant and the exercise price. Compensation relating to options which
vested immediately upon grant was expensed in full at the date of grant, while
compensation related to options which vest over time was recorded as a component
of stockholders' deficit and is being amortized over the vesting periods of the
related options.
F-15
<PAGE> 80
STUDENT ADVANTAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES
Deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
<S> <C>
Deferred tax assets:
Deferred revenue................................... $ 2,400,000
Net operating loss carryforwards................... 800,000
Non current assets................................. 200,000
Accruals........................................... 300,000
Deferred compensation.............................. 300,000
Other.............................................. 100,000
-----------
Total deferred tax assets.................. 4,100,000
Deferred tax asset valuation allowance............... (4,100,000)
-----------
$ --
===========
</TABLE>
The Company has provided a full valuation allowance for the deferred tax
assets since it is more likely than not that these future benefits will not be
realized. If the Company achieves future profitability, a significant portion of
these deferred tax assets could be available to offset future income taxes.
At December 31, 1998, the Company has a net operating loss carryforward for
federal and state purposes of approximately $2 million which expires through
2018.
Under the Internal Revenue Code, certain substantial changes in the
Company's ownership could result in an annual limitation on the amount of net
operating loss and tax credit carryforwards which can be utilized in future
years.
10. EMPLOYEE SAVINGS PLAN
During 1998, Student Advantage adopted an employee retirement savings plan
under Section 401(k) of the Internal Revenue Code which covers substantially all
employees. Under the terms of the 401(k) Plan, employees may contribute a
percentage of their salary, up to a maximum of 20%. Student Advantage
contributed $61,000 to the 401(k) Plan on behalf of its employees during 1998.
11. COMMITMENTS AND CONTINGENCIES
Student Advantage leases its operating facility and certain office
equipment under noncancelable operating lease agreements. Rent expense under
these leases for the years ended December 31, 1996, 1997 and 1998, totalled
approximately $44,000, $246,000 and $722,000, respectively.
F-16
<PAGE> 81
STUDENT ADVANTAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments under noncancelable operating leases at
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
----------
<S> <C>
1999..................................................... $ 799,000
2000..................................................... 708,000
2001..................................................... 496,000
2002..................................................... 437,000
2003..................................................... 437,000
Thereafter............................................... 238,000
----------
Total minimum lease payments............................. $3,115,000
==========
</TABLE>
Legal Proceedings
Student Advantage is from time to time subject to legal proceedings and
claims which arise in the normal course of its business. In the opinion of
management, the amount of ultimate liability with respect to these actions will
not have a material adverse effect on Student Advantage's financial position or
results of operations.
12. SUBSEQUENT EVENT
On April 1, 1999, Student Advantage completed its acquisitions of The
Travel Holding Group, LLC and The Campus Agency, LLC. The Campus Agency provides
media planning and strategy consulting services to the U.S. student travel
market. The Travel Holding Group is a reseller of Eurail passes. The
acquisitions have been accounted for under the purchase method of accounting and
the results of operations of each company will be included in Student
Advantage's results beginning on the acquisition date. Goodwill and other
intangible assets in the aggregate amount of $280,000 were recorded in
connection with these acquisitions and will be amortized over 3 years. Because
the historical results of Campus Agency and Travel Holding Group are immaterial,
pro forma financial information has not been presented.
On May 7, 1999, we entered into an agreement to acquire University
Netcasting, Inc. in a transaction that will be accounted for as a pooling of
interests. University Netcasting is a leading operator of official athletic Web
sites for colleges, universities and college sports associations. Through its
FANSonly Network, FANSonly.com, University Netcasting provides sports fans with
comprehensive online information and analysis on college sports. In connection
with the acquisition, we will issue 2,490,525 shares of common stock to the
stockholders of University Netcasting. The agreement provides that 249,053 of
the shares of common stock will be held in escrow to secure the indemnification
obligations of the University Netcasting stockholders for a period ending on the
earlier of the date one year after the closing of the merger and the date of
issuance of the first independent audit report of Student Advantage after the
closing of the merger. In addition, all outstanding options to purchase
University Netcasting common stock will be converted into options to purchase an
aggregate of 20,975 shares of Student Advantage common stock. We also agreed to
pay expenses, in an amount not to exceed $825,000, incurred by University
Netcasting in connection with the transaction. We agreed to use our reasonable
best efforts to register for public sale 1,245,263 shares of common stock that
will be issued to the stockholders of University Netcasting. We agreed to
register such shares on the earlier of: (1) the 180th day after the date of this
prospectus, and (2) the date any of Raymond V. Sozzi, Jr., Greylock IX Limited
Partnership, Marc Turtletaub or Princeton Review Publishing, L.L.C. sells
greater than 1% of the then outstanding shares of common stock.
F-17
<PAGE> 82
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Student Advantage, Inc.
In our opinion, the accompanying balance sheet and the related statements
of operations, of changes in stockholders' equity and of cash flows present
fairly, in all material respects, the financial position of Collegiate
Advantage, Inc. at December 31, 1997, and the results of its operations and its
cash flows for the year then ended, in conformity with generally accepted
accounting principles. 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 audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 5, 1999
F-18
<PAGE> 83
COLLEGIATE ADVANTAGE, INC.
BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Current assets
Cash...................................................... $ 304,665
Accounts receivable (net of allowance for doubtful
accounts of $20,000)................................... 851,195
Costs in excess of billings............................... 65,337
Prepaid expenses and other current assets................. 25,442
----------
Total current assets.............................. 1,246,639
Fixed assets, net........................................... 275,630
Deposits.................................................... 15,194
----------
Total assets...................................... $1,537,463
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accrued payroll........................................... $ 131,099
Accounts payable.......................................... 265,470
Deferred revenue.......................................... 371,092
----------
Total current liabilities......................... 767,661
----------
Commitments (Note 4)
Stockholders' equity
Capital stock, no par value; 15,000 shares authorized; 100
shares issued and outstanding at December 31, 1997..... 2,000
Retained earnings......................................... 767,802
----------
Total stockholders' equity........................ 769,802
----------
Total liabilities and stockholders' equity........ $1,537,463
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE> 84
COLLEGIATE ADVANTAGE, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Revenue..................................................... $4,849,270
Cost of revenue............................................. 3,812,075
----------
Gross profit.............................................. 1,037,195
General and administrative expenses......................... 1,207,580
----------
Loss from operations...................................... (170,385)
----------
Interest and other income:
Interest income........................................... 10,209
Other income.............................................. 17,611
----------
27,820
----------
Net loss.................................................... $ (142,565)
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE> 85
COLLEGIATE ADVANTAGE, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
COMMON STOCK
------------------
CARRYING RETAINED
SHARES VALUE EARNINGS TOTAL
------ -------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at December 31, 1996..................... 100 $2,000 $1,041,517 $1,043,517
Net loss......................................... (142,565) (142,565)
Dividends paid................................... (131,150) (131,150)
--- ------ ---------- ----------
Balance at December 31, 1997..................... 100 $2,000 $ 767,802 $ 769,802
=== ====== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE> 86
COLLEGIATE ADVANTAGE, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................. $(142,565)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 110,691
Changes in operating assets and liabilities
Accounts receivable.................................. (132,065)
Costs in excess of billings.......................... 37,531
Prepaid expenses and other current assets............ 12,353
Accrued payroll...................................... 131,099
Accounts payable..................................... 15,039
Deferred revenue..................................... 353,092
---------
Net cash provided by operating activities......... 385,175
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of fixed assets................................. (88,516)
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid............................................ (131,150)
---------
Net increase in cash........................................ 165,509
Cash, beginning of year..................................... 139,156
---------
Cash, end of year........................................... $ 304,665
=========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest.................... $ 338
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE> 87
COLLEGIATE ADVANTAGE, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION, NATURE OF BUSINESS AND BASIS OF PRESENTATION
Collegiate Advantage, Inc. operates in one business segment and is engaged
primarily in providing promotional, marketing and advertising services on
college campuses throughout the United States.
2. SUMMARY OF 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 reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Cash
All highly liquid investments with an original maturity of three months or
less are considered to be cash equivalents. The Company maintains its cash in
bank deposit accounts which at times, may exceed federally insured limits. The
Company does not believe that it is exposed to significant credit risk
concerning cash and cash equivalents.
Accounts Receivable, Concentration of Credit Risk and Significant Customers
Financial statements which potentially expose the Company to concentrations
of credit risk include accounts receivable. The Company does not require
collateral but closely monitors amounts receivable from customers.
During 1997, the Company earned approximately 61% of its revenue from one
customer. Additionally, the Company had $433,222 of accounts receivable and
$371,092 of deferred revenue related to this customer at December 31, 1997.
Fixed Assets
Fixed assets are recorded at cost and depreciated using the straight-line
method over their estimated useful lives. Maintenance and repairs costs are
expensed as incurred.
Income Taxes
Collegiate Advantage has elected, by consent of its stockholders, to be
taxed under the provisions of Subchapter S of the Internal Revenue Code for
income tax return purposes. Under these provisions, the Company does not pay
Federal income taxes on its taxable income. Instead, the stockholders are liable
for individual Federal income taxes on the Company's taxable income. Thus, the
Company does not incur Federal income tax obligations.
Advertising Expense
Collegiate Advantage recognizes advertising expense as incurred.
Advertising expense was approximately $11,469 for the year ended December 31,
1997.
F-23
<PAGE> 88
COLLEGIATE ADVANTAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
Revenue is recognized as services are performed, provided that all
significant obligations have been fulfilled and collection of the related
receivable is probable. Billings and payments in advance of the recognition of
revenue are recorded as deferred revenue.
3. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES DECEMBER 31,
(IN YEARS) 1997
------------ ------------
<S> <C> <C>
Computers and equipment.............................. 5 $374,381
Furniture and fixtures............................... 5 - 7 37,523
Motor vehicles....................................... 3 107,626
Leasehold improvements............................... 3 23,050
--------
542,580
Less -- accumulated depreciation and amortization.... (266,950)
--------
$275,630
========
</TABLE>
Depreciation and amortization expense totaled $110,691 for the year ended
December 31, 1997.
4. COMMITMENTS
Service Agreement
During 1997, Collegiate Advantage negotiated the redemption of a 50%
stockholder's interest in the Company. The stock was purchased directly from the
50% stockholder by another stockholder of the Company. In connection with this
arrangement, the Company entered into a service consulting agreement with the
former stockholder which expires on December 31, 2000 unless terminated earlier
under the provisions of the agreement. The Company is required to pay $25,000 on
the last day of each calendar quarter commencing on March 31, 1998.
Leases
Collegiate Advantage leases its facilities and certain equipment under
operating leases extending through 1998. In addition to rent, Collegiate
Advantage is responsible for incremental operating costs, including real estate
taxes, on each property. Expenses incurred under these leases during the year
ended December 31, 1997 totaled $193,483.
Future minimum lease payments under operating leases are as follows:
<TABLE>
<S> <C>
1998...................................................... $187,099
1999...................................................... 91,290
--------
$278,389
========
</TABLE>
5. EMPLOYEE BENEFIT PLANS
During 1995, Collegiate Advantage implemented a defined contribution profit
sharing plan covering all eligible employees. Employer contributions are at the
discretion of management. Collegiate Advantage elected not to make any
contributions to the plan in 1997.
F-24
<PAGE> 89
COLLEGIATE ADVANTAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In addition, Collegiate Advantage established an employee savings and
profit sharing plan during 1995. Employees may contribute to the employee
savings plan subject to the provisions of Code Section 401(k) of the Internal
Revenue Code. Collegiate Advantage matches employee contributions up to 6.0% of
eligible compensation. Collegiate Advantage contributed $20,031 to this plan in
1997.
6. LINE OF CREDIT
During 1997, the Company entered into a $450,000 line of credit agreement
with a bank. Borrowings under the agreement bear interest at the bank's prime
rate plus 0.5% (9.0% at December 31, 1997). At December 31, 1997, there were no
advances outstanding under this line of credit.
7. RELATED PARTY TRANSACTIONS
During 1997, Collegiate Advantage, Inc. paid $373,883 to Event Staffers,
L.L.C., a related company under common control, for payroll services provided to
Collegiate Advantage and related administrative expenses.
8. SUBSEQUENT EVENT
The Company entered into an agreement effective January 1, 1998 to be
purchased by Student Advantage which paid $601,000 and assumed $275,000 of the
Company's liabilities in connection with the acquisition. Student Advantage may
be required to pay additional consideration based on the future performance of
the Company's former business.
F-25
<PAGE> 90
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Student Advantage, Inc.
In our opinion, the accompanying balance sheet and the related statements
of operations, of changes in stockholders' deficit and of cash flows present
fairly, in all material respects, the financial position of The Main Quad, Inc.
at December 6, 1997, and the results of its operations and its cash flows for
the period from January 1, 1997 through December 6, 1997, in conformity with
generally accepted accounting principles. 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 audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards
which 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 5, 1999
F-26
<PAGE> 91
THE MAIN QUAD, INC.
BALANCE SHEET
DECEMBER 6, 1997
<TABLE>
<S> <C>
ASSETS
Current assets
Accounts receivable....................................... $ 32,743
Prepaid expenses.......................................... 5,800
---------
Total current assets.............................. 38,543
Fixed assets, net........................................... 18,431
---------
Total assets...................................... $ 56,974
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable.......................................... $ 45,608
Advance from Student Advantage............................ 25,000
Current portion of capital lease obligations.............. 10,019
Notes payable founders and related parties................ 187,511
---------
Total current liabilities......................... 268,138
Capital lease obligations................................... 1,790
---------
Total liabilities................................. 269,928
---------
Commitments (Note 6)
Stockholders' deficit
Series A Preferred Stock, $0.50 par value; 500,000 shares
authorized; 120,000 shares issued and outstanding at
December 6, 1997....................................... 60,000
Series B Preferred Stock, $0.55 par value; 570,000 shares
authorized; 387,724 shares issued and outstanding at
December 6, 1997....................................... 213,248
Common Stock, $0.01 par value; 5,000,000 shares
authorized; 1,560,000 shares issued and outstanding at
December 6, 1997....................................... 15,600
Stock subscription receivable............................. (13,120)
Accumulated deficit....................................... (488,682)
---------
Total stockholders' deficit....................... (212,954)
---------
Total liabilities and stockholders' deficit....... $ 56,974
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE> 92
THE MAIN QUAD, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1997 THROUGH DECEMBER 6, 1997
<TABLE>
<S> <C>
Revenue..................................................... $ 96,908
Cost of revenue............................................. 46,118
---------
Gross profit.............................................. 50,790
---------
Operating expenses
Product development....................................... 31,232
Selling and marketing..................................... 22,313
General and administrative................................ 125,531
---------
179,076
---------
Net loss.................................................. $(128,286)
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE> 93
THE MAIN QUAD, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM JANUARY 1, 1997 THROUGH DECEMBER 6, 1997
<TABLE>
<CAPTION>
SERIES A SERIES B
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
----------------- ------------------ ------------------- SUBSCRIPTION ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT RECEIVABLE DEFICIT TOTAL
------- ------- ------- -------- --------- ------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1997.................... 120,000 $60,000 1,560,000 $15,600 $(13,120) $(360,396) $(297,916)
Issuance of Series B
Preferred Stock......... 387,724 $213,248 213,248
Net loss.................. (128,286) (128,286)
------- ------- ------- -------- --------- ------- -------- --------- ---------
Balance, December 6,
1997.................... 120,000 $60,000 387,724 $213,248 1,560,000 $15,600 $(13,120) $(488,682) $(212,954)
======= ======= ======= ======== ========= ======= ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE> 94
THE MAIN QUAD, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1997 THROUGH DECEMBER 6, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................. $(128,286)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization.......................... 28,582
Changes in operating assets and liabilities
Accounts receivable.................................. (24,480)
Prepaid expenses..................................... (2,850)
Other assets......................................... 45,285
Accounts payable..................................... (24,060)
Accrued expenses..................................... (9,736)
Deferred revenue..................................... (550)
---------
Net cash used for operating activities............... (116,095)
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of fixed assets................................. (1,359)
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of Series B Preferred Stock........ 213,248
Advance from Student Advantage............................ 25,000
Repayment of notes........................................ (110,234)
Payment of capital leases................................. (10,607)
---------
Net cash provided by financing activities............ 117,407
---------
Net decrease in cash........................................ (47)
Cash, beginning of period................................... 47
---------
Cash, end of period......................................... $ --
=========
Supplemental disclosure of cash flow information
Cash paid for interest.................................... $ 2,275
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE> 95
THE MAIN QUAD, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF THE BUSINESS
The Main Quad, Inc. (the "Company") is organized as a California
corporation. The Company also runs a comprehensive Web site positioned as an
online collection of services and content for students in the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Company derives revenue from advertisements placed on its Web site and
from providing other advertising services to corporate sponsors participating in
the network. Sponsor advertising revenue is recognized when all significant
obligations have been fulfilled and collection of the related receivable is
probable. Web site advertising revenue is recognized as the related impressions
are displayed, provided that no significant obligations of the Company remain
and collection of the related receivable is probable.
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 reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk and Significant Customers
Financial instruments which potentially expose the Company to concentration
of credit risk include accounts receivable. The Company does not require
collateral but closely monitors amounts receivable from customers.
Revenue of approximately $27,000 (28%) and $14,500 (15%) was attributable
to two separate customers during the period from January 1, 1997 through
December 6, 1997.
Fixed Assets
Fixed assets are recorded at cost and depreciated using the straight-line
method over their estimated useful lives. Maintenance and repair costs are
expenses as incurred.
3. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE DECEMBER 6,
(YEARS) 1997
----------- -----------
<S> <C> <C>
Computer equipment and software....................... 3 $ 26,646
Furniture and fixtures................................ 5 3,250
Office equipment...................................... 5 35,332
--------
65,228
Less -- accumulated depreciation and amortization..... (46,797)
--------
$ 18,431
========
</TABLE>
F-31
<PAGE> 96
THE MAIN QUAD, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation and amortization expense totaled $28,572 for the period from
January 1, 1997 through December 6, 1997.
4. BORROWINGS
The Company's borrowings consist of the following at December 6, 1997:
<TABLE>
<CAPTION>
DECEMBER 6,
1997
-----------
<S> <C> <C>
Notes payable, founders:
Non-interest bearing promissory notes payable to founders............. $ 21,215
Notes payable, other related parties:
Non-interest bearing promissory notes payable to other related
parties.......................................................... 166,296
--------
$187,511
========
</TABLE>
5. SERIES A AND SERIES B PREFERRED STOCK
The Series A and Series B Preferred Stock have the following
characteristics:
Voting
Except with regard to actions on which the Series A and Series B
Stockholders are entitled to vote as a separate class, the holders of Series A
and Series B Preferred Stock vote together with all other classes and series of
stock on all actions to be taken by the stockholders of the Company.
Dividends
The holders of the outstanding Series A and Series B Preferred Stock shall
be entitled to receive, when and as declared by the Board of Directors,
dividends at the rate of 8% ($0.04) per share per annum, payable in preference
and priority to any payment of any dividend on Common Stock. Such preferential
dividend rights of the Series A and Series B Preferred Stock shall have equal
priority to one another. Such dividends shall not be cumulative, and no right to
such dividends shall accrue to holders of Series A or Series B Preferred Stock
unless declared by the Board of Directors.
Liquidation Preference
In the event of any liquidation, dissolution, or winding-up of the Company,
the holders of Series A and Series B Preferred Stock are entitled to receive,
prior to and in preference to holders of Common Stock, the amount equal to the
original purchase price for their respective series of Preferred Stock on a pro
rata basis with all Preferred Stockholders, plus an amount equal to all declared
but unpaid dividends on the Series A and Series B Preferred Stock.
Conversion
Each share of Series A and Series B Preferred Stock may be converted, at
the option of the holders thereof, at any time after the date of the issuance,
into one share of Common Stock, subject to adjustment in the event of stock
split, combination or recapitalization.
Warrants
In connection with the issuance of Series A and Series B Preferred Stock,
the Company issued warrants to purchase 40,000 shares of Series A Preferred
Stock and 69,093 shares of Series B Preferred
F-32
<PAGE> 97
THE MAIN QUAD, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Stock at their respective par values. These warrants are immediately
exercisable, and will terminate five years from the date of issuance, unless the
Company's initial sale of its Common Stock in a public offering or the
acquisition of the Company occurs prior to that date.
6. COMMON STOCK
Each share of Common Stock entitles the holder to one vote on all matters
submitted to a vote of the Company's stockholders. Common stockholders are
entitled to receive dividends, if any, as may be declared by the Board of
Directors, subject to the preferential dividend rights of the Series A and
Series B Preferred stockholders.
7. COMMITMENTS
The Company leases its office space and certain office equipment under
non-cancelable operating and capital leases. Total rent expense under these
leases was approximately $41,600 for the period from January 1, 1997 through
December 6, 1997.
Future minimum lease commitments at December 6, 1997 are as follows:
<TABLE>
<CAPTION>
CAPITAL
YEAR ENDING DECEMBER 31, LEASES
- ------------------------ -------
<S> <C>
1998..................................................... $11,063
1999..................................................... 1,844
-------
12,907
Less: portion representing interest...................... (1,098)
-------
$11,809
=======
</TABLE>
There are no lease commitments for the period from December 7, 1997 through
December 31, 1997.
8. SUBSEQUENT EVENT
In December of 1997, the Company was purchased by Student Advantage.
Student Advantage paid $272,000 in cash and issued 270 Members' Interests with
an estimated fair value of $106,000 in exchange for the net assets of the
Company, which consisted of certain office equipment as well as customer lists,
non-compete agreements and other intangible assets. In 1998, the agreement was
amended to eliminate the contingency provisions, and Student Advantage agreed to
issue an additional 480 Members' Interests with an aggregate fair value of
$225,000.
F-33
<PAGE> 98
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
University Netcasting, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of stockholders' deficit and redeemable convertible preferred
stock and of cash flows present fairly, in all material respects, the financial
position of University Netcasting, Inc. at March 31, 1998 and 1999, and the
results of its operations and its cash flows for each of the two years in the
period ended March 31, 1999 in conformity with generally accepted accounting
principles. 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 of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred recurring operating losses and is
in an accumulated deficit position; these factors raise substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ PricewaterhouseCoopers LLP
San Diego, California
April 30, 1999
F-34
<PAGE> 99
UNIVERSITY NETCASTING, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
---------------------------
1998 1999
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,902,000 $ 1,092,000
Accounts receivable, net.................................. 339,000 342,000
Other current assets...................................... 86,000 16,000
----------- ------------
Total current assets.............................. 4,327,000 1,450,000
Furniture and equipment, net................................ 134,000 301,000
Other assets................................................ 11,000 20,000
----------- ------------
Total assets...................................... $ 4,472,000 $ 1,771,000
=========== ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 272,000 $ 325,000
Accrued expenses.......................................... 587,000 855,000
Deferred revenue.......................................... 302,000 398,000
----------- ------------
Total current liabilities......................... 1,161,000 1,578,000
----------- ------------
Commitments (Note 7)
Redeemable convertible preferred stock, $0.01 par value:
Series A, 11,923,700 shares designated at March 31, 1998
and 1999; 11,291,734 and 11,588,907 shares issued and
outstanding at March 31, 1998 and 1999; (liquidating
and redemption preference of $11,292,000 and
$11,589,000 at March 31, 1998 and 1999)................ 7,031,000 8,039,000
Series B, 9,500,000 shares designated at March 31, 1998
and 1999; 6,761,604 and 9,428,172 shares issued and
outstanding at March 31, 1998 and 1999; (liquidating
and redemption preference of $5,071,000 and $7,071,000
at March 31, 1998 and 1999)............................ 4,804,000 6,858,000
Warrant for Series B...................................... 194,000 194,000
----------- ------------
12,029,000 15,091,000
----------- ------------
Stockholders' deficit:
Common stock, $0.01 par value, 24,000,000 shares
authorized; 32,037 shares issued and outstanding at
March 31, 1999......................................... 6,000
Accumulated deficit....................................... (8,718,000) (14,904,000)
----------- ------------
Total stockholders' deficit....................... (8,718,000) (14,898,000)
----------- ------------
Total liabilities and stockholders' deficit....... $ 4,472,000 $ 1,771,000
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE> 100
UNIVERSITY NETCASTING, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------
1998 1999
---- ----
<S> <C> <C>
Revenue..................................................... $ 1,023,000 $ 1,917,000
----------- -----------
Costs and expenses:
Royalties................................................. 384,000 536,000
Cost of product sales..................................... 9,000 --
Product development....................................... 1,784,000 2,360,000
Marketing and sales....................................... 1,062,000 2,596,000
General and administrative................................ 1,242,000 1,837,000
Depreciation.............................................. 112,000 128,000
----------- -----------
4,593,000 7,457,000
----------- -----------
Operating loss.................................... (3,570,000) (5,540,000)
Interest income............................................. 26,000 119,000
Interest expense............................................ (132,000)
----------- -----------
Net loss.......................................... $(3,676,000) $(5,421,000)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-36
<PAGE> 101
UNIVERSITY NETCASTING, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT AND REDEEMABLE CONVERTIBLE PREFERRED STOCK
<TABLE>
<CAPTION>
REDEEMABLE PREFERRED STOCK
-----------------------------------------------------------
SERIES A SERIES B STOCK
----------------------- ---------------------- PURCHASE
SHARES AMOUNT SHARES AMOUNT WARRANTS
------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
BALANCE AT MARCH 31,
1997................... 9,607,524 $5,672,000
Issuance of stock for
notes and interest
payable................ 1,094,837 $ 821,000
Issuance of stock for
cash................... 1,006,745 625,000
Issuance of stock for
cash, net of issuance
costs of $267,000...... 5,666,667 3,983,000
Issuance of stock for
services............... 677,465 678,000
Issuance of warrants..... $194,000
Accretion of discount on
redeemable preferred
stock.................. 56,000
Net loss.................
---------- ---------- --------- ---------- --------
BALANCE AT MARCH 31,
1998................... 11,291,734 7,031,000 6,761,504 4,804,000 194,000
Exercise of stock
options................
Issuance of stock for
services............... 297,173 297,000
Issuance of stock for
cash................... 2,666,668 2,000,000
Accretion of discount on
redeemable preferred
stock.................. 711,000 54,000
Net loss.................
---------- ---------- --------- ---------- --------
BALANCE AT MARCH 31,
1999................... 11,588,907 $8,039,000 9,428,172 $6,858,000 $194,000
========== ========== ========= ========== ========
<CAPTION>
STOCKHOLDERS' DEFICIT
----------------------------------------------
COMMON STOCK TOTAL
--------------- ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT DEFICIT DEFICIT
------ ------ ----------- -------------
<S> <C> <C> <C> <C>
BALANCE AT MARCH 31,
1997................... $ (4,986,000) $ (4,986,000)
Issuance of stock for
notes and interest
payable................
Issuance of stock for
cash...................
Issuance of stock for
cash, net of issuance
costs of $267,000......
Issuance of stock for
services...............
Issuance of warrants.....
Accretion of discount on
redeemable preferred
stock.................. (56,000) (56,000)
Net loss................. (3,676,000) (3,676,000)
------ ------ ------------ ------------
BALANCE AT MARCH 31,
1998................... (8,718,000) (8,718,000)
Exercise of stock
options................ 32,037 $6,000 6,000
Issuance of stock for
services...............
Issuance of stock for
cash...................
Accretion of discount on
redeemable preferred
stock.................. (765,000) (765,000)
Net loss................. (5,421,000) (5,421,000)
------ ------ ------------ ------------
BALANCE AT MARCH 31,
1999................... 32,037 $6,000 $(14,904,000) $(14,898,000)
====== ====== ============ ============
</TABLE>
The acompanying notes are an integral part of these financial statements.
F-37
<PAGE> 102
UNIVERSITY NETCASTING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------
1998 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(3,676,000) $(5,421,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation......................................... 112,000 128,000
Amortization of discount on notes payable to
stockholders........................................ 121,000
Interest expense on notes payable to stockholders
exchanged for stock................................. 11,000
Services received for stock.......................... 678,000 297,000
Changes in assets and liabilities:
Accounts receivable............................... (310,000) (3,000)
Other assets...................................... (49,000) 61,000
Accounts payable.................................. 234,000 53,000
Accrued expenses.................................. 449,000 268,000
Deferred revenue.................................. 302,000 96,000
----------- -----------
Net cash used in operating activities........ (2,128,000) (4,521,000)
----------- -----------
Cash flows from investing activities:
Purchases of furniture and equipment...................... (137,000) (295,000)
----------- -----------
Net cash used in investing activities........ (137,000) (295,000)
----------- -----------
Cash flows from financing activities:
Proceeds from notes payable to stockholders............... 939,000
Payment of notes payable to stockholders.................. (250,000)
Proceeds from warrants.................................... 194,000
Proceeds from issuance of stock, net of issuance costs.... 4,608,000 2,000,000
Proceeds from stock option exercises...................... 6,000
----------- -----------
Net cash provided by financing activities.... 5,491,000 2,006,000
----------- -----------
Net increase (decrease) in cash and cash equivalents........ 3,226,000 (2,810,000)
Cash and cash equivalents at beginning of year.............. 676,000 3,902,000
----------- -----------
Cash and cash equivalents at end of year.................... $ 3,902,000 $ 1,092,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid:
Income taxes.............................................. $ 1,000 $ 1,000
=========== ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Issuance of stock for notes and interest payable.......... $ 821,000 $
=========== ===========
Issuance of stock for services............................ $ 678,000 $ 297,000
=========== ===========
Accretion of discount on mandatorily redeemable preferred
stock.................................................. $ 56,000 $ 765,000
=========== ===========
</TABLE>
The acompanying notes are an integral part of these financial statements.
F-38
<PAGE> 103
UNIVERSITY NETCASTING, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY
University Netcasting, Inc., a Delaware corporation (the Company or
University Netcasting), is an Internet-based sports media company that provides
branded, interactive information and programming to college sports enthusiasts.
The Company's world wide web sites deliver real-time, in-depth sports content
and programming.
The Company, was formed on August 6, 1996 as a wholly-owned subsidiary of
Stella Interactive, Inc. (Stella), a California corporation. On August 27, 1996,
Stella was reincorporated in the state of Delaware pursuant to a short form
merger, whereby it was merged with and into the Company (the Merger). As part of
the Merger, the outstanding common and preferred shares of Stella were converted
into shares of University Netcasting Series A Preferred Stock at a ratio of
4.623 shares of Series A Preferred Stock for each share of Stella common and
Stella preferred stock (the Conversion), resulting in the issuance of 4,383,707
shares of University Netcasting Series A Preferred Stock. Prior to the Merger,
Stella produced, published and distributed CD-ROM college and university sports
information reference products for sale to retail customers.
The Company has incurred recurring operating losses and is in an
accumulated deficit position of $14,904,000 as of March 31, 1999. Management is
currently pursuing additional capital resources. There can be no assurance that
additional financing will be available or if available, that such financing will
be completed on commercially favorable terms.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FINANCIAL STATEMENT PREPARATION
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
REVENUE RECOGNITION
REVENUE BY TYPE
Revenue by type for the years ended March 31, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------
1998 1999
---- ----
<S> <C> <C>
Advertising................................................. $ 821,000 $1,418,000
Barter advertising.......................................... 184,000 463,000
Electronic commerce......................................... 7,000 18,000
Products.................................................... 8,000
Other....................................................... 3,000 18,000
---------- ----------
$1,023,000 $1,917,000
========== ==========
</TABLE>
ADVERTISING
Advertising revenue is derived primarily from the sale of advertising on
the Company's web sites. Advertising commitments are generally for periods of
eighteen months or less and typically include guarantees of a minimum number of
"impressions," or times that any advertising is viewed by the users of the
Company's web sites. Advertising revenue is recognized based upon the lesser of:
1) ratable recognition over the period the advertising is displayed, provided
that no significant Company obligations
F-39
<PAGE> 104
UNIVERSITY NETCASTING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
remain and collection of the revenues is probable, or 2) a pro-rata portion of
contract revenue based upon impressions delivered relative to minimum guaranteed
impressions to be delivered. To the extent there is an unexpired term of the
advertising contract or minimum guaranteed impressions are not met, the Company
defers recognition of the corresponding revenues until the contract term expires
or minimum guaranteed impression levels are achieved.
BARTER ADVERTISING
Barter revenue is derived from the sale of advertising on the Company's web
sites in exchange for advertising on another company's web site or another
company's products or services. Barter commitments are for periods of one year
or less and typically include guarantees of a minimum number of impressions.
Barter revenue is recognized at the lower of the estimated fair value of: 1)
advertising, products or services received, or 2) advertising provided. Barter
revenue and the related marketing expense is recognized during the period in
which the advertising is displayed.
ELECTRONIC COMMERCE
Electronic commerce revenue is derived from the sale of products or
services by third parties, the orders for which are generated on the Company's
web sites. This revenue is recognized when products are delivered or services
are provided by the third party if no significant Company obligations remain and
collection of the revenue is probable.
PRODUCTS
Historically, product revenue was derived from the sale of Stella CD-ROMS.
Revenue was recognized upon shipment net of any allowance for rights of returns
and price protection. Products were primarily sold to retailers and
distributors.
COST AND EXPENSES
ROYALTIES
Royalties are paid to organizations, primarily colleges, universities and
athletic associations, for the licensing, the use of organizational information
and indicia (name and logo), and for supplying sports activity content for the
Company to include in the web sites. Licensing agreements generally are for
periods of three years or less. There are no minimum guaranteed royalties;
however, certain licensing agreements require a non-refundable advance payment
of royalties. Royalty expense is recognized as the related advertising revenue
is earned. Amounts paid are based upon a percentage of the advertising revenues
received from the sale of advertising on the Company's web sites where such
organizational information and indicia are displayed.
PRODUCTS
Product costs primarily consist of the cost to produce CD-ROM products and
royalties paid to the content providers for these products. The costs were
expensed as product sales were recognized.
PRODUCT DEVELOPMENT
Product development includes costs incurred in the development of internal
software for deployment of content to the Company's web sites and the actual
development and maintenance of the web page content. Development costs of
internal software used for deployment of content to the Company's web sites has
been charged to expense as incurred.
F-40
<PAGE> 105
UNIVERSITY NETCASTING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
CONCENTRATION OF SALES AND CREDIT RISK
Financial instruments which potentially expose the Company to credit risk
consist principally of cash and cash equivalents and accounts receivable at
March 31, 1998 and 1999. The Company places its cash and temporary cash
investments with high-quality financial institutions or into high credit quality
instruments for which credit loss is not anticipated. The Company limits the
amount of credit exposure in any one institution or type of investment
instrument. The Company performs ongoing credit evaluations of its customers and
maintains allowances for doubtful accounts based on factors surrounding the
credit risk of specific customers, historical trends and other information.
Accounts receivable were concentrated in the financial services and
communications industries at March 31, 1998 and 1999. For the year ended March
31, 1998 and 1999, revenue derived from two advertisers totaled approximately
$711,000 and $515,000. Included in accounts receivable are amounts due from such
advertisers totaling $177,000 and $175,000 at March 31, 1998 and 1999.
CASH EQUIVALENTS
Cash equivalents are stated at cost, which approximates fair value. The
Company considers all highly liquid and temporary cash investments with
maturities of three months or less at the time of acquisition to be cash
equivalents. At March 31, 1998 and 1999, cash equivalents included money market
accounts and certificates of deposit.
OTHER CURRENT ASSETS
Other current assets include non-refundable advance royalty payments made
to colleges, universities and athletic organizations pursuant to licensing
agreements of $64,000 and $0 at March 31, 1998 and 1999, respectively. Advanced
royalty payments are expensed as the related advertising revenues are earned.
FURNITURE AND EQUIPMENT
Furniture and equipment are recorded at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets,
which range from three to five years. Maintenance and repairs are expensed as
incurred. When the property or equipment is retired or otherwise disposed of,
related costs and accumulated depreciation are removed from the accounts and any
resulting gain or loss is included in operations.
LONG-LIVED ASSETS
The Company reviews assets for impairment whenever events or changes in
circumstances indicate the carrying amount of the asset may not be recoverable.
A determination of impairment (if any) is made based on estimates of
undiscounted future cash flows. For years ended March 31, 1998 and 1999 there
have been no asset impairments.
INCOME TAXES
Current income tax expense (benefit) is the amount of income taxes expected
to be payable (receivable) for the current year. A deferred income tax asset or
liability is computed for the expected future impact of differences between the
financial reporting and tax bases of assets and liabilities as well as the
expected future tax benefit to be derived from tax loss and tax credit
carryforwards. Deferred income tax expense (benefit) is generally the net change
during the year in the deferred income tax asset or liability. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount more likely than not to be realized in future tax returns.
F-41
<PAGE> 106
UNIVERSITY NETCASTING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
STOCK-BASED COMPENSATION
The Company has elected to account for stock-based employee compensation
using the intrinsic value method and to disclose in the footnotes the pro-forma
impact on the financial statements as if the Company had accounted for
stock-based employee compensation using the fair value method. All stock based
non-employee compensation has been accounted for using the fair value method.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable, accrued expenses and
redeemable preferred stock. The carrying amount of cash and cash equivalents,
accounts receivable, accounts payable and accrued expenses approximate their
fair values at March 31, 1998 and 1999 because of the short-term maturities of
these financial instruments. Management believes that determining a fair value
for the Company's redeemable convertible preferred stock is impractical due to
the closely-held nature of these instruments.
NOTE 3 -- COMPOSITION OF CERTAIN BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
MARCH 31,
-------------------
1998 1999
---- ----
<S> <C> <C>
Accounts receivable, net consists of the following:
Accounts receivable....................................... $339,000 $379,000
Allowance for doubtful accounts........................... (37,000)
-------- --------
$339,000 $342,000
======== ========
Furniture and equipment, net consists of the following:
Computer equipment and software........................... $313,000 $423,000
Furniture, fixtures and office equipment.................. 66,000 88,000
-------- --------
379,000 511,000
Less accumulated depreciation............................. (245,000) (210,000)
-------- --------
$134,000 $301,000
======== ========
Accrued expenses consist of the following:
Salaries and benefits..................................... $125,000 $120,000
Professional fees and services............................ 81,000 272,000
Accrued stock issuance costs.............................. 138,000 --
Accrued royalties and commissions......................... 243,000 320,000
Other..................................................... 143,000
-------- --------
$587,000 $855,000
======== ========
</TABLE>
NOTE 4 -- REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
RESTATEMENT OF CERTIFICATE OF INCORPORATION
On February 23, 1998, the Company restated its certificate of incorporation
to create an additional class of preferred stock entitled Series B Preferred
stock. This restatement also amended the rights of the Series A Preferred Stock
and granted to the holders of Series A and Series B Preferred Stock the right to
redeem such stock after February 25, 2003 and before February 26, 2004. As a
result of this restatement, the Series A Preferred Stock, which did not
previously contain redemption features, has been reclassified in the
accompanying financial statements to a redeemable preferred stock classification
outside of stockholders' equity on a retroactive basis for all periods
presented.
F-42
<PAGE> 107
UNIVERSITY NETCASTING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Since certain issuances of Preferred Stock had been previously issued at a
discount from their redemption values, this discount is being accreted by a
charge to retained earnings (accumulated deficit) using the interest method. The
discount is accreted over the period from the later of: 1) the date of issuance
of the Preferred Stock or 2) the date of the restatement of the certificate of
incorporation, through the earliest date the preferred stock may be redeemed
(February 26, 2003).
REDEEMABLE CONVERTIBLE PREFERRED STOCK
Series A Preferred Stock and Series B Preferred Stock (Preferred Stock) are
redeemable and convertible at the option of the holder. Series A Preferred Stock
is redeemable at $1.00 per share plus declared but unpaid dividends and Series B
Preferred Stock is redeemable at $0.75 per share plus declared but unpaid
dividends, from February 26, 2003 through February 25, 2004. The Company is
accreting the carrying value to the redemption amount using the effective
interest method over the period from original issuance to the earliest
redemption date.
Preferred Stock is convertible at any time into common stock at a
conversion rate determined by dividing the original Preferred Stock issue price
by the conversion price at the time of issuance, subject to adjustment for
conversions, splits and other adjustments as set forth in the certificate of
incorporation. In addition, the Preferred Stock is convertible into common stock
if the Company consummates an initial public offering of its common stock.
Series A and B Preferred Stock have no stated dividend rates. The holders
shall be entitled to dividends as declared by the Company's Board of Directors.
If dividends are declared, holders of Series B Preferred Stock are entitled to
receive dividends at a rate of $0.06 per share annually prior to the declaration
or payment of any dividends to both the holders of Series A Preferred Stock and
common stock. If dividends are declared, holders of Series A Preferred Stock are
entitled to receive dividends at a rate of $0.08 per share annually prior to
declaration or payment of dividends to any holders of common stock. Each share
of Preferred Stock is entitled to the number of votes equal to the number of
common shares into which such shares of Preferred Stock are convertible.
OPTION TO PURCHASE PREFERRED STOCK
The President of the Company has an irrevocable right for six years through
September 2000 to purchase shares from certain stockholders (a combined
aggregate of 462,300 shares of Preferred Stock) at a price of $1.18 per share
(with the price escalating 10% per annum for the first three years of the
agreement, and 14% per annum thereafter).
PREFERRED STOCK ISSUED IN EXCHANGE FOR NOTES AND INTEREST PAYABLE
During the year ended March 31, 1998, the Company received $1,060,000 from
certain of its stockholders in exchange for the issuance of stockholder notes
payable and detachable warrants. The notes were valued at $939,000 and were
convertible into 1,413,333 shares of Series B Preferred Stock at $0.75 per
share. The detachable warrants, which were estimated by management to have a
fair value of $121,000 based upon application of the Black-Scholes option
pricing model, contained rights to purchase 282,667 shares of Series B Preferred
Stock at $0.75 per share. The notes, including accrued interest payable, were
effectively repaid through a cash payment of $250,000 plus the issuance of
1,094,837 shares at $0.75 per share. The $121,000 discount to the notes payable
was fully accreted by a charge to interest expense prior to conversion. The
aforementioned warrants to purchase shares of Series B Preferred Stock remain
outstanding at March 31, 1999, expires in February 2003 and the Company has
reserved 282,667 shares of Series B Preferred Stock to be issued if and when the
warrants are exercised.
F-43
<PAGE> 108
UNIVERSITY NETCASTING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SALE OF PREFERRED STOCK
During the year ended March 31, 1998, the Company issued 5,666,667 shares
of Series B Preferred Stock for aggregate proceeds of $3,983,000, net of
issuance costs totaling $267,000 including the fair value of warrants to
purchase 169,560 shares of Series B Preferred Stock at $.75 per share which were
issued to a service provider in connection with the transaction. The fair value
of such warrants was estimated by management to be $73,000 based upon
application of the Black-Scholes option pricing model. Such warrants remain
outstanding at March 31, 1999, expire in February 2003 and the Company has
reserved 169,560 shares of Series B Preferred Stock to be issued if and when the
warrants are exercised. During the year ended March 31, 1998, the Company also
issued 1,006,745 shares of Series A Preferred Stock for aggregate proceeds of
$625,000.
During the year ended March 31, 1999, the Company issued 2,666,668 shares
of Series B Preferred Stock for aggregate proceeds of $2,000,000.
PREFERRED STOCK ISSUED IN CONNECTION WITH CONSULTING ARRANGEMENTS
During the year ended March 31, 1998 and 1999, an aggregate of 677,465 and
297,173 shares, respectively, of Series A Preferred Stock, valued $1.00 per
share, was earned by certain consultants to the Company in exchange for services
provided by such consultants (Note 8).
NOTE 5 -- STOCK OPTION PLANS
1995 STOCK OPTION PLAN
In 1995, the Board of Directors of Stella adopted the 1995 Stock Option
Plan (the 1995 Plan) authorizing the issuance of incentive and non-qualified
options and Stella common stock (Stock) to select employees and non-employees.
Options granted under the 1995 Plan expire in ten years or less. The vesting
terms were set by the 1995 Plan's administrator, and were generally established
with monthly vesting over periods of four years, including cliff vesting at the
end of the first year of 25%.
After the Merger, each outstanding stock option to acquire Stella common
stock under the 1995 Plan was converted into an option to acquire 4.623 shares
of Series A Preferred Stock. In connection with the Merger, the Company reserved
273,297 shares of Series A Preferred Stock for issuance under the 1995 Plan.
The following is a summary of the activity related to the 1995 Plan (Series
A Preferred shares after conversion) for the years ended March 31:
<TABLE>
<CAPTION>
1998 1999
-------------------- --------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS OUTSTANDING OPTIONS PRICE OPTIONS PRICE
- ------------------- ------- -------- ------- --------
<S> <C> <C> <C> <C>
Beginning of year................................. 244,413 $0.13 221,297 $0.13
Expired and forfeited........................... (23,116) $0.13 (27,131) $0.03
-------- --------
End of year....................................... 221,297 $0.13 194,166 $0.15
======== ========
Exercisable at end of year........................ 159,100 $0.13 180,601 $0.15
======== ========
</TABLE>
The following table summarizes information about stock options to acquire
Series A Preferred Stock at March 31, 1999:
F-44
<PAGE> 109
UNIVERSITY NETCASTING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------- ---------------------------------
NUMBER WEIGHTED- WEIGHTED- NUMBER WEIGHTED-
OUTSTANDING AVERAGE AVERAGE EXERCISABLE AVERAGE
AS OF REMAINING EXERCISE AS OF EXERCISE
MARCH 31, 1999 LIFE (YEARS) PRICE MARCH 31, 1999 PRICE
-------------- ------------ --------- -------------- ---------
<S> <C> <C> <C> <C> <C>
92,460 6.2 $0.11 87,900 $0.11
101,706 6.4 $0.18 92,701 $0.18
------- -------
194,166 6.3 $0.15 180,601 $0.15
======= =======
</TABLE>
1996 STOCK OPTION PLAN
In 1996, the Board of Directors of the Company adopted the 1996 Stock
Option Plan (the 1996 Plan) whereby 655,220 shares of common stock have been
reserved for the issuance of incentive and non-qualified stock to eligible
employees. Options granted under the 1996 Plan expire in ten years or less. The
vesting terms are set by the 1996 Plan's administrator, and are generally
established with monthly vesting over a four-year period and cliff vesting at
the end of the first year of 25%.
The following is a summary of the activity related to the 1996 Plan for the
years ended March 31:
<TABLE>
<CAPTION>
1998 1999
--------------------- ----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS OUTSTANDING OPTIONS PRICE OPTIONS PRICE
- ------------------- ------- -------- ------- --------
<S> <C> <C> <C> <C>
Beginning of year............................. 353,000 $0.20
Granted.................................. 381,000 $0.20 910,000 $0.15
Exercised................................ (32,037) $0.20
Expired and/or forfeited................. (28,000) $0.20 (298,724) $0.18
------- --------
End of year................................... 353,000 $0.20 932,239 $0.16
======= ========
Exercisable at end of year.................... 127,812 $0.20 370,696 $0.17
======= ========
</TABLE>
The following table summarizes information about stock options to acquire
common stock at March 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------- ---------------------------------
NUMBER WEIGHTED- WEIGHTED- NUMBER WEIGHTED-
OUTSTANDING AVERAGE AVERAGE EXERCISABLE AVERAGE
AS OF REMAINING EXERCISE AS OF EXERCISE
MARCH 31, 1999 LIFE (YEARS) PRICE MARCH 31, 1999 PRICE
-------------- ------------ --------- -------------- ---------
<S> <C> <C> <C> <C> <C>
745,800 8.6 $0.15 259,569 $0.15
186,439 7.6 $0.20 111,127 $0.20
------- -------
932,239 7.8 $0.16 370,696 $0.17
======= =======
</TABLE>
FAIR VALUE DISCLOSURE
The weighted average fair value of options granted during the year ended
March 31, 1999 was $0.06.
Pro forma information regarding net income is required to be disclosed in
accordance with Financial Accounting Standards Board Statement No. 123
"Accounting for Stock Based Compensation" (SFAS No. 123), and has been
determined as if the Company has accounted for its employee stock options at the
date of grant using the minimal value pricing model with the following weighted
average assumptions for each of the three years ended March 31, 1999: risk free
interest rate of 5.5%, dividend yield of 0%, and weighted average life of the
options of 7.1 and 7.9 years for the years ended March 31, 1998 and 1999,
respectively.
F-45
<PAGE> 110
UNIVERSITY NETCASTING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Had compensation cost for the Company's options issued to employees been
determined based on the fair value at the grant date of the awards consistent
with SFAS No. 123, the Company's pro forma results from operations for the years
ended March 31 would have been as follows:
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Net loss
As reported..................................... $(3,676,000) $(5,421,000)
Pro forma....................................... (3,682,000) (5,435,000)
</TABLE>
NOTE 6 -- INCOME TAXES
No current benefit for federal or state income taxes has been recorded due
to a net loss being recognized for income tax purposes. Further, no deferred
income tax benefit has been provided as deferred tax assets have been fully
reserved.
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1998 1999
----------- -----------
<S> <C> <C>
Deferred tax assets:
Start-up costs.................................. $ 257,000 $ 154,000
Net operating loss carryforwards................ 3,028,000 4,982,000
Other........................................... 45,000 65,000
----------- -----------
3,330,000 5,201,000
Valuation allowance............................. (3,330,000) (5,201,000)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
At March 31, 1999, the Company has federal and state net operating loss
carryforwards for income tax purposes of approximately $13,182,000 and
$8,576,000, respectively. Federal net operating loss carryforwards will begin to
expire in 2012. State net operating loss carryforwards expire beginning in 2004.
The Internal Revenue Code imposes limitations on the future availability of
net operating loss and tax credit carryforwards, including annual limitations on
the amount of the carryforwards which could be utilized following substantial
changes in a company's ownership.
NOTE 7 -- COMMITMENTS
OPERATING LEASES
The Company leases its office space under an operating leases expiring
January 31, 2001. At March 31, 1999, future minimum lease commitments under
these agreements are as follows:
<TABLE>
<CAPTION>
YEAR ENDING MINIMUM
MARCH 31, PAYMENTS
- ----------- --------
<S> <C>
2000...................................................... $142,000
2001...................................................... 121,000
--------
Total minimum lease payments................................ $263,000
========
</TABLE>
Rent expense was $96,000 and $192,000 for the years ended March 31, 1998
and 1999, respectively.
F-46
<PAGE> 111
UNIVERSITY NETCASTING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- RELATED PARTY TRANSACTIONS
CONSULTING SERVICES PROVIDED BY A CORPORATION
During the year ended March 31, 1997, the Company and another corporation,
which is a stockholder of the Company, entered into services agreements, whereby
the corporation is to provide product development services related to University
Netcasting's internet product and network, as well as general business
consulting services. Product development services were not to exceed $500,000
(this amount was increased to $750,000 during the year ended March 31, 1998)
over a two-year period ending August 26, 1998. All services were provided prior
to the expiration of the agreement and an additional $105,000 of product
development costs were incurred through March 31, 1999. At March 31, 1999
$80,000 was payable for the product development services provided. Business
consulting services are not to exceed $750,000 over a three-year period ending
August 27, 1999 of which $642,000 in services had been provided through March
31, 1999. These business consulting services are earned at a rate of $20,000 per
month in year 1, $21,000 per month in year 2 and $21,500 per month in year 3.
Payment for these services are to be made in shares of Series A Preferred Stock
valued at $1.00 per share. For the years ended March 31, 1998 and 1999, the
Company recognized $554,000 and $255,000, respectively, of expense related to
these agreements.
SERVICES PROVIDED BY INDIVIDUALS
During the year ended March 31, 1997, the Company entered into a service
agreement with two individuals who are stockholders of the Company, whereby
these individuals are to provide services in the area of merchandising, defining
and managing relationships with various sports and apparel manufacturers, and
assisting the Company in retailing efforts over a two-year period ending August
26, 1998, in exchange for 200,000 shares of Series A Preferred Stock valued at
$1.00 per share. For the years ended March 31, 1998 and 1999, the Company
recognized $100,000 and $42,000, respectively, of expense related to this
agreement.
F-47
<PAGE> 112
UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION
The following unaudited pro forma combined information assumes a business
combination between Student Advantage, Inc. ("Student Advantage") and University
Netcasting, Inc., ("University Netcasting") accounted for on a pooling of
interests basis and are based on the respective historical financial statements
and the notes thereto, which are included in this registration statement. The
unaudited pro forma combined balance sheet gives effect to the combination as if
it had occurred on March 31, 1999 and combines Student Advantage's March 31,
1999 unaudited balance sheet with University Netcasting's March 31, 1999 balance
sheet. The unaudited pro forma statements of operations give effect to the
merger as if it had occurred at the beginning of the earliest period presented.
The unaudited pro forma combined statements of operations for the years ended
December 31, 1996, 1997 and 1998 combine Student Advantage's historical results
for each of the three years ended December 31, 1996, 1997 and 1998 with
University Netcasting's historical statement of operations for each of the three
fiscal years ended March 31, 1997, 1998 and 1999, respectively. The unaudited
pro forma combined statements of operations for the three months ended March 31,
1999 combine Student Advantages unaudited historical results for the three
months ended March 31, 1999 with University Netcasting's unaudited historical
statement of operations for the three months ended March 31, 1999. Accordingly,
University Netcasting historical statements of operations for the three months
ended March 31, 1999 have been included in the unaudited pro forma combined
statement of operations for both the fiscal year ended December 31, 1998 and the
three months ended March 31, 1999.
The pro forma information is presented for illustrative purposes only and
is not necessarily indicative of the operating results or financial position
that would have occurred had the merger been consummated at the beginning of the
periods presented, nor is it necessarily indicative of future operating results
or financial position.
These pro forma financial statements are based on, and should be read in
conjunction with, the historical financial statements and the related notes
thereto of Student Advantage and University Netcasting, included in this
registration statement.
F-48
<PAGE> 113
PRO FORMA COMBINED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
STUDENT UNIVERSITY
ADVANTAGE, INC. NETCASTING, INC.
MARCH 31, MARCH 31, PRO FORMA PRO FORMA
1999 1999 ADJUSTMENTS COMBINED
--------------- ---------------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.............................. $ 3,491 $ 1,092 $ -- $ 4,583
Accounts receivable, net............................... 2,026 342 -- 2,368
Prepaid expenses and other current assets.............. 560 16 -- 576
-------- -------- ------ --------
Total current assets............................... 6,077 1,450 -- 7,527
Property and equipment, net............................ 1,261 301 -- 1,562
Intangible assets, (net) and other assets.............. 441 20 -- 461
-------- -------- ------ --------
Total Assets....................................... $ 7,779 $ 1,771 $ -- $ 9,550
======== ======== ====== ========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Borrowings under line of credit........................ $ 1,000 $ -- $ -- $ 1,000
Accounts payable....................................... 1,455 325 -- 1,780
Accrued compensation................................... 1,007 120 -- 1,127
Other accrued expenses................................. 1,303 735 1,000 3,038
Deferred revenue....................................... 5,455 398 -- 5,853
-------- -------- ------ --------
Total current liabilities.......................... 10,220 1,578 1,000 12,798
Student Advantage, Inc. Series A convertible preferred
stock.................................................. 10,196 -- -- 10,196
University Netcasting, Inc. Series A convertible
preferred stock........................................ -- 8,039 (8,039) --
University Netcasting, Inc. Series B convertible
preferred stock........................................ -- 6,858 (6,858) --
University Netcasting, Inc. Warrants, preferred series
B...................................................... -- 194 (194) --
Commitment and contingencies
Stockholders' deficit:
Common stock........................................... 184 6 210 400
Additional paid in capital............................. 4,959 -- 14,881 19,840
Accumulated deficit.................................... (13,832) (14,904) (1,000) (29,736)
Treasury stock (at cost)............................... (630) -- -- (630)
Deferred Compensation.................................. (3,318) -- -- (3,318)
-------- -------- ------ --------
Total stockholders' deficit........................ (12,637) (14,898) 14,091 (13,444)
Total liabilities, redeemable convertible preferred
stock and stockholder's deficit.................. $ 7,779 $ 1,771 $ -- $ 9,550
======== ======== ====== ========
</TABLE>
F-49
<PAGE> 114
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS
-------------------------------- ENDED
1996 1997 1998 MARCH 31, 1999
-------- -------- -------- --------------
<S> <C> <C> <C> <C>
Revenue
Subscription.............................. $ 1,093 $ 2,971 $ 7,174 $ 1,668
Other..................................... 745 1,844 12,186 3,239
-------- -------- -------- --------
Total revenue........................ 1,838 4,815 19,360 4,907
Costs and Expenses
Cost of subscription revenue.............. 543 2,628 2,442 320
Cost of other revenue..................... 570 702 7,867 2,675
Product development....................... 1,516 3,253 4,948 1,257
Sales and marketing....................... 536 1,905 7,313 2,120
General and administrative................ 1,208 2,727 5,484 1,822
Depreciation and amortization............. 107 351 1,155 370
Stock-based compensation.................. -- -- 808 273
-------- -------- -------- --------
Total costs and expenses............. 4,480 11,566 30,017 8,837
Loss from operations........................ (2,642) (6,751) (10,657) (3,930)
-------- -------- -------- --------
Interest income (expense), net.............. 6 (77) 121 74
Net loss.................................... $ (2,636) $ (6,828) $(10,536) $ (3,856)
======== ======== ======== ========
Pro forma basic and diluted net loss per
share..................................... $ (.18) $ (.43) $ (.63) $ (.23)
======== ======== ======== ========
Shares used in computing pro forma basic and
diluted net loss per share................ 14,383 15,720 16,653 16,839
======== ======== ======== ========
</TABLE>
F-50
<PAGE> 115
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1) These unaudited pro forma combined financial statements give effect to
the merger as if it had occurred on the dates or at the beginning of the periods
presented (as applicable), reflecting the issuance of .0117 shares of Student
Advantage, Inc. common stock for each share of University Netcasting, Inc.
common stock, and .04135 and .03393 shares of Student Advantage, Inc. common
stock for each share of University Netcasting, Inc. Series A and B preferred
stock, respectively. Additionally at the effective time, all outstanding
warrants to purchase shares of University Netcasting, Inc. Series B preferred
stock will convert into shares of University Netcasting, Inc. Series B preferred
stock, each of which shares will then be exchanged for .03393 shares of Student
Advantage, Inc. common stock. All options to purchase shares of University
Netcasting, Inc. Series A preferred stock and common stock will be exchanged for
options to purchase .04135 and .0117 shares of Student Advantage, Inc. common
stock, respectively. At March 31, 1999, there were warrants to purchase 452,228
shares of University Netcasting, Inc. Series B preferred stock outstanding and
options to purchase 194,166 and 1,106,439 shares of University Netcasting, Inc.
Series A preferred stock and common stock outstanding, respectively.
The unaudited pro forma combined balance sheet gives effect to the
combination as if it had occurred on March 31, 1999 and combines Student
Advantage's March 31, 1999 unaudited balance sheet with University Netcasting's
March 31, 1999 balance sheet. The unaudited pro forma statements of operations
give effect to the merger as if it had occurred at the beginning of the earliest
period presented. The unaudited pro forma combined statements of operations for
the years ended December 31, 1996, 1997 and 1998 combine Student Advantage's
historical results for each of the three years ended December 31, 1996, 1997 and
1998 with University Netcasting's historical statement of operations for each of
the three fiscal years ended March 31, 1997, 1998 and 1999, respectively. The
unaudited pro forma combined statements of operations for the three months ended
March 31, 1999 combine Student Advantages unaudited historical results for the
three months ended March 31, 1999 with University Netcasting's unaudited
historical statement of operations for the three months ended March 31, 1999.
Accordingly, University Netcasting historical statements of operations for the
three months ended March 31, 1999 have been included in the unaudited pro forma
combined statement of operations for both the fiscal year ended December 31,
1998 and the three months ended March 31, 1999.
2) The adjustments to the unaudited pro forma combined balance sheet give
effect to merger-related expenses totaling approximately $1,000,000, such
expenses include investment advisory fees, legal and accounting expenses and
other transaction costs. The unaudited pro forma combined statements of
operations do not reflect these non-recurring charges, which Student Advantage
anticipates will be recorded in the period the merger is consummated.
3) The pro forma combined per share amounts in the unaudited pro forma
combined statements of operations are based upon the aggregate of (1) the
historical weighted average number of shares of common stock and dilutive common
stock equivalents of Student Advantage outstanding during each period presented
and (2) the shares of Student Advantage common stock to be issued in connection
with the merger, based on the equivalent weighted average shares and dilutive
common share equivalents of University Netcasting outstanding during the periods
presented.
4) Certain financial statement balances of University Netcasting have been
reclassified to conform with Student Advantage's financial statement
presentation.
5) There were no material differences between the accounting policies of
Student Advantage and University Netcasting.
F-51
<PAGE> 116
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[STUDENT ADVANTAGE LOGO]
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS THAT BUY, SELL OR TRADE OUR COMMON STOCK, WHETHER OR
NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 117
[The graphic on the inside back cover is a triangle centered in the middle
of the page with the terms students, universities and businesses on each point
of the triangle.
A circle in the middle of the triangle has 3 arrows pointing towards
students, businesses and universities and represents Student Advantage as the
intersection of these three communities. The Student Advantage logo is at the
top of the page and the heading Student Advantage is centered beneath the logo.]
<PAGE> 118
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses, in connection with the
sale and distribution of the securities being registered. All amounts shown are
estimates except for the Securities and Exchange Commission registration fee,
the Nasdaq National Market listing fee and the NASD filing fee.
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee........................................ $ 23,019
NASD filing fee............................................. 8,780
Nasdaq National Market listing fee.......................... 95,000
Blue Sky fees and expenses.................................. 10,000
Transfer Agent and Registrar fees........................... 15,000
Accounting fees and expenses................................ 315,000
Legal fees and expenses..................................... 350,000
Printing and mailing expenses............................... 175,000
Miscellaneous............................................... 108,201
----------
Total............................................. $1,100,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article EIGHTH of the Registrant's Amended and Restated Certificate of
Incorporation (the "Restated Certificate of Incorporation") provides that no
director of the Registrant shall be personally liable for any monetary damages
for any breach of fiduciary duty as a director, except to the extent that the
Delaware General Corporation Law prohibits the elimination or limitation of
liability of directors for breach of fiduciary duty.
Article NINTH of the Registrant's Amended and Restated Certificate of
Incorporation provides that a director or officer of the Registrant (a) shall be
indemnified by the Registrant against all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement incurred in connection with any
litigation or other legal proceeding (other than an action by or in the right of
the Registrant) brought against him by virtue of his position as a director or
officer of the Registrant if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful and (b) shall be
indemnified by the Registrant against all expenses (including attorneys' fees)
and amounts paid in settlement incurred in connection with any action by or in
the right of the Registrant brought against him by virtue of his position as a
director or officer of the Registrant if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
Registrant, except that no indemnification shall be made with respect to any
matter as to which such person shall have been adjudged to be liable to the
Registrant, unless the Court of Chancery of Delaware determines that, despite
such adjudication but in view of all of the circumstances, he is entitled to
indemnification of such expenses. Notwithstanding the foregoing, to the extent
that a director or officer has been successful, on the merits or otherwise,
including, without limitation, the dismissal of an action without prejudice, he
is required to be indemnified by the Registrant against all expenses (including
attorneys' fees) incurred in connection therewith. Expenses shall be advanced to
a director or officer at his request, unless it is determined that he did not
act in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the Registrant, and, with respect to any
criminal action or proceeding had reasonable cause to believe that his conduct
was unlawful, provided that he undertakes to repay the amount advanced if it is
ultimately determined that he is not entitled to indemnification for such
expenses.
II-1
<PAGE> 119
Indemnification is required to be made unless the Registrant determines
that the applicable standard of conduct required for indemnification has not
been met. In the event of a determination by the Registrant that the director or
officer did not meet the applicable standard of conduct required for
indemnification, or if the Registrant fails to make an indemnification payment
within 60 days after such payment is claimed by such person, such person is
permitted to petition the court to make an independent determination as to
whether such person is entitled to indemnification. As a condition precedent to
the right of indemnification, the director or officer must give the Registrant
notice of the action for which indemnity is sought and the Registrant has the
right to participate in such action or assume the defense thereof.
Article NINTH of the Registrant's Amended and Restated Certificate of
Incorporation further provides that the indemnification provided therein is not
exclusive, and provides that in the event that the Delaware General Corporation
Law is amended to expand the indemnification permitted to directors or officers
the Registrant must indemnify those persons to the fullest extent permitted by
such law as so amended.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, in any criminal proceeding, if such person
had no reasonable cause to believe his conduct was unlawful; provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances.
The Registrant has entered into agreements to indemnify its directors and
officers, in addition to the indemnification provided for in the Registrant's
Amended and Restated Certificate of Incorporation. These agreements, among other
things, indemnify the Registrant's directors and officers for certain expenses
(including attorneys' fees and associated legal expenses), judgments, fines and
amounts paid in settlement amounts, actually and reasonably incurred by any such
person's services as a director or officer of the Registrant or any other
company or enterprise to which the person provides services at the request of
the Registrant, if such officer or director acted in good faith and in a manner
which he or she reasonably believed to be in, or not opposed to the best
interests of the Registrant and with respect to any criminal proceeding, had no
reasonable cause to believe his conduct was unlawful.
Under Section 7 of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the Registrant against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of Underwriting Agreement filed as
Exhibit 1 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth in chronological order is information regarding shares of common
stock issued and options granted by the Registrant since March 1996. Further
included is the consideration, if any, received by the Registrant for such
shares, warrants and options and information relating to the section of the
Securities Act of 1933, as amended (the "Securities Act"), or rule of the
Securities and Exchange Commission under which exemption from registration was
claimed.
(a) Issuances of Capital Stock.
1. In February 1996, Student Advantage LLC issued 111 membership units of
the predecessor LLC to David Liniado in connection with the purchase of
certain assets from David M. Liniado d/b/a DML Enterprises.
II-2
<PAGE> 120
2. In March 1996, Student Advantage LLC sold 2,479 membership units in the
predecessor LLC to Princeton Review Publishing, L.L.C. for $250,000.
3. In January 1997, Mr. Sozzi exercised options to purchase 870 membership
units of Student Advantage LLC for $87,818.
4. In April 1997, Student Advantage LLC issued 239 membership units to Mr.
Liniado in satisfaction of obligations under an asset purchase
agreement.
5. In April 1997, Student Advantage LLC issued 200 membership units to Ms.
Abegglen in satisfaction of a $24,000 note.
6. In December 1997, Student Advantage LLC issued 270 membership units to
The Main Quad, Inc. in connection with an asset purchase agreement. In
October 1998, Student Advantage issued an additional 480 membership
units in satisfaction of obligations under an ancillary agreement to
such asset purchase agreement.
7. In January 1998, Ms. Abegglen exercised options to purchase 350
membership units of Student Advantage LLC for $164,914.
8. On October 20, 1998, in connection with the recapitalization of Student
Advantage LLC, Student Advantage, Inc. issued a total of 16,133,892
shares of common stock and 1,497,036 shares of Series A Convertible
Preferred Stock (convertible into 4,491,108 shares of common stock) in
exchange for LLC membership units.
9. On October 20, 1998, the Registrant sold an aggregate of 1,250,000
shares of Series A Convertible Preferred Stock (convertible into
3,750,000 shares of common stock) to Greylock IX Limited Partnership and
Marc Turtletaub for an aggregate of $10.0 million.
(b) Certain Grants and Exercises of Stock Options. The Registrant's 1998
Stock Incentive Plan and the 1998 California Stock Incentive Plan were adopted
by the Board of Directors and approved by the stockholders of the Registrant on
December 10, 1998. As of April 30, 1999, options to purchase 122,061 shares of
common stock had been exercised for a consideration of $40,687 under the
Registrant's 1998 Stock Incentive Plan and options to purchase an aggregate of
2,237,736 shares of common stock were outstanding under the Registrant's 1998
Stock Incentive Plan and 1998 California Stock Incentive Plan.
The securities issued in the foregoing transactions were either (i) offered
and sold in reliance upon exemptions from Securities Act registration set forth
in Sections 3(b) and 4(2) of the Securities Act, or any regulations promulgated
thereunder, relating to sales by an issuer not involving any public offering, or
(ii) in the case of certain options to purchase shares of common stock and
shares of common stock issued upon the exercise of such options, such offers and
sales were made in reliance upon an exemption from registration under Rule 701
of the Securities Act. No underwriters were involved in the foregoing sales of
securities.
II-3
<PAGE> 121
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
1 Form of Underwriting Agreement.*
2.1 Agreement and Plan of Merger, dated as of May 7, 1999, among
Student Advantage, Inc., SA Acquisition I, Inc. and
University Netcasting, Inc.
3.1 Certificate of Incorporation of the Registrant, as
amended.**
3.2 Amended and Restated Certificate of Incorporation of the
Registrant, to be effective upon the closing of this
offering.
3.3 Restated Bylaws of the Registrant, as amended.**
3.4 Amended and Restated By-Laws of the Registrant, to be
effective upon the closing of this offering.
3.5 Certificate of Amendment of Certificate of Incorporation of
the Registrant, to be effective prior to the closing of this
offering.
4.1 Specimen certificate for shares of common stock.
5 Opinion of Hale and Dorr LLP.*
10.1 1998 Stock Incentive Plan, including form of stock option
agreement for incentive stock option.**
10.2 1999 Employee Stock Purchase Plan.
10.3 Loan and Security Agreement between USTrust Bank and the
Registrant, dated March 31, 1999.
10.4 Form of Indemnification Agreement between the Registrant and
each of its directors and officers.**
10.5 Investor Rights Agreement, dated as of October 20, 1998,
among the Registrant and certain stockholders.**
10.6 Employment Agreement, dated March 25, 1996, between the
Registrant and Raymond V. Sozzi, Jr., as amended by First
Amendment to Employment Agreement, dated as of October 20,
1998.**
10.7 Agreement, effective as of February 1, 1997, between AT&T
Communications, Inc. and the Registrant.+
10.8 Marketing Agreement, effective February 1, 1998, between
AT&T Corp. and the Registrant.+
10.9 Notice of AT&T's Election to Extend Agreements, dated July
14, 1998.
10.10 Leases for premises at 280 Summer Street, Boston,
Massachusetts.**
10.11 Investment Agreement, dated March 25, 1996, between the
Registrant and Princeton Review Publishing, L.L.C.**
10.12 Letter Agreement, dated September 8, 1997, between the
Registrant and Princeton Review Publishing, L.L.C.**
10.13 Letter Agreement, dated October 20, 1998, between the
Registrant and Princeton Review Publishing, L.L.C.**
10.14 Mailing and Fulfillment Services Agreement, dated August 8,
1996, between the Registrant and Aero Fulfillment Services.
10.15 Promissory Note (Equipment) to USTrust dated March 31, 1999.
10.16 Master Note to USTrust Bank March 31, 1999.
10.17 Letter Agreement, dated May 3, 1999, between the Registrant
and Ronald J. Kos.
11.1 Statement re: Computation of net loss per share and
unaudited pro forma net loss per share.
21 Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP (Student Advantage,
Inc.)
23.2 Consent of PricewaterhouseCoopers LLP (Collegiate Advantage,
Inc.)
23.3 Consent of PricewaterhouseCoopers LLP (The Main Quad, Inc.)
23.4 Consent of PricewaterhouseCoopers LLP (University
Netcasting, Inc.)
23.5 Consent of Hale and Dorr LLP (included in Exhibit 5).*
24 Power of Attorney (included on page II-6).
27 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Securities and Exchange Commission.
II-4
<PAGE> 122
(b) FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted because they are not required or because
the required information is given in the Registrant's Financial Statements or
Notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions contained in the Amended and Restated
Certificate of Incorporation of the Registrant and the laws of the State of
Delaware, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of
this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 123
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in Boston,
Massachusetts, on this 11th day of May, 1999.
STUDENT ADVANTAGE, INC.
By: /s/ RAYMOND V. SOZZI, JR.
------------------------------------
Raymond V. Sozzi, Jr.
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RAYMOND V. SOZZI, JR. Chairman of the Board, President and May 11, 1999
- -------------------------------------- Chief Executive Officer
Raymond V. Sozzi, Jr.
/s/ CHRISTOPHER B. ANDREWS Vice President, Finance and May 11, 1999
- -------------------------------------- Administration, Treasurer and
Christopher B. Andrews Secretary (Principal Financial and
Accounting Officer)
* Director May 11, 1999
- --------------------------------------
William S. Kaiser
* Director May 11, 1999
- --------------------------------------
John Katzman
* Director May 11, 1999
- --------------------------------------
Marc Turtletaub
*By: /s/ RAYMOND V. SOZZI, JR.
---------------------------------
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 124
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
1 Form of Underwriting Agreement.*
2.1 Agreement and Plan of Merger, dated as of May 7, 1999, among
Student Advantage, Inc., SA Acquisition I, Inc. and
University Netcasting, Inc.
3.1 Certificate of Incorporation of the Registrant, as
amended.**
3.2 Amended and Restated Certificate of Incorporation of the
Registrant, to be effective upon the closing of this
offering.
3.3 Restated Bylaws of the Registrant, as amended.**
3.4 Amended and Restated By-Laws of the Registrant, to be
effective upon the closing of this offering.
3.5 Certificate of Amendment of Certificate of Incorporation of
the Registrant, to be effective prior to the closing of this
offering.
4.1 Specimen certificate for shares of common stock.
5 Opinion of Hale and Dorr LLP.*
10.1 1998 Stock Incentive Plan, including form of stock option
agreement for incentive stock option.**
10.2 1999 Employee Stock Purchase Plan.
10.3 Loan and Security Agreement between USTrust Bank and the
Registrant, dated March 31, 1999.
10.4 Form of Indemnification Agreement between the Registrant and
each of its directors and officers.**
10.5 Investor Rights Agreement, dated as of October 20, 1998,
among the Registrant and certain stockholders.**
10.6 Employment Agreement, dated March 25, 1996, between the
Registrant and Raymond V. Sozzi, Jr., as amended by First
Amendment to Employment Agreement, dated as of October 20,
1998.**
10.7 Agreement, effective as of February 1, 1997, between AT&T
Communications, Inc. and the Registrant.+
10.8 Marketing Agreement, effective February 1, 1998, between
AT&T Corp. and the Registrant.+
10.9 Notice of AT&T's Election to Extend Agreements, dated July
14, 1998.
10.10 Leases for premises at 280 Summer Street, Boston,
Massachusetts.**
10.11 Investment Agreement, dated March 25, 1996, between the
Registrant and Princeton Review Publishing, L.L.C.**
10.12 Letter Agreement, dated September 8, 1997, between the
Registrant and Princeton Review Publishing, L.L.C.**
10.13 Letter Agreement, dated October 20, 1998, between the
Registrant and Princeton Review Publishing, L.L.C.**
10.14 Mailing and Fulfillment Services Agreement, dated August 8,
1996, between the Registrant and Aero Fulfillment Services.
10.15 Promissory Note (Equipment) to US Trust dated March 31,
1999.
10.16 Master Note to USTrust Bank March 31, 1999.
10.17 Letter Agreement, dated May 3, 1999, between the Registrant
and Ronald J. Kos.
11.1 Statement Re: Computation of net loss per share and
unaudited pro forma net loss per share.
21 Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP (Student Advantage,
Inc.)
23.2 Consent of PricewaterhouseCoopers LLP (Collegiate Advantage,
Inc.)
23.3 Consent of PricewaterhouseCoopers LLP (The Main Quad, Inc.)
23.4 Consent of PricewaterhouseCoopers LLP (University
Netcasting, Inc.)
23.5 Consent of Hale and Dorr LLP (included in Exhibit 5).*
24 Power of Attorney (included on page II-6).
27 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Securities and Exchange Commission.
<PAGE> 1
Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
AMONG
STUDENT ADVANTAGE, INC., SA ACQUISITION I, INC.,
UNIVERSITY NETCASTING, INC.
AND
THE STOCKHOLDERS LISTED ON SCHEDULE I
May 7, 1999
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE I THE MERGER..........................................................1
1.1 The Merger..................................................1
1.2 The Closing.................................................1
1.3 Actions at the Closing......................................1
1.4 Additional Action...........................................2
1.5 Conversion of Shares........................................2
1.6 Dissenting Shares...........................................4
1.7 Fractional Shares...........................................5
1.8 Escrow......................................................5
1.9 Certificate of Incorporation and By-laws....................6
1.10 No Further Rights...........................................6
1.11 Closing of Transfer Books...................................6
1.12 Tax and Accounting Consequences.............................6
1.13 Lock-up Period..............................................6
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................7
2.1 Organization, Qualification and Corporate Power.............8
2.2 Capitalization..............................................8
2.3 Authorization of Transaction................................9
2.4 Noncontravention............................................9
2.5 Subsidiaries...............................................10
2.6 Financial Statements.......................................11
2.7 Absence of Certain Changes.................................11
2.8 Undisclosed Liabilities....................................11
2.9 Tax Matters................................................12
2.10 Assets.....................................................13
2.11 Owned Real Property........................................14
2.12 Real Property Leases.......................................15
2.13 Intellectual Property......................................16
2.14 Inventory..................................................18
2.15 Contracts..................................................19
2.16 Accounts Receivable........................................20
2.17 Powers of Attorney.........................................20
2.18 Insurance..................................................20
2.19 Litigation.................................................20
2.20 Product Warranty...........................................21
2.21 Employees..................................................21
2.22 Employee Benefits..........................................21
2.23 Environmental Matters......................................24
2.24 Legal Compliance...........................................25
-i-
<PAGE> 3
Page
----
2.25 Customers and Suppliers....................................26
2.26 Permits....................................................26
2.27 Certain Business Relationships With Affiliates.............26
2.28 Brokers' Fees..............................................26
2.29 Books and Records..........................................26
2.30 Government Contracts.......................................27
2.31 Pooling....................................................27
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE BUYER
AND THE TRANSITORY SUBSIDIARY.......................................28
3.1 Organization, Qualification and Corporate Power............28
3.2 Capitalization.............................................28
3.3 Authorization of Transaction...............................28
3.4 Noncontravention...........................................29
3.5 Reports and Financial Statements...........................29
3.6 Absence of Certain Changes.................................30
3.7 Litigation.................................................30
3.8 Pooling....................................................30
3.9 Interim Operations of the Transitory Subsidiary............30
3.10 Brokers' Fees..............................................30
ARTICLE IV COVENANTS.........................................................30
4.1 Closing Efforts............................................30
4.2 Governmental and Third-Party Notices and Consents..........31
4.3 Stockholder Approval.......................................31
4.4 Operation of Business......................................32
4.5 Access to Information......................................34
4.6 Exclusivity................................................35
4.7 Expenses...................................................35
4.8 Indemnification............................................35
4.9 Agreements from Certain Affiliates of the Company..........36
4.10 Loan from Buyer............................................36
4.11 Certain Benefit Plans......................................36
4.12 Stock Issuance by Buyer....................................36
4.13 Exercise of Option.........................................37
-ii-
<PAGE> 4
Page
----
ARTICLE V CONDITIONS TO CONSUMMATION OF MERGER...............................37
5.1 Conditions to Each Party's Obligations.....................37
5.2 Conditions to Obligations of the Buyer and the
Transitory Subsidiary......................................37
5.3 Conditions to Obligations of the Company...................39
ARTICLE VI INDEMNIFICATION...................................................40
6.1 Indemnification by the Company Stockholders................40
6.2 Indemnification by the Buyer...............................41
6.3 Indemnification Claims.....................................41
6.4 Survival of Representations and Warranties.................44
6.5 Limitations................................................45
ARTICLE VII REGISTRATION RIGHTS..............................................46
7.1 Registration of Shares.....................................46
7.2 Limitations on Registration Rights.........................46
7.3 Registration Procedures....................................47
7.4 Requirements of Company Stockholders.......................48
7.5 Indemnification............................................48
7.6 Assignment of Rights.......................................49
ARTICLE VIII TERMINATION.....................................................49
8.1 Termination of Agreement...................................49
8.2 Effect of Termination......................................50
ARTICLE IX DEFINITIONS.......................................................50
ARTICLE X MISCELLANEOUS......................................................52
10.1 Press Releases and Announcements...........................52
10.2 No Third Party Beneficiaries...............................52
10.3 Entire Agreement...........................................52
10.4 Succession and Assignment..................................53
10.5 Counterparts...............................................53
10.6 Headings...................................................53
10.7 Notices....................................................53
10.8 Governing Law..............................................54
10.9 Amendments and Waivers.....................................54
10.10 Severability...............................................54
10.11 Submission to Jurisdiction.................................54
-iii-
<PAGE> 5
Page
----
10.12 Construction...............................................55
Exhibit A - Escrow Agreement
Exhibit B - Affiliate Agreement
Exhibit C - Investment Representation Letter
Exhibit D - Opinion of Counsel to the Company
Exhibit E - Employment Agreement
Exhibit F - Opinion of Counsel to the Buyer and the Transitory Subsidiary
Exhibit G - Voting Agreement and Proxy
Exhibit H - Lock-up Agreement
Exhibit I - Promissory Note
-iv-
<PAGE> 6
AGREEMENT AND PLAN OF MERGER
Agreement entered into as of May 7, 1999 by and among Student
Advantage, Inc., a Delaware corporation (the "Buyer"), SA Acquisition I, Inc., a
Delaware corporation and a wholly-owned subsidiary of the Buyer (the "Transitory
Subsidiary"), and University Netcasting, Inc., a Delaware corporation (the
"Company"). The Buyer, the Transitory Subsidiary and the Company are referred to
collectively herein as the "Parties."
This Agreement contemplates a merger of the Transitory Subsidiary into
the Company. In such merger, the stockholders of the Company will receive common
stock of the Buyer in exchange for their capital stock of the Company.
Now, therefore, in consideration of the representations, warranties and
covenants herein contained, the Parties agree as follows.
ARTICLE I
THE MERGER
1.1 THE MERGER. Upon and subject to the terms and conditions of
this Agreement, the Transitory Subsidiary shall merge with and into the Company
(with such merger referred to herein as the "Merger") at the Effective Time (as
defined below). From and after the Effective Time, the separate corporate
existence of the Transitory Subsidiary shall cease and the Company shall
continue as the surviving corporation in the Merger (the "Surviving
Corporation"). The "Effective Time" shall be the time at which the Surviving
Corporation files a certificate of merger or other appropriate documents
prepared and executed in accordance with Section 251(c) of the Delaware General
Corporation Law (the "Certificate of Merger") with the Secretary of State of the
State of Delaware. The Merger shall have the effects set forth in Section 259 of
the Delaware General Corporation Law.
1.2 THE CLOSING. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Hale and Dorr
LLP in Boston, Massachusetts, commencing at 9:00 a.m. local time on the earlier
of one day after the effective date of the Buyer's initial public offering or
July 15, 1999 (provided, however, that the Closing is not dependent upon the
effectiveness of the Buyer's initial public offering), or, if all of the
conditions to the obligations of the Parties to consummate the transactions
contemplated hereby have not been satisfied or waived by such date, on such
mutually agreeable later date as soon as practicable (and in any event not later
than three business days) after the satisfaction or waiver of all conditions
(excluding the delivery of any documents to be delivered at the Closing by any
of the Parties) set forth in Article V hereof (the "Closing Date").
1.3 ACTIONS AT THE CLOSING. At the Closing, (a) the Company shall
deliver to the Buyer and the Transitory Subsidiary the various certificates,
instruments and documents referred to in Section 5.2, (b) the Buyer and the
Transitory Subsidiary shall
<PAGE> 7
deliver to the Company the various certificates, instruments and documents
referred to in Section 5.3, (c) the Surviving Corporation shall file with the
Secretary of State of the State of Delaware the Certificate of Merger, (d) each
of the stockholders of record of the Company immediately prior to the Effective
Time (the "Company Stockholders") shall deliver to the Buyer the certificate(s)
representing his, her or its Company Shares (as defined below), and (e) the
Buyer, G. Bradford Jones and E. Bertram Ellis (the "Indemnification
Representatives") and an escrow agent to be named by the Buyer and acceptable to
the Company (the "Escrow Agent") shall execute and deliver the Escrow Agreement
attached hereto as EXHIBIT A (the "Escrow Agreement") and the Buyer shall
deliver to the Escrow Agent a certificate for the Escrow Shares (as defined
below) being placed in escrow on the Closing Date pursuant to Section 1.8.
1.4 ADDITIONAL ACTION. The Surviving Corporation may, at any time
after the Effective Time, take any action, including executing and delivering
any document, in the name and on behalf of either the Company or the Transitory
Subsidiary, in order to consummate the transactions contemplated by this
Agreement.
1.5 CONVERSION OF SHARES. At the Effective Time, by virtue of the
Merger and without any action on the part of any Party or the holder of any of
the following securities:
(a) Each share of common stock, $.01 par value per share, of
the Company ("Common Shares") issued and outstanding immediately prior to the
Effective Time (other than Common Shares owned beneficially by the Buyer or the
Transitory Subsidiary, Dissenting Shares (as defined below) and Common Shares
held in the Company's treasury) shall be converted into and represent the right
to receive (subject to the provisions of Section 1.8) such number of shares of
common stock, $.01 par value per share, of the Buyer ("Buyer Common Stock")
determined in accordance with subsection (d) of this Section 1.5.
(b) Each share of Series A Preferred Stock, $.01 par value per
share, of the Company ("Series A Preferred Shares") issued and outstanding
immediately prior to the Effective Time (other than Series A Preferred Shares
owned beneficially by the Buyer or the Transitory Subsidiary, Dissenting Shares
and Series A Preferred Shares held in the Company's treasury) shall be converted
into and represent the right to receive (subject to the provisions of Section
1.8) such number of shares of Buyer Common Stock determined in accordance with
subsection (d) of this Section 1.5.
(c) Each share of Series B Preferred Stock, $.01 par value per
share, of the Company ("Series B Preferred Shares"; together with the Series A
Preferred Shares and the Common Shares, the "Company Shares") issued and
outstanding immediately prior to the Effective Time (other than Series B
Preferred Shares owned beneficially by the Buyer or the Transitory Subsidiary,
Dissenting Shares and Series B Preferred Shares held in the Company's treasury)
shall be converted into and represent the right to receive (subject to the
provisions of Section 1.8) such number of
-2-
<PAGE> 8
shares of Buyer Common Stock determined in accordance with subsection (d) of
this Section 1.5.
(d) Each Common Share, Series A Preferred Share and Series B
Preferred Share issued and outstanding immediately prior to the Effective Time
(other than Shares held in the Company's treasury) shall be converted into and
represent the right to receive, subject to the provisions of Section 1.8, on the
Closing Date, respectively, .0117 (the "Common Conversion Ratio"), .04135 (the
"Series A Preferred Conversion Ratio") and .03393 (the "Series B Preferred
Conversion Ratio") shares of Buyer Common Stock. On the Closing Date, the Buyer
will deliver the Buyer Common Stock to the Stockholders. Stockholders of record
of the Company immediately prior to the Effective Time shall be entitled to
receive immediately 90% of the shares of Buyer Common Stock into which their
Company Shares were converted pursuant to this Section 1.5 (the "Initial
Shares"); the remaining 10% of the shares of Buyer Common Stock into which their
Company Shares were converted pursuant to this Section 1.5 (the "Escrow Shares")
shall be deposited in escrow pursuant to Section 1.9 and shall be held and
disposed of in accordance with the terms of the Escrow Agreement. The Initial
Shares and the Escrow Shares shall together be referred to herein as the "Merger
Shares," and the total thereof is 830,175.
(e) The Common Conversion Ratio, the Series A Preferred
Conversion Ratio and the Series B Preferred Conversion Ratio shall each be
adjusted to reflect fully the effect of any stock split, reverse split, stock
dividend (including any split, dividend or distribution of securities
convertible into any shares of the Buyer's capital stock), reorganization,
recapitalization or other like change with respect to the Buyer's capital stock
occurring on or after the date hereof and prior to the Effective Time.
(f) Each Company Share held in the Company's treasury
immediately prior to the Effective Time and each Company Share owned
beneficially by the Buyer or the Transitory Subsidiary shall be cancelled and
retired without payment of any consideration therefor.
(g) Each share of common stock, $.01 par value per share, of
the Transitory Subsidiary issued and outstanding immediately prior to the
Effective Time shall be converted into and thereafter evidence one share of
common stock, $.01 par value per share, of the Surviving Corporation.
(h) At the Effective time, all options to purchase Company
Common Stock or Company Series A Preferred Stock then outstanding under the
Company's 1995 Stock Option/Stock Issuance Plan and 1996 Stock Option/Stock
Issuance Plan (each individually an "Option Plan" and collectively, the "Option
Plans") or otherwise shall be assumed by Buyer in accordance with the provisions
described below.
(i) At the Effective Time, each outstanding option to purchase
shares of Company Common Stock or Company Series A Preferred Stock (each a
"Company Option") under the Option Plans or otherwise, whether vested or
unvested, shall be,
-3-
<PAGE> 9
in connection with the Merger, assumed by Buyer. Each Company Option so assumed
by Buyer under this Agreement shall continue to have, and be subject to, the
same terms and conditions set forth in the Option Plan pursuant to which such
Company Option was granted and/or as provided in the respective option
agreements governing such Company Option immediately prior to the Effective
Time, except that (A) such Company Option shall be exercisable for that number
of whole shares of Buyer Common Stock equal to the product of the number of
shares of Company Common Stock or Company Series A Preferred Stock that were
issuable upon exercise of such Company Option immediately prior to the Effective
Time multiplied by the Common Conversion Ratio or the Preferred Conversion
Ratio, as the case may be, rounded to the nearest whole number of shares of
Buyer Common Stock and (B) the per share exercise price for the shares of Buyer
Common Stock issuable upon exercise of such assumed Company Option shall be
equal to the quotient determined by dividing the exercise price per share of the
Company Common Stock or Company Series A Preferred Stock at which such Company
Option was exercisable immediately prior to the Effective Time by the Common
Conversion Ratio or the Series A Preferred Conversion Ratio, as the case may
be, rounded to the nearest whole cent, provided, however, that the provisions
governing the vesting of any Company Option and any terms regarding repurchase
rights contained in the Option Plan or an agreement governing a Company Option
shall remain unchanged, and shall either accelerate or not accelerate based on
the terms thereof.
(ii) It is the intention of the parties that the
Company Options assumed by Buyer qualify following the Effective Time as
incentive stock options as defined in Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), to the extent the Company Options qualified as
incentive stock options immediately prior to the Effective Time.
(iii) Promptly following the Effective Time, Buyer
will issue to each holder of an outstanding Company Option a document evidencing
the foregoing assumption of such Company Option by Buyer.
(iv) In the event that Buyer shall at any time
file a registration statement on Form S-8 with respect to any options to
purchase Buyer Common Stock, Buyer shall file a registration statement on Form
S-8 for the shares of Buyer Common Stock issuable with respect to assumed
Company Options promptly, but in no event later than fifteen (15) days after the
later of the date of the filing of such registration statement or the Effective
Time.
1.6 DISSENTING SHARES.
(a) For purposes of this Agreement, "Dissenting Shares"
means Company Shares held as of the Effective Time by a Company Stockholder who
has not voted such Company Shares in favor of the adoption of this Agreement and
the Merger and with respect to which appraisal shall have been duly demanded and
perfected in accordance with Section 262 of the Delaware General Corporation Law
and not effectively withdrawn or forfeited prior to the Effective Time.
Dissenting
-4-
<PAGE> 10
Shares shall not be converted into or represent the right to receive Merger
Shares, unless such Company Stockholder shall have forfeited his, her or its
right to appraisal under the Delaware General Corporation Law or properly
withdrawn, his, her or its demand for appraisal. If such Company Stockholder has
so forfeited or withdrawn his, her or its right to appraisal of Dissenting
Shares, then (i) as of the occurrence of such event, such holder's Dissenting
Shares shall cease to be Dissenting Shares and shall be converted into and
represent the right to receive the Merger Shares issuable in respect of such
Company Shares pursuant to Section 1.5, and (ii) promptly following the
occurrence of such event, the Buyer shall deliver to such Company Stockholder a
certificate representing 90% of the Merger Shares to which such holder is
entitled pursuant to Section 1.5 (which shares shall be considered Initial
Shares for all purposes of this Agreement) and shall deliver to the Escrow Agent
a certificate representing the remaining 10% of the Merger Shares to which such
holder is entitled pursuant to Section 1.5 (which shares shall be considered
Escrow Shares for all purposes of this Agreement).
(b) The Company shall give the Buyer (i) prompt notice of any
written demands for appraisal of any Company Shares, withdrawals of such
demands, and any other instruments that relate to such demands received by the
Company and (ii) the opportunity to participate in all negotiations and
proceedings with respect to demands for appraisal under the Delaware General
Corporation Law. The Company shall not, except with the prior written consent of
the Buyer, make any payment with respect to any demands for appraisal of Company
Shares or offer to settle or settle any such demands.
1.7 FRACTIONAL SHARES. No certificates or script representing
fractional Initial Shares ("Certificates") shall be issued to former Company
Stockholders upon the surrender for exchange of Certificates, and such former
Company Stockholders shall not be entitled to any voting rights, rights to
receive any dividends or distributions or other rights as a stockholder of the
Buyer with respect to any fractional Initial Shares that would otherwise be
issued to such former Company Stockholders. In lieu of any fractional Initial
Shares that would otherwise be issued, each former Company Stockholder that
would have been entitled to receive a fractional Initial Share shall, upon
proper surrender of such person's Certificates, receive such whole number of
Initial Shares as is equal to the precise number of Initial Shares to which such
person would be entitled, rounded up or down to the nearest whole number (with a
fractional interest equal to .5 rounded up to the nearest whole number);
provided that each such holder shall receive at least one Initial Share.
1.8 ESCROW.
(a) On the Closing Date, the Buyer shall deliver to the Escrow
Agent a certificate (issued in the name of the Escrow Agent or its nominee)
representing the Escrow Shares, as described in Section 1.5, for the purpose of
securing the indemnification obligations of the Indemnifying Stockholders (as
defined in Section 6.1) set forth in this Agreement. The Escrow Shares shall be
held by the Escrow Agent under the Escrow Agreement pursuant to the terms
thereof. The
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Escrow Shares shall be held as a trust fund and shall not be subject to any
lien, attachment, trustee process or any other judicial process of any creditor
of any party, and shall be held and disbursed solely for the purposes and in
accordance with the terms of the Escrow Agreement.
(b) The adoption of this Agreement and the approval of the
Merger by the Company Stockholders shall constitute approval of the Escrow
Agreement and of all of the arrangements relating thereto, including without
limitation the placement of the Escrow Shares in escrow and the appointment of
the Indemnification Representatives.
1.9 CERTIFICATE OF INCORPORATION AND BY-LAWS.
(a) The Certificate of Incorporation of the Surviving
Corporation immediately following the Effective Time shall be the same as the
Certificate of Incorporation of the Transitory Subsidiary immediately prior to
the Effective Time, except that the name of the corporation set forth therein
shall be changed to the name of the Company.
(b) The By-laws of the Surviving Corporation immediately
following the Effective Time shall be the same as the By-laws of the Transitory
Subsidiary immediately prior to the Effective Time, except that the name of the
corporation set forth therein shall be changed to the name of the Company.
1.10 NO FURTHER RIGHTS. From and after the Effective Time, no
Company Shares issued upon the surrender or exchange in accordance with the
terms hereof shall be deemed to be outstanding, and holders of Certificates
shall cease to have any rights with respect thereto, except as provided herein
or by law.
1.11 CLOSING OF TRANSFER BOOKS. At the Effective Time, the stock
transfer books of the Company shall be closed and no transfer of Company Shares
shall thereafter be made. If, after the Effective Time, Certificates are
presented to the Buyer or the Surviving Corporation, they shall be cancelled and
exchanged for Initial Shares in accordance with Section 1.5, subject to Section
1.8 and to applicable law in the case of Dissenting Shares.
1.12 TAX AND ACCOUNTING CONSEQUENCES. It is intended by the parties
hereto that the Merger shall qualify for accounting treatment as a pooling of
interests and shall constitute a reorganization within the meaning of Section
368 of the Internal Revenue Code of 1986, as amended (the "Code").
1.13 LOCK-UP PERIOD. The adoption of this Agreement and the
approval of the Merger by a Company Stockholder shall also constitute the
agreement of such Company Stockholder that such Company Stockholder will not
offer to sell, contract to sell, or otherwise sell, dispose of, loan, pledge or
grant any rights with respect to (collectively, a "Disposition") any shares of
Buyer Common Stock, any options or warrants to purchase any shares of Buyer
Common Stock or any securities
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<PAGE> 12
convertible into or exchangeable for shares of Buyer Common Stock (collectively,
"Lock-up Securities") now owned or hereafter acquired directly by such person or
with respect to which such person has or hereafter acquires the power of
disposition, otherwise than (i) as a bona fide gift or gifts, provided the donee
or donees thereof agree in writing to be bound by the restrictions in this
Section 1.13; (ii) as a distribution to partners or shareholders of such person,
provided that the distributees thereof agree in writing to be bound by the terms
of the restrictions in this Section 1.13; (iii) with respect to any dispositions
of Buyer Common Stock acquired on the open market; (iv) to any trust, the
beneficiaries of which are exclusively the undersigned or the immediate family
of the undersigned, provided that the trustee of the trust agrees to be bound by
the restrictions in this Section 1.13 and provided further that any such
transfer shall not involve a disposition for value (for purposes of the
foregoing, "immediate family" shall mean any relationship by blood, marriage or
adoption, not more remote than first cousin) or; (v) with the prior written
consent of BancBoston Robertson Stephens Inc., for a period commencing on the
date hereof and continuing to a date 180 days after a Registration Statement on
Form S-1 relating to the Buyer to be filed with the Securities and Exchange
Commission (the "Registration Statement") is declared effective by the
Securities and Exchange Commission (the "Lock-up Period"). The foregoing
restriction has been expressly agreed to preclude any holder of the Lock-up
Securities from engaging in any hedging or other transaction which is designed
to or reasonably expected to lead to or result in a Disposition of Lock-up
Securities during the Lock-up Period, even if such Lock-up Securities would be
disposed of by someone other than such holder. Such prohibited hedging or other
transactions would include, without limitation, any short sale (whether or not
against the box) or any purchase, sale or grant of any right (including, without
limitation, any put or call option) with respect to any Securities or with
respect to any security (other than a broad-based market basket or index) that
included, relates to or derives any significant part of its value from
Securities. Each Company Stockholder also agrees and consents to the entry of
stop transfer instructions with the Buyer's transfer agent and registrar against
the transfer of shares of Buyer Common Stock or Lock-up Securities held by the
Company Stockholder except in compliance with the foregoing restrictions.
In the event that the Registration Statement is not declared effective
on or before August 31, 1999 the foregoing restriction shall be of no further
force or effect.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Buyer that the statements
contained in this Article II are true and correct, except as set forth in the
disclosure schedule provided by the Company to the Buyer on the date hereof (the
"Disclosure Schedule"). For purposes of this Article II, the phrase "to the
knowledge of the Company" or any phrase of similar import shall be deemed to
refer to the actual knowledge of the executive officers of the Company, as well
as any other knowledge which such executive officers would have possessed had
they made reasonable
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inquiry of appropriate employees and agents of the Company with respect to the
matter in question.
2.1 ORGANIZATION, QUALIFICATION AND CORPORATE POWER. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. The Company is duly qualified to conduct business
and is in good standing as a foreign corporation under the laws of each
jurisdiction in which the nature of its businesses or the ownership or leasing
of its properties requires such qualification, except where the failure to be so
qualified or in good standing would not have a Company Material Adverse Effect
(as defined below). The Company has all requisite corporate power and authority
to carry on the businesses in which it is engaged and to own and use the
properties owned and used by it. The Company has furnished to the Buyer complete
and accurate copies of its Certificate of Incorporation and By-laws, each as
amended and as in effect on the date hereof. The Company is not in default under
or in violation of any provision of its Certificate of Incorporation or By-laws.
For purposes of this Agreement, "Company Material Adverse Effect" means a
material adverse effect on the assets, business, financial condition, results of
operations or prospects of the Company and the Subsidiaries (as defined below),
taken as a whole.
2.2 CAPITALIZATION. The authorized capital stock of the Company
consists of (a) 24,500,000 Common Shares, of which, as of the date of this
Agreement, 33,837 shares were issued and outstanding and (b) 21,804,100
Preferred Shares, of which (i) 11,923,700 shares have been designated as Series
A Preferred Stock, of which, as of the date of this Agreement, 11,610,403 shares
were issued and outstanding and (ii) 9,880,400 shares have been designated as
Series B Preferred Stock, of which, as of the date of this Agreement, 9,428,172
shares were issued and outstanding. Section 2.2 of the Disclosure Schedule sets
forth a complete and accurate list of (i) all stockholders of the Company,
indicating the number and class or series of Company Shares held by each
stockholder and (for Company Shares other than Common Shares) the number of
Common Shares (if any) into which such Company Shares are convertible, (ii) all
holders of Options and Warrants, indicating (A) the number and class or series
of Company Shares subject to each Option and Warrant and (for Company Shares
other than Common Shares) the number of Common Shares (if any) into which such
Company Shares are convertible, (B) the number of such shares for which each
Option or Warrant is exercisable, and (C) any acceleration of vesting that will
occur in connection with the Merger, and (iii) all stock option plans and other
stock or equity-related plans of the Company. All of the issued and outstanding
Company Shares are, and all Company Shares that may be issued upon exercise of
Options or Warrants will be, duly authorized, validly issued, fully paid,
nonassessable and free of all preemptive rights. There are no outstanding or
authorized options, warrants, rights, agreements or commitments to which the
Company is a party or which are binding upon the Company providing for the
issuance, disposition or acquisition of any of its capital stock, other than the
Options and Warrants listed in Section 2.2 of the Disclosure Schedule. There are
no outstanding or authorized stock appreciation, phantom stock or similar rights
with respect to the Company. There are no agreements, voting trusts, proxies or
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<PAGE> 14
understandings with respect to the voting, or registration under the Securities
Act, of any Company Shares. All of the issued and outstanding Company Shares
were issued in compliance with applicable federal and state securities laws.
2.3 AUTHORIZATION OF TRANSACTION. Subject only to obtaining the
requisite approval of the Merger and this Agreement by the Company's
shareholders the Company has all requisite power and authority to execute and
deliver this Agreement and to perform its obligations and consummate the
transactions contemplated hereunder. The execution and delivery by the Company
of this Agreement and, subject to the adoption of this Agreement and the
approval of the Merger by a majority of the votes represented by the outstanding
Company Shares entitled to vote on this Agreement and the Merger (the "Requisite
Stockholder Approval"), the consummation by the Company of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action on the part of the Company. Without limiting the generality of
the foregoing, the Board of Directors of the Company, at a meeting duly called
and held, by the unanimous vote of all directors (i) determined that the Merger
is fair and in the best interests of the Company and its stockholders, (ii)
adopted this Agreement in accordance with the provisions of the Delaware General
Corporation Law, and (iii) directed that this Agreement and the Merger be
submitted to the stockholders of the Company for their adoption and approval and
resolved to recommend that the stockholders of Company vote in favor of the
adoption of this Agreement and the approval of the Merger. This Agreement has
been duly and validly executed and delivered by the Company and constitutes a
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditor's rights generally and (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies.
2.4 NONCONTRAVENTION. Subject to compliance with applicable
requirements of the Securities Act and any applicable state securities laws, the
Exchange Act and filing of the Certificate of Merger as required by the Delaware
General Corporation Law, neither the execution and delivery by the Company of
this Agreement, nor the consummation by the Company of the transactions
contemplated hereby, will (a) conflict with or violate any provision of the
Certificate of Incorporation or By-laws of the Company, (b) require on the part
of the Company or any Subsidiary (as defined below) any filing with, or any
permit, authorization, consent or approval of, any court, arbitrational
tribunal, administrative agency or commission or other governmental or
regulatory authority or agency (a "Governmental Entity"), (c) conflict with,
result in a breach of, constitute (with or without due notice or lapse of time
or both) a default under, result in the acceleration of obligations under,
create in any party the right to terminate, modify or cancel, or require any
notice, consent or waiver under, any contract or instrument to which the Company
or any Subsidiary is a party or by which the Company or any Subsidiary is bound
or to which any of their assets is subject, except for (i) any conflict, breach,
default, acceleration, termination, modification or cancellation which would not
have a Company Material
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<PAGE> 15
Adverse Effect and would not adversely affect the consummation of the
transactions contemplated hereby or (ii) any notice, consent or waiver the
absence of which would not have a Company Material Adverse Effect and would not
adversely affect the consummation of the transactions contemplated hereby, (d)
result in the imposition of any Security Interest (as defined below) upon any
assets of the Company or any Subsidiary or (e) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Company, any
Subsidiary or any of their properties or assets. For purposes of this Agreement:
"Security Interest" means any mortgage, pledge, security interest, encumbrance,
charge or other lien (whether arising by contract or by operation of law), other
than (i) mechanic's, materialmen's, and similar liens, (ii) liens arising under
worker's compensation, unemployment insurance, social security, retirement, and
similar legislation, and (iii) liens on goods in transit incurred pursuant to
documentary letters of credit, in each case arising in the Ordinary Course of
Business (as defined below) of the Company and not material to the Company; and
"Ordinary Course of Business" means the ordinary course of the Company's
business, consistent with past custom and practice (including with respect to
frequency and amount).
2.5 SUBSIDIARIES.
(a) Section 2.5 of the Disclosure Schedule sets forth: (i) the
name of each corporation, partnership, joint venture or other entity in which
the Company has, directly or indirectly, an equity interest representing 50% or
more of the capital stock thereof or other equity interests therein
(individually, a "Subsidiary" and, collectively, the "Subsidiaries"); (ii) the
number and type of outstanding equity securities of each Subsidiary and a list
of the holders thereof; (iii) the jurisdiction of organization of each
Subsidiary; (iv) the names of the officers and directors of each Subsidiary; and
(v) the jurisdictions in which each Subsidiary is qualified or holds licenses to
do business as a foreign corporation.
(b) Each Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation. Each Subsidiary is duly qualified to conduct business and is in
corporate and tax good standing under the laws of each jurisdiction in which the
nature of its businesses or the ownership or leasing of its properties requires
such qualification. Each Subsidiary has all requisite corporate power and
authority to carry on the businesses in which it is engaged and to own and use
the properties owned and used by it. The Company has delivered to the Buyer
complete and accurate copies of the charter and By-laws of each Subsidiary, as
amended to date. No Subsidiary is in default under or in violation of any
provision of its charter or By-laws. All of the issued and outstanding shares of
capital stock of each Subsidiary are duly authorized, validly issued, fully
paid, nonassessable and free of preemptive rights. All shares of each Subsidiary
that are held of record or owned beneficially by either the Company or any
Subsidiary are held or owned free and clear of any restrictions on transfer
(other than restrictions under the Securities Act and state securities laws),
claims, Security Interests, options, warrants, rights, contracts, calls,
commitments, equities and demands. There are no outstanding or authorized
options, warrants, rights,
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agreements or commitments to which the Company or any Subsidiary is a party or
which are binding on any of them providing for the issuance, disposition or
acquisition of any capital stock of any Subsidiary. There are no outstanding
stock appreciation, phantom stock or similar rights with respect to any
Subsidiary. There are no voting trusts, proxies or other agreements or
understandings with respect to the voting of any capital stock of any
Subsidiary. The Company does not control directly or indirectly or have any
direct or indirect equity participation in any corporation, partnership, limited
liability company, joint venture, trust or other business association which is
not a Subsidiary.
2.6 FINANCIAL STATEMENTS. The Company has provided to the Buyer
(a) the audited consolidated balance sheets and statements of income, changes in
stockholders' equity and cash flows of the Company as of and for each of the
last three fiscal years; and (b) including the audited consolidated balance
sheet and statements of income, changes in stockholders' equity and cash flows
as of and for the fiscal year ended as of March 31, 1999 (the "Most Recent
Balance Sheet Date"). Such financial statements (collectively, the "Financial
Statements") have been prepared in accordance with United States generally
accepted accounting principles ("GAAP") applied on a consistent basis throughout
the periods covered thereby, fairly present the financial condition, results of
operations and cash flows of the Company and the Subsidiaries as of the
respective dates thereof and for the periods referred to therein and are
consistent with the books and records of the Company and the Subsidiaries;
PROVIDED, HOWEVER, that the Financial Statements referred to in clause (b) above
are subject to normal recurring year-end adjustments (which will not be
material) and do not include footnotes.
2.7 ABSENCE OF CERTAIN CHANGES. Since the Most Recent Balance
Sheet Date, (a) there has occurred no event or development which has had, or
could reasonably be foreseen to have in the future, a Company Material Adverse
Effect, and (b) neither the Company nor any Subsidiary has taken any of the
actions set forth in paragraphs (a) through (o) of Section 4.4.
2.8 UNDISCLOSED LIABILITIES. None of the Company and its
Subsidiaries has any material liability (whether known or unknown, whether
absolute or contingent, whether liquidated or unliquidated and whether due or to
become due), except for (a) liabilities shown on the balance sheet referred to
in clause (b) of Section 2.6 (the "Most Recent Balance Sheet"), (b) liabilities
which have arisen since the Most Recent Balance Sheet Date in the Ordinary
Course of Business and which are similar in nature and amount to the liabilities
which arose during the comparable period of time in the immediately preceding
fiscal period and (c) contractual and other liabilities incurred in the Ordinary
Course of Business which were not required by GAAP to be reflected on the
balance sheet provided by the Company as of the Most Recent Balance Sheet Date.
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2.9 TAX MATTERS.
(a) For purposes of this Agreement, the following terms
shall have the following meanings:
(i) "Taxes" means all taxes, charges, fees,
levies or other similar assessments or liabilities, including without limitation
income, gross receipts, ad valorem, premium, value-added, excise, real property,
personal property, sales, use, transfer, withholding, employment, unemployment
insurance, social security, business license, business organization,
environmental, workers compensation, payroll, profits, license, lease, service,
service use, severance, stamp, occupation, windfall profits, customs, duties,
franchise and other taxes imposed by the United States of America or any state,
local or foreign government, or any agency thereof, or other political
subdivision of the United States or any such government, and any interest,
fines, penalties, assessments or additions to tax resulting from, attributable
to or incurred in connection with any tax or any contest or dispute thereof.
(ii) "Tax Returns" means all reports, returns,
declarations, statements or other information required to be supplied to a
taxing authority in connection with Taxes.
(b) Each of the Company and the Subsidiaries has filed on
a timely basis all Tax Returns that it was required to file, and all such Tax
Returns were complete and accurate in all material respects. Neither the Company
nor any Subsidiary is or has ever been a member of a group of corporations with
which it has filed (or been required to file) consolidated, combined or unitary
Tax Returns, other than a group of which only the Company and the Subsidiaries
are or were members. Each of the Company and the Subsidiaries has paid on a
timely basis all Taxes that were due and payable. All unpaid taxes of the
Company for tax periods through the Most Recent Balance Sheet Date have been
accrued or reserved against in accordance with GAAP. Neither the Company nor any
Subsidiary has any actual or potential liability for any Tax obligation of any
taxpayer (including without limitation any affiliated group of corporations or
other entities that included the Company or any Subsidiary during a prior
period) other than the Company and the Subsidiaries. All Taxes that the Company
or any Subsidiary is or was required by law to withhold or collect have been
duly withheld or collected and, to the extent required, have been paid to the
proper Governmental Entity.
(c) The Company has delivered to the Buyer complete and
accurate copies of all federal income Tax Returns, examination reports and
statements of deficiencies assessed against or agreed to by the Company or any
Subsidiary since March 31, 1998. The federal income Tax Returns of the Company
and each Subsidiary have been audited by the Internal Revenue Service or are
closed by the applicable statute of limitations for all taxable years through
the taxable year specified in Section 2.9(c) of the Disclosure Schedule. The
Company has delivered or made available to the Buyer complete and accurate
copies of all other material Tax Returns of the Company and the Subsidiaries
together with all related examination
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reports and statements of deficiency for all periods from and after March 31,
1998. No examination or audit of any Tax Return of the Company or any Subsidiary
by any Governmental Entity is currently in progress or, to the knowledge of the
Company, threatened or contemplated. Neither the Company nor any Subsidiary has
been informed by any jurisdiction that the jurisdiction believes that the
Company or Subsidiary was required to file any Tax Return that was not filed.
Neither the Company nor any Subsidiary has waived any statute of limitations
with respect to Taxes or agreed to an extension of time with respect to a Tax
assessment or deficiency.
(d) Neither the Company nor any Subsidiary: (i) is a
"consenting corporation" within the meaning of Section 341(f) of the Code, and
none of the assets of the Company or the Subsidiaries are subject to an election
under Section 341(f) of the Code; (ii) has been a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(l)(A)(ii) of the Code; (iii)
except as set forth on Schedule 2.22(k) has made any payments, is obligated to
make any payments, or is a party to any agreement that could obligate it to make
any payments that may be treated as an "excess parachute payment" under Section
280G of the Code; (iv) has any actual or potential liability for any Taxes of
any person (other than the Company and its Subsidiaries) under Treasury
Regulation Section 1.1502-6 (or any similar provision of federal, state, local,
or foreign law), or as a transferee or successor, by contract, or otherwise; or
(v) is or has been required to make a basis reduction pursuant to Treasury
Regulation Section 1.1502-20(b) or Treasury Regulation Section 1.337(d)-2(b).
(e) None of the assets of the Company or any Subsidiary: (i)
is property that is required to be treated as being owned by any other person
pursuant to the provisions of former Section 168(f)(8) of the Code; (ii) is
"tax-exempt use property" within the meaning of Section 168(h) of the Code; or
(iii) directly or indirectly secures any debt the interest on which is tax
exempt under Section 103(a) of the Code.
(f) Neither the Company nor any Subsidiary has undergone a
change in its method of accounting resulting in an adjustment to its taxable
income pursuant to Section 481 of the Code.
(g) No state or federal "net operating loss" of the Company
determined as of the Closing Date is subject to material limitation on its use
pursuant to Section 382 of the Code or comparable provisions of state law as a
result of any "ownership change" within the meaning of Section 382(g) of the
Code or comparable provisions of any state law occurring prior to the Closing
Date.
2.10 ASSETS. Each of the Company and the Subsidiaries owns or
leases all tangible assets necessary for the conduct of its businesses as
presently conducted. Each such tangible asset is free from material defects, has
been maintained in accordance with normal industry practice, is in good
operating condition and repair (subject to normal wear and tear) and is suitable
for the purposes for which it
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presently is used. No asset of the Company or any Subsidiary (tangible or
intangible) is subject to any Security Interest, other than liens for taxes not
yet due and payable and Security Interests which do not, individually or in the
aggregate, materially detract from the value of the assets subject thereto or
materially impair the operations of the Company and the Subsidiaries, taken as a
whole.
2.11 OWNED REAL PROPERTY. Section 2.11 of the Disclosure Schedule
lists all real property that the Company or any Subsidiary owns. With respect to
each parcel of such real property:
(a) the identified owner has good and clear record and
marketable title to such parcel, insurable by a recognized national title
insurance company at standard rates, free and clear of any Security Interest,
easement, covenant or other restriction, except for recorded easements,
covenants and other restrictions which do not impair the uses, occupancy or
value of such parcel to be used to conduct such business as is currently
conducted (the "Intended Uses");
(b) there are no (i) pending or, to the knowledge of the
Company, threatened condemnation proceedings relating to such parcel, (ii)
pending or, to the knowledge of the Company, threatened litigation or
administrative actions relating to such parcel, or (iii) other matters affecting
adversely the Intended Uses, occupancy or value thereof;
(c) the legal description for such parcel contained in the
deed thereof describes such parcel fully and adequately; the buildings and
improvements may be used as of right under applicable zoning and land use laws
for the Intended Uses, and such buildings and improvements are located within
the boundary lines of the described parcels of land, are not in violation of
current setback requirements, zoning laws and ordinances and do not encroach on
any easement which may burden the land; the land does not serve any adjoining
property for any purpose inconsistent with the use of the land; and such parcel
is not located within any flood plain or subject to any similar type restriction
for which any permits or licenses necessary to the use thereof have not been
obtained;
(d) there are no leases, subleases, licenses or agreements,
written or oral, granting to any party or parties (other than the Company, a
Subsidiary and those tenants under leases disclosed in Section 2.12 of the
Disclosure Schedule) the right of use or occupancy of any portion of such
parcel;
(e) there are no outstanding options or rights of first
refusal to purchase such parcel, or any portion thereof or interest therein;
(f) all facilities located on such parcel are supplied with
utilities and other services necessary for the operation of such facilities,
including gas, electricity, water, telephone, sanitary sewer and storm sewer,
all of which services are adequate for the Intended Uses and in accordance with
all applicable laws, ordinances, rules
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and regulations and are provided via public roads or via permanent, irrevocable,
appurtenant easements benefiting such parcel;
(g) such parcel abuts on and has direct vehicular access to a
public road or access to a public road via a permanent, irrevocable, appurtenant
easement benefiting such parcel;
(h) neither the Company nor any Subsidiary has received notice
of, and to the knowledge of the Company, there is no proposed or pending
proceeding to change or redefine the zoning classification of all or any portion
of the parcels;
(i) the improvements constructed on the parcels are in good
condition and proper order, free of roof leaks, insect infestation, and material
construction defects, and all mechanical and utility systems servicing such
improvements are in good condition and proper working order, free of material
defects; and
(j) each parcel is an independent unit which does not rely on
any facilities (other than the facilities of public utility and water companies)
located on any other property (i) to fulfill any zoning, building code or other
municipal or governmental requirement, (ii) for structural support or the
furnishing of any essential building systems or utilities, including, but not
limited to electric, plumbing, mechanical, heating, ventilating, and air
conditioning systems, or (iii) to fulfill the requirements of any lease. No
building or other improvement not included in the parcels relies on any part of
the parcels to fulfill any zoning, building code or other municipal or
governmental requirement or for structural support or the furnishing of any
essential building systems or utilities. Each of the parcels is assessed by
local property assessors as a tax parcel or parcels separate from all other tax
parcels.
2.12 REAL PROPERTY LEASES. Section 2.12 of the Disclosure Schedule
lists all real property leased or subleased to or by the Company or any
Subsidiary and lists the term of such lease, and the rent payable thereunder.
The Company has delivered to the Buyer complete and accurate copies of the
leases and subleases (as amended to date) listed in Section 2.12 of the
Disclosure Schedule. With respect to each lease and sublease listed in Section
2.12 of the Disclosure Schedule:
(a) the lease or sublease is legal, valid, binding,
enforceable and in full force and effect;
(b) the lease or sublease will continue to be legal, valid,
binding, enforceable and in full force and effect immediately following the
Closing in accordance with the terms thereof as in effect immediately prior to
the Closing;
(c) neither the Company nor any Subsidiary nor, to the
knowledge of the Company, any other party, is in breach or violation of, or
default under, any such lease or sublease, and no event, to the knowledge of the
Company, has occurred, is pending or, is threatened, which, after the giving of
notice, with lapse of time, or
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otherwise, would constitute a breach or default by the Company or any Subsidiary
or, to the knowledge of the Company, any other party under such lease or
sublease;
(d) neither the Company nor any Subsidiary has assigned,
transferred, conveyed, mortgaged, deeded in trust or encumbered any interest in
the leasehold or subleasehold; and
(e) the Company is not aware of any Security Interest,
easement, covenant or other restriction applicable to the real property subject
to such lease, except for recorded easements, covenants and other restrictions
which do not materially impair the current uses or the occupancy by the Company
or a Subsidiary of the property subject thereto.
2.13 INTELLECTUAL PROPERTY.
(a) Each of the Company and the Subsidiaries owns or has the
right to use all Intellectual Property (as defined below) necessary (i) to use,
manufacture, market and distribute the products manufactured, marketed, sold or
licensed, and to provide the services provided, by the Company to other parties
(together, the "Customer Deliverables") or (ii) to operate the Company's
internal systems that are material to the business or operations of the Company,
including, without limitation, computer hardware systems, software applications
and embedded systems (the "Internal Systems"; the Intellectual Property owned by
or licensed to the Company and incorporated in or underlying the Customer
Deliverables or the Internal Systems is referred to herein as the "Company
Intellectual Property"). Each item of Company Intellectual Property will be
owned or available for use by the Surviving Corporation on substantially
identical terms and conditions immediately following the Closing. The Company
has taken reasonable measures to protect and to maintain in confidence all trade
secrets and confidential information, that it owns or uses to the extent that
the failure to protect or maintain such trade secrets and confidential
information would have a Company Material Adverse Effect. To the knowledge of
the Company, (a) no other person or entity has any rights to any of the Company
Intellectual Property owned by the Company (except pursuant to agreements or
licenses specified in Section 2.13(c) of the Disclosure Schedule), and (b) no
other person or entity is infringing, violating or misappropriating any of the
Company Intellectual Property. For purposes of this Agreement, "Intellectual
Property" means all (i) patents and patent applications, (ii) copyrights and
registrations thereof, (iii) mask works and registrations and applications for
registration thereof, (iv) computer software, data and documentation, (v) trade
secrets and confidential business information, whether patentable or
unpatentable and whether or not reduced to practice, know-how, manufacturing and
production processes and techniques, research and development information,
copyrightable works, financial, marketing and business data, pricing and cost
information, business and marketing plans and customer and supplier lists and
information, (vi) trademarks, service marks, trade names, domain names and
applications and registrations therefor and (vii) other proprietary rights
relating to any of the foregoing. Section 2.13(a) of the Disclosure Schedule
lists each patent, patent application, copyright registration or application
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therefor, mask work registration or application therefor, and trademark, service
mark and domain name registration or application therefor of the Company or any
Subsidiary.
(b) To the Company's knowledge, none of the Customer
Deliverables, or the marketing, distribution, provision or use thereof,
infringes or violates, or constitutes a misappropriation of, any Intellectual
Property rights of any person or entity. To the knowledge of the Company, none
of the Internal Systems, or the use thereof, infringes or violates, or
constitutes a misappropriation of, any Intellectual Property rights of any
person or entity. Section 2.13(b) of the Disclosure Schedule lists any
complaint, claim or notice, or written threat thereof, received by the Company
or any Subsidiary alleging any such infringement, violation or misappropriation;
and the Company has made available to the Buyer complete and accurate copies of
all written documentation in the possession of the Company or any Subsidiary
relating to any such complaint, claim, notice or threat. The Company has made
available to the Buyer complete and accurate copies of all written documentation
in the Company's possession relating to claims or disputes known to the Company
concerning any Company Intellectual Property.
(c) Section 2.13(c) of the Disclosure Schedule identifies each
license or other agreement (or type of license or other agreement) pursuant to
which the Company or a Subsidiary has licensed, distributed or otherwise granted
any rights to any third party with respect to, any Company Intellectual
Property.
(d) Section 2.13(d) of the Disclosure Schedule identifies each
item of Company Intellectual Property that is owned by a party other than the
Company or a Subsidiary, and the license or agreement pursuant to which the
Company or a Subsidiary uses it (excluding off-the-shelf software programs
licensed by the Company pursuant to "shrink wrap" licenses).
(e) Neither the Company nor any Subsidiary has disclosed the
source code for any of the software owned by the Company or a Subsidiary and
incorporated in any Customer Deliverables or Internal Systems (the "Software")
or other confidential information constituting, embodied in or pertaining to the
Software to any person or entity, except pursuant to the agreements listed in
Section 2.13(e) of the Disclosure Schedule, and the Company has taken reasonable
measure to prevent disclosure of such source code.
(f) All of the copyrightable materials (including Software)
incorporated in or bundled with the Customer Deliverables have been created by
employees of the Company or a Subsidiary within the scope of their employment by
the Company or a Subsidiary or by independent contractors of the Company or a
Subsidiary who have executed agreements expressly assigning all right, title and
interest in such copyrightable materials to the Company or a Subsidiary. No
portion of such copyrightable materials was jointly developed with any third
party.
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<PAGE> 23
(g) To the knowledge of the Company, the Customer
Deliverables and the Internal Systems are free from significant defects or
programming errors and conform in all material respects to the written
documentation and specifications therefor.
(h) All of the Customer Deliverables currently being
marketed, distributed or licensed by the Company or a Subsidiary or which were
marketed, distributed or licensed by the Company since January 1, 1998, and all
Internal Systems, are Year 2000 Compliant. The Company is not aware of any
failure to be Year 2000 Compliant of any third-party system that is material to
the business or operations of the Company, including without limitation any
system belonging to any of the Company's suppliers, service providers or
customers.
(i) For purposes of this Agreement, "Year 2000 Compliant"
means that the applicable system or item:
(i) will accurately receive, record, store,
provide, recognize and process all date and time data from, during, into and
between the twentieth and twenty-first centuries, the years 1999 and 2000 and
all leap years;
(ii) will accurately perform all date-dependent
calculations and operations (including, without limitation, mathematical
operations, sorting, comparing and reporting) from, during, into and between the
twentieth and twenty-first centuries, the years 1999 and 2000 and all leap
years; and
(iii) will not malfunction, cease to function or
provide invalid or incorrect results as a result of (x) the change of years from
1999 to 2000, (y) date data, including date data which represents or references
different centuries, different dates during 1999 and 2000, or more than one
century or (z) the occurrence of any particular date;
in each case without human intervention, other than original data entry;
provided, in each case, that all applications, hardware and other systems used
in conjunction with such system or item which are not owned or licensed by the
Company correctly exchange date data with or provide data to such system or
item.
2.14 INVENTORY. All inventory of the Company and the Subsidiaries,
whether or not reflected on the Most Recent Balance Sheet, consists of a quality
and quantity usable and saleable in the Ordinary Course of Business, except for
obsolete items and items of below-standard quality, all of which have been
written-off or written-down to net realizable value on the Most Recent Balance
Sheet. The quantities of each type of inventory, whether raw materials,
work-in-process or finished goods, are not reasonably believed to be excessive
in the present circumstances of the Company and the Subsidiaries.
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<PAGE> 24
2.15 CONTRACTS.
(a) Section 2.15 of the Disclosure Schedule lists the
following agreements (written or oral) to which the Company or any Subsidiary is
a party as of the date of this Agreement:
(i) any agreement (or group of related
agreements) for the lease of personal property from or to third parties
providing for lease payments in excess of $100,000 per annum;
(ii) any agreement (or group of related
agreements) for the purchase or sale of products or for the furnishing or
receipt of services (A) which calls for performance over a period of more than
one year, (B) which involves more than the sum of $100,000, or (C) in which the
Company or any Subsidiary has granted manufacturing rights, "most favored
nation" pricing provisions or exclusive marketing or distribution rights
relating to any products or territory or has agreed to purchase a minimum
quantity of goods or services or has agreed to purchase goods or services
exclusively from a certain party;
(iii) any agreement establishing a partnership or
joint venture;
(iv) any agreement (or group of related
agreements) under which it has created, incurred, assumed or guaranteed (or may
create, incur, assume or guarantee) indebtedness (including capitalized lease
obligations) involving more than $100,000 or under which it has imposed (or may
impose) a Security Interest on any of its assets, tangible or intangible;
(v) any agreement concerning confidentiality or
noncompetition;
(vi) any agreement involving any officer,
director or stockholder of the Company or any affiliate (an "Affiliate"), as
defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), thereof;
(vii) any agreement under which the consequences
of a default or termination could have a Company Material Adverse Effect;
(viii) any agreement which contains any provisions
requiring the Company or any Subsidiary to indemnify any other party thereto;
and
(ix) any other agreement (or group of related
agreements) either involving more than $100,000 or not entered into in the
Ordinary Course of Business.
(b) The Company has delivered to the Buyer a complete and
accurate copy of each agreement (as amended to date) listed in Section 2.13 or
Section 2.15 of the Disclosure Schedule. With respect to each agreement so
listed: (i) the agreement
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<PAGE> 25
is legal, valid, binding and enforceable and in full force and effect; (ii) the
agreement will continue to be legal, valid, binding and enforceable and in full
force and effect immediately following the Closing in accordance with the terms
thereof as in effect immediately prior to the Closing; and (iii) neither the
Company nor any Subsidiary nor, to the knowledge of the Company, any other
party, is in material breach or violation of, or default under, any such
agreement, and to the knowledge of the Company, no event has occurred, is
pending or is threatened, which, after the giving of notice, with lapse of time,
or otherwise, would constitute a material breach or default by the Company or
any Subsidiary or, to the knowledge of the Company, any other party under such
contract.
2.16 ACCOUNTS RECEIVABLE. To the Company's knowledge, all accounts
receivable of the Company and the Subsidiaries reflected on the Most Recent
Balance Sheet are valid receivables subject to no setoffs or counterclaims and
are current and collectible (within 90 days after the date on which it first
became due and payable), net of the applicable reserve for bad debts on the Most
Recent Balance Sheet. To the Company's knowledge, all accounts receivable
reflected in the financial or accounting records of the Company that have arisen
since the Most Recent Balance Sheet Date are valid receivables subject to no
setoffs or counterclaims and are collectible (within 90 days after the date on
which it first became due and payable), net of a reserve for bad debts in an
amount proportionate to the reserve shown on the Most Recent Balance Sheet.
2.17 POWERS OF ATTORNEY. There are no outstanding powers of
attorney executed on behalf of the Company or any Subsidiary.
2.18 INSURANCE. Section 2.18 of the Disclosure Schedule lists each
insurance policy (including fire, theft, casualty, general liability, workers
compensation, business interruption, environmental, product liability and
automobile insurance policies and bond and surety arrangements) to which the
Company or any Subsidiary is a party. There is no material claim pending under
any such policy as to which coverage has been questioned, denied or disputed by
the underwriter of such policy. All premiums due and payable under all such
policies have been paid and the Company and the Subsidiaries are otherwise in
compliance in all material respects with the terms of such policies. The Company
has no knowledge of any threatened termination of, or material premium increase
with respect to, any such policy. Each such policy will continue to be
enforceable and in full force and effect immediately following the Closing in
accordance with the terms thereof as in effect immediately prior to the Closing.
2.19 LITIGATION. As of the date of this Agreement, there is no
action, suit, proceeding, claim, arbitration or, to the Company's knowledge,
investigation before any Governmental Entity or before any arbitrator (a "Legal
Proceeding") which is pending or, to the Company's knowledge, threatened against
the Company or any Subsidiary which, if determined adversely to the Company or
such Subsidiary, could have a Company Material Adverse Effect or which in any
manner challenges or seeks to prevent, enjoin, alter or delay the transactions
contemplated by this Agreement.
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<PAGE> 26
2.20 PRODUCT WARRANTY. No product manufactured, sold, leased,
licensed or delivered by the Company or any Subsidiary is subject to any
guaranty, warranty, right of return, right of credit or other indemnity other
than (i) the applicable standard terms and conditions of sale or lease by the
Company or the appropriate Subsidiary, which are set forth in Section 2.20 of
the Disclosure Schedule and (ii) manufacturers' warranties for which neither the
Company nor any Subsidiary has any liability. Section 2.20 of the Disclosure
Schedule sets forth the aggregate expenses incurred by the Company and the
Subsidiaries in fulfilling their obligations under their guaranty, warranty,
right of return and indemnity provisions during each of the fiscal years and the
interim period covered by the Financial Statements; and the Company does not
reasonably believe that such expenses should significantly increase as a
percentage of sales in the future.
2.21 EMPLOYEES.
(a) Section 2.21 of the Disclosure Schedule contains a
list of all employees of the Company and each Subsidiary whose annual rate of
compensation exceeds $100,000 per year, along with the position and the annual
rate of compensation of each such person. Each such employee has entered into a
proprietary information/inventions agreement with the Company or a Subsidiary, a
copy of which has previously been delivered to the Buyer. Section 2.21 of the
Disclosure Schedule contains a list of all employees of the Company or any
Subsidiary who are a party to a non-competition agreement with the Company or
any Subsidiary; copies of such agreements have previously been delivered to the
Buyer. To the knowledge of any Company Stockholder, no key employee or group of
employees has any plans to terminate employment with the Company or any
Subsidiary.
(b) Neither the Company nor any Subsidiary is a party to
or bound by any collective bargaining agreement, nor has any of them experienced
any strikes, grievances, claims of unfair labor practices or other collective
bargaining disputes. The Company has no knowledge of any organizational effort
made or threatened, either currently or within the past two years, by or on
behalf of any labor union with respect to employees of the Company or any
Subsidiary.
2.22 EMPLOYEE BENEFITS.
(a) For purposes of this Agreement, the following terms
shall have the following meanings:
(i) "Employee Benefit Plan" means any "employee
pension benefit plan" (as defined in Section 3(2) of ERISA), any "employee
welfare benefit plan" (as defined in Section 3(1) of ERISA), and any other
written or oral plan, agreement or arrangement involving direct or indirect
compensation, including without limitation insurance coverage, severance
benefits, disability benefits, deferred compensation, bonuses, stock options,
stock purchase, phantom stock, stock
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appreciation or other forms of incentive compensation or post-retirement
compensation.
(ii) "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended.
(iii) "ERISA Affiliate" means any entity which is,
or at any applicable time was, a member of (1) a controlled group of
corporations (as defined in Section 414(b) of the Code), (2) a group of trades
or businesses under common control (as defined in Section 414(c) of the Code),
or (3) an affiliated service group (as defined under Section 414(m) of the Code
or the regulations under Section 414(o) of the Code), any of which includes or
included the Company or a Subsidiary.
(b) Section 2.22(b) of the Disclosure Schedule contains a
complete and accurate list of all Employee Benefit Plans maintained, or
contributed to, by the Company, any Subsidiary or any Employee Benefit Plan
subject to section 412 of the Code of Title 4 of ERISA of any ERISA Affiliate.
Complete and accurate copies of (i) all Employee Benefit Plans which have been
reduced to writing, (ii) written summaries of all unwritten Employee Benefit
Plans, (iii) all related trust agreements, insurance contracts and summary plan
descriptions, and (iv) all annual reports filed on IRS Form 5500, 5500C or 5500R
and (for all funded plans) all plan financial statements for the last five plan
years for each Employee Benefit Plan, have been delivered to the Buyer. Each
Employee Benefit Plan has been administered in all material respects in
accordance with its terms and each of the Company, the Subsidiaries and the
ERISA Affiliates has in all material respects met its obligations with respect
to such Employee Benefit Plan and has made all required contributions thereto.
The Company, each Subsidiary, each ERISA Affiliate and each Employee Benefit
Plan are in compliance in all material respects with the currently applicable
provisions of ERISA and the Code and the regulations thereunder (including
without limitation Section 4980 B of the Code, Subtitle K, Chapter 100 of the
Code and Sections 601 through 608 and Section 701 et seq. of ERISA). All filings
and reports as to each Employee Benefit Plan required to have been submitted to
the Internal Revenue Service or to the United States Department of Labor have
been duly submitted.
(c) There are no Legal Proceedings (except claims for
benefits payable in the normal operation of the Employee Benefit Plans and
proceedings with respect to qualified domestic relations orders) against or
involving any Employee Benefit Plan or asserting any rights or claims to
benefits under any Employee Benefit Plan that could give rise to any material
liability.
(d) All the Employee Benefit Plans that are intended to
be qualified under Section 401(a) of the Code have received determination
letters from the Internal Revenue Service to the effect that such Employee
Benefit Plans are qualified or is intended to be submitted for a determination
letter to the Internal Revenue Service within it remedial amendment period and
the plans and the trusts related thereto are exempt from federal income taxes
under Sections 401(a) and 501(a),
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respectively, of the Code, no such determination letter has been revoked and
revocation has not been threatened, and no such Employee Benefit Plan has been
amended or operated since the date of its most recent determination letter or
application therefor in any respect, and no act or omission has occurred, that
would adversely affect its qualification or materially increase its cost. Each
Employee Benefit Plan which is required to satisfy Section 401(k)(3) or Section
401(m)(2) of the Code has been tested for compliance with, and satisfies the
requirements of, Section 401(k)(3) and Section 401(m)(2) of the Code for each
plan year ending prior to the Closing Date.
(e) Neither the Company, any Subsidiary, nor any ERISA
Affiliate has ever maintained an Employee Benefit Plan subject to Section 412 of
the Code or Title IV of ERISA.
(f) At no time has the Company, any Subsidiary or any ERISA
Affiliate been obligated to contribute to any "multiemployer plan" (as defined
in Section 4001(a)(3) of ERISA).
(g) There are no unfunded obligations under any Employee
Benefit Plan providing benefits after termination of employment to any employee
of the Company or any Subsidiary (or to any beneficiary of any such employee),
including but not limited to retiree health coverage and deferred compensation,
but excluding continuation of health coverage required to be continued under
Section 4980B of the Code or other applicable law and insurance conversion
privileges under state law. The assets of each Employee Benefit Plan which is
funded are reported at their fair market value on the books and records of such
Employee Benefit Plan.
(h) To the knowledge of the Company, no act or omission has
occurred and no condition exists with respect to any Employee Benefit Plan
maintained by the Company, any Subsidiary or any ERISA Affiliate that would
subject the Company, any Subsidiary or any ERISA Affiliate to (i) any material
fine, penalty, tax or liability of any kind imposed under ERISA or the Code or
(ii) any contractual indemnification or contribution obligation protecting any
fiduciary, insurer or service provider with respect to any Employee Benefit
Plan.
(i) No Employee Benefit Plan is funded by, associated with or
related to a "voluntary employee's beneficiary association" within the meaning
of Section 501(c)(9) of the Code.
(j) Each Employee Benefit Plan is amendable and terminable
unilaterally by the Company at any time without liability to the Company as a
result thereof and no Employee Benefit Plan, plan documentation or agreement,
summary plan description or other written communication distributed generally to
employees by its terms prohibits the Company from amending or terminating any
such Employee Benefit Plan.
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<PAGE> 29
(k) Section 2.22(k) of the Disclosure Schedule discloses each:
(i) agreement with any stockholder, director, executive officer or other key
employee of the Company or any Subsidiary (A) the benefits of which are
contingent, or the terms of which are materially altered, upon the occurrence of
a transaction involving the Company or any Subsidiary of the nature of any of
the transactions contemplated by this Agreement, (B) providing any term of
employment or compensation guarantee or (C) providing severance benefits or
other benefits after the termination of employment of such director, executive
officer or key employee; (ii) agreement, plan or arrangement under which any
person may receive payments from the Company or any Subsidiary that may be
subject to the tax imposed by Section 4999 of the Code or included in the
determination of such person's "parachute payment" under Section 280G of the
Code; and (iii) agreement or plan binding the Company or any Subsidiary,
including without limitation any stock option plan, stock appreciation right
plan, restricted stock plan, stock purchase plan, severance benefit plan or
Employee Benefit Plan, any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the occurrence of any
of the transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement.
(l) Section 2.22(l) of the Disclosure Schedule sets forth the
policy of the Company and any Subsidiary with respect to accrued vacation,
accrued sick time and earned time-off and the amount of such liabilities as of
March 31, 1999.
2.23 ENVIRONMENTAL MATTERS.
(a) Each of the Company and the Subsidiaries has complied with
all applicable Environmental Laws (as defined below), except for violations of
Environmental Laws that do not and will not, individually or in the aggregate,
have a Company Material Adverse Effect. There is no pending or, to the knowledge
of the Company, threatened civil or criminal litigation, written notice of
violation, formal administrative proceeding, or investigation, inquiry or
information request by any Governmental Entity, relating to any Environmental
Law involving the Company or any Subsidiary, except for litigation, notices of
violations, formal administrative proceedings or investigations, inquiries or
information requests that will not, individually or in the aggregate, have a
Company Material Adverse Effect. For purposes of this Agreement, "Environmental
Law" means any federal, state or local law, statute, rule or regulation or the
common law relating to the environment or occupational health and safety,
including without limitation any statute, regulation, administrative decision or
order pertaining to (i) treatment, storage, disposal, generation and
transportation of industrial, toxic or hazardous materials or substances or
solid or hazardous waste; (ii) air, water and noise pollution; (iii) groundwater
and soil contamination; (iv) the release or threatened release into the
environment of industrial, toxic or hazardous materials or substances, or solid
or hazardous waste, including without limitation emissions, discharges,
injections, spills, escapes or dumping of pollutants, contaminants or chemicals;
(v) the protection of wild life, marine life and wetlands, including without
limitation all endangered and
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threatened species; (vi) storage tanks, vessels, containers, abandoned or
discarded barrels, and other closed receptacles; (vii) health and safety of
employees and other persons; and (viii) manufacturing, processing, using,
distributing, treating, storing, disposing, transporting or handling of
materials regulated under any law as pollutants, contaminants, toxic or
hazardous materials or substances or oil or petroleum products or solid or
hazardous waste. As used above, the terms "release" and "environment" shall have
the meaning set forth in the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended ("CERCLA").
(b) There have been no releases of any Materials of
Environmental Concern (as defined below) into the environment at any parcel of
real property or any facility formerly or currently owned, operated or
controlled by the Company or a Subsidiary. With respect to any such releases of
Materials of Environmental Concern, the Company or such Subsidiary has given all
required notices to Governmental Entities (copies of which have been provided to
the Buyer). The Company is not aware of any releases of Materials of
Environmental Concern at parcels of real property or facilities other than those
owned, operated or controlled by the Company or a Subsidiary that could
reasonably be expected to have an impact on the real property or facilities
owned, operated or controlled by the Company or a Subsidiary. For purposes of
this Agreement, "Materials of Environmental Concern" means any chemicals,
pollutants or contaminants, hazardous substances (as such term is defined under
CERCLA), solid wastes and hazardous wastes (as such terms are defined under the
Resource Conservation and Recovery Act), toxic materials, oil or petroleum and
petroleum products or any other material subject to regulation under any
Environmental Law.
(c) Set forth in Section 2.23(c) of the Disclosure Schedule is
a list of all documents (whether in hard copy or electronic form) that contain
any environmental reports, investigations and audits relating to premises
currently or previously owned or operated by the Company or a Subsidiary
(whether conducted by or on behalf of the Company or a Subsidiary or a third
party, and whether done at the initiative of the Company or a Subsidiary or
directed by a Governmental Entity or other third party) which the Company has
possession of or access to. A complete and accurate copy of each such document
has been provided to the Buyer.
(d) The Company is not aware of any material environmental
liability of any solid or hazardous waste transporter or treatment, storage or
disposal facility that has been used by the Company or any Subsidiary.
2.24 LEGAL COMPLIANCE. Each of the Company and the Subsidiaries,
and the conduct and operations of their respective businesses, are in compliance
in all material respects with each law (including rules and regulations
thereunder) of any federal, state, local or foreign government, or any
Governmental Entity, which (a) affects or relates to this Agreement or the
transactions contemplated hereby or (b) is applicable to the Company or such
Subsidiary or business, except for any
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violation of or default under a law referred to in clause (b) above which
reasonably may be expected not to have a Company Material Adverse Effect.
2.25 CUSTOMERS AND SUPPLIERS. Section 2.25 of the Disclosure
Schedule sets forth a list of (a) each customer that accounted for more than 5%
of the consolidated revenues of the Company during the last full fiscal year or
the interim period through the Most Recent Balance Sheet Date and the amount of
revenues accounted for by such customer during each such period and (b) each
supplier that is the sole supplier of any significant product to the Company or
a Subsidiary. No such customer or supplier has indicated within the past year
that it will stop, or decrease the rate of, buying products or supplying
products, as applicable, to the Company or any Subsidiary. No unfilled customer
order or commitment obligating the Company or any Subsidiary to process,
manufacture or deliver products or perform services will, to the Company's
knowledge, result in a loss to the Company or any Subsidiary upon completion of
performance. To the Company's knowledge (a) no purchase order or commitment of
the Company or any Subsidiary is in excess of normal requirements, nor (b) are
prices provided therein in excess of current market prices for the products or
services to be provided thereunder.
2.26 PERMITS. The Company has obtained all permits, licenses,
registrations, certificates, orders or approvals from any Governmental Entity
(including without limitation those issued or required under Environmental Laws
and those relating to the occupancy or use of owned or leased real property)
("Permits") that are required for the Company and the Subsidiaries to conduct
their respective businesses as presently conducted, except for those the absence
of which would not have a Company Material Adverse Effect. Each such Permit is
in full force and effect and, to the best of the knowledge of the Company, no
suspension or cancellation of such Permit is threatened and there is no basis
for believing that such Permit will not be renewable upon expiration. Each such
Permit will continue in full force and effect immediately following the Closing.
2.27 CERTAIN BUSINESS RELATIONSHIPS WITH AFFILIATES. No Affiliate
of the Company or of any Subsidiary (a) owns any property or right, tangible or
intangible, which is used in the business of the Company or any Subsidiary, (b)
to the Company's knowledge, has any claim or cause of action against the Company
or any Subsidiary, or (c) owes any money to, or is owed any money by, the
Company or any Subsidiary.
2.28 BROKERS' FEES. Except for the fees owed to Broadview
International LLC described in Section 2.28 of the Disclosure Schedule and to be
paid in accordance with Section 4.7 of this Agreement, neither the Company nor
any Subsidiary has any liability or obligation to pay any fees or commissions to
any broker, finder or agent with respect to the transactions contemplated by
this Agreement.
2.29 BOOKS AND RECORDS. The minute books and other similar records
of the Company and each Subsidiary contain complete and accurate records of all
actions taken at any meetings of the Company's or such Subsidiary's
stockholders, Board of
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Directors or any committee thereof and of all written consents executed in lieu
of the holding of any such meeting.
2.30 GOVERNMENT CONTRACTS.
(a) Neither the Company nor any Subsidiary has been suspended
or debarred from bidding on contracts or subcontracts with any Governmental
Entity; no such suspension or debarment has been threatened or initiated; and,
to the Company's knowledge, the consummation of the transactions contemplated by
this Agreement will not result in any such suspension or debarment of the
Company, any Subsidiary or the Buyer (assuming that no such suspension or
debarment will result solely from the identity of the Buyer). Neither the
Company nor any Subsidiary has been or is now being audited or, to the Company's
knowledge, investigated by the United States Government Accounting Office, the
United States Department of Defense or any of its agencies, the Defense Contract
Audit Agency, the contracting or auditing function of any Governmental Entity
with which it is contracting, the United States Department of Justice, the
Inspector General of the United States Governmental Entity, or any prime
contractor with a Governmental Entity; nor, to the knowledge of the Company, has
any such audit or investigation been threatened. To the knowledge of the
Company, there is no valid basis for (i) the suspension or debarment of the
Company or any Subsidiary from bidding on contracts or subcontracts with any
Governmental Entity or (ii) any claim (including any claim for return of funds
to the Government) pursuant to an audit or investigation by any of the entities
named in the foregoing sentence. The Company has no agreements, contracts or
commitments which require it to obtain or maintain a security clearance with any
Governmental Entity.
(b) To the knowledge of the Company, no basis exists for any
of the following with respect to any of its contracts or subcontracts with any
Governmental Entity: (i) a Termination for Default (as provided in 48 C.F.R.
Ch.1 ss.52.249-8, 52.249- 9 or similar sections), (ii) a Termination for
Convenience (as provided in 48. C.F.R. Ch.1 ss.52,241-1, 52.249-2 or similar
sections), or a Stop Work Order (as provided in 48 C.F.R. Ch.1 ss.52.212-13 or
similar sections); and the Company has no reason to believe that funding may not
be provided under any contract or subcontract with any Governmental Entity in
the upcoming federal fiscal year.
2.31 POOLING. To the knowledge of the Company, neither the Company
nor any of its Affiliates has through the date of this Agreement taken or agreed
to take any action that would prevent the Buyer from accounting for the business
combination to be effected by the Merger as a "pooling of interests" in
conformity with GAAP.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
AND THE TRANSITORY SUBSIDIARY
Each of the Buyer and the Transitory Subsidiary represents and warrants
to the Company as follows:
3.1 ORGANIZATION, QUALIFICATION AND CORPORATE POWER. Each of the
Buyer and the Transitory Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation.
The Buyer and the Transitory Subsidiary each is duly qualified to conduct
business and is in good standing under the laws of each jurisdiction in which
the nature of its businesses or the ownership or leasing of its properties
requires such qualification, except where the failure to be so qualified or in
good standing would not have a Buyer Material Adverse Effect (as defined below).
The Buyer and the Transitory Subsidiary each has all requisite corporate power
and authority to carry on the businesses in which it is engaged and to own and
use the properties owned and used by it. The Buyer and the Transitory Subsidiary
each has furnished or made available to the Company complete and accurate copies
of their respective Certificate of Incorporation and Bylaws, each as amended and
as in effect on the date hereof. Neither the Buyer nor the Transitory Subsidiary
is in default under or in violation of its Certificate of Incorporation or
By-laws. For purposes of this Agreement, "Buyer Material Adverse Effect" means a
material adverse effect on the assets, business, financial condition, results of
operations or future prospects of the Buyer and its subsidiaries, taken as a
whole.
3.2 CAPITALIZATION. The authorized capital stock of the Buyer
consists of (a) 15,000,000 shares of Buyer Common Stock, of which 5,417,964
shares were issued and outstanding as of the date hereof, and (b) 4,000,000
shares of Preferred Stock, $.01 par value per share, of which 2,747,036 shares
were issued and outstanding as of the date hereof. As of the date hereof, each
share of Buyer Preferred Stock is convertible, at the option of the holder, into
one share of Buyer Common Stock. All of the issued and outstanding shares of
Buyer Common Stock are duly authorized, validly issued, fully paid,
nonassessable and free of all preemptive rights. The Buyer has issued options to
purchase 740,850 shares of Buyer Common Stock as of the date hereof. All of the
Merger Shares will be, when issued in accordance with this Agreement, duly
authorized, validly issued, fully paid, nonassessable and free of all preemptive
rights.
3.3 AUTHORIZATION OF TRANSACTION. Each of the Buyer and the
Transitory Subsidiary has all requisite power and authority to execute and
deliver this Agreement and (in the case of the Buyer) the Escrow Agreement and
to perform its obligations and consummate the transactions contemplated
hereunder and thereunder. The execution and delivery by the Buyer and the
Transitory Subsidiary of this Agreement and (in the case of the Buyer) the
Escrow Agreement and the consummation by the Buyer and the Transitory Subsidiary
of the transactions
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contemplated hereby and thereby have been duly and validly authorized by all
necessary corporate action on the part of the Buyer and Transitory Subsidiary,
respectively. This Agreement has been duly and validly executed and delivered by
the Buyer and the Transitory Subsidiary and constitutes a valid and binding
obligation of the Buyer and the Transitory Subsidiary, enforceable against them
in accordance with its terms except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditor's rights generally and (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies..
3.4 NONCONTRAVENTION. Subject to compliance with the applicable
requirements of the Securities Act and any applicable state securities laws, the
Exchange Act and the filing of the Certificate of Merger as required by the
Delaware General Corporation Law, neither the execution and delivery by the
Buyer or the Transitory Subsidiary of this Agreement or (in the case of the
Buyer) the Escrow Agreement, nor the consummation by the Buyer or the Transitory
Subsidiary of the transactions contemplated hereby or thereby, will (a) conflict
with or violate any provision of the charter or By-laws of the Buyer or the
Transitory Subsidiary, (b) require on the part of the Buyer or the Transitory
Subsidiary any filing with, or permit, authorization, consent or approval of,
any Governmental Entity, (c) conflict with, result in breach of, constitute
(with or without due notice or lapse of time or both) a default under, result in
the acceleration of obligations under, create in any party any right to
terminate, modify or cancel, or require any notice, consent or waiver under, any
contract or instrument to which the Buyer or the Transitory Subsidiary is a
party or by which either is bound or to which any of their assets are subject,
except for (i) any conflict, breach, default, acceleration, termination,
modification or cancellation which would not adversely affect the consummation
of the transactions contemplated hereby or (ii) any notice, consent or waiver
the absence of which would not adversely affect the consummation of the
transactions contemplated hereby, or (d) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to the Buyer or the Transitory
Subsidiary or any of their properties or assets or (e) result in the imposition
of any Security Interest upon and assets of Buyer or the Transitory Subsidiary.
3.5 REPORTS AND FINANCIAL STATEMENTS. The Buyer has furnished or
made available to the Company true and complete copies of all reports or
registration statements filed by it with the U.S. Securities and Exchange
Commission (the "SEC"), all in the form so filed (all of the foregoing being
collectively referred to as the "SEC Documents"). As of the date hereof, the SEC
Documents comply in all material respects with the requirements of the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
the case may be. The Buyer has furnished or made available to the Company true
and complete copies of all reports or registration statements filed by it with
the U.S. Securities and Exchange Commission (the "SEC"), all in the form so
filed (all of the foregoing being collectively referred to as the "SEC
Documents"). As of the date hereof, the SEC Documents comply in all material
respects with the requirements of the Securities Act of 1933, as amended or the
Securities Exchange Act of 1934, as the case may be, including where applicable
the
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requirements under Item 601 of Regulation S-K to file certain contracts, and
none of the SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances in which they
were made, not misleading. The financial statements of Buyer, including the
notes thereto, included in the SEC Documents (the "Buyer Financial Statements")
comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with GAAP consistently applied
(except as may be indicated in the notes thereto) and present fairly the
consolidated financial position of Buyer as of the dates thereof and the
consolidated results of its operations and cash flows for the periods then
ended. There has been no change in Buyer's accounting policies except as
described in the notes to the Buyer Financial Statements.
3.6 ABSENCE OF CERTAIN CHANGES. Since March 31, 1999, there has
occurred no event or development which has had, or could reasonably be foreseen
to have in the future, a Buyer Material Absence Effect.
3.7 LITIGATION. Except as disclosed in the SEC Documents, as of
the date of this Agreement, there is no Legal Proceeding which is pending or, to
the Buyer's knowledge, threatened against the Buyer or any subsidiary of the
Buyer which, if determined adversely to the Buyer or such subsidiary, could have
a Buyer Material Adverse Effect or which in any manner challenges or seeks to
prevent, enjoin, alter or delay the transactions contemplated by this Agreement.
3.8 POOLING. To the knowledge of the Buyer, neither the Buyer nor
any of its Affiliates has through the date of this Agreement taken or agreed to
take any action that would prevent the Buyer from accounting for the business
combination to be effected by the Merger as a "pooling of interests" in
conformity with GAAP.
3.9 INTERIM OPERATIONS OF THE TRANSITORY SUBSIDIARY. The
Transitory Subsidiary was formed solely for the purpose of engaging in the
transactions contemplated by this Agreement and has engaged in no business
activities other than as contemplated by this Agreement.
3.10 BROKERS' FEES. Neither the Buyer nor the Transitory Subsidiary
has any liability or obligation to pay any fees or commissions to any broker,
finder or agent with respect to the transactions contemplated by this Agreement.
ARTICLE IV
COVENANTS
4.1 CLOSING EFFORTS. Each of the Parties shall use its best
efforts, to the extent commercially reasonable ("Reasonable Best Efforts"), to
take all actions and to do all things necessary, proper or advisable to
consummate the transactions contemplated by this Agreement, including without
limitation using its Reasonable
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Best Efforts to ensure that (i) its representations and warranties remain true
and correct in all material respects through the Closing Date and (ii) the
conditions to the obligations of the other Parties to consummate the Merger are
satisfied.
4.2 GOVERNMENTAL AND THIRD-PARTY NOTICES AND CONSENTS.
(a) Each Party shall use its Reasonable Best Efforts to
obtain, at its expense, all such waivers, permits, consents, approvals or other
authorizations from Governmental Entities, and to effect all such registrations,
filings and notices with or to Governmental Entities, as may be required for
such Party to consummate the transactions contemplated by this Agreement and to
otherwise comply with all applicable laws and regulations in connection with the
consummation of the transactions contemplated by this Agreement.
(b) The Company shall use its Reasonable Best Efforts to
obtain, at its expense, all such waivers, consents or approvals from third
parties, and to give all such notices to third parties, as are required to be
listed in Section 2.4 of the Disclosure Schedule.
4.3 STOCKHOLDER APPROVAL.
(a) The Company shall use its Reasonable Best Efforts to
obtain, as promptly as practicable, the Requisite Stockholder Approval, either
at a special meeting of stockholders or pursuant to a written stockholder
consent, even if the Board of Directors has withdrawn its recommendations set
forth in Section 4.3(c), all in accordance with the applicable requirements of
the Delaware General Corporation Law. The Company hereby consents to the use of
its Financial Statements and any related information in the Registration
Statement on Form S-1 of the Buyer filed on April 7, 1999 (the "Registration
Statement"). The Company shall ensure that any information furnished by the
Company to the Buyer expressly for inclusion in the Registration Statement does
not contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading The Company also agrees
to use its Reasonable Best Efforts to obtain the consent of its independent
public accountant for the use of such Financial Statements in the Registration
Statement. In connection with such special meeting of stockholders or written
stockholder consent, the Company shall provide to its stockholders a written
proxy or information statement (the "Disclosure Statement") which includes (A) a
summary of the Merger and this Agreement (which summary shall include a summary
of the terms relating to the indemnification obligations of the Company
Stockholders, the escrow arrangements and the authority of the Indemnification
Representatives, and a statement that the adoption of this Agreement by the
stockholders of the Company shall constitute approval of such terms), (B) all of
the information required by Rule 503(b)(2) of Regulation D under the Securities
Act and (C) a statement that appraisal rights are available for the Company
Shares pursuant to Section 262 of the Delaware General Corporation Law and a
copy of such Section 262. The Buyer agrees to cooperate with the Company in the
preparation of the Disclosure Statement. The
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Company agrees not to distribute the Disclosure Statement until the Buyer has
had a reasonable opportunity to review and comment on the Disclosure Statement
and the Disclosure Statement has been approved by the Buyer (which approval may
not be unreasonably withheld or delayed). If the Requisite Stockholder Approval
is obtained by means of a written consent, the Company shall send, pursuant to
Sections 228 and 262(d) of the Delaware General Corporation Law, a written
notice to all stockholders of the Company that did not execute such written
consent informing them that this Agreement and the Merger were adopted and
approved by the stockholders of the Company and that appraisal rights are
available for their Company Shares pursuant to Section 262 of the Delaware
General Corporation Law (which notice shall include a copy of such Section 262),
and shall promptly inform the Buyer of the date on which such notice was sent.
(b) The Company, acting through its Board of Directors, shall
include in the Disclosure Statement the unanimous recommendation of its Board of
Directors that the stockholders of the Company vote in favor of the adoption of
this Agreement and the approval of the Merger.
(c) The Company shall ensure that the Disclosure Statement
does not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading (provided that the
Company shall not be responsible for the accuracy or completeness of any
information furnished by the Buyer in writing for inclusion in the Disclosure
Statement).
(d) The Buyer shall ensure that any information furnished by
the Buyer to the Company in writing for inclusion in the Proxy Statement does
not contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading.
(e) IXL Holdings, Inc., Brentwood Associates VIII, L.P.,
Brentwood Affiliates Fund, L.P., Sorrento Ventures II, L.P., Sorrento Ventures
III, L.P., Sorrento Ventures IV, L.P., Sorrento Growth Partners I, L.P.,
Sorrento Ventures CE, L.P. and Richard Beedon each agree to enter into and
deliver, concurrently with the execution of this Agreement, a Voting Agreement
and Proxy in the form attached hereto as EXHIBIT G, agreeing, among other
things, to vote in favor of the Merger.
4.4 OPERATION OF BUSINESS. Except as contemplated by this
Agreement, during the period from the date of this Agreement to the earlier of
the termination of this Agreement or the Effective Time, the Company shall (and
shall cause each Subsidiary to) conduct its operations in the Ordinary Course of
Business and use Reasonable Best Efforts to conduct its business in compliance
with all applicable laws and regulations and, to the extent consistent
therewith, use its Reasonable Best Efforts to preserve intact its current
business organization, keep its physical assets in good working condition, keep
available the services of its current officers and employees and preserve its
relationships with customers, suppliers and others having business
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dealings with it to the end that it shall seek to ensure that its goodwill and
ongoing business shall not be impaired in any material respect. Without limiting
the generality of the foregoing, the Company shall not (and shall cause each
Subsidiary not to), without the written consent of the Buyer:
(a) issue or sell, or redeem or repurchase, any stock or other
securities of the Company or any rights, warrants or options to acquire any such
stock or other securities (except pursuant to the conversion or exercise of
convertible securities or Options or Warrants outstanding or pursuant to
obligations set forth in that Consulting Agreement between the Company and IXL
Holdings, Inc., dated August 27, 1996, on the date hereof), or amend any of the
terms of (including without limitation the vesting of) any such convertible
securities or Options or Warrants;
(b) split, combine or reclassify any shares of its capital
stock; declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its capital
stock;
(c) create, incur or assume any indebtedness (including
obligations in respect of capital leases); assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person or entity; or make any loans,
advances or capital contributions to, or investments in, any other person or
entity;
(d) enter into, adopt or amend any Employee Benefit Plan or
any employment or severance agreement or arrangement of the type described in
Section 2.22(k) or (except for normal increases in the Ordinary Course of
Business) increase in any manner the compensation or fringe benefits of, or
materially modify the employment terms of, its directors, officers or employees,
generally or individually, or pay any bonus or other benefit to its directors,
officers or employees (except for existing payment obligations listed in Section
2.20 of the Disclosure Schedule), and shall not have undertaken any of the
foregoing subsequent to December 31, 1998;
(e) acquire, sell, lease, license or dispose of any assets or
property (including without limitation any shares or other equity interests in
or securities of any Subsidiary or any corporation, partnership, association or
other business organization or division thereof), other than purchases and sales
of assets in the Ordinary Course of Business;
(f) mortgage or pledge any of its property or assets or
subject any such assets to any Security Interest;
(g) discharge or satisfy any Security Interest or pay any
obligation or liability other than in the Ordinary Course of Business;
(h) amend its Certificate of Incorporation or By-laws;
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(i) change in any material respect its accounting methods,
principles or practices, except insofar as may be required by a generally
applicable change in GAAP;
(j) enter into, amend, terminate, take or omit to take any
action that would constitute a violation of or default under, or waive any
rights under, any material contract or agreement;
(k) make or commit to make any capital expenditure in excess
of $50,000 per item or $100,000 in the aggregate;
(l) institute or settle any Legal Proceeding;
(m) take any action or fail to take any action permitted by
this Agreement with the knowledge that such action or failure to take action
would result in (i) any of the representations and warranties of the Company set
forth in this Agreement becoming untrue or (ii) any of the conditions to the
Merger set forth in Article V not being satisfied;
(n) take any action that would prevent the treatment of the
Merger as a "pooling of interests" for accounting purposes; or
(o) agree in writing or otherwise to take any of the foregoing
actions.
4.5 ACCESS TO INFORMATION.
(a) Each of the Parties shall (and shall cause each subsidiary
to) permit representatives of the other to have full access (at all reasonable
times, and in a manner so as not to interfere with the normal business
operations of the Company and the Subsidiaries) to all premises, properties,
financial and accounting records, contracts, other records and documents, and
personnel, of or pertaining to the other.
(b) Within 15 days after the end of each month ending prior to
the Closing, beginning with May 15, 1999, the Company shall furnish to the Buyer
an unaudited income statement for such month and a balance sheet as of the end
of such month, prepared on a basis consistent with the Financial Statements.
Such financial statements shall present fairly the financial condition and
results of operations of the Company and the Subsidiaries on a consolidated
basis as of the dates thereof and for the periods covered thereby, and shall be
consistent with the books and records of the Company and the Subsidiaries.
(c) Each of the Parties (i) shall treat and hold as
confidential any Confidential Information (as defined below), (ii) shall not use
any of the Confidential Information except in connection with this Agreement,
and (iii) if this Agreement is terminated for any reason whatsoever, shall
return to the other all tangible embodiments (and all copies) thereof which are
in its possession. For purposes of this Agreement, "Confidential Information"
means any confidential or proprietary
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information of the parties (or any subsidiary thereof) that is furnished in
writing by the other in connection with this Agreement and is labelled
confidential or proprietary; PROVIDED, HOWEVER, that it shall not include any
information (A) which, at the time of disclosure, is available publicly, (B)
which, after disclosure, becomes available publicly through no fault of the
receiving party hereunder, (C) which the receiving party knew or to which the
receiving party had access prior to disclosure or (D) which the receiving party
rightfully obtains from a source other than the other party hereunder.
4.6 EXCLUSIVITY.
(a) The Company shall not, and the Company shall direct each
of its officers, directors, employees, representatives and agents not to,
directly or indirectly, (i) initiate, solicit, encourage or otherwise facilitate
any inquiry, proposal, offer or discussion with any party (other than the Buyer)
concerning any merger, consolidation, share exchange, sale of stock, sale of
material assets or similar business transaction involving the Company, any
Subsidiary or any division of the Company or any Subsidiary, (ii) furnish any
non-public information concerning the business, properties or assets of the
Company, any Subsidiary or any division of the Company to any party (other than
the Buyer) in order to facilitate or encourage any effort or attempt by any such
party to acquire the Company or (iii) engage in discussions or negotiations with
any party (other than the Buyer) concerning any such transaction.
(b) The Company shall immediately notify any party with which
discussions or negotiations of the nature described in paragraph (a) above were
pending that the Company is terminating such discussions or negotiations. If the
Company receives any inquiry, proposal or offer of the nature described in
paragraph (a) above, the Company shall, within two business days after such
receipt, notify the Buyer of such inquiry, proposal or offer, including the
identity of the other party and the terms of such inquiry, proposal or offer.
4.7 EXPENSES. Except as set forth in Article VI and the Escrow
Agreement, each of the Parties shall bear its own costs and expenses (including
legal fees and expenses) incurred in connection with this Agreement and the
transactions contemplated hereby; provided, HOWEVER, that if the Merger is
consummated, the Company and the Subsidiaries shall not incur more than an
aggregate of $825,000 in legal, accounting and investment banking fees and
expenses of Brobeck, Phleger & Harrison, LLP, PricewaterhouseCoopers, LLP and
Broadview International LLC in connection with the Merger. Any expenses in
excess of $825,000 shall be paid in Escrow Shares. The Parties agree to
effectuate such payment in Escrow Shares by giving joint written instructions to
the Escrow Agent in accordance with Section 4 of the Escrow Agreement.
4.8 INDEMNIFICATION. The Buyer shall not, for a period of three
years after the Effective Time, take any action to alter or impair any
exculpatory or indemnification provisions now existing in the Certificate of
Incorporation or By-laws of the Company for the benefit of any individual who
served as a director or officer
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of the Company at any time prior to the Effective Time, except for any changes
which may be required to conform with changes in applicable law and any changes
which do not affect the application of such provisions to acts or omissions of
such individuals prior to the Effective Time.
4.9 AGREEMENTS FROM CERTAIN AFFILIATES OF THE COMPANY. Upon the
execution of this Agreement, the Company shall provide to the Buyer a list of
those persons who are, in the Company's reasonable judgment, Affiliates of the
Company. The Company shall provide the Buyer such information and documents as
the Buyer shall reasonably request for purposes of reviewing such list and shall
notify the Buyer in writing regarding any change in the identity of its
Affiliates prior to the Closing Date. In order to help ensure that the Merger
will be accounted for as a "pooling of interests," that the issuance of and any
resale of the Merger Shares will comply with the Securities Act and that the
Merger will be treated as a tax-free reorganization, the Company shall use its
Reasonable Best Efforts to deliver or cause to be delivered to the Buyer, as
soon as practicable and in any case prior to the mailing of the Disclosure
Statement (or, in the case of any person who becomes an Affiliate after such
date, as soon as practicable after such person becomes an Affiliate), an
Affiliate Agreement, in the form attached hereto as EXHIBIT B (an "Affiliate
Agreement"), executed by each of its Affiliates. The Buyer shall be entitled to
place appropriate legends on the certificates evidencing any Merger Shares to be
issued to Affiliates of the Company, and to issue appropriate stop transfer
instructions to the transfer agent for the Buyer Common Stock, setting forth
restrictions on transfer consistent with the terms of the Affiliate Agreement.
4.10 LOAN FROM BUYER. On or after June 15,1999, if the Company has
received the Requisite Stockholder Approval, the Buyer shall make available to
the Company, and fund within five (5) days of receipt of a request therefor, a
loan in a principal amount up to $500,000, to be evidenced by a Promissory Note
from the Company to Buyer in substantially the form attached hereto as EXHIBIT I
(the "Promissory Note"). The Promissory Note shall bear interest at the rate of
twelve percent (12%) per annum, which is the rate that the parties, after
reasonable investigation, deem to be the then current market rate for such a
loan; provided, however, that prior to the execution and delivery of the
Promissory Note by the Company, such rate may be adjusted by the parties to the
extent that it is determined that such rate no longer reflects the then current
market rate and would as a result cause the Merger not to qualify as a "pooling
of interests" for accounting purposes under Accounting Principles Board Opinion
No. 16.
4.11 CERTAIN BENEFIT PLANS. Subject to compliance with pooling of
interest accounting treatment of the Merger, Buyer shall take reasonable actions
as are necessary to allow eligible employees of the Company to participate in
the benefit programs of Buyer, or alternative benefit programs substantially
comparable to those applicable to employees of Buyer, as soon as practicable
after the Effective Time.
4.12 STOCK ISSUANCE BY BUYER. During the period from the date of
this Agreement until the earlier of the termination of this Agreement or the
Effective
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Time, except in connection with the transactions contemplated hereby, Buyer
shall not, without the prior written consent of the Company (which consent shall
not be unreasonably withheld by the Company), issue in excess of 1,000,000
shares of the capital stock of Buyer, except for such issuance (i) in an initial
firm commitment underwritten offering of the Buyer's stock, pursuant to a
registration statement on Form S-1 filed with and declared effective by the SEC,
(ii) upon the conversion or exercise of currently outstanding convertible or
exercisable securities, (iii) as Merger Shares, (iv) for warrants or options to
acquire Buyer's common stock issued in the Merger or (v) in an issuance or sale
of Buyer's common stock (or options therefor) to employees, consultants and
directors, directly or pursuant to a stock option plan or employee stock
purchase plan.
4.13 EXERCISE OF OPTIONS. As a condition to the exercise of an
option to purchase Company Common Stock or Company Series A Preferred Stock by
an optionholder pursuant to the Company's 1995 Stock Option/Stock Issuance Plan,
the Company shall use its Reasonable Best Efforts to require such optionholder
to sign a lock-up agreement substantially in the form attached hereto as EXHIBIT
H.
ARTICLE V
CONDITIONS TO CONSUMMATION OF MERGER
5.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective
obligations of each Party to consummate the Merger are subject to this Agreement
and the Merger having received the Requisite Stockholder Approval, this
Agreement and the Merger having been approved and adopted by the requisite vote,
if any, of the stockholders of the Buyer and Buyer and Company each having
received substantially identical written opinions from their counsel, in form
and substance reasonably satisfactory to them, to the effect that the Merger
will constitute a reorganization within the meaning of Section 368(a) of the
Code. The parties to this Agreement agree to make reasonable representations as
requested by such counsel for the purpose of rendering such opinions.
5.2 CONDITIONS TO OBLIGATIONS OF THE BUYER AND THE TRANSITORY
SUBSIDIARY. The obligation of each of the Buyer and the Transitory Subsidiary to
consummate the Merger is subject to the satisfaction (or waiver by the Buyer) of
the following additional conditions:
(a) the number of Dissenting Shares shall not exceed 5% of the
number of outstanding Common Shares as of the Effective Time (calculated after
giving effect to the conversion into Common Shares of all outstanding Preferred
Shares);
(b) the Company and the Subsidiaries shall have obtained (and
shall have provided copies thereof to the Buyer) all of the waivers, permits,
consents, approvals or other authorizations, and effected all of the
registrations, filings and notices, referred to in Section 4.2 which are
required on the part of the Company or
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the Subsidiaries, except for any the failure of which to obtain or effect would
not have a Company Material Adverse Effect or a material adverse effect on the
ability of the Parties to consummate the transactions contemplated by this
Agreement;
(c) the representations and warranties of the Company set
forth in the first sentence of Section 2.1 and in Section 2.3 and any
representations and warranties of the Company set forth in this Agreement that
are qualified as to materiality shall be true and correct, and the
representations and warranties of the Company set forth in this Agreement that
are not so qualified (other than those set forth in the first sentence of
Section 2.1 and in Section 2.3) shall be true and correct in all material
respects, in each case as of the date of this Agreement and as of the Effective
Time as though made as of the Effective Time, except to the extent such
representations and warranties are specifically made as of a particular date or
as of the date of this Agreement (in which case such representations and
warranties shall be true and correct as of such date);
(d) the Company shall have performed or complied with in all
material respects its agreements and covenants required to be performed or
complied with under this Agreement as of or prior to the Effective Time;
(e) no Legal Proceeding shall be pending or threatened wherein
an unfavorable judgment, order, decree, stipulation or injunction would (i)
prevent consummation of any of the transactions contemplated by this Agreement,
(ii) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation or (iii) have a Company Material Adverse
Effect, and no such judgment, order, decree, stipulation or injunction shall be
in effect;
(f) the Company shall have delivered to the Buyer and the
Transitory Subsidiary a certificate (the "Company Certificate") to the effect
that the condition specified in Section 5.1 and clauses (a) through (e) (insofar
as clause (e) relates to Legal Proceedings involving the Company or a
Subsidiary) of this Section 5.2 is satisfied in all respects;
(g) each of the Company Stockholders who is not holding
Dissenting Shares shall have executed and delivered to the Buyer an Investment
Representation Letter in the form attached hereto as EXHIBIT C and the Buyer
shall have no reason to believe that the statements set forth therein are not
true and shall be reasonably satisfied that the issuance and sale of the Merger
Shares is exempt from the registration requirements of the Securities Act;
(h) the Buyer shall have received a letter from
PricewaterhouseCoopers LLP, independent accountants for the Buyer, in a form
reasonably satisfactory to the Buyer, regarding its concurrence with the
conclusion of the Buyer that the Buyer may treat the Merger as a "pooling of
interests" for accounting purposes under Accounting Principles Board Opinion No.
16 if consummated in accordance with this Agreement;
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(i) the Buyer shall have received from counsel to the Company
an opinion with respect to the matters set forth in EXHIBIT D attached hereto,
addressed to the Buyer and dated as of the Closing Date;
(j) the Buyer shall have received copies of the resignations,
effective as of the Effective Time, of each director and officer of the Company
and the Subsidiaries (other than any such resignations which the Buyer
designates, by written notice to the Company, as unnecessary);
(k) the Buyer shall have received such other certificates and
instruments (including without limitation certificates of good standing of the
Company and the Subsidiaries in their jurisdiction of organization and the
various foreign jurisdictions in which they are qualified, certified charter
documents, certificates as to the incumbency of officers and the adoption of
authorizing resolutions) as it shall reasonably request in connection with the
Closing; and
(l) the Buyer shall have entered into an Employment Agreement
with Ronald Inman, Jeff Cravens, Richard Beedon and David Wogahn substantially
in the form of EXHIBIT E attached hereto.
(m) all beneficial owners of Company Shares not holding
Dissenting Shares shall have executed and delivered to Buyer a Lock-up Agreement
substantially in the form of EXHIBIT H.
5.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligation of
the Company to consummate the Merger is subject to the satisfaction of the
following additional conditions:
(a) the Buyer shall have effected all of the registrations,
filings and notices referred to in Section 4.2 which are required on the part of
the Buyer, except for any which if not obtained or effected would not have a
Buyer Material Adverse Effect or a material adverse effect on the ability of the
Parties to consummate the transactions contemplated by this Agreement;
(b) the representations and warranties of the Buyer and the
Transitory Subsidiary set forth in the first sentence of Section 3.1 and Section
3.3 and any representations and warranties of the Buyer and the Transitory
Subsidiary set forth in this Agreement that are qualified as to materiality
shall be true and correct, and the representations and warranties of the Buyer
and the Transitory Subsidiary set forth in this Agreement that are not so
qualified (other than those set forth in Section 3.1 and Section 3.3) shall be
true and correct in all material respects, in each case as of the date of this
Agreement and as of the Effective Time as though made as of the Effective Time,
except to the extent such representations and warranties are specifically made
as of a particular date or as of the date of this Agreement (in which case such
representations and warranties shall be true and correct as of such date);
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(c) each of the Buyer and the Transitory Subsidiary shall have
performed or complied with in all material respect its agreements and covenants
required to be performed or complied with under this Agreement as of or prior to
the Effective Time;
(d) no Legal Proceeding shall be pending or threatened wherein
an unfavorable judgment, order, decree, stipulation or injunction would (i)
prevent consummation of any of the transactions contemplated by this Agreement,
(ii) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation or (iii) have a Buyer Material Adverse Effect,
and no such judgment, order, decree, stipulation or injunction shall be in
effect;
(e) the Buyer shall have delivered to the Company a
certificate (the "Buyer Certificate") to the effect that each of the conditions
specified in clauses (a) through (e) (insofar as clause (e) relates to Legal
Proceedings involving the Buyer) of this Section 5.3 is satisfied in all
respects;
(f) the Company shall have received from counsel to the Buyer
and the Transitory Subsidiary an opinion with respect to the matters set forth
in EXHIBIT F attached hereto, addressed to the Company and dated as of the
Closing Date;
(g) the Company shall have received such other certificates
and instruments (including without limitation certificates of good standing of
the Buyer and the Transitory Subsidiary in their jurisdiction of organization
and the various foreign jurisdictions where they are qualified, certified
charter documents, certificates as to the incumbency of officers and the
adoption of authorizing resolutions) as it shall reasonably request in
connection with the Closing.
(h) the Buyer shall have entered into an Employment Agreement
with Ronald Inman, Jeff Cravens, Richard Beedon and David Wogahn substantially
in the form of EXHIBIT E attached hereto.
ARTICLE VI
INDEMNIFICATION
6.1 INDEMNIFICATION BY THE COMPANY STOCKHOLDERS. The Company
Stockholders receiving the Merger Shares pursuant to Section 1.5 (the
"Indemnifying Stockholders") shall indemnify the Buyer in respect of, and hold
it harmless against, any and all debts, obligations and other liabilities
(whether absolute, accrued, contingent, fixed or otherwise, or whether known or
unknown, or due or to become due or otherwise), monetary damages, fines, fees,
penalties, interest obligations, deficiencies, losses and expenses (including
without limitation amounts paid in settlement, interest, court costs, costs of
investigators, fees and expenses of attorneys, accountants, financial advisors
and other experts, and other expenses of litigation)
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("Damages") incurred or suffered by the Surviving Corporation or the Buyer or
any Affiliate thereof resulting from, relating to or constituting:
(a) any misrepresentation, breach of warranty or failure to
perform any covenant or agreement of the Company contained in this Agreement or
the Company Certificate;
(b) any failure of any Company Stockholder to have good, valid
and marketable title to the issued and outstanding Company Shares issued in the
name of such Company Stockholder, free and clear of all Security Interests; or
(c) any claim by a stockholder or former stockholder of the
Company, or any other person or entity, seeking to assert, or based upon: (i)
ownership or rights to ownership of any shares of stock of the Company; (ii) any
rights of a stockholder (other than the right to receive the Merger Shares
pursuant to this Agreement or appraisal rights under the applicable provisions
of the Delaware General Corporation Law), including any option, preemptive
rights or rights to notice or to vote; (iii) any rights under the Certificate of
Incorporation or By-laws of the Company; or (iv) any claim that his, her or its
shares were wrongfully repurchased by the Company.
6.2 INDEMNIFICATION BY THE BUYER. The Buyer shall indemnify the
Indemnifying Stockholders in respect of, and hold them harmless against, any and
all Damages incurred or suffered by the Indemnifying Stockholders resulting
from, relating to or constituting any misrepresentation, breach of warranty or
failure to perform any covenant or agreement of the Buyer or the Transitory
Subsidiary contained in this Agreement or the Buyer Certificate.
6.3 INDEMNIFICATION CLAIMS.
(a) A party entitled, or seeking to assert rights, to
indemnification under this Article VI (an "Indemnified Party") shall give
written notification to the party from whom indemnification is sought (an
"Indemnifying Party") of the commencement of any suit or proceeding relating to
a third party claim for which indemnification pursuant to this Article VI may be
sought. Such notification shall be given within 20 business days after receipt
by the Indemnified Party of notice of such suit or proceeding, and shall
describe (to the extent known by the Indemnified Party) the facts constituting
the basis for such suit or proceeding and the amount of the claimed damages;
provided, however, that no delay on the part of the Indemnified Party in
notifying the Indemnifying Party shall relieve the Indemnifying Party of any
liability or obligation hereunder except to the extent of any damage or
liability caused by or arising out of such failure. Within 20 days after
delivery of such notification, the Indemnifying Party may, upon written notice
thereof to the Indemnified Party, assume control of the defense of such suit or
proceeding with counsel reasonably satisfactory to the Indemnified Party;
provided that (i) the Indemnifying Party may only assume control of such defense
if it acknowledges in writing to the Indemnified Party that any damages, fines,
costs or other liabilities that
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may be assessed against the Indemnified Party in connection with such suit or
proceeding constitute Damages for which the Indemnified Party shall be
indemnified pursuant to this Article VI and (ii) the Indemnifying Party may not
assume control of the defense of a suit or proceeding in which equitable relief
is sought against the Indemnified Party. If the Indemnifying Party does not so
assume control of such defense, the Indemnified Party shall control such
defense. The party not controlling such defense (the "Non-controlling Party")
may participate therein at its own expense; provided that if the Indemnifying
Party assumes control of such defense and the Indemnified Party reasonably
concludes that the Indemnifying Party and the Indemnified Party have conflicting
interests or different defenses available with respect to such suit or
proceeding, the reasonable fees and expenses of counsel to the Indemnified Party
shall be considered "Damages" for purposes of this Agreement. The party
controlling such defense (the "Controlling Party") shall keep the
Non-controlling Party advised of the status of such suit or proceeding and the
defense thereof and shall consider in good faith recommendations made by the
Non-controlling Party with respect thereto. The Non-controlling Party shall
furnish the Controlling Party with such information as it may have with respect
to such suit or proceeding (including copies of any summons, complaint or other
pleading which may have been served on such party and any written claim, demand,
invoice, billing or other document evidencing or asserting the same) and shall
otherwise cooperate with and assist the Controlling Party in the defense of such
suit or proceeding. The Indemnifying Party shall not agree to any settlement of,
or the entry of any judgment arising from, any such suit or proceeding without
the prior written consent of the Indemnified Party, which shall not be
unreasonably withheld or delayed; provided that the consent of the Indemnified
Party shall not be required if the Indemnifying Party agrees in writing to pay
any amounts payable pursuant to such settlement or judgment and such settlement
or judgment has no other adverse effect on the Indemnified Party. The
Indemnified Party shall not agree to any settlement of, or the entry of any
judgment arising from, any such suit or proceeding without the prior written
consent of the Indemnifying Party, which shall not be unreasonably withheld or
delayed.
(b) In order to seek indemnification under this Article VI, an
Indemnified Party shall give written notification (a "Claim Notice") to the
Indemnifying Party which contains (i) a description and the amount (the "Claimed
Amount") of any Damages incurred or reasonably expected to be incurred by the
Indemnified Party, (ii) a statement that the Indemnified Party is entitled to
indemnification under this Article VI for such Damages and a reasonable
explanation of the basis therefor, and (iii) a demand for payment (in the manner
provided in paragraph (c) below) in the amount of such Damages. If the
Indemnified Party is the Buyer, the Indemnifying Party shall deliver a copy of
the Claim Notice to the Escrow Agent.
(c) Within 20 days after delivery of a Claim Notice, the
Indemnifying Party shall deliver to the Indemnified Party a written response
(the "Response") in which the Indemnifying Party shall: (i) agree that the
Indemnified Party is entitled to receive all of the Claimed Amount (in which
case the Response shall be accompanied
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by a payment by the Indemnifying Party to the Indemnified Party of the Claimed
Amount, by check or by wire transfer; provided that if the Indemnified Party is
the Buyer, the Indemnifying Party and the Indemnified Party shall deliver to the
Escrow Agent, within three days following the delivery of the Response, a
written notice executed by both parties instructing the Escrow Agent to
distribute to the Buyer such number of Escrow Shares as have an aggregate value
equal to the Claimed Amount), (ii) agree that the Indemnified Party is entitled
to receive part, but not all, of the Claimed Amount (the "Agreed Amount") (in
which case the Response shall be accompanied by a payment by the Indemnifying
Party to the Indemnified Party of the Agreed Amount, by check or by wire
transfer; provided that if the Indemnified Party is the Buyer, the Indemnifying
Party and the Indemnified Party shall deliver to the Escrow Agent, within three
days following the delivery of the Response, a written notice executed by both
parties instructing the Escrow Agent to distribute to the Buyer such number of
Escrow Shares as have an aggregate value equal to the Agreed Amount) or (iii)
dispute that the Indemnified Party is entitled to receive any of the Claimed
Amount. If the Indemnifying Party in the Response disputes its liability for all
or part of the Claimed Amount, the Indemnifying Party and the Indemnified Party
shall follow the procedures set forth in Section 6.3(d) for the resolution of
such dispute (a "Dispute").
(d) During the 60-day period following the delivery of a
Response that reflects a Dispute, the Indemnifying Party and the Indemnified
Party shall use good faith efforts to resolve the Dispute. If the Dispute is not
resolved within such 60-day period, the Indemnifying Party and the Indemnified
Party shall discuss in good faith the submission of the Dispute to a mutually
acceptable alternative dispute resolution procedure (which may be non-binding or
binding upon the parties, as they agree in advance) (the "ADR Procedure"). In
the event the Indemnifying Party and the Indemnified Party agree upon an ADR
Procedure, such parties shall, in consultation with the chosen dispute
resolution service (the "ADR Service"), promptly agree upon a format and
timetable for the ADR Procedure, agree upon the rules applicable to the ADR
Procedure, and promptly undertake the ADR Procedure. The provisions of this
Section 6.3(d) shall not obligate the Indemnifying Party and the Indemnified
Party to pursue an ADR Procedure or prevent either such party from pursuing the
Dispute in a court of competent jurisdiction; provided that, if the Indemnifying
Party and the Indemnified Party agree to pursue an ADR Procedure, neither the
Indemnifying Party nor the Indemnified Party may commence litigation or seek
other remedies with respect to the Dispute prior to the completion of such ADR
Procedure. Any ADR Procedure undertaken by the Indemnifying Party and the
Indemnified Party shall be considered a compromise negotiation for purposes of
federal and state rules of evidence, and all statements, offers, opinions and
disclosures (whether written or oral) made in the course of the ADR Procedure by
or on behalf of the Indemnifying Party, the Indemnified Party or the ADR Service
shall be treated as confidential and, where appropriate, as privileged work
product. Such statements, offers, opinions and disclosures shall not be
discoverable or admissible for any purposes in any litigation or other
proceeding relating to the Dispute (provided that this sentence shall not be
construed to exclude from discovery or admission any matter that is otherwise
discoverable or admissible). The fees and
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expenses of any ADR Service used by the Indemnifying Party and the Indemnified
Party shall be shared equally by the Indemnifying Party and the Indemnified
Party. If the Indemnified Party is the Buyer, the Indemnifying Party and the
Indemnified Party shall deliver to the Escrow Agent, promptly following the
resolution of the Dispute (whether by mutual agreement, pursuant to an ADR
Procedure, as a result of a judicial decision or otherwise), a written notice
executed by both parties instructing the Escrow Agent as to what (if any)
portion of the Escrow Shares shall be distributed to the Buyer and/or the
Indemnifying Stockholders (which notice shall be consistent with the terms of
the resolution of the Dispute).
(e) Notwithstanding the other provisions of this Section 6.3,
if a third party asserts (other than by means of a lawsuit) that an Indemnified
Party is liable to such third party for a monetary or other obligation which may
constitute or result in Damages for which such Indemnified Party may be entitled
to indemnification pursuant to this Article VI, and such Indemnified Party
reasonably determines that it has a valid business reason to fulfill such
obligation, then (i) such Indemnified Party shall be entitled to satisfy such
obligation, without prior notice to or consent from the Indemnifying Party, (ii)
such Indemnified Party may subsequently make a claim for indemnification in
accordance with the provisions of this Article VI, and (iii) such Indemnified
Party shall be reimbursed, in accordance with the provisions of this Article VI,
for any such Damages for which it is entitled to indemnification pursuant to
this Article VI (subject to the right of the Indemnifying Party to dispute the
Indemnified Party's entitlement to indemnification, or the amount for which it
is entitled to indemnification, under the terms of this Article VI).
(f) For purposes of this Section 6.3 and the last two
sentences of Section 6.4, (i) if the Indemnifying Stockholders comprise the
Indemnifying Party, any references to the Indemnifying Party (except provisions
relating to an obligation to make or a right to receive any payments provided
for in Section 6.3 or Section 6.4) shall be deemed to refer to the
Indemnification Representatives, and (ii) if the Indemnifying Stockholders
comprise the Indemnified Party, any references to the Indemnified Party (except
provisions relating to an obligation to make or a right to receive any payments
provided for in Section 6.3 or Section 6.4) shall be deemed to refer to the
Indemnification Representatives. The Indemnification Representatives shall have
full power and authority on behalf of each Indemnifying Stockholder to take any
and all actions on behalf of, execute any and all instruments on behalf of, and
execute or waive any and all rights of, the Indemnifying Stockholders under this
Article VI. The Indemnification Representatives shall have no liability to any
Indemnifying Stockholder for any action taken or omitted on behalf of the
Indemnifying Stockholders pursuant to this Article VI.
6.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained in this Agreement, the Company
Certificate or the Buyer Certificate shall (a) survive the Closing and any
investigation at any time made by or on behalf of an Indemnified Party and (b)
shall expire on the earlier to occur of the first anniversary of the Closing
Date or the issuance of the first independent audit report on the Buyer's
financial statements after the Closing, which financial
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statements include the financial results of the Company. If an Indemnified Party
delivers to an Indemnifying Party, before expiration of a representation or
warranty, either a Claim Notice based upon a breach of such representation or
warranty, or a notice that, as a result a legal proceeding instituted by or
written claim made by a third party, the Indemnified Party reasonably expects to
incur Damages as a result of a breach of such representation or warranty (an
"Expected Claim Notice"), then such representation or warranty shall survive
until, but only for purposes of, the resolution of the matter covered by such
notice. If the legal proceeding or written claim with respect to which an
Expected Claim Notice has been given is definitively withdrawn or resolved in
favor of the Indemnified Party, the Indemnified Party shall promptly so notify
the Indemnifying Party; and if the Indemnified Party has delivered a copy of the
Expected Claim Notice to the Escrow Agent and Escrow Shares have been retained
in escrow after the Termination Date (as defined in the Escrow Agreement) with
respect to such Expected Claim Notice, the Indemnifying Party and the
Indemnified Party shall promptly deliver to the Escrow Agent a written notice
executed by both parties instructing the Escrow Agent to distribute such
retained Escrow Shares to the Indemnifying Stockholders in accordance with the
terms of the Escrow Agreement.
6.5 LIMITATIONS.
(a) Neither the Indemnifying Stockholders nor the Buyer shall
be liable under this Article VI unless and until the aggregate Damages for which
they or it would otherwise be liable exceed $250,000 (at which point the
Indemnifying Stockholders and the Buyer, as the case may be, shall become liable
for the aggregate Damages up to the maximum set forth in the next sentence, and
not just amounts in excess of $250,000). Except as otherwise set forth herein,
the aggregate liability of the Indemnifying Stockholders, on the one hand, and
the Buyer, on the other hand, for Damages under this Article VI shall not exceed
an amount equal to the Escrow Amount.
(b) The Escrow Agreement is intended to secure the
indemnification obligations of the Indemnifying Stockholders under this
Agreement and shall be the sole source of recovery for Damages to the Buyer
arising from any claim hereunder (other than Damages due to fraud or willful
misrepresentation).
(c) Except with respect to claims based on fraud or willful
misrepresentation, after the Closing, the rights of the Indemnified Parties
under this Article VI and the Escrow Agreement shall be the exclusive remedy of
the Indemnified Parties with respect to claims resulting from or relating to any
misrepresentation, breach of warranty or failure to perform any covenant or
agreement contained in this Agreement.
(d) No Indemnifying Stockholder shall have any right of
contribution against the Company or the Surviving Corporation with respect to
any breach by the Company of any of its representations, warranties, covenants
or agreements.
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ARTICLE VII
REGISTRATION RIGHTS
7.1 REGISTRATION OF SHARES. The Buyer shall file with the SEC
within 120 days after the Closing Date a registration statement on Form S-1
covering the resale to the public by the Company Stockholders of up to 50% of
the Merger Shares (the "Stockholder Registration Statement"). The Buyer shall
use its Reasonable Best Efforts to cause the Stockholder Registration Statement
to be declared effective by the SEC upon the earlier of the 180th day after the
effective date of the Buyer's prospectus for its initial public offering or such
date as any of Raymond V. Sozzi, Jr., Marc Turtletaub, Greylock IX Limited
Partnership, or the Princeton Review, L.L.C. shall sell (other than in an
underwritten secondary offering of Buyer Common Stock) greater than 1% of the
then outstanding shares of capital stock of the Buyer. The Buyer shall use its
Reasonable Best Efforts to cause the Stockholder Registration Statement to
remain effective until the date 12 months after the Closing Date or such earlier
time as all of the Merger Shares covered by the Stockholder Registration
Statement have been sold pursuant thereto.
7.2 LIMITATIONS ON REGISTRATION RIGHTS.
(a) The Buyer may, by written notice to the Company
Stockholders, (i) delay the filing or effectiveness of the Stockholder
Registration Statement or (ii) suspend the Stockholder Registration Statement
after effectiveness and require that the Company Stockholders immediately cease
sales of shares pursuant to the Stockholder Registration Statement, in the event
that (A) the Buyer determines that information required to be included in the
financial statements comprising a portion of the Registration Statement is not
yet available, or (B) the Buyer is engaged in any activity or transaction or
preparations or negotiations for any activity or transaction that the Buyer
desires to keep confidential for business reasons, if the Buyer determines in
good faith that the public disclosure requirements imposed on the Buyer under
the Securities Act in connection with the Stockholder Registration Statement
would require disclosure of such activity, transaction, preparations or
negotiations. In no event shall Buyer suspend the Stockholder Registration
Statement or delay the filing or effectiveness of the Stockholder Registration
Statement in accordance with the foregoing provisions (a) for periods in excess
of 90 days in the aggregate and (b) unless the members of the Board of Directors
of Buyer on the date thereof, agree not to sell, hypothecate or otherwise
dispose of, either directly or indirectly, any of their shares of capital stock
of Buyer during the period of suspension or delay. In such event, Buyer agrees
that it will suspend any secondary offering it may be engaged in until any such
delay or suspension has ended. In addition, if at any time during the 12-month
period following the Closing Date, the Buyer offers to the Company Stockholders
the opportunity to include their Merger Shares in any underwritten secondary
offering of Buyer Common Stock on a pro rata basis with other stockholders
including shares of Buyer Common Stock therein (which, if such offer is accepted
by a Company Stockholder, shall be Merger Shares in excess of the 50% thereof
referred to in Section 7.1), then the Buyer's obligations to file and/or
maintain the effectiveness of the Stockholder Registration Statement shall be
suspended until the expiration of the underwriters' lock-up period imposed with
respect to such underwritten secondary offering.
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(b) If the Buyer delays or suspends the Stockholder
Registration Statement or requires the Company Stockholders to cease sales of
shares pursuant to paragraph (a) above, the Buyer shall, as promptly as
practicable following the termination of the circumstance which entitled the
Buyer to do so, notify the Company Stockholders of such termination and take
such actions as may be necessary to file or reinstate the effectiveness of the
Stockholder Registration Statement and/or give written notice to all Company
Stockholders authorizing them to resume sales pursuant to the Stockholder
Registration Statement. If as a result thereof the prospectus included in the
Stockholder Registration Statement has been amended to comply with the
requirements of the Securities Act, the Buyer shall enclose such revised
prospectus with the notice to Company Stockholders given pursuant to this
paragraph (b), and the Company Stockholders shall make no offers or sales of
shares pursuant to the Stockholder Registration Statement other than by means of
such revised prospectus. Moreover, if the Buyer delays or suspends the
Stockholder Registration Statement or requires the Company Stockholders to cease
sales of shares pursuant to clause (i) of paragraph (a) above, the Buyer shall
permit each Company Stockholder to include in a registration statement filed by
the Buyer during such period any Merger Shares that would have been included in
the Stockholder Registration Statement, subject to the right of the Buyer to
limit the number of Merger Shares to be included in a registration statement
relating to a underwritten offering of securities of the Buyer if the managing
underwriter of such offering determines that the inclusion of such shares in
such offering would adversely affect the marketability of such offering.
7.3 REGISTRATION PROCEDURES.
(a) In connection with the filing by the Buyer of the
Stockholder Registration Statement, the Buyer shall furnish to each Company
Stockholder a copy of the prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act.
(b) The Buyer shall use its best efforts to register or
qualify the Merger Shares covered by the Stockholder Registration Statement
under the securities laws of each state of the United States; PROVIDED, HOWEVER,
that the Buyer shall not be required in connection with this paragraph (b) to
qualify as a foreign corporation or execute a general consent to service of
process in any jurisdiction.
(c) If the Buyer has delivered preliminary or final
prospectuses to the Company Stockholders and after having done so the prospectus
is amended or supplemented to comply with the requirements of the Securities
Act, the Buyer shall promptly notify the Company Stockholders and, if requested
by the Buyer, the Company Stockholders shall immediately cease making offers or
sales of shares under the Stockholder Registration Statement and return all
prospectuses to the Buyer. The Buyer shall promptly provide the Company
Stockholders with revised or supplemented prospectuses and, following receipt of
the revised or supplemented
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prospectuses, the Company Stockholders shall be free to resume making offers and
sales under the Stockholder Registration Statement.
(d) The Buyer shall pay the expenses incurred by it in
complying with its obligations under this Article VII, including all
registration and filing fees, exchange listing fees, fees and expenses of
counsel for the Buyer, and fees and expenses of accountants for the Buyer, but
excluding (i) any brokerage fees, selling commissions or underwriting discounts
incurred by the Company Stockholders in connection with sales under the
Stockholder Registration Statement and (ii) the fees and expenses of any counsel
retained by Company Stockholders.
7.4 REQUIREMENTS OF COMPANY STOCKHOLDERS. The Buyer shall not be
required to include any Merger Shares in the Stockholder Registration Statement
unless:
(a) the Company Stockholder owning such shares furnishes
to the Buyer in writing such information regarding such Company Stockholder and
the proposed sale of Merger Shares by such Company Stockholder as the Buyer may
reasonably request in writing in connection with the Stockholder Registration
Statement or as shall be required in connection therewith by the SEC or any
state securities law authorities;
(b) such Company Stockholder shall have provided to the
Buyer its written agreement:
(i) to indemnify the Buyer and each of its
directors and officers against, and hold the Buyer and each of its directors and
officers harmless from, any losses, claims, damages, expenses or liabilities
(including reasonable attorneys fees) to which the Buyer or such directors and
officers may become subject by reason of any statement or omission in the
Stockholder Registration Statement made in reliance upon, or in conformity with,
a written statement by such Company Stockholder furnished pursuant to this
Section 7.4; and
(ii) to report to the Buyer sales made pursuant
to the Stockholder Registration Statement.
7.5 INDEMNIFICATION. The Buyer agrees to indemnify and hold
harmless each Company Stockholder whose shares are included in the Stockholder
Registration Statement against any losses, claims, damages, expenses or
liabilities to which such Company Stockholder may become subject by reason of
any untrue statement of a material fact contained in the Stockholder
Registration Statement or any omission to state therein a fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, expenses or liabilities arise
out of or are based upon information furnished to the Buyer by or on behalf of a
Company Stockholder for use in the Stockholder Registration Statement. The Buyer
shall have the right to assume the defense and settlement of any claim or
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<PAGE> 54
suit for which the Buyer may be responsible for indemnification under this
Section 7.5.
7.6 ASSIGNMENT OF RIGHTS. A Company Stockholder may not assign any
of its rights under this Article VII except in connection with the transfer of
some or all of his, her or its Merger Shares to a child or spouse, or trust for
their benefit or, in the case of a partnership, to the partners of such
partnership pursuant to a pro rata distribution, PROVIDED each such transferee
agrees in a written instrument delivered to the Buyer to be bound by the
provisions of this Article VII.
ARTICLE VIII
TERMINATION
8.1 TERMINATION OF AGREEMENT. The Parties may terminate this
Agreement prior to the Effective Time (whether before or after Requisite
Stockholder Approval), as provided below:
(a) the Parties may terminate this Agreement by mutual
written consent;
(b) the Buyer may terminate this Agreement by giving written
notice to the Company in the event the Company is in breach of any
representation, warranty or covenant contained in this Agreement, and such
breach, individually or in combination with any other such breach, (i) would
cause the conditions set forth in clauses (c) or (d) of Section 5.2 not to be
satisfied and (ii) is not cured within 20 days following delivery by the Buyer
to the Company of written notice of such breach;
(c) the Company may terminate this Agreement by giving written
notice to the Buyer in the event the Buyer or the Transitory Subsidiary is in
breach of any representation, warranty or covenant contained in this Agreement,
and such breach, individually or in combination with any other such breach, (i)
would cause the conditions set forth in clauses (c) or (d) of Section 5.3 not to
be satisfied and (ii) is not cured within 20 days following delivery by the
Company to the Buyer of written notice of such breach;
(d) the Buyer may terminate this Agreement by giving written
notice to the Company if the Closing shall not have occurred on or before July
15, 1999 by reason of the failure of any condition precedent under Section 5.1
or 5.2 hereof (unless the failure results primarily from a breach by the Buyer
or the Transitory Subsidiary of any representation, warranty or covenant
contained in this Agreement); or
(e) the Company may terminate this Agreement by giving written
notice to the Buyer and the Transitory Subsidiary if the Closing shall not have
occurred on or before July 15, 1999 by reason of the failure of any condition
precedent under Section 5.1 or 5.3 hereof (unless the failure results primarily
from a
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<PAGE> 55
breach by the Company of any representation, warranty or covenant contained in
this Agreement).
8.2 EFFECT OF TERMINATION. If any Party terminates this Agreement
pursuant to Section 8.1, all obligations of the Parties hereunder shall
terminate (except those created pursuant to Section 4.5(c) hereof) without any
liability of any Party to any other Party (except for any liability of any Party
for willful breaches of this Agreement).
ARTICLE IX
DEFINITIONS
For purposes of this Agreement, each of the following defined terms is
defined in the Section of this Agreement indicated below.
Defined Term Section
------------ -------
ADR Procedure 6.3(d)
ADR Service 6.3(d)
Affiliate 2.15(a)(vi)
Affiliate Agreement 4.10
Agreed Amount 6.3(c)
Buyer Introduction
Buyer Certificate 5.3(f)
Buyer Common Stock 1.5(a)
Buyer Material Adverse Effect 3.1
Buyer Reports 3.5
CERCLA 2.23(a)
Certificates 1.7(a)
Certificate of Merger 1.1
Claim Notice 6.3(b)
Claimed Amount 6.3(b)
Closing 1.2
Closing Date 1.2
Code 1.12
Common Conversion Ratio 1.5(c)
Common Shares 1.5(a)
Company Introduction
Company Certificate 5.2(f)
Company Intellectual Property 2.13(a)
Company Material Adverse Effect 2.1
Company Shares 1.5(b)
Company Stockholder 1.5(c)
Confidential Information 4.5(c)
Controlling Party 6.3(a)
Customer Deliverables 2.13(a)
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<PAGE> 56
Damages 6.1
Disclosure Schedule Article II
Disclosure Statement 4.3(a)
Disposition 1.13
Dispute 6.3(c)
Dissenting Shares 1.6(a)
Effective Time 1.1
Employee Benefit Plan 2.22(a)(i)
Environmental Law 2.23(a)
ERISA 2.22(a)(ii)
ERISA Affiliate 2.22(a)(iii)
Escrow Agreement 1.3
Escrow Agent 1.3
Escrow Shares 1.5(c)
Expected Claim Notice 6.4
Exchange Act 2.15(a)(vi)
Exchange Agent 1.3
Financial Statements 2.6
GAAP 2.6
Governmental Entity 2.4
Indemnification Representatives 1.3
Indemnified Party 6.3(a)
Indemnifying Party 6.3(a)
Indemnifying Stockholders 6.1
Initial Shares 1.5(c)
Intellectual Property 2.13(a)
Intended Uses 2.11(a)
Internal Systems 2.13(a)
Legal Proceeding 2.19
Lock-up Period 1.13
Lock-up Securities 1.13
Materials of Environmental Concern 2.23(b)
Merger 1.1
Merger Shares 1.5(c)
Most Recent Balance Sheet 2.8
Most Recent Balance Sheet Date 2.6
Non-controlling Party 6.3(a)
Options 1.9(a)
Ordinary Course of Business 2.4
Parties Introduction
Permits 2.26
Preferred Conversion Ratio 1.5(c)
Preferred Shares 1.5(b)
Promissory Note 4.10
Reasonable Best Efforts 4.1
Registration Statement 1.13
Response 6.3(c)
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<PAGE> 57
Requisite Stockholder Approval 2.3
SEC 3.5
SEC Documents 3.5
Securities Act 1.9(c)
Security Interest 2.4
Software 2.13(e)
Stockholder Registration Statement 7.1
Subsidiary 2.5(a)
Surviving Corporation 1.1
Taxes 2.9(a)(i)
Tax Returns 2.9(a)(ii)
Transitory Subsidiary Introduction
Value 6.3(c)
Warrants 1.9(d)
Year 2000 Compliant 2.13(h)
ARTICLE X
MISCELLANEOUS
10.1 PRESS RELEASES AND ANNOUNCEMENTS. No Party shall issue any
press release or public announcement relating to the subject matter of this
Agreement without the prior written approval of the other Parties; PROVIDED,
HOWEVER, that any Party may make any public disclosure it believes in good faith
is required by applicable law or stock market regulation (in which case the
disclosing Party shall use reasonable efforts to advise the other Parties and
provide them with a copy of the proposed disclosure prior to making the
disclosure).
10.2 NO THIRD PARTY BENEFICIARIES. This Agreement shall not confer
any rights or remedies upon any person other than the Parties and their
respective successors and permitted assigns; PROVIDED, HOWEVER, that (a) the
provisions in Article I concerning issuance of the Merger Shares, Article VI
concerning indemnification are intended for the benefit of the Company
Stockholders and (b) the provisions in Section 4.9 concerning indemnification
are intended for the benefit of the individuals specified therein and their
successors and assigns and (c) notwithstanding anything to the contrary set
forth herein, the provisions contained in Article VII concerning registration
rights may not be amended following the Effective Time without the written
consent of the holders of a majority of the Merger Shares issued in the Merger.
10.3 ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements or representations by or among
the Parties, written or oral, with respect to the subject matter hereof;
provided that the Mutual Non-disclosure Agreement dated February 4, 1999 between
the Buyer and the Company shall remain in effect in accordance with its terms.
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<PAGE> 58
10.4 SUCCESSION AND ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests or obligations hereunder without the prior written
approval of the other Parties; provided that the Transitory Subsidiary may
assign its rights, interests and obligations hereunder to an Affiliate of the
Buyer.
10.5 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. This Agreement may be
executed by facsimile signature.
10.6 HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.7 NOTICES. All notices, requests, demands, claims, and other
communications hereunder shall be in writing. Any notice, request, demand, claim
or other communication hereunder shall be deemed duly delivered two business
days after it is sent by registered or certified mail, return receipt requested,
postage prepaid, or one business day after it is sent via a reputable nationwide
overnight courier service, in each case to the intended recipient as set forth
below:
If to the Company: Copy to:
------------------ --------
University Netcasting, Inc. Brobeck, Phleger & Harrison LLP
2035 Corte Del Noga, Suite 105 550 West C Street, Suite 1300
Carlsbad, CA 92009 San Diego, CA 92101
Attn: Mr. Richard Beedon Attn: John A. Denniston, Esq.
If to the Buyer or
------------------
the Transitory Subsidiary: Copy To:
-------------------------- --------
Student Advantage, Inc. Hale and Dorr LLP
280 Summer Street 60 State Street
Boston, MA 02210 Boston, MA 02109
Attn: Mr. Raymond Sozzi Attn: Mark G. Borden, Esq.
Any Party may give any notice, request, demand, claim or other communication
hereunder using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail or electronic mail), but no
such notice, request, demand, claim or other communication shall be deemed to
have been duly given unless and until it actually is received by the party for
whom it is intended. Any Party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Parties notice in the manner herein set forth.
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<PAGE> 59
10.8 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Delaware without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Delaware or any other jurisdiction) that would cause the application of
laws of any jurisdictions other than those of the State of Delaware.
10.9 AMENDMENTS AND WAIVERS. The Parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time; PROVIDED,
HOWEVER, that any amendment effected subsequent to the Requisite Stockholder
Approval shall be subject to any restrictions contained in the Delaware General
Corporation Law. No amendment of any provision of this Agreement shall be valid
unless the same shall be in writing and signed by all of the Parties. No waiver
of any right or remedy hereunder shall be valid unless the same shall be in
writing and signed by the Party giving such waiver. No waiver by any Party with
respect to any default, misrepresentation or breach of warranty or covenant
hereunder shall be deemed to extend to any prior or subsequent default,
misrepresentation or breach of warranty or covenant hereunder or affect in any
way any rights arising by virtue of any prior or subsequent such occurrence.
10.10 SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforce ability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to limit the term or
provision, to delete specific words or phrases, or to replace any invalid or
unenforceable term or provision with a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid or
unenforceable term or provision, and this Agreement shall be enforceable as so
modified.
10.11 SUBMISSION TO JURISDICTION. Each of the Parties (a) submits to
the jurisdiction of any state or federal court sitting in Boston, Massachusetts
in any action or proceeding arising out of or relating to this Agreement, (b)
agrees that all claims in respect of such action or proceeding may be heard and
determined in any such court, and (c) agrees not to bring any action or
proceeding arising out of or relating to this Agreement in any other court. Each
of the Parties waives any defense of inconvenient forum to the maintenance of
any action or proceeding so brought and waives any bond, surety or other
security that might be required of any other Party with respect thereto. Any
Party may make service on another Party by sending or delivering a copy of the
process to the Party to be served at the address and in the manner provided for
the giving of notices in Section 10.7. Nothing in this Section 10.11, however,
shall affect the right of any Party to serve legal process in any other manner
permitted by law.
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10.12 CONSTRUCTION.
(a) The language used in this Agreement shall be deemed to be
the language chosen by the Parties to express their mutual intent, and no rule
of strict construction shall be applied against any Party.
(b) Any reference to any federal, state, local or foreign
statute or law shall be deemed also to refer to all rules and regulations
promulgated thereunder, unless the context requires otherwise.
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<PAGE> 61
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first above written.
Student Advantage, Inc.
By: /s/ Raymond V. Sozzi, Jr.
------------------------------------------
Title: President and Chief Executive Officer
---------------------------------------
SA Acquisition I, Inc.
By: /s/ Raymond V. Sozzi, Jr.
------------------------------------------
Title: President and Chief Executive Officer
---------------------------------------
University Netcasting, Inc.
By: /s/ Richard Beedon
------------------------------------------
Title: President and Chief Executive Officer
---------------------------------------
The undersigned, being the duly elected Secretary of the Transitory
Subsidiary, hereby certifies that this Agreement has been adopted by a majority
of the votes represented by the outstanding shares of capital stock of the
Transitory Subsidiary entitled to vote on this Agreement.
/s/ Christopher B. Andrews
----------------------------------------------
Christopher B. Andrews
The undersigned, being the duly elected Secretary of the Company,
hereby certifies that this Agreement has been adopted by a majority of the votes
represented by the outstanding Company Shares entitled to vote on this
Agreement.
----------------------------------------------
David Wogahn
[1st Signature Page to the Student Advantage, Inc./
University Netcasting, Inc. Agreement and Plan of Merger]
<PAGE> 62
Company Stockholders:
----------------------------------------------
[NAME]
----------------------------------------------
[NAME]
----------------------------------------------
[NAME]
[2nd Signature Page to the Student Advantage, Inc./
University Netcasting, Inc. Agreement and Plan of Merger]
<PAGE> 1
Exhibit 3.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
STUDENT ADVANTAGE, INC.
Student Advantage, Inc., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware, does hereby
certify as follows:
1. The Corporation filed its original Certificate of Incorporation with
the Secretary of the State of Delaware on February 24, 1995.
2. At a duly called meeting of the Board of Directors of the Corporation
at which a quorum was present at all times, a resolution was duly adopted,
pursuant to Sections 242 and 245 of the General Corporation Law of the State of
Delaware, setting forth an Amended and Restated Certificate of Incorporation of
the Corporation and declaring said Amended and Restated Certificate of
Incorporation advisable. The stockholders of the Corporation duly approved said
proposed Amended and Restated Certificate of Incorporation by written consent in
accordance with Sections 228, 242 and 245 of the General Corporation Law of the
State of Delaware. The resolution setting forth the Amended and Restated
Certificate of Incorporation is as follows:
RESOLVED: That the Certificate of Incorporation of the Corporation, be and
- -------- hereby is amended and restated in its entirety so that the same
shall read as follows:
FIRST. The name of the Corporation is:
Student Advantage, Inc.
SECOND. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD. The nature of the business or purposes to be conducted or promoted
by the Corporation is as follows:
1
<PAGE> 2
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 155,000,000 shares, consisting of
(i) 150,000,000 shares of Common Stock, $.01 par value per share ("Common
Stock"), and (ii) 5,000,000 shares of Preferred Stock, $.01 par value per share
("Preferred Stock").
The following is a statement of the designations and the powers, privileges
and rights, and the qualifications, limitations or restrictions thereof in
respect of each class of capital stock of the Corporation.
A. COMMON STOCK.
------------
1. GENERAL. The voting, dividend and liquidation rights of the holders of
the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. VOTING. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders. There shall be no cumulative
voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
3. DIVIDENDS. Dividends may be declared and paid on the Common Stock from
funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. LIQUIDATION. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. PREFERRED STOCK.
---------------
Preferred Stock may be issued from time to time in one or more series, each
of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of
2
<PAGE> 3
the Corporation as hereinafter provided. Any shares of Preferred Stock which may
be redeemed, purchased or acquired by the Corporation may be reissued except as
otherwise provided by law. Different series of Preferred Stock shall not be
construed to constitute different classes of shares for the purposes of voting
by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from time
to time to issue the Preferred Stock in one or more series, and in connection
with the creation of any such series, by resolution or resolutions providing for
the issue of the shares thereof, to determine and fix such voting powers, full
or limited, or no voting powers, and such designations, preferences and relative
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including without limitation thereof, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be stated and expressed in such resolutions, all to the full extent now or
hereafter permitted by the General Corporation Law of Delaware. Without limiting
the generality of the foregoing, the resolutions providing for issuance of any
series of Preferred Stock may provide that such series shall be superior or rank
equally or be junior to the Preferred Stock of any other series to the extent
permitted by law. Except as otherwise provided in this Certificate of
Incorporation, no vote of the holders of the Preferred Stock or Common Stock
shall be a prerequisite to the designation or issuance of any shares of any
series of the Preferred Stock authorized by and complying with the conditions of
this Certificate of Incorporation, the right to have such vote being expressly
waived by all present and future holders of the capital stock of the
Corporation.
FIFTH. The Corporation shall have a perpetual existence.
SIXTH. Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this corporation under
the provisions of section 291 of Title 8 of the
3
<PAGE> 4
Delaware Code or on the application of trustees in dissolution or of any
receiver or receivers appointed for this corporation under the provisions of
section 279 of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this corporation, as the case
may be, and also on this corporation.
SEVENTH. Except to the extent that the General Corporation Law of Delaware
prohibits the elimination or limitation of liability of directors for breaches
of fiduciary duty, no director of the Corporation shall be personally liable to
the Corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director, notwithstanding any provision of law imposing such
liability. No amendment to or repeal of this provision shall apply to or have
any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
EIGHTH. 1. ACTIONS, SUITS AND PROCEEDINGS OTHER THAN BY OR IN THE RIGHT OF
THE CORPORATION. The Corporation shall indemnify each person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) (all such persons being
referred to hereafter as an "Indemnitee"), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation,
4
<PAGE> 5
and, with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful. Notwithstanding anything to the contrary
in this Article, except as set forth in Section 7 below, the Corporation shall
not indemnify an Indemnitee seeking indemnification in connection with a
proceeding (or part thereof) initiated by the Indemnitee unless the initiation
thereof was approved by the Board of Directors of the Corporation.
Notwithstanding anything to the contrary in this Article, the Corporation shall
not indemnify an Indemnitee to the extent such Indemnitee is reimbursed from the
proceeds of insurance, and in the event the Corporation makes any
indemnification payments to an Indemnitee and such Indemnitee is subsequently
reimbursed from the proceeds of insurance, such Indemnitee shall promptly refund
such indemnification payments to the Corporation to the extent of such insurance
reimbursement.
2. ACTIONS OR SUITS BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify any Indemnitee who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan), or by reason of any
action alleged to have been taken or omitted in such capacity, against all
expenses (including attorneys' fees) and, to the extent permitted by law,
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such action, suit or proceeding and any appeal
therefrom, if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of Delaware shall
determine upon application that, despite the adjudication of such liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses (including attorneys' fees)
which the Court of Chancery of Delaware shall deem proper.
3. INDEMNIFICATION FOR EXPENSES OF SUCCESSFUL PARTY. Notwithstanding the
other provisions of this Article, to the extent that an Indemnitee has been
successful, on the merits or otherwise, in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article, or in defense of any
claim, issue or matter therein, or on appeal from any such action, suit or
proceeding, he shall be indemnified against all expenses (including attorneys'
fees) actually and reasonably incurred by him or on his behalf in connection
therewith. Without limiting the foregoing, if any action, suit or proceeding is
disposed of, on the merits or otherwise (including a disposition without
prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an
5
<PAGE> 6
adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of
guilty or NOLO CONTENDERE by the Indemnitee, (iv) an adjudication that the
Indemnitee did not act in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and (v) with
respect to any criminal proceeding, an adjudication that the Indemnitee had
reasonable cause to believe his conduct was unlawful, the Indemnitee shall be
considered for the purposes hereof to have been wholly successful with respect
thereto.
4. NOTIFICATION AND DEFENSE OF CLAIM. As a condition precedent to his
right to be indemnified, the Indemnitee must notify the Corporation in writing
as soon as practicable of any action, suit, proceeding or investigation
involving him for which indemnity will or could be sought. With respect to any
action, suit, proceeding or investigation of which the Corporation is so
notified, the Corporation will be entitled to participate therein at its own
expense and/or to assume the defense thereof at its own expense, with legal
counsel reasonably acceptable to the Indemnitee. After notice from the
Corporation to the Indemnitee of its election so to assume such defense, the
Corporation shall not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with such claim,
other than as provided below in this Section 4. The Indemnitee shall have the
right to employ his own counsel in connection with such claim, but the fees and
expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded
that there may be a conflict of interest or position on any significant issue
between the Corporation and the Indemnitee in the conduct of the defense of such
action or (iii) the Corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of counsel for the Indemnitee shall be at the expense of the Corporation, except
as otherwise expressly provided by this Article. The Corporation shall not be
entitled, without the consent of the Indemnitee, to assume the defense of any
claim brought by or in the right of the Corporation or as to which counsel for
the Indemnitee shall have reasonably made the conclusion provided for in clause
(ii) above.
5. ADVANCE OF EXPENSES. Subject to the provisions of Section 6 below, in
the event that the Corporation does not assume the defense pursuant to Section 4
of this Article of any action, suit, proceeding or investigation of which the
Corporation receives notice under this Article, any expenses (including
attorneys' fees) incurred by an Indemnitee in defending a civil or criminal
action, suit, proceeding or investigation or any appeal therefrom shall be paid
by the Corporation in advance of the final disposition of such matter; PROVIDED,
HOWEVER, that the payment of such expenses incurred by an Indemnitee in advance
of the final disposition of such matter shall be made only upon receipt of an
undertaking by or on behalf of the Indemnitee to repay all amounts so advanced
in the event that it shall ultimately be determined that the
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Indemnitee is not entitled to be indemnified by the Corporation as authorized in
this Article; and FURTHER PROVIDED that no such advancement of expenses shall be
made if it is determined that (i) the Indemnitee did not act in good faith and
in a manner he reasonably believes to be in, or not opposed to, the best
interests of the Corporation, or (ii) with respect to any criminal action or
proceeding, the Indemnitee had reasonable cause to believe his conduct was
unlawful. Such undertaking shall be accepted without reference to the financial
ability of the Indemnitee to make such repayment.
6. PROCEDURE FOR INDEMNIFICATION. In order to obtain indemnification or
advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the
Indemnitee shall submit to the Corporation a written request, including in such
request such documentation and information as is reasonably available to the
Indemnitee and is reasonably necessary to determine whether and to what extent
the Indemnitee is entitled to indemnification or advancement of expenses. Any
such indemnification or advancement of expenses shall be made promptly, and in
any event within 60 days after receipt by the Corporation of the written request
of the Indemnitee, unless with respect to requests under Section 1, 2 or 5 the
Corporation determines within such 60-day period that the Indemnitee did not
meet the applicable standard of conduct set forth in Section 1, 2 or 5, as the
case may be. Such determination shall be made in each instance (a) by a majority
vote of the directors of the Corporation consisting of persons who are not at
that time parties to the action, suit or proceeding in question ("disinterested
directors"), whether or not a quorum, (b) by a majority vote of a committee of
disinterested directors designated by majority vote of disinterested directors,
whether or not a quorum, (c), if there are no disinterested directors, or if
disinterested directors so direct, by independent legal counsel (who may, to the
extent permitted by law, be regular legal counsel to the Corporation) in a
written opinion, or (d) by the stockholders of the Corporation.
7. REMEDIES. The right to indemnification or advances as granted by this
Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the Corporation denies such request, in whole or in part, or if
no disposition thereof is made within the 60-day period referred to above in
Section 6. Unless otherwise required by law, the burden of proving that the
Indemnitee is not entitled to indemnification or advancement of expenses under
this Article shall be on the Corporation. Neither the failure of the Corporation
to have made a determination prior to the commencement of such action that
indemnification is proper in the circumstances because the Indemnitee has met
the applicable standard of conduct, nor an actual determination by the
Corporation pursuant to Section 6 that the Indemnitee has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the Indemnitee has not met the applicable standard of conduct.
The Indemnitee's expenses (including attorneys' fees) incurred in connection
with successfully establishing his right to indemnification, in whole or in
part, in any such proceeding shall also be indemnified by the Corporation.
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8. SUBSEQUENT AMENDMENT. No amendment, termination or repeal of this
Article or of the relevant provisions of the General Corporation Law of Delaware
or any other applicable laws shall affect or diminish in any way the rights of
any Indemnitee to indemnification under the provisions hereof with respect to
any action, suit, proceeding or investigation arising out of or relating to any
actions, transactions or facts occurring prior to the final adoption of such
amendment, termination or repeal.
9. OTHER RIGHTS. The indemnification and advancement of expenses provided
by this Article shall not be deemed exclusive of any other rights to which an
Indemnitee seeking indemnification or advancement of expenses may be entitled
under any law (common or statutory), agreement or vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in any other capacity while holding office for the Corporation,
and shall continue as to an Indemnitee who has ceased to be a director or
officer, and shall inure to the benefit of the estate, heirs, executors and
administrators of the Indemnitee. Nothing contained in this Article shall be
deemed to prohibit, and the Corporation is specifically authorized to enter
into, agreements with officers and directors providing indemnification rights
and procedures different from those set forth in this Article. In addition, the
Corporation may, to the extent authorized from time to time by its Board of
Directors, grant indemnification rights to other employees or agents of the
Corporation or other persons serving the Corporation and such rights may be
equivalent to, or greater or less than, those set forth in this Article.
10. PARTIAL INDEMNIFICATION. If an Indemnitee is entitled under any
provision of this Article to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by him or on his behalf in
connection with any action, suit, proceeding or investigation and any appeal
therefrom but not, however, for the total amount thereof, the Corporation shall
nevertheless indemnify the Indemnitee for the portion of such expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement to
which the Indemnitee is entitled.
11. INSURANCE. The Corporation may purchase and maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise (including any employee benefit plan) against any expense, liability
or loss incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify such
person against such expense, liability or loss under the General Corporation Law
of Delaware.
12. MERGER OR CONSOLIDATION. If the Corporation is merged into or
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation
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under this Article with respect to any action, suit, proceeding or investigation
arising out of or relating to any actions, transactions or facts occurring prior
to the date of such merger or consolidation.
13. SAVINGS CLAUSE. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
Corporation, to the fullest extent permitted by any applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.
14. DEFINITIONS. Terms used herein and defined in Section 145(h) and
Section 145(i) of the General Corporation Law of Delaware shall have the
respective meanings assigned to such terms in such Section 145(h) and Section
145(i).
15. SUBSEQUENT LEGISLATION. If the General Corporation Law of Delaware is
amended after adoption of this Article to expand further the indemnification
permitted to Indemnitees, then the Corporation shall indemnify such persons to
the fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
NINTH. Except as otherwise provided herein, the Corporation reserves the
right to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, in the manner now or hereafter prescribed by
statute and this Certificate of Incorporation, and all rights conferred upon
stockholders herein are granted subject to this reservation.
TENTH. This Article is inserted for the management of the business and
for the conduct of the affairs of the Corporation.
1. NUMBER OF DIRECTORS; ELECTION OF DIRECTORS. The number of directors of
the Corporation shall not be less than three. The exact number of directors
within the limitations specified in the preceding sentence shall be fixed from
time to time by, or in the manner provided in, the Corporation's By-Laws.
Election of directors need not be by written ballot, except as and to the extent
provided in the By-laws of the Corporation.
2. CLASSES OF DIRECTORS. The Board of Directors shall be and is divided
into three classes: Class I, Class II and Class III. No one class shall have
more than one director more than any other class. If a fraction is contained in
the quotient arrived at by dividing the designated number of directors by three,
then, if such fraction is one-third, the extra director shall be a member of
Class I, and if such fraction is two-thirds, one of the extra directors shall be
a member of Class I and one of the extra directors
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shall be a member of Class II, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
3. TERMS OF OFFICE. Each director shall serve for a term ending on the
date of the third annual meeting following the annual meeting at which such
director was elected; PROVIDED, that each initial director in Class I shall
serve for a term ending on the date of the annual meeting in 2000; each initial
director in Class II shall serve for a term ending on the date of the annual
meeting in 2001; and each initial director in Class III shall serve for a term
ending on the date of the annual meeting in 2002; and PROVIDED FURTHER, that the
term of each director shall be subject to the election and qualification of his
successor and to his earlier death, resignation or removal.
4. ALLOCATION OF DIRECTORS AMONG CLASSES IN THE EVENT OF INCREASES OR
DECREASES IN THE NUMBER OF DIRECTORS. In the event of any increase or decrease
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he is a member
and (ii) the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of Directors among the
three classes of directors so as to ensure that no one class has more than one
director more than any other class. To the extent possible, consistent with the
foregoing rule, any newly created directorships shall be added to those classes
whose terms of office are to expire at the latest dates following such
allocation, and any newly eliminated directorships shall be subtracted from
those classes whose terms of offices are to expire at the earliest dates
following such allocation, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
5. QUORUM; ACTION AT MEETING. A majority of the directors at any time in
office shall constitute a quorum for the transaction of business. In the event
one or more of the directors shall be disqualified to vote at any meeting, then
the required quorum shall be reduced by one for each director so disqualified,
provided that in no case shall less than one-third of the number of directors
fixed pursuant to Section 1 above constitute a quorum. If at any meeting of the
Board of Directors there shall be less than such a quorum, a majority of those
present may adjourn the meeting from time to time. Every act or decision done or
made by a majority of the directors present at a meeting duly held at which a
quorum is present shall be regarded as the act of the Board of Directors unless
a greater number is required by law, by the By-Laws of the Corporation or by
this Certificate of Incorporation.
6. REMOVAL. Directors of the Corporation may be removed only for cause by
the affirmative vote of the holders of at least sixty-six and two-thirds percent
(66 2/3%) of the votes which all the stockholders would be entitled to cast in
any annual election of directors or class of directors.
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7. VACANCIES. Any vacancy in the Board of Directors, however occurring,
including a vacancy resulting from an enlargement of the board, shall be filled
only by a vote of a majority of the directors then in office, although less than
a quorum, or by a sole remaining director. A director elected to fill a vacancy
shall be elected to hold office until the next election of the class for which
such director shall have been chosen, subject to the election and qualification
of his successor and to his earlier death, resignation or removal.
8. STOCKHOLDER NOMINATIONS AND INTRODUCTION OF BUSINESS, ETC. Advance
notice of stockholder nominations for election of directors and other business
to be brought by stockholders before a meeting of stockholders shall be given in
the manner provided by the By-Laws of the Corporation.
9. AMENDMENTS TO ARTICLE. Notwithstanding any other provisions of law,
this Certificate of Incorporation or the By-Laws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66 2/3%) of the votes which all the stockholders would be entitled to cast in
any annual election of directors or class of directors shall be required to
amend or repeal, or to adopt any provision inconsistent with, this Article
TENTH.
ELEVENTH. Stockholders of the Corporation may not take any action by
written consent in lieu of a meeting. Notwithstanding any other provisions of
law, the Certificate of Incorporation or the By-Laws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66 2/3%) of the votes which all the stockholders would be entitled to cast in
any annual election of directors or class of directors shall be required to
amend or repeal, or to adopt any provision inconsistent with, this Article
ELEVENTH.
TWELFTH. Special meetings of stockholders may be called at any time by
only the Chairman of the Board of Directors, the President or the Board of
Directors. Business transacted at any special meeting of stockholders shall be
limited to matters relating to the purpose or purposes stated in the notice of
meeting. Notwithstanding any other provision of law, this Certificate of
Incorporation or the By-Laws of the Corporation, and notwithstanding the fact
that a lesser percentage may be specified by law, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66 2/3%) of the votes
which all the stockholders would be entitled to cast in any annual election of
directors or class of directors shall be required to amend or repeal, or to
adopt any provision inconsistent with, this Article TWELFTH.
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THIRTEENTH: In furtherance and not in limitation of the powers conferred
upon it by the laws of the State of Delaware, the Board of Directors shall have
the power to adopt, amend, alter or repeal the Corporation's By-Laws. The
affirmative vote of a majority of the directors present at any regular or
special meeting of the Board of Directors at which a quorum is present shall be
required to adopt, amend, alter or repeal the Corporation's By-Laws. The
Corporation's By-Laws also may be adopted, amended, altered or repealed by the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66 2/3%) of the votes which all the stockholders would be entitled to cast in
any annual election of directors or class of directors. Notwithstanding any
other provision of law, this Certificate of Incorporation or the By-Laws of the
Corporation, and notwithstanding the fact that a lesser percentage may be
specified by law, the affirmative vote of the holders of at least sixty-six and
two-thirds percent (66 2/3%) of the votes which all the stockholders would be
entitled to cast in any annual election of directors or class of directors shall
be required to amend or repeal, or to adopt any provision inconsistent with,
this Article THIRTEENTH.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Incorporation to be signed by its
Chairman of the Board, President and Chief Executive Officer this day of
, 1999. ------
- -----------
STUDENT ADVANTAGE, INC.
By:
-------------------------------------
Raymond V. Sozzi, Jr.
Chairman of the Board, President
Chief Executive Officer
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Exhibit 3.4
AMENDED AND RESTATED BY-LAWS
OF
STUDENT ADVANTAGE, INC.
ARTICLE I. - Stockholders
1. Place of Meetings. All meetings of stockholders shall be held at such
place within or without the State of Delaware as may be designated from time to
time by the Board of Directors, the Chairman of the Board or the President or,
if not so designated, at the registered office of the corporation.
2. Annual Meeting. The annual meeting of stockholders for the election of
directors and for the transaction of such other business as may properly be
brought before the meeting shall be held on a date to be fixed by the Board of
Directors, the Chairman of the Board or the President (which date shall not be a
legal holiday in the place where the meeting is to be held) at the time and
place to be fixed by the Board of Directors, the Chairman of the Board or the
President and stated in the notice of the meeting. If no annual meeting is held
in accordance with the foregoing provisions, the Board of Directors shall cause
the meeting to be held as soon thereafter as is convenient. If no annual meeting
is held in accordance with the foregoing provisions, a special meeting may be
held in lieu of the annual meeting, and any action taken at that special meeting
shall have the same effect as if it had been taken at the annual meeting, and in
such case all references in these By-Laws to the annual meeting of the
stockholders shall be deemed to refer to such special meeting.
3. Special Meetings. Special meetings of stockholders may be called at any
time only by the Chairman of the Board, the President or the Board of Directors.
Business transacted at any special meeting of stockholders shall be limited to
matters relating to the purpose or purposes stated in the notice of meeting.
4. Notice of Meetings. Except as otherwise provided by law, written notice
of each meeting of stockholders, whether annual or special, shall be given not
less than 10 nor more than 60 days before the date of the meeting to each
stockholder entitled to vote at such meeting. The notices of all meetings shall
state the place, date and hour of the meeting. The notice of a special meeting
shall state, in addition, the purpose or purposes for which the meeting is
called. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the corporation.
<PAGE> 2
5. Voting List. The officer who has charge of the stock ledger of the
corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, at a place within the city where the meeting is to
be held. The list shall also be produced and kept at the time and place of the
meeting during the whole time of the meeting, and may be inspected by any
stockholder who is present.
6. Quorum. Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
7. Adjournments. Any meeting of stockholders may be adjourned to any other
time and to any other place at which a meeting of stockholders may be held under
these By-Laws by the stockholders present or represented at the meeting and
entitled to vote, although less than a quorum, or, if no stockholder is present,
by any officer entitled to preside at or to act as Secretary of such meeting. It
shall not be necessary to notify any stockholder of any adjournment of less than
30 days if the time and place of the adjourned meeting are announced at the
meeting at which adjournment is taken, unless after the adjournment a new record
date is fixed for the adjourned meeting. At the adjourned meeting, the
corporation may transact any business which might have been transacted at the
original meeting.
8. Voting and Proxies. Each stockholder shall have one vote for each share
of stock entitled to vote held of record by such stockholder and a proportionate
vote for each fractional share so held, unless otherwise provided by law, the
Certificate of Incorporation or these By-Laws. Each stockholder of record
entitled to vote at a meeting of stockholders may vote in person or may
authorize another person or persons to vote or act for him by written proxy
executed by the stockholder or his authorized agent and delivered to the
Secretary of the corporation. No such proxy shall be voted or acted upon after
three years from the date of its execution, unless the proxy expressly provides
for a longer period.
9. Action at Meeting. When a quorum is present at any meeting, the holders
of a majority of the stock present or represented and voting on a matter (or if
there are two or more classes of stock entitled to vote as separate classes,
then in the case of each such class, the holders of a majority of the stock of
that class present or represented and voting on a matter) shall decide any
matter to be voted upon by the stockholders at
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such meeting, except when a different vote is required by express provision of
law, the Certificate of Incorporation or these By-Laws. Any election by
stockholders shall be determined by a plurality of the votes cast by the
stockholders entitled to vote at the election.
10. Nomination of Directors. Only persons who are nominated in accordance
with the following procedures shall be eligible for election as directors.
Nomination for election to the Board of Directors of the corporation at a
meeting of stockholders may be made (i) by or at the direction of the Board of
Directors or (ii) by any stockholder of the corporation entitled to vote for the
election of directors at such meeting who complies with the notice procedures
set forth in this Section 10.
To be timely, a stockholder's notice must be received by the Secretary at
the principal executive offices of the corporation as follows: (a) in the case
of an election of directors at an annual meeting of stockholders, not less than
70 days nor more than 90 days prior to the first anniversary of the preceding
year's annual meeting; provided, however, that (i) in the event that the date of
the annual meeting is advanced by more than 20 days, or delayed by more than 60
days, from such anniversary date, to be timely, a stockholder's notice must be
so received not earlier than the ninetieth day prior to such annual meeting and
not later than the close of business on the later of (A) the sixtieth day
prior to such annual meeting and (B) the tenth day following the day on which
notice of the date of such annual meeting was mailed or public disclosure of the
date of such annual meeting was made, whichever first occurs, or (ii) with
respect to the annual meeting of stockholders of the corporation to be held in
the year 2000, to be timely, a stockholder's notice must be so received not
earlier than the ninetieth day prior to such annual meeting and not later than
the close of business on the tenth day following the day on which notice of the
date of such annual meeting was mailed or public disclosure of the date of such
annual meeting was made, whichever first occurs; or (b) in the case of an
election of directors at a special meeting of stockholders, not earlier than the
ninetieth day prior to such special meeting and not later than the close of
business on the later of (i) the sixtieth day prior to such special meeting and
(ii) the tenth day following the day on which notice of the date of such special
meeting was mailed or public disclosure of the date of such annual meeting was
made, whichever first occurs.
The stockholder's notice to the Secretary shall set forth (a) as to each
proposed nominee (i) the name, age, business address and, if known, residence
address of each such nominee, (ii) the principal occupation or employment of
each such nominee, (iii) the number of shares of stock of the corporation which
are beneficially owned by each such nominee, and (iv) any other information
concerning the nominee that must be disclosed as to nominees in proxy
solicitations pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (including such person's written consent to be named as a
nominee and to serve as a director if elected); (b) as to the stockholder giving
the notice (i) the name and address, as they appear on the corporation's books,
of such stockholder and (ii) the class and number of shares of the corporation
which are beneficially owned by such stockholder; and (c) as to the beneficial
owner, if any, on
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whose behalf the nomination is being made (i) the name and address of such
beneficial owner and (ii) the class and number of shares of the corporation
which are beneficially owned by such person. In addition, to be effective, the
stockholder's notice must be accompanied by the written consent of the proposed
nominee to serve as a director if elected. The corporation may require any
proposed nominee to furnish such other information as may reasonably be required
by the corporation to determine the eligibility of such proposed nominee to
serve as a director of the corporation.
The chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
11. Notice of Business at Annual Meetings. At any annual meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (b) otherwise
brought before the meeting by or at the direction of the Board of Directors, or
(c) otherwise properly brought before an annual meeting by a stockholder. For
business to be properly brought before an annual meeting by a stockholder, (i)
if such business relates to the election of directors of the corporation, the
procedures in Section 10 of Article I must be complied with and (ii) if such
business relates to any other matter, the stockholder must have given timely
notice thereof in writing to the Secretary in accordance with the procedures set
forth in this Section 11.
To be timely, a stockholder's notice must be received by the Secretary at
the principal executive offices of the corporation not less than 60 days nor
more than 90 days prior to the first anniversary of the preceding year's annual
meeting; provided, however, that (i) in the event that the date of the annual
meeting is advanced by more than 20 days, or delayed by more than 60 days, from
such anniversary date, to be timely, a stockholder's notice must be so received
not earlier than the ninetieth day prior to such annual meeting and not later
than the close of business on the later of (A) the sixtieth day prior to such
annual meeting and (B) the tenth day following the day on which notice of the
date of such annual meeting was mailed or public disclosure of the date of such
annual meeting was made, whichever first occurs, or (ii) with respect to the
annual meeting of stockholders of the corporation to be held in the year 2000,
to be timely, a stockholder's notice must be so received not earlier than the
ninetieth day prior to such annual meeting and not later than the close of
business on the later of (A) the sixtieth day prior to such annual meeting and
(B) the tenth day following the day on which notice of the date of such annual
meeting was mailed or public disclosure of the date of such annual meeting was
made, whichever first occurs.
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The stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting (a) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (b) the name and
address, as they appear on the corporation's books, of the stockholder proposing
such business, and the name and address of the beneficial owner, if any, on
whose behalf the proposal is made, (c) the class and number of shares of the
corporation which are beneficially owned by the stockholder and beneficial
owner, if any, and (d) any material interest of the stockholder or such
beneficial owner, if any, in such business. Notwithstanding anything in these
By-Laws to the contrary, no business shall be conducted at any annual meeting of
stockholders except in accordance with the procedures set forth in this Section
11; provided that any stockholder proposal which complies with Rule 14a-8 of the
proxy rules (or any successor provision) promulgated under the Securities
Exchange Act of 1934, as amended, and is to be included in the corporation's
proxy statement for an annual meeting of stockholders shall be deemed to comply
with the requirements of this Section 11.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 11, and if he should so
determine, the chairman shall so declare to the meeting that any such business
not properly brought before the meeting shall not be transacted.
12. Action without Meeting. Stockholders may not take any action by
written consent in lieu of a meeting.
13. Organization. The Chairman of the Board, or in his absence the Vice
Chairman of the Board, or the President, in the order named, shall call meetings
of the stockholders to order, and shall act as chairman of such meeting,
provided, however, that the Board of Directors may appoint any stockholder to
act as chairman of any meeting in the absence of the Chairman of the Board. The
Secretary of the corporation shall act as secretary at all meetings of the
stockholders; but in the absence of the Secretary at any meeting of the
stockholders, the presiding officer may appoint any person to act as secretary
of the meeting.
ARTICLE II. - Directors
1. General Powers. The business and affairs of the corporation shall be
managed by or under the direction of a Board of Directors, who may exercise all
of the powers of the corporation except as otherwise provided by law, the
Certificate of Incorporation or these By-Laws. In the event of a vacancy in the
Board of Directors, the
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remaining directors, except as otherwise provided by law, may exercise the
powers of the full Board until the vacancy is filled.
2. Number; Election and Qualification. The number of directors which shall
constitute the whole Board of Directors shall be determined by resolution of the
Board of Directors, but in no event shall be less than three. The number of
directors may be decreased at any time and from time to time by a majority of
the directors then in office, but only to eliminate vacancies existing by reason
of the death, resignation, removal or expiration of the term of one or more
directors. The directors shall be elected at the annual meeting of stockholders
by such stockholders as have the right to vote on such election. Directors need
not be stockholders of the corporation.
3. Classes of Directors. The Board of Directors shall be and is divided
into three classes: Class I, Class II and Class III. No one class shall have
more than one director more than any other class. If a fraction is contained in
the quotient arrived at by dividing the designated number of directors by three,
then, if such fraction is one-third, the extra director shall be a member of
Class I, and if such fraction is two-thirds, one of the extra directors shall be
a member of Class I and one of the extra directors shall be a member of Class
II, unless otherwise provided from time to time by resolution adopted by the
Board of Directors.
4. Terms of Office. Each director shall serve for a term ending on the
date of the third annual meeting following the annual meeting at which such
director was elected; provided, that each initial director in Class I shall
serve for a term ending on the date of the annual meeting of stockholders in
2000; each initial director in Class II shall serve for a term ending on the
date of the annual meeting of stockholders in 2001, and each initial director in
Class III shall serve for a term ending on the date of the annual meeting of
stockholders in 2002; and provided further, that the term of each director shall
be subject to the election and qualification of his successor and to his earlier
death, resignation or removal.
5. Allocation of Directors Among Classes in the Event of Increases or
Decreases in the Number of Directors. In the event of any increase or decrease
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he or she is a
member and (ii) the newly created or eliminated directorships resulting from
such increase or decrease shall be apportioned by the Board of Directors among
the three classes of directors so as to ensure that no one class has more than
one director more than any other class. To the extent possible, consistent with
the foregoing rule, any newly created directorships shall be added to those
classes whose terms of office are to expire at the latest dates following such
allocation, and any newly eliminated directorships shall be subtracted from
those classes whose terms of offices are to expire at the earliest dates
following
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<PAGE> 7
such allocation, unless otherwise provided from time to time by resolution
adopted by the Board of Directors.
6. Quorum; Action at Meeting. A majority of the directors at any time in
office shall constitute a quorum for the transaction of business. In the event
one or more of the directors shall be disqualified to vote at any meeting, then
the required quorum shall be reduced by one for each director so disqualified,
provided that in no case shall less than one-third (1/3) of the number of
directors fixed pursuant to Section 2 above constitute a quorum. If at any
meeting of the Board of Directors there shall be less than such a quorum, a
majority of those present may adjourn the meeting from time to time. Every act
or decision done or made by a majority of the directors present at a meeting
duly held at which a quorum is present shall be regarded as the act of the Board
of Directors unless a greater number is required by law, by the Certificate of
Incorporation or these By-Laws.
7. Removal. Directors of the corporation may be removed only for cause by
the affirmative vote of the holders of at least sixty-six and two-thirds percent
(66 2/3%) of the votes which all the stockholders would be entitled to cast in
any annual election of directors or class of directors.
8. Vacancies. Any vacancy in the Board of Directors, however occurring,
including a vacancy resulting from an enlargement of the Board, shall be filled
only by vote of a majority of the directors then in office, although less than a
quorum, or by a sole remaining director. A director elected to fill a vacancy
shall be elected to hold office until the next election of the class for which
such director shall have been chosen, subject to the election and qualification
of his successor and to his earlier death, resignation or removal.
9. Resignation. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the Chairman of the
Board or Secretary. Such resignation shall be effective upon receipt unless it
is specified to be effective at some other time or upon the happening of some
other event.
10. Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
11. Special Meetings. Special meetings of the Board of Directors may be
held at any time and place, within or without the State of Delaware, designated
in a call by
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<PAGE> 8
the Chairman of the Board, President, two or more directors, or by one director
in the event that there is only a single director in office.
12. Notice of Special Meetings. Notice of any special meeting of directors
shall be given to each director by the Secretary or by the officer or one of the
directors calling the meeting. Notice shall be duly given to each director (i)
by giving notice to such director in person or by telephone at least 24 hours in
advance of the meeting, (ii) by sending a telegram, telecopy, telex or
electronic mail, or delivering written notice by hand, to his last known
business, home or electronic mail address at least 24 hours in advance of the
meeting, or (iii) by mailing written notice to his last known business or home
address at least 72 hours in advance of the meeting. A notice or waiver of
notice of a meeting of the Board of Directors need not specify the purposes of
the meeting.
13. Meetings by Telephone Conference Calls. Directors or any members of
any committee designated by the directors may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
14. Action by Consent. Any action required or permitted to be taken at any
meeting of the Board of Directors or of any committee of the Board of Directors
may be taken without a meeting, if all members of the Board or committee, as the
case may be, consent to the action in writing, and the written consents are
filed with the minutes of proceedings of the Board or committee.
15. Committees. The Board of Directors may designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of a member of a
committee, the member or members of the committee present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors
and subject to the provisions of the General Corporation Law of the State of
Delaware, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the corporation
and may authorize the seal of the corporation to be affixed to all papers which
may require it. Each such committee shall keep minutes and make such reports as
the Board of Directors may from time to time request. Except as the Board of
Directors may otherwise determine, any committee may make rules for the conduct
of
-8-
<PAGE> 9
its business, but unless otherwise provided by the directors or in such rules,
its business shall be conducted as nearly as possible in the same manner as is
provided in these By-Laws for the Board of Directors.
16. Compensation of Directors. Directors may be paid such compensation for
their services and such reimbursement for expenses of attendance at meetings as
the Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
ARTICLE III. - Officers
1. Enumeration. The officers of the corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice Chairman of the Board, and one or more Vice Presidents, Assistant
Treasurers, and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
2. Election. The President, Treasurer and Secretary shall be elected
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3. Qualification. No officer need be a stockholder. Any two or more
offices may be held by the same person.
4. Tenure. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-Laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
5. Resignation and Removal. Any officer may resign by delivering his or
her written resignation to the corporation at its principal office or to the
Chairman of the Board, President or Secretary. Such resignation shall be
effective upon receipt unless it is specified to be effective at some other time
or upon the happening of some other event.
Any officer may be removed at any time, with or without cause, by vote of
a majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer who
resigns or is removed shall have any right to any compensation as an officer for
any
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<PAGE> 10
period following his resignation or removal, or any right to damages on account
of such removal, whether his compensation be by the month or by the year or
otherwise, unless such compensation is expressly provided in a duly authorized
written agreement with the corporation.
6. Vacancies. The Board of Directors may fill any vacancy occurring in any
office for any reason and may, in its discretion, leave unfilled for such period
as it may determine any offices other than those of President, Treasurer and
Secretary. Each such successor shall hold office for the unexpired term of his
predecessor and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
7. Chairman of the Board and Vice Chairman of the Board. The Board of
Directors may appoint a Chairman of the Board and may designate the Chairman of
the Board as Chief Executive Officer. If the Board of Directors appoints a
Chairman of the Board, he shall perform such duties and possess such powers as
are assigned to him by the Board of Directors. Unless otherwise provided by the
Board of Directors, he shall preside at all meetings of the stockholders, and if
he is a director, at all meetings of the Board of Directors. If the Board of
Directors appoints a Vice Chairman of the Board, he shall, in the absence or
disability of the Chairman of the Board, perform the duties and exercise the
powers of the Chairman of the Board and shall perform such other duties and
possess such other powers as may from time to time be vested in him or her by
the Board of Directors. The person designated as the Chief Executive Officer of
the Company shall, subject to the direction of the Board of Directors, have
general charge and supervision of the business of the corporation.
8. President. Unless the Board of Directors has designated the Chairman of
the Board or another officer as Chief Executive Officer, the President shall be
the Chief Executive Officer of the corporation. The President shall perform such
other duties and shall have such other powers as the Chief Executive Officer or
the Board of Directors may from time to time prescribe.
9. Vice Presidents. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the Chief Executive Officer may
from time to time prescribe. In the event of the absence, inability or refusal
to act of the Chief Executive Officer, then, in the order determined by the
Board of Directors, the President (if he is not the Chief Executive Officer) and
the Vice President (or if there shall be more than one, the Vice Presidents)
shall perform the duties of the Chief Executive Officer and when so performing
shall have all the powers of and be subject to all the restrictions upon the
Chief Executive Officer. The Board of Directors may assign to any Vice President
the title of Executive Vice President, Senior Vice President or any other title
selected by the Board of Directors.
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<PAGE> 11
10. Secretary and Assistant Secretaries. The Secretary shall perform such
duties and shall have such powers as the Board of Directors or the Chief
Executive Officer may from time to time prescribe. In addition, the Secretary
shall perform such duties and have such powers as are incident to the office of
the secretary, including without limitation the duty and power to give notices
of all meetings of stockholders and special meetings of the Board of Directors,
to attend all meetings of stockholders and the Board of Directors and keep a
record of the proceedings, to maintain a stock ledger and prepare lists of
stockholders and their addresses as required, to be custodian of corporate
records and the corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such powers
as the Board of Directors, the Chief Executive Officer or the Secretary may from
time to time prescribe. In the event of the absence, inability or refusal to act
of the Secretary, the Assistant Secretary (or if there shall be more than one,
the Assistant Secretaries in the order determined by the Board of Directors)
shall perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any meeting
of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
11. Treasurer and Assistant Treasurers. The Treasurer shall perform such
duties and shall have such powers as may from time to time be assigned to him or
her by the Board of Directors or the Chief Executive Officer. In addition, the
Treasurer shall perform such duties and have such powers as are incident to the
office of treasurer, including without limitation the duty and power to keep and
be responsible for all funds and securities of the corporation, to deposit funds
of the corporation in depositories selected in accordance with these By-Laws, to
disburse such funds as ordered by the Board of Directors, to make proper
accounts of such funds, and to render as required by the Board of Directors
statements of all such transactions and of the financial condition of the
corporation.
The Assistant Treasurers shall perform such duties and possess such powers
as the Board of Directors, the Chief Executive Officer or the Treasurer may from
time to time prescribe. In the event of the absence, inability or refusal to act
of the Treasurer, the Assistant Treasurer (or if there shall be more than one,
the Assistant Treasurers in the order determined by the Board of Directors)
shall perform the duties and exercise the powers of the Treasurer.
12. Salaries. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
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<PAGE> 12
Article IV. - Capital Stock
1. Issuance of Stock. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
2. Certificates of Stock. Every holder of stock of the corporation shall
be entitled to have a certificate, in such form as may be prescribed by law and
by the Board of Directors, certifying the number and class of shares owned by
him or her in the corporation. Each such certificate shall be signed by, or in
the name of the corporation by, the Chairman or Vice Chairman, if any, of the
Board of Directors, or the President or a Vice President, and the Treasurer or
any Assistant Treasurer, or the Secretary or an Assistant Secretary of the
corporation. Any or all of the signatures on the certificate may be a facsimile.
Each certificate for shares of stock which are subject to any restriction
on transfer pursuant to the Certificate of Incorporation, the By-Laws,
applicable securities laws or any agreement among any number of stockholders or
among such holders and the corporation shall have conspicuously noted on the
face or back of the certificate either the full text of the restriction or a
statement of the existence of such restriction.
3. Transfers. Except as otherwise established by rules and regulations
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the corporation or its transfer agent may reasonably require.
Except as may be otherwise required by law, by the Certificate of Incorporation
or by these By-Laws, the corporation shall be entitled to treat the record
holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
to such stock, regardless of any transfer, pledge or other disposition of such
stock until the shares have been transferred on the books of the corporation in
accordance with the requirements of these By-Laws.
4. Lost, Stolen or Destroyed Certificates. The corporation may issue a new
certificate of stock in place of any previously issued certificate alleged to
have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or
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<PAGE> 13
destruction and the giving of such indemnity as the Board of Directors may
require for the protection of the corporation or any transfer agent or
registrar.
5. Record Date. The Board of Directors may fix in advance a date as a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders, or entitled to receive payment of any
dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than 10 days before
the date of such meeting, nor more than 60 days prior to any other action to
which such record date relates.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day before the day on which notice is given, or, if
notice is waived, at the close of business on the day before the day on which
the meeting is held. The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
ARTICLE V. - General Provisions
1. Fiscal Year. Except as from time to time otherwise designated by the
Board of Directors, the fiscal year of the corporation shall begin on the first
day of January of each year and end on the last day of December in each year.
2. Corporate Seal. The corporate seal shall be in such form as shall be
approved by the Board of Directors.
3. Waiver of Notice. Whenever any notice whatsoever is required to be
given by law, by the Certificate of Incorporation or by these By-Laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telecopy or any other available
method, whether before, at or after the time stated in such waiver, or the
appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
4. Voting of Securities. Except as the directors may otherwise designate,
the Chairman of the Board or Treasurer may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for this
corporation (with or
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<PAGE> 14
without power of substitution) at any meeting of stockholders or shareholders of
any other corporation or organization, the securities of which may be held by
this corporation.
5. Evidence of Authority. A certificate by the Secretary, or an Assistant
Secretary, or a temporary Secretary, as to any action taken by the stockholders,
directors, a committee or any officer or representative of the corporation shall
as to all persons who rely on the certificate in good faith be conclusive
evidence of such action.
6. Certificate of Incorporation. All references in these By-Laws to the
Certificate of Incorporation shall be deemed to refer to the Amended and
Restated Certificate of Incorporation of the corporation, as amended and in
effect from time to time.
7. Transactions with Interested Parties. No contract or transaction
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or a committee of the
Board of Directors which authorizes the contract or transaction or solely
because his or their votes are counted for such purpose, if:
a. The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board or committee in good faith
authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum;
b. The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
c. The contract or transaction is fair as to the corporation as of
the time it is authorized, approved or ratified, by the Board of
Directors, a committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
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<PAGE> 15
8. Severability. Any determination that any provision of these By-Laws is
for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-Laws.
9. Pronouns. All pronouns used in these By-Laws shall be deemed to refer
to the masculine, feminine or neuter, singular or plural, as the identity of the
person or persons may require.
ARTICLE VI. - Amendments
These By-Laws may be altered, amended or repealed, in whole or in part, or
new By-laws may be adopted by the Board of Directors or by the stockholders as
provided in the Certificate of Incorporation.
-15-
<PAGE> 1
Exhibit 3.5
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
STUDENT ADVANTAGE, INC.
Pursuant to Section 242
of the General Corporation Law of
the State of Delaware
Student Advantage, Inc. (hereinafter called the "Corporation"), a
corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware, does hereby certify as follows:
FIRST: At a meeting of the Board of Directors of the Corporation a
resolution was duly adopted, pursuant to Section 242 of the General Corporation
Law of the State of Delaware, proposing and declaring advisable the following
amendment to the Certificate of Incorporation of the Corporation:
RESOLVED: That the first sentence of Article FOURTH of the Certificate
of Incorporation of the Corporation be and hereby is deleted
in its entirety and the following is inserted in lieu
thereof:
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is (i) 50,000,000
shares of Common Stock, $.01 par value per share ("Common
Stock") and (ii) 4,000,000 shares of Preferred Stock, $1.00
par value per share ("Preferred Stock").
SECOND: The stockholders of the Corporation, by written consent
pursuant to Section 228 of the General Corporation Law of the State of Delaware,
duly adopted such resolution and written notice thereof has been given in
accordance with such Section 228.
THIRD: That said amendment was adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by its __________________ this ___ day of ___________,
1999.
STUDENT ADVANTAGE, INC.
By: _____________________________________
<PAGE> 1
Exhibit 4.1
COMMON STOCK COMMON STOCK
Number Shares
[LOGO]
STUDENT ADVANTAGE, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 86386Q 10 5
THIS CERTIFIES THAT
------------------------------------------------------------
is the owner of
-----------------------------------------------------------------
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK,
PAR VALUE $.01 PER SHARE, OF
Student Advantage, Inc. transferrable upon the books of the Corporation in
person or by attorney upon surrender of this certificate duly endorsed or
assigned. This certificate and the shares represented hereby are subject to the
laws of the State of Delaware and the to provisions of the Certificate of
Incorporation and By-laws of the Corporation, as from time to time amended or
restated. This Certificate is not valid unless countersigned and registered by
the Transfer Agent and Registrar.
IN WITNESS WHEREOF, Student Advantage, Inc. has caused its facsimile
corporate seal and facsimile signatures of its duly authorized officers to be
hereunto affixed.
Dated: COUNTERSIGNED AND REGISTERED:
----------------- BANKBOSTON, N.A.
TRANSFER AGENT AND REGISTRAR
BY
---------------------------
AUTHORIZED SIGNATURE
/s/ Christopher B. Andrews /s/ Raymond V. Sozzi, Jr.
VICE PRESIDENT, FINANCE AND CHAIRMAN OF THE BOARD OF DIRECTORS,
ADMINISTRATION, TREASURER AND PRESIDENT AND CHIEF EXECUTIVE OFFICER
SECRETARY
[CORPORATE
SEAL]
<PAGE> 2
STUDENT ADVANTAGE, INC.
THE CORPORATION IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS OF STOCK. THE
CORPORATION WILL FURNISH TO EACH STOCKHOLDER UPON REQUEST WITHOUT CHARGE THE
POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL, OR
OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF, AND THE
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
TEN ENT - as tenants by the entireties ---------- ----------
JT TEN - as joint tenants with right of (Cust) (Minor)
survivorship and not as tenants under Uniform Gifts to Minors
in common Act
--------------------------
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, , hereby sell,
assign, and transfer unto ----------------------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS,
INCLUDING POSTAL ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
__________________________________________________________________________Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated:
----------------- ----------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:
--------------------------------------------------------
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE> 1
Exhibit 10.2
STUDENT ADVANTAGE, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
The purpose of this Plan is to provide eligible employees of Student
Advantage, Inc. (the "Company") and certain of its subsidiaries with
opportunities to purchase shares of the Company's common stock, $.01 par value
(the "Common Stock"). One Hundred Fifty Thousand (150,000) shares of Common
Stock (prior to giving effect to the three-for-one stock split approved by the
Company's Board of Directors on April 5, 1999) in the aggregate have been
approved for this purpose. This Plan is intended to qualify as an "employee
stock purchase plan" as defined in Section 423 of the Internal Revenue Code of
1986, as amended (the "Code"), and the regulations promulgated thereunder, and
shall be interpreted consistent therewith.
1. ADMINISTRATION. The Plan will be administered by the Company's Board
of Directors (the "Board") or by a Committee appointed by the Board (the
"Committee"). The Board or the Committee has authority to make rules and
regulations for the administration of the Plan and its interpretation and
decisions with regard thereto shall be final and conclusive.
2. ELIGIBILITY. All employees of the Company, including Directors who are
employees, and all employees of any subsidiary of the Company (as defined in
Section 424(f) of the Code) designated by the Board or the Committee from time
to time (a "Designated Subsidiary"), are eligible to participate in any one or
more of the offerings of Options (as defined in Section 9) to purchase Common
Stock under the Plan provided that:
(a) they are customarily employed by the Company or a Designated
Subsidiary for more than 20 hours a week and for more than five months in a
calendar year; and
(b) they have been employed by the Company or a Designated Subsidiary
for at least three months prior to enrolling in the Plan; and
(c) they are employees of the Company or a Designated Subsidiary on
the first day of the applicable Plan Period (as defined below).
No employee may be granted an option hereunder if such employee,
immediately after the option is granted, owns 5% or more of the total combined
voting power or value of the stock of the Company or any subsidiary. For
purposes of the preceding sentence, the attribution rules of Section 424(d) of
the Code shall apply in determining the stock ownership of an employee, and all
stock which the employee has a contractual right to purchase shall be treated as
stock owned by the employee.
<PAGE> 2
3. OFFERINGS. The Company will make one or more offerings ("Offerings")
to employees to purchase stock under this Plan. Offerings will begin each
December 1 and June 1, or the first business day thereafter (the "Offering
Commencement Dates"). Each Offering Commencement Date will begin a 6-month
period (a "Plan Period") during which payroll deductions will be made and held
for the purchase of Common Stock at the end of the Plan Period. The Board or the
Committee may, at its discretion, choose a different Plan Period of twelve (12)
months or less for subsequent Offerings. Notwithstanding anything to the
contrary, unless otherwise provided by the Board, the first Plan Period shall
begin on the first date that the Common Stock is publicly traded following the
Company's initial public offering ("IPO") and shall end on November 30, 1999.
4. PARTICIPATION. An employee eligible on the Offering Commencement Date
of any Offering may participate in such Offering by completing and forwarding a
payroll deduction authorization form to the employee's appropriate payroll
office at least 14 days prior to the applicable Offering Commencement Date. The
form will authorize a regular payroll deduction from the Compensation received
by the employee during the Plan Period. Unless an employee files a new form or
withdraws from the Plan, his deductions and purchases will continue at the same
rate for future Offerings under the Plan as long as the Plan remains in effect.
The term "Compensation" means the amount of money reportable on the employee's
Federal Income Tax Withholding Statement, excluding overtime, shift premium,
incentive or bonus awards, allowances and reimbursements for expenses such as
relocation allowances for travel expenses, income or gains on the exercise of
Company stock options or stock appreciation rights, and similar items, whether
or not shown on the employee's Federal Income Tax Withholding Statement, but
including, in the case of salespersons, sales commissions to the extent
determined by the Board or the Committee.
5. DEDUCTIONS. The Company will maintain payroll deduction accounts for
all participating employees. With respect to any Offering made under this Plan,
an employee may authorize a payroll deduction in any dollar amount up to a
maximum of 10%, or such lesser amount as the Board or Committee shall determine
before the start of each Plan Period, of the Compensation he or she receives
during the Plan Period or such shorter period during which deductions from
payroll are made.
No employee may be granted an Option (as defined in Section 9) which
permits his rights to purchase Common Stock under this Plan and any other
employee stock purchase plan (as defined in Section 423(b) of the Code) of the
Company and its subsidiaries, to accrue at a rate which exceeds $25,000 of the
fair market value of such Common Stock (determined at the Offering Commencement
Date of the Plan Period) for each calendar year in which the Option is
outstanding at any time.
6. DEDUCTION CHANGES. An employee may decrease or discontinue his payroll
deduction once during any Plan Period, by filing a new payroll deduction
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<PAGE> 3
authorization form. However, an employee may not increase his payroll deduction
during a Plan Period. If an employee elects to discontinue his payroll
deductions during a Plan Period, but does not elect to withdraw his funds
pursuant to Section 8 hereof, funds deducted prior to his election to
discontinue will be applied to the purchase of Common Stock on the Exercise Date
(as defined below).
7. INTEREST. Interest will not be paid on any employee accounts, except
to the extent that the Board or the Committee, in its sole discretion, elects to
credit employee accounts with interest at such per annum rate as it may from
time to time determine.
8. WITHDRAWAL OF FUNDS. An employee may at any time prior to the close of
business on the last business day in a Plan Period and for any reason
permanently draw out the balance accumulated in the employee's account and
thereby withdraw from participation in an Offering. Partial withdrawals are not
permitted. The employee may not begin participation again during the remainder
of the Plan Period. The employee may participate in any subsequent Offering in
accordance with terms and conditions established by the Board or the Committee.
9. PURCHASE OF SHARES. On the Offering Commencement Date of each Plan
Period, the Company will grant to each eligible employee who is then a
participant in the Plan an option ("Option") to purchase on the last business
day of such Plan Period (the "Exercise Date"), at the Option Price hereinafter
provided for, the largest number of whole shares of Common Stock of the Company
as does not exceed the number of shares determined by multiplying $2,083 by the
number of full months in the Offering Period and dividing the result by the
closing price (as defined below) on the Offering Commencement Date of such Plan
Period.
The purchase price for each share purchased will be 85% of the closing
price of the Common Stock on (i) the first business day of such Plan Period or
(ii) the Exercise Date, whichever closing price shall be less. Such closing
price shall be (a) the closing price on any national securities exchange on
which the Common Stock is listed, (b) the closing price of the Common Stock on
the Nasdaq National Market or (c) the average of the closing bid and asked
prices in the over-the-counter-market, whichever is applicable, as published in
THE WALL STREET JOURNAL; provided that, if the first Plan Period begins on the
first date that the Common Stock is publicly traded following the IPO, the
closing price on the Offering Commencement Date shall be the initial public
offering price provided for in the underwriting agreement entered into by the
Company in connection with the IPO. If no sales of Common Stock were made on
such a day, the price of the Common Stock for purposes of clauses (a) and (b)
above shall be the reported price for the next preceding day on which sales were
made.
Each employee who continues to be a participant in the Plan on the Exercise
Date shall be deemed to have exercised his Option at the Option Price on such
date and shall be deemed to have purchased from the Company the number of full
shares of Common Stock reserved for the purpose of the Plan that his accumulated
payroll
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<PAGE> 4
deductions on such date will pay for, but not in excess of the maximum number
determined in the manner set forth above.
Any balance remaining in an employee's payroll deduction account at the end
of a Plan Period will be automatically refunded to the employee.
10. ISSUANCE OF CERTIFICATES. Certificates representing shares of Common
Stock purchased under the Plan may be issued only in the name of the employee,
in the name of the employee and another person of legal age as joint tenants
with rights of survivorship, or (in the Company's sole discretion) in the name
of a brokerage firm, bank or other nominee holder designated by the employee.
The Company may, in its sole discretion and in compliance with applicable laws,
authorize the use of book entry registration of shares in lieu of issuing stock
certificates.
11. RIGHTS ON RETIREMENT, DEATH OR TERMINATION OF EMPLOYMENT. In the event
of a participating employee's termination of employment prior to the last
business day of a Plan Period, no payroll deduction shall be taken from any pay
due and owing to an employee and the balance in the employee's account shall be
paid to the employee or, in the event of the employee's death, (a) to a
beneficiary previously designated in a revocable notice signed by the employee
(with any spousal consent required under state law) or (b) in the absence of
such a designated beneficiary, to the executor or administrator of the
employee's estate or (c) if no such executor or administrator has been appointed
to the knowledge of the Company, to such other person(s) as the Company may, in
its discretion, designate. If, prior to the last business day of the Plan
Period, the Designated Subsidiary by which an employee is employed shall cease
to be a subsidiary of the Company, or if the employee is transferred to a
subsidiary of the Company that is not a Designated Subsidiary, the employee
shall be deemed to have terminated employment for the purposes of this Plan.
12. OPTIONEES NOT STOCKHOLDERS. Neither the granting of an Option to an
employee nor the deductions from his pay shall constitute such employee a
stockholder of the shares of Common Stock covered by an Option under this Plan
until such shares have been purchased by and issued to him.
13. RIGHTS NOT TRANSFERABLE. Rights under this Plan are not transferable
by a participating employee other than by will or the laws of descent and
distribution, and are exercisable during the employee's lifetime only by the
employee.
14. APPLICATION OF FUNDS. All funds received or held by the Company under
this Plan may be combined with other corporate funds and may be used for any
corporate purpose.
15. ADJUSTMENT IN CASE OF CHANGES AFFECTING COMMON STOCK. In the event of
a subdivision of outstanding shares of Common Stock, or the payment of a
dividend in Common Stock, the number of shares approved for this Plan, and the
share limitation
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<PAGE> 5
set forth in Section 9, shall be increased proportionately, and such other
adjustment shall be made as may be deemed equitable by the Board or the
Committee. In the event of any other change affecting the Common Stock, such
adjustment shall be made as may be deemed equitable by the Board or the
Committee to give proper effect to such event.
16. MERGER. If the Company shall at any time merge or consolidate with
another corporation and the holders of the capital stock of the Company
immediately prior to such merger or consolidation continue to hold at least 80%
by voting power of the capital stock of the surviving corporation ("Continuity
of Control"), the holder of each Option then outstanding will thereafter be
entitled to receive at the next Exercise Date upon the exercise of such Option
for each share as to which such Option shall be exercised the securities or
property which a holder of one share of the Common Stock was entitled to upon
and at the time of such merger or consolidation, and the Board or the Committee
shall take such steps in connection with such merger or consolidation as the
Board or the Committee shall deem necessary to assure that the provisions of
Section 15 shall thereafter be applicable, as nearly as reasonably may be, in
relation to the said securities or property as to which such holder of such
Option might thereafter be entitled to receive thereunder.
In the event of a merger or consolidation of the Company with or into
another corporation which does not involve Continuity of Control, or of a sale
of all or substantially all of the assets of the Company while unexercised
Options remain outstanding under the Plan, (a) subject to the provisions of
clauses (b) and (c), after the effective date of such transaction, each holder
of an outstanding Option shall be entitled, upon exercise of such Option, to
receive in lieu of shares of Common Stock, shares of such stock or other
securities as the holders of shares of Common Stock received pursuant to the
terms of such transaction; or (b) all outstanding Options may be cancelled by
the Board or the Committee as of a date prior to the effective date of any such
transaction and all payroll deductions shall be paid out to the participating
employees; or (c) all outstanding Options may be cancelled by the Board or the
Committee as of the effective date of any such transaction, provided that notice
of such cancellation shall be given to each holder of an Option, and each holder
of an Option shall have the right to exercise such Option in full based on
payroll deductions then credited to his account as of a date determined by the
Board or the Committee, which date shall not be less than ten (10) days
preceding the effective date of such transaction.
17. AMENDMENT OF THE PLAN. The Board may at any time, and from time to
time, amend this Plan in any respect, except that (a) if the approval of any
such amendment by the shareholders of the Company is required by Section 423 of
the Code, such amendment shall not be effected without such approval, and (b) in
no event may any amendment be made which would cause the Plan to fail to comply
with Section 423 of the Code.
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<PAGE> 6
18. INSUFFICIENT SHARES. In the event that the total number of shares of
Common Stock specified in elections to be purchased under any Offering plus the
number of shares purchased under previous Offerings under this Plan exceeds the
maximum number of shares issuable under this Plan, the Board or the Committee
will allot the shares then available on a pro rata basis.
19. TERMINATION OF THE PLAN. This Plan may be terminated at any time by
the Board. Upon termination of this Plan all amounts in the accounts of
participating employees shall be promptly refunded.
20. GOVERNMENTAL REGULATIONS. The Company's obligation to sell and deliver
Common Stock under this Plan is subject to listing on a national stock exchange
or quotation on the Nasdaq National Market (to the extent the Common Stock is
then so listed or quoted) and the approval of all governmental authorities
required in connection with the authorization, issuance or sale of such stock.
21. GOVERNING LAW. The Plan shall be governed by Delaware law except to
the extent that such law is preempted by federal law.
22. ISSUANCE OF SHARES. Shares may be issued upon exercise of an Option
from authorized but unissued Common Stock, from shares held in the treasury of
the Company, or from any other proper source.
23. NOTIFICATION UPON SALE OF SHARES. Each employee agrees, by entering
the Plan, to promptly give the Company notice of any disposition of shares
purchased under the Plan where such disposition occurs within two years after
the date of grant of the Option pursuant to which such shares were purchased.
24. EFFECTIVE DATE AND APPROVAL OF SHAREHOLDERS. The Plan shall take
effect on April 5, 1999 subject to approval by the shareholders of the Company
as required by Section 423 of the Code, which approval must occur within twelve
months of the adoption of the Plan by the Board.
Adopted by the Board of Directors
on April 5, 1999
Approved by the stockholders on
, 1999
-----------------
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<PAGE> 1
Exhibit 10.3
USTRUST
LOAN AND SECURITY AGREEMENT
---------------------------
Borrower: Student Advantage, Inc.
Address: 280 Summer Street
Boston, Massachusetts 02110
Attention: Raymond Sozzi
Date: March 31, 1999
THIS LOAN AGREEMENT (together with all Schedules and other attachments
hereto, each of which is hereby incorporated by reference, the "Agreement") is
entered into as of the above date between USTRUST (the "Bank") whose address is
30 Court Street, Boston, Massachusetts 02108, and the borrower named above (the
"Borrower"), whose chief executive office is located at the above address
("Borrower's Address").
1. LOANS
1.1 REVOLVING CREDIT LOANS. Subject to the terms and conditions contained
in this Agreement, the Bank agrees to make loans (the "Revolving Credit Loans")
to the Borrower from time to time from the date hereof to and including June 30,
2000 (the "Termination Date") in amounts up to the aggregate amount at any time
outstanding (the "Credit Limit") of $2,500,000 (the "Revolving Credit
Facility"), as shown on the Additional Terms Schedule to this Agreement (the
"Schedule"). The Revolving Credit Loans shall be evidenced by a Revolving Credit
Note in the from of EXHIBIT A hereto. If at any time the total of all
outstanding Revolving Credit Loans and all other Obligations (other than
Obligations in respect of the Equipment Loans) exceeds the Credit Limit, the
Borrower shall immediately pay the amount of the excess to the Bank, without
notice or demand by the Bank.
1.1.1 PROCEDURES UNDER REVOLVING CREDIT FACILITY. Borrower may request
advances of Revolving Credit Loans from time to time in such manner as is
acceptable to Bank (each such request, a "Revolving Loan Notice"); provided,
however, that the initial advance of a Revolving Credit Loan shall be made upon
the execution and delivery of this Agreement in an amount sufficient to pay the
outstanding principal of and interest on any obligations outstanding under the
Loan Agreement between Student Advantage, LLC, a wholly owned subsidiary of the
Borrower, and the Bank dated as of April , 1998. An advance of a Revolving
Credit Loan shall be deemed made upon the transfer of the proceeds of such loan
or advance in accordance with Borrower's instructions, or upon the charging of
the amount of such loan or advance to the Loan Account (as such term is
hereinafter defined).
A request by Borrower for any Revolving Credit Loan shall constitute
certification by Borrower that as of the date of such request: (d) there has
been no material adverse change in the Borrower's
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<PAGE> 2
financial condition from the most recent financial information furnished to Bank
pursuant to this Agreement, (e) the Borrower is in compliance with, and has not
breached any of, its covenants contained in this Agreement, (f) each
representation which is made herein or in any of the documents or instruments
delivered in connection with this Agreement is then true and complete as of and
as if made on the date of such request; and (g) no event has occurred and is
continuing which constitutes, or with notice or the expiration of any grace
period would constitute, an event of default under this Agreement.
1.1.2 THE LOAN ACCOUNT (a) An account for the Revolving Credit
Facility ("Loan Account") shall be opened on the books of the Bank, in which
Loan Account a record may be kept of all loans made by the Bank to Borrower
under or pursuant to this Agreement and of all payments thereon.
(b) The Bank may also keep a record (either in the Loan Account
or elsewhere, as the Bank may from time to time elect) of all interest, fees,
service charges, costs, expenses, and other debits owed the Bank on account of
the Obligations and of all credits against such amounts so owed.
(c) All credits against the Obligations shall be conditional
upon final payment to the Bank of the items giving rise to such credits. The
amount of any item credited against the Obligations which is charged back
against the Bank for any reason or is not so paid shall be an Obligation and
shall be added to the Loan Account, whether or not the item so charged back or
not so paid is returned.
(d) Except as otherwise provided herein, all fees, service
charges, costs, and expenses for which the Borrower is obligated hereunder are
payable on demand, except for expenses incurred by Bank to third party vendors,
which are payable after thirty (30) days prior notice to Borrower. In the
determination of the Credit Limit, the Bank may deem fees, service charges,
accrued interest, and other payments as having been advanced under the Revolving
Credit Facility whether or not such amounts are then due and payable.
(e) The Bank, without the request of Borrower, may advance under
the Revolving Credit Facility any interest, fee, service charge, or other
payment to which the Bank is entitled from Borrower pursuant thereto and may
charge the same to the Loan Account notwithstanding that such amount so advanced
may result in the Credit Limit being exceeded. Any amount which is added to the
principal balance of the Loan Account as provided in this subsection shall bear
interest at the interest rate applicable from time to time to the unpaid
principal balance of the Loan Account.
(f) Any statement rendered by the Bank to Borrower concerning
the Obligations shall be considered correct and accepted by the Borrower and
shall be conclusively binding upon the Borrower unless Borrower provides the
Bank with written objection thereto within ninety (90) days from the mailing of
such statement, which written objection shall indicate, with particularity, the
reason for such objection. The Loan Account and the Bank's books and records
concerning the credit arrangements contemplated herein and the Obligations shall
be prima facie evidence and proof of the items described therein.
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<PAGE> 3
1.1.3 INTEREST ON REVOLVING CREDIT LOANS. The unpaid principal balance
of the Loan Account shall bear interest, until repaid, at the rate elected by
Borrower pursuant to Section 1.4 of this Agreement.
1.2 EQUIPMENT LOANS. Subject to the terms and conditions contained in this
Agreement, the Borrower may borrow, and the Bank may lend, from time to time
from and after the date hereof to and including the Maturity Date, an aggregate
amount not to exceed $250,000 for the purchase of equipment (the "Equipment
Loans"). Equipment Loans will be evidenced by an Equipment Note in the form of
EXHIBIT B hereto, and advances under the Equipment Note will be made from time
to time in increments with an advance rate of eighty percent (80%) of the
invoice amount (excluding taxes, shipping, warranty charges, freight discounts
and installation expense) of each item of equipment purchased with proceeds of
the Equipment Loans.
1.2.1 PROCEDURES FOR MAKING TERM LOANS. Borrower may request the
advance of an Equipment Loan hereunder by delivering a notice to Bank (the
"Equipment Loan Notice") setting forth (a) the amount of the request and
including such additional documentation, including invoices for the equipment to
be acquired with the proceeds of such advance, as the Bank reasonably may
require, and (b) the rate of interest applicable to such Equipment Loan elected
by Borrower pursuant to Section 1.4 of this Agreement. Each request by Borrower
for any Equipment Loan shall constitute certification by Borrower that as of the
date of such request: (c) there has been no material adverse change in the
Borrower's financial condition from the most recent financial information
furnished to Bank pursuant to this Agreement, (d) the Borrower is in compliance
with, and has not breached any of, its covenants contained in this Agreement,
(e) each representation which is made herein or in any of the documents or
instruments delivered in connection with this Agreement is then true and
complete as of and as if made on the date of such request; and (f) no event has
occurred and is continuing which constitutes, or with notice or the expiration
of any grace period would constitute, an event of default under this Agreement.
1.2.2 PRINCIPAL ON THE EQUIPMENT NOTE. Each advance of an Equipment
Loan shall be treated as a term loan, the outstanding principal balance of which
shall be paid in thirty six (36) consecutive monthly installments based upon a
straight line three year amortization schedule; provided, however, that Borrower
shall have the right at its election to repay the outstanding amount of the
Equipment Loans, as a whole or in part, at any time.
1.2.3 INTEREST ON THE EQUIPMENT NOTE. The Equipment Loans shall bear
interest on the outstanding principal balance thereof at the rate elected by
Borrower pursuant to Section 1.4 hereof.
1.3 CERTAIN DEFINITIONS. For purposes of this Agreement, the following
terms have the following meanings:
1.3.1 "Interest Period" means with respect to each LIBOR Loan, the
period commencing on the date of the making of such LIBOR Loan and ending 30,
60, or 90 days thereafter depending upon the duration of the LIBOR Loan selected
by the Borrower pursuant to this Agreement, and with respect to each Base Loan
(as such term is defined in Section 1.4.1(a)), the
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<PAGE> 4
period commencing on the date of the making of such Base Loan and ending on that
date on which the Base Loan is converted to a LIBOR Loan or earlier paid.
1.3.2 "LIBOR Rate" means that rate of interest (rounded upwards if
necessary to the next 100th of one percent) determined by Bank to be the
prevailing rate per annum at which deposits in United States dollars for a 30,
60 or 90 day period are offered to the Bank by first class banks in the London
Interbank Market in which the Bank regularly participates at a time reasonably
contemporaneous to the giving of a LIBOR Revolving Loan Notice, not less than
three (3) business days before the first day of the Interest Period of the LIBOR
Loan referenced in such notice, of a deposit approximately in the amount of the
subject LIBOR Loan for a period of time approximately equal to such Interest
Period.
1.3.3 "LIBOR Breakage Costs" means the product of (a) the amount of
the LIBOR Loan which is pre-paid or failed by be borrowed times (b) the
difference between the existing effective LIBOR Rate on said LIBOR Loan and the
rate at which the Bank reasonably determines that such amounts can be placed in
the London Interbank Market or in United States Government Securities (whichever
rate is higher) for the remainder of the Interest Period, times (c) the number
of days until the expiration of the Interest Period divided by 360.
1.3.4 "Loans" means, collectively, Revolving Credit Loans and
Equipment Loans.
1.4 INTEREST ON THE LOANS. Interest on the Loans shall be charged at the
rates elected by Borrower in accordance with the procedures set forth in this
Section.
1.4.1 REVOLVING LOAN NOTICE AND EQUIPMENT LOAN NOTICE; ELECTION OF
INTEREST RATE
(a) Upon the delivery of any Revolving Loan Notice or Equipment Loan
Notice, Borrower shall elect the interest rate for the applicable Loan. In the
case of a Revolving Credit Loan (i) in an amount less than $500,000, the
interest rate shall be the Base Lending Rate (any such Revolving Credit Loan, a
"Base Loan") and (ii) in an amount equal to or in excess of $500,000, the
interest rate shall be either, at the election of Borrower, the Applicable LIBOR
Rate, as such term is defined in the Schedule (each Revolving Credit Loan with
respect to which Borrower has elected the Applicable LIBOR Rate, a "LIBOR
Loan"), or the Base Lending Rate. In the case of an Equipment Loan, the interest
rate shall be either, at the election of Borrower, the Base Lending Rate or the
Applicable Treasury Yield Rate, as such term is defined in the Schedule.
(b) With respect to each LIBOR Loan, the Revolving Loan Notice
(which notice will be irrevocable) shall be sent by telex, telegraph or
telephone received no later than 12:00 noon Eastern Standard Time on the
business day which is three business days before the date the requested LIBOR
Loan is to be made (a "LIBOR Revolving Loan Notice "). Each such LIBOR Revolving
Loan Notice shall be immediately followed by a written confirmation thereof by
Borrower in such form as reasonably required by Bank; PROVIDED that if such
written confirmation differs in any material respect from the action taken by
the Bank, the records of the Bank shall control absent manifest error. Borrower
shall not have more than three (3) LIBOR
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<PAGE> 5
Loans outstanding at any one time. No LIBOR Revolving Loan Notice will be
honored by the Bank after demand for payment by the Bank or occurrence of a
Default under this Agreement. In the event that Borrower does not notify the
Bank at least three (3) business days before the end of the applicable Interest
Period of its election to renew any LIBOR Loan, any such LIBOR Loan shall
automatically be converted to a Base Loan at the end of the applicable Interest
Period.
(c) In the event, that prior to the commencement of any Interest
Period relating to any LIBOR Loan, the Bank determines that adequate and
reasonable methods do not exist for the Bank to ascertain the Applicable LIBOR
Rate that would determine the rate of interest to be applicable to the LIBOR
Loans during any Interest Period, the Bank shall promptly give notice of such
determination to Borrower. In such event (i) any pending LIBOR Revolving Loan
Notice shall be automatically withdrawn and shall be deemed a request for a Base
Loan, (ii) the portion of the Loans which are LIBOR Loans will automatically, on
the last day of the then current Interest Periods thereof, become Base Loans,
and (iii) the obligation of the Bank to convert all or any portion of the Loans
to LIBOR Loans shall be suspended until the Bank determines that the
circumstances giving rise to such suspension no longer exist.
(d) Notwithstanding any other provisions herein, if any present or
future law, regulation, treaty or directive, or the interpretation or
application thereof, shall make it unlawful for the Bank to make or maintain
LIBOR Loans, the Bank shall forthwith give notice of such circumstances to
Borrowers and thereupon (i) the commitment of the Bank to convert all or any
portion of any Loans made under this Agreement from a Base Loan to a LIBOR Loan
shall forthwith be suspended, and (ii) any LIBOR Loan then outstanding shall be
converted automatically to a Base Loan on the last day of the Interest Period
applicable to such LIBOR Loan or within such earlier period as may be required
by law. The Borrowers hereby agree promptly to pay to the Bank upon demand, any
additional amounts necessary to compensate the Bank for any costs incurred by
the Bank in making any conversion in accordance with this Section, including any
interest or fees payable by the Bank to banks for funds obtained by the Bank in
order to make or maintain LIBOR Loans hereunder.
(e) The Borrower shall indemnify the Bank and hold the Bank harmless
from and against any loss, cost or expense that the Bank may sustain or incur as
a consequence or (i) default by the Borrowers in payment of the principal amount
of or any interest on a LIBOR Loan as and when due and payable, including any
such loss or expense arising from interest or fees payable by the Bank to banks
for funds obtained by the Bank in order to offer or maintain a LIBOR Loan, (ii)
default by the Borrowers in making a conversion to a LIBOR Loan after the
Borrowers have given a LIBOR Revolving Loan Notice, and (iii) the making of any
payment of any Loan (whether voluntarily or after acceleration and demand by the
Bank pursuant to its rights hereunder) when it is a LIBOR Loan or the making of
any conversion of any such LIBOR Loan to a Base Loan on a day that is not the
last day of the applicable Interest Period with respect thereto. Such
indemnified costs and expenses shall include without limitation, interest and
fees payable by the Bank to banks for funds obtained by the Bank in order to
maintain any such LIBOR Loan, and all LIBOR Breakage Costs.
(f) Subject to the terms and conditions hereof, the Bank shall make
each LIBOR Loan on the effective date specified therefor by crediting the amount
of such Loan to the
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<PAGE> 6
Borrowers' demand deposit account with the Bank.
2. GRANT OF SECURITY INTEREST.
2.1 OBLIGATIONS. The term "Obligations" means the obligation to pay all
Loans and all interest and penalty amounts thereon when due, and to pay and
perform when due all other present and future indebtedness, liabilities,
obligations (including without limitation obligations to the Bank with respect
to any letters of credit issued by the Bank on behalf of the Borrower and any
overdrafts or overadvances which at any time may be received by the Borrower),
guarantees, covenants, agreements, warranties and representations of the
Borrower to the Bank, whether joint or several, monetary or non-monetary,
created pursuant to this Agreement or any other agreement between Borrower and
Bank dated as of the date of this Agreement. The Bank may, in its discretion,
require that Borrower pay monetary Obligations in cash to the Bank, or charge
them to Borrower's Loan account, in which event they will bear interest at the
same rate applicable to the Loans.
2.2 COLLATERAL. To secure the Borrower's prompt, punctual, and faithful
payment and performance of all and each of the Obligations to the Bank, Borrower
hereby pledges, assigns and grants to the Bank a continuing security interest in
the following assets and property, and each item thereof, whether now or
hereafter arising, owned or acquired by Borrower, due or to become due at any
time in the future, or in which Borrower has an interest or obtains an interest,
wherever such assets and property are located, together with all substitutions
for and replacements of, additions and accessions to, and products and proceeds
(of every kind and nature, cash and non-cash, including, without limitation,
insurance proceeds and each type of property described below) of, any of the
following (all of which together with any other property in which the Bank may
in the future be granted a security interest to secure the Obligations,
collectively are referred to as the "Collateral"):
(a) all accounts, accounts receivable, notes, drafts, acceptances and
other forms of obligations and receivables and rights to payment for credit
extended, or for goods sold or leased, or for services rendered, whether or
not yet earned by performance, and all other debts, liabilities and
obligations in whatever form, owing to Borrower, however arising or
created, including without limitation, all "accounts" as defined in the
Uniform Commercial Code of Massachusetts (the "UCC") and all rights of
Borrower to draw under letters of credit; and all rights of Borrower in and
to the Inventory which gave rise to any Account, and all liens, guaranties
and security granted to or held by Borrower with respect to an Account or
other obligations owing to Borrower;
(b) all inventory, including, without limitation, all Inventory in
transit, all returned, rejected, or repossessed Inventory, and all
Inventory detained from or rejected for entry into the United States, and
all documents of title whether negotiable or non-negotiable) representing
any of the foregoing;
(c) all contract rights, including without limitation, all "contract
rights" as formerly defined in the UCC, and any right to payment under a
contract not yet earned by performance and not evidenced by an instrument
or chattel paper;
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(d) all general intangibles, including without limitation, all
goodwill, customer lists, judgments, licenses, permits, trade names,
trademarks, patents, patent applications, copyrights, blueprints, drawings,
designs, papers, rights to performance, proprietary processes,
developmental ideas and concepts, and proprietary information and matter of
any kind and nature, and all "general intangibles" as defined in the UCC;
(e) all equipment, including without limitation, all "equipment" as
defined in the UCC and all motor vehicles, rolling stock, machinery,
furniture, office equipment, plant equipment, tools, dies, molds and all
other goods, property and assets used or acquired for use in the operation
or furtherance of Borrower's business;
(f) all goods, as defined in the UCC;
(g) all chattel paper and instruments (whether negotiable or
non-negotiable, and regardless of their being attached to chattel paper),
documents of title, documents, policies and certificates of insurance,
securities, deposits, deposit accounts, money, cash and other property;
(h) all fixtures;
(i) all liens, guarantees, rights, remedies and privileges pertaining
to any of the Collateral, including the right of stoppage in transit;
(j) all federal, state, and local tax refunds and/or abatements to
which Borrower is, or becomes, entitled, no matter how or when arising,
including but not limited to, any loss carryback tax refunds;
(k) all insurance proceeds, refunds, and premium rebates, whether
arising out of insurance relating to any of the foregoing or otherwise;
(l) all books, records and information relating to any of the
Collateral and/or the operation of Borrower's business, including without
limitation all electronically recorded information and all rights of access
to such books, records and information, and all property in which such
books, records and information are stored, recorded or maintained; and
(m) all trade secrets, computer programs, customer lists, assignments
of patents and patents pending, developmental ideas and concepts, and all
papers, drawings, blueprints, sketches, and documents relating to all of
the foregoing and/or relating to the operation of Borrower's business
and/or the Collateral.
The within grant of security interests is in addition to, and supplemental of,
any security interest previously granted by Borrower to the Bank and shall
continue in full force and effect applicable to all Obligations and to any and
all future advances made by the Bank to or on behalf of Borrower until this
Agreement is specifically terminated in writing by a duly authorized officer of
the Bank.
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2.3 PERFECTION OF SECURITY INTEREST. Contemporaneous with the execution of
this Agreement, Borrower shall execute and deliver all such instruments as may
be required by the Bank to perfect the security interests granted herein,
including without limitation, (a) financing statements in such form to be filed
in accordance with the provisions of the Uniform Commercial Code in such state
or states as the Bank may determine, and (b) applications for notation of the
Bank as lien-holder, mortgagee, or the like, on such certificates or similar
instruments as may have been issued with respect to Borrower's ownership of any
of the Collateral. A carbon, photographic, or other reproduction of this
Agreement or of any financing statement or other instrument executed pursuant to
this Section shall be sufficient for filing to perfect the security interests
granted herein.
2.4 OTHER SECURITY. The Obligations shall be secured by such other
assignments, guaranties and other instruments (if any) as may be described in
the Schedule.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
The Borrower represents and warrants (except as modified in the attached
Disclosure Schedule, which modifications shall indicate each Section of this
Agreement to which such modifications relate) to the Bank as follows, and the
Borrower covenants that the following representations will continue to be true,
and that the Borrower will comply with all of the following covenants:
3.1 CORPORATE EXISTENCE AND AUTHORITY. The Borrower is and will continue
to be a corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware, and has all requisite corporate power and
authority to own and operate its properties and to carry on its business as now
conducted and proposed to be conducted. The Borrower is and will continue to be
qualified and licensed to do business in all other jurisdictions in which it is
required by applicable law to do so, except where failure to be so qualified
will not have a material adverse affect on the business or assets of the
Borrower. This Agreement, the Revolving Credit Note, the Equipment Note, the
Security Agreement and all other documents contemplated hereby (collectively,
this Agreement and such other documents being referred to as the "Loan
Documentation") constitute legal, valid, and binding obligations of the
Borrower, enforceable against the Borrower in accordance with their respective
terms (except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or similar laws affecting the
enforcement of creditors' rights generally and except as enforceability may be
subject to general principles of equity), and the execution, delivery and
performance by the Borrower of the same have been duly and validly authorized,
are enforceable against the Borrower in accordance with their terms, do not
violate the Articles of Incorporation or By-laws of the Borrower, and do not
violate any law or any provision of, and are not grounds for acceleration under,
any material agreement or instrument which is binding upon the Borrower. The
Borrower has no subsidiaries or affiliates, except as listed on the Schedule.
3.2 NAME; TRADE NAMES AND STYLES. The name of the Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Disclosure Schedule
hereto are all prior names of the Borrower and all of Borrower's present and
prior trade names. The Borrower will give the Bank 15 days prior written notice
before changing its name or doing business under any other name. The Borrower
has complied, and will in the future comply, with all laws relating to the
conduct of business under a fictitious business name.
3.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth in
the heading to this Agreement is the Borrower's chief executive office. In
addition, the Borrower has places of business, and substantially all of the
Collateral is located, only at the locations set forth on the Schedule to this
Agreement. The Borrower will give the
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Bank at least 15 days prior written notice before changing its chief executive
office or locating the Collateral at any other location.
3.4 TITLE TO COLLATERAL; PERMITTED LIENS. The Borrower is now and will at
all times in the future be, the sole owner of all the Collateral, except for
items of equipment which are leased by the Borrower. The Collateral now is and
will remain free and clear of any and all liens, charges, security interests,
encumbrances and adverse claims (other than security interests being terminated
substantially concurrently with this Agreement), except for the following
"Permitted Liens": (i) purchase money security interests in specific items of
equipment purchased without violation of this Agreement; (ii) leases of specific
items of equipment; (iii) liens for taxes not yet payable or contested in good
faith for which adequate reserves have been established; (iv) additional
security interests and liens consented to in writing by the Bank in its sole
discretion; (v) and security interests listed on the Schedule as being
"Permitted Liens", but not any extensions or renewals of such security interests
with respect to the extension or renewal of any underlying obligation of the
Borrower. The Bank will have the right to require, as a condition to its consent
under subparagraph (iv) above, that the holder of the additional security
interest or lien sign an intercreditor agreement on the Bank's then standard
form, acknowledge that the security interest is subordinate to the security
interest in favor of the Bank, and agree to such terms as may be provided in
such intercreditor agreement (including with respect to the giving of written
notice to the Bank of any default and foregoing the right to take action for at
least 180 days prior to taking any action to enforce its subordinate security
interest) and that the Borrower agree that any uncured default in any obligation
secured by the subordinate security interest shall also constitute an Event of
Default under this Agreement. The Bank now has, and will continue to have, a
perfected and enforceable first priority security interest in all of the
Collateral, subject only to the Permitted Liens, and the Borrower will at all
times defend the Bank and the Collateral against all claims of others. None of
the Collateral now is or will be affixed to any real property in such a manner,
or with such intent, as to become a fixture. None of the Collateral now is or
will be a motor vehicle.
3.5 INDEBTEDNESS AND INVESTMENTS, ETC. The Disclosure Schedule correctly
describes, as of the date or dates indicated therein, (a) all outstanding
indebtedness of the Borrower and its subsidiaries, if any, in respect of
borrowed money, capital leases and the deferred purchase price of property; (b)
all outstanding investments, loans and advances of the Borrower and its
subsidiaries, if any; and (c) all existing guarantees by the Borrower and any
subsidiaries.
3.6 MAINTENANCE OF COLLATERAL. The Borrower will maintain the Collateral in
good working condition (normal wear and tear excepted), and the Borrower will
not use the Collateral for any unlawful purpose. The Borrower will immediately
advise the Bank in writing of any material loss or damage to the Collateral.
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3.7 BOOKS AND RECORDS. The Borrower has maintained and will maintain at the
Borrower's Address complete and accurate books and records, including an
accounting system in accordance with generally accepted accounting principles.
3.8 FINANCIAL CONDITION AND STATEMENTS. The financial statements identified
on the Disclosure Schedule and delivered to the Bank have been, and the
financial statements that hereafter will be delivered to the Bank pursuant to
the terms of this Agreement will be, prepared in conformity with generally
accepted accounting principles applied on a basis consistent with that of
preceding periods (with the exceptions described in the proviso at the end of
this sentence), showing the financial condition of the Borrower and its
subsidiaries at the close of such period and the results of operations during
such period, and now and in the future will completely and accurately reflect
the financial condition of the Borrower, at the times and for the periods
therein stated; provided, however, that financial statements for interim periods
shall not include footnotes and shall be subject to year end adjustments, none
of which will be material. Since the last date covered by any such statement,
there has been no material adverse change in the condition (financial or
otherwise), properties or business of the Borrower. The Borrower is now and will
continue to be solvent. The Borrower will provide Bank: (i) within 10 days after
the end of each month, a receivables aging report, containing such information
respecting the Borrower's receivables as the Bank may require; (ii) within 20
days after the end of each quarter, a quarterly financial statement in such form
as the Bank may from time to time reasonably request, prepared by the Borrower,
and a Compliance Certificate in such form as the Bank shall reasonably specify,
signed by the President or a Vice President of the Borrower, certifying that
throughout such quarter the Borrower was in full compliance with all of the
terms and conditions of this Agreement, and setting forth calculations showing
compliance with the financial covenants set forth on the Schedule and such other
information as the Bank shall reasonably request; (iii) within 90 days following
the end of the Borrower's fiscal year, an original signed counterpart of the
Borrower's annual financial statements, which statements shall have been
prepared by, and bear the unqualified opinion of, the Borrower's independent
certified public accountants, such statements to include, at a minimum (with
comparative information for the then prior fiscal year) a balance sheet, income
statement, statement of changes in net worth, and cash flows, (iv) forthwith
upon any executive officer of the Borrower obtaining knowledge of any condition
or event which constitutes an Event of Default (as defined below) or which,
after notice or expiration of any grace period or both, would constitute an
Event of Default, a certificate signed by such officer specifying in reasonable
detail the nature and period of existence thereof and what action the Borrower
has taken or proposes to take with respect thereto; and (vi) such other written
reports as may be specified on the Disclosure Schedule or as the Bank shall from
time to time reasonably specify.
3.9 TAX RETURNS AND PAYMENT; PENSION CONTRIBUTIONS. (a) The Borrower (and
any predecessor entity has timely filed, and will timely file, all tax returns
and reports required by foreign, federal, state and local law, and the Borrower
(and any predecessor entity) has timely paid, and will timely pay, all foreign,
federal, state and local taxes, assessments, deposits and contributions now or
in the future owed by the Borrower. The Borrower, may, however, defer payment of
any contested taxes, provided that the Borrower (i) in good faith contests the
Borrower's obligation to pay the taxes by appropriate proceedings promptly and
diligently instituted and conducted, (ii) notifies the Bank in writing of the
commencement of, and any material development in, the proceedings, and (iii)
posts bonds or takes any other steps required to keep the contested taxes from
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becoming a lien upon any of the Collateral prior to the lien of the Bank. The
Borrower is unaware of any claims or adjustments proposed for any of the
Borrower's prior tax years which could result in additional taxes becoming due
and payable by the Borrower.
(b) Except as disclosed in the Disclosure Schedule, the Borrower does not
have or otherwise contribute to or participate in any employee benefit plan
subject to the Employee Retirement Income Security Act of 1974, and no
reportable event has occurred and is continuing with respect to any such plan.
The Borrower has paid, and shall continue to pay, all amounts necessary to fund
all present and future pension, profit sharing and deferred compensation plans,
in accordance with their terms, and the Borrower has not and will not withdraw
from participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any such plan which could result
in any liability of the Borrower, including without limitation, any liability to
the Pension Benefit Guaranty Corporation or its successors or any other
governmental agency.
3.10 COMPLIANCE WITH LAW. The Borrower has complied, and will comply, in
all respects, with all provisions of all foreign, federal, state and local laws
and regulations, including without limitation those relating to the Borrower's
ownership or use of real, personal or intangible property, the import or export
of raw materials or other inventory used in the business of the Borrower, the
conduct of the Borrower's business, and environmental matters, except where
failure to so comply would not have a material adverse effect on the business or
prospects of Borrower.
3.11 LITIGATION. Except as disclosed in the Disclosure Schedule, there is
no claim, suit, litigation, proceeding or investigation pending or (to the best
of the Borrower's knowledge) threatened by or against or affecting the Borrower
in any court or before any governmental agency (or any basis therefor known to
the Borrower) which is reasonably likely to result, either separately or in the
aggregate, in any material adverse change in the financial condition or business
of the Borrower, or in any material impairment in the ability of the Borrower to
carry on its business in substantially the same manner as it is now being
conducted. The Borrower will promptly inform the Bank in writing of any claim,
proceeding, litigation or investigation in the future threatened or instituted
by or against the Borrower involving amounts in excess of $25,000.
3.12 USE OF PROCEEDS. All proceeds of all Loans shall be used solely for
lawful business purposes and subject to such additional conditions, if any, as
may be provided for in the Schedule.
3.13 ENVIRONMENTAL PROTECTION. The Borrower has taken no action and is not
aware of any fact, act or condition which could cause it to be liable for any
violation of or claims or damages under any Environmental Laws (as defined
below), and is in compliance with all such laws. The Borrower has obtained and
is maintaining in full force and effect all necessary permits, licenses and
approvals required by all Environmental Laws applicable to any real property
that the Borrower owns, leases or otherwise occupies or uses (the "Premises")
and the business operations conducted thereon (including operations conducted by
tenants on the Premises), and is in compliance with all such permits, licenses
and approvals. The Borrower has not caused or allowed a release, or a threat of
release, of any Hazardous Substance on to, at or near the Premises, and, to the
best of the Borrower's knowledge, neither the Premises nor any property at or
near the Premises has ever been subject to a release, or a threat of release, of
any Hazardous Substance. For the purposes of this Agreement, the term
"Environmental Laws" shall mean any Federal, state or local law or ordinance
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or regulation pertaining to the protection of human health or the environment,
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Sections 9601, ET SEQ., the Emergency
Planning and Community Right-to-Know Act of 1986, 42 U.S.C. Sections 11001, ET
SEQ., and the Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901,
ET SEQ. For purposes of this Agreement, the term "Hazardous Substances" shall
include oil and petroleum products, asbestos, polychlorinated biphenyls, urea
formaldehyde and any other materials classified as hazardous or toxic under any
Environmental Laws.
3.14 OWNERSHIP. The Disclosure Schedule correctly sets forth as of the date
of this Agreement the name of, and the number of shares held by, each
shareholder of Borrower. The Borrower is not obligated in any manner to issue
any additional shares of its capital stock, or options, warrants, or other
rights exercisable for or convertible into shares of its capital stock, except
as disclosed in the Disclosure Schedule.
3.15 FULL DISCLOSURE. The Borrower does not know of any fact which it has
not disclosed in writing to the Bank regarding the transactions contemplated by
the Loan Documentation which reasonably could be expected to materially and
adversely affect the business, operations or properties of the Borrower or any
subsidiary of the Borrower, or the business or financial condition or prospects
of the Borrower or any such subsidiary or the ability of the Borrower or any
such subsidiary to perform and fully discharge its obligations under the Loan
Documentation.
4. ADDITIONAL DUTIES OF THE BORROWER.
4.1 FINANCIAL AND OTHER COVENANTS. The Borrower shall at all times comply
with the financial and other covenants set forth in the Schedule to this
Agreement.
4.2 OVERADVANCE; PROCEEDS OF ACCOUNTS. If for any reason the outstanding
balance of the Loan Account exceeds the Credit Limit, without limiting the
Bank's other remedies, and whether or not the Bank declares an Event of Default,
Borrower shall pay such excess on demand of Bank.
4.3 INSURANCE. The Borrower shall at all times insure all of the tangible
property Collateral and carry such other business insurance, with insurers
reasonably acceptable to the Bank, in such form and amounts as the Bank may
reasonably require but in any event such insurance shall provide no less than
reasonable amounts of coverage given the Borrower's business. All such insurance
polices shall (a) name the Bank as an additional insured and loss payee on an
endorsement in form reasonably acceptable to the Bank; (b) provide that no
action of the Borrower, or any employee, officer, tenant or subtenant shall void
such coverage as to the Bank; and (c) provide that the Bank shall be notified of
any proposed cancellation of such policy at least thirty days in advance of such
proposed cancellation. Upon receipt of the proceeds of any such insurance, the
Bank shall apply such proceeds in reduction of the Obligations as the Bank shall
determine in its sole and absolute discretion. If the Borrower fails to provide,
maintain or pay for any insurance, the Bank may, but it is not obligated to,
obtain the same at the Borrower's expense. The Borrower shall promptly deliver
to the Bank copies of all reports made to insurance companies.
4.4 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At all reasonable times during
normal business hours, and upon one business day's notice, the Bank, or its
agents, shall have the right to
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inspect the Collateral, and the right to audit and copy the Borrower's
accounting books and records and Borrower's books and records relating to the
Collateral. The Bank shall take reasonable steps to keep confidential all
information obtained in any such inspection or audit, but the Bank shall have
the right to disclose any such information to its auditors, regulatory agencies,
and attorneys, and pursuant to any subpoena or other legal process, and as
necessary to enforce its rights hereunder. The reasonable fees and other costs
of any third party agents retained by the Bank in connection with any of the
foregoing inspections shall be paid by the Borrower, and the Bank upon
Borrower's failure to pay therefore upon written demand by Bank, may debit
Borrower's deposit accounts with the Bank for such fees and other costs.
4.5 NEGATIVE COVENANTS. Except as may be permitted in the Schedule hereto,
the Borrower shall not, without the Bank's prior written consent, do any of the
following: (i) merge or consolidate with another corporation; (ii) acquire any
material assets outside the ordinary course of business; (iii) enter into any
other transaction outside the ordinary course of business (except as permitted
by the other provisions of this Section); (iv) sell or transfer any Collateral,
except for the sale of finished inventory in the ordinary course of the
Borrower's business, and except for the sale of obsolete or unneeded equipment
in the ordinary course of business; (v) make any loans of any money or any other
assets (other than loans or other advances to employees in an aggregate amount
not to exceed $100,000 (vi) incur any debts (including under capital leases),
other than current liabilities incurred in the ordinary course of business,
other indebtedness, if any, permitted by the Schedule, and indebtedness to the
Bank; (vii) guarantee or otherwise become liable with respect to the obligations
of another party or entity; (viii) pay or declare any dividends or make any
other distributions of profits to the shareholders of the Borrower, except for
dividends payable solely in equity of the Borrower; (ix) redeem, retire,
purchase or otherwise acquire, directly or indirectly, any equity interest in
the Borrower; (x) make any change in the Borrower's capital structure which
might have a material adverse effect on the Borrower or on the prospect of
repayment of any of the Obligations; or (xi) dissolve or elect to liquidate or
dissolve.
4.6 LITIGATION COOPERATION. Should any third-party suit or proceeding be
instituted by or against the Bank with respect to any Collateral or in any
manner relating to the Borrower, the Borrower shall, without expense to the
Bank, make available the Borrower and its officers, employees and agents and the
Borrower's books and records to the extent the Bank may deem them reasonably
necessary in order to prosecute or defend any such suit or proceeding.
4.7 VERIFICATION. The Bank may, from time to time, following prior
notification to Borrower, verify directly with the respective account debtors
the validity, amount and other matters relating to the Borrower's accounts, by
means of mail, telephone or otherwise, either in the name of the Borrower or the
Bank or such other name as the Bank may reasonably choose, provided that no
prior notification to Borrower shall be required following demand for payment of
the Obligations.
4.8 EXECUTE ADDITIONAL DOCUMENTATION. The Borrower agrees, at its expense,
on request by the Bank, to execute all documents in form reasonably satisfactory
to the Bank, as the Bank may deem reasonably necessary or useful in order to
perfect and maintain the Bank's perfected security interest in the Collateral,
and in order to fully consummate all of the transactions contemplated by the
Loan Documentation.
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4.9 DEPOSITORY ACCOUNT. The Borrower will, and will cause any subsidiary
to, maintain its principal depository accounts with the Bank.
5. TERM.
5.1 GENERAL. The Obligations described in this Agreement shall be payable
in accordance with the terms hereof and in accordance with the terms set forth
in the Revolving Credit Note or Equipment Note.
5.2 TERMINATION. This Agreement may be terminated, (i) by the Borrower,
effective one business day after written notice of termination is given to the
Bank, and upon payment in full of all Obligations (in any event, without premium
or penalty), and other charges or fees, if any, then due to Bank under this
Agreement or the other Loan Documentation; or (ii) by the Bank at any time after
the occurrence of an Event of Default, without notice, effective immediately; or
(iii) the maturity date of the last advanced Equipment Loan (the first to occur
of the events described in clauses (i), (ii), or (iii) of this paragraph,
sometimes is referred to in this Agreement as the "Payment Date").
5.3 PAYMENT OF OBLIGATIONS. On the Payment Date, the Borrower shall pay and
perform in full all Obligations, whether evidenced by installment notes or
otherwise, and whether or not all or any part of such Obligations are otherwise
then due and payable; provided, however, that if the Payment Date is triggered
by the occurrence of the Maturity Date, then Equipment Loans that have been
converted to term loans in accordance with the provisions of this Agreement
shall continue to be paid, in the absence of any Event of Default, in accordance
with their terms. Notwithstanding any termination, this Agreement and the other
Loan Documentation shall continue in full force and effect until all Obligations
have been paid and performed in full; provided that the Bank may in its sole
discretion refuse to make any further Loans after termination. No termination
shall in any way affect or impair any right or remedy of the Bank, nor shall any
such termination relieve the Borrower of any Obligation to the Bank, until all
of the Obligations have been paid and performed in full. Upon payment and
performance in full of all the Obligations and so long as the Bank does not have
a continuing obligation to make revolving credit loans hereunder, the Bank shall
promptly deliver to the Borrower termination statements, requests for
conveyances and such other documents as may be required to fully terminate any
of the Bank's security interests.
6. EVENTS OF DEFAULT AND REMEDIES.
6.1 EVENTS OF DEFAULT. The occurrence of any of the following events shall
constitute an "Event of Default" under this Agreement, and the Borrower shall
give Bank immediate written notice thereof: (a) any warranty, representation,
statement, report or certificate made or delivered to Bank by the Borrower or
any of the Borrower's officers, employees or agents, now or in the future, shall
be untrue or misleading in any material respect when made; or (b) the Borrower
shall fail to comply with any of the financial covenants set forth in the
Schedule or shall fail to perform any other non-monetary Obligation, which by
its nature cannot be cured; or (c) the Borrower shall fail to pay any other
indebtedness exceeding, in the aggregate, $50,000, other than indebtedness
subordinate in right of payment to any of the Obligations, as and when the same
shall be due; or there shall occur, with respect to such other indebtedness, an
event or circumstance that permits the obligee thereof to accelerate the same,
whether or not such acceleration has taken place; or (d) the Borrower
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shall fail to pay or perform any other non-monetary Obligation which failure is
not cured within 5 business days after receipt of notice by the Borrower from
Bank; or (e) any levy, assessment, attachment, seizure, lien or encumbrance is
made on all or any part of the Collateral not otherwise permitted hereunder
which failure is not cured within 15 days after the occurrence of the same; or
(f) dissolution, termination of existence, insolvency or business failure of the
Borrower; or appointment of a receiver, trustee or custodian, for all or any
part of the property of, assignment for the benefit of creditors by, or the
commencement of any proceeding by the Borrower under any reorganization,
bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, now or in the future in effect;
or (g) the commencement of any proceeding against the Borrower or any guarantor
of any of the Obligations under any reorganization, bankruptcy, insolvency,
arrangement, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction, now or in the future in effect, which is not cured by the
dismissal thereof within 30 days after the date commenced; (h) revocation or
termination of, or limitation of liability upon, any guaranty of the
Obligations; or commencement of proceedings by any guarantor of any of the
Obligations under any bankruptcy or insolvency law; or (i) the Borrower makes
any payment on account of any indebtedness or obligation which has been
subordinated to the Obligations in violation of the terms of any agreement with
the Bank; or if any person who has subordinated such indebtedness or obligations
terminates or in any way limits his subordination agreement; or (j) the Borrower
shall generally not pay its debts as they become due; or the Borrower shall
conceal, remove or transfer any part of its property, with intent to hinder,
delay or defraud its creditors, or make or suffer any transfer of any of its
property which may be fraudulent under any bankruptcy, fraudulent conveyance or
similar law; (k) the Borrower shall default upon any of its obligations under,
or breach, the Revolving Credit Note, the Equipment Note, the Security Agreement
or any other agreement (whether now existing or hereafter arising) between the
Bank and the Borrower; (l) the delivery of audited financial statements for the
year ended December 31, 1998, discloses an adverse variance in excess of
$350,000 from the management produced financial statements for the same period
that were previously delivered to the Bank; or (m) the Borrower's contracts with
AT&T and its affiliates are either cancelled or not renewed on terms
substantially similar or better to the terms of the existing AT&T contracts.
6.2 REMEDIES. Upon the occurrence of any Event of Default, and at any time
thereafter, the Bank, at its option, and without further notice or demand of any
kind (all of which, except as expressly provided herein, are hereby expressly
waived by the Borrower), may do any one or more of the following: (a) cease
making Loans or otherwise extending credit to the Borrower under this Agreement.
or any other document or agreement; (b) accelerate and declare all or any part
of the Obligations to be immediately due, payable, and performable,
notwithstanding any deferred or installment payments allowed by any instrument
evidencing or relating to any Obligation; (c) upon ten (10) days' prior written
notice, take possession of any or all of the Collateral wherever it may be
found, and for that purpose the Borrower hereby authorizes the Bank without
judicial process to enter onto any of the Borrower's premises without
interference to search for, take possession of, keep, store, or remove any of
the Collateral, and remain on the premises or cause a custodian to remain on the
premises in exclusive control thereof without charge for so long as the Bank
deems it reasonably necessary in order to complete the enforcement of its rights
under this Agreement or any other agreement; provided, however, that should the
Bank seek to take possession of any or all of the Collateral by Court process,
the Borrower hereby irrevocably waives: (i) any bond and any surety or security
relating thereto required by any statute, court rule or otherwise as an incident
to such possession; (ii) any demand for possession prior to the commencement of
any suit or action to recover possession thereof; and (iii) any requirement that
the Bank retain possession of and not
15
<PAGE> 16
dispose of any such Collateral until after trial or final judgment; (d) require
the Borrower to assemble any or all of the Collateral and make it available to
the Bank at places designated by the Bank which are reasonably convenient to the
Bank and the Borrower, and to remove the Collateral to such locations as the
Bank may deem advisable; (e) require Borrower to deliver to the Bank, in kind,
all checks and other payments received with respect to all accounts and general
intangibles, together with any necessary endorsements, within one day after the
date received by the Borrower; (f) complete the processing, manufacturing or
repair of any Collateral prior to a disposition thereof and, for such purpose
and for the purpose of removal, the Bank shall have the right to use the
Borrower's premises, vehicles, hoists, lifts, cranes, equipment and all other
property without charge; (g) sell, lease or otherwise dispose of any of the
Collateral in its condition at the time the Bank obtains possession of it or
after further manufacturing, processing or repair, at any one or more public
and/or private sales, in lots or in bulk, for cash, exchange or other property,
or on credit, and to adjourn any such sale from time to time without notice
other than oral announcement at the time scheduled for sale. The Bank shall have
the right to conduct such disposition on the Borrower's premises without charge,
for such time or times as the Bank deems reasonable, or on the Bank's premises,
or elsewhere and the Collateral need not be located at the place of disposition.
The Bank may directly or through any affiliated company purchase or lease any
Collateral at any such public disposition and if permissible under applicable
law, at any private disposition. Any sale or other disposition of Collateral
shall not relieve the Borrower of any liability the Borrower may have if any
Collateral is defective as to title or physical condition or otherwise at the
time of sale; (h) demand payment of, and collect any accounts and general
intangibles comprising Collateral and in connection therewith, the Borrower
irrevocably authorizes the Bank to endorse or sign the Borrower's name on all
collections, receipts, instruments and other documents, to take possession of
and open mail addressed to the Borrower and remove therefrom payments made with
respect to any item of the Collateral or proceeds thereof and in the Bank's sole
discretion, to grant extensions of time to pay, compromise claims and settle
accounts and the like for less than face value; (i) offset against any sums in
any of Borrower's general, special or other deposit accounts with the Bank; and
(j) demand and receive possession of any of the Borrower's federal and state
income tax returns and the books and records utilized in the preparation thereof
or referring thereto. All reasonable attorney's fees, expenses, costs,
liabilities and obligations incurred by the Bank with respect to the foregoing
shall be added to and become part of the Obligations, shall be due on demand,
and shall bear interest at a rate equal to the highest interest rate applicable
to any of the Obligations. Without limiting any of the Bank's rights and
remedies, from and after the occurrence of any Event of Default, the interest
rate applicable to the Obligations shall be increased by an additional four
percent per annum.
6.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. The Borrower and
the Bank agree that a sale or other disposition (collectively, "sale") of any
Collateral which complies with the following standards will conclusively be
deemed to be commercially reasonable: (i) notice of the sale is given to the
Borrower at least seven days prior to the sale, and in the case of public sale,
notice of the sale is published at least ten days before the sale in a newspaper
of general circulation in the county where the sale is to be conducted; (ii)
notice of the sale describes the collateral in general, non-specific terms;
(iii) the sale is conducted at a place designated by the Bank, with or without
the Collateral being present; (iv) the sale commences at any time between 8:00
am and 6:00 p.m.; (v) payment of the purchase price in cash or by cashier's
check or wire transfer is required; (vi) with respect to any sale of any of the
Collateral, the Bank may (but is not obligated to) direct any prospective
purchaser to ascertain directly from the Borrower any and all information
concerning
16
<PAGE> 17
the same. The Bank may employ other methods of noticing and selling the
Collateral, in its discretion, if they are commercially reasonable.
6.4 POWER OF ATTORNEY. Upon the occurrence of any Event of Default, and
without limiting the Bank's other rights and remedies, the Borrower grants to
the Bank an irrevocable power of attorney coupled with an interest, authorizing
and permitting the Bank (acting through any of its employees, attorneys or
agents), and any time following the occurrence and during the continuance of any
Event of Default, at the option of the Bank, but without obligation, with or
without notice to the Borrower, and at the Borrower's expense, to do any or all
of the following, in the Borrower's name or otherwise: (a) execute on behalf of
the Borrower any documents that the Bank may, in its sole and absolute
discretion, deem advisable in order to perfect and maintain the Bank's security
interest in the Collateral or in order to exercise a right of the Borrower or
the Bank, or in order to fully consummate all the transactions contemplated
under the Loan Documentation, and all other present and future agreements: (b)
execute on behalf of the Borrower any document exercising, transferring or
assigning any option to purchase, sell or otherwise dispose of or to lease (as
lessor or lessee) any real or personal property which is part of the Collateral
or in which the Bank has an interest: (c) execute on behalf of the Borrower, any
invoices relating to any account, any draft against any account debtor and any
notice to any account debtor, any proof of claim in bankruptcy, any Notice of
Lien, claim, or mechanic's, materialman's or other lien, or assignment or
satisfaction of mechanic's, materialman's or other lien; (d) take control in any
manner of any cash or non-cash items of payment or proceeds of Collateral;
endorse the name of the Borrower upon any instruments, or documents, evidence of
payment or Collateral that may come into the Bank's possession; (e) endorse all
checks and other forms of remittances received by the Bank; (f) pay, contest or
settle any lien, charge, encumbrance, security interest and adverse claim in or
to any of the Collateral or any judgement based thereon, or otherwise take any
action to terminate or discharge the same; (g) grant extensions of time to pay,
compromise claims and settle accounts and general intangibles for less than face
value and execute all releases and other documents in connection therewith; (h)
pay any sums required on account of the Borrower's taxes or to secure the
release of any liens therefor, or both; (i) settle and adjust, and give releases
of, any insurance claim that relates to any of the Collateral and obtain payment
therefor; (j) instruct any third party having custody or control of any books or
records belonging to, or relating to the Borrower to give the Bank the same
rights of access and other rights with respect thereto as the Bank has under
this Agreement; and (k) take any action or pay any sum required of the Borrower
pursuant to this Agreement and any other present or future agreements. The Bank
shall exercise the foregoing powers in a commercially reasonable manner. Any and
all reasonable sums paid and any and all reasonable costs, expenses,
liabilities, obligations and attorney's fees incurred by the Bank with respect
to the foregoing shall be added to and become part of the Obligations, shall be
payable on demand, and shall bear interest at a rate equal to the highest
interest rate applicable to any of the Obligations. In no event shall the Bank's
rights under the foregoing power of attorney or any of the Bank's other rights
under this Agreement be deemed to indicate that the Bank is in control of the
business, management or properties of the Borrower.
6.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of any
sale of the Collateral shall be applied by the Bank as follows: first, to the
costs, expenses, liabilities, obligations and attorney's fees incurred by the
Bank in the exercise of its rights under this Agreement; second, to the interest
due upon any of the Obligations; and third, to the principal of the Obligations,
in such order as the Bank shall determine in its sole discretion. Any surplus
shall be paid to the Borrower
17
<PAGE> 18
or other persons legally entitled thereto; the Borrower shall remain liable to
the Bank for any deficiency. If the Bank, in its sole discretion, directly or
indirectly enters into a deferred payment or other credit transaction with any
purchaser at any sale or other disposition of Collateral, the Bank shall have
the option, exercisable at any time, in its sole discretion, of either reducing
the Obligations by the principal amount of the purchase price or deferring the
reduction of the Obligations until the actual receipt by the Bank of the cash
therefor.
6.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set forth
in this Agreement, the Bank shall have all the other rights and remedies
accorded a secured party under the Uniform Commercial Code as in effect from
time to time in Massachusetts and under all other applicable laws, and under any
other instrument or agreement now or in the future entered into between the Bank
and the Borrower (including without limitation the Note and the Security
Agreement), and all of such rights and remedies are cumulative and none is
exclusive. Exercise or partial exercise by the Bank of one or more of its rights
or remedies shall not be deemed an election, nor bar the Bank from subsequent
exercise or partial exercise of any other rights or remedies. The failure or
delay of the Bank to exercise any rights or remedies shall not operate as a
waiver thereof, but all rights and remedies shall continue in full force and
effect until all of the Obligations have been fully paid and performed.
7. GENERAL PROVISIONS
7.1 NOTICES. All notices to be given under this Agreement shall be in
writing and shall be given either personally or by certified mail return receipt
requested, addressed to the Bank or the Borrower at the addresses shown in the
heading to this Agreement, or at any other address designated in writing by one
party to the other party. All notices shall be deemed to have been given upon
delivery in the case of notices personally delivered to the Borrower or to the
Bank, or at the expiration of three business days following the deposit thereof
in the United States mail, with postage prepaid.
7.2 SEVERABILITY. Should any provisions of this Agreement be held by any
court of competent jurisdiction to be void or unenforceable, such defect shall
not affect the remainder of this Agreement, which shall continue in full force
and effect.
7.3 INTEGRATION. This Agreement, the other Loan Documentation and such
other written agreements, documents and instruments as may be executed in
connection herewith are the final, entire and complete agreement between the
Borrower and the Bank and supersede all prior and contemporaneous negotiations
and oral representations and agreements, all of which are merged and integrated
in this Agreement. THERE ARE NO ORAL UNDERSTANDINGS, REPRESENTATIONS OR
AGREEMENTS BETWEEN THE PARTIES WHICH ARE NOT SET FORTH IN THIS AGREEMENT OR IN
THE OTHER LOAN DOCUMENTATION SIGNED BY THE PARTIES IN CONNECTION HEREWITH.
7.4 WAIVERS. The failure of the Bank at any time or times to require the
Borrower to strictly comply with any of the provisions of this Agreement or any
other present or future agreement between the Borrower and the Bank shall not
waive or diminish any right of the Bank later to demand and receive strict
compliance therewith. Any waiver of any default shall not waive or affect any
other default, whether prior or subsequent thereto. None of the provisions of
this
18
<PAGE> 19
Agreement, the other Loan Documentation or any other agreement now or in the
future executed by the Borrower and delivered to the Bank shall be deemed to
have been waived by any act or knowledge of the Bank or its agents or employees,
but only by a specific written waiver signed by an officer of the Bank and
delivered to the Borrower. Except for notices expressly required by this
Agreement or other Loan Documentation, the Borrower waives demand, protest,
notice of protest and notice of default or dishonor, notice of payment and
nonpayment, release, compromise, settlement, extension or renewal of any
commercial paper, instrument, account, general intangible, document or guaranty
at any time held by the Bank on which the Borrower is or may in any way be
liable, and notice of any action taken by the Bank, unless expressly required by
this Agreement.
7.5 NO LIABILITY FOR ORDINARY NEGLIGENCE. Neither the Bank, nor any of its
directors, officers, employees, agents, attorneys or any other person affiliated
with or representing the Bank shall be liable for any claims, demands, losses or
damages, of any kind whatsoever, made, claimed, incurred, or suffered by the
Borrower or any other party through the ordinary negligence of the Bank, or any
of its directors, officers, employees, agents, attorneys or any other person
affiliated with or representing the Bank.
7.6 AMENDMENT. The terms and provisions of this Agreement may not be
waived or amended, except in a writing executed by the Borrower and a duly
authorized officer of the Bank.
7.7 TIME OF ESSENCE. Time is of the essence in the performance by the
Borrower of each and every obligation under this Agreement.
7.8 CONFLICT WITH OTHER LOAN DOCUMENTATION. If and to the extent the terms
hereof conflict or otherwise are inconsistent with the terms of the Revolving
Credit Note, Equipment Note, the Security Agreement or any of the other Loan
documentation, the terms of this Agreement shall control.
7.9 ATTORNEYS FEES AND COSTS. The Borrower shall reimburse the Bank for
all reasonable attorney's fees and all filing, recording, search, title
insurance, appraisal, audit, and other reasonable costs incurred by the Bank,
pursuant to, or in connection with, or relating to this Agreement (whether or
not a lawsuit is filed), including, but not limited to any reasonable attorney's
fees and costs the Bank incurs in order to do the following: prepare and
negotiate this Agreement and the documents relating to this Agreement; obtain
legal advice in connection with the amendment or waiver of or the enforcement of
any rights or remedies under this Agreement and the documents relating hereto;
enforce or seek to enforce, any of its rights; prosecute actions against, or
defend actions by, account debtors; commence, intervene in, or defend any action
or proceeding; initiate any complaint to be relieved of the automatic stay in
bankruptcy; file or prosecute any probate claim, bankruptcy claim, third-party
claim, or other claim; examine, audit, copy, and inspect any of the Collateral
or any of the Borrower's books and records; protect, obtain possession of,
lease, dispose of, or otherwise enforce the Bank's security interest in the
Collateral; and otherwise represent the Bank in any litigation relating to the
Borrower. If either the Bank or the Borrower files any lawsuit against the other
predicated on a breach of this Agreement, the prevailing party in such action
shall be entitled to recover its reasonable costs and attorney's fees, including
(but not limited to) reasonable attorney's fees and costs incurred in the
enforcement of, execution upon or defense of any order, decree, award or
judgement. All attorney's fees and costs to which the Bank may be entitled
19
<PAGE> 20
pursuant to this Paragraph shall immediately become part of the Borrower's
Obligations, shall be due on demand, and shall bear interest at a rate equal to
the highest interest rate applicable to any of the Obligations.
7.10 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be
binding upon and inure to the benefit of the respective successors, assigns,
heirs, beneficiaries and representatives of the parties hereto; provided,
however, that the Borrower may not assign or transfer any of its rights under
this Agreement without the prior written consent of the Bank, and any prohibited
assignment shall be void; and provided further that the Bank will provide
Borrower five days' prior notice of any assignment to a third party of the Loan
Documentation and its rights thereunder. No consent by the Bank to any
assignment shall release the Borrower from its liability for the Obligations.
7.11 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only used in
this Agreement for convenience. The Borrower acknowledges that the headings may
not describe completely the subject matter of the applicable paragraph, and the
headings shall not be used in any manner to construe, limit, define or interpret
any term or provision of this Agreement. This Agreement has been fully reviewed
and negotiated between the parties and no uncertainty or ambiguity in any term
or provision of this Agreement shall be construed strictly against the Bank or
the Borrower under any rule of construction or otherwise.
7.12 MUTUAL WAIVER OF JURY TRIAL. The Borrower and the Bank each hereby
waive the right to trial by jury in any action or proceeding based upon, arising
out of, or in any way relating to, this Agreement or any other present or future
instrument or agreement between the Bank and the Borrower, or any conduct, acts
or omissions of the Bank or the Borrower or any of their directors, officers,
employees, agents, attorneys or any other persons affiliated with the Bank or
the Borrower, in all of the foregoing cases, whether sounding in contract or
tort or otherwise.
7.13 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and
transactions hereunder and all rights and obligations of the Bank and the
Borrower shall be governed by and in accordance with, the laws of the
Commonwealth of Massachusetts. Any undefined term used in this Agreement that is
defined in the Massachusetts Uniform Commercial Code shall have the meaning
assigned to that term in the Massachusetts Uniform Commercial Code. As a
material part of the consideration to the Bank to enter into this Agreement, the
Borrower (i) agrees that all actions and proceedings relating directly or
indirectly hereto shall at the Bank's option, be litigated in courts located
within Massachusetts; (ii) consents to the jurisdiction and venue of any such
court and consents to service of process in any such action or proceeding by
personal delivery or any other method permitted by law; and (iii) waives any and
all rights the Borrower may have to object to the jurisdiction of any such
court, or to transfer or change the venue of any such action or proceeding.
20
<PAGE> 21
EXECUTED as an agreement under seal as of the date first above written.
BORROWER:
STUDENT ADVANTAGE, INC.
By: /s/ Christopher B. Andrews
-----------------------------------------------
Name: Christopher B. Andrews
Title: Vice President, Finance & Administration
USTRUST
By: /s/ Frank Coccoluto
-----------------------------------------------
Name: Frank Coccoluto
Title: Vice President
21
<PAGE> 22
- --------------------------------------------------------------------------------
USTRUST
ADDITIONAL TERMS SCHEDULE TO
LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
BORROWER: Student Advantage, Inc.
ADDRESS: 280 Summer Street
Boston, Massachusetts 02110
DATE: March 31, 1999
CREDIT LIMITS
(Section 1.1):
Revolving Credit Loan in aggregate principal amount at any time outstanding
not to exceed $2,500,000.
Equipment Loans in an amount not to exceed $250,000.
INTEREST RATE
(Section 1):
(As applicable)
"Applicable LIBOR Rate" means LIBOR, as defined in the Agreement, plus 200
basis points.
"Applicable Treasury Yield Rate" means, at any time, the stated interest
rate on two year treasury notes, then most recently auctioned by the
Department of the United States Treasury, plus 200 basis points.
"Base Lending Rate" means the rate of interest established from time to
time by the Bank as its base lending rate, and may or may not be the lowest
rate of interest charged by the Bank to any of its customers. Changes in
the Base Lending Rate shall take effect on the date announced by the Bank
unless otherwise specified in the announcement.
OTHER SECURITY
(Section 2.3)
None
22
<PAGE> 23
PERMITTED LIENS
(Section 3:4):
Mechanics', carriers' warehousemen', workmen's, repairmen's or other like
statutory liens incurred in the ordinary course of business; provided that
the obligations secured thereby are not past due or are being contested
diligently and in good faith by appropriate proceedings.
USE OF PROCEEDS
(Section 3.12)
Revolving Credit Loans: Working capital purposes
Equipment Loans: Acquisition of equipment
FINANCIAL COVENANTS
(Section 4:1):
Borrower shall comply with the following covenants, the status of which
shall be reported to the Bank on a quarterly basis:
(a) Borrower at all times shall maintain a minimum Net Worth of not less
than $3,000,000.
(b) Borrower at all times shall maintain minimum Adjusted Working Capital
of not less than $3,000,000.
4. DEFINITIONS:
"Adjusted Working Capital" means, at any time, the difference between (a)
Current Assets, and (b) Current Liabilities.
"Current Assets" means, at any time, all assets of the Borrower and its
subsidiaries, if any, which may be properly classified as current assets in
accordance with generally accepted accounting principles on a consolidated
basis for the Borrower and its subsidiaries.
"Current Liabilities" means, at any time, all liabilities of the Borrower
and its subsidiaries, if any, which may be properly classified as current
liabilities in accordance with generally accepted accounting principles on
a consolidated basis for the Borrower and its subsidiaries; provided, that
Current Liabilities shall not be deemed to include deferred
revenues/advances.
"Net Worth" means the excess of total assets over total liabilities,
determined in accordance with generally accepted accounting principles,
excluding however (i) any indebtedness owed to the Borrower by any officer,
director or affiliate, and (ii) deferred revenues/advances.
23
<PAGE> 24
OTHER COVENANTS
(Section 4:1):
Borrower shall at all times comply with all of the following additional
covenants:
BANKING RELATIONSHIP. Borrower shall at all times maintain its primary
banking relationship and accounts with the Bank.
NEGATIVE COVENANTS-EXCEPTIONS
Borrower shall be permitted to redeem shares owned by any employee upon the
separation of such employee's employment with the Company by death,
disability or otherwise; provided, however, that at the time of and after
giving effect to any such redemption, there has not occurred and will not
occur and be continuing any Event of Default or event which, with notice or
the expiration of any applicable grace period or both would become an Event
of Default.
24
<PAGE> 1
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
EXHIBIT 10.7
AGREEMENT
BETWEEN
AT&T COMMUNICATIONS, INC.
AND
STUDENT ADVANTAGE, L.L.C.
AT&T CONFIDENTIAL AND PROPRIETARY
<PAGE> 2
TABLE OF CONTENTS
Page
SECTION I DEFINITIONS...................................................2
SECTION II THE AT&T/STUDENT ADVANTAGE PROGRAM AND
COMPANY OBLIGATIONS...........................................4
SECTION III PURCHASE OF MEMBERSHIPS AND PAYMENT...........................6
SECTION V TERM, RENEWAL AND TERMINATION................................15
SECTION VI CONFIDENTIALITY AND PROTECTION OF
INFORMATION..................................................16
SECTION VII INDEMNIFICATION..............................................17
SECTION VIII LIMITATION OF LIABILITY......................................19
SECTION IX OTHER TERMS AND CONDITIONS...................................19
AT&T CONFIDENTIAL AND PROPRIETARY
<PAGE> 3
AGREEMENT
BETWEEN
AT&T COMMUNICATIONS, INC.
AND
STUDENT ADVANTAGE, L.L.C.
This Agreement is effective as of February 1, 1997, (hereinafter referred
TO as the "Effective Date") between AT&T COMMUNICATIONS, INC. a Delaware
corporation, with its principal place of business located at 295 North Maple
Avenue, Basking Ridge, New Jersey 07920, acting for itself and its affiliates
("AT&T"), and STUDENT ADVANTAGE, L.L.C., a Delaware limited liability company
with its principal place of business located at 321 Columbus Avenue, Boston,
Massachusetts 02116 ("COMPANY").
RECITALS
WHEREAS, AT&T operates a telecommunications network in the United States
and around the world, pursuant to which its subscribers may purchase AT&T
services; and
WHEREAS, COMPANY markets a student savings program to high school,
undergraduate and graduate college students which allows members of such program
to purchase goods and services at a discount; and
WHEREAS, AT&T desires to make available to its College Student subscribers
the opportunity to participate in a joint AT&T - Student Advantage program which
permits College Student subscribers to obtain various benefits and discounts
from national and local merchants;
NOW, THEREFORE, in consideration of the mutual provisions contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, AT&T and COMPANY hereby agree as follows:
AT&T CONFIDENTIAL AND PROPRIETARY
<PAGE> 4
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
SECTION I
DEFINITIONS
The following definitions will apply to all Sections and Schedules, if
any, of this Agreement.
"AT&T/SA Member" shall mean the AT&T Customer participating in the
AT&T/Student Advantage Program.
"College Student" shall mean any individual enrolled either on a part-time
or full-time basis in any undergraduate, graduate or professional college in the
United States.
"COMPANY Member" shall mean the high school or College Student
participating in the Student Advantage Program.
"Member" shall mean those Customers, as defined below, of AT&T
participating in the COMPANY Offer. The COMPANY Offer is fully described in
Section 11 B of this Agreement and on Attachment C hereto.
"AT&T/Student Advantage Program" shall mean the Student Advantage Program,
represented by the Co-logoed Card instead of the COMPANY membership card, which
permits College Students which are AT&T Customers to obtain, at no charge,
various benefits from local and national merchants in the form of goods,
services and/or discounts thereon.
"Student Advantage Program" shall mean that certain College Student
savings/discount program offered and solely marketed to college and high school
students by COMPANY generally at a retail cost of twenty dollars ($20.00) per
academic year and which is represented by a COMPANY membership card.
"ACUS Program" shall mean the AT&T College and University Systems program
whereby a college or university purchases AT&T Services from AT&T and resells
such services to its college or university students.
"ACUS Student" means those certain college and/or university students
which purchases AT&T Services from a reseller entity participating in the ACUS
Program, for purposes herein, its college or university.
AT&T CONFIDENTIAL AND PROPRIETARY
- 2 -
<PAGE> 5
"AT&T/Student Advantage Membership Card" means a card furnished to each
AT&T/SA Member containing the Student Advantage and AT&T names and logos, which
shall be used for membership verification purposes in obtaining benefits
available to AT&T/SA Members.
"AT&T Services" means: (i) interstate and/or intrastate, interexchange or
intraexchange, interLATA and/or intraLATA telecommunications services provided
by AT&T which originate and/or terminate in the United States (including Puerto
Rico and the Virgin Islands); (ii) Interstate and/or Intrastate Interlata
cellular telecommunications services provided by AT&T which originate and/or
terminate in the United States; (iii) telecommunications services provided by
AT&T between the United States and international locations (hereinafter referred
to as "International"); (iv) AT&T Long Distance Certificates; (v) Internet
access; or (vi) multichannel video programming (e.g., direct broadcast satellite
services, cable TV services, or MMDS services). Such AT&T Services may be
subject to either (i) Title I or Title II jurisdiction of the Federal
Communications Commission ("FCC") or (ii) the jurisdiction of one or more State
Public Utilities Commissions ("PUC"). For purposes of this Agreement, "LATA"
shall have the same meaning as that term is defined in United States V. Western
Electric Co., 569 F. Supp. 990 (D.D.C. 1983).
"Customer" shall mean all persons, whether in an individual capacity, or
in connection with their business, or otherwise, which meet the Qualifications
used in Section II B. hereto.
"Information" includes marketing philosophies and objectives, competitive
advantages and disadvantages, customer statistics, financial information and
results, and any other information of either Party that the Party may consider
confidential and/or proprietary.
"Party" means: (i) AT&T or (ii) COMPANY; and "Parties" means COMPANY and
AT&T.
"Subscriber" means an AT&T customer who has selected AT&T as the
customer's presubscribed interexchange carrier and/or a customer who uses or
purchases AT&T Services. At AT&T's sole discretion, Subscribers may include AT&T
customers who engage in transactions involving AT&T business long distance
services.
AT&T CONFIDENTIAL AND PROPRIETARY
- 3 -
<PAGE> 6
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
SECTION II
THE AT&T/STUDENT ADVANTAGE PROGRAM AND
COMPANY OBLIGATIONS
A. COMPANY Obligations
1. During the Term of this Agreement, COMPANY shall use its best
efforts to cause each merchant (collectively, "MERCHANTS") listed in that
certain Directory Guide entitled "AT&T - Student Advantage National Directory",
to be mutually agreed upon between the parties and attached hereto at a later
date as Attachment A, or the "Student Advantage Welcome Package", as applicable,
attached hereto as Attachment B (collectively referred to as the "Directory
Guide"), both as may be amended from time to time, to provide to all AT&T/SA
Members, and those Members participating in the Half Membership, certain goods
and/or services and/or discounts set forth in the Directory Guide (each,
individually, a "MERCHANT Offer"; collectively, the "GROUP Offer"), and to cause
each of the MERCHANTS to perform all fulfillment obligations with respect
thereto. Each MERCHANT Offer and MERCHANTS'/COMPANY's fulfillment obligations
are specified on Attachment C attached hereto and made a part hereof.
2. COMPANY agrees to acquire additional MERCHANTS, on the national
and local levels, to provide certain Benefits, as defined below, in the
AT&T/Student Advantage Program at an increase of either (i) [**], from one
academic year to the next, throughout the Term of this Agreement, or (ii) [**]
in the aggregate, prior to September 1, 1999, for each level - national and
local, over the existing number of MERCHANTS, offered in the 1996 Student
Advantage Program. For purposes of this provision, each type of sponsor level
(national and local), shall be evaluated as a whole, on the national level, and
not evaluated on a market-by-market basis.
As a means of supporting and maintaining the above program growth
requirements, COMPANY shall, on or before September 1, 1997, (i) increase its
existing staff of regional managers by a minimum of [**] full-time employees
dedicated to local merchant acquisition, servicing and promoting the
AT&T/Student Advantage Program and (ii) increase its existing partnership
marketing staff by a minimum of [**] full-time national managers dedicated to
the acquisition and servicing of merchants on the national level.
AT&T CONFIDENTIAL AND PROPRIETARY
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
In addition, COMPANY shall increase its staff of customer service
representatives by a minimum of [**] full-time customers service representatives
during the months of August through October of each year during the term hereof.
The Parties understand and agree that the number of customer service
representatives may be decreased to no less than [**] full-time customer service
representatives during the months of November through July of each year during
the term hereof as COMPANY in its sole and absolute discretion deems
appropriate.
Commencing on [**] and on or before each subsequent [**] during the Term
hereof, [**] not currently covered by COMPANY which are of particular importance
to AT&T's college marketing efforts. COMPANY agrees to [**] in at least [**] on
AT&T's list [**].
B. AT&T/Student Advantage Program.
AT&T may make available to an AT&T Customer which is (i) enrolled as a
full or part time college student and (ii) either (a) establishes or maintains
its Dial-1 Long Distance Service with AT&T in its name; or (b) requests and
qualifies for an AT&T Universal Card in its name; or (C) requests and qualifies
for an AT&T Direct Billed Calling Card in its name; and which remains in good
credit standing with AT&T (collectively, the "Qualifications"), a membership
free of charge in the Student Advantage Program ("Half Membership") that is
valid through August 31, 1997, or a one-year membership in the AT&T/Student
Advantage Program ("Yearly Membership"), valid throughout the entire academic
year to August 31 for each academic year during the Term hereof, both of which
are provided by Student Advantage through AT&T which enable Members, as defined
below, to obtain various benefits (collectively, "Benefits") in the form of
products and/or services, or discounts thereon. AT&T shall make the Half
Membership available prior to May 1, 1997. The Half Membership and Yearly
Membership shall collectively be referred to as the COMPANY Offer. AT&T reserves
the right to modify and amend the Qualifications for new enrollees, subject to
the prior written approval of COMPANY. The parties shall enter into good faith
negotiations to [**] the membership fee per Yearly Membership, excluding ACUS
Memberships, if the Qualifications become more stringent. AT&T reserves the
right, in its sole and absolute discretion, to eliminate any of the following
product categories from the Qualifications: (i) the establishment or maintenance
of Dial-1 Long Distance Service; (ii) the AT&T Universal Card requirement; or
(iii) the AT&T Direct Billed Calling Card requirement, upon giving [**] days
prior written notice to COMPANY. If AT&T exercises this right, the parties shall
enter into good faith
AT&T CONFIDENTIAL AND PROPRIETARY
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
negotiations to [**] the membership fee per Yearly Membership, excluding ACUS
Memberships. In addition, AT&T shall forfeit its right of first refusal to be an
exclusive MERCHANT for each such eliminated product category within the Student
Advantage Program and the AT&T/STUDENT Advantage Program if AT&T does not offer
a substantially similar product in substitution thereof within [**] days of such
elimination.
At any time during the Term hereof, AT&T, at its sole and absolute
discretion, may make Yearly Memberships available to certain ACUS Students. The
Yearly Memberships ACUS Students receive shall be referred to herein as "ACUS
Memberships" and considered part of the COMPANY Offer.
C. COMPANY represents and warrants that the goods and/or services and/or
discounts comprising the Student Advantage Program and the AT&T/Student
Advantage Program are substantially the same as the other, with the exception of
limited-time offers used primarily to drive member acquisition and as such, a
COMPANY Member and a Member, as defined herein, shall receive substantially the
same Benefits. Further, COMPANY agrees to use its best efforts not to engage in
any type of promotional or marketing activities with any company or business
entity primarily engaged in the selling of certain products that have the
potential to harm the reputation and goodwill of AT&T, including, but not
limited to, tobacco, liquor and pornography; provided, however, convenience
stores and similar businesses which sell a large variety of products, including
the above, are typically excluded herefrom.
AT&T CONFIDENTIAL AND PROPRIETARY
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
SECTION III
PURCHASE OF MEMBERSHIPS AND PAYMENT
A. Purchase of Yearly Memberships
1. Commencing with the 1997-1998 academic year, AT&T agrees to
purchase [**] Yearly Memberships per academic year (the [**]).
The [**] may be [**] by AT&T on an as needed basis.
B. Invoicing of Yearly Memberships
1. Commencing on [**], and on a [**] basis thereafter, COMPANY
shall invoice AT&T for [**] the [**] for the upcoming [**]. Commencing on [**],
and on a [**] basis thereafter, COMPANY shall invoice AT&T for [**] the [**] and
commencing on [**], and on a [**] basis thereafter, COMPANY shall invoice AT&T
for the remaining [**] the [**] for the current [**]. AT&T shall pay [**] per
Yearly Membership [**] purchased in accordance herewith.
C. Reconciliation of Yearly Memberships
1. During the Term hereof, the dollar amount paid by AT&T for the
invoices issued on [**] each year for the [**], shall be reconciled two (2)
times per year, or within thirty (30) days upon a termination due to a breach of
this Agreement (a "Breach Reconciliation"), against the dollar amount due
COMPANY for the actual number of Yearly Memberships, excluding ACUS Memberships,
distributed in accordance with this Agreement ("Actual Amount"). [**]. The first
reconciliation shall occur at the beginning of each [**], on or about each [**],
commencing on [**] ("First Reconciliation"), and the second reconciliation shall
occur at the end of the [**], on or about each [**], commencing on [**] ("Second
Reconciliation"). The First Reconciliation shall incorporate a mutually agreed
upon
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
estimate (the "Yearly Estimate") of the number of Yearly Memberships, excluding
ACUS Memberships, expected to be distributed by AT&T for the remainder of the
applicable academic year, which shall be invoiced at the time of the First
Reconciliation. The Second Reconciliation shall refine the Yearly Estimate with
actual data and shall completely reconcile the applicable academic year.
2. If the [**] at the time of the First Reconciliation, or a
Breach Reconciliation, exceeds the [**], COMPANY shall invoice AT&T
for the amount representing the sum of the difference between the [**]
and the [**] (such sum herein referred to as the "Excess")
multiplied by the cost per Yearly Membership, such cost being pursuant to
Attachment D hereto. COMPANY shall also [**].
3. If the [**] at the time of the First Reconciliation is less
than the [**], COMPANY issue a credit to be applied towards the [**] (the
"Credit") in the amount of the sum of the difference between the [**] less the
[**] (such sum herein referred to as the "Shortage") multiplied by [**], or the
cost per Yearly Membership, as applicable. COMPANY shall also apply a [**]
towards the [**] for the [**] for each membership comprising the Shortage.
If the [**] at the time of a Breach Reconciliation is less than the
[**], COMPANY shall issue a cash refund to AT&T within thirty (30) days of such
Breach Reconciliation in the amount of the sum of the Shortage multiplied by
[**], or the cost per Yearly Membership, as applicable.
4. If COMPANY distributes Yearly Memberships, excluding ACUS
Memberships, in excess of the Yearly Estimate during the period between the
First Reconciliation and the Second Reconciliation, COMPANY shall invoice AT&T
for an amount equal to the difference between the number of Yearly Memberships,
excluding ACUS Memberships, and the Yearly Estimate, which amount shall be
multiplied by the cost per Yearly Membership, which amount shall be reduced by
the amount of the Credit, if any. COMPANY shall also [**]. If COMPANY
distributes Yearly Memberships, excluding ACUS Memberships in an amount less
than the Yearly Estimate during the period between the First Reconciliation and
the Second Reconciliation, COMPANY shall issue a cash refund for an amount equal
to the difference between the number of Yearly Memberships, excluding ACUS
Memberships, issued between the First Reconciliation and the Second
Reconciliation and the Yearly Estimate, which amount shall be multiplied by the
cost per Yearly
AT&T CONFIDENTIAL AND PROPRIETARY
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
Membership, which amount shall be reduced by the amount of the Credit, if any.
COMPANY shall also [**] for each such membership. The cost per Yearly Membership
is set forth on Attachment D hereto.
It is understood that the price per Yearly Membership is based on a
[**] cost structure set forth on Attachment D hereto.
D. Purchase of ACUS Memberships
1. AT&T, in its sole and absolute discretion, shall project the
number of ACUS Memberships it expects to distribute to ACUS Students during the
upcoming year (the "Estimate"). AT&T shall notify COMPANY of the Estimate on or
before [**] of each calendar year during the Term hereof and COMPANY shall
invoice AT&T for the Estimate reported. This invoice shall also include [**]
each such ACUS Membership.
E. Reconciliation of ACUS Memberships
1. The dollar amount paid by AT&T for the Estimate shall be
reconciled two (2) times per calendar year, or within thirty (30) days upon a
termination arising out of a breach of this Agreement, against the dollar amount
due for the number of ACUS Memberships distributed to ACUS Students ("ACUS
Actual Amount"). The first reconciliation shall occur [**] on or about each
[**], commencing on [**]; and the second reconciliation shall occur [**], on or
about each [**], commencing on [**].
2. If the ACUS Actual Amount at the time of the [**] Reconciliation,
or a Breach Reconciliation, exceeds the Estimate, COMPANY shall invoice AT&T for
the amount representing sum of the difference between the ACUS Actual Amount and
the Estimate (such sum herein referred to as the "ACUS Excess") multiplied by
[**]. COMPANY shall [**].
COMPANY shall invoice AT&T for the number of ACUS Membership [**]
the costs for each as stated herein, during the period between the [**]
Reconciliation and the [**] Reconciliation. This shall be done at the time of
the [**] Reconciliation.
3. If the ACUS Actual Amount is less than the Estimate at the time
of
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
the [**] Reconciliation, or at the time of a Breach Reconciliation, COMPANY
shall render a cash refund to AT&T for the dollar amount representing the sum of
the difference between the Estimate and the ACUS Actual Amount ("ACUS
Shortage"), multiplied by [**]. COMPANY shall [**] shall be [**] of the [**]
Reconciliation.
If COMPANY distributes ACUS Memberships during the period between
the [**] Reconciliation and the [**] Reconciliation, COMPANY shall invoice AT&T
on or about each [**], commencing on [**], the sum of [**] during this period.
F. Upon completion of COMPANY's fulfillment of all Half Memberships, as
defined in Attachment C hereto, or sooner if this Agreement is terminated due to
a breach of this Agreement, COMPANY shall [**] for each [**] and AT&T agrees to
pay COMPANY in accordance with the terms and conditions on Attachment D attached
hereto and made a part hereof.
G. All invoices pertaining to the COMPANY Offer are to be forwarded to
AT&T at the address set forth on Attachment D hereto. AT&T agrees to make all
payments in accordance with the terms and conditions as set forth on such
Attachment D.
AT&T CONFIDENTIAL AND PROPRIETARY
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
SECTION IV
MARKETING AND PROMOTIONAL ARRANGEMENTS
A. Marketing Requirements
1. AT&T and COMPANY mutually agree to market the COMPANY Offer to
certain College Students [**] during the Term of this Agreement. The costs
associated with the marketing of the COMPANY Offer for a particular channel,
including, but not limited to, the price of all marketing materials, shall be as
mutually agreed by the parties.
COMPANY shall promote the COMPANY Offer by using a "Fee or Free", or
comparable, marketing campaign.
COMPANY shall use its best efforts to obtain various prizes and
premiums ("Premiums") from its MERCHANTS for utilization by AT&T and/or COMPANY
in connection with any on-campus tabling or marketing on AT&T's Web Site of the
COMPANY Offer. In exchange for the exposure any MERCHANT or MERCHANTS' name
receives which provide any Premiums used in connection with the marketing of the
COMPANY Offer, such Premiums shall be provided without cost to AT&T.
COMPANY and AT&T each have the right. upon prior written approval of
the other party, and subject to the provisions in this Section IV.A.2. and A.3.,
to market the products and/or services of any MERCHANT to AT&T/SA Members as
they relate to the COMPANY Offer, including any special Benefits a MERCHANT
wishes to offer only to AT&T/SA Members. The parties hereby agree, COMPANY shall
be required to only provide written notice to AT&T, not written approval, if
such marketing efforts (i) relate only to a specific MERCHANT Offer comprising
the COMPANY Offer; and (ii) do not bear any AT&T Marks, as defined below, or any
reference to the COMPANY Offer. Notwithstanding the foregoing, any COMPANY
marketing effort directed to COMPANY Members which are not participants in the
COMPANY Offer do not require AT&T notice or approval.
2. AT&T understands and agrees that all AT&T marketing efforts which
bear the COMPANY or any MERCHANTS' name, any COMPANY or any MERCHANTS'
trademarks or any reference to any of the MERCHANT Offers comprising the COMPANY
Offer are subject to review and approval by COMPANY. COMPANY represents and
warrants that it will obtain the proper authority to use any MERCHANTS' name,
trademarks and/or reference to any MERCHANT Offer for the purposes stated
herein. COMPANY agrees that it will review all such AT&T marketing materials in
a timely fashion and shall notify AT&T in writing of the
AT&T CONFIDENTIAL AND PROPRIETARY
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
results of such review within [**] days of receipt of such materials. COMPANY
agrees that approval of the marketing materials shall not be unreasonably
withheld. [**] COMPANY agrees that [**].
3. COMPANY understands and agrees that all marketing efforts which
bear the AT&T trademarks, trade names, logos, color combination, insignia, or
other appropriate marks and slogans (collectively the "AT&T Marks") or any
reference to the COMPANY Offer, are subject to review and approval by AT&T. AT&T
agrees that it will review all such marketing materials in a timely fashion and
shall notify COMPANY in writing of the results of such review within [**] days
of receipt of such materials. AT&T agrees that approval of the marketing
materials shall not be unreasonably withheld. [**] AT&T agrees that [**].
COMPANY agrees to use its best efforts to cause its national
marketing partners to promote the COMPANY Offer in the materials such national
MERCHANTS produce to promote the Student Advantage Program. Such MERCHANTS may
also offer certain Benefits exclusively to AT&T/Student Advantage Members with
the usage of an AT&T Service, that is, Benefits may be Offered to AT&T/Student
Advantage Members which shall not be made available to COMPANY Members. In such
instances, any and all marketing materials which bear any AT&T Marks or any
reference to the COMPANY Offer are subject to AT&T's prior written review and
approval. COMPANY agrees to submit such marketing materials to AT&T and shall
cause each MERCHANT utilizing such marketing materials to obtain prior written
approval from COMPANY before utilizing any such materials. COMPANY agrees not to
permit any MERCHANT to use any AT&T Mark or promote the COMPANY Offer without
obtaining AT&T's prior written consent. AT&T shall review such marketing
materials in accordance with the above. COMPANY represents and warrants that any
such marketing materials which require customer specific Member Information, as
defined in Section IX.J., such as direct mail marketing pieces, shall not be
distributed by any MERCHANT; and agrees to distribute any such marketing
material itself.
4. A. [**].
B. License. AT&T hereby grants COMPANY a [**] non-exclusive
limited license to use the AT&T trademarks, trade names, logos, color
combination, insignia, or other appropriate marks and slogans (collectively the
"AT&T Marks"); provided, however that such use shall be limited to the Term of
this Agreement, shall be solely for the purpose of including AT&T Marks on the
AT&T CONFIDENTIAL AND PROPRIETARY
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
AT&T/SA Membership Card and on the marketing materials relating to the COMPANY
Offer and only upon the receipt of AT&T approval pursuant to Section IV.A3.
above. COMPANY agrees that it shall, in no way, contest or deny the validity of,
or the right or title of AT&T or its affiliates in or to the AT&T Marks, and
shall not encourage or assist others directly or indirectly to do so, during the
Term of this Agreement and thereafter. In addition, COMPANY shall not utilize
the AT&T Marks in any manner which would diminish their value or harm the
reputation of AT&T.
COMPANY hereby grants AT&T a [**] non-exclusive limited license
to use the COMPANY trademarks, trade names, logos, color combination, insignia,
or other appropriate marks and slogans (collectively the "SA Marks"); provided,
however that such use shall be limited to the Term of this Agreement, shall be
solely for the purpose of including SA Marks on the AT&T/SA Membership Card and
on the marketing materials relating to the COMPANY Offer and only upon the
receipt of COMPANY approval pursuant to Section IV.2 above. AT&T agrees that it
shall, in no way, contest or deny the validity of, or the right or title of
COMPANY or its affiliates in or to the SA Marks, and shall not encourage or
assist others directly or indirectly to do so, during the Term of this Agreement
and thereafter. In addition, AT&T shall not utilize the SA Marks in any manner
which would diminish their value or harm the reputation of COMPANY.
In addition to placing the SA Marks on the AT&T/SA Membership
Card, COMPANY grants AT&T a [**] non-exclusive limited license to use the SA
Marks on an AT&T multi-purpose college/university student identification card,
if AT&T, in its sole and absolute discretion and subject to the resolution of
several implementation issues, decides to utilize a multi-purpose
college/university student identification card with the AT&T/Student Advantage
Program Capacity. If such a decision is made, the parties herein agree that such
co-logoed multi-purpose identification cards shall not be considered separate
and apart of the Minimum Purchase, but shall be included therein as part of the
total of AT&T's Minimum Purchase commitment and subject to the costs per Yearly
Membership set forth in Attachment D hereto.
C. Ownership of Marks. Ownership of Marks AT&T and COMPANY
understand and agree that except for the rights granted in Section lV.4.B
hereto, nothing in this Agreement creates any right, title or interest in the
names, logos, trade names or trademarks of the other Party, including each of
the MERCHANTS, and that use of the other Party's names, logos, trade names, or
trademarks including those of any MERCHANTS shall inure to the benefit of the
owner of such name, logo, trade names or trademarks.
AT&T CONFIDENTIAL AND PROPRIETARY
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D. Exclusivity
1. COMPANY agrees that it shall not, prior to the expiration or
termination of this Agreement, enter into promotional or marketing activities
with respect to the Student Advantage Program or the AT&T/Student Advantage
Program with (a) any college or university, or (b) any company or business
entity primarily engaged in providing (1) the extension of uninsured credit
directly to consumers via credit cards; (2) intralata cellular
telecommunications services which originate and/or terminate in the United
States; (3) multi-purpose college/university student identification cards;
and/or (4) products or services similar to the AT&T Services as described in
(i), (ii), (iii), (iv), (v) or (vi) of the definition of AT&T Services.
COMPANY's existing Agreement with Teledata World Services, Inc. ("Teledata")
entered into in April, 1996 (the "Teledata Agreement"), whereby COMPANY utilizes
AT&T and MCI long distance telecommunications services purchased from Teledata
on COMPANY's pre-paid calling card is specifically excluded herefrom. If COMPANY
and AT&T enter into an Agreement whereby COMPANY utilizes AT&T Service for the
prepaid calling card capability on the COMPANY Card, as provided for in Section
1 (A) of Attachment C hereto, COMPANY represents and warrants that upon entering
negotiations with AT&T, it shall serve notice on Teledata of its intent to
terminate the Teledata Agreement and that ninety (90) days thereafter, the
Teledata Agreement shall terminate and COMPANY shall cease its relationship with
Teledata. COMPANY further represents and warrants that COMPANY has a contractual
right to terminate the Teledata Agreement as stated above. If AT&T cannot
provide the AT&T Service as provided for in Section 1 (A) of Attachment C
hereto, nothing herein shall preclude COMPANY from offering a pre-paid calling
card capability on its COMPANY Card utilizing the long distance service of a
third party telecommunications provider.
2. A. COMPANY hereby grants AT&T the right of first refusal to
replace any existing telecommunications MERCHANTS, including those which provide
cellular services, or credit card MERCHANTS in the Student Advantage Program.
B. COMPANY hereby grants AT&T the right of first refusal to
be the exclusive provider of Internet access and multichannel video programming
as a MERCHANT in its Student Advantage Program and in the AT&T/Student Advantage
Program, should COMPANY wish to provide such Benefits. If AT&T cannot offer such
services at competitive market terms, nothing herein shall preclude COMPANY from
utilizing the services of a third party provider. For purposes of this
Agreement, competitive market terms shall mean those terms which are of the
industry standard.
AT&T CONFIDENTIAL AND PROPRIETARY
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
C. COMPANY hereby grants AT&T the right of first refusal to
act as the exclusive provider as a MERCHANT of any new products or services
within the areas of telecommunications, multi-purpose college/university student
identification cards or credit cards. If AT&T does not offer such products
and/or services or cannot provide such products and/or services at competitive
terms, nothing herein shall preclude COMPANY from utilizing the services of a
third party provider.
AT&T shall have [**] to make an offer to COMPANY for the products
and/or services set forth in Sections IV.A.4.D.2.B. and C. above.
D. COMPANY hereby grants AT&T the right of first refusal to be the
exclusive provider as a MERCHANT in the following product categories: (i) Dial-1
Long Distance Service; (ii) credit cards; and (iii) direct billed calling cards.
3. During the Term of this Agreement, COMPANY shall not allow any third
party to offer a Student Advantage Program membership to College Students free
of charge as an incentive or through any promotion, with the exception of
COMPANY's current marketing programs with The Princeton Review, Delta Air lines,
Inc. and Novus Services, Inc.; provided, however, that COMPANY shall not extend
or renew such programs beyond their current terms. Nothing contained herein
shall preclude COMPANY from allowing a third party to offer a Student Advantage
Program membership to high school students free of charge as an Incentive or
through a promotion; provided, however, COMPANY shall not grant such third party
any type of exclusivity that would preclude AT&T from extending the COMPANY
Offer or similar offer to high school students free of charge.
4. It is understood by AT&T and excepted from this Exclusivity Clause,
that various College Student associations (an "Association") may offer a Student
Advantage Membership for no additional charge if a student joins such an
Association and pays an Association membership fee; provided, however, that
COMPANY shall not allow any such Association to promote, advertise or market the
Student Advantage Membership as "free", at "no charge" or to use any similar
language and shall require that any such Association dearly state that the
Student Advantage Membership is included as part of the Association's membership
fee.
AT&T CONFIDENTIAL AND PROPRIETARY
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
5. Subject to Section IV.D.1. herein, COMPANY may market memberships in
its Student Advantage Program to high school and College Students at the
suggested retail price of twenty dollars ($20.00) per academic year. It is
understood by the parties herein that the price per academic year [**] per
academic year.
SECTION V
TERM, RENEWAL AND TERMINATION
A. Term
This Agreement is effective on the Effective Date, and shall expire
June 1, 2000 (the "Initial Term"), unless earlier terminated as provided in this
Agreement.
AT&T shall have an option to renew this Agreement for an additional
two (2) year term at substantially the same terms, and with no more than a [**]
to the cost of each Yearly Membership and ACUS Membership. AT&T shall notify
COMPANY in writing of its intent to exercise such option no sooner than March 1,
1999 and no later than June 1, 1999.
B. Termination
1. AT&T may terminate this Agreement at any time during the Term
hereof if Raymond Sozzi either (i) ceases to be employed by COMPANY as
President, or in a comparable position, or (ii) no longer maintains a minimum of
five percent (5.00%) ownership interest in COMPANY. Written notice of such
occurrence must be given to AT&T within thirty (30) days of such occurrence and
if AT&T Chooses to exercise this option, AT&T shall so notify COMPANY in
writing. All obligations between the parties shall continue until [**] in which
the termination occurs, at which time, all obligations and liabilities,
including those relating to the Minimum Purchase and the costs set forth in
Section D of Attachment D shall cease and terminate in accordance herewith.
AT&T may terminate this Agreement without cause on at least one
hundred twenty (120) days' prior written notice to COMPANY without further
obligation or liability to COMPANY, except for AT&T's obligation to pay COMPANY
the costs set forth in Section D of Attachment D hereto for the remainder of the
Initial
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
Term. The parties understand and agree that AT&T's total obligation to pay the
costs in Section D of Attachment D hereto shall not exceed [**]. All other
obligations between the parties shall cease and terminate in accordance
herewith. Notwithstanding the foregoing, if AT&T terminates this Agreement
during [**], all obligations between the parties shall continue until [**] in
which the termination occurs.
2. Either Party may terminate this Agreement in the event that the
other Party materially breaches this Agreement and fails to cure such breach
within [**] days after receipt of written notice of such breach from the
non-breaching Party identifying the breach and requiring that it be remedied.
Notwithstanding the foregoing, COMPANY acknowledges that all
Memberships fulfilled in connection with the COMPANY Offer which have not
expired shall be honored and remain in effect and shall not be affected in any
way by this Termination Section.
SECTION VI
CONFIDENTIALITY AND PROTECTION OF INFORMATION
A. Except as otherwise provided in this Agreement, any Information that is
furnished, made available, or otherwise disclosed by one Party ("Disclosing
Party") to the other Party ("Receiving Party") in consequence of the existence
of this Agreement, shall be deemed and remain the property of the Disclosing
Party.
B. Unless Information was previously known to the Receiving Party free of
any obligation to keep it confidential, or has been or is subsequently made
public by any act not attributable to the Receiving Party, or has been agreed by
the Disclosing Party in writing not to be regarded as confidential, and if the
Information is marked as "confidential" or "proprietary" by an appropriate
stamp, mark, or label thereon, or if orally disclosed, summarized in writing by
the Disclosing Party, stamped or marked as "confidential" or "proprietary" and
delivered to the Receiving Party within ten (10) business days after such
disclosure, it shall be deemed Confidential Information of the Disclosing Party
and shall be held in confidence by the Receiving Party and shall be disclosed by
the Receiving Party only to those of its employees who have a need for such
Confidential Information to carry out this Agreement.
AT&T CONFIDENTIAL AND PROPRIETARY
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Except as the Parties may otherwise agree in writing, Confidential Information:
(a) shall be used only for the purpose of performing under this Agreement; (b)
shall not be reproduced or copied, in whole or in part, except as necessary for
use as authorized herein; and (c) shall, together with any copies thereof, be
returned or destroyed when no longer needed or upon the termination or
expiration of this Agreement, whichever occurs first.
C. Confidential Information may be provided to third parties only upon
written authorization of the Disclosing Party. Any third party to which
Confidential Information is provided pursuant to such authorization of the
Disclosing Party must agree in writing (a copy of which writing will be
furnished to the Disclosing Party at its request) to the conditions respecting
use of Confidential Information contained in Section VI (A) through (E) of this
Agreement.
D. The Receiving Party shall give prompt notice to the Disclosing Party of
any demand by any third party to provide Confidential Information under lawful
process prior to furnishing Confidential Information, and shall cooperate in
seeking reasonable protective arrangements requested by the Disclosing Party. In
addition, the Receiving Party may provide Confidential Information of the
Disclosing Party requested by a government agency having jurisdiction over the
Receiving Party, provided prompt notice of such request is given to the
Disclosing Party and that the Receiving Party uses its best efforts to obtain
protective arrangements satisfactory to the Disclosing Party, and provided
further that the Disclosing Party may not unreasonably withhold approval of the
protective arrangements.
E. The Disclosing Party shall have the right to demand, upon unauthorized
disclosure of any Confidential Information by the Receiving Party to a third
party, the return of all Confidential Information disclosed to the Receiving
Party, and that the Receiving Party use its reasonable efforts to obtain the
return from the third party of all Confidential Information improperly
disclosed, in addition to any other legal or equitable remedies the Disclosing
Party may have.
F. The Parties acknowledge that the terms of this Agreement constitute
Confidential Information that may be considered proprietary by either or both
Parties, and agree to limit distribution of this Agreement to those individuals
in their respective organizations with a need to know the contents of this
Agreement.
AT&T CONFIDENTIAL AND PROPRIETARY
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<PAGE> 21
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
SECTION VII
INDEMNIFICATION
A. To the extent not prohibited by law, each Party ("Indemnifying Party")
shall defend, indemnify and hold harmless the other Party ("Indemnified Party")
against any loss, cost, claim, liability, damage or expense (including
reasonable attorneys' fees) relating to or arising out of:
1. the negligence or misconduct of the Indemnifying Party, its
employees, agents, or contractors in the performance of this Agreement,
Including without limitation with respect to provision of the underlying service
to customers ("AT&T Service" in the case of AT&T, and the products supplied by
any MERCHANT or the products and/or services provided by COMPANY in the case of
COMPANY); or
2. any failure of performance by the Indemnifying Party of its
obligations under this Agreement; PROVIDED, however, that the liability of the
Indemnifying Party for any loss, cost, claim, injury, liability, damage, or
expense (including reasonable attorneys' fees), relating to or arising out of
any act or omission (not involving gross negligence or knowing and willful
misconduct) by the Indemnifying Party or its employees, agents, or contractors
will be limited to the amount of the [**] actually incurred as a result of such
act or omission.
B. In addition, to the extent not prohibited by law, COMPANY shall
indemnify AT&T for any loss, cost, claim, liability, damage and expense
(including reasonable attorneys' fees) relating to or arising out of any
MERCHANTS' activities related to performance of this Agreement.
C. In addition, COMPANY agrees to, at all times, defend, Indemnify and
hold AT&T, its affiliates, subsidiaries, franchisees and the officers,
directors, agents and employees of each harmless from and against any and all
Loss arising out of or based on: any claims, actions or proceedings, and any
appeal, for libel, slander, invasion of privacy, infringement of copyright or
license, piracy, plagiarism, idea misappropriation or unfair or improper trade
practices or other wrongful business conduct, including, without limitation,
conduct in violation of the laws and regulations of the Federal Trade Commission
and analogous state agencies, by reason of: (a) the use of the Student Advantage
Marks approved by COMPANY pursuant to this Agreement in the broadcast, telecast
or publication of promotional materials used in connection with the AT&T/Student
Advantage Program or AT&T's marketing of the COMPANY Offer; or (b) COMPANY
supplied broadcast, telecast or publication of promotional materials used in
connection with the AT&T/Student Advantage Program or the COMPANY Offer.
AT&T CONFIDENTIAL AND PROPRIETARY
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<PAGE> 22
D. The Indemnifying Party shall defend any action or suit brought against
the Indemnified Party for any loss, cost, claim, liability, damage or expense
including reasonable attorneys' fees relating to or arising out of the
performance of this Agreement. The Indemnified Party shall notify the
Indemnifying Party promptly in writing of any written claims, lawsuits or
demands for which the Indemnified Party alleges that the Indemnifying Party is
responsible under this Section VII. The Indemnified Party shall cooperate in
every reasonable manner with the defense or settlement of such claim, demand, or
lawsuit the Indemnifying Party shall not be liable under this Section VII for
settlement by the Indemnified Party of any claim, demand or lawsuit unless the
Indemnifying Party has approved the settlement in advance or unless the defense
of the claim, demand or lawsuit has been tendered to the Indemnifying Party in
writing and the Indemnifying Party has failed promptly to undertake the defense.
E. No claims for indemnity under this Section VII hereof may be made more
than two (2) years after the right to recover under the foregoing indemnity
provisions arise.
SECTION VIII
LIMITATION OF LIABILITY
A. Except as set forth in Section VII hereof, the liability, if any, of
either Party to the other for any loss, cost, claim, injury, liability, damage
or expense (including reasonable attorneys' fees) arising out of in the
performance of or failure to perform its obligations under this Agreement shall
be limited to the amount of direct damages actually incurred. EXCEPT AS PROVIDED
IN SECTION VII B HEREOF, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER
FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES OF ANY KIND
WHATSOEVER, INCLUDING LOST PROFITS, EVEN IF ADVISED OF THE POSSIBILITY THEREOF.
B. No claim under this Section VIII, or any other claims with respect to
this Agreement, may be made more than two (2) years after the date of the event
giving rise to such claim; provided, however, that claims for indemnity under
the provisions of Section VII hereof may be made within two (2) years after the
right to recover under such indemnity provisions arises.
AT&T CONFIDENTIAL AND PROPRIETARY
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SECTION IX
OTHER TERMS AND CONDITIONS
A. Governing Law
This Agreement shall be deemed to be a contract made under the laws
of the State of New York, and the construction, interpretation and performance
of this Agreement shall be governed by the laws of such State.
B. Responsibilities Of Each Party
Each Party is an independent contractor, and has and hereby retains
the right to exercise full control of and supervision over its own performance
of its obligations under this Agreement and retains full control over the
employment, direction, compensation and discharge of all employees assisting in
the performance of such obligations.
C. Force Majeure
Neither Party shall be liable for any delay or failure in
performance of any part of this Agreement caused by a force majeure condition,
including fires, strikes, embargoes, explosions, power blackouts, earthquakes,
volcanic actions, floods, wars, water, the elements, labor disputes, civil
disturbances, government requirements, civil or military authorities, acts of
God or a public enemy, inability to secure raw materials, inability to obtain
transportation facilities, acts or omissions of transportation common carriers
or other causes beyond its reasonable control, whether or not similar to the
foregoing conditions. If any force majeure condition occurs, the Party whose
performance fails or is delayed because of such force majeure condition shall
give prompt notice to the other Party, and upon cessation of such force majeure
condition, shall give like notice and commence performance hereunder as promptly
as reasonably practicable.
D. Governmental Compliance
Each Party shall comply with all applicable federal. state, country
and local laws, regulations and codes and obtain permits and certificates where
needed.
E. Certain State And Local Taxes
Any state or local excise, sales, or use taxes (excluding any taxes
on income) resulting from the performance of this Agreement shall be borne by
the Party upon which the obligation for payment is imposed under applicable law,
even
AT&T CONFIDENTIAL AND PROPRIETARY
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If the obligation to collect and remit such taxes Is placed upon the other
Party. Any such taxes shall be billed as separate items on applicable billing
documents between the Parties. To the extent permitted by applicable law, the
Party so obligated to pay any such taxes may contest the same in good faith and
shall be entitled to the benefit of any refund, provided that such Party cannot
permit any lien to exist on any assets of the other Party by reason of any such
contest.
F. Publicity And Filings
The Parties shall mutually agree upon the content of any public
announcement that they may deem appropriate concerning this Agreement. Subject
to the provisions of the section entitled Confidentiality and Protection of
Information, the foregoing sentence shall in no way prevent either Party from
supplying such information or making such statements relating to this Agreement,
as may be required by any competent governmental authority, or as either Party
may consider necessary in order to satisfy its legal obligations. It is
understood that applicable law may require the Parties to file this Agreement
with governmental authorities. The Parties shall undertake, to the extent
permitted by applicable law, to protect the proprietary nature of certain
provisions of this Agreement as agreed by the Parties when making such filings.
G. Amendments; Waivers
Except as otherwise provided in this Agreement, no amendment or
waiver of any provision of this Agreement, and no consent to any default under
this Agreement, shall be effective unless the same is in writing and signed by
an officer of the Party against whom such amendment, waiver or consent is
claimed. In addition, no course of dealing or failure of a Party strictly to
enforce any term, right or condition of this Agreement shall be construed as a
waiver of such term, right or condition.
H. Notices
Unless otherwise provided herein, all notices, requests and other
communications required or provided for hereunder shall be in writing (including
telecopy or similar teletransmission or writing) and shall be given at the
following addresses:
AT&T CONFIDENTIAL AND PROPRIETARY
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
(1) If to COMPANY:
President
Student Advantage, L.L.C.
321 Columbus Avenue
Boston, Massachusetts 02116
Fax: 617-266-8882
(2) If to AT&T:
District Manager
AT&T College MSO
AT&T
295 North Maple Avenue, 7127L1
Basking Ridge, New Jersey 07920
Fax: 908-221-7824
Any such notice, request or other communication shall be effective (i) if given
by mail, upon the earlier of receipt or the third business day after such
communication is deposited in the United States mails, registered and certified,
with first class postage prepaid, addressed as aforesaid or (ii) if given by any
other means including, without limitation, by air courier, when delivered at the
address specified herein. COMPANY and AT&T may change its address for notice
purposes by notice to the other Party in the manner provided herein.
I. Assignment
No assignment of this Agreement shall be made by either party
without the written consent of the other party; provided, however, that such
consent is not required when the proposed assignment is to be made to any
parent, subsidiary or parent, affiliate or successor of AT&T. [**]. In the event
of any other assignment made with the written consent of the other party, the
assignee shall assume all liability of the assignor.
J. Exchange of Information
At various times during the Term of this Agreement, AT&T shall [**].
COMPANY may use such information only for (I) its own internal analytical
purposes for the
AT&T CONFIDENTIAL AND PROPRIETARY
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
purpose of providing limited redemption information to MERCHANTS as indicated
below; (ii) the purpose of marketing the products and/or services of a MERCHANT
or special MERCHANT offer as provided for in Section IV.A.1. herein; and (iii)
purposes of storing and providing the information to AT&T as indicated below.
Such information shall be considered confidential and proprietary and subject to
the terms and conditions set forth in Section VI of this Agreement.
AT&T shall [**]. In addition, AT&T, in its sole and absolute discretion,
[**]. It is expressly understood and agreed that the Member Information and
Additional Member Information shall not contain any usage information, that is,
it shall not contain or in any way indicate the frequency at which a Member has
utilized, or the amount of usage a Member has generated with respect to, an AT&T
Service. The Member Information and Additional Member Information AT&T provides
COMPANY is based upon the Information a College Student discloses to AT&T and
therefore, it is understood by COMPANY, that such information may be incomplete
or inaccurate.
At anytime during the Term hereof, AT&T shall have the right to utilize
the Member Information and Additional Member Information in the COMPANY Database
for marketing and analytical purposes. Within thirty (30) days of AT&T's
request, COMPANY shall provide AT&T with the requested data. [**], COMPANY shall
provide AT&T,[**]. AT&T shall [**].
COMPANY shall not sell, lease or distribute the information
contained in the COMPANY Database to any third party, nor shall COMPANY permit
any third party access to the COMPANY Database. Notwithstanding the foregoing,
the parties agree that COMPANY may provide MERCHANTS with analytical information
consisting only of the number of Members which have utilized a particular
MERCHANT Offer, the GROUP Offer, or which are participating in the COMPANY
Offer. It is expressly agreed that such analytical information provided to
MERCHANTS shall not be in any way customer specific by indicating any Members'
name, address or telephone number, or distinguished by the type of AT&T
Service(s). Further, the information provided to MERCHANTS shall not indicate
that any Member is an AT&T Customer. In addition, COMPANY may provide a MERCHANT
with the names, addresses and telephone numbers only of Members which have
redeemed the particular MERCHANT's Offer; provided, however, that such
information may only be provided upon COMPANY's demonstration that a written
Agreement exists between the MERCHANT and COMPANY which requires such Member
Information to be kept confidential pursuant to the terms and conditions of
Section VI hereof, not distributed, sold or leased to any third party and
returned to COMPANY upon the earlier of the termination or expiration of either
this Agreement or the Agreement between COMPANY and the MERCHANT.
AT&T CONFIDENTIAL AND PROPRIETARY
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<PAGE> 27
COMPANY shall use its best efforts to obtain redemption information,
including, but not limited to, usage and related statistical data pertaining to
the COMPANY Offer, accrued by MERCHANTS and shall supply AT&T with all such
redemption information it receives. Such redemption information shall be
considered confidential and proprietary and subject to the terms and conditions
of Section VI hereof.
K. No Rights To Third Parties
This Agreement shall not be deemed to provide third parties with any
remedy, claim, right of action or other right.
Subject to the above restrictions, the provisions of this Agreement
shall be binding upon and shall inure to the benefit of the Parties and their
permitted assigns and successors.
L. Entire Agreement
This Agreement constitutes the entire agreement between the Parties
concerning the subject matter hereof. Any prior agreements, representations,
statements, negotiations, understandings, proposals and undertakings, oral or
written, with respect to the subject matter expressly set forth in herein, not
heretofore terminated, are hereby terminated.
M. Survival of Obligations
Any liability or obligation of a Party to the other Party for acts
or omissions prior to the cancellation or termination of this Agreement, any
obligation of a Party under the provisions of the section entitled
Indemnification, Confidentiality and Protection of Information, Limitation of
Liability and any other provisions of this Agreement which, by their terms are
contemplated to survive (or to be performed after) termination of this
Agreement, including, but not limited to, the provisions pertaining to the
Breach Reconciliation and any payment and/or refund provisions set forth in
Section III hereto, shall, in each case, survive cancellation or termination
hereof.
N. Executed In Counterparts
This Agreement may be executed in any number of counterparts, each
of which shall be an Original; but such counterparts shall together constitute
one and the same instrument.
O. Headings
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The headings of Articles and Sections of this Agreement have been
inserted for convenience of reference only, and are not to be considered a part
hereof, and will in no way define, modify or restrict the meaning or
interpretation of the terms or provisions of this Agreement.
AT&T CONFIDENTIAL AND PROPRIETARY
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<PAGE> 29
IN Witness WHEREOF, the Parties have executed this Agreement through their
authorized representatives.
STUDENT ADVANTAGE, L.L.C.
By: /s/ Raymond V. Sozzi, Jr.
--------------------------------------
Name
President
--------------------------------------
Title
5/22/97
--------------------------------------
Date Signed
AT&T COMMUNICATIONS, INC.
By: /s/ G.J. McGovern
--------------------------------------
Name
Executive VP-Consumer Markets Division
--------------------------------------
Title
5/19/97
--------------------------------------
Date Signed
AT&T CONFIDENTIAL AND PROPRIETARY
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
ATTACHMENT C
COMPANY OFFER AND FULFILLMENT OBLIGATIONS
1. (A) (i) Commencing on February 1, 1997 through and including May 1,
1997, COMPANY shall provide to AT&T for certain Customers attending college, and
which meet the Qualifications with a free membership ending on August 31,1997 in
COMPANY's Student Advantage Program ("Half Membership"); and (ii) commencing on
August 1, 1997 and continuing through the remainder of the Term of this
Agreement, COMPANY shall provide to AT&T for certain Customers attending
college, and which meet the Qualifications, and certain ACUS Students, with a
free membership that is valid for the entire current academic year through
August 31st of each academic year, in the AT&T/Student Advantage Program
("Yearly Membership"), each of which membership enables any Customer that
presents an AT&T/Student Advantage Membership Card ("Co-logoed Card") or
COMPANY's Student Advantage Membership Card ("COMPANY Card"), as applicable, at
the MERCHANTS' locations, to receive a percentage discount ranging from [**], or
a monetary discount, off of certain products or services offered by MERCHANTS,
or free merchandise with purchase at MERCHANTS' locations (each offer,
individually, a "MERCHANT Offer"; collectively, a GROUP Offer"). The Half
Membership and Yearly Membership shall collectively be referred to as the
COMPANY Offer.
Yearly Memberships shall initially be provided to all of AT&T's current
Universal Card Customers and Direct Billed Calling Card Customers which meet the
Qualifications. AT&T shall determine a Customer's eligibility based on
information contained in its own database. AT&T shall [**].
As of the Effective Date of this Agreement, the COMPANY Card has a
pre-paid calling card capability. If COMPANY continues to offer this capability
as an Option on its COMPANY Card, on or before March 1, 1997, and every March
1st during the Term hereof, COMPANY hereby grants AT&T the right of first
refusal to provide AT&T Service to COMPANY for such capability at competitive
market terms. During the Term of this Agreement, AT&T, in its sole and absolute
discretion, reserves the right to place or withdraw a pre-paid calling card
capability on the Co-logoed Card utilizing AT&T Service. AT&T shall reimburse
COMPANY for any incremental costs incurred by COMPANY as a result of AT&T's
decision to place or withdraw a prepaid calling card capability on the Co-logoed
Card.
AT&T CONFIDENTIAL AND PROPRIETARY
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<PAGE> 31
(B) AT&T, at its expense and in its sole and absolute discretion,
may provide each College Student wishing to participate in the COMPANY Offer
with a temporary Student Advantage membership card. Such temporary membership
card shall be valid for approximately one (1) month and each temporary
membership card shall state the specific validation dates. If AT&T subsequently
determines that a Customer does not meet the Qualifications, AT&T shall so
notify such Customer. COMPANY shall provide such temporary Student Advantage
memberships to AT&T without charge, however AT&T shall assume the cost related
to the design and production of such temporary membership cards.
(C) All costs associated with the design, development and printing
of the COMPANY Card for the COMPANY Offer shall be the sole responsibility of
COMPANY. AT&T, at its expense, shall design and develop the Co-logoed Card for
the COMPANY Offer, such design being subject to COMPANY's written approval
pursuant to the terms and conditions set forth in Section IV A.2 of this
Agreement. COMPANY, at its expense, shall print such Co-logoed Card. For
purposes of this Agreement, the Customers participating in the COMPANY Offer
shall be referred to as "Members". A majority of the type of discount and a
listing of the MERCHANTS available to those Members participating in the
AT&T/Student Advantage Program are set forth in that certain Directory Guide
entitled "AT&T - Student Advantage National Directory" incorporated herein by
reference and made a part hereof and as may be amended from time to time. A
majority of the type of discount and listing of the MERCHANTS available on a
national basis to those Members participating in the Half Membership are set
forth in a directory guide entitled "Student Advantage Welcome Package" printed
at COMPANY's expense. Both directory guides referred to herein (collectively
referred to as the "Directory Guide") shall contain the majority of MERCHANT
Offers available at the national level and a sampling of the MERCHANT Offers
available on a local level to Members at the time of membership or participation
in the COMPANY Offer. COMPANY, at its expense, shall inform Members, either via
its web site or direct mail piece(s), of all new MERCHANT Offers subsequent to
the publication of the Directory Guide. Each MERCHANT Offer shall be exclusive
of any additional verification that the individual presenting the Co-logoed Card
or COMPANY Card, as applicable, is a member of the AT&T/Student Advantage
Program or the Student Advantage Program. This provision does not preclude
MERCHANTS from also requiring the presentation of a valid college identification
card.
AT&T CONFIDENTIAL AND PROPRIETARY
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<PAGE> 32
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
(D) Renewals for subsequent free Yearly Memberships shall be
automatic if a Member retains its College Student status and possess the
Qualifications [**]:
(i) [**];
(ii) [**]
(iii) [**].
AT&T, in its sole and absolute discretion, may also offer certain
ACUS Students retaining the ACUS Student status a subsequent free one (1) year
renewal. AT&T, in its sole and absolute discretion, shall determine the terms of
eligibility of each of the Members for such renewals. AT&T, in its sole and
absolute discretion, reserves the right to modify the Qualifications, subject to
the prior written approval of COMPANY.
On or before [**], and on or before every [**] of each subsequent
year, AT&T shall supply COMPANY with the Member Information of those Customers
eligible for renewal Yearly Memberships and COMPANY agrees to provide a Yearly
Membership to each such Customer in accordance herewith.
2. The Term of this Agreement is February 1, 1997 to June 1, 2000.
3. College Students wishing to participate in the COMPANY Offer may
contact COMPANY directly via a toll-free telephone number established and
maintained by COMPANY, currently 800-333-2920. If COMPANY, in its sole and
absolute discretion, determines that a toll-free telephone number for purposes
exclusive to the COMPANY Offer is necessary, it shall so establish, maintain and
communicate to customers such toll-free telephone number. COMPANY shall provide
Customers wishing to participate herein with AT&T's toll-free telephone number,
800-654-0471 and instruct each such College Student to contact AT&T directly.
Alternatively, certain College Students may also contact AT&T directly via
returning to AT&T a completed application provided to certain College Students
by AT&T via direct mail marketing materials or as distributed on college
campuses. AT&T, in its sole and absolute discretion, shall determine the
eligibility of the applying College Student(s). If a College Student does not
qualify for the COMPANY Offer. AT&T shall so notify such non-qualifying student
within [**] days of application receipt COMPANY expressly represents and
warrants that it has no
AT&T CONFIDENTIAL AND PROPRIETARY
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<PAGE> 33
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
authority to perform telemarketing duties on behalf of AT&T or to provide
information about AT&T or any AT&T service pursuant to this Agreement and as
such, such information shall not be provided and no outbound telemarketing
services shall be performed by COMPANY.
4. Upon AT&T's determination of a Customers eligibility for
participating in the COMPANY Offer, AT&T shall, on an as needed basis, but no
more frequent than [**] and no less frequent than [**], provide COMPANY, via a
mutually agreed upon electronic format, with the Member Information for each
qualified College Student COMPANY needs to fulfill the COMPANY Offer. AT&T shall
provide such information to COMPANY commencing on or before September 1, 1997
and shall continue throughout the Term of this Agreement. Within [**] days of
receiving the Member Information from AT&T, COMPANY shall distribute to each
Member receiving a Yearly Membership: (i) a co-logoed Welcome Letter, (ii) the
Co-logoed Card, (iii) a Directory Guide, applicable to the Yearly Membership, of
MERCHANTS and up to two (2) promotional/advertising inserts placed on the inside
covers of the applicable Directory Guide promoting AT&T products and services,
(iv) promotional one-time offers from COMPANY, and, in applicable market areas,
(v) a listing of local MERCHANTS relevant to the college or university that the
Member attends ("Yearly Fulfillment Kit") via third class US Mail. It is
expressly understood and stated that the Yearly Fulfillment Kit for an ACUS
Membership ("ACUS Fulfillment Kit") shall not contain a Directory Guide, this,
however, shall not preclude Members from participating in any MERCHANT Offer.
COMPANY shall distribute to each of the Members receiving a Half Membership
("Half Fulfillment Kit") (i) a Cologoed Welcome Letter, (ii) the Co-logoed Card,
and (iii) a directory guide entitled Student Advantage Welcome Package, listing
the national MERCHANTS. The Yearly Fulfillment Kit, Half Fulfillment Kit and
ACUS Fulfillment Kit shall collectively be referred to as the "Fulfillment Kit".
COMPANY shall design, develop and print the components of the Fulfillment Kit,
except the Co-logoed Card and the promotional/advertising inserts for AT&T
products and services, both of which AT&T shall design and develop, and shall
distribute one (1) Fulfillment Kit to each Member. AT&T shall [**]. If both
parties agree [**] in accordance with this Agreement [**]. COMPANY shall direct
such invoice to the address as set forth on Attachment D hereto.
5. Members may take advantage of any MERCHANT Offer as often as
Member chooses during the Term of this Agreement provided that Member complies
with all terms and conditions listed In this Attachment C.
AT&T CONFIDENTIAL AND PROPRIETARY
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
6. As stated in Section VII B hereof, AT&T shall have no liability
for, and COMPANY shall indemnity AT&T for, any claims against AT&T related to
the activities of any of the MERCHANTS.
7. COMPANY shall be directly responsible for any MERCHANTS' breach
of this Agreement, including, but not limited to, any MERCHANTS' failure to
fulfill a MERCHANT Offer. Should any Member be unsatisfied with any product,
service and/or discount in connection with the GROUP Offer or the COMPANY Offer,
such Member may contact COMPANY directly via the toll-free telephone number
established and maintained by COMPANY, as stated herein, and COMPANY shall use
its best efforts to remedy the complaint of the Member. The toll free telephone
number for this purpose shall be distributed to Members in the Fulfillment Kit.
On a weekly basis, COMPANY shall provide to AT&T the name and telephone number
of each Member which has registered a complaint, the nature of each complaint
and the resolution of each complaint. Upon AT&T's request, COMPANY shall
establish and maintain a different toll-free telephone number for all purposes
relating to the COMPANY Offer and upon its establishment, COMPANY shall commence
distribution of such new telephone number in all Fulfillment Kits issued.
8. Nothing contained herein shall preclude COMPANY from marketing
its one (1) year Student Advantage Program through COMPANY's existing channels;
provided, however, that COMPANY shall not market the Student Advantage Program
for less than twenty dollars ($20.00) per academic year, [**] as provided for
herein. Further, COMPANY shall [**].
9. COMPANY shall provide AT&T on a monthly basis with information
mutually agreed upon by the Parties relating to the COMPANY Offer and the GROUP
Offer.
10. COMPANY, with the assistance of AT&T, shall develop a training
program to provide its employees and the employees of all MERCHANTS with
training about the COMPANY Offer, the COMPANY's fulfillment responsibilities and
use of the COMPANY Card and Co-logoed Card, as applicable. COMPANY shall use its
best efforts to insure that all such employees will have the requisite knowledge
to fulfill COMPANY's responsibilities hereunder in a timely and professional
manner.
11. COMPANY, at its expense, will provide certain co-logoed Point of
Sale and training materials as mutually agreed by the parties.
AT&T CONFIDENTIAL AND PROPRIETARY
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<PAGE> 35
12. AT&T, at its cost, shall insert and display the COMPANY Offer,
and include a direct link to the World Wide Web site or COMPANY, on its World
Wide Web Site at "http://www.att.com/college" on or about the Effective Date
hereof. The COMPANY Offer and the direct link shall be removed from the website
on or about the date of termination or expiration of this Agreement on or about
the Effective Date hereof, COMPANY, at its expense, shall insert and display the
COMPANY Offer, and include a direct link to the World Wide Web site of AT&T, on
its World Wide Web Site at "hppt://www.studentadvantage.com" and shall remain
inserted and linked until the termination or expiration of this Agreement. The
form and content of both AT&T's and COMPANY's Web Site insertions shall be
subject to the terms and conditions of Section IV of this Agreement.
13. Except for the promotional expenses referred to in Section 12 of
this Attachment C and in Section IV of this Agreement and the payment
obligations set forth in Sections 1 and 4 of this Attachment C and in Attachment
D hereto, the COMPANY Offer and all offer fulfillment obligations set forth
herein shall be provided at no cost to AT&T or any AT&T/SA Member.
AT&T CONFIDENTIAL AND PROPRIETARY
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<PAGE> 36
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
ATTACHMENT D
AT&T PAYMENT OBLIGATIONS
AT&T agrees to pay COMPANY the following:
A. [**] for each Half Membership comprising the COMPANY Offer
purchased by AT&T in accordance with this Agreement. This cost includes all
fulfillment costs, including the cost of mailing the Half Fulfillment Kit to the
Member.
B. The applicable sum for each Yearly Membership, excluding ACUS
Memberships, purchased by AT&T pursuant to this Agreement shall be in accordance
with the following chart:
NUMBER OF YEARLY MEMBERSHIPS PER AT&T's COST
ACADEMIC YEAR
[**] [**]
This cost includes payment COMPANY incurs for the printing of the
Co-logoed Card.
C. [**] for each ACUS Membership purchased by AT&T pursuant to this
Agreement.
D. [**], per academic year, AT&T shall [**] per academic year. Such
payment shall be made on a yearly basis prior to the end of the each academic
year and shall be in addition to the cost per Yearly Membership as stated above.
AT&T CONFIDENTIAL AND PROPRIETARY
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
E. AT&T and COMPANY agree to develop [**] should COMPANY [**] by AT&T, the
[**] to COMPANY at the end of [**]. The parties agree to [**], the terms and
conditions of which [**].
COMPANY shall render an invoice on the dates set forth in Section III of
this Agreement, as applicable, showing the amount(s) due for Sections A, B, C
and D above and for the distribution costs as set forth in Section 4 on
Attachment C and AT&T shall pay such COMPANY invoice(s) thirty (30) days
following receipt. Invoices shall be directed to:
AT&T
Finance Manager
Room 6118F2
295 North Maple Avenue
Basking Ridge, NJ 07920
AT&T CONFIDENTIAL AND PROPRIETARY
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EXHIBIT 10.8
MARKETING AGREEMENT
BETWEEN
AT&T CORP.
AND
STUDENT ADVANTAGE, LLC
This Marketing Agreement (the "Agreement"), effective February 1, 1998
(the "Effective Date") is made and entered into by and between AT&T Corp., a New
York corporation on behalf of itself and its affiliates, and Student Advantage,
L.L.C., a Delaware limited liability company on behalf of itself and its
affiliates. This Agreement is in addition to, and shall co-exist with the
agreement between AT&T Communications, Inc. ("AT&T") and Student Advantage,
L.L.C. ("COMPANY") dated February 1, 1997 (the "Member Agreement"), which is
attached hereto for reference as Exhibit 1.
In consideration of the mutual promises and understandings set forth in
this Agreement and those contained in the Member Agreement, and for other good
and valuable consideration, the receipt and sufficiency of which are
acknowledged, the parties hereto agree as follows:
1. DEFINITIONS
Unless otherwise provided for herein, capitalized terms shall have the
same definitions as set forth in the Member Agreement. The following definitions
will apply to all Sections, Exhibits or Appendices of this Agreement, unless
otherwise defined in the text of this Agreement:
1.1 "Affiliate" means: (i) an entity or person having an ownership interest in a
party of more than fifty (50) percent; or (ii) an entity or person in which a
party has an ownership interest of more than fifty (50) percent; or (iii) an
entity or person having more than a fifty (50) percent ownership interest in an
Affiliate as defined in (i) or (ii); or (iv) an entity in which an Affiliate as
defined in (i) or (ii) has an ownership interest of more than fifty (50)
percent.
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1.2 "AT&T Direct Billed Calling Card" or "DBC Card". Shall mean an account
provided to a customer by AT&T that permits such customer to make local,
intraLATA toll, domestic long distance and international telecommunications
calls that will be directly billed to the customer, and such account number is
printed on an AT&T branded or co-branded card. These calls are not linked to a
customer's main billed account for a particular residential BTN. For purposes of
this Agreement,
1.3 BTN shall mean a billed residential telephone number.
1.4 "Tabling Activities" are defined as marketing activities through which a
representative: (i) situated at a table or booth, or (ii) using a clipboard or
portable table distributes information regarding AT&T and its services and
products, and/or takes applications for the AT&T Services authorized for such
solicitation under this Agreement. Tabling Activities shall [**], and the
like,[**]. Tabling Activities under this Agreement [**]. Tabling Activities [**]
provided for in the Member Agreement.
1.5 "Non-Tabling Activities" are defined as marketing activities which take
place on college campuses, yet which do not require a representative to (i) be
located on a college campus for an extended period of time in a specific area or
for a specific event; or (ii) solicit college students via face to face
activities. Non-tabling Activities include,[**] certain agreed upon [**]
Non-Tabling Activities may include [**] all of which are substantially [**].
Non-Tabling Activities may also include,[**] and provided for in the Member
Agreement.
2. SCOPE OF THE AGREEMENT/EXCLUSIVITY
2.1 This Agreement sets forth the terms and conditions under which AT&T will
employ the COMPANY for the purpose of marketing its direct billed calling card
services (the "Services") to College Students, more specifically the parties'
relationship with respect to COMPANY performed Tabling Activities and
Non-Tabling Activities in connection with COMPANY's marketing of the Services to
College Students on those college campuses set forth in Exhibit 2 (the "Target
List") as well as to College Students on other college campuses or at other
college events located in the continental United States where COMPANY has
obtained the right from the university or event sponsor to conduct the Tabling
Activity, provided AT&T has not advised COMPANY in writing to exclude any such
other college campus from its marketing efforts under this Agreement. [**] and
shall be supplied [**], the Target List may [**]. In addition, COMPANY may
propose changes, additions and substitutions to the Target List, which AT&T will
promptly evaluate. AT&T's
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approval of such changes, additions and substitutions to the Target List will
not be unreasonably withheld, provided such changes are in accordance with
AT&T's college market strategy. The AT&T Direct Billed Calling Card services
may, at AT&T's discretion, be provided via multi-purpose or co-branded calling
cards, including a co-branded card with the AT&T/Student Advantage Membership
Card, subject to mutual agreement of the parties. Upon the mutual agreement of
the parties, additional AT&T services, including AT&T's optional residential
long distance calling plans, may be added to the Services authorized for direct
COMPANY solicitation hereunder.
2.2 AT&T agrees that COMPANY, and its agents, shall be, [**]. Notwithstanding
the foregoing, [**]. COMPANY acknowledges that [**].
2.3 In the event AT&T intends to conduct and/or pay for the solicitation of
applications for the AT&T Direct Billed Calling Card via Tabling Activities at
any college or university located in the continental United States and outside
the Target List where AT&T has obtained the right from the university or event
sponsor to conduct the Tabling Activity,[**] then AT&T will [**] to provide
appropriate [**] for any [**] not to exceed [**]. The actual cost [**] from
students at such schools as determined in accordance with Section 5.4 below may
be less than [**] but not more, when aggregated on an annual basis with all
other [**] provided in any given year by COMPANY under this Agreement. In order
to [**], COMPANY must respond [**] within 20 days [**]. If COMPANY does not
respond within this timeframe then [**]. Notwithstanding the foregoing, [**]
hereunder at university's outside the Target List with respect to Tabling
Activities [**].
2.4 COMPANY agrees that with the exception of the contract between Collegiate
Advantage, Inc. ("CA") and Sprint Communications ("Sprint") regarding the
on-campus solicitation of calling card applications from College Students, which
will not be renewed or extended and which COMPANY may assume as a result of
COMPANY's acquisition of CA, COMPANY and its agents shall not enter into any
agreement to provide Tabling or Non-Tabling Activities to College Students with
the purpose of generating applications for telecommunications services similar
to or competitive with AT&T Services, as defined in the Member Agreement, other
than those offered to COMPANY by AT&T; and CA's current contract with Sprint
will not
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be renewed beyond its scheduled termination on July 1, 1998. In addition,
COMPANY shall provide AT&T with at least 20 days prior written notice of any
services or work, not excluded hereunder, to be performed by COMPANY on behalf
of any other telecommunications carrier. COMPANY agrees to eliminate the prepaid
calling card option from its Student Advantage Program by May 30, 1998.
2.5 Each party acknowledges that it has the authority to enter into this
Agreement without -violating its bylaws or being in conflict with the terms of
any other agreement or arrangement -involving the organization.
2.6 COMPANY acknowledges that AT&T [**], and that outside of [**] provided in
Section 2.3 above, AT&T reserves the right itself to market and to contract with
any other party to promote and market any AT&T service or product to any
customer or potential customer.
3. PROCEDURES
3.1 Any application for AT&T services obtained via a Tabling Activity or
Non-Tabling Activity by COMPANY, its employees, agents or representatives, shall
be performed in accordance with and subject to the following procedures and
terms and conditions:
3.1.1 COMPANY'S Responsibilities
(a) COMPANY shall ensure that its employees, agents or
representatives performing the Tabling Activities or Non-Tabling Activities
pursuant to this Agreement are aware of their obligations to comply with the
relevant covenants and restrictions contained in this Agreement as well as those
contained in the Member Agreement, including those specifically set forth below
relating to such employees, agents or representatives' restrictions on the use
of "Confidential Information" as such restrictions are set forth in Section VI
of the Member Agreement;
(b) COMPANY, its employees, agents or representatives shall not
disclose to any third party, unless otherwise permitted by AT&T in writing, the
names, addresses, phone numbers or other information pertaining to College
Students, any AT&T Service applied for by any such student or other individual
or entity, or any information or data disclosed to COMPANY, its employees,
agents or representatives or which is extrapolated from any materials or
applications completed
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by such College Students at any such Tabling Activity or Non-Tabling Activity
and presented for consideration for a service provided by AT&T;
(c) COMPANY, its employees, agents or representatives shall not make
any representations, warranties or price quotations relating to the Services or
any other AT&T services or products, except as set forth in the marketing
materials or any other sales training materials provided by AT&T to COMPANY;
(d) COMPANY, with the assistance of AT&T, shall develop training
materials and a training program for its employees, agents and/or
representatives which shall establish methods and procedures for the conduct of
Tabling-Activity and Non-Tabling Activity-related activities. Such training
program shall include information on the following, the substance of which shall
be provided by AT&T:
(i) information regarding the Services and any of AT&T's other
services that are brought within the scope of Services under this Agreement and
how to describe such Services to consumers, including how to respond to
questions from College Students about such Services; and
(ii) solicitation scripts and approved methods and procedures
for marketing the Services; and
(iii) approved samples of direct response materials, including
body copy, and advertisements, including body copy and logo use, used for
marketing the Services; and
(iv) sample forms, marketing collateral and applications to be
completed by College Students in order to obtain the Services, and instructions
for the completion thereof.
Items (a), (b) and (c) above shall collectively be referred to herein as the
"Training Materials", and such materials shall be [**]. The underlying
information and/or materials shall be the property of the party which provided
such information and/or materials. AT&T may amend the Training Materials and
approved methods and procedures, at its discretion at any time. COMPANY shall
promptly communicate any such amendments to all its employees, agents and/or
representatives which shall have Tabling Activity and Non-Tabling
Activity-related responsibilities.
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3.1.2 COMPANY shall provide the Training Materials to each such employee,
agent and/or representative, and prior to the performance of any Tabling
Activities or Non-Tabling Activities, COMPANY and each COMPANY employee, agent
and/or representative shall sign a certification form that indicates that such
employee, agent and/or representative has read and understood the materials
comprising the Training Materials. In addition, COMPANY shall insure that it
shall make each COMPANY employee, agent and/or representative which shall have
Tabling Activity or Non-Tabling Activity responsibilities aware that Fraudulent
Solicitation, as defined below, is prohibited. As set forth in Section 3.1.4
below, COMPANY shall assume liability for its employees, agents and/or
representatives who commit a Fraudulent Solicitation. In addition, COMPANY shall
take prompt action to replace or reassign any COMPANY employee who fails to
adhere to the guidelines set forth in the Training Materials, and shall
reimburse AT&T for any direct damages AT&T incurs as a result of any such
failure.
3.1.3 COMPANY shall obtain and maintain all necessary federal, state and
local regulatory approvals in a timely manner, which may be required for COMPANY
to perform its obligations under this Agreement. COMPANY shall comply, at its
own expense, with all applicable federal, state and local laws, ordinances,
regulations and codes (collectively, the "Applicable Laws"), including
identification and procurement of required permits, certificates, licenses,
insurance and approvals (collectively, the "Applicable Permits") in performing
its obligations under this Agreement. COMPANY shall take all action reasonably
requested by federal, state and local governmental authorities or by AT&T in
order to comply with all Applicable Law and Applicable Permits.
3.1.4 In accordance with Section VII of the Member Agreement, COMPANY
shall indemnify and hold harmless AT&T for COMPANY's actions, including the
actions of its employees, agents and/or representatives pertaining to:
(a) fraudulent solicitation of residential long distance customers
switching from one telecommunications service provider to another that is
customarily referred to as "slamming" and/or the submission of any falsified
application for any AT&T service or product; and
(b) violation of applicable federal, state and local telemarketing
laws or other Applicable Laws (subsections 3.1.4 (a) and (b) are collectively
referred to herein as "Fraudulent Solicitation").
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3.1.5 COMPANY shall provide AT&T with all requests or applications for the
Services it receives through any Tabling Activity within [**] business days of
such activity. In addition, COMPANY will provide AT&T with status reports,
detailing the Qualifying Applications generated by Tabling Activities by school.
During high activity periods, such as September and October, reports will be
provided to AT&T on a weekly basis. In lower activity periods, reports will be
provided monthly.
3.1.6 COMPANY shall keep accurate records relating to this Agreement in
accordance with generally accepted business principles and practices that are
sufficient for AT&T to verily that COMPANY complies with its obligations under
this Agreement. AT&T may cause an audit to be made of the applicable records of
COMPANY in order to verily COMPANY's performance of its obligations pursuant to
the terms of this Agreement upon thirty (30) days prior written notice to
COMPANY no more than twice annually. At AT&T's request, COMPANY shall submit to
AT&T reports containing information in a format and pursuant to a schedule
mutually agreed upon by the parties. However, with respect to the obligations
regarding the use and warehousing of AT&T prepared materials set forth in
Section 5.3 below, COMPANY shall provide AT&T with an inventory report regarding
those materials at least monthly, and AT&T may inspect any such warehouse upon
ten (10) days prior written notice to COMPANY.
3.2 AT&T's Responsibilities and Rights:
(a) AT&T shall provide COMPANY with the information COMPANY will
utilize to develop the Training Materials, specifically information pertaining
to the Services which may be marketed by COMPANY;
(b) AT&T shall provide, at its discretion and expense, certain
marketing materials for distribution in conjunction with Tabling and Non-Tabling
Activities;
(c) AT&T, in its sole and absolute discretion, shall determine all
pricing and terms and conditions for the provision of the Services and any other
AT&T services that are brought within the scope of Services under of this
Agreement and which COMPANY may market, including, but not limited, to the basic
pricing schedule, optional calling plans, incentive or promotional pricing and
offers relating to the Services. AT&T, in its sole and absolute discretion, may
change, without notice to COMPANY, any of the prices and terms and conditions
for the Services; provided, however,[**].
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(d) AT&T reserves the right to reject any proposed College Student
or other individual's order or request for Services solicited by COMPANY, its
employees, agents and/or representatives and presented to AT&T for consideration
under this Agreement. AT&T also reserves the right to discontinue services
provided by AT&T to College Students pursuant to this Agreement at any time due
to non-payment for such service or any other appropriate cause in accordance
with AT&T standard practices and procedures;
(e) Notwithstanding any other provision herein, AT&T agrees to
indemnify and hold harmless the COMPANY for any third party actions, costs,
liability, judgment or expense (including reasonably attorney's fees and
disbursements) or claims (collectively, "Claims") arising from or relating to
the Services provided by AT&T to the extent such Claims arise from AT&T's acts
or omissions with respect to the provision of such Services, including acts or
omissions of its employees, agents and/or representatives.
4. COMPLAINT RESOLUTION
The parties hereby mutually agree to institute a College Student complaint
resolution and inquiry process particularly pertaining to the Services marketed
hereunder, and any associated Tabling or Non-Tabling Activities.
4.1 COMPANY agrees that it shall receive, identify and notify AT&T as soon as
possible after receipt, but in no event more than [**] business days of
receipt, of any and all complaints or notices from end user customers, in
particular College Students, provided in accordance with the process
established by the parties and concerning AT&T Services and any alleged
violation of the Applicable Laws relating to the promotion and marketing by
COMPANY of AT&T Services. In the event that AT&T receives complaints from end
user customers concerning an alleged violation of Applicable Laws as a result
of the activities of COMPANY in the promotion of AT&T Services or enrollment of
customers in the Services pursuant to this Agreement, AT&T shall [**] receipt
of such complaints provided in accordance with the process established by the
parties. The parties shall establish a procedure for the resolution of all such
complaints in a timely manner. Either party's failure to notify the other of a
particular complaint or notice within the timeframes required above shall not
be considered a material breach of this Agreement, however, such party shall be
liable to the other for any direct damages which result from the delayed
notification.
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4.2 COMPANY agrees to receive, identity and resolve any and all inquiries and/or
complaints concerning its activities pursuant to this Agreement received from
any governmental agencies or industry groups. COMPANY shall notify AT&T, within
[**] business days of receipt, of any such inquiries and/or complaints. Should
COMPANY fail to notify AT&T of an inquiry and/or complaint within the timeframe
required above, such failure shall not be considered a material breach of this
Agreement, however COMPANY shall be liable to AT&T for any direct damages which
result from the delayed notification.
4.3 In the event, an end user complaint or an alleged violation of Applicable
Laws or Fraudulent Solicitation, as reasonably determined by AT&T results from
the activities of a particular COMPANY employee, agent, or representative,
COMPANY agrees that immediately upon AT&T's request, it shall terminate the
right of the applicable COMPANY employee(s) to participate in the activities
authorized pursuant to this Agreement. Further, as part of its indemnification
obligation, COMPANY shall pay the costs of all fines and penalties resulting
from Fraudulent Solicitation or violation of any other Applicable Laws by
COMPANY or its employees in connection with COMPANY's obligations pursuant to
this Agreement. Further, COMPANY agrees that AT&T may deduct from the
compensation owed COMPANY [**] times the compensation obtained by COMPANY [**]
for the customer who was subject to Slamming, or a violation of the Applicable
Laws or a significant customer complaint [**]. It is expressly stated and agreed
that should either party receive any complaints arising from COMPANY's, or any
of its employees', agents', and/or representatives' alleged instance of
slamming, COMPANY shall take corrective measures as [**] appropriate, to insure
that such violation or slamming activities are immediately eliminated.
4.4 COMPANY shall promptly directly refer to AT&T all inquires and/or requests
for information concerning the Services or any other request or question COMPANY
may receive regarding AT&T and its products and services which any COMPANY
employee, agent and/or representative cannot answer or respond to.
4.5 AT&T agrees to obtain and maintain all necessary federal and state
regulatory authority approvals in a timely manner, which may be required for
AT&T activities and/or obligations under this Agreement. AT&T shall comply with
all applicable federal, state and local laws, ordinances, regulations, codes in
connection with its performance pursuant to this Agreement. In addition, should
AT&T become aware of
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changes to these laws which would materially impact its obligations under this
Agreement then it shall use reasonable efforts to notify COMPANY of such
changes.
5. PAYMENT AND FUNDING
Compensation to COMPANY for Tabling Activities and Non-Tabling Activities
contemplated under this Agreement and the associated expenses for such
activities shall be paid in the following manner:
5.1 COMPANY shall assume all costs associated with: (a) Tabling Activity
reservations; (b) Tabling and Non-Tabling Activity labor; (c) training of
persons who perform Tabling and Non-Tabling Activities; and (d) assuring that
paper applications for the Services have had all of the required elements set
forth in Exhibit 3 completed in their entirety, at all schools on the Target
List for the duration at each particular school specified by AT&T as well as at
those other schools determined by COMPANY and AT&T in accordance with Sections
2.1 and 2.3.
5.2 COMPANY will dedicate no less than an aggregate amount of [**] per annum (or
the pro rata equivalent thereof in the event of termination) in support of
Tabling and Non-Tabling Activities and/or solicitation of the Services, to be
spent in conjunction with the following activities and activities related
thereto and allocated in COMPANY's sole discretion: [**] COMPANY accepts full
responsibility for insuring that all activities undertaken by COMPANY pursuant
to this Section comply with Section 3.1.3 above.
5.3 AT&T shall [**], so long as COMPANY [**] by COMPANY, from which COMPANY
[**], and COMPANY employees, as necessary. Whenever possible, [**] at AT&T
discretion and direction.
5.4 During each 12-month period that this Agreement is in effect, AT&T shall pay
the following rates per Qualifying Application as such is defined in Section 5.5
below:
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(a) [**] provided however, with respect to Qualifying Applications received from
students at those schools [**] as provided for in this Section 5.4.
Notwithstanding the foregoing, in the event that AT&T elects to exercise its
extension option granted under this Agreement as specified in Section 9, thereby
extending the term of this Agreement and the Member Agreement for an additional
year (is., until June 1, 2001), then during each 12-month period that this
Agreement is in effect, AT&T shall pay the following rates per Qualifying
Application: [**].
5.5 With respect to applications derived from Tabling Activities, each
application for Services that is signed, dated, and has had all of its required
elements completed in its entirety by College Students at those colleges set
forth in Exhibit 2 as well as College Students at those colleges provided for in
accordance with Sections 2.1 and 2.3 above, and sent to AT&T by COMPANY within
[**] business days of COMPANY's receipt shall constitute a Qualifying
Application. Notwithstanding the foregoing, any application for Services
submitted by COMPANY to AT&T: (i) which is a duplicate of a prior qualifying
COMPANY submission; or (ii) concerning an applicant who already has the Services
covered by the COMPANY submission shall not be considered a Qualifying
Application. In addition, any application submitted by COMPANY to AT&T which
does not have all required elements complete will be returned by AT&T to COMPANY
and will not constitute a Qualifying Application. Accordingly, COMPANY will not
receive payment from AT&T for such incomplete non-qualifying applications,
unless, and until, they are completed and returned to AT&T. In no event shall
applications for the Services that are derived from and/or tracked, by (i) use
of a unique AT&T established 800 telephone number or similar means; (ii) direct
marketing efforts principally orchestrated and paid for by AT&T or one of its
vendors without the aid of the COMPANY, including but not limited to Campus Card
events and applications secured by means of AT&T's College Web Site on the World
Wide Web (URL ATT.com/college); or (iii) other direct response media provided
for by AT&T or its agents, be deemed Qualifying Applications for purposes of
this Agreement. COMPANY will use commercially reasonable efforts to ensure that
no less than [**] of the applications have been completed by College Students.
In the event that less than [**] of the Qualifying Applications submitted by
COMPANY to AT&T have been completed by College Students in any given academic
year, then COMPANY will credit AT&T an amount equal to [**] multiplied by the
number of Qualifying Applications submitted by COMPANY for non-College Students
in excess of [**] of the total number of Qualifying Applications generated
during the measured year.
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5.6 With respect to Non-Tabling Activities, the number of Qualifying
Applications shall be derived by either (i) [**] as determined by AT&T in its
discretion, for the Services [**]. AT&T will [**] or (ii) in the event that AT&T
[**]. The total number of Qualifying Applications shall be derived by adding the
Qualifying Applications derived from Tabling Activities and the Qualifying
Applications derived from Non-Tabling Activities. Notwithstanding any other
provision herein, it is explicitly understood that while COMPANY may distribute
information regarding other AT&T services and/or products, it shall not solicit
or accept applications for any AT&T services other than the Services unless
otherwise agreed in writing by AT&T, and instead shall direct persons interested
in such AT&T services and/or products to the appropriate AT&T customer
assistance telephone number. COMPANY will use commercially reasonable efforts to
generate at least [**] total Qualifying Applications each academic year of this
Agreement and to ensure that no less than [**] Qualifying Applications are
generated each academic year from College Students at colleges and universities
on the Target List. In the event that COMPANY is unable to generate more than
[**] Qualifying Applications from colleges and universities on the Target List
in any given academic year, COMPANY will credit AT&T an amount equal to [**]
multiplied by the difference between [**] and the actual number of Qualifying
Applications generated from College Students enrolled at colleges and
universities on the Target List.
5.7 Based on the assumption that [**] total Qualifying Applications will be
received by AT&T each year from COMPANY, requiring a yearly payment by AT&T of
[**] (or [**] should AT&T extend this Agreement and the Member Agreement as
provided in Section 9 below) (such [**] to be referred to as the [**] provided
that the COMPANY's [**]. In the event the COMPANY's [**] COMPANY shall [**] AT&T
will pay COMPANY, [**] AT&T shall be invoiced [**] (reduced pro rata should AT&T
extend the this Agreement and the Member Agreement as provided above) for so
long as this Agreement is in effect, provided COMPANY is [**] COMPANY shall not
invoice AT&T [**], AT&T will pay COMPANY [**] AT&T shall be invoiced [**]. In
addition, AT&T shall pay amounts due [**] procedures described below. The
payments [**] shall be provided [**].
5.8 Upon the first anniversary of this Agreement and every six (6) months
thereafter, or within 30 days of any termination due to a breach of this
Agreement as provided for in Section 8 (a "Breach Reconciliation"), AT&T shall
reconcile the dollar amount paid to COMPANY against the dollar amount due
COMPANY hereunder. If the [**] at the time of the first annual or following
semi-annual
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reconciliation is less than the [**] owed in respect of Qualifying Applications
(such sum herein referred to as the "Excess"), AT&T shall pay shall COMPANY for
the Excess. If the [**] at the time of the first annual or following semi-annual
reconciliation is greater than the [**] owed in respect of Qualifying
Applications (such sum herein referred to as the "Shortage"), COMPANY shall
issue a credit toward the generation of Qualifying Applications, which credit
shall survive the expiration of this Agreement, if applicable, in the amount of
the Shortage and shall be offset against any additional AT&T payments required
hereunder. In the event of a Breach Reconciliation or a Reconciliation upon the
expiration of this Agreement, COMPANY shall issue a cash refund to AT&T within
thirty (30) days of such reconciliation in amount of the Shortage.
5.9 Either party may cause an audit to be made of the applicable records of the
other in order to verily the payments made or charges assessed pursuant to the
terms of this Agreement upon 30 business days prior written notice to the other
party. Prompt adjustment shall be made to compensate for any errors or omissions
disclosed by such audit (without adjustment for the time value of money). Any
audit shall be conducted by an independent certified public accountant selected
by the party requesting the audit (other than on a contingent fee basis) and
shall be conducted during regular business hours at the audited party's offices
and in such a manner as not to interfere with the audited party's normal
business activities. The costs and expenses of any such audit shall be paid for
by the party requesting the audit; [**]. Audits shall not be requested more
frequently than once each six (6) months. If either party requests an audit,
such party shall make available to the other party the records and reports
pertaining to such audit prepared by the independent auditor which conducted
such audit.
6. SPONSORSHIPS
6.1 COMPANY represents that it intends to develop and launch an online service
referred to as "Virtual Backpack" containing the characteristics and
functionality set forth in Exhibit 4, and that such online service shall be
available to College Students at the Target List colleges and universities by
September 1, 1998. In the event COMPANY's Virtual Backpack offer is available,
as represented, to the majority of College Students at the Target List colleges
and universities on or before September 1, 1998, and COMPANY provides AT&T with
exclusive title sponsorship for the Virtual Backpack offer as outlined in
Exhibit 4 hereto then AT&T shall provide COMPANY with additional compensation in
the amount of [**] per year for two years as the
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exclusive title sponsor, provided that this Agreement remains in effect, AT&T
remains the exclusive title sponsor, and the offer continues to provide
substantially similar characteristics and functionality, if not more, than those
set forth in Exhibit 4. In the event COMPANY does not meet the September 1, 1998
deadline and/or the offer does not contain all of the characteristics and/or
functionality represented then AT&T, at its discretion, may determine whether or
not to sponsor the Virtual Backpack offer. In the event that AT&T elects to
exercise its option to extend the term of this Agreement pursuant to Section 7
or Section 9 of this Agreement, then AT&T shall also have the right to extend
its sponsorship of the Virtual Backpack under substantially similar terms.
6.2 COMPANY represents that it intends to develop and launch a quarterly
magazine to be published in conjunction with Time Inc., the precise content of
which as well as time to market and distribution have yet to be determined. In
the event COMPANY proceeds with this project and this Agreement is in effect
then COMPANY shall provide AT&T with a right of first and last refusal to be the
exclusive Telecommunications Advertiser for the first four issues of such
magazine at an approximate cost of [**] for the four issues.
6.3 The precise terms and conditions of these additional sponsorships described
in Sections 6.1 and 6.2 have yet to be determined and should agreement between
the parties for one or both of them then the terms and conditions shall be set
forth in separate agreements between the parties.
7. TERM
7.1 This Agreement is effective as of February 1, 1998 and shall expire June 1,
2000 (the "Term"), unless earlier terminated or extended as provided in this
Agreement.
7.2 Regardless of whether or not AT&T elects to exercise its extension option
granted in Section 9 below, AT&T shall have the option to renew this Agreement,
only in conjunction with the renewal of the Member Agreement, for an additional
two (2) year term on substantially the same terms, plus any appropriate cost
increase not to exceed [**]; provided that prior to any renewal deadline,
COMPANY and AT&T shall meet to determine what, if any, appropriate increase
there would be to the cost to AT&T per Qualifying Application. AT&T shall notify
COMPANY in writing of its intent to exercise such option prior to June 1, 1999,
or June 1, 2000 should AT&T elect to exercise its extension option granted under
Section 9 hereto.
CONFIDENTIAL
14
<PAGE> 15
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
8. TERMINATION
8.1 Either party may terminate this Agreement effective immediately by written
notice if the other party: a) intentionally or in a willful, wanton or reckless
manner: (i) makes any material, false representation, report or claim relative
hereto; or (ii) violates the other's copyright or trademark; or b) becomes
insolvent, invokes as a debtor any laws relating to the relief of debtors' or
creditors' rights, or has such laws invoked against it; becomes involved in any
liquidation or termination of its business; is adjudicated bankrupt; or is
involved in an assignment for the benefit of its creditors. In the event AT&T
terminates the Agreement pursuant to this Section, AT&T shall only be liable to
COMPANY for payments due or to become as of the termination date and, shall have
no continuing obligation to make any payments to COMPANY which would otherwise
be due after the date of termination or which pertain to periods beginning or
ending after the date of termination.
8.2 Either party may terminate this Agreement in the event that the other party
materially breaches this Agreement, unless the breaching party proposes, for the
non-breaching party's approval (which approval shall not be unreasonably
withheld), a plan in writing within 15 days of receiving written notice of such
breach from the non-breaching party to cure the breach. Upon plan approval, the
breaching party must then cure the breach pursuant to the plan. If the plan is
not approved, the non-breaching party shall provide the basis for such denial
and the breaching party shall have one more 15 day period from notice of such
rejection to submit another cure plan for approval as provided for above. [**],
the non-breaching party may terminate this Agreement upon 20 days written
notice, despite the breaching party's cure proposal and efforts to cure the
breach, if in the non-breaching party's good faith discretion it determines
that: (i) the damage incurred by it can not be adequately cured by the breaching
party; or (ii) the breaching party can not adequately prevent the further
occurrence of such a breach. In the event AT&T terminates the Agreement pursuant
to this Section, AT&T shall only be liable to COMPANY for payments due or to
become due as of the termination date and, shall have no continuing obligation
to make any payments to COMPANY which would otherwise be due after the date of
termination or which pertain to periods beginning or ending after the date of
termination.
8.3 AT&T may terminate this Agreement at any time during the Term hereof if
Raymond Sozzi either ceases to be employed by COMPANY as President, or in a
comparable position, or (ii) no longer maintains a minimum of five percent
(5.00%) ownership interest in COMPANY. Written notice of such occurrence must be
given
CONFIDENTIAL
15
<PAGE> 16
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
to AT&T within thirty (30) days of such occurrence and if AT&T chooses to
exercise this option, AT&T shall so notify COMPANY in writing. All obligations
between the parties shall continue until May 30th of the academic year in which
the termination occurs, at which time, all obligations and liabilities shall
cease and terminate in accordance herewith.
8.4 After November 1, 1998, AT&T may terminate this Agreement without cause by
providing COMPANY, between November 1 and December 31 of any year, written
notice of termination ("Termination Without Cause."). Termination under this
Termination Without Cause provision will be effective 120 days after notice of
such termination is provided by AT&T. Upon such Termination Without Cause, AT&T
shall pay or be repaid any amounts due as determined by the reconciliation
process or as otherwise required under this Agreement. In addition, if the
Termination Without Cause notice is given on or before December 31, 1998, then
AT&T shall pay COMPANY a termination fee in the amount of [**]. In addition, if
AT&T extends this Agreement pursuant to Section 9 below, and a Termination
Without Cause notice is given after October 31, 1999 and on or before December
31, 1999, then COMPANY shall receive a termination fee equal to the lesser of:
(i) [**] if it had not exercised its extension option under Section 9 below.
Unless otherwise explicitly provided for above, after December 31, 1998, AT&T
may exercise this Termination Without Cause right without a termination fee.
8.5 Upon termination or non-renewal of this Agreement, the rights of COMPANY
shall terminate, unless otherwise expressly stated herein, and COMPANY shall as
soon as possible and no later than 120 days after termination;
8.5.1 discontinue any and all use of AT&T Marks, including but not limited
to such use in advertising or written material of COMPANY;
8.5.2 remove and return to AT&T, or destroy at AT&T's request, any and all
promotional material supplied by AT&T; and
8.5.3 return or destroy, upon request, all AT&T Confidential Information
in its possession.
8.5.4 Notwithstanding any of the foregoing, if the Member Agreement
remains in effect despite termination of this Agreement, then nothing in this
Section 8.5 shall require COMPANY to discontinue the use of; remove, return,
destroy, or to take any other action with respect to any AT&T Marks, promotional
CONFIDENTIAL
16
<PAGE> 17
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
material, or Confidential Information to the extent such information or
materials may also be used or required under the Member Agreement.
8.6 Upon termination or non-renewal of this Agreement, the rights of AT&T shall
terminate, unless otherwise expressly stated herein, and AT&T shall as soon as
possible and no later than 120 days after termination;
8.6.1 discontinue any and all use of COMPANY Marks, including but not
limited to such use in advertising or written material of AT&T;
8.6.2 remove and return to COMPANY, or destroy at COMPANY' request, any
and all promotional material supplied by COMPANY; and
8.6.3 return or destroy, upon request, all COMPANY Confidential
Information.
8.6.4 Notwithstanding any of the foregoing, if the Member Agreement
remains in effect despite termination of this Agreement, then nothing in this
Section 8.6 shall require AT&T to discontinue the use of; remove, return,
destroy, or to take any other action with respect to any COMPANY Marks,
promotional material, or Confidential Information to the extent such information
or materials may also be used or required under the Member Agreement.
8.7 During the term of this Agreement and for a period of six months thereafter,
AT&T shall not make an offer of employment to or offer to enter into a
consulting relationship with any employee of COMPANY without COMPANY's prior
written consent.
9. EXTENSION
COMPANY hereby grants AT&T the right to simultaneously extend the Initial
Term of this Agreement and that of the Member Agreement for an additional year
(i.e. until June 1, 2001) by providing COMPANY with written notice of the
elected extension prior to July 1, 1998. In the event of such election, all
Qualifying Applications shall be billed at the amended rates set forth in
Section 5 hereto, and each of the semi-annual payments due to COMPANY in 1998
shall be reduced to [**], and the quarterly payments commencing on January 1,
1999 shall be reduced from [**]. This one year extension right is in addition to
and exclusive of the two year renewal right granted under Section 7 to this
Agreement.
CONFIDENTIAL
17
<PAGE> 18
10. DISPUTE RESOLUTION
The parties shall follow these dispute resolution processes in connection
with all disputes, controversies or claims, whether based on contract, tort,
statute, fraud, misrepresentation or any other legal theory (hereinafter
collectively "Disputes"), arising out of or relating to this Agreement or the
breach or alleged breach hereof, or to the marketing of AT&T Services pursuant
to this Agreement, unless excepted in this Section.
10.1 The parties will attempt to settle all Disputes through good faith
negotiations. If those attempts fail to resolve the Dispute within forty-five
(45) days of the date of initial demand for negotiation, then the parties shall
try in good faith to settle the Dispute by mediation conducted in New York under
the Commercial Mediation Rules of the American Arbitration Association ("AAA").
Each party shall bear its own expenses; the parties shall equally share the
filing and other administrative fees of the AAA and the expenses of the
mediator. The parties shall be represented in the mediation by representatives
having final settlement authority over the matter in dispute.
10.2 Thereafter, any remaining Disputes not finally resolved at the mediation
level shall be settled by binding arbitration in accordance with the then
current Commercial Arbitration Rules of the AAA. Selection of one neutral
arbitrator by the parties shall be from the AAA Panel list in accordance with
the appointment rules of the AAA. Each party shall bear its own expenses; the
parties shall equally share the filing and other administrative fees of the AAA
and the expenses of the arbitrator. The decision of the arbitrator shall be
final and binding on the parties and any award of the arbitrator may be entered
in any Court having competent jurisdiction. The arbitrator shall determine the
issues of arbitrability, but may not limit, expand or otherwise modify the terms
of this Agreement nor have the power to award damages in excess of actual
damages, such as punitive damages and damages excluded under the LIMITATION OF
LIABILITY Section of this Agreement. The parties, their representatives, other
participants and the mediator and arbitrator shall hold the existence, content
and result of the mediation and arbitration in confidence. The Federal
Arbitration Act, 9 U.S.C. Sections 1 to 14, shall govern the interpretation and
enforcement of this Section.
10.3 Disputes relating to: (a) any claim or dispute involving actual or
threatened disclosure or misuse of either party's Confidential Information or
trade secrets; or (b) any claim or dispute involving the ownership, validity or
use of either party's Marks; or (c) either party's compliance with the MARKETING
and TRADEMARKS Section of this Agreement, a violation of which shall be deemed
to cause the Mark holder irreparable harm for which damages would be inadequate,
shall be exempt from the dispute resolution processes described in this Section
to the extent necessary to seek preliminary injunctive or other judicial relief
in a court of competent jurisdiction.
CONFIDENTIAL
18
<PAGE> 19
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
11. MARKETING AND TRADEMARKS
11.1 AT&T grants COMPANY a limited, non-exclusive, permission to use the name
"AT&T" as well as related trademarks, logos, tradenames, insignia, and symbols,
("AT&T Marks"); provided however that each such use shall; (i) be performed in
accordance with this Section 11; (ii) require AT&T's prior approval; (iii) be
limited to the Term of this Agreement and any wind-up period provided for in
Section 8; (iv) conforms to AT&T's written standards and guidelines as they may
be amended from time to time; and (v) be solely for the purposes contemplated
hereunder. COMPANY shall properly acknowledge AT&T's ownership of the AT&T Marks
in all publications. COMPANY shall not do business under any of the AT&T Marks
or derivatives or variations thereof, and COMPANY shall not directly or
indirectly hold itself out as having any relation to AT&T or its affiliates
other than the one described herein.
11.2 COMPANY understands and agrees that all its marketing efforts and those of
its national marketing partners which bear the AT&T Marks or reference the
Services are subject to prepublication review and approval by AT&T with respect
to, but not limited to, context, style, content appearance, composition, timing
and media. COMPANY agrees to submit such marketing materials to AT&T and shall
cause any of its national marketing partners utilizing such marketing materials
to obtain prior written approval from COMPANY before utilizing any such
materials. COMPANY agrees not to permit use of any AT&T Marks by itself or its
national marketing partners without obtaining AT&T's prior written consent in
accordance with this Section 11.2. AT&T agrees that it will review all such
marketing materials in a timely fashion and shall notify COMPANY in writing of
the results of such review within [**] days of receipt of such materials. [**].
11.3 Advertising by COMPANY which shows and identifies products or services
marketed by COMPANY may not also use AT&T's Marks unless said non-AT&T products
and services are clearly separated from, not associated with and not competitive
with AT&T Services; or are otherwise approved in writing by AT&T. AT&T's Marks
are not to be used by COMPANY in any way to imply AT&T's endorsement of another
company's products and services, unless otherwise approved in writing by AT&T.
11.4 COMPANY grants AT&T a limited, non-exclusive, permission to use the name
"Student Advantage" as well as related trademarks, logos, tradenames, insignia,
and symbols, ("COMPANY Marks") of COMPANY pursuant to this Agreement, provided
each such use conforms to the limitations in this Section 11 and COMPANY's
written standards and guidelines as they may be amended from time to time, and
is approved in advance in writing by COMPANY as set forth in Section 11.5 below.
AT&T shall properly acknowledge COMPANY's ownership of the COMPANY Marks
CONFIDENTIAL
19
<PAGE> 20
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
in all publications. AT&T shall not do business under any of the COMPANY Marks
or derivatives or variations thereof, and AT&T shall not directly or indirectly
hold itself out as having any relation to COMPANY or its affiliates other than
the one described herein.
11.5 AT&T understands and agrees that all AT&T marketing efforts which bear the
COMPANY or any of its national marketing partners' name, any COMPANY or any such
partners' trademarks are subject to prepublication review and approval by
COMPANY with respect to, but not limited to, context, style, content appearance,
composition, timing and media. AT&T agrees to submit such marketing materials to
COMPANY for written approval from COMPANY before utilizing any such materials.
COMPANY represents and warrants that it will obtain the proper authority to use
any national marketing partners' name, trademarks and/or reference for use as
agreed upon by AT&T and COMPANY. AT&T agrees to submit such marketing materials
to COMPANY for written approval from COMPANY before utilizing any such
materials. COMPANY agrees that it will review all such AT&T marketing materials
in a timely fashion and shall notify AT&T in writing of the results of such
review within [**] days of receipt of such materials. COMPANY agrees that
approval of the marketing materials shall not be unreasonably withheld. [**].
11.6 [**], unless otherwise specifically stated [**].
11.7 The parties understand and agree that nothing in this Agreement creates any
right, title or interest in the Marks of the other party. Any use of the other
party's Marks shall be pursuant hereto and no rights will accrue pursuant to
such use. Upon termination of this Agreement, any and all rights or privileges
of either party to use the other's Marks shall expire, and each party shall
discontinue use of the other's Marks unless otherwise specifically agreed in
writing.
11.8 Except as explicitly stated elsewhere herein, a party obligated, at its
sole expense (without reimbursement by the other party for such expense) for the
development of any activity stated herein shall be the sole owner of the
intellectual property, names, marks, registrations, logos and the like, for that
item.
11.9 Any breach of the obligations set forth above in Sections 11.1 through 11.7
shall be considered a material breach of this Agreement, and this Agreement may
be terminated in accordance with Section 8.2 above.
12. INDEPENDENT CONTRACTORS
12.1 The parties declare and agree that each party is engaged in activities
which are independent from that of the other party, and each party shall perform
its obligations
CONFIDENTIAL
20
<PAGE> 21
hereunder as an independent contractor or entity and not as the agent, employee,
or servant of the other party.
12.2 Neither party nor any person furnished by such party shall be deemed
employees, agents, or servants of the other party or entitled to any benefits
available under the plans for such other party's employees.
12.3 Each party has and hereby retains the right to exercise full control of;
and supervision over its own performance of the obligations under this Agreement
and retains full control over the employment, direction, compensation, and
discharge of all employees assisting in the performance of such obligations.
Each party shall be responsible for its own acts and those of its own
subordinates, employees, and agents during the performance of that party's
obligations hereunder.
13. SURVIVAL OF OBLIGATIONS
The parties' rights and obligations which, by their nature, would continue
beyond the termination or cancellation of this Agreement, including without
limitation, those contained in the Sections entitled TRADEMARKS, LIMITATION OF
LIABILITY, INDEMNIFICATION and CONFIDENTIALITY AND PROTECTION OF INFORMATION
shall survive any termination or cancellation of this Agreement.
14. INCORPORATION OF TERMS
The following provisions of the Member Agreement are incorporated herein
by this reference: (Section VI (Confidentiality and Protection of Information);
Section VII. (Indemnification); Section VIII (Limitation of Liability) and
Section IX (Other Terms and Conditions) but not including Section IX (J).
IN WITNESS WHEREOF, the parties by their duly authorized representatives do
hereby agree to execute this Agreement.
STUDENT ADVANTAGE, L.L.C. AT&T CORP.
By: /s/ Raymond V. Sozzi, Jr. By: /s/ G.J. McGovern
------------------------------- --------------------------------
Name Name
President Ex. VP Consumer Markets Division
------------------------------- --------------------------------
Title Title
6/10/98 7/8/98
------------------------------- --------------------------------
Date Signed Date Signed
CONFIDENTIAL
21
<PAGE> 22
EXHIBIT 1
MEMBER AGREEMENT
[Filed as Exhibit 10.7]
CONFIDENTIAL
22
<PAGE> 23
EXHIBIT 2
TARGET LIST
[To be provided by the parties from time to time.]
CONFIDENTIAL
23
<PAGE> 24
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
EXHIBIT 3
REQUIRED ELEMENTS FOR A COMPLETE QUALIFYING APPLICATION
[**]
CONFIDENTIAL
24
<PAGE> 25
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
EXHIBIT 4
VIRTUAL BACKPACK OFFER
Exclusive Title Sponsorship for the Virtual Backpack Offer shall include, at
minimum, the following elements:
- - The Virtual Backpack shall include AT&T Marks and a tagline (to be agreed
upon by the parties) referencing AT&T (for example, "the Virtual Backpack
is powered by AT&T" in all marketing communications pieces which include
any other third party sponsor. In addition, the Virtual Backpack may be
branded as the AT&T Virtual Backpack at the AT&T college web site and in
associated AT&T marketing communications collateral.
- - The COMPANY logo will appear on the Virtual Backpack homepage
- - The parties shall mutually agree on the look and feel of the Virtual
Backpack's website.
- - The Virtual Backpack shall be accessible from both the AT&T College site
and the COMPANY Network.
- - COMPANY shall be responsible for obtaining all of the utility services
that provide the functionality of the Virtual Backpack, as well as
updating/maintaining this functionality.
- - AT&T will be the only telecommunications services provider to advertise
and/or have information or marketing materials available to the public on
the Virtual Backpack pages of the Student Advantage website, including any
banner advertising (such exclusivity shall cover all telecommunications
services and products as well as internet access services).
- - AT&T shall have the right to deny advertising on the Virtual Backpack site
to any potential advertiser that it reasonably determines would have a
non-deminimis detrimental effect on AT&T reputation in or sale of AT&T
products and services to the college market, whether or on a national or
regional basis.
- - The Virtual Backpack shall be tied to the COMPANY database and shall be
able to utilize that database for the purposes of custom messaging.
- - AT&T shall be able to add AT&T customer e care capabilities to the
functionality of Virtual Backpack once it is available, as well as other
related AT&T enhanced services, [**].
CONFIDENTIAL
25
<PAGE> 1
Exhibit 10.9
AT&T
- --------------------------------------------------------------------------------
Earl G. Quenzel Room 6144G2
Education Programs 295 North Maple Avenue
Vice President Basking Ridge. NJ 07920
908 221-3711
FAX 908 221-3602
Date: July 14,1998
To: Ray Sozzi
From: Earl Quenzel
Re: Notice of AT&T's Election to Extend Agreements
This letter will serve as formal notification to Student Advantage1 L.L.C. that
the parties have agreed to extend the notice period from July 1, 1998 to July
30,1998 in Section 9 of the Marketing Agreement between AT&T Corp. and Student
Advantage, L.L.C. effective as of February 1, 1998 (the "Marketing Agreement").
Pursuant to that section, AT&T Corp. is electing to exercise its right to
simultaneously extend for an additional year (i.e. until June 1, 2001) the
Initial Term (as that term may be defined for all purposes in the respective
agreements being extended) of both the Marketing Agreement and the Agreement
Between AT&T Communications, Inc. and Student Advantage, L.L.C. effective as of
February 1, 1997. Unless otherwise provided in either of the respective
agreements, these two agreements now expire on June 1, 2001. Please indicate
Student Advantage's concurrence by signing below and returning a copy to Donna
Franklin at your earliest convenience. Thank you.
Earl Quenzel
/s/ Earl Quenzel
Acknowledged and Agreed:
/s/ Raymond V. Sozzi
- ---------------------------
Raymond V. Sozzi
Student Advantage, L.L.C.
<PAGE> 1
Exhibit 10.14
AERO/STUDENT ADVANTAGE
MAILING AND FULFILLMENT SERVICES AGREEMENT
This Agreement is between Aero Fulfillment Services, 3900 Aero Drive,
Mason, OH 45040 ("Aero") and Student Advantage, a Delaware LLC located at 321
Columbus Avenue, Boston, MA 02116 ("Student Advantage"). This Agreement is made
effective as of the date both Aero and Student Advantage have executed it in
writing.
Aero and Student Advantage agree as follows:
1. SCOPE OF SERVICES.
Subject to the terms and conditions of this Agreement and the terms and
conditions outlined in the RFP and negotiated conditions which are incorporated
into and made a part of this Agreement. Supplier (Aero) will provide warehousing
distribution, fulfillment, mail, and data processing services as specified. This
Agreement shall not be modified; neither Aero nor Student Advantage shall be
obligated to perform additional services or be obligated to pay for any such
additional services unless both the parties have executed a written agreement to
modify this Agreement addressing those specified changes.
2. COMPENSATION.
The fees payable to Aero for the services rendered are included in Exhibit
A. All other pricing for any materials or services not specified in Exhibit A
will be negotiated on an as-needed basis between Student Advantage and Aero and
will be contracted via a purchase order. If services are rendered, Student
Advantage upon notice by Aero will have the sole responsibility of issuance of a
purchase order. Any non-compliance with this issue will not affect the services
or the fees charged on the processing.
3. INVOICING.
All service fees payable to Aero by Student Advantage will be issued on a
monthly basis. Student Advantage shall pay all outstanding invoice amounts no
later than 30 days from Student Advantage receipt of a given invoice from Aero.
A discount of one half of one percent will be granted if payment is made
within 10 days of receipt.
<PAGE> 2
4. CONFIDENTIALITY.
Aero and Student Advantage both agree to adhere to the restrictions of the
Exhibit B confidentiality agreement attached and signed. In addition, Aero
agrees to adhere to all guidelines and conditions imposed on Student Advantage
by its marketing partners and clients with respect to the treatment and control
of data deemed proprietary or confidential.
5. INSURANCE.
Aero will maintain during the term hereof all insurance required by law
including but not limited to:
(a) Workman's Compensation as described by the State of Ohio.
(b) Employers Liability Insurance with minimum limits of $1,000,000
each occurrence.
(c) Comprehensive General Liability Coverage for bodily injury, death,
or property damage.
6. LOSS, DAMAGE OR THEFT OF MATERIALS.
In the event any of Student Advantage's inventoried materials are lost,
damaged by Aero error, or stolen while in Aero's possession, Aero shall pay
Student Advantage an amount equal to the replacement cost of the lost, damage,
or stolen materials.
7. REPRESENTATIONS.
Aero represents and warrants that it has expertise in providing the
services and that in providing them to Student Advantage they will be at least
of a quality conforming to the generally accepted industry standard and
practices.
8. LIMITATIONS OF LIABILITY.
In no event shall Aero be liable to Student Advantage for any incidental,
consequential, indirect, punitive, or economic damages regardless of whether
such liability is based on breach of contract, tort, strict liability, or breach
of warranties.
-2-
<PAGE> 3
9. TERMS AND TERMINATION.
This Agreement shall commence on the effective date and continue for a
period of at least but not limited to two years. Re-issuance will occur based on
both parties' acceptance. Pricing increases will be negotiated by both parties.
Student Advantage may terminate this Agreement at any time for (1)
convenience upon giving Aero at least 90 days' notice in writing; (2) if breach
of contract or default of responsibility occurs and is not resolved within 30
days, contract becomes invalid; (3) and if either party becomes the subject of
any proceeding under any bankruptcy, insolvency or liquidation laws, whether
voluntary or involuntary.
Aero may elect to terminate this contract by notifying Student Advantage at
least 90 days in advance.
10. GOVERNING LAW.
This Agreement will be governed by and construed in accordance with the
laws of the State of Ohio as applicable to agreements made and wholly performed
within that state regardless of the place, time, or sequence of its execution.
The parties agree that the laws of the State of Ohio will apply despite any
choice of law, statute, rule, or precedent that would apply the law of any other
jurisdiction.
IN WITNESS WHEREOF the parties have executed this Agreement as of the dates
indicated below.
AERO FULFILLMENT SERVICES
By: /s/ Brent Tartar
---------------------------------------------
(Signature)
BRENT TARTAR
---------------------------------------------
(Print Name)
Title: NATIONAL ACCOUNT MANAGER
---------------------------------------------
Date: 7/16/96
---------------------------------------------
-3-
<PAGE> 4
STUDENT ADVANTAGE, INC.
By: /s/ Andrea Abegglen
---------------------------------------------
(Signature)
Andrea Abegglen
---------------------------------------------
(Print Name)
Title: VP Operations, Chief Operating Officer
---------------------------------------------
Date: 8/8/96
---------------------------------------------
-4-
<PAGE> 5
Exhibit A
Intentionally Omitted
-5-
<PAGE> 6
Exhibit B
AERO FULFILLMENT SERVICES
Cincinnati, Ohio
Confidentiality Agreement
This Agreement is entered into this 31st day of May, 1996, by and between
AERO FULFILLMENT SERVICES ("Aero") and Student Advantage, Inc. ("Client").
Aero and Client are considering entering into, or have entered into, an
agreement or agreements from time to time (the "Services Agreement") for the
provision of services by Aero to Client. In the performance of such services,
Aero may receive from Client data concerning Client's customers, business
processes and/or other confidential information (the "Information").
In connection with the Services Agreement, the parties further agree as
follows:
1. Aero agrees to maintain the confidentiality of any Information it
receives from the Client pursuant to the Services Agreement, including
using and requiring its employees to use the same degree of care to
protect the Information as is used to protect Aero's own confidential
information. However, in connection with the Services Agreement and
this Agreement, Aero shall not be responsible for any special,
incidental or consequential damages.
2. Aero agrees not to copy or otherwise reproduce the confidential
information without the prior written consent of Client. Upon
completion of the Service Agreement, Aero shall, upon request of the
Client, return to Client all documents, records and similar
repositories of Information, including any copies thereof, in its
possession.
3. This Agreement shall govern all prior Services Agreements as well as
any future Services Agreements between Aero and Client and shall remain
in effect after any of said Services Agreements are terminated or have
expired.
AERO FULFILLMENT SERVICES CLIENT
By: /s/ Brent Tartar By: /s/ Andrea Abegglen
----------------------------- --------------------------------
-6-
<PAGE> 1
Exhibit 10.15
STUDENT ADVANTAGE, INC.
Promissory Note (Equipment)
--------------------------
$250,000 Boston, Massachusetts
March 31, 1999
FOR VALUE RECEIVED, Student Advantage, Inc., a Delaware corporation
(the "Company"), hereby promises to pay to USTRUST (the "Bank"), or order, at
its head office at 30 Court Street, Boston, Massachusetts 02108, the principal
amount of Two Hundred Fifty Thousand Dollars ($250,000), or such lesser amount
as shall equal the principal amount outstanding hereunder from time to time, in
lawful money of the United States of America and in immediately available funds,
and to pay interest on the unpaid principal balance hereof from time to time
outstanding, at said office and in like money and funds, at a rate per annum
which shall at all times equal the Base Lending Rate, unless the Company has
elected the Applicable Treasury Yield Rate in accordance with the provisions of
Section 1.4.1(a) of the Loan Agreement dated as of the date hereof between the
Company and the Bank (the "Loan Agreement"), in which case the effective rate of
interest on said principal balance shall be a per annum rate equal to the
Applicable Treasury Yield Rate. Interest shall be computed on the basis of the
actual number of days elapsed over a 360-day year.
The principal of and interest in arrears (at either the Base Lending
Rate or Applicable Treasury Yield Rate, as the case may be) on each advance
hereunder shall be payable in monthly installments on the last day of each month
commencing on the last day of the month following the month in which any such
advance shall have been made hereunder, in amounts based upon a level payment,
self-amortizing direct reduction loan with a three year amortization schedule.
In any event, the principal of and interest on each advance shall be paid on or
before the third anniversary of such advance; and any portion of any advance
hereunder which has been so paid may not be reborrowed hereunder.
This Note is the note described in the Loan Agreement between the
Company and the Bank, and the holder hereof is entitled to the benefits of the
Loan Agreement and the collateral securing the payment and performance of the
obligations of the Company described in or contemplated by the Loan Agreement.
Neither this reference to such Loan Agreement nor any provision of such Loan
Agreement shall affect or impair the absolute and unconditional obligation of
the Company to pay the principal of and interest on this Note as provided
herein.
This Note is subject to voluntary prepayment in whole or in part at
any time without premium or penalty, and to acceleration on default at the times
and in the manner specified in the Loan Agreement.
If the Company shall fail to make any payment of principal of or
interest on this Note when due, whether at maturity or at a date fixed for the
payment of any installment or
<PAGE> 2
prepayment hereof or by declaration, acceleration, on demand or otherwise,
interest on such unpaid amount shall thereafter by payable on demand at a rate
per annum equal to four percent (4%) above the rate otherwise applicable
hereunder.
If payment of principal or interest hereunder is not made within 10
days of its due date, the Company also will pay on demand a late payment charge
equal to two and one-half percent (2-1/2%) of the amount of such payment.
Subject to and in accordance with the provisions of the Loan
Agreement, the Company hereby authorizes the Bank to charge any account or
accounts maintained by the Company at the Bank for any payment due hereunder or
under the Loan Agreement.
The Company and each endorser and guarantor of this Note hereby waive
presentment, demand, notice of dishonor, protest, and all other demands and
notices in connection with the delivery, acceptance, performance or enforcement
of this Note.
THE COMPANY (AND EACH GUARANTOR, ENDORSER AND SURETY) HEREBY WAIVES
THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR CONTROVERSY IN WHICH THE BANK IS
OR BECOMES A PARTY (WHETHER SUCH CASE OR CONTROVERSY IS INITIATED BY OR AGAINST
THE BANK OR IN WHICH THE BANK IS JOINED AS A PARTY LITIGANT), WHICH CASE OR
CONTROVERSY ARISES OUT OR IS IN RESPECT OF, ANY RELATIONSHIP AMONG OR BETWEEN
THE COMPANY OR ANY OTHER PERSON AND THE BANK (AND THE BANK LIKEWISE WAIVES THE
RIGHT TO A JURY IN ANY TRIAL OF ANY SUCH CASE OR CONTROVERSY).
This Note is delivered to the Bank at its principal office in Boston,
Massachusetts, shall be governed by the laws of The Commonwealth of
Massachusetts (without giving effect to any conflicts of laws provisions
contained therein), and shall take effect as a sealed instrument.
Witness: STUDENT ADVANTAGE, INC.
/s/ Karen Pitzi By: /s/ Christopher B. Andrews
- --------------------------- ----------------------------------
V.P. Finance & Administration
<PAGE> 1
Exhibit 10.16
MASTER NOTE
$2,500,000 March 31, 1999
Boston, Massachusetts
FOR VALUE RECEIVED, Student Advantage, Inc., a Delaware corporation
(the "Company"), hereby promises to pay to USTRUST (the "Bank"), or order, at
its head office at 30 Court Street, Boston, Massachusetts 02108, the principal
amount of Two Million Five Hundred Thousand Dollars ($2,500,000), or such lesser
amount as shall equal the aggregate unpaid principal balance of loans and
advance made by Bank to the Borrower pursuant to the Loan and Security Agreement
dated as of March 31, 1999, as such may be amended (the "Loan Agreement")
between the Company and Bank, with interest, at said office of Bank and in
lawful money of the United States of America and immediately available funds, at
a rate per annum which shall at all times equal the Base Lending Rate unless the
Company has elected, in accordance with Section 1.4 of the Loan Agreement, the
Applicable LIBOR Rate with respect to such principal balance or part thereof, in
which case the effective rate of interest hereunder shall be a per annum rate
equal to said Applicable LIBOR Rate. Interest on loans and advances hereunder
which are based upon the Base Lending Rate shall be payable in arrears on the
last day of each month beginning on the first such date after the date hereof
until the maturity thereof, whether at the Maturity Date or acceleration or
otherwise. Interest on loans and advances which are LIBOR Loans shall be paid at
the end of each Interest Period. Capitalized terms used but not defined herein
shall have the meanings ascribed to them in the Loan Agreement.
The Bank is hereby authorized by the Company to make appropriate
notations on SCHEDULE I hereto to reflect advances and payments on this Note.
This Note is the note described in the Loan Agreement, and the holder
hereof is entitled to the benefits of the Loan Agreement and the collateral
securing the payment and performance of the obligations of the Company described
in or contemplated by the Loan Agreement. Neither this reference to such Loan
Agreement nor any provision of such Loan Agreement shall affect or impair the
absolute and unconditional obligation of the Company to pay the principal of and
interest on this Note as provided herein.
This Note is subject to voluntary prepayment in whole or in part at
any time without premium or penalty, and to acceleration on default at the times
and in the manner specified in the Loan Agreement.
If the Company shall fail to make any payment of principal of or
interest on this Note when due, whether at maturity or at a date fixed for the
payment of any installment or prepayment hereof or by declaration, acceleration,
on demand or otherwise, interest on such unpaid amount shall thereafter by
payable on demand at a rate per annum equal to four percent (4%) above the rate
otherwise applicable hereunder.
<PAGE> 2
If payment of principal or interest hereunder is not made within 10
days of its due date, the Company also will pay on demand a late payment charge
equal to two and one-half percent (2-1/2%) of the amount of such payment.
Subject to and in accordance with the provisions of the Loan
Agreement, the Company hereby authorizes the Bank to charge any account or
accounts maintained by the Company at the Bank for any payment due hereunder or
under the Loan Agreement.
The Company and each endorser and guarantor of this Note hereby waive
presentment, demand, notice of dishonor, protest, and all other demands and
notices in connection with the delivery, acceptance, performance or enforcement
of this Note.
THE COMPANY (AND EACH GUARANTOR, ENDORSER AND SURETY) HEREBY WAIVES
THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR CONTROVERSY IN WHICH THE BANK IS
OR BECOMES A PARTY (WHETHER SUCH CASE OR CONTROVERSY IS INITIATED BY OR AGAINST
THE BANK OR IN WHICH THE BANK IS JOINED AS A PARTY LITIGANT), WHICH CASE OR
CONTROVERSY ARISES OUT OR IS IN RESPECT OF, ANY RELATIONSHIP AMONG OR BETWEEN
THE COMPANY OR ANY OTHER PERSON AND THE BANK (AND THE BANK LIKEWISE WAIVES THE
RIGHT TO A JURY IN ANY TRIAL OF ANY SUCH CASE OR CONTROVERSY).
This Note is delivered to the Bank at its principal office in Boston,
Massachusetts, shall be governed by the laws of The Commonwealth of
Massachusetts (without giving effect to any conflicts of laws provisions
contained therein), and shall take effect as a sealed instrument.
Witness: STUDENT ADVANTAGE, INC.
/s/ Karen Pitzi By: /s/ Christopher B. Andrews
- ------------------------- -------------------------------------
V.P. Finance & Administration
<PAGE> 3
SCHEDULE I TO MASTER NOTE
<TABLE>
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</TABLE>
<PAGE> 1
Exhibit 10.17
Student Advantage, Inc.
280 Summer Street
Boston, Massachusetts 02210
May 3, 1999
Mr. Ronald J. Kos
31 River Court
Apartment 1205
Jersey City, NJ 07310
Dear Ron:
On behalf of Student Advantage, Inc. (the "Company"), I am pleased to
offer you employment with the Company on the terms set forth below.
1. Your employment shall commence on May 3, 1999 (the "Commencement
Date"). You will be employed as Chief Operating Officer of the Company.
2. Your annual base salary will initially be $150,000. You will be
eligible to earn an annual performance bonus with a target of $75,000 based upon
the achievement of certain performance objectives, in accordance with the
Company's customary corporate practices.
3. Subject to approval by the Company's Board of Directors (the "Board"),
you shall be granted a stock option (the "Option") under the 1998 Stock
Incentive Plan of the Company to purchase 650,000 shares of common stock (after
giving effect to the presently contemplated 3-for-1 stock split). The Option
shall be evidenced by a stock option agreement in the form attached hereto as
Exhibit A.
4. You shall be entitled to participate in the Company's employee benefit
programs, to the extent that your position, tenure, health and other
qualifications make you eligible to participate, including without limitation,
indemnification under the Company's Certificate of Incorporation as an officer
of the Company.
5. You shall be reimbursed $10,000 by the Company for reasonable moving
and travel expenses incurred by you in moving you and your immediate family from
Jersey City, New Jersey to the Boston, Massachusetts metropolitan area to
commence employment with the Company.
<PAGE> 2
6. You shall enter into a Non-Competition, Invention and Non-Disclosure
Agreement in the form attached hereto as Exhibit B.
7. You shall enter into a Lock-Up Agreement in the form attached hereto as
Exhibit C.
8. Your employment with the Company may be terminated at any time by
either you or the Company. In the event of the termination of your employment
with the Company, the Company shall pay to you the compensation and benefits
otherwise payable to you hereunder through the last day of your actual
employment by the Company.
9. Notwithstanding the provisions of paragraph 8 above, in the event your
employment with the Company is terminated by the Company without Cause (as
defined below) prior to December 1, 1999, in lieu of any termination benefits
(a) the Company shall continue to pay to you the base salary otherwise payable
to you through December 1, 1999 and (b) the Option shall become vested and
exercisable as to an aggregate of 162,500 shares (after giving effect to the
presently contemplated 3-for-1 stock split) on the date of termination of your
employment. For purposes of this paragraph 9, "Cause" shall mean one or more of
the following: (i) gross negligence, willful misconduct, dishonesty or breach of
fiduciary duty to the Company; (ii) the commission of an act of embezzlement or
fraud; (iii) deliberate disregard of the rules or policies of the Company which
results in loss, damage or injury to the Company; and (iv) unauthorized
disclosure of any trade secret or confidential information of the Company.
10. You have informed the Company that (a) you have entered into a
Non-Competition, Invention and Non-Disclosure Agreement (the "Non-Competition
Agreement") with your previous employer, iVillage, Inc. ("iVillage"), (b) you
have entered into a Separation Agreement (the "Separation Agreement") with
iVillage, (c) the Separation Agreement provides that your employment with
iVillage will be considered terminated effective June 30, 1999, and (d) the
Separation Agreement provides that nothing in the Separation Agreement or in the
Non-Competition Agreement shall be construed as to prevent your employment with
a company that competes with iVillage. You represent to the Company that the
execution and performance by you of this letter agreement and your employment
with the Company do not and will not conflict with or breach the terms of any
other agreement by which you are bound.
11. This letter agreement sets forth our entire understanding with respect
to the terms of your employment with the Company.
<PAGE> 3
If this letter correctly sets forth our agreement with respect to your
employment with the Company, please so indicate by signing a copy of this letter
where indicated below and returning it to the Company.
Very truly yours,
STUDENT ADVANTAGE, INC.
By: /s/ Raymond V. Sozzi, Jr.
---------------------------------------
Raymond V. Sozzi, Jr.
President and Chief Executive Officer
I hereby accept and agree to the
terms set forth in this letter agreement
/s/ Ronald J. Kos
- -----------------------------------------
Ronald J. Kos
<PAGE> 4
Exhibit A
STUDENT ADVANTAGE, INC.
Incentive Stock Option Agreement
Granted Under 1998 Stock Incentive Plan
1. Grant of Option.
This agreement evidences the grant by Student Advantage, Inc., a Delaware
corporation (the "Company"), on the Grant Date set forth on Schedule A hereto,
to the undersigned employee of the Company (the "Participant"), of an option to
purchase, in whole or in part, on the terms provided herein and in the Company's
1998 Stock Incentive Plan (the "Plan"), the number of shares set forth on
Schedule A (the "Shares") of common stock, $.01 par value per share, of the
Company ("Common Stock") at the exercise price set forth on Schedule A. Unless
earlier terminated, this option shall expire 10 years after the Grant Date (the
"Final Exercise Date").
It is intended that the option evidenced by this agreement shall be an
incentive stock option as defined in Section 422 of the Internal Revenue Code of
1986, as amended and any regulations promulgated thereunder (the "Code"). Except
as otherwise indicated by the context, the term "Participant", as used in this
option, shall be deemed to include any person who acquires the right to exercise
this option validly under its terms.
2. Vesting Schedule.
This option will vest in accordance with Schedule A attached hereto.
Except as otherwise set forth on Schedule A, the Option shall only be
exercisable as to Shares that have become vested in accordance with Schedule A.
The right of exercise shall be cumulative so that to the extent the option
is not exercised in any period to the maximum extent permissible it shall
continue to be exercisable, in whole or in part, with respect to all shares for
which it is vested until the earlier of the Final Exercise Date or the
termination of this option under Section 3 hereof or the Plan.
3. Exercise of Option.
a. Form of Exercise. Each election to exercise this option shall be in
writing, signed by the Participant, and received by the Company at its principal
office, accompanied by this agreement, and payment in full in the manner
provided in the Plan. The Participant may purchase less than the number of
shares covered
<PAGE> 5
hereby, provided that no partial exercise of this option may be for any
fractional share or for fewer than ten whole shares.
b. Continuous Relationship with the Company Required. Except as otherwise
provided in this Section 3, this option may not be exercised unless the
Participant, at the time he or she exercises this option, is, and has been at
all times since the Grant Date, an employee, officer or director of, or
consultant or advisor to, the Company or any parent or subsidiary of the Company
as defined in Section 424(e) or (f) of the Code (an "Eligible Participant").
c. Termination of Relationship with the Company. If the Participant ceases
to be an Eligible Participant for any reason, then, except as provided in
paragraph (d) below, the right to exercise this option shall terminate three
months after such cessation (but in no event after the Final Exercise Date),
provided that this option shall be exercisable only to the extent that this
option was vested, in accordance with Schedule A, on the date of such cessation.
Notwithstanding the foregoing, if the Participant, prior to the Final Exercise
Date, violates the non-competition or confidentiality provisions of any
employment contract, confidentiality and nondisclosure agreement or other
agreement between the Participant and the Company, the right to exercise this
option shall terminate immediately upon such violation.
d. Exercise Period Upon Death or Disability. If the Participant dies or
becomes disabled (within the meaning of Section 22(e)(3) of the Code) prior to
the Final Exercise Date while he or she is an Eligible Participant, this option
shall be exercisable, within the period of one year following the date of death
or disability of the Participant by the Participant, provided that this option
shall be exercisable only to the extent that this option was vested, in
accordance with Schedule A, on the date of his or her death or disability, and
further provided that this option shall not be exercisable after the Final
Exercise Date.
4. Right of First Refusal.
(a) If the Participant proposes to sell, assign, transfer, pledge,
hypothecate or otherwise dispose of, by operation of law or otherwise
(collectively, "transfer") any Shares acquired upon exercise of this option,
then the Participant shall first give written notice of the proposed transfer
(the "Transfer Notice") to the Company. The Transfer Notice shall name the
proposed transferee and state the number of such Shares the Participant proposes
to transfer (the "Offered Shares"), the price per share and all other material
terms and conditions of the transfer.
(b) For 30 days following its receipt of such Transfer Notice, the Company
shall have the option to purchase all (but not less than all) of the Offered
Shares at
<PAGE> 6
the price and upon the terms set forth in the Transfer Notice. In the event the
Company elects to purchase all of the Offered Shares, it shall give written
notice of such election to the Participant within such 30-day period. Within 10
days after his or her receipt of such notice, the Participant shall tender to
the Company at its principal offices the certificate or certificates
representing the Offered Shares, duly endorsed in blank by the Participant or
with duly endorsed stock powers attached thereto, all in a form suitable for
transfer of the Offered Shares to the Company. Upon receipt of such certificate
or certificates, the Company shall deliver or mail to the Participant a check in
payment of the purchase price for the Offered Shares; provided that if the terms
of payment set forth in the Transfer Notice were other than cash against
delivery, the Company may pay for the Offered Shares on the same terms and
conditions as were set forth in the Transfer Notice.
(c) At and after the time at which the Offered Shares are required to be
delivered to the Company for transfer to the Company pursuant to subsection (b)
above, the Company shall not pay any dividend to the Participant on account of
such Shares or permit the Participant to exercise any of the privileges or
rights of a stockholder with respect to such Offered Shares, but shall, in so
far as permitted by law, treat the Company as the owner of such Offered Shares.
(d) If the Company does not elect to acquire all of the Offered Shares,
the Participant may, within the 30-day period following the expiration of the
option granted to the Company under subsection (b) above, transfer the Offered
Shares to the proposed transferee, provided that such transfer shall not be on
terms and conditions more favorable to the transferee than those contained in
the Transfer Notice. Notwithstanding any of the above, all Offered Shares
transferred pursuant to this Section 4 shall remain subject to this Agreement
(including without limitation the right of first refusal set forth in this
Section 4) and such transferee shall, as a condition to such transfer, deliver
to the Company a written instrument confirming that such transferee shall be
bound by all of the terms and conditions of this Agreement.
(e) The following transactions shall be exempt from the provisions of this
Section 4:
i. any transfer of Shares to or for the benefit of any spouse or
child of the Participant, or to a trust for their benefit;
ii. any transfer pursuant to an effective registration statement
filed by the Company under the Securities Act of 1933, as amended (the
"Securities Act"); and
<PAGE> 7
iii. any transfer of the Shares pursuant to the sale of all or
substantially all of the business of the Company;
provided, however, that in the case of a transfer pursuant to clause (1) above,
such Shares shall remain subject to this Agreement (including without limitation
the right of first refusal set forth in this Section 4) and such transferee
shall, as a condition to such transfer, deliver to the Company a written
instrument confirming that such transferee shall be bound by all of the terms
and conditions of this Agreement.
(f) The Company may assign its rights to purchase Offered Shares in any
particular transaction under this Section 4 to one or more persons or entities.
(g) The provisions of this Section 4 shall terminate upon the earlier of
the following events:
(1) the closing of the sale of shares of Common Stock in an
underwritten public offering pursuant to an effective registration statement
filed by the Company under the Securities Act; or
(2) the sale of all or substantially all of the assets or business
of the Company, by merger, consolidation, sale of assets or otherwise (except a
merger or consolidation in which the holders of capital stock of the Company
immediately prior to such merger or consolidation continue to hold immediately
following such merger or consolidation at least 66 2/3% by voting power of the
capital stock of the surviving corporation).
(h) The Company shall not be required (a) to transfer on its books any of
the Shares which shall have been sold or transferred in violation of any of the
provisions set forth in this Section 4, or (b) to treat as owner of such Shares
or to pay dividends to any transferee to whom any such Shares shall have been so
sold or transferred.
5. Agreement in Connection with Public Offering.
The Participant agrees, in connection with the initial underwritten public
offering of the Company's securities pursuant to a registration statement under
the Securities Act, (i) not to sell, make short sale of, loan, grant any options
for the purchase of, or otherwise dispose of any shares of Common Stock held by
the Participant (other than those shares included in the offering) without the
prior written consent of the Company or the underwriters managing such initial
underwritten public offering of the Company's securities for a period of 180
days from the effective date of such registration statement, and (ii) to execute
any
<PAGE> 8
agreement reflecting clause (i) above as may be requested by the Company or
the managing underwriters at the time of such offering.
6. Withholding.
No Shares will be issued pursuant to the exercise of this option unless
and until the Participant pays to the Company, or makes provision satisfactory
to the Company for payment of, any federal, state or local withholding taxes
required by law to be withheld in respect of this option.
7. Nontransferability of Option.
This option may not be sold, assigned, transferred, pledged or otherwise
encumbered by the Participant, either voluntarily or by operation of law, except
by will or the laws of descent and distribution, and, during the lifetime of the
Participant, this option shall be exercisable only by the Participant.
8. Disqualifying Disposition.
If the Participant disposes of Shares acquired upon exercise of this
option within two years from the Grant Date or one year after such Shares were
acquired pursuant to exercise of this option, the Participant shall notify the
Company in writing of such disposition.
9. Provisions of the Plan.
This option is subject to the provisions of the Plan, a copy of which is
furnished to the Participant with this option.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
<PAGE> 9
IN WITNESS WHEREOF, the Company has caused this option to be executed
under its corporate seal by its duly authorized officer. This option shall take
effect as a sealed instrument.
STUDENT ADVANTAGE, INC.
By:____________________________________
Name:_______________________________
Title:______________________________
<PAGE> 10
PARTICIPANT'S ACCEPTANCE
The undersigned hereby accepts the foregoing option and agrees to the
terms and conditions thereof. The undersigned hereby acknowledges receipt of a
copy of the Company's 1998 Stock Incentive Plan.
PARTICIPANT:
________________________________________
[Signature]
Name: Ronald J. Kos
Address: 31 River Court, Apt. 1205
Jersey City, NJ 07310
Social Security Number: _______________
Schedule A
1. Number of Shares: 13,468
---------------------------
2. Exercise Price Per Share:
---------------------------
3. Grant Date: May , 1999
---------------------------
4. Vesting Commencement Date: May 3, 1999
---------------------------
<PAGE> 11
Schedule A (continued)
5. Vesting Terms:
(a) This option shall vest as to 25% of the Shares on December 1, 1999 and
as to an additional 25% of the Shares on each of May 3, 2001, May 3, 2002 and
May 3, 2003.
(b) Upon the occurrence of a Change in Control Event (as defined below),
this option shall, immediately prior to the closing of the Change in Control
Event, become vested and exercisable as to an additional number of Shares such
that the total number of then-vested Shares shall be the sum of:
(X) a percentage of the Shares equal to a fraction, the numerator of
which is the number of full months that have elapsed since the
Vesting Commencement Date and the denominator of which is 48, plus
(Y) a percentage of the Shares equal to 50% of the Shares that
remain unvested after application of the immediately preceding
clause (X).
By way of example, if the Change in Control Event occurs in the middle of the
17th month following the Vesting Commencement Date, the option shall become
vested and exercisable as to 66.6% of the Shares (the sum of (A) 33.3% (16
divided by 48), and (B) 50% of the otherwise-remaining (66.7% in this example)
unvested Shares (33.3%)).
(c) If this option is assumed by the acquiring person in such Change in
Control Event pursuant to the provisions of the Plan, the unvested portion of
this option, after taking into account the accelerated vesting that will take
place pursuant to paragraph (b) above, shall (subject to paragraph (d) below)
continue to vest in equal monthly installments from the date of the closing of
the Change in Control Event to the date 48 months after the Vesting Commencement
Date.
(d) If, following the closing of a Change in Control Event, the surviving
or acquiring entity (the "Acquiror") terminates the employment of the
Participant without Cause, upon such termination this option shall become vested
and exercisable in full. "Cause" for this purpose shall mean one or more of the
following: (i) gross negligence, willful misconduct, dishonesty or breach of
fiduciary duty to the Acquiror; (ii) the commission of an act of embezzlement or
fraud; (iii) deliberate disregard of the rules or policies of the Acquiror which
results in loss, damage or injury to the Acquiror; and (iv) unauthorized
disclosure of any trade secret or confidential information of the Acquiror.
<PAGE> 12
(e) With the consent of the Board, which may be withheld, the Participant
may at any time exercise this option as to all of the Shares, including then
unvested Shares, provided, that the Participant as a condition to such exercise
executes and delivers an Agreement Covering Shares Acquired Upon Exercise of
Unvested Options (and escrow agreement), upon terms satisfactory to the Company,
pursuant to which the Company shall have the right to purchase, upon termination
of the Participant's employment, all Shares that would not then have been vested
under the terms set forth in paragraphs (a) through (d) above.
(f) A "Change in Control Event" shall mean:
(i) the acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership of any
capital stock of the Company if, after such acquisition, such Person
beneficially owns (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) 50% or more of either (x) the then-outstanding shares of common
stock of the Company (the "Outstanding Company Common Stock") or (y) the
combined voting power of the then-outstanding securities of the Company entitled
to vote generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this subsection (i), the
following acquisitions shall not constitute a Change in Control Event: (A) any
acquisition directly from the Company (excluding an acquisition pursuant to the
exercise, conversion or exchange of any security exercisable for, convertible
into or exchangeable for common stock or voting securities of the Company,
unless the Person exercising, converting or exchanging such security acquired
such security directly from the Company or an underwriter or agent of the
Company), (B) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company, or (C) any acquisition by any corporation pursuant to a Business
Combination (as defined below) which complies with clauses (x) and (y) of
subsection (ii) of this definition; or
(ii) the consummation of a merger, consolidation, reorganization,
recapitalization or statutory share exchange involving the Company or a sale or
other disposition of all or substantially all of the assets of the Company (a
"Business Combination"), unless, immediately following such Business
Combination, each of the following two conditions is satisfied: (x) all or
substantially all of the individuals and entities who were the beneficial owners
of the Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination beneficially own,
directly or indirectly, more than 50% of the then-outstanding shares of common
stock and the combined voting power of the then-outstanding securities entitled
to vote generally in the election of directors, respectively, of the resulting
or acquiring corporation in such Business Combination
<PAGE> 13
(which shall include, without limitation, a corporation which as a result of
such transaction owns the Company or substantially all of the Company's assets
either directly or through one or more subsidiaries) (such resulting or
acquiring corporation is referred to herein as the "Acquiring Corporation") in
substantially the same proportions as their ownership of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, respectively,
immediately prior to such Business Combination and (y) no Person (excluding the
Acquiring Corporation or any employee benefit plan (or related trust) maintained
or sponsored by the Company or by the Acquiring Corporation) beneficially owns,
directly or indirectly, 50% or more of the then-outstanding shares of common
stock of the Acquiring Corporation, or of the combined voting power of the
then-outstanding securities of such corporation entitled to vote generally in
the election of directors (except to the extent that such ownership existed
prior to the Business Combination).
<PAGE> 14
STUDENT ADVANTAGE, INC.
Nonstatutory Stock Option Agreement
Granted Under 1998 Stock Incentive Plan
1. Grant of Option.
This agreement evidences the grant by Student Advantage, Inc., a Delaware
corporation (the "Company"), on the Grant Date set forth on Schedule A hereto,
to the undersigned employee of the Company (the "Participant"), of an option to
purchase, in whole or in part, on the terms provided herein and in the Company's
1998 Stock Incentive Plan (the "Plan"), the number of shares set forth on
Schedule A (the "Shares") of common stock, $.01 par value per share, of the
Company ("Common Stock") at the exercise price set forth on Schedule A. Unless
earlier terminated, this option shall expire 10 years after the Grant Date (the
"Final Exercise Date").
It is intended that the option evidenced by this agreement shall not be an
incentive stock option as defined in Section 422 of the Internal Revenue Code of
1986, as amended and any regulations promulgated thereunder (the "Code"). Except
as otherwise indicated by the context, the term "Participant", as used in this
option, shall be deemed to include any person who acquires the right to exercise
this option validly under its terms.
2. Vesting Schedule.
This option will vest in accordance with Schedule A attached hereto.
Except as otherwise set forth on Schedule A, the Option shall only be
exercisable as to Shares that have become vested in accordance with Schedule A.
The right of exercise shall be cumulative so that to the extent the option
is not exercised in any period to the maximum extent permissible it shall
continue to be exercisable, in whole or in part, with respect to all shares for
which it is vested until the earlier of the Final Exercise Date or the
termination of this option under Section 3 hereof or the Plan.
3. Exercise of Option.
a. Form of Exercise. Each election to exercise this option shall be in
writing, signed by the Participant, and received by the Company at its principal
office, accompanied by this agreement, and payment in full in the manner
provided in the Plan. The Participant may purchase less than the number of
shares covered
<PAGE> 15
hereby, provided that no partial exercise of this option may be for any
fractional share or for fewer than ten whole shares.
b. Continuous Relationship with the Company Required. Except as otherwise
provided in this Section 3, this option may not be exercised unless the
Participant, at the time he or she exercises this option, is, and has been at
all times since the Grant Date, an employee, officer or director of, or
consultant or advisor to, the Company or any parent or subsidiary of the Company
as defined in Section 424(e) or (f) of the Code (an "Eligible Participant").
c. Termination of Relationship with the Company. If the Participant ceases
to be an Eligible Participant for any reason, then, except as provided in
paragraph (d) below, the right to exercise this option shall terminate three
months after such cessation (but in no event after the Final Exercise Date),
provided that this option shall be exercisable only to the extent that this
option was vested, in accordance with Schedule A, on the date of such cessation.
Notwithstanding the foregoing, if the Participant, prior to the Final Exercise
Date, violates the non-competition or confidentiality provisions of any
employment contract, confidentiality and nondisclosure agreement or other
agreement between the Participant and the Company, the right to exercise this
option shall terminate immediately upon such violation.
d. Exercise Period Upon Death or Disability. If the Participant dies or
becomes disabled (within the meaning of Section 22(e)(3) of the Code) prior to
the Final Exercise Date while he or she is an Eligible Participant, this option
shall be exercisable, within the period of one year following the date of death
or disability of the Participant by the Participant, provided that this option
shall be exercisable only to the extent that this option was vested, in
accordance with Schedule A, on the date of his or her death or disability, and
further provided that this option shall not be exercisable after the Final
Exercise Date.
4. Right of First Refusal.
(a) If the Participant proposes to sell, assign, transfer, pledge,
hypothecate or otherwise dispose of, by operation of law or otherwise
(collectively, "transfer") any Shares acquired upon exercise of this option,
then the Participant shall first give written notice of the proposed transfer
(the "Transfer Notice") to the Company. The Transfer Notice shall name the
proposed transferee and state the number of such Shares the Participant proposes
to transfer (the "Offered Shares"), the price per share and all other material
terms and conditions of the transfer.
(b) For 30 days following its receipt of such Transfer Notice, the Company
shall have the option to purchase all (but not less than all) of the Offered
Shares at
<PAGE> 16
the price and upon the terms set forth in the Transfer Notice. In the event the
Company elects to purchase all of the Offered Shares, it shall give written
notice of such election to the Participant within such 30-day period. Within 10
days after his or her receipt of such notice, the Participant shall tender to
the Company at its principal offices the certificate or certificates
representing the Offered Shares, duly endorsed in blank by the Participant or
with duly endorsed stock powers attached thereto, all in a form suitable for
transfer of the Offered Shares to the Company. Upon receipt of such certificate
or certificates, the Company shall deliver or mail to the Participant a check in
payment of the purchase price for the Offered Shares; provided that if the terms
of payment set forth in the Transfer Notice were other than cash against
delivery, the Company may pay for the Offered Shares on the same terms and
conditions as were set forth in the Transfer Notice.
(c) At and after the time at which the Offered Shares are required to be
delivered to the Company for transfer to the Company pursuant to subsection (b)
above, the Company shall not pay any dividend to the Participant on account of
such Shares or permit the Participant to exercise any of the privileges or
rights of a stockholder with respect to such Offered Shares, but shall, in so
far as permitted by law, treat the Company as the owner of such Offered Shares.
(d) If the Company does not elect to acquire all of the Offered Shares,
the Participant may, within the 30-day period following the expiration of the
option granted to the Company under subsection (b) above, transfer the Offered
Shares to the proposed transferee, provided that such transfer shall not be on
terms and conditions more favorable to the transferee than those contained in
the Transfer Notice. Notwithstanding any of the above, all Offered Shares
transferred pursuant to this Section 4 shall remain subject to this Agreement
(including without limitation the right of first refusal set forth in this
Section 4) and such transferee shall, as a condition to such transfer, deliver
to the Company a written instrument confirming that such transferee shall be
bound by all of the terms and conditions of this Agreement.
(e) The following transactions shall be exempt from the provisions of this
Section 4:
i. any transfer of Shares to or for the benefit of any spouse or
child of the Participant, or to a trust for their benefit;
ii. any transfer pursuant to an effective registration statement
filed by the Company under the Securities Act of 1933, as amended (the
"Securities Act"); and
<PAGE> 17
iii. any transfer of the Shares pursuant to the sale of all or
substantially all of the business of the Company;
provided, however, that in the case of a transfer pursuant to clause (1) above,
such Shares shall remain subject to this Agreement (including without limitation
the right of first refusal set forth in this Section 4) and such transferee
shall, as a condition to such transfer, deliver to the Company a written
instrument confirming that such transferee shall be bound by all of the terms
and conditions of this Agreement.
(f) The Company may assign its rights to purchase Offered Shares in any
particular transaction under this Section 4 to one or more persons or entities.
(g) The provisions of this Section 4 shall terminate upon the earlier of
the following events:
(1) the closing of the sale of shares of Common Stock in an
underwritten public offering pursuant to an effective registration statement
filed by the Company under the Securities Act; or
(2) the sale of all or substantially all of the assets or business
of the Company, by merger, consolidation, sale of assets or otherwise (except a
merger or consolidation in which the holders of capital stock of the Company
immediately prior to such merger or consolidation continue to hold immediately
following such merger or consolidation at least 66 2/3% by voting power of the
capital stock of the surviving corporation).
(h) The Company shall not be required (a) to transfer on its books any of
the Shares which shall have been sold or transferred in violation of any of the
provisions set forth in this Section 4, or (b) to treat as owner of such Shares
or to pay dividends to any transferee to whom any such Shares shall have been so
sold or transferred.
5. Agreement in Connection with Public Offering.
The Participant agrees, in connection with the initial underwritten public
offering of the Company's securities pursuant to a registration statement under
the Securities Act, (i) not to sell, make short sale of, loan, grant any options
for the purchase of, or otherwise dispose of any shares of Common Stock held by
the Participant (other than those shares included in the offering) without the
prior written consent of the Company or the underwriters managing such initial
underwritten public offering of the Company's securities for a period of 180
days from the effective date of such registration statement, and (ii) to execute
any
<PAGE> 18
agreement reflecting clause (i) above as may be requested by the Company or
the managing underwriters at the time of such offering.
6. Withholding.
No Shares will be issued pursuant to the exercise of this option unless
and until the Participant pays to the Company, or makes provision satisfactory
to the Company for payment of, any federal, state or local withholding taxes
required by law to be withheld in respect of this option.
7. Nontransferability of Option.
This option may not be sold, assigned, transferred, pledged or otherwise
encumbered by the Participant, either voluntarily or by operation of law, except
by will or the laws of descent and distribution, and, during the lifetime of the
Participant, this option shall be exercisable only by the Participant.
8. Provisions of the Plan.
This option is subject to the provisions of the Plan, a copy of which is
furnished to the Participant with this option.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
<PAGE> 19
IN WITNESS WHEREOF, the Company has caused this option to be executed
under its corporate seal by its duly authorized officer. This option shall take
effect as a sealed instrument.
STUDENT ADVANTAGE, INC.
By:____________________________________
Name:_______________________________
Title:______________________________
<PAGE> 20
PARTICIPANT'S ACCEPTANCE
The undersigned hereby accepts the foregoing option and agrees to the
terms and conditions thereof. The undersigned hereby acknowledges receipt of a
copy of the Company's 1998 Stock Incentive Plan.
PARTICIPANT:
________________________________________
[Signature]
Name: Ronald J. Kos
Address: 31 River Court, Apt. 1205
Jersey City, NJ 07310
Social Security Number: _______________
Schedule A
1. Number of Shares: 203,199
---------------------------
2. Exercise Price Per Share:
---------------------------
3. Grant Date: May , 1999
---------------------------
4. Vesting Commencement Date: May 3, 1999
---------------------------
<PAGE> 21
Schedule A (continued)
5. Vesting Terms:
(a) This option shall vest as to 25% of the Shares on December 1, 1999 and
as to an additional 25% of the Shares on each of May 3, 2001, May 3, 2002 and
May 3, 2003.
(b) Upon the occurrence of a Change in Control Event (as defined below),
this option shall, immediately prior to the closing of the Change in Control
Event, become vested and exercisable as to an additional number of Shares such
that the total number of then-vested Shares shall be the sum of:
(X) a percentage of the Shares equal to a fraction, the numerator of
which is the number of full months that have elapsed since the
Vesting Commencement Date and the denominator of which is 48, plus
(Y) a percentage of the Shares equal to 50% of the Shares that
remain unvested after application of the immediately preceding
clause (X).
By way of example, if the Change in Control Event occurs in the middle of the
17th month following the Vesting Commencement Date, the option shall become
vested and exercisable as to 66.6% of the Shares (the sum of (A) 33.3% (16
divided by 48), and (B) 50% of the otherwise-remaining (66.7% in this example)
unvested Shares (33.3%)).
(c) If this option is assumed by the acquiring person in such Change in
Control Event pursuant to the provisions of the Plan, the unvested portion of
this option, after taking into account the accelerated vesting that will take
place pursuant to paragraph (b) above, shall (subject to paragraph (d) below)
continue to vest in equal monthly installments from the date of the closing of
the Change in Control Event to the date 48 months after the Vesting Commencement
Date.
(d) If, following the closing of a Change in Control Event, the surviving
or acquiring entity (the "Acquiror") terminates the employment of the
Participant without Cause, upon such termination this option shall become vested
and exercisable in full. "Cause" for this purpose shall mean one or more of the
following: (i) gross negligence, willful misconduct, dishonesty or breach of
fiduciary duty to the Acquiror; (ii) the commission of an act of embezzlement or
fraud; (iii) deliberate disregard of the rules or policies of the Acquiror which
results in loss, damage or injury to the Acquiror; and (iv) unauthorized
disclosure of any trade secret or confidential information of the Acquiror.
<PAGE> 22
(e) With the consent of the Board, which may be withheld, the Participant
may at any time exercise this option as to all of the Shares, including then
unvested Shares, provided, that the Participant as a condition to such exercise
executes and delivers an Agreement Covering Shares Acquired Upon Exercise of
Unvested Options (and escrow agreement), upon terms satisfactory to the Company,
pursuant to which the Company shall have the right to purchase, upon termination
of the Participant's employment, all Shares that would not then have been vested
under the terms set forth in paragraphs (a) through (d) above.
(f) A "Change in Control Event" shall mean:
(i) the acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership of any
capital stock of the Company if, after such acquisition, such Person
beneficially owns (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) 50% or more of either (x) the then-outstanding shares of common
stock of the Company (the "Outstanding Company Common Stock") or (y) the
combined voting power of the then-outstanding securities of the Company entitled
to vote generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this subsection (i), the
following acquisitions shall not constitute a Change in Control Event: (A) any
acquisition directly from the Company (excluding an acquisition pursuant to the
exercise, conversion or exchange of any security exercisable for, convertible
into or exchangeable for common stock or voting securities of the Company,
unless the Person exercising, converting or exchanging such security acquired
such security directly from the Company or an underwriter or agent of the
Company), (B) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company, or (C) any acquisition by any corporation pursuant to a Business
Combination (as defined below) which complies with clauses (x) and (y) of
subsection (ii) of this definition; or
(ii) the consummation of a merger, consolidation, reorganization,
recapitalization or statutory share exchange involving the Company or a sale or
other disposition of all or substantially all of the assets of the Company (a
"Business Combination"), unless, immediately following such Business
Combination, each of the following two conditions is satisfied: (x) all or
substantially all of the individuals and entities who were the beneficial owners
of the Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination beneficially own,
directly or indirectly, more than 50% of the then-outstanding shares of common
stock and the combined voting power of the then-outstanding securities entitled
to vote generally in the election of directors, respectively, of the resulting
or acquiring corporation in such Business Combination
<PAGE> 23
(which shall include, without limitation, a corporation which as a result of
such transaction owns the Company or substantially all of the Company's assets
either directly or through one or more subsidiaries) (such resulting or
acquiring corporation is referred to herein as the "Acquiring Corporation") in
substantially the same proportions as their ownership of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, respectively,
immediately prior to such Business Combination and (y) no Person (excluding the
Acquiring Corporation or any employee benefit plan (or related trust) maintained
or sponsored by the Company or by the Acquiring Corporation) beneficially owns,
directly or indirectly, 50% or more of the then-outstanding shares of common
stock of the Acquiring Corporation, or of the combined voting power of the
then-outstanding securities of such corporation entitled to vote generally in
the election of directors (except to the extent that such ownership existed
prior to the Business Combination).
<PAGE> 24
Exhibit B
NON-COMPETITION, INVENTION AND NON-DISCLOSURE AGREEMENT
This Agreement is made between Student Advantage, Inc., a Delaware
corporation (the "Company"), and Ronald J. Kos (the "Employee").
The Company desires to employ the Employee, and the Employee desires to be
employed by the Company. In connection with the employment of the Employee by
the Company, the Company will grant the Employee an option to purchase 650,000
shares of Common Stock (after giving effect to the presently contemplated
three-for-one stock split) of the Company. The execution and delivery of this
Agreement is a condition to the Employee's employment by the Company.
In consideration of the employment of the Employee by the Company, the
mutual covenants and promises contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
the parties hereto, the parties agree as follows:
1. Non-Competition.
(a) For so long as the Employee is employed by the Company, and for
a period of 547 days after the termination or cessation of the Employee's
employment for any reason, the Employee will not directly or indirectly:
(i) as an individual proprietor, partner, stockholder,
officer, employee, director, joint venturer, investor, lender, or in any other
capacity whatsoever (other than as the holder of not more than two percent (2%)
of the total outstanding stock of a publicly held company), engage in the
business of developing, producing, marketing or selling products or rendering
services of the kind or type developed or being, or planned to be, developed,
produced, marketed or sold, by the Company or any of its subsidiaries while the
Employee was employed by the Company, including, without limitation, the
business of providing products, services, information and/or discounts to
students and the provision of related services; or
(ii) recruit, solicit or induce, or attempt to induce, any
employee or employees of the Company or any direct or indirect parent or
subsidiary corporation to terminate their employment with, or otherwise cease
their relationship with, the Company; or
(iii) solicit, divert or take away, or attempt to divert or to
take away, the business or patronage of any of the clients, customers or
accounts, or prospective clients, customers or accounts, of the Company or any
direct or indirect parent or subsidiary corporation which were contacted,
solicited or served by the Company.
<PAGE> 25
(b) If any restriction set forth in this Section 1 is found by any
court of competent jurisdiction to be unenforceable because it extends for too
long a period of time or over too great a range of activities or in too broad a
geographic area, it shall be interpreted to extend only over the maximum period
of time, range of activities or geographic area as to which it may be
enforceable.
(c) The restrictions contained in this Section 1 are necessary for
the protection of the business and goodwill of the Company and are considered by
the Employee to be reasonable for such purpose. The Employee agrees that any
breach of this Section 1 will cause the Company substantial and irrevocable
damage and, therefore, in the event of any such breach or threatened breach, in
addition to such other remedies which may be available, the Company shall have
the right to seek specific performance and injunctive relief.
(d) If the Employee violates the provisions of Section 1(a), the
Employee shall continue to be bound by the restrictions set forth in Section
1(a) until an aggregate of 547 days (which need not be consecutive) after the
date of termination of the Employee's employment has expired without any
violation of such provisions.
2. Proprietary Information.
(a) The Employee agrees that all information and know-how, whether
or not in writing, of a private, secret or confidential nature concerning the
Company's business, business relationships or financial affairs (collectively,
"Proprietary Information") is and shall be the exclusive property of the
Company. By way of illustration, but not limitation, Proprietary Information may
include inventions, products, processes, methods, techniques, formulas,
compositions, compounds, projects, developments, plans, research data, clinical
data, financial data, personnel data, computer programs, customer and supplier
lists. The Employee will not disclose any Proprietary Information to any person
or entity other than employees of the Company or use the same for any purpose
without written approval by an executive officer of the Company, either during
or after his employment, unless and until such Proprietary Information has
become public knowledge without fault by the Employee.
(b) The Employee agrees that all files, letters, memoranda, reports,
records, data, sketches, drawings, laboratory notebooks, program listings, or
other written, photographic, or other tangible material containing Proprietary
Information, whether created by the Employee or others, which have or shall come
into his custody or possession, shall be and are the exclusive property of the
Company to be used by the Employee only in the performance of his duties for the
Company. All such materials or copies thereof and all tangible property of the
Company in the custody or possession of the Employee shall be delivered to the
Company, upon request by the Company. After such delivery, the Employee shall
not retain any such materials or copies thereof or any such tangible property.
<PAGE> 26
(c) The Employee agrees that his obligation not to disclose or to
use information, know-how and records of the types set forth in paragraphs (a)
and (b) above, and his obligation to return materials and tangible property, set
forth in paragraph (b) above, also extends to such types of information,
know-how, records and tangible property of customers of the Company or suppliers
to the Company or other third parties who may have disclosed or entrusted the
same to the Company or to the Employee in the course of the Company's business.
3. Developments.
(a) The Employee will make full and prompt disclosure to the Company
of all inventions, improvements, discoveries, methods, developments, software,
and works of authorship, whether patentable or not, which are, or have been,
created, made, conceived or reduced to practice by him or under his direction or
jointly with others during his employment by the Company, whether or not during
normal working hours or on the premises of the Company (all of which are
collectively referred to in this Agreement as "Developments").
(b) The Employee agrees to assign and does hereby assign to the
Company (or any person or entity designated by the Company) all his right, title
and interest in and to all Developments and all related patents, patent
applications, copyrights and copyright applications. However, this Section 3(b)
shall not apply to Developments which do not relate to the present or planned
business or research and development of the Company and which are made and
conceived by the Employee not on the Company's premises and not using the
Company's tools, devices, equipment or Proprietary Information. The Employee
also hereby waives all claims to moral rights in any Developments.
(c) The Employee agrees to cooperate fully with the Company, both
during and after his employment with the Company, with respect to the
procurement, maintenance and enforcement of copyrights, patents and other
intellectual property rights (both in the United States and foreign countries)
relating to Developments. The Employee shall sign all papers, including, without
limitation, copyright applications, patent applications, declarations, oaths,
formal assignments, assignments of priority rights, and powers of attorney,
which the Company may deem necessary or desirable in order to protect its rights
and interests in any Development. The Employee further agrees that if the
Company is unable, after reasonable effort, to secure the signature of the
Employee on any such papers, any executive officer of the Company shall be
entitled to execute any such papers as the agent and the attorney-in-fact of the
Employee, and the Employee hereby irrevocably designates and appoints each
executive officer of the Company as his agent and attorney-in-fact to execute
any such papers on his behalf, and to take any and all actions as the Company
may deem
-3-
<PAGE> 27
necessary or desirable in order to protect its rights and interests in any
Development, under the conditions described in this sentence.
4. Other Agreements. The Employee hereby represents that he is not bound
by the terms of any agreement with any previous employer or other party to
refrain from using or disclosing any trade secret or confidential or proprietary
information in the course of his employment with the Company or to refrain from
competing, directly or indirectly, with the business of such previous employer
or any other party; provided, however, that the Employee has agreed not to
disclose any confidential or proprietary information relating to the business of
his former employer, iVillage, Inc. ("iVillage"), pursuant to Paragraph 5 of the
Non-Competition, Non-Disclosure and Assignment of Inventions Agreement between
the Employee and iVillage, dated January 9, 1998. The Employee further
represents that his performance of all the terms of this Agreement and as an
employee of the Company does not and will not breach any agreement to keep in
confidence proprietary information, knowledge or data acquired by the Employee
in confidence or in trust prior to his employment with the Company.
5. United States Government Obligations. The Employee acknowledges that
the Company from time to time may have agreements with the other persons or with
the United States Government, or agencies thereof, which impose obligations or
restrictions on the Company regarding inventions made during the course of work
under such agreements or regarding the confidential nature of such work. The
Employee agrees to be bound by all such obligations and restrictions which are
made known to the Employee and to take all action necessary to discharge the
obligations of the Company under such agreements.
6. Miscellaneous.
(a) No Conflict. The Employee represents that the execution and
performance by him of this Agreement does not and will not conflict with or
breach the terms of any other agreement by which the Employee is bound.
(b) Not Employment Contract. The Employee acknowledges that this
Agreement does not constitute a contract of employment.
(c) Interpretation. If any restriction set forth in this Agreement
is found by any court of competent jurisdiction to be unenforceable because it
extends for too long a period of time or over too great a range of activities or
in too broad a geographic area, it shall be interpreted to extend only over the
maximum period of time, range of activities or geographic area as to which it
may be enforceable.
-4-
<PAGE> 28
(d) Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(e) Waiver of Rights. No delay or omission by the Company in
exercising any right under this Agreement will operate as a waiver of that or
any other right. A waiver or consent given by the Company on any one occasion is
effective only in that instance and will not be construed as a bar to or waiver
of any right on any other occasion.
(f) Equitable Remedies. The restrictions contained in this Agreement
are necessary for the protection of the business and goodwill of the Company and
are considered by the Employee to be reasonable for such purpose. The Employee
agrees that any breach of this Agreement is likely to cause the Company
substantial and irrevocable damage and therefore, in the event of any such
breach, the Employee agrees that the Company, in addition to such other remedies
which may be available, shall be entitled to specific performance and other
injunctive relief.
(g) Assignability. This Agreement will be binding upon the
Employee's heirs, executors and administrators and will inure to the benefit of
the Company and its successors and assigns. The Company may assign this
Agreement to any other corporation or entity which acquires (whether by
purchase, merger, consolidation or otherwise) all or substantially all of the
business and/or assets of the Company. The Employee expressly consents to be
bound by the provisions of this Agreement for the benefit of the Company or any
subsidiary or affiliate thereof without the necessity that this Agreement be
re-signed.
(h) Entire Agreement. This Agreement supersedes all prior
agreements, written or oral, between the Employee and the Company relating to
the subject matter of this Agreement. This Agreement may not be modified,
changed or discharged in whole or in part, except by an agreement in writing
signed by the Employee and the Company. The Employee agrees that any change or
changes in his duties after the signing of this Agreement shall not affect the
validity or scope of this Agreement.
(i) Governing Law. This Agreement is governed by and will be
construed as a sealed instrument under and in accordance with the internal laws
(and not the law of conflicts) of the Commonwealth of Massachusetts. Any action,
suit, or other legal proceeding which is commenced to resolve any matter arising
under or relating to any provision of this Agreement shall be commenced only in
a court of the Commonwealth of Massachusetts (or, if appropriate, a federal
court located within Massachusetts), and the Company and the Employee each
consents to the jurisdiction of such a court.
-5-
<PAGE> 29
THE EMPLOYEE ACKNOWLEDGES THAT HE HAS CAREFULLY READ THIS AGREEMENT AND
UNDERSTANDS AND AGREES TO ALL OF THE PROVISIONS IN THIS AGREEMENT.
STUDENT ADVANTAGE, INC.
Date: May 3, 1999 By:__________________________
Name: Raymond V. Sozzi, Jr.
Title: President
Date: May 3, 1999 RONALD J. KOS
______________________________________
(signature)
-6-
<PAGE> 30
EXHIBIT C
LOCK-UP AGREEMENT
BancBoston Robertson Stephens Inc.
Prudential Securities
Volpe Brown Whelan & Company
As Representatives of the Several Underwriters
c/o BancBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, California 94104
RE: Student Advantage, Inc. (the "Company")
Ladies & Gentlemen:
The undersigned is an owner of record or beneficially of certain shares of
Common Stock of the Company ("Common Stock") or securities convertible into or
exchangeable or exercisable for Common Stock. The Company proposes to carry out
a public offering of Common Stock (the "Offering"), pursuant to a Registration
Statement on Form S-1 to be filed with the Securities and Exchange Commission
(the "Registration Statement"), for which you will act as the representatives
(the "Representatives") of the underwriters. The undersigned recognizes that the
Offering will be of benefit to the undersigned and will benefit the Company by,
among other things, raising additional capital for its operations. The
undersigned acknowledges that you and the other underwriters are relying on the
representations and agreements of the undersigned contained in this letter in
carrying out the Offering and in entering into underwriting arrangements with
the Company with respect to the Offering.
In consideration of the foregoing, the undersigned hereby agrees that the
undersigned will not offer to sell, contract to sell, or otherwise sell, dispose
of, loan, pledge or grant any rights with respect to (collectively, a
"Disposition") any shares of Common Stock, any options or warrants to purchase
any shares of Common Stock or any securities convertible into or exchangeable
for shares of Common Stock (collectively, "Securities") now owned or hereafter
acquired directly by such person or with respect to which such person has or
hereafter acquires the power of disposition, otherwise than (i) as a bona fide
gift or gifts, provided the donee or donees thereof agree in writing to be bound
by this restriction, (ii) as a distribution to partners or shareholders of such
person, provided that the distributees thereof agree in writing to be bound by
the terms of this restriction, (iii) with respect to any Disposition of Common
Stock acquired on the open market, (iv) to any trust, the beneficiaries of which
are exclusively the undersigned or the immediate family of the undersigned,
provided that the trustee of the trust agrees to be bound by this restriction
and provided further that any such transfer shall not involve a disposition for
value (for purposes of the foregoing, "immediate family" shall mean any
relationship by blood, marriage or adoption, not more remote than first cousin)
or (v) with the prior written consent of
<PAGE> 31
-2-
BancBoston Robertson Stephens Inc., for a period commencing on the date hereof
and continuing to a date 180 days after the Registration Statement is declared
effective by the Securities and Exchange Commission (the "Lock-up Period"). The
foregoing restriction has been expressly agreed to preclude the holder of the
Securities from engaging in any hedging or other transaction which is designed
to or reasonably expected to lead to or result in a Disposition of Securities
during the Lock-up Period, even if such Securities would be disposed of by
someone other than such holder. Such prohibited hedging or other transactions
would include, without limitation, any short sale (whether or not against the
box) or any purchase, sale or grant of any right (including, without limitation,
any put or call option) with respect to any Securities or with respect to any
security (other than a broad-based market basket or index) that included,
relates to or derives any significant part of its value from Securities.
Notwithstanding the foregoing, the foregoing restriction does not prohibit the
sale of shares of Common Stock by the undersigned to the underwriters in the
Offering. The undersigned also agrees and consents to the entry of stop transfer
instructions with the Company's transfer agent and registrar against the
transfer of shares of Common Stock or Securities held by the undersigned except
in compliance with the foregoing restrictions.
This agreement is irrevocable and will be binding on the undersigned and
the respective successors, heirs, personal representatives, and assigns of the
undersigned.
In the event that the Registration Statement is not declared effective on
or before July 31, 1999 the foregoing restriction shall be of no further force
or effect.
Dated:
----------------------- -----------------------------
Ronald J. Kos
<PAGE> 1
Exhibit 11.1
Computation of net loss per share and unaudited pro forma net loss per share
<TABLE>
<CAPTION>
Year Ended December 31, Three Months Ended
--------------------------------------- March 31,
1996 1997 1998 1999
--------------------------------------- ---------
(unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Basic and diluted net loss
per share:
Net Loss $ (657) $(3,152) $ (5,115) $(2,209)
======= ======= ======== =======
Basic and diluted weighted
average common shares
outstanding 14,184 15,295 15,957 16,143
======= ======= ======== =======
Basic and diluted net loss
per share $ (0.05) $ (0.21) $ (0.32) $ (0.14)
======= ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, 1998 March 31, 1999
---------------------- --------------
(unaudited)
(in thousands, except per share data)
<S> <C> <C>
Unaudited pro forma basic and diluted
net loss per share:
Net Loss $ (5,115) $(2,209)
======== =======
Unaudited pro forma basic and diluted
weighted average shares outstanding:
Shares attributable to common stock 15,743 16,143
Shares attributable to the assumed
conversion of Preferred Stock upon
closing of an initial public offering 5,385 8,241
-------- -------
Unaudited pro forma basic and diluted
weighted average shares outstanding: 21,128 24,384
======== =======
Unaudited pro forma basic and diluted
net loss per share $ (0.24) $ (0.09)
======== =======
</TABLE>
<PAGE> 1
Exhibit 21
SUBSIDIARIES
NAME JURISDICTION OF ORGANIZATION
- ---- ---------------------------
Student Advantage LLC Delaware
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated May 7, 1999, relating to the financial statements of Student
Advantage, Inc., which appear in such Registration Statement. We also consent to
the references to us under the headings "Experts" and "Selected Financial Data"
in such Registration Statement.
/s/ PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
May 11, 1999
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated April 5, 1999, relating to the financial statements of Collegiate
Advantage, Inc., which appear in such Registration Statement.
/s/ PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
May 11, 1999
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated April 5, 1999, relating to the financial statements of The Main
Quad, Inc., which appear in such Registration Statement.
/s/ PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
May 11, 1999
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated April 30, 1999, relating to the financial statements of University
Netcasting, Inc., which appear in such Registration Statement. We also consent
to the references to us under the heading "Experts" in such Registration
Statement.
/s/ PricewaterhouseCoopers LLP
San Diego, CA
May 11, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 3,491
<SECURITIES> 0
<RECEIVABLES> 2,096
<ALLOWANCES> 70
<INVENTORY> 0
<CURRENT-ASSETS> 6,077
<PP&E> 1,572
<DEPRECIATION> 311
<TOTAL-ASSETS> 7,779
<CURRENT-LIABILITIES> 10,220
<BONDS> 0
10,196
0
<COMMON> 195
<OTHER-SE> 12,442
<TOTAL-LIABILITY-AND-EQUITY> 7,779
<SALES> 1,668
<TOTAL-REVENUES> 4,225
<CGS> 320
<TOTAL-COSTS> 2,823
<OTHER-EXPENSES> 3,673
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,209)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,209)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
