<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 30, 2000
REGISTRATION NO. 333-92367
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE 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) 912-2000
(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) 912-2000
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
------------------------
COPIES TO:
MARK G. BORDEN, ESQ.
HALE AND DORR LLP
60 STATE STREET
BOSTON, MASSACHUSETTS 02109
TELEPHONE: (617) 526-6000
TELECOPY: (617) 526-5000
------------------------
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. [X]
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. [ ]
------------------------
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
PROSPECTUS
[STUDENT LOGO]
STUDENT ADVANTAGE, INC.
1,219,447 SHARES
COMMON STOCK
Student Advantage previously issued 2,438,875 shares of common stock to the
former stockholders of University Netcasting, Inc. in connection with our
acquisition of that company. This prospectus relates to resales of 1,219,447 of
those shares.
We will not receive any of the proceeds from the sale of the shares.
We have agreed to pay certain expenses in connection with the registration
of the shares and to indemnify the selling stockholders against certain
liabilities. The selling stockholders will pay all underwriting discounts and
selling commissions, if any, in connection with the sale of the shares.
The selling stockholders, or their pledgees, donees, transferees or other
successors in interest, may offer the shares through public or private
transactions at prevailing market prices, at prices related to prevailing market
prices or at privately negotiated prices. Our common stock is traded on the
Nasdaq National Market ("Nasdaq") under the symbol "STAD." On March 28, 2000,
the closing sale price of the common stock on Nasdaq was $14.50 per share.
------------------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 4.
------------------------------
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.
------------------------------
The date of this Prospectus is March 30, 2000.
<PAGE> 3
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. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
JURISDICTION WHERE THE OFFER OR SALE IS NOT 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. AND ITS SUBSIDIARIES.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary..................................................... 1
Risk Factors................................................ 4
Forward-Looking Statements.................................. 12
Use of Proceeds............................................. 13
Market Price of Common Stock................................ 13
Dividend Policy............................................. 13
Selected Consolidated Financial Data........................ 14
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 15
Business.................................................... 23
Management.................................................. 35
Certain Transactions........................................ 45
Principal Stockholders...................................... 46
Selling Stockholders........................................ 50
Description of Capital Stock................................ 52
Plan of Distribution........................................ 54
Legal Matters............................................... 55
Experts..................................................... 55
Additional Information...................................... 55
Index to Financial Statements............................... F-1
</TABLE>
i
<PAGE> 4
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 our network of web sites,
including studentadvantage.com, UWIRE.com and
FANSonly.com. With our national fee-based
membership program, we have created a community
of over 1,300,000 student members. Our members
receive a variety of services and benefits,
including ongoing discounts on products and
services offered by national and local vendors.
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 network of web sites 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 resource for their students and
an opportunity for cost savings and increased
revenue.
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 $4.8 million in
1997, $19.4 million in 1998 and $27.6 million in
1999, and incurred a net loss of $6.8 million in
1997, $10.5 million in 1998 and $19.6 million in
1999.
OUR PRODUCTS AND SERVICES..... Membership in Student Advantage provides
students with discounts on products and services
offered by over 50 national sponsors, including
Amtrak(R), Foot Locker, Greyhound, Staples,
Tower Records, textbooks.com and Barnes & Noble
College Bookstores, and over 15,000
participating locations in 125 local markets.
Student members also receive SAM, Student
Advantage Magazine.
A key component of our strategy is to make our
studentadvantage.com 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; community through online
bulletin boards and articles offering advice on
student life; and e-commerce through sponsors
including Staples, Greyhound, 1-800-FLOWERS.com
and textbooks.com. In order to receive discounts
on the products offered through our web site,
students must join our membership program.
1
<PAGE> 5
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.
We also provide tailored marketing services for
businesses seeking to market their products to
college students. Through our membership program
and network of web sites, 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.
------------------------------
Student Advantage's principal executive offices are located at 280 Summer
Street, Boston, Massachusetts 02210 and our telephone number at that location is
(617) 912-2000. Our principal web site is located at www.studentadvantage.com.
Information contained on any of our web sites is not part of this prospectus.
2
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Set forth below are summary consolidated statements of operations data for
the years ended December 31, 1995, 1996, 1997, 1998 and 1999, and summary
balance sheet data as of December 31, 1999. 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." All amounts for all periods presented have
been restated to reflect the acquisition of University Netcasting, Inc. in June
1999, which was accounted for as a pooling of interests.
Effective June 18, 1999, University Netcasting, Inc.'s fiscal year end was
changed from March 31 to December 31 to conform to Student Advantage's fiscal
year end. University Netcasting, Inc.'s results of operations for the years
ended March 31, 1996, 1997, 1998 and 1999 have been included in Student
Advantage's results of operations for the years ended December 31, 1995, 1996,
1997 and 1998, respectively. University Netcasting's results of operations for
the twelve months ended December 31, 1999 have been included in Student
Advantage's results of operations for the twelve months ended December 31, 1999.
Accordingly, University Netcasting's results of operations for the three months
ended March 31, 1999 have been included in Student Advantage's results of
operations for both of the years ended December 31, 1998 and 1999. Total revenue
and net loss for University Netcasting for the three months ended March 31, 1999
were $682,000 and $1.6 million, respectively. This net loss amount has been
reported as an adjustment to the consolidated accumulated deficit.
Shares used in computing pro forma basic and diluted net loss per share
include the conversion of all outstanding shares of our convertible preferred
stock into shares of common stock which occurred upon the closing of the initial
public offering on June 23, 1999 as if converted on the later of January 1, 1998
or the date of issue.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1995 1996 1997 1998 1999
----------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Total revenue............................................... $ 769 $ 1,838 $ 4,815 $ 19,360 $ 27,644
Total costs and expenses.................................... 2,982 4,480 11,566 30,017 48,557
Net loss.................................................... (2,216) (2,638) (6,828) (10,536) (19,555)
Basic and diluted net loss per share........................ $ (0.16) $ (0.18) $ (0.41) $ (0.59) $ (0.71)
Shares used in computing basic and diluted net loss per
share..................................................... 14,184 14,384 16,588 17,710 27,410
Unaudited pro forma basic and diluted net loss per share.... $ (0.46) $ (0.63)
Shares used in computing unaudited pro forma basic and
diluted net loss per share................................ 22,772 31,226
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1995 1996 1997 1998 1999
----------- ------ ------- -------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents................................... $ 47 $ 702 $ 5,806 $ 6,140 $15,370
Marketable securities....................................... -- -- -- -- 20,546
Working capital (deficit)................................... (928) (114) (1,670) (2,355) 24,139
Total assets................................................ 338 1,118 7,217 11,704 60,796
Deferred revenue............................................ 183 276 5,970 7,064 9,576
Redeemable convertible preferred stock...................... -- 54 111 10,196 --
Stockholders' equity (deficit).............................. (1,065) (70) (1,024) (10,548) 41,694
</TABLE>
3
<PAGE> 7
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 $6.8
million in 1997, $10.5 million in 1998 and $19.6 million in 1999. As of December
31, 1999, our accumulated deficit was $44.1 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 a relationship with AT&T as our exclusive telecommunications
partner 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, and
- marketing services.
In 1997, we derived $2.4 million, or 50%, of our total revenue from AT&T.
In 1998, we derived $11.8 million, or 61%, of our total revenue from AT&T. In
1999, we derived $15.2 million, or 55%, of our total revenue from AT&T. To date,
almost all of our members have received their Student Advantage memberships at
no charge from AT&T by either electing to apply for an AT&T calling card in
connection with their Student Advantage membership or by receiving a free
Student Advantage membership from AT&T. 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.
We are in discussions with AT&T with respect to the possible restructuring
of our agreements with AT&T. There can be no assurance that such discussions
will result in any restructuring.
4
<PAGE> 8
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, without the consent of AT&T, 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 network of web sites 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 sites to include more content and services for students
and encourage our members to use the sites so that they become more
attractive for advertisers, and
- establish our network of web sites 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
5
<PAGE> 9
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 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. Our business model depends in part on increasing the amount of
revenue derived from internet advertising and other internet-related activities.
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.
A LIMITED NUMBER OF CUSTOMERS REPRESENT A SIGNIFICANT PERCENTAGE OF OUR REVENUE
A limited number of customers currently account for a significant
percentage of our total revenues. We expect a limited number of customers to
continue to account for a significant percentage of total revenues in the future
and we believe that we must continue to acquire additional customers to be
successful. The loss of any one of these customers could have a material adverse
effect on our business.
While we anticipate that revenues from these limited number of customers
will decline as a percentage of total revenues, we expect that a limited number
of customers will continue to represent a significant percentage of our total
revenues.
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. To date,
we have not
6
<PAGE> 10
maintained sufficient data to determine the specific number of members who renew
on a yearly basis. A failure to acquire new members or renew current members
could have a material adverse effect on our business.
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 alliances and relationships with
colleges and universities 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, and we have been denied
access to certain college and university campuses. To date, we have not
maintained sufficient data to determine the specific number of colleges and
universities which have denied us access to their campuses. 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 sites 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 AltaVista, 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.
7
<PAGE> 11
Increased competition could result in price reductions, reduced margins or
loss of market share, any of which could adversely affect our business.
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 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 continue 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.
We recently acquired several businesses. Achieving the anticipated benefits
of these acquisitions will depend in part upon whether the integration of these
businesses is accomplished in an efficient, effective and timely manner. In some
cases, the difficulty associated with integrating these businesses may be
increased by the necessity of coordinating geographically separated
organizations. There can be no assurance that the anticipated benefits of these
acquisitions will be achieved. If we are unable to successfully develop and
market products and product enhancements as a result of these acquisitions, we
may not achieve our new enhanced revenue.
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 $1.8 million in 1996 to $4.8 million in 1997 to
$19.4 million in 1998 to $27.6 million in 1999. During that same time period we
increased from fewer than 50 to more than 310 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 are in the process of
replacing our accounting system and expect to complete this process within the
next three months. If we incur delays or difficulties in implementing an
accounting system, our business could be adversely affected.
8
<PAGE> 12
OUR MANAGEMENT TEAM HAS LIMITED EXPERIENCE IN RUNNING A PUBLIC COMPANY
Our management team has had limited significant experience in a leadership
role in a public company. We cannot assure you that the management team as
currently configured will be able to continue to successfully lead a public
company. The failure of the management team to continue to adequately handle
this challenge could have a material adverse effect on our business.
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. We may require
additional financing if capital requirements vary materially from those
currently planned.
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 and Exodus Communications, Inc. in Waltham, Massachusetts. 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, however we are developing a formal disaster
recovery program.
Our network of web sites must accommodate a high volume of traffic and
deliver frequently updated information. Our web sites have 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 sites 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 network of web sites.
Many of them have experienced significant outages in the
9
<PAGE> 13
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.
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
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 sites 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 sites 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.
CONSUMER PROTECTION PRIVACY CONCERNS AND REGULATIONS COULD IMPAIR OUR ABILITY TO
OBTAIN AND USE INFORMATION ABOUT OUR USERS AND MAY SUBJECT US TO LITIGATION.
Our network of web sites captures information regarding our members in
order to tailor content to them and assist advertisers in targeting their
advertising campaigns to particular demographic groups. However, privacy
concerns may cause users to resist providing the personal data necessary to
support this tailoring capability. Even the perception of security and privacy
concerns, whether or not valid, may indirectly inhibit market acceptance of our
network of web sites.
Our network of web sites currently uses cookies to track demographic
information and user preferences. A cookie is information keyed to a specific
server, file pathway or directory location that is stored on a user's hard
drive, possibly without the user's knowledge, but is generally removable by the
user. Germany has imposed laws limiting the use of cookies, and a number of
internet commentators, advocates and governmental bodies in the United States
and other countries have urged the passage of laws limiting or abolishing the
use of cookies. If these laws are passed, our business, financial condition and
results of operations could be materially harmed.
Legislative or regulatory requirements may heighten privacy concerns if
businesses must notify internet users that the data may be used by marketing
entities to direct product promotion and advertising to the user. The Federal
Trade Commission and state agencies have been investigating various internet
companies regarding their use of personal information. In 1998, the United
States Congress enacted the Children's Online Privacy Protection Act of 1998. We
depend upon collecting personal information from our customers and the
regulations promulgated under this act have made it more difficult for us to
collect personal information from some of our customers. We may be liable for
claims based on unauthorized purchases with credit card information,
impersonation or other similar fraud claims. We could incur additional expenses
if new regulations regarding the use of personal information are introduced or
if our privacy practices are investigated. Other countries are political
entities, such as the European Economic Community, have adopted such legislation
or regulatory requirements. If consumer privacy concerns are
10
<PAGE> 14
not adequately addressed, our business, financial condition and results of
operations could be materially harmed.
WE MAY BE SUBJECT TO LITIGATION WHICH COULD HAVE A MATERIAL ADVERSE EFFECT UPON
OUR BUSINESS
Our industry has been the subject of substantial amounts of litigation
regarding intellectual property and contractual rights. Consequently, there can
be no assurance that third parties will not allege claims against the Company
with respect to current or future trademarks, advertising or marketing
strategies, business processes or other proprietary rights, or that the Company
will counterclaim against any such parties in such actions. Any such claims or
counterclaims could be time-consuming, result in costly litigation, diversion of
management's attention, require the Company to redesign its products or
advertising/marketing strategies or require the Company to enter into royalty or
licensing agreements, any of which could have a material adverse effect upon the
Company's business, results of operations and financial condition. Such royalty
or licensing agreements, if required, may not be available on terms acceptable
to the Company or at all.
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 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 patent, copyrights, service marks,
trademarks, trade secrets, proprietary technology and similar intellectual
property is important to the success of some of our services. We rely on the
following mechanisms to protect such intellectual property:
- patent, 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 may 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
We have made an assessment of the Year 2000 readiness of our operating,
financial and administrative systems, including the hardware and software that
support our systems. Since third parties developed and currently support many of
the systems that we use, a significant part of this effort was to confirm that
these third-party systems are Year 2000 compliant. We have confirmed this
compliance solely
11
<PAGE> 15
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. Despite this effort, we cannot be certain that
none of the third party software, hardware or services incorporated in our
material systems need to be revised or replaced. To date, we are not aware of
any Year 2000 compliance problems impacting our business. We cannot be certain
that there will be no Year 2000 disruptions in the coming months. 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.
CERTAIN CURRENT STOCKHOLDERS OWN A LARGE PERCENTAGE OF OUR VOTING STOCK
Our executive officers, directors and affiliated entities, based on the
number of shares of outstanding common stock as of February 29, 2000, together
own approximately 63.5% of our outstanding common stock. Therefore, these
stockholders are 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.
OUR STOCK PRICE COULD BE EXTREMELY VOLATILE AND MAY RESULT IN LITIGATION AGAINST
US
The stock market has experienced significant price and volume fluctuations,
and our market price could be volatile. 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.
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
12
<PAGE> 16
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.
USE OF PROCEEDS
Student Advantage will not receive any proceeds from the sale of the shares
covered by this prospectus.
MARKET PRICE OF COMMON STOCK
Our common stock began trading on the Nasdaq National Market on June 18,
1999 under the symbol "STAD." Prior to that time there had been no market for
our common stock. The table below sets forth the high and low closing sale
prices per share for our common stock on the Nasdaq National Market for the
periods indicated:
FISCAL YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Second quarter (beginning June 18, 1999).................. $ 9 1/2 $ 7 1/2
Third quarter............................................. 13 15/16 10 1/16
Fourth quarter............................................ 28 12 1/8
</TABLE>
As of February 29, 2000, there were 161 holders of record of the common
stock. Because many of such shares are held by brokers and other institutions on
behalf of stockholders, the Company is unable to estimate the total number of
stockholders represented by these record holders. A recent last reported sale
price per share for our common stock on the Nasdaq National Market is set forth
on the cover page of this prospectus.
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 existing credit facility limits our
ability to pay cash dividends or make stock repurchases without the prior
written consent of the lender.
13
<PAGE> 17
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data are derived from the
financial statements of Student Advantage, Inc. The historical results presented
are not necessarily indicative of future results. The selected consolidated
financial data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Student Advantage's Consolidated Financial Statements and the related Notes. All
amounts for all periods presented have been restated to reflect the acquisition
of University Netcasting, Inc. in June 1999, which was accounted for as a
pooling of interests.
Effective June 18, 1999, University Netcasting, Inc.'s fiscal year end was
changed from March 31 to December 31 to conform to Student Advantage's fiscal
year end. University Netcasting, Inc.'s results of operations for the years
ended March 31, 1996, 1997, 1998 and 1999 have been included in Student
Advantage's results of operations for the years ended December 31, 1995, 1996,
1997 and 1998, respectively. University Netcasting's results of operations for
the twelve months ended December 31, 1999 have been included in Student
Advantage's twelve months ended December 31, 1999. Accordingly, University
Netcasting's results of operations for the three months ended March 31, 1999
have been included in Student Advantage's results for both the years ended
December 31, 1998 and 1999. Total revenue and net loss for University Netcasting
for the three months ended March 31, 1999 were $682,000 and $1.6 million,
respectively. This net loss amount has been reported as an adjustment to the
consolidated accumulated deficit.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1995 1996 1997 1998 1999
----------- ------- ------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenue
Subscription...................................... $ 420 $ 1,093 $ 2,971 $ 7,174 $ 7,838
Other............................................. 349 745 1,844 12,186 19,806
------- ------- ------- -------- --------
Total revenue................................... 769 1,838 4,815 19,360 27,644
------- ------- ------- -------- --------
Costs and expenses
Cost of subscription revenue...................... 160 543 2,628 2,442 2,365
Cost of other revenue............................. 135 570 702 7,867 13,178
Product development............................... 1,151 1,516 3,253 4,948 9,654
Sales and marketing............................... 671 536 1,905 7,313 11,704
General and administrative........................ 864 1,208 2,727 5,484 8,543
Depreciation and amortization..................... 1 107 351 1,155 1,994
Stock-based compensation.......................... -- -- -- 808 1,119
------- ------- ------- -------- --------
Total costs and expenses........................ 2,982 4,480 11,566 30,017 48,557
------- ------- ------- -------- --------
Loss from operations.............................. (2,213) (2,642) (6,751) (10,657) (20,913)
Interest income (expense), net.................... (3) 4 (77) 121 1,358
------- ------- ------- -------- --------
Net loss.......................................... $(2,216) $(2,638) $(6,828) $(10,536) $(19,555)
======= ======= ======= ======== ========
Basic and diluted net loss per share.............. $ (0.16) $ (0.18) $ (0.41) $ (0.59) $ (0.71)
======= ======= ======= ======== ========
Shares used in computing basic and diluted
net loss per share.............................. 14,184 14,384 16,588 17,710 27,410
======= ======= ======= ======== ========
Unaudited pro forma basic and diluted net loss per
share........................................... $ (0.46) $ (0.63)
======== ========
Shares used in computing unaudited pro forma basic
and diluted net loss per share.................. 22,772 31,226
======== ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1995 1996 1997 1998 1999
----------- ------ ------- -------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents............................ $ 47 $ 702 $ 5,806 $ 6,140 $15,370
Marketable securities................................ -- -- -- -- 20,546
Working capital (deficit)............................ (928) (114) (1,670) (2,355) 24,139
Total assets......................................... 338 1,118 7,217 11,704 60,796
Deferred revenue..................................... 183 276 5,970 7,064 9,576
Redeemable convertible preferred stock............... -- 54 111 10,196 --
Stockholders' equity (deficit)....................... (1,065) (70) (1,024) (10,548) 41,694
</TABLE>
14
<PAGE> 18
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 network of web sites. Our revenue is
generated from subscription revenue and other revenue.
Subscription revenue is derived from membership sales. Memberships are sold
in three different ways. Almost all 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, 1998 and 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 commerce, marketing services and advertising
revenue. Commerce revenue includes primarily transaction-based fees earned for
reselling products and services and acquiring customers on behalf of other
businesses. To date, commerce revenue has included primarily fees that we
receive from AT&T and one other customer for obtaining completed applications on
their behalf and the resale of Eurail passes. In connection with each
application accepted by AT&T, we also earn membership fees that are included in
subscription revenue. 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. Advertising revenue consists
primarily of fees for banner advertisements and sponsorships on our web sites,
and advertisements placed in SAM, Student Advantage Magazine.
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. We
acquired substantially all the assets of The Main Quad for $272,000 and the
issuance of 1,417,720 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 also agreed to make
payments totaling $715,000 to Collegiate Advantage in three installments ending
on January 31, 2001. As of December 31,
15
<PAGE> 19
1999, $355,000 remains outstanding. These acquisitions were accounted for under
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.
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 have been 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 are being
amortized over three years.
On May 27, 1999, we acquired substantially all of the assets of Mentor
Interactive Corp., a provider of internet-based research tools and related
materials, in exchange for 18,056 shares of common stock and a warrant to
purchase 24,000 shares of common stock at a purchase price of $11.08 per share
with an aggregate estimated fair value of approximately $300,000. This
acquisition has been accounted for under the purchase method of accounting and
the results of operations of Mentor Interactive Corp. have been included in our
results of operations beginning on the acquisition date. Goodwill and other
intangible assets in the aggregate amount of $312,000 were recorded in
connection with the acquisition and are being amortized over a three year
period.
On June 11, 1999, we acquired Transaction Service Providers, Inc., a
provider of ID card services to college students and local merchants, in a
transaction accounted for as a pooling of interests. Because the historical
results of operations and financial position of Transaction Services Providers
were immaterial to Student Advantage, prior period financial statements have not
been restated and Transaction Service Providers' results of operations have been
included in our results as of April 1, 1999. In connection with the acquisition,
we issued 195,000 shares of common stock to the stockholders of Transaction
Service Providers.
On June 18, 1999, we acquired University Netcasting, Inc., an operator of
official athletic web sites for colleges, universities and college sports
associations, in a transaction accounted for as a pooling of interests. In
connection with the acquisition, we issued 2,425,610 shares of our common stock
and options to purchase a total of 66,634 shares of our common stock. The
historical consolidated financial statements of Student Advantage prior to the
acquisition have been restated to reflect the financial position, results of
operations and cash flows of University Netcasting.
On October 7, 1999, we acquired Voice FX Corporation, a provider of
internet and interactive voice response services to colleges and universities.
In connection with the acquisition, we paid approximately $1.1 million in cash,
issued 430,082 shares of our common stock and assumed options to purchase a
total of 59,687 shares of our common stock. The acquisition has been accounted
for under the purchase method of accounting and the results of operations have
been included in our results of operations beginning on the acquisition date.
Goodwill and other intangible assets in the aggregate amount of $6.3 million
have been recorded in connection with the acquisition and are being amortized on
a straight-line basis over expected useful lives of between three and five
years.
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.
On June 23, 1999, we completed an initial public offering of 6,000,000
shares of our common stock resulting in proceeds to us of approximately $44.6
million. Upon the closing of the initial public offering, each outstanding share
of our redeemable convertible preferred stock converted into shares of common
stock on a three-for-one basis. On July 21, 1999, we issued an additional
900,000 shares of common stock
16
<PAGE> 20
as a result of the full exercise of the underwriters' over-allotment option and
received additional proceeds of approximately $6.7 million.
In July 1999, we entered into a marketing agreement with Lycos, Inc. In
connection with the transaction, Lycos was granted a warrant to purchase 550,000
shares of our common stock at a price of $10.875 per share. The Lycos warrant
terminates on July 21, 2002 and is exercisable on or after July 21, 2000. We
valued the Lycos warrant at $2.2 million, which is being recognized as a sales
and marketing expense on a straight-line basis over the thirty-month term of the
marketing agreement.
On November 12, 1999, Student Advantage made an equity investment in
edu.com, Inc., a privately held e-commerce company. We paid approximately $4.3
million in cash for approximately 922,000 shares of Series B preferred stock of
edu.com. We are accounting for our investment in edu.com on the lower of cost or
market basis of accounting. Additionally, we entered into a two-year marketing
and distribution agreement with edu.com. The agreement provides, among other
things, that edu.com will become Student Advantage's exclusive technology
e-commerce partner and rewards program provider, that the parties will pursue
certain promotional initiatives on each other's behalf, and that edu.com will
make certain payments to Student Advantage, including $2.0 million payable over
the term of the agreement. On January 14, 2000 we made an additional investment
of approximately $1.0 million in cash for approximately 217,000 shares of series
B preferred stock of edu.com.
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 during 1998 and an
additional $1.1 million has been amortized during 1999. During 1999, we reduced
the amount of deferred compensation by approximately $259,000 as a result of
cancellation of certain options due to the termination of the employment with
Student Advantage of certain employees. 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 December
31, 1999 in the periods indicated:
<TABLE>
<S> <C>
January 1, 2000 -- December 31, 2000........................ $973,000
January 1, 2001 -- December 31, 2001........................ 915,000
January 1, 2002 -- December 31, 2002........................ 319,000
January 1, 2003 -- December 31, 2003........................ 6,000
</TABLE>
Student Advantage has experienced substantial net losses since its
inception and as of December 31, 1999, Student Advantage had an accumulated
deficit of $44.1 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.
17
<PAGE> 21
RESULTS OF OPERATIONS
Comparison of the Year Ended December 31, 1999 with the Year Ended December
31, 1998
Revenue. Total revenues increased to $27.6 million in 1999 from $19.4
million in 1998. Almost all of this increase was due to an increase in other
revenue to $19.8 million in 1999, from $12.2 million in 1998. Other revenue
increased primarily due to increases in commerce revenue related to (1) the
acquisitions in 1999 of Voice FX and The Travel Holding Group, (2) revenues
under the AT&T marketing agreement, which was not in effect until the third
quarter of 1998, under which Student Advantage visits college campuses to
acquire calling card customers for AT&T and (3) other transaction-based commerce
revenues. Other revenue increased to a lesser extent as a result of increases in
marketing services revenue primarily as a result of management and execution of
AT&T's on-campus marketing initiatives in 1999, media placement for our
corporate partners in college newspapers, and the acquisition of The Campus
Agency, LLC. Other revenue also increased due to growth in web advertising and
sponsorship revenue.
AT&T accounted for approximately 55% and 61% of total revenue in 1999 and
1998, respectively. Additionally, AT&T accounted for approximately 94% and 95%
of subscription revenue and 40% and 41% of other revenue in 1999 and 1998,
respectively. No other single customer accounted for 10% or more of total
revenues in 1999 or 1998.
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 remained unchanged at $2.4 million in 1999
and 1998. Cost of subscription revenue as a percentage of subscription revenue
decreased to 30.2% in 1999 from 34.0% in 1998 as a result of increased cost
efficiencies in the fulfillment of membership subscriptions on a per member
basis.
Cost of Other Revenue. Cost of other revenue consists of the cost of
commerce, marketing services and advertising. Commerce costs include primarily
personnel-related costs associated with acquiring customers for AT&T and other
businesses, and costs associated with the sale of Eurail passes. Marketing
services costs primarily consist of the direct and indirect costs associated
with planning and implementing events and promotions, media placement and other
marketing services. Advertising costs primarily consist of production and
mailing costs for the magazine and includes royalties paid to organizations,
primarily colleges, universities and athletic associations for the use of
organizational names and logos, and for supplying sports activity content for
Student Advantage to include in the FANSonly.com web sites. Cost of other
revenue increased to $13.2 million in 1999 from $7.9 million in 1998. This
increase is due in large part to the acquisitions of The Travel Holding Group,
Campus Agency, and Voice FX businesses during 1999 which contributed $2.4
million in expense. The increase is also due in part to an increase of $1.1
million in costs associated with SAM, Student Advantage Magazine, of which four
issues were distributed during 1999 and only two issues were distributed during
1998. Additionally, costs associated with providing services relating to an AT&T
on-campus marketing program, first incurred in 1999, and the AT&T marketing
agreement, which was first incurred in the third quarter of 1998, contributed to
the increase.
Cost of other revenue as a percentage of other revenue increased to 66.5%
in 1999 from 64.6% 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, the services delivered under both the AT&T
marketing agreement and the AT&T on-campus marketing program, and the Travel
Holding Group and Campus Agency businesses. The increase in cost of other
revenues as a percentage of other revenue is also due to costs associated with
the production of SAM, Student Advantage Magazine, which exceeded revenue from
the production of SAM. This increase was partially offset by higher margin
revenues from the Voice FX business, which we acquired in the fourth quarter of
1999, from web advertising and sponsorship, and from commerce revenues.
Product Development. Product development expenses consist primarily of
personnel-related and consulting costs associated with the development and
enhancement of our suite of products, which includes the Student Advantage
membership card, SAM, Student Advantage Magazine, and our network of web sites.
Product development expenses increased to $9.7 million in 1999 from $4.9 million
in 1998. The
18
<PAGE> 22
increase is primarily due to $2.3 million incurred in connection with the
re-launch of studentadvantage.com in 1999, and the development of our customer
database, as well as additional personnel related costs.
Sales and Marketing. Sales and marketing expenses consist primarily of
personnel and other costs related to our sales and marketing programs. Sales and
marketing expenses increased to $11.7 million in 1999 from $7.3 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 partners, selling more online advertising, and
supporting the marketing services business. In addition, in connection with the
Lycos, Inc. marketing agreement entered into in the third quarter of 1999, we
recorded a warrant valued at approximately $2.2 million. Of this amount,
$444,000 was amortized to sales and marketing expense in 1999. The remainder is
being amortized on a straight line basis over the remaining term of the
agreement.
General and Administrative. General and administrative expenses consist
primarily of costs related to general corporate functions, including executive
management, human resources, facilities, accounting and legal. General and
administrative expenses increased to $8.5 million in 1999 from $5.5 million in
1998. The increase in general and administrative expenses is primarily due to
acquisition costs of $1.3 million related to the acquisitions of University
Netcasting, Inc. and Transaction Service Providers, Inc., and increases in
facilities, legal, accounting and personnel related costs.
Depreciation and Amortization. Depreciation and amortization expenses
increased to $2.0 million in 1999 from $1.2 million in 1998. Increases in
amortization related to goodwill and intangible assets were recorded as a result
of the purchases of Voice FX Corporation, The Travel Holding Group, LLC, The
Campus Agency, LLC, and increased depreciation expense as a result of fixed
asset purchases during 1999. These increases were partially offset by decreases
in amortization expense as a result of certain intangible assets becoming
completely amortized during 1999.
Stock-Based Compensation. We recorded deferred compensation of $4.2
million in 1998 and an additional $228,000 in 1999, offset by a reduction of
$259,000 due to option cancellations as a result of employee terminations in
1999. Of this amount, $1.9 million has been amortized to expense to date, of
which $1.1 million was recorded as an expense during 1999. The remainder is
being amortized over the remaining vesting period of the individual options.
Interest Income (Expense), Net. Interest income (expense), net includes
interest income from cash balances and interest expense related to Student
Advantage's financing obligations. Interest income (expense), net increased to
$1.4 million in 1999 from $121,000 in 1998. The increase is a result of interest
income earned on higher average cash, cash equivalents and marketable securities
balances during 1999 compared to 1998.
Comparison of the Year Ended December 31, 1998 with the Year Ended December
31, 1997
Revenue. Total revenue increased from $4.8 million in 1997 to $19.4
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
from $1.8 million in 1997 to $12.2 million in 1998 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 SAM, Student Advantage Magazine and the Student Advantage
web site. The first two issues of SAM, Student Advantage Magazine shipped in the
fourth quarter of 1998.
AT&T accounted for approximately 50% and 61% of total revenue for 1997 and
1998. Additionally, AT&T accounted for approximately 77% and 95% of subscription
revenue for 1997 and 1998, and 4% and 41% of other revenue for 1997 and 1998. No
other single customer accounted for 10% or more of total revenues for 1997 or
1998.
19
<PAGE> 23
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 34.0% 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 $702,000 in
1997 to $7.9 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, Student Advantage Magazine, 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 38.1%
in 1997 to 64.6% 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, Student Advantage Magazine, which exceeded revenue from
the production of SAM.
Product Development. Product development expenses increased from $3.3
million in 1997 to $4.9 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.
Sales and Marketing. Sales and marketing expenses increased from $1.9
million in 1997 to $7.3 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 $2.7 million in 1997 to $5.5 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 $351,000 in 1997 to $1.2 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 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.
Interest Income (Expense), Net. Interest income, net increased from an
expense of $77,000 in 1997 to income of $121,000 in 1998. The increase was a
result of interest income earned on cash balances as a result of the conversion
of the notes payable to convertible preferred stock and the issuance of
convertible preferred stock in February, April and October of 1998, as well as
interest from a promissory note to a stockholder, which were offset by interest
due on borrowings under our line of credit and notes payable to stockholders.
Additionally, Student Advantage incurred interest expense related to loans from
its chief executive officer, which were repaid in full in 1998.
20
<PAGE> 24
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, Student Advantage has financed its operations
primarily through the private placement and public offering 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. In
June 1999, we completed our initial public offering selling 6.0 million shares
of common stock and raising proceeds to the Company of $44.6 million. On July
21, 1999, an additional 900,000 shares were issued by Student Advantage as a
result of the full exercise of the underwriters' over-allotment option,
resulting in additional proceeds of $6.7 million. As of December 31, 1999,
Student Advantage had $35.9 million in cash, cash equivalents and marketable
securities.
Net cash used for operating activities was $12.9 million in 1999. Net cash
used in 1999 was primarily a result of a net loss of $19.6 million an increase
in accounts receivable of $776,000, an increase in prepaid, other current assets
and other assets of $2.4 million. These increases were partially offset by an
increase in deferred revenue of $2.1 million and an increase in accounts payable
and accrued expenses of $3.9 million. Net cash used for operations for 1998 of
$7.2 million resulted primarily from an increase in accounts receivable of $2.7
million and a net loss of $10.5 million. 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 was
$852,000 in 1997 which was affected by an increase in deferred revenue of $5.7
million. 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 $786,000 in 1997, $2.0 million
in 1998 and $30.4 million in 1999. The net cash used for investing activities in
1999 was primarily due to $20.5 million used for purchases of marketable
securities, net of proceeds from the sale of marketable securities, and to a
lesser extent the purchase of fixed assets and the acquisitions of The Travel
Holding Group, Campus Agency and VoiceFX businesses and $4.3 million related to
the equity investment in edu.com. Net cash used for investing activities in 1998
was due primarily to the purchase of fixed assets and the acquisition of
Collegiate Advantage in 1998. In 1997, Student Advantage used cash for investing
activities to purchase fixed assets and for its acquisition of The Main Quad.
Net cash provided by financing activities was $5.0 million in 1997, $9.5
million in 1998, and $50.9 million in 1999. The net cash provided by financing
activities in 1999 was primarily the result of the net proceeds of $49.9 million
in connection with sales of the Student Advantage's common stock and to a lesser
extent cash received from the proceeds from the exercise of employee stock
options and the employee stock purchase plan. Cash provided by financing
activities in 1998 was primarily due to net cash proceeds of $11.9 million from
the sale of shares of Student Advantage common and preferred stock, partially
offset by a distribution of $2.3 million to LLC members. In 1997, Student
Advantage generated cash from financing activities through the sale of common
and preferred stock for net proceeds of $4.7 million offset by the repurchase of
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 December 31, 1999, no amounts were outstanding under either the
line of credit or 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 will be sufficient to
meet its anticipated needs for working capital and capital expenditures for at
least 12 months following the date of this prospectus.
21
<PAGE> 25
YEAR 2000 ISSUES
Student Advantage does not internally develop a significant amount of
software, and to date, has not experienced significant disruptions to its
operating or administrative systems. Student Advantage believes that its
significant vendors and service providers are Year 2000 compliant and has not,
to date, been made aware that any of its significant vendors or service
providers have suffered Year 2000 disruptions in their systems.
Accordingly, Student Advantage does not anticipate incurring material
expenses or experiencing any material operational disruptions as a result of any
Year 2000 problems. Student Advantage spent an immaterial amount on Year 2000
testing and compliance during the year ended December 31, 1999. Most of Student
Advantage's expenses related to the operating costs associated with time spent
by its employees in the evaluation and planning process and Year 2000 compliance
matters.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities" ("SFAS No. 133"). The new
standard 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 and is effective for Student Advantage's fiscal year ending December
31, 2000. Student Advantage does not expect the adoption of SFAS No. 133 to have
a material effect on its financial position or results of operations. On July 7,
1999, the FASB issued SFAS 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133 -
an amendment to FASB Statement No. 133." SFAS 133, as amended, by SFAS 137, is
effective for Student Advantage's fiscal year ending December 31, 2001.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements." This
bulletin summarizes certain views of the staff on applying generally accepted
accounting principles to revenue recognition in financial statements. The staff
believes that revenue is realized or realizable and earned when all of the
following criteria are met: persuasive evidence of an arrangement exists;
delivery has occurred or services have been rendered; the seller's price to the
buyer is fixed or determinable; and collectibility is reasonably assured. The
Company does not expect the application of this bulletin to have a material
impact on the Company's financial positions or results of operation.
22
<PAGE> 26
BUSINESS
OVERVIEW
Student Advantage, Inc. is dedicated to serving the needs of college
students through our leading membership program and our network of web sites,
including studentadvantage.com, FANSonly.com and UWIRE.com. With our national
fee-based membership program, we have created a community of over 1,300,000
student members who receive benefits including ongoing discounts on products and
services offered by over 50 national sponsors and 15,000 participating locations
in 125 local markets. Discounts are made available to students both through our
studentadvantage.com web site and at sponsors' retail locations. Student
Advantage offers the only ongoing discount available to college students for the
products and services of many of our sponsors. 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 network of web sites for
students. Our network of web sites 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
23
<PAGE> 27
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, commerce and other services.
THE STUDENT ADVANTAGE SOLUTION
Student Advantage is a leading resource and trusted advocate dedicated to
serving the needs of college students both online and offline. As a result, we
are positioned to serve as a point of access to this market. Through our
national membership program and our network of web sites, we have created a
community of over 1,300,000 college student members who receive benefits
including ongoing discounts on products and services offered by over 50 national
sponsors and 15,000 participating locations in 125 local markets.
Student Advantage has created a comprehensive online destination for
college students, studentadvantage.com, as well as additional online content
destinations focused on addressing specific needs of college students, including
the FANSonly official college and university athletic sites and the
U-WIRE college and university newspaper site.
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 certain universities, colleges or university
organizations or other sponsors 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.
Benefits to Students. Through our network of web sites, including
studentadvantage.com, we have created an attractive online destination for
students. Our web sites provide content, community and e-commerce focused on
addressing the needs of college students. Our web sites offer services and
information targeted to college students, including discount purchasing, travel
alternatives, college sporting news, career and job searches, lifestyle and
extracurricular decisions and financial aid information. Our web sites:
- enable access to approximately 500 college and university newspapers,
- offer an e-commerce marketplace,
- provide online bulletin boards, and
- include a searchable directory of sponsors that offer discounts for
Student Advantage members.
The Student Advantage Membership Program provides college students with
ongoing discounts on products and services from national sponsors including
Amtrak, Foot Locker, Greyhound, Staples, Tower
24
<PAGE> 28
Records, textbooks.com and Barnes & Noble College Bookstores. The membership
program also enables students to receive discounts for products and services in
125 local markets.
Student Advantage members also receive a subscription to SAM, 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 and offline 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.
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.
We maintain ten 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. In partnership with Student
Advantage, colleges and universities can generate goodwill with students and
help reduce the cost of student life by making the Student Advantage membership
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.
Colleges and universities are seeking to enhance their service offerings to
students and obtain additional revenue streams. Through growth of our existing
product and service offerings and through our recent acquisitions of University
Netcasting, Transaction Service Providers and Voice FX (Campus Direct), Student
Advantage is able to provide a college or university with revenue opportunities
and student services, including:
- operation of a college, university or college sport association's
official athletic web site, including content, community and e-commerce
offerings,
- management of a college's or university's card programs, and
- technology solutions that enable students and alumni to access or request
academic information online and by telephone from university registrars,
including grades, financial aid status and transcripts.
25
<PAGE> 29
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
base of over 1,300,000 members provides a platform for building the leading
online destination for students. Our goal is to establish our network of web
sites, as the primary vehicle for delivery of products and services to students.
We believe that the internet is ideally suited for providing products and
services and is a natural extension of our current business. Our web sites
currently offer content, community and e-commerce services targeted specifically
to college students. The web sites also allow students to enroll in our
membership program, receive customer service and search our directory of
national and local sponsors that offer discounts. We intend to enhance our
online offerings by making additional content available and by expanding our
e-commerce marketplace with additional sponsors.
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 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,
- offering our program to high school students and college graduates, and
- selling memberships in bulk either through corporate sponsorships or
directly to universities.
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.
Continue to Pursue Strategic Acquisitions and Alliances. Since inception,
we have acquired and integrated ten complementary businesses in order to expand
and strengthen our offerings to students. We plan to continue to acquire
companies, make equity investments or enter into alliances that offer
opportunities to increase our online traffic and obtain new technologies.
26
<PAGE> 30
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 sites 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. As of December 31, 1999, over 1,300,000
students at over 3,000 colleges and universities were members of the Student
Advantage Membership Program. Members typically subscribe for one-year
memberships that coincide with the academic year. Memberships are sold in three
different ways. To date, almost all of our members have received their Student
Advantage memberships at no charge from AT&T by either electing to apply for an
AT&T calling card in connection with their Student Advantage membership or by
receiving a free Student Advantage membership from AT&T. The AT&T/Student
Advantage 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, university organizations and other sponsors for
distribution free of charge to students. In addition, students may purchase
memberships directly from Student Advantage 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 50
national sponsors and 15,000 participating locations in 125 local markets.
Student-Focused Content and Services
Our Network of Web Sites
Our network of web sites, including studentadvantage.com, FANSonly.com and
UWIRE.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, college sports, travel, career, education, 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
approximately 500 college publications using our U-WIRE news feed. In
addition, our studentadvantage.com web site provides students with
information relevant 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. Our web sites offer students a number of
community-building services. Student Advantage's online bulletin boards
give students the opportunity to discuss topics such as interviewing
techniques, college sports and campus life. We allow students to set up
their own e-mail account, organize contact information in an online 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 directly purchase travel-related products,
Eurail passes and official university and college athletic merchandise at
our sites. In addition, Student Advantage members 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
school and office supplies, books, software, music, footwear,
27
<PAGE> 31
magazines and flowers. In order to receive discounts on the products
offered through our web site, students must join our membership program.
U-WIRE (University Wire)
U-WIRE is a daily electronic news service providing college news, sports,
opinion and entertainment content collected from approximately 500 college
publications. 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.
SAM, Student Advantage Magazine
The Student Advantage membership includes a subscription to SAM, Student
Advantage Magazine. SAM is a magazine that is mailed directly to our members and
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.
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. Our marketing services are typically offered
to businesses on a fixed-cost basis or hourly rate basis. 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.
In October 1999, we expanded our corporate marketing services through our
acquisition of Voice FX Corporation, a provider of internet and interactive
voice response telephone services to colleges and universities. Voice FX has
secured a total of over 55 contracts for its services. In several cases, a
single college or university has entered into more than one contract for Voice
FX's services. Through these contractual relationships, Voice FX has secured
marketing rights that enable businesses to promote products and services, in a
targeted manner, to students. Certain corporate marketing clients of Voice FX
also use Voice FX's integrated voice response services for general consumer
marketing.
Our marketing services group utilizes ten regional offices across the
United States. The broad geographical reach of our marketing services group
allows us to execute our services nationwide.
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.
28
<PAGE> 32
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, without the consent of AT&T, 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,
without the consent of AT&T, any third party, other than certain colleges,
universities and university organizations based on their size, to offer a
Student Advantage membership to college students free of charge.
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 our 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. 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 50% of our total revenues in 1997, 61% of our total revenues in 1998 and 55%
of our total revenues in 1999. While we are not aware of 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.
Student Advantage is in discussions with AT&T with respect to the possible
restructuring of its agreements with AT&T. There can be no assurance that such
discussions will result in any restructuring.
Lycos
In July 1999, we entered into a strategic alliance with Lycos, Inc. to gain
marketing and distribution for studentadvantage.com and to sell Student
Advantage memberships. As part of the alliance, Lycos links to a co-branded
version of studentadvantage.com from lycos.com and promotes the co-branded web
site through the Lycos network. Student Advantage and Lycos share in the
advertising, e-commerce and membership sales revenue generated from the
co-branded version of studentadvantage.com.
edu.com
In November 1999, we entered into a strategic alliance with edu.com, Inc.
to provide edu.com with marketing and distribution within both the
studentadvantage.com web site and the Student Advantage membership program, and
to promote edu.com as our exclusive technology e-commerce destination and member
rewards partner. We will receive $2.0 million in cash over the two year term of
our agreement with edu.com. In addition, edu.com will promote the Student
Advantage membership at the edu.com web site and will provide exclusive benefits
to Student Advantage members for shopping at edu.com.
29
<PAGE> 33
Sponsors
Student Advantage offers its members discounts on products and services
from over 50 national sponsors and over 15,000 participating locations in 125
local markets, including rail fares, bus fares, music, school supplies, books
and clothing. Representative national sponsors and local markets include:
REPRESENTATIVE NATIONAL SPONSORS REPRESENTATIVE LOCAL MARKETS
1-800-FLOWERS.COM
Amtrak Ann Arbor, Michigan
Barnes & Noble Auburn, Alabama
College Bookstores Austin, Texas
Capsized.com Berkeley, California
Champs Sports Boston, Massachusetts
Choice Hotels International Boulder, Colorado
Foot Locker Chapel Hill, North Carolina
Franklin Covey Chicago, Illinois
Greyhound Columbus, Ohio
Hostelling International Lawrence, Kansas
Priceline.com Los Angeles, California
Rockport Madison, Wisconsin
Staples New York, New York
textbooks.com Philadelphia, Pennsylvania
The Princeton Review San Diego, California
Tower Records Tallahassee, Florida
Washington, D.C.
Some of our national sponsors, including Amtrak(R), Staples, Staples.com
and Tower Records, offer the Student Advantage discount as 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. Unlike many of our competitors, we are able to combine
our online and offline marketing and media capabilities to offer a comprehensive
marketing package to our corporate partners. Integrated marketing offerings
include print, on-campus and web site sponsorships.
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 60 colleges, universities and university
organizations. These schools and organizations typically agree to co-market the
Student Advantage membership program to their students. Co-marketing includes
sending a letter to students explaining the program with an application for
membership, and receiving 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:
<TABLE>
<S> <C>
Arkansas State University University of Chicago
Auburn University University of North Carolina -- Charlotte
Boston College University of Pennsylvania
Clemson University University of Utah
Emory University University of Virginia
University of California -- Santa Barbara Yale University
</TABLE>
In addition, a limited number of colleges and universities have purchased
Student Advantage memberships in bulk, at varying discounts depending on the
number of memberships purchased, and distributed the memberships to their
students free of charge.
Student Advantage has also established contractual relationships with many
colleges and universities whereby Student Advantage acts as a service provider
to the college or university. Service provider
30
<PAGE> 34
relationships include athletic office web site operation, hosting and management
through the FANSonly brand, school newspaper online publishing and syndication
through the U-WIRE brand, grade and financial aid status reporting and
transcript processing through the Campus Direct brand and stored value card
program operation and management under the Student Advantage Cash brand.
SALES AND MARKETING
As of December 31, 1999, Student Advantage had a direct sales organization
consisting of 34 professionals. Twelve of these professionals are dedicated to
the AT&T relationship with an additional ten professionals dedicated primarily
to managing our other significant sponsor relationships. The remaining
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 33 professionals
in ten 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, to continue to be
both 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
employed 11 marketing professionals as of December 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 currently hosted at USWeb Corporation (doing
business as USWeb/CKS) and utilizes Microsoft SQL 7 database software. Our
production servers utilize Sun Microsystems, Inc. hardware and use Netscape web
server software. Student Advantage's system hardware is currently hosted at
USWeb/CKS, a third-party facility in New York, and Exodus, a third party
facility in Massachusetts and California. The Company currently expects to move
all of its system hardware to Exodus during the second quarter of 2000. A group
of systems administrators and network managers at
31
<PAGE> 35
USWeb/CKS and Exodus 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 Exodus' 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, such as web sites developed by Campus Pipeline, CollegeClub.com,
Student.Net Publishing and CommonPlaces,
- membership programs, such as programs offered by Memberworks and Cendant,
- 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 1,300,000 members, our
national and local sponsors and our relationships with colleges and universities
are principal competitive advantages. We are not able to reliably estimate the
number of our direct competitors. However, many of our competitors, current and
potential, have significantly greater financial, technical or
32
<PAGE> 36
marketing resources. In addition, providers of internet tools and services may
be 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 patent, copyrights, service marks,
trademarks, trade dress, trade secrets, proprietary technology and similar
intellectual property as important to its success, and relies on patent,
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 patent, 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 patent, 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", "FANSonly", "Rail Connection", "Campus
Direct", "Student Advantage Cash" and "Voice FX" 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. Also, stored-value card
products currently being developed by the Company, although not currently
regulated by the Federal Reserve, may be subject to state banking regulations
and/or future amendments to current Federal banking regulations. The adoption of
any such laws or regulations could adversely affect the costs of communicating
on the internet, adversely affect the growth in use of the internet, decrease
the acceptance of the internet as a communications and commercial medium or
restrict the Company's ability to introduce new products. Moreover, it may take
years to determine the extent to
33
<PAGE> 37
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.
EMPLOYEES
As of December 31, 1999, Student Advantage had a total of 316 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's principal executive offices are located at 280 Summer
Street in Boston, Massachusetts, where it presently leases an aggregate of
approximately 39,000 square feet. Our current leases for this facility expire at
various times through 2005. We also maintain regional offices and lease space in
Berkeley, California; Carlsbad, California; Los Angeles, California; Atlanta,
Georgia; Chicago, Illinois; Hanover, New Hampshire; New York, New York; Plymouth
Meeting, Pennsylvania; Dallas, Texas; 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.
34
<PAGE> 38
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of Student Advantage, and their ages
as of February 29, 2000, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Raymond V. Sozzi, Jr.(1)....... 31 Chairman of the Board of Directors, President and Chief Executive Officer
Christopher B. Andrews......... 44 Vice President, Finance and Administration, and Chief Financial Officer
G. Todd Eichler................ 32 Executive Vice President, Business Services
Mason L. Myers................. 29 Executive Vice President, Student and University Services
Ronald J. Kos.................. 58 Chief Operating Officer
Andrea K. Abegglen............. 33 Vice President, Marketing Communications
Daniel G. Siegel............... 31 Vice President, Product Development
John M. Connolly(2)............ 47 Director
William S. Kaiser(2)(3)........ 44 Director
John S. Katzman(3)............. 40 Director
Marc J. Turtletaub(3).......... 54 Director
Charles E. Young(2)............ 68 Director
</TABLE>
- ---------------
(1) Member of the Stock Option Committee.
(2) Member of the Audit Committee.
(3) Member of 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.
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.
G. Todd Eichler has served as Executive Vice President, Business Services
of Student Advantage since December 1999, and served as Executive Vice
President, Member Management of Student Advantage from January 1997 to December
1999 and as Vice President, Marketing of Student Advantage from January 1995 to
December 1996. From 1989 to 1991 Mr. Eichler was employed by Bain & Company as
an associate consultant.
Mason L. Myers has served as Executive Vice President, Student and
University Services of Student Advantage since December 1999, as Vice President,
Business Development of Student Advantage from January 1999 to December 1999 and
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.
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
Signal Ridge Group, a national consulting practice that he founded.
35
<PAGE> 39
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.
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.
John M. Connolly has served as a Director of Student Advantage since May
1999. Mr. Connolly founded Mainspring, Inc., an internet e-strategy service
firm, and has served as its President and Chief Executive Officer since June
1996. In July 1989, Mr. Connolly founded Course Technology, Inc., a publishing
company focused on the higher education market, and served as its President and
Chief Executive Officer from July 1989 to April 1996. From August 1994 to April
1996, Mr. Connolly was also employed by the International Thomson Publishing
Company, a publishing company, as Chief Executive Officer of its Media Group.
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, Open Market, Inc. and Red Hat, Inc.
John S. Katzman has served as a Director of Student Advantage since March
1996. Mr. Katzman founded The Princeton Review, a provider of test preparation
and admission services, and has served as its President since 1981.
Marc J. 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.
Charles E. Young has served as a Director of Student Advantage since
September 1999. Dr. Young has served as President of the University of Florida
since November 1999. Dr. Young served as Chancellor of the University of
California Los Angeles (UCLA) from September 1968 to June 1997, and served as
Chancellor Emeritus of UCLA from July 1997 to October 1999. Dr. Young currently
serves as a Director of Intel Corporation.
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.
BOARD COMPOSITION
The Board of Directors of Student Advantage is divided into three staggered
classes, each of whose members serve a three-year term. The Board consists of
two Class I Directors (Messrs. Katzman and Young), two Class II Directors
(Messrs. Connolly and Sozzi) and two Class III Directors (Messrs. Kaiser and
Turtletaub). At each annual meeting of stockholders, a class of directors is
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 Directors, Class II Directors
and Class III Directors 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
36
<PAGE> 40
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. Connolly, Kaiser and Young, which reviews the results and scope of
the audit and other services provided by Student Advantage's independent public
auditors. The Board also has a Stock Option Committee composed of Mr. Sozzi,
which grants stock options and makes other awards under the Student Advantage
1998 Stock Incentive Plan to employees who are not executive officers in
accordance with guidelines established by the Board.
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.
On June 10, 1999, we granted John M. Connolly an option under our 1998
Stock Incentive Plan to purchase 5,000 shares of common stock at an exercise
price of $9.90 per share, in connection with his joining our Board of Directors.
On July 30, 1999, the option was amended to provide that it shall be vested in
full on such date. On September 20, 1999, we granted Mr. Connolly an option
under our 1998 Stock Incentive Plan to purchase 5,000 shares of common stock at
an exercise price of $12.25 per share. The option vests as to 25% of the shares
on each of September 20, 2000, 2001, 2002 and 2003.
On September 20, 1999, we granted Charles E. Young an option under our 1998
Stock Incentive Plan to purchase 10,000 shares of common stock at an exercise
price of $12.25 per share, in connection with his joining our Board of
Directors. The option vests as to 25% of the shares on each of September 20,
2000, 2001, 2002 and 2003.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
during the year ended December 31, 1999 of Student Advantage's Chief Executive
Officer and the four most highly compensated executive officers, other than the
Chief Executive Officer, whose salary and bonus for 1999 equaled or exceeded
$100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION(1) AWARDS(2)
------------------- ------------
SECURITIES
FISCAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
--------------------------- ------ -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Raymond V. Sozzi, Jr....................... 1999 $153,462 $ 75,000 -- --
Chief Executive Officer and President 1998 93,798 150,000 -- $6,000(3)
G. Todd Eichler............................ 1999 114,615 50,000 -- --
Executive Vice President, Business
Services 1998 106,475 50,000 -- --
Christopher B. Andrews..................... 1999 130,000 30,000 -- --
Vice President, Finance and
Administration and Chief Financial
Officer
Mason L. Myers............................. 1999 118,654 37,500 300,000 --
Executive Vice President, Student and
University Services
Ronald J. Kos(4)........................... 1999 95,192 33,333 650,001 1,500(5)
Chief Operating Officer
</TABLE>
- ---------------
(1) In accordance with the rules of the Securities and Exchange Commission,
other compensation in the form of perquisites and other personal benefits
have been omitted in those instances where such
37
<PAGE> 41
perquisites and other personal benefits constituted less than the lesser of
$50,000 or 10% of the total of annual salary and bonus for the executive officer
for the fiscal year.
(2) The Company did not grant any stock appreciation rights or make any
long-term incentive plan payouts during the years ended December 31, 1998
and 1999. As of December 31, 1999, Messrs. Andrews and Myers held 69,375 and
15,000 shares of common stock, respectively, subject to a right of
repurchase in favor of Student Advantage, with a value of $1,516,364 and
$327,863, respectively, based on the fair market value of Student
Advantage's common stock on such date. These shares were acquired upon the
exercise of unvested options and generally vest in equal annual installments
over four years. Dividends will be paid on such shares to the extent
dividends are declared and paid on Student Advantage's common stock.
(3) Represents an automobile allowance of $6,000.
(4) Mr. Kos commenced employment with the Company in May 1999. His annual salary
is $150,000.
(5) Represents a parking allowance of $1,500.
38
<PAGE> 42
OPTION GRANTS DURING THE YEAR ENDED DECEMBER 31, 1999
The following table sets forth certain information concerning grants of
stock options during the year ended December 31, 1999 to each of the executives
named in the Summary Compensation Table.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL RATES OF
SHARES TOTAL OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ------------------------------
NAME GRANTED FISCAL YEAR SHARE(1) DATE 5% 10%
---- ---------- ------------- --------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Raymond V. Sozzi, Jr. ....... -- -- -- -- -- --
G. Todd Eichler.............. -- -- -- -- -- --
Christopher B. Andrews....... -- -- -- -- -- --
Mason L. Myers............... 300,000 10.6% $12.25 10/18/09 $2,311,188 $ 5,857,004
Ronald J. Kos................ 650,001 23.0 9.90 5/3/09 4,046,943 10,255,749
</TABLE>
- ---------------
(1) Options are incentive stock options or nonstatutory stock options, become
exercisable over a four-year period and generally terminate three months
following termination of the executive officer's employment with the Company
or the expiration date, whichever occurs earlier. The exercise price of each
option was determined to be equal to the fair market value per share of the
Common Stock on the date of grant.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date. The gains shown are net of the option exercise price,
but do not include deductions for taxes or other expenses associated with
the exercise of the option or the sale of the underlying shares. The actual
gains, if any, on the exercises of stock options will depend on the future
performance of the Common Stock, the optionholder's continued employment
through the option period, and the date on which the options are exercised.
39
<PAGE> 43
OPTION EXERCISES AND 1999 YEAR-END OPTION VALUES
The following table sets forth certain information concerning the aggregate
number of shares of Common Stock acquired upon option exercises by the
executives named in the Summary Compensation Table during the year ended
December 31, 1999 and the value realized upon exercise as well as the number and
value of unexercised options held by each of the Named Executives on December
31, 1999.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR END FISCAL YEAR END(2)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Raymond V. Sozzi, Jr. ..... -- -- -- -- -- --
G. Todd Eichler............ -- -- -- -- -- --
Christopher B. Andrews..... 120,000 $114,750 82,500 -- $1,803,244 --
Mason L. Myers............. 15,000 22,950 45,000 300,000 983,588 $2,981,250
Ronald J. Kos.............. -- -- 162,500 487,501 1,996,719 5,990,169
</TABLE>
- ---------------
(1) Based on the fair market value of the Common Stock as most recently
determined by the Board of Directors as of the date of exercise less the
option exercise price. Assuming the fair market value of the Common Stock on
the date of exercise was the initial public offering price of $8.00 per
share, the value received by Mr. Andrews would be $920,400 and the value
received by Mr. Myers would be $115,050.
(2) Based on a value of $22.1875 per share, the fair market value of the Common
Stock on December 31, 1999, less the option exercise price.
40
<PAGE> 44
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 December 31, 1999, 997,327 shares of
common stock had been issued upon exercise of options granted under the
Incentive Plan. As of that date, options to purchase 3,813,152 shares of common
stock at a weighted average exercise price of $7.166 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 December 31, 1999,
a total of 2,689,521 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. The Board of Directors has also
authorized the Stock Option Committee to grant options and make other awards
under the Incentive Plan to employees who are not officers in accordance with
guidelines adopted by the Board. Subject to any applicable limitations contained
in the Incentive Plan, the Board of Directors, the Compensation Committee, the
Stock Option 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,
41
<PAGE> 45
- 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.
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, which was approved by the stockholders in May 1999.
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
42
<PAGE> 46
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.
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 1999 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 $133,000 in 1999 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.
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 granted Mr. Kos options to purchase an
aggregate of 650,001 shares of common stock at an exercise price of $9.90 per
share. The options vest as to 25% of the shares on December 1, 1999 and as to an
additional 25% on each of May 3, 2001, May 3, 2002 and May 3, 2003. 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.
43
<PAGE> 47
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 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.
44
<PAGE> 48
CERTAIN TRANSACTIONS
EQUITY FINANCING
On October 20, 1998, Greylock IX Limited Partnership and Marc J. 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. (now known as TMQ Ventures, Inc.), an entity
controlled by Mr. Myers, an executive officer of Student Advantage. 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 J.
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. On
June 23, 1999, all of these shares of convertible preferred stock were 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.
45
<PAGE> 49
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, 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, 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 Liniado
provide for the acceleration of vesting in the
46
<PAGE> 50
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.
In October 1999, Student Advantage granted Mr. Myers, Executive Vice
President, Student and University Services of Student Advantage, options under
the 1998 Stock Incentive Plan to purchase an aggregate of 300,000 shares of
common stock at an exercise price of $12.25 per share. The options vest as to
25% of the shares on each of October 19, 2000, October 19, 2001, October 19,
2002 and October 19, 2003. The option agreements for Mr. Myers 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.
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 agreed to
distribute to its former LLC members approximately 45% of the predecessor LLC's
1998 taxable income 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. Student Advantage does not expect to make any such
distribution because it did not have taxable income in 1998.
47
<PAGE> 51
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of the common stock of Student Advantage as of February 29, 2000:
- 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 February 29, 2000,
but excludes shares of common stock underlying options held by any other person.
Percentage of beneficial ownership is based on 35,563,155 shares of common stock
outstanding as of February 29, 2000.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES BENEFICIALLY COMMON
NAME OF BENEFICIAL OWNER OWNED STOCK OUTSTANDING
------------------------ ------------------- -----------------
<S> <C> <C>
5% STOCKHOLDERS
Raymond V. Sozzi, Jr................................ 7,307,683 20.6%
Greylock IX Limited Partnership(1).................. 3,750,000 10.5
William S. Kaiser(1)................................ 3,750,000 10.5
Marc J. Turtletaub.................................. 3,750,000 10.5
Daniel G. Siegel.................................... 2,005,912 5.6
G. Todd Eichler..................................... 2,004,912 5.6
OTHER DIRECTORS
John S. Katzman(2).................................. 1,570,003 4.4
John M. Connolly(3)................................. 5,000 *
Charles E. Young(4)................................. 2,632 *
OTHER NAMED EXECUTIVES
Mason L. Myers(5)................................... 1,285,048 3.6
Christopher B. Andrews(6)........................... 185,632 *
Ronald J. Kos(7).................................... 162,500 *
All executive officers and directors as a group (12
persons)(8)....................................... 22,748,029 63.5%
</TABLE>
- ---------------
* Less than 1%.
(1) 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.
(2) Consists of 1,570,003 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.
48
<PAGE> 52
(3) Consists of 5,000 shares subject to presently exercisable options held by
Mr. Connolly.
(4) Consists of 2,632 shares subject to presently exercisable options held by
Mr. Young.
(5) Includes 1,225,048 shares held of record by TMQ Ventures, Inc. Mr. Myers is
a stockholder, director and a Co-President of TMQ Ventures, Inc. Mr. Myers
shares investment and voting power with respect to these shares. Mr. Myers
disclaims beneficial ownership of such shares, except to the extent of his
pecuniary interest therein. Includes 45,000 shares held of record by Mr.
Myers and 15,000 shares subject to options held by Mr. Myers, which are
immediately exercisable in full. Any shares acquired upon exercise of such
options and 30,000 of such shares held of record by Mr. Myers are subject
to a right of repurchase in favor of Student Advantage which vests over a
four-year period.
(6) Consists of 82,500 shares subject to presently exercisable options held by
Mr. Andrews and 103,132 shares held of record by Mr. Andrews. All shares
acquired upon exercise of such options and 69,375 of such shares held of
record are subject to a right of repurchase in favor of Student Advantage
which vests over a four-year period.
(7) Consists of 162,500 shares subject to presently exercisable options held by
Mr. Kos.
(8) Includes 267,632 shares subject to presently exercisable options held by
the executive officers and directors. Of such shares subject to options,
97,500 shares acquired upon the exercise of such options are subject to a
right of repurchase in favor of Student Advantage which vests over a
four-year period. Also includes 99,375 shares held of record by the
executive officers, which are subject to a right of repurchase in favor of
Student Advantage which will vest over a four-year period.
49
<PAGE> 53
SELLING STOCKHOLDERS
The selling stockholders are former stockholders of University Netcasting,
Inc., which we acquired on June 18, 1999. We issued a total of 2,438,875 shares
of common stock to the selling stockholders in connection with the acquisition
and agreed to register 50% of such shares under the Registration Statement of
which this prospectus constitutes a part. The following table sets forth, to the
knowledge of Student Advantage, certain information about the selling
stockholders as of November 30, 1999.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF NUMBER OF SHARES OF
COMMON STOCK COMMON STOCK
BENEFICIALLY OWNED NUMBER OF SHARES OF BENEFICIALLY OWNED
PRIOR TO COMMON STOCK AFTER
NAME OF SELLING STOCKHOLDER OFFERING(1)(2) OFFERED HEREBY OFFERING(1)(2)(3)
--------------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C>
iXL Enterprises, Inc.(4)............... 625,834 314,628 311,206
Stipa Investments, L.P................. 550,710 276,861 273,849
Brentwood Associates(5)................ 371,200 186,616 184,584
Sorrento Ventures(6)................... 269,964 135,721 134,243
Richard B. Beedon(7)(8)................ 94,762 46,449 48,313
William Patrick Battle................. 74,025 37,215 36,810
William R. Battle III(9)............... 74,025 37,215 36,810
Lawrence & Company..................... 71,590 35,991 35,599
Jeffrey Padnos(9)(10).................. 54,185 27,241 26,944
William Westrate....................... 48,481 24,373 24,108
Black Lake Group....................... 33,741 16,963 16,778
Winnico Holdings, Inc.................. 30,845 15,507 15,338
SIP Investment, LLC.................... 28,517 14,337 14,180
Douglas Padnos(10)..................... 22,814 11,470 11,344
David Upton............................ 19,963 10,036 9,927
Daniel Padnos(10)...................... 17,110 8,602 8,508
Michael Shea........................... 10,932 5,496 5,436
Benjamin Padnos........................ 10,683 5,371 5,312
Jay Kear(9)............................ 8,883 4,466 4,417
B. Mason Flemming Jr................... 2,959 1,488 1,471
Roy W. Lessard......................... 2,959 1,488 1,471
Patina LLC............................. 1,234 621 613
J.F. Seyferth, Jr. Trust............... 1,140 574 566
Katheryn Fallon........................ 833 419 414
Catherine Swormstedt................... 214 108 106
Ronald Inman(7)(11).................... 3,669 80 3,589
Benjamin Margoles(7)................... 159 80 79
Eric Crawford(7)....................... 61 31 30
</TABLE>
- ---------------
(1) Except as otherwise indicated, the number of shares beneficially owned is
determined under the rules promulgated by the SEC, and the information is
not necessarily indicative of beneficial ownership for any other purpose.
The selling stockholders have sole voting and investment power with respect
to all shares listed as owned by the selling stockholders. The number of
shares listed for each stockholder as owned by such stockholder after the
offering is fewer than 1% of the number of shares of common stock
outstanding.
(2) Of the total shares listed as owned by the selling stockholders, a total of
230,622 shares are held in an escrow account to secure indemnification
obligations to Student Advantage of the selling stockholders. It is
expected that these shares (less any shares that may be distributed from
the escrow account to Student Advantage in satisfaction of indemnification
claims) will be released from escrow and distributed to the selling
stockholders on June 18, 2000. The number of shares indicated as owned by
each selling stockholder includes those shares (approximately 10% of the
number of shares listed as beneficially owned by each selling stockholder)
which such selling stockholder is entitled to receive upon distribution of
these shares from the escrow account.
50
<PAGE> 54
(3) We do not know when or in what amounts a selling stockholder may offer
shares for sale. The selling stockholders might not sell any of all of the
shares offered by this prospectus. Because the selling stockholders may
offer all or some of the shares pursuant to this offering, and because
there are currently no agreements, arrangements or understandings with
respect to the sale of any of the shares that will be held by the selling
stockholders after completion of the offering, we cannot estimate the
number of shares that will be held by the selling stockholders after
completion of the offering. For purposes of this table, however, we have
assumed that, after completion of the offering, none of the shares covered
by this prospectus will be held by the selling stockholders.
(4) U. Bertram Ellis, Jr., the Chairman and Chief Executive Officer of iXL
Enterprises, Inc., is a former member of the Board of Directors of
University Netcasting, Inc.
(5) The number of shares listed as beneficially owned consists of 356,352
shares of common stock held by Brentwood Associates VIII, L.P. and 14,848
shares of common stock held by Brentwood Affiliates Fund, L.P. G. Bradford
Jones, who may be deemed to beneficially own such shares, is a former
member of the Board of Directors of University Netcasting, Inc.
(6) The number of shares listed as beneficially owned consists of 34,056 shares
of common stock held by Sorrento Ventures II, L.P., 100,569 shares of
common stock held by Sorrento Ventures III, L.P., 58,057 shares of common
stock held by Sorrento Ventures IV, L.P., 20,990 shares of common stock
held by Sorrento Ventures CE, L.P., and 56,292 shares of common stock held
by Sorrento Growth Partners I, L.P.
(7) Employee or former employee of Student Advantage and/or University
Netcasting. None of the other selling stockholders has held any position or
office with, or has otherwise had a material relationship with, Student
Advantage or any of its subsidiaries within the past three years.
(8) Mr. Beedon is the former Chief Executive Officer of University Netcasting,
Inc. and a former member of the Board of Directors of University
Netcasting, Inc. The number of shares listed as beneficially owned includes
2,369 shares of common stock issuable upon presently exercisable options.
(9) Former member of the Board of Directors of University Netcasting, Inc.
(10) Does not include 33,741 shares of common stock held by the Black Lake
Group, which Daniel Padnos, Douglas Padnos and Jeffrey Padnos may be deemed
to beneficially own.
(11) The number of shares listed as beneficially owned includes 3,510 shares of
common stock issuable upon presently exercisable options.
51
<PAGE> 55
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of Student Advantage consists 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 February 29, 2000, there were
outstanding (1) 35,563,155 shares of common stock held by 139 stockholders of
record and (2) options to purchase an aggregate of 3,814,421 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 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.
Under specified conditions and subject to customary exceptions, holders of
16,384,686 shares of common stock have demand registration rights with respect
to their shares of common stock to require us to register their shares of common
stock under the Securities Act, and they 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. Each of these holders
waived his or its right to participate in this registration of securities.
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
52
<PAGE> 56
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 "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 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 EquiServe Trust
Company, N.A.
53
<PAGE> 57
PLAN OF DISTRIBUTION
The shares covered hereby may be offered and sold from time to time by the
selling stockholders, or by their pledgees, donees, transferees or other
successors in interest. The selling stockholders will act independently of
Student Advantage in making decisions with respect to the timing, manner and
size of each sale. Such sales may be made in the over-the-counter market or
otherwise, at prices and under terms then prevailing or at prices related to the
then current market price or in negotiated transactions, including pursuant to
one or more of the following methods:
- purchases by a broker-dealer as principal and resale by such
broker-dealer for its own account pursuant to this prospectus;
- ordinary brokerage transactions and transactions in which the broker
solicits purchasers;
- block trades in which the broker-dealer so engaged will attempt to sell
the shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
- an over-the-counter distribution in accordance with the rules of the
Nasdaq National Market; and
- in privately negotiated transactions.
To the extent required, this prospectus may be amended and supplemented
from time to time to describe a specific plan of distribution. In connection
with distributions of the shares or otherwise, the selling stockholders may
enter into hedging transactions with broker-dealers or other financial
institutions. In connection with such transactions, broker-dealers or other
financial institutions may engage in short sales of the common stock in the
course of hedging the positions they assume with selling stockholders. The
selling stockholders may also sell the common stock short and redeliver the
shares to close out such short positions. The selling stockholders may also
enter into option or other transactions with broker-dealers or other financial
institutions that require the delivery to such broker-dealer or other financial
institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction). The selling
stockholders may also pledge shares to a broker-dealer or other financial
institution, and, upon a default, such broker-dealer or other financial
institution may effect sales of the pledged shares pursuant to this prospectus
(as supplemented or amended to reflect such transaction). In addition, any
shares that qualify for sale pursuant to Rule 144 may be sold under Rule 144
rather than pursuant to this prospectus.
In effecting sales, broker-dealers or agents engaged by the selling
stockholders, or by their pledgees, donees, transferees or other successors in
interest, may arrange for other broker-dealers to participate. Broker-dealers or
agents may receive commissions, discounts or concessions from the selling
stockholders, or from their pledgees, donees, transferees or other successors in
interest, in amounts to be negotiated immediately prior to the sale.
In offering the shares covered hereby, the selling stockholders, or their
pledgees, donees, transferees or other successors in interest, and any
broker-dealers and any other participating broker-dealers who execute sales for
the selling stockholders, may be deemed to be "underwriters" within the meaning
of the Securities Act in connection with such sales, and any profits realized by
the selling stockholders and the compensation of such broker-dealers may be
deemed to be underwriting discounts and commissions.
In order to comply with the securities laws of certain states, if
applicable, the shares must be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
We have advised the selling stockholders that the anti-manipulation rules
of Regulation M under the Exchange Act may apply to sales of shares in the
market and to the activities of the selling stockholders and their affiliates.
In addition, we will make copies of this prospectus available to the selling
stockholders for the purpose of satisfying the prospectus delivery requirements
of the Securities Act. The selling
54
<PAGE> 58
stockholders may indemnify any broker-dealer that participates in transactions
involving the sale of the shares against certain liabilities, including
liabilities arising under the Securities Act.
At the time a particular offer of shares is made, if required, a prospectus
supplement will be distributed that will set forth the number of shares being
offered and the terms of the offering, including the name of any underwriter,
dealer or agent, the purchase price paid by any underwriter, any discount,
commission and other item constituting compensation, any discount, commission or
concession allowed or reallowed or paid to any dealer, and the proposed selling
price to the public.
We have agreed to indemnify the selling stockholders against certain
liabilities, including certain liabilities under the Securities Act.
We have agreed with the selling stockholders to use our reasonable best
efforts to keep the Registration Statement of which this prospectus constitutes
a part effective until the earlier of (1) such time as all of the shares covered
by this prospectus have been disposed of pursuant to and in accordance with the
Registration Statement or (2) June 18, 2000.
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.
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 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 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.
55
<PAGE> 59
STUDENT ADVANTAGE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
STUDENT ADVANTAGE, INC.
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of December 31, 1998 and
1999...................................................... F-3
Consolidated Statement of Operations for the years ended
December 31, 1997, 1998 and 1999.......................... F-4
Consolidated Statement of Changes in Redeemable Convertible
Preferred Stock and Stockholders' Equity (Deficit) for the
years ended December 31, 1996, 1997, 1998 and 1999........ F-5
Consolidated Statement of Cash Flows for the years ended
December 31, 1997, 1998 and 1999.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
VOICE FX CORPORATION
Report of Independent Accountants........................... F-22
Consolidated Balance Sheets as of December 31, 1997 and 1998
and September 30, 1999 (unaudited)........................ F-23
Consolidated Statement of Operations for the years ended
December 31, 1997 and 1998 and the nine months ended
September 30, 1998 and 1999 (unaudited)................... F-24
Consolidated Statement of Stockholders' Equity for the years
ended December 31, 1997 and 1998 and the nine months ended
September 30, 1999 (unaudited)............................ F-25
Consolidated Statement of Cash Flows for the years ended
December 31, 1997 and 1998 and the nine months ended
September 30, 1998 and 1999 (unaudited)................... F-26
Notes to Consolidated Financial Statements.................. F-27
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Unaudited Pro Forma Combined Financial Statement............ F-34
Unaudited Pro Forma Combined Statement of Operations........ F-35
Notes to Unaudited Pro Forma Combined Financial Statement... F-36
</TABLE>
F-1
<PAGE> 60
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Student Advantage, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of changes in redeemable
convertible preferred stock and stockholders' equity (deficit) and of cash flows
present fairly, in all material respects, the financial position of Student
Advantage, Inc. and its subsidiaries at December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999 in conformity with accounting principals
generally accepted in the United States. 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 auditing standards generally
accepted in the United States, 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.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 11, 2000
F-2
<PAGE> 61
STUDENT ADVANTAGE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 6,140 $ 15,370
Marketable securities..................................... -- 20,546
Accounts receivable (net of allowance for doubtful
accounts of $70 and $250 at December 31, 1998 and 1999,
respectively).......................................... 3,209 4,527
Prepaid expenses and other current assets................. 352 2,698
-------- --------
Total current assets................................... 9,701 43,141
Property and equipment, net................................. 1,386 4,038
Investment.................................................. -- 4,262
Intangible and other assets, net............................ 617 9,355
-------- --------
Total assets........................................... $ 11,704 $ 60,796
======== ========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable.......................................... $ 1,985 $ 3,329
Accrued compensation...................................... 1,095 1,523
Other accrued expenses.................................... 1,912 4,574
Deferred revenue.......................................... 7,064 9,576
-------- --------
Total current liabilities.............................. 12,056 19,002
-------- --------
Notes payable............................................... -- 100
-------- --------
Total liabilities...................................... 12,056 19,102
-------- --------
Series A redeemable convertible preferred stock; $1 par
value; Authorized:
4,000,000 shares; Issued: 2,952,568 and 0 shares at
December 31, 1998 and 1999 , respectively; Outstanding:
2,747,036 and 0 shares at December 31, 1998 and 1999,
respectively.............................................. 10,196 --
Commitments and contingencies (Note 12)
Stockholders' equity (deficit)
Preferred Stock, $0.01 par value, 5,000,000 shares
authorized, 0 shares issued and outstanding
Common stock, $0.01 par value; Authorized: 150,000,000
shares; Issued:
20,746,255 and 35,435,398 at December 31, 1998 and 1999,
respectively; Outstanding: 18,531,190 and 35,435,398 at
December 31, 1998 and 1999, respectively.................. 207 354
Additional paid-in capital................................ 18,944 87,690
Accumulated deficit....................................... (25,706) (44,058)
Notes receivable from stockholders........................ -- (79)
Treasury stock (at cost).................................. (630) --
Deferred compensation..................................... (3,363) (2,213)
-------- --------
Total stockholders' equity (deficit)................... (10,548) 41,694
-------- --------
Total liabilities, redeemable convertible preferred
stock and stockholders' equity (deficit).............. $ 11,704 $ 60,796
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 62
STUDENT ADVANTAGE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
Revenue
Subscription.............................................. $ 2,971 $ 7,174 $ 7,838
Other..................................................... 1,844 12,186 19,806
------- -------- --------
Total revenue.......................................... 4,815 19,360 27,644
------- -------- --------
Costs and expenses
Cost of subscription revenue.............................. 2,628 2,442 2,365
Cost of other revenue (excluding stock-based compensation
of $0, $70 and $91 for the years ended 1997, 1998 and
1999, respectively).................................... 702 7,867 13,178
Product development (excluding stock-based compensation of
$0, $221 and $320 for the years ended 1997, 1998 and
1999, respectively).................................... 3,253 4,948 9,654
Sales and marketing (excluding stock-based compensation of
$0, $446 and $547 for the years ended 1997, 1998 and
1999, respectively).................................... 1,905 7,313 11,704
General and administrative (excluding stock-based
compensation of $0, $71 and $161 for the years ended
1997, 1998 and 1999, respectively)..................... 2,727 5,484 8,543
Depreciation and amortization............................. 351 1,155 1,994
Stock-based compensation.................................. -- 808 1,119
------- -------- --------
Total costs and expenses............................... 11,566 30,017 48,557
------- -------- --------
Loss from operations........................................ (6,751) (10,657) (20,913)
Interest income (expense), net.............................. (77) 121 1,358
------- -------- --------
Net loss.................................................... $(6,828) $(10,536) $(19,555)
======= ======== ========
Basic and diluted net loss per share........................ $ (0.41) $ (0.59) $ (0.71)
======= ======== ========
Shares used in computing basic and diluted net loss per
share..................................................... 16,588 17,710 27,410
======= ======== ========
Unaudited pro forma basic and diluted net loss per share.... $ (0.46) $ (0.63)
======== ========
Shares used in computing unaudited pro forma basic and
diluted net loss per share................................ 22,772 31,226
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 63
STUDENT ADVANTAGE, INC.
CONSOLIDATED STATEMENT OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
REDEEMABLE
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
--------------------- ---------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES PAR VALUE CAPITAL DEFICIT
---------- -------- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997.................... 1,372,043 $ 54 15,978,627 $160 $ 5,708 $ (5,938)
Issuance of preferred and common stock, net
of issuance costs.......................... 119,368 19 1,988,149 20 4,657
Issuance of common stock for services....... 84,040 1 677
Issuance of preferred and common stock upon
cancellation of notes payable.............. 27,440 5 407,181 4 836
Issuance of preferred and common stock in
satisfaction of obligation to
stockholder................................ 32,792 9 353,405 3 30
Repurchase of 205,532 shares of preferred
stock and 2,215,065 shares of common
stock......................................
Issuance of preferred and common stock in
connection with the acquisition of The Main
Quad....................................... 37,045 24 399,244 4 78
Issuance of common stock warrant............ 194
Net loss.................................... (6,828)
---------- -------- ---------- ---- -------- --------
Balance, December 31, 1997.................. 1,588,688 111 19,210,646 192 12,180 (12,766)
---------- -------- ---------- ---- -------- --------
Issuance of preferred and common stock, net
of issuance costs.......................... 1,250,000 10,000 271,441 3 1,997 (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 upon
cancellation of notes payable.............. 48,022 36 517,536 5 124
Issuance of common stock for services....... 36,864 -- 297
Exercise of common stock options............ -- -- 6
Distributions to stockholders............... (2,320)
Deferred compensation relating to grants of
stock options.............................. 4,171
Compensation relating to grants of stock
options....................................
Net loss.................................... (10,536)
---------- -------- ---------- ---- -------- --------
Balance, December 31, 1998.................. 2,952,568 10,196 20,746,255 207 18,944 (25,706)
---------- -------- ---------- ---- -------- --------
Exercise of common stock options and
warrants................................... 1,075,046 11 665
Sale of common stock under employee stock
purchase plan.............................. 36,258 -- 246
Issuance of common stock and common stock
warrants in connection with the acquisition
of Mentor Interactive, Inc................. 18,056 -- 299
Issuance of common stock in connection with
the acquisition of Transaction Service
Providers.................................. 195,000 2 268 (444)
Issuance of common stock in initial public
offering, net of issuance costs............ 6,900,000 69 49,823
Conversion of preferred stock to common
stock in connection with the initial public
offering................................... (2,952,568) (10,196) 6,026,043 61 9,505
Issuance of common stock for services....... 8,658 -- 108
Issuance of common stock warrant............ 2,221
Deferred compensation relating to grants of
stock options.............................. 228
Deferred compensation related to
cancellation of stock options for
terminated employees....................... (259)
Compensation relating to grants of stock
options....................................
Issuance of common stock in connection with
the acquisition of VoiceFX................. 430,082 4 5,642
Adjustment to conform fiscal periods for
University Netcasting, Inc................. 1,647
Net loss.................................... (19,555)
---------- -------- ---------- ---- -------- --------
Balance December 31, 1999................... -- $ -- 35,435,398 $354 $ 87,690 $(44,058)
========== ======== ========== ==== ======== ========
<CAPTION>
NOTES TOTAL
RECEIVABLE STOCKHOLDERS'
FROM TREASURY DEFERRED EQUITY
STOCKHOLDERS STOCK COMPENSATION (DEFICIT)
------------ -------- ------------ -------------
<S> <C> <C> <C> <C>
Balance, January 1, 1997.................... $ -- $ -- $ -- $ (70)
Issuance of preferred and common stock, net
of issuance costs.......................... 4,677
Issuance of common stock for services....... 678
Issuance of preferred and common stock upon
cancellation of notes payable.............. 840
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) (630)
Issuance of preferred and common stock in
connection with the acquisition of The Main
Quad....................................... 82
Issuance of common stock warrant............ 194
Net loss.................................... (6,828)
---- ----- ------- --------
Balance, December 31, 1997.................. -- (630) -- (1,024)
---- ----- ------- --------
Issuance of preferred and common stock, net
of issuance costs.......................... 1,916
Issuance of preferred and common stock in
connection with the acquisition of The Main
Quad....................................... 176
Issuance of preferred and common stock upon
cancellation of notes payable.............. 129
Issuance of common stock for services....... 297
Exercise of common stock options............ 6
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.................................... (10,536)
---- ----- ------- --------
Balance, December 31, 1998.................. -- (630) (3,363) (10,548)
---- ----- ------- --------
Exercise of common stock options and
warrants................................... (79) 597
Sale of common stock under employee stock
purchase plan.............................. 246
Issuance of common stock and common stock
warrants in connection with the acquisition
of Mentor Interactive, Inc................. 299
Issuance of common stock in connection with
the acquisition of Transaction Service
Providers.................................. (174)
Issuance of common stock in initial public
offering, net of issuance costs............ 49,892
Conversion of preferred stock to common
stock in connection with the initial public
offering................................... 630 10,196
Issuance of common stock for services....... 108
Issuance of common stock warrant............ 2,221
Deferred compensation relating to grants of
stock options.............................. (228) --
Deferred compensation related to
cancellation of stock options for
terminated employees....................... 259 --
Compensation relating to grants of stock
options.................................... 1,119 1,119
Issuance of common stock in connection with
the acquisition of VoiceFX................. 5,646
Adjustment to conform fiscal periods for
University Netcasting, Inc................. 1,647
Net loss.................................... (19,555)
---- ----- ------- --------
Balance December 31, 1999................... $(79) $ -- $(2,213) $ 41,694
==== ===== ======= ========
</TABLE>
See Note 1 for information on stock split.
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 64
STUDENT ADVANTAGE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(6,828) $(10,536) $(19,555)
Adjustments to reconcile net loss to net cash provided by
(used for) operating activities:
Depreciation and amortization.......................... 351 1,155 1,994
Reserve for bad debts.................................. 70 -- 180
Amortization of discount on notes payable to
stockholders.......................................... 121 -- --
Compensation expense relating to issuance of equity.... -- 808 1,119
Interest expense on notes payable to stockholders
exchanged for stock................................... 11 -- --
Issuance of stock in exchange for services............. 678 297 108
Amortization of marketing expense associated with
common stock warrant.................................. -- -- 444
(Gain) loss on disposal of assets...................... -- -- (16)
Changes in assets and liabilities, net of effects of
acquisitions:
Accounts receivable.................................. (354) (2,728) (776)
Prepaid expenses, other current assets and other
assets.............................................. (128) (169) (2,375)
Accounts payable..................................... 316 1,271 1,003
Accrued compensation................................. 273 733 386
Accrued expenses..................................... 648 854 2,472
Deferred revenue..................................... 5,694 1,094 2,095
------- -------- --------
Net cash provided by (used for) operating
activities.......................................... 852 (7,221) (12,921)
======= ======== ========
Cash flows from investing activities:
Purchases of fixed assets................................. (357) (1,332) (3,137)
Acquisitions of businesses for cash and common stock...... (429) (655) (2,485)
Purchases of marketable securities........................ -- -- (47,223)
Proceeds from sale of marketable securities............... -- -- 26,677
Purchase of investment.................................... -- -- (4,262)
Proceeds from sale of fixed assets........................ -- -- 20
------- -------- --------
Net cash used for investing activities............... (786) (1,987) (30,410)
======= ======== ========
Cash flows from financing activities:
Proceeds from sale of preferred and common stock, net of
issuance costs......................................... 4,696 11,916 49,892
Repayment of note from stockholder........................ -- 165 --
Proceeds from exercise of common stock options, warrants
and employee stock purchase plan....................... -- 6 922
Proceeds from issuance of common stock warrants........... 194 -- --
Note payable.............................................. -- -- 100
Proceeds from long-term debt.............................. 39 -- --
Proceeds from short-term debt -- related party............ 989 1,410 --
Repayment of short-term debt -- related party............. (250) (1,635) --
Repurchase of common and preferred stock.................. (630) -- --
Distributions to stockholders............................. -- (2,320) --
------- -------- --------
Net cash provided by financing activities............ 5,038 9,542 50,914
======= ======== ========
Adjustment to conform fiscal period of University
Netcasting, Inc........................................... -- -- 1,647
Net increase in cash and cash equivalents................... 5,104 334 9,230
Cash and cash equivalents, beginning of year................ 702 5,806 6,140
------- -------- --------
Cash and cash equivalents, end of year...................... $ 5,806 $ 6,140 $ 15,370
======= ======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest...................... $ 28 $ 87 $ --
======= ======== ========
Cash paid during the year for taxes......................... $ 1 $ 1 $ --
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 65
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED 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 sites 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 company 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 Raymond V. Sozzi, Jr., 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, 1999, had an accumulated deficit of $44.1
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.
In May 1999, the Company increased the number of authorized shares of
common stock to 50,000,000. On April 5, 1999, the Company declared a 3-for-1
stock split in the form of a stock dividend, which was effective on May 21,
1999. On June 23, 1999, the Company increased the number of total authorized
shares of common stock to 150,000,000. All periods presented have been restated
to reflect the stock dividend.
In June 1999, the Company acquired University Netcasting, Inc. ("UNI").
This acquisition was accounted for using the pooling of interests method;
accordingly, the historic consolidated financial statements of Student Advantage
prior to the acquisition have been restated to reflect the financial position,
results of operations and cash flows of UNI.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Student
Advantage, Inc. and its wholly-owned subsidiaries. All intercompany balances and
transactions have been eliminated in consolidation.
F-7
<PAGE> 66
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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. As of December 31, 1999, the Company had cash
equivalents of $10,200,000, included in cash and cash equivalents. As of
December 31, 1998, the Company had no cash equivalents.
Marketable Securities
Marketable securities consist of certificates of deposit, commercial paper
and other equity securities. The Company classifies its marketable securities as
"available for sale" and reports them at fair value, with unrealized gains and
losses excluded from earnings and reported as an adjustment in stockholders'
equity. As of December 31, 1999, the cost of the marketable securities
approximates fair value. All marketable securities held at December 31, 1999
mature within one year. Gross realized and unrealized gains and losses which are
calculated on a specific identification basis, for the year ended December 31,
1999 were immaterial.
Investment
On November 12, 1999, Student Advantage made an equity investment in
edu.com, a privately held e-commerce company. Student Advantage paid
approximately $4.3 million in exchange for approximately 922,000 shares of
Series B preferred stock of edu.com. This investment is being recorded at the
lower of cost or market. In January 2000, Student Advantage invested an
additional $1.0 million in exchange for approximately 217,000 shares of Series B
preferred stock.
Revenue Recognition
The Company derives subscription revenue from membership fees related to
enrolling students in the Student Advantage Membership program. Subscription
revenue 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, Student
Advantage Magazine, and on its Web sites. 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. Certain advertising arrangements include
guarantees of a minimum number of impressions. For arrangements with guarantees,
revenue is recognized based upon the lesser of: 1) ratable recognition over the
period the advertising is displayed, provided that no significant Company
obligations remain and collection of the receivable is probable, or 2) a
pro-rata portion of contract revenue based upon impressions delivered relative
to minimum guaranteed impressions to be delivered. 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 is derived primarily from transaction-based fees
earned from reselling products and services, and acquiring customers, 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.
F-8
<PAGE> 67
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fair Value of Financial Instruments
The carrying amounts of Student Advantage's financial instruments, which
include cash equivalents, marketable securities, investment, accounts payable,
accrued expenses and notes payable, approximate their fair values at December
31, 1998 and 1999.
Concentrations of Credit Risk and Significant Customers
Financial instruments which potentially expose the Company to concentration
of credit risk are comprised primarily of cash, cash equivalents, marketable
securities and trade accounts receivable. The Company places its cash, cash
equivalents and marketable securities with financial institutions that have high
credit ratings. 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, 1998 and 1999, one customer accounted for 50%,
61% and 55% of total revenue, respectively. At December 31, 1998, one customer
accounted for 60% of accounts receivable and at December 31, 1999, two customers
accounted for 56% of accounts receivable.
Product Development
Costs incurred in 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 and Other Assets
Intangible assets include the excess of the purchase price over
identifiable net assets acquired in acquisitions. Such assets include goodwill,
completed technology, workforce, customer lists and non-compete agreements, web
sites and other intangible assets, which are being amortized on a straight-line
basis over their estimated economic lives ranging from two to five years.
Accumulated amortization was $871,000 and $1.8 million at December 31, 1998 and
1999, respectively. The Company periodically evaluates its intangible assets for
potential impairment, and to date no impairment losses have been recorded.
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 company for federal and state
income tax purposes. Accordingly, no provision for corporate
F-9
<PAGE> 68
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 $468,000, $824,000 and $1.2 million for the years
ended December 31, 1997, 1998 and 1999, 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.
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.
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.
During 1999, the Company issued 448,138 shares of Common Stock and a
warrant to purchase 24,000 shares of Common Stock, in connection with the
acquisitions of companies.
<TABLE>
<CAPTION>
<S> <C>
Liabilities assumed in connection with these acquisitions
were as follows (in thousands):
Fair value of tangible and intangible assets and goodwill
acquired............................................... $ 8,626
Common stock, common stock options and warrants issued.... (6,189)
Cash paid................................................. (1,462)
-------
Liabilities assumed....................................... $ 975
=======
</TABLE>
During 1999, the Company issued 8,658 shares of Common Stock in exchange
for services received.
During 1999, the Company issued 237,000 shares of Common Stock in exchange
for notes receivable of $79,000.
During 1999 the Company issued a warrant to purchase 550,000 shares of
Common Stock to Lycos, Inc. in connection with a marketing agreement (Note 7).
F-10
<PAGE> 69
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 (in 1997 and 1998)
and exercise of stock options and warrants 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 (see note 11).
Reclassification
Certain prior year amounts have been reclassified to conform to current
year presentation.
Recently Issued Accounting Pronouncements
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, 2000. Student Advantage
does not expect the adoption of SFAS No. 133 to have a material effect on its
financial position or results of operations. On July 7, 1999, the FASB issued
SFAS 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133 - an
amendment to FASB Statement No. 133." SFAS 133, as amended by SFAS 137, is
effective for Student Advantage's fiscal year ending December 31, 2001.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements." This
bulletin summarizes certain views of the staff on applying generally accepted
accounting principles to revenue recognition in financial statements. The staff
believes that revenue is realized or realizable and earned when all of the
following criteria are met: persuasive evidence of an arrangement exists;
delivery has occurred or services have been rendered; the seller's price to the
buyer is fixed or determinable; and collectibility is reasonably assured. The
Company does not expect the application of this bulletin to have a material
impact on the Company's financial positions or results of operation.
3. ACQUISITIONS
For acquisitions accounted for under the purchase method, 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 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 amortized
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
F-11
<PAGE> 70
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
been recorded as additional cost of the assets acquired. This acquisition was
accounted for under the purchase method of accounting; accordingly, 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. This acquisition has been accounted for
under the purchase method of accounting; 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 of $275,000. During 1998, the Company paid additional contingent
consideration of $50,000. During 1999, the Company agreed to make additional
payments totaling $715,000 in three installments ending on January 31, 2001. As
of December 31, 1999, $355,000 remains outstanding. These additional payments
have been recorded as an additional cost of the assets acquired. This
acquisition was accounted for under the purchase method of accounting;
accordingly, the operating results of Collegiate Advantage have been included in
Student Advantage's financial statements since January 1, 1998. 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.......................................... $ 9,664
Net loss............................................. $(6,971)
Net loss per common share:
Basic and diluted.................................. $ (0.42)
</TABLE>
On April 1, 1999, Student Advantage completed its acquisitions of The
Travel Holding Group, LLC and The Campus Agency, LLC in exchange for a
promissory note in the amount of $330,000. 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; accordingly, the results
of operations of each company have been included in Student Advantage's 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 are being amortized over three years.
On May 27, 1999, Student Advantage acquired substantially all of the assets
of Mentor Interactive Corp., a provider of Internet-based research tools and
related materials, in exchange for 18,056 shares of common stock and a warrant
to purchase 24,000 shares of common stock at a purchase price of $11.08 per
share with an aggregate estimated fair value of approximately $300,000. This
acquisition has been accounted for under the purchase method of accounting;
accordingly, the results of Mentor Interactive Corp. have been included in
Student Advantage's results beginning on the acquisition date. Goodwill and
F-12
<PAGE> 71
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
other intangible assets in the aggregate of $312,000 were recorded with the
acquisition and are being amortized over three years.
On June 11, 1999, Student Advantage acquired Transaction Service Providers,
Inc., a provider of debit card services to college students and local merchants.
This acquisition has been accounted for using the pooling of interests method;
because the historical results of operations and financial position of
Transaction Service Providers were immaterial to Student Advantage, prior period
financial statements have not been restated. Accordingly, Transaction Service
Providers' results of operations have been included in Student Advantage's
results as of April 1, 1999. In connection with the acquisition, Student
Advantage issued 195,000 shares of common stock to the stockholders of
Transaction Service Providers.
On June 18, 1999, Student Advantage acquired all of the outstanding stock
of University Netcastings, Inc. ("UNI") in exchange for 2,425,610 shares of
Student Advantage common stock and the conversion of all UNI outstanding common
stock options for options to purchase 66,634 shares of Student Advantage common
stock. UNI is a leading operator of official athletic web sites for colleges,
universities and college sports associations. Through its FANSonly Network, UNI
provides sports fans with comprehensive online information and analysis on
college sports. This acquisition was accounted for using the pooling of
interests method; accordingly, the historic consolidated financial statements of
Student Advantage prior to the acquisition have been restated to reflect the
financial position, results of operations and cash flows of UNI.
Effective June 18, 1999, UNI's fiscal year end changed from March 31 to
December 31 to conform to Student Advantage's year end. UNI's results of
operations for the years ended March 31, 1997, 1998 and 1999 have been included
in Student Advantage's December 31, 1996, 1997 and 1998 results, respectively.
UNI's results for year ended December 31, 1999 have been included in Student
Advantage's year ended December 31, 1999 results. Accordingly, UNI's operations
for the three months ended March 31, 1999 have been included in Student
Advantage's results for both the years ended December 31, 1998 and 1999. Revenue
and net loss for UNI for the three months ended March 31, 1999 were $682,000 and
$1.6 million, respectively. This net loss has been reported as an adjustment to
the consolidated accumulated deficit.
The following is a reconciliation of revenues and net loss previously
reported by Student Advantage for the years ended December 31, 1997 and 1998,
with the combined amounts currently presented in the consolidated financial
statements for those periods (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------------
12/31/97 3/31/98 12/31/97 12/31/98 3/31/99 12/31/98
SA UNI COMBINED SA UNI COMBINED
-------- ------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues............. $ 3,792 $ 1,023 $ 4,815 $ 17,443 $ 1,917 $ 19,360
Net loss............. $ (3,152) $(3,676) $(6,828) $ (5,115) $(5,421) $(10,536)
</TABLE>
On October 7, 1999, Student Advantage acquired Voice FX Corporation ("Voice
FX"), a leading provider of internet and interactive voice response services to
college and university registrars. In connection with the acquisition, Student
Advantage paid approximately $1.1 million in cash, issued 430,082 shares of
Student Advantage common stock, valued at approximately $5.0 million, and agreed
to assume all outstanding options to purchase Voice FX common stock through
issuing 59,687 options to purchase common stock valued at approximately $0.7
million. Student Advantage also incurred approximately $150,000 in professional
and other fees associated with this acquisition. The acquisition has been
accounted for under the purchase method of accounting; accordingly, Voice FX's
results of operations have been included in Student Advantage's results of
operations beginning on the acquisition date. Goodwill and other intangible
assets in the aggregate amount of $6.3 million have been recorded in connection
with the acquisition and are being amortized on a straight-line basis over
expected useful lives of between three and five years.
F-13
<PAGE> 72
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The acquired assets and assumed liabilities associated with the purchase of
Voice FX have been allocated as follows (in thousands):
<TABLE>
<S> <C>
Working capital, net........................................ $ 21
Fixed assets................................................ 564
Completed technology........................................ 1,230
In-place workforce.......................................... 470
Goodwill.................................................... 4,644
------
Total purchase price...................................... $6,929
======
</TABLE>
The following unaudited pro forma data summarizes the results of operations
for the years ended December 31, 1998 and 1999 as if the acquisition of Voice FX
had been completed on the first day of each respective period. The pro forma
data gives effect to actual operating results prior to the acquisition and
adjustments to reflect 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,
1998 and 1999, respectively or that may be obtained in the future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1999
----------- -----------
(UNAUDITED, IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Net revenue........................................ $ 21,395 $ 31,571
Net loss........................................... $(13,328) $(21,781)
Net loss per common share:
Basic and diluted................................ $ (0.73) $ (0.79)
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1998 1999
------ ------
<S> <C> <C>
Furniture and fixtures................................. $ 73 $ 246
Computer equipment and software........................ 1,097 5,607
Equipment.............................................. 238 298
Leasehold improvements................................. 412 699
------ ------
1,820 6,850
Less: Accumulated depreciation and amortization........ 434 2,812
------ ------
$1,386 $4,038
====== ======
</TABLE>
Depreciation and amortization expense with respect to property and
equipment for the years ended December 31, 1997, 1998 and 1999 was $132,000,
$351,000 and $867,000, respectively.
5. BORROWINGS
During 1998, the Company entered into a $1.25 million 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
F-14
<PAGE> 73
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
interest at the bank's rate, which at December 31, 1998 was 9.25%. During 1998,
the Company borrowed $1.25 million under the agreement. There were no borrowings
outstanding at December 31, 1998.
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 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 a rate of LIBOR plus 2% or at the
bank's rate (8.0% at December 31, 1999), and expires in June 2000. There were no
borrowings outstanding at December 31, 1999.
6. PREFERRED STOCK
Prior to the conversion of the Series A preferred stock upon the closing of
the Company's initial public offering ("IPO") (see Note 7), the Series A
preferred stockholders had the following rights and privileges:
Voting Rights
Each holder of the Series A preferred stock was entitled to a number of
votes equal to the number of shares of common stock into which each share of
such stock was then convertible. With respect to the election of directors, the
Series A preferred stockholders, voting as a single class, could have elected
two directors.
Conversion
Each share of Series A preferred stock was 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 automatically converted
into three shares of common stock upon the closing of the Company's IPO on June
23, 1999 (see note 7).
Dividend Rights
The Series A preferred stockholders were not entitled to receive any
dividends unless declared by Student Advantage's Board of Directors. In the
event that dividends were paid on the common stock, the Series A preferred
stockholders were 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 was convertible.
Liquidation Preferences
In the event of any liquidation, dissolution or winding up of Student
Advantage, the Series A preferred stockholders were 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
were payable had such shares been converted to common stock just prior to
liquidation. Any assets remaining following the initial distribution to the
preferred stockholders would have been 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 would have redeemed the then
outstanding shares of Series A preferred stock
F-15
<PAGE> 74
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
from each holder that requested redemption. Upon redemption, each holder of the
Series A would have been 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, which
the stockholders approved in May 1999, 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 common stock.
7. STOCKHOLDERS' EQUITY (DEFICIT)
Warrants issued to Lycos
In July 1999, Student Advantage entered into a marketing agreement with
Lycos, Inc. In connection with the transaction, Lycos was granted a warrant (the
"Lycos warrant") to purchase 550,000 shares of Student Advantage common stock at
a price of $10.875 per share. The Lycos warrant terminates on July 21, 2002 and
is exercisable on or after July 21, 2000. The Company has valued the Lycos
warrant at $2.2 million, which is included in other assets, and which will be
recognized as a sales and marketing expense on a straight-line basis over the
thirty-month term of the marketing agreement. During 1999, $444,000 of the
warrants value was recognized as sales and marketing expense.
In May 1999, Student Advantage issued a warrant for the purchase of 24,000
shares of common stock at a purchase price of $11.08 per share in connection
with its acquisition of Mentor Interactive Corp (see Note 3). This warrant was
exercisable upon issue and expires on May 27, 2000.
Initial Public Offering ("IPO")
On June 23, 1999, the Company completed an IPO of 6,000,000 shares of
common stock resulting in proceeds of approximately $44.6 million. Upon closing
of the IPO, each outstanding share of redeemable convertible preferred stock
converted into shares of common stock at a three to one ratio. On July 21, 1999,
an additional 900,000 shares of common stock were issued by the Company as a
result of the full exercise of the underwriters' over-allotment option. The
Company received additional proceeds of $6.7 million as a result of the
exercise.
8. STOCK AWARD PLANS
1995 Stock Option Plan
In 1995, the Board of Directors of UNI adopted the 1995 Stock Option Plan
(the "1995 Plan") authorizing the issuance of incentive and non-qualified
options and UNI common 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%. Stock option activity under this plan is reflected in
the table below.
F-16
<PAGE> 75
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1996 Stock Option Plan
In 1996, the Board of Directors of UNI adopted the 1996 Stock Option Plan
(the "1996 Plan") authorizing 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 were set by the 1996 Plan's administrator, and were
generally established with monthly vesting over a four-year period and cliff
vesting at the end of the first year of 25%. Stock option activity under this
plan is reflected in the table below.
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, which the stockholders approved in
May 1999, an amendment to 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 and 1999, compensation expense recognized for stock
option grants totaled $808,000 and $1.1 million. Had compensation cost for the
Company'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,
-------------------------------------
1997 1998 1999
--------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net loss:
As reported....................................... $(6,828) $(10,536) $(19,555)
Pro forma......................................... (6,834) (10,574) (21,766)
Basic and diluted net loss per share:
As reported....................................... (0.41) (0.59) (0.71)
Pro forma......................................... (0.41) (0.60) (0.79)
</TABLE>
Because additional option grants are expected to be made subsequent to
December 31, 1999, 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 Black-Scholes option pricing model with the following weighted-average
assumptions used for grants made during the years ended December 31, 1997, 1998
and 1999: no dividend yield; risk free interest rates of 5.5%, 4.54% and 5.25%,
respectively; no volatility in 1997 and 1998, 97% in 1999; and an expected
option term of 7.9, 4 and 6 years, respectively.
F-17
<PAGE> 76
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Stock option activity under the Company's option plans since January 1,
1997 is as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
----------------------------------------------------------------------
1997 1998 1999
--------------------- --------------------- ----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE OF SHARES PRICE
--------- --------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding -- beginning of
year..................... 30,320 $1.05 39,842 $2.50 2,375,073 $ 0.41
Granted, at fair value... 13,373 5.70 37,206 4.27 2,842,299 $10.05
Granted, at below fair
value................. -- -- 2,313,000 0.33 47,550 $ 1.87
Exercised................ -- -- (1,124) 5.70 (1,053,005) $ 0.44
Canceled................. (3,851) 2.24 (13,851) 3.94 (328,472) $ 4.99
------ --------- ----------
Outstanding December 31,... 39,842 $2.50 2,375,073 $0.41 3,883,445 $ 7.09
====== ========= ==========
Exercisable at December
31,...................... 24,222 $1.91 485,951 $0.49 495,443 $ 4.11
====== ========= ==========
</TABLE>
As of December 31, 1999, 2,689,869 shares were available for grant under
the 1998 Stock Plan.
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------- ------------------------------------
NUMBER NUMBER OF
OUTSTANDING WEIGHTED SHARES
AS OF AVERAGE EXERCISABLE AS OF
DECEMBER 31, REMAINING WEIGHTED AVERAGE DECEMBER 31, WEIGHTED AVERAGE
1999 LIFE (YEARS) EXERCISE PRICE 1999 EXERCISE PRICE
------------ ------------ ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
$0.33 -$0.33 140,062 8.94 $ 0.33 1,312 $ 0.33
$0.33 -$0.54 1,064,257 8.93 $ 0.34 262,676 $ 0.35
$0.54 -$5.70 73,281 8.34 $ 2.76 51,660 $ 3.14
$8.00 -$8.00 581,250 9.46 $ 8.00 0 $ 0.00
$8.25 -$9.50 100,050 9.52 $ 8.33 0 $ 0.00
$9.90 -$9.90 1,116,001 9.37 $ 9.90 176,501 $ 9.90
$10.63-$12.25 468,794 9.75 $12.07 3,294 $10.83
$12.38-$21.75 339,250 9.81 $13.88 0 $ 0.00
$22.25-$22.25 500 9.93 $22.25 0 $ 0.00
--------- -------
3,883,445 9.32 $ 7.09 495,443 $ 4.11
========= =======
</TABLE>
1999 Employee Stock Purchase Plan
On April 5, 1999, the Board of Directors authorized, which the stockholders
approved in May 1999, 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. During 1999, 36,258 shares of the Company's common stock
were purchased under the Purchase Plan at $6.80 per share.
F-18
<PAGE> 77
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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. During
1999, Student Advantage granted stock options to purchase 47,550 shares of its
common stock with an exercise price of $1.87 per share. During 1998 and 1999,
Student Advantage recorded compensation expense relating to these options
totaling $808,000 and $1.1 million, respectively. During 1998 and 1999, Student
Advantage recorded deferred compensation of $4.2 million and $228,000,
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' equity
(deficit) and is being amortized over the vesting periods of the related
options. In 1999, as a result of employee terminations deferred compensation
related to certain of these options was reduced by approximately $259,000.
9. INCOME TAXES
Deferred tax assets are comprised of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------- -------
<S> <C> <C>
Deferred tax assets:
Deferred revenue................................ $ 2,400 $ 3,366
Start up costs.................................. 154 --
Net operating loss carryforwards................ 5,782 8,041
Non current assets.............................. 200 732
Accruals........................................ 300 683
Deferred compensation........................... 300 --
Other........................................... 165 100
------- -------
Total deferred tax assets.................. 9,301 12,922
Deferred tax liability -- intangible assets.......... -- (628)
------- -------
Net deferred tax asset..................... 9,301 12,294
Deferred tax asset valuation allowance............... (9,301) (12,294)
------- -------
$ -- $ --
======= =======
</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.
As of December 31, 1999, the Company has a net operating loss carryforward
for federal and state purposes of approximately $19.9 million, which expire at
various dates through 2019.
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
F-19
<PAGE> 78
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
contributed $61,000 and $133,000 to the 401(k) Plan on behalf of its employees
during 1998 and 1999, respectively.
11. COMPUTATION OF NET LOSS PER SHARE AND PRO FORMA NET LOSS PER SHARE
The following table reconciles the numerator and denominator of the basic
and diluted net loss per share and the pro forma basic and diluted net loss per
share (unaudited) computations shown on the consolidated statements of
operations.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1998 1999
--------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Basic and diluted net loss per share:
Net loss.................................................... $(6,828) $(10,536) $(19,555)
======= ======== ========
Basic and diluted weighted average common shares
outstanding............................................... 16,588 17,710 27,410
======= ======== ========
Basic and diluted net loss per share:....................... $ (0.41) $ (0.59) $ (0.71)
======= ======== ========
Pro forma basic and diluted net loss per share (unaudited)
Net loss.................................................... $(10,536) $(19,555)
======== ========
Shares attributable to common stock, excluding effects of
preferred stock conversion................................ 17,710 27,410
Shares attributable to the assumed conversion of preferred
stock upon issuance....................................... 5,062 3,816
-------- --------
Pro forma basic and diluted weighted average shares
outstanding (unaudited)................................... 22,772 31,226
======== ========
Pro forma basic and diluted net loss per share
(unaudited)............................................... $ (0.46) $ (0.63)
======== ========
</TABLE>
All outstanding options and warrants to purchase common stock (totaling
4,457,445) were excluded from the calculation of diluted earnings per share for
all periods presented because their inclusion would have been anti-dilutive.
12. 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, 1997, 1998 and 1999, totaled
approximately $342,000, $914,000 and $1.5 million, respectively.
F-20
<PAGE> 79
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Future minimum lease payments under noncancelable operating leases at
December 31, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, OPERATING LEASES
- ------------------------ ----------------
<S> <C>
2000....................................................... $1,662
2001....................................................... 1,476
2002....................................................... 1,490
2003....................................................... 984
2004....................................................... 713
Thereafter................................................. 1,089
------
Total minimum lease payments............................... $7,414
======
</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.
F-21
<PAGE> 80
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Voice FX Corporation:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Voice FX Corporation and its subsidiary at December 31, 1997 and 1998, and the
results of their operations and their cash flows for the years 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 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.
/S/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
September 15, 1999, except as to Note 11
which is as of October 7, 1999
F-22
<PAGE> 81
VOICE FX CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1997 1998 1999
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $3,996,381 $ 193,189 $ 233,532
Restricted cash..................................... 500,000 -- --
Accounts receivable (net of allowance of $39,074,
$30,106 and $30,106 at December 31, 1997 and 1998
and September 30, 1999 (unaudited),
respectively).................................... 281,899 499,977 723,548
Prepaid expenses and other current assets........... 479,970 64,023 24,583
---------- ---------- ----------
Total current assets............................. 5,258,250 757,189 981,663
Property and equipment, net........................... 1,029,455 711,102 563,593
Other assets.......................................... 21,821 27,472 27,413
---------- ---------- ----------
Total assets................................ $6,309,526 $1,495,763 $1,572,669
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................... $ 671,737 $ 234,706 $ 346,314
Accrued expenses.................................... 101,355 96,228 203,898
Current portion of capital lease obligation......... 31,673 36,763 18,616
Income taxes payable................................ 220,000 -- --
Deferred revenue.................................... 695,468 575,221 418,099
---------- ---------- ----------
Total current liabilities........................ 1,720,233 942,918 986,927
---------- ---------- ----------
Capital lease obligation, net of current portion...... 46,844 10,080 1,175
---------- ---------- ----------
Commitments (Note 9)
Stockholders' equity:
Common stock, $0.01 par value; 4,000,000 shares
authorized; 2,344,924, 3,010,095 and 3,022,595
shares issued and 2,344,924, 796,711 and 796,711
shares outstanding at December 31, 1997 and 1998
and September 30, 1999 (unaudited),
respectively..................................... 23,449 30,101 30,226
Additional paid-in capital.......................... 5,382,831 5,796,816 6,855,699
Accumulated deficit................................. (825,550) (2,120,891) (3,224,756)
Treasury stock, at cost, 2,213,384 shares at
December 31, 1998 and September 30, 1999
(unaudited)...................................... -- (3,076,602) (3,076,602)
---------- ---------- ----------
4,580,730 629,424 584,567
Less: notes receivable from stockholders.............. (38,281) (86,659) --
---------- ---------- ----------
Total stockholders' equity....................... 4,542,449 542,765 584,567
---------- ---------- ----------
Total liabilities and stockholders'
equity.................................... $6,309,526 $1,495,763 $1,572,669
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-23
<PAGE> 82
VOICE FX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------- -------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenue:
Hardware................................ $ 637,832 $ 637,166 $ 637,166 $ 39,885
Services................................ 595,279 1,397,923 718,935 3,887,111
----------- ----------- ----------- -----------
Total revenue........................ 1,233,111 2,035,089 1,356,101 3,926,996
----------- ----------- ----------- -----------
Cost of revenues:
Cost of hardware........................ 443,492 444,076 444,076 33,425
Cost of services........................ 819,985 1,179,786 740,191 2,033,345
----------- ----------- ----------- -----------
Total cost of revenues............... 1,263,477 1,623,862 1,184,267 2,066,770
----------- ----------- ----------- -----------
Gross margin.................... (30,366) 411,227 171,834 1,860,226
----------- ----------- ----------- -----------
Operating expenses:
Product development..................... 454,674 507,967 310,624 411,024
Sales and marketing..................... 601,146 463,657 358,592 775,790
General and administrative.............. 1,078,071 466,583 403,368 635,623
Stock-based compensation................ -- 326,672 326,672 1,142,837
----------- ----------- ----------- -----------
Total operating expenses........ 2,133,891 1,764,879 1,399,256 2,965,274
----------- ----------- ----------- -----------
Operating loss............................ (2,164,257) (1,353,652) (1,227,422) (1,105,048)
Other income (expense):
Interest income........................... 141,243 68,217 64,044 5,128
Interest expense.......................... (214,998) (9,906) (7,692) (3,945)
----------- ----------- ----------- -----------
Loss from continuing operations before
extraordinary loss...................... (2,238,012) (1,295,341) (1,171,070) (1,103,865)
----------- ----------- ----------- -----------
Discontinued operations:
Loss from discontinued operations....... (613,846) -- -- --
Gain on disposal of discontinued
operations, net of income taxes of
$220,000............................. 6,739,187 -- -- --
----------- ----------- ----------- -----------
Total income from discontinued
operations.................... 6,125,341 -- -- --
----------- ----------- ----------- -----------
Extraordinary loss on early extinguishment
of debt (Note 4)........................ (838,193) -- -- --
----------- ----------- ----------- -----------
Net income (loss)......................... $ 3,049,136 $(1,295,341) $(1,171,070) $(1,103,865)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-24
<PAGE> 83
VOICE FX CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NOTES
COMMON STOCK ADDITIONAL TREASURY STOCK RECEIVABLE
------------------- PAID-IN ACCUMULATED ------------------------ FROM
SHARES AMOUNT CAPITAL DEFICIT SHARES AMOUNT STOCKHOLDERS
--------- ------- ---------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996....... 2,316,524 $23,165 $5,353,146 $(3,874,686) -- $ -- $(38,281)
Exercise of common stock
options........................ 28,400 284 29,685
Net income....................... 3,049,136
--------- ------- ---------- ----------- ---------- ----------- --------
Balance, December 31, 1997....... 2,344,924 23,449 5,382,831 (825,550) -- -- (38,281)
Exercise of common stock
warrant........................ 378,807 3,788
Exercise of common stock
options........................ 286,364 2,864 87,313 (85,177)
Purchase of common stock for
treasury....................... (2,213,384) $(3,076,602)
Compensation expense related to
common stock options........... 326,672
Repayment of loans from
stockholders................... 38,281
Interest on notes receivable from
stockholders................... (1,482)
Net loss......................... (1,295,341)
--------- ------- ---------- ----------- ---------- ----------- --------
Balance, December 31, 1998....... 3,010,095 30,101 5,796,816 (2,120,891) (2,213,384) (3,076,602) (86,659)
Interest on notes receivable from
stockholders (unaudited)....... (1,545)
Exercise of common stock options
(unaudited).................... 12,500 125 4,250
Forgiveness of notes receivable
from stockholders
(unaudited).................... 1,054,633 88,204
Net loss (unaudited)............. (1,103,865)
--------- ------- ---------- ----------- ---------- ----------- --------
Balance, September 30, 1999
(unaudited).................... 3,022,595 $30,226 $6,855,699 $(3,224,756) (2,213,384) $(3,076,602) $ --
========= ======= ========== =========== ========== =========== ========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balance, December 31, 1996....... $1,463,344
Exercise of common stock
options........................ 29,969
Net income....................... 3,049,136
----------
Balance, December 31, 1997....... 4,542,449
Exercise of common stock
warrant........................ 3,788
Exercise of common stock
options........................ 5,000
Purchase of common stock for
treasury....................... (3,076,602)
Compensation expense related to
common stock options........... 326,672
Repayment of loans from
stockholders................... 38,281
Interest on notes receivable from
stockholders................... (1,482)
Net loss......................... (1,295,341)
----------
Balance, December 31, 1998....... 542,765
Interest on notes receivable from
stockholders (unaudited)....... (1,545)
Exercise of common stock options
(unaudited).................... 4,375
Forgiveness of notes receivable
from stockholders
(unaudited).................... 1,142,837
Net loss (unaudited)............. (1,103,865)
----------
Balance, September 30, 1999
(unaudited).................... $ 584,567
==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-25
<PAGE> 84
VOICE FX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- -------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss from continuing operations...................... $(2,238,012) $(1,295,341) $(1,171,070) $(1,103,865)
Adjustments to reconcile net loss from continuing
operations to net cash provided by (used in) operating
activities:
Depreciation and amortization.......................... 431,624 417,383 288,477 315,195
Write off of previously capitalized deferred public
offering costs....................................... 442,577 -- -- --
Compensation expense related to common stock options... -- 326,672 326,672 --
Accrued interest on notes receivable from
stockholders......................................... -- (1,482) -- (1,545)
Forgiveness of notes receivable from stockholders...... -- -- -- 1,174,846
Changes in operating assets and liabilities:
Accounts receivable.................................. 645,905 (218,078) 222,385 (223,571)
Prepaid expenses and other current assets............ (370,947) 415,947 428,895 7,431
Other assets......................................... 175,419 (5,651) (6,001) 59
Accounts payable and accrued expenses................ (129,104) (442,158) (674,101) 219,278
Income taxes payable................................. -- (220,000) (220,000) --
Deferred revenue..................................... 858,925 (120,247) (281,428) (157,122)
----------- ----------- ----------- -----------
Cash provided by (used in) operating activities...... (183,613) (1,142,955) (1,086,171) 230,706
----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment....................... (225,421) (99,030) (69,347) (167,686)
Restricted cash.......................................... (500,000) 500,000 500,000 --
----------- ----------- ----------- -----------
Cash provided by (used in) investing activities...... (725,421) 400,970 430,653 (167,686)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Common stock issued upon option and warrant exercises.... 29,969 8,788 8,788 4,375
Payments on capital lease obligation..................... (27,287) (31,674) (23,306) (27,052)
Purchase of common stock for treasury.................... -- (3,076,602) (3,076,602) --
Payments received on notes receivable from
stockholders........................................... -- 38,281 37,781 --
Payments on long-term debt............................... (3,300,000) -- -- --
----------- ----------- ----------- -----------
Cash used in financing activities.................... (3,297,318) (3,061,207) (3,053,339) (22,677)
----------- ----------- ----------- -----------
Net cash and cash equivalents provided by discontinued
operations............................................... 7,914,345 -- -- --
----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents....... 3,707,993 (3,803,192) (3,708,857) 40,343
Cash and cash equivalents, beginning of period............. 288,388 3,996,381 3,996,381 193,189
----------- ----------- ----------- -----------
Cash and cash equivalents, end of period................... $ 3,996,381 $ 193,189 $ 287,524 $ 233,532
=========== =========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest................................... $ 92,026 $ 9,906 $ 7,692 $ 3,945
Cash paid for income taxes............................... $ -- $ 212,284 $ 200,000 $ --
Supplemental disclosure of non-cash investing and financing
activities:
Issuance of common stock for notes receivable from
stockholders........................................... $ -- $ 85,177 $ 85,177 $ --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-26
<PAGE> 85
VOICE FX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Voice FX Corporation ("FX") provides Internet and interactive voice
response telephone services, primarily to colleges and universities. These
services include telephone and Internet grade reporting, financial aid status
reporting, fee payment reporting, registration, and telephone and Internet
transcript ordering. To date, all of FX's revenues have been in the U.S. and are
reported through one operating segment. During 1997, FX sold its corporate
teleservices division and its FX Direct, Inc. product sample distribution
subsidiary business.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Voice FX
Corporation and its wholly-owned subsidiaries. All intercompany balances and
transactions have been eliminated in consolidation. FX sold its only
wholly-owned subsidiary during 1997.
Cash, Cash Equivalents and Restricted Cash
FX considers all highly liquid debt instruments purchased with an initial
maturity of three months or less to be cash equivalents. Restricted cash
represents amounts held in escrow associated with certain representations and
warranties made by FX in connection with its sale of its teleservices division
in 1997. The restricted cash was released to FX in full during 1998.
Concentration of Credit Risk and Significant Customers
Financial instruments which potentially expose FX to concentrations of
credit risk consist primarily of cash equivalents and accounts receivable. FX
invests its excess cash primarily in money market funds of major financial
institutions. FX provides credit to customers in the normal course of business.
Collateral is not required for accounts receivable, but credit evaluations of
customers' financial conditions are performed periodically. FX maintains
reserves for potential credit losses and such losses have been within
management's expectations.
Revenues of approximately $638,000 (52%) were attributable to one customer
during 1997. Revenues of approximately $637,000 (31%) and $309,000 (15%) were
attributable to two customers during 1998. Revenues of approximately $637,000
(47%) were attributable to one customer during the nine months ended September
30, 1998 (unaudited). Revenues of approximately $3.1 million (79%) were
attributable to one customer during the nine months ended September 30, 1999
(unaudited). Accounts receivable from three customers accounted for
approximately $160,000 (50%), from two customers accounted for approximately
$403,000 (76%) and from two customer accounted for approximately $652,000 (87%)
(unaudited) of the total amounts due to FX at December 31, 1997 and 1998 and
September 30, 1999, respectively.
Prepaid Expenses and Other Current Assets
At December 31, 1997, prepaid expenses and other current assets included
approximately $437,000 of hardware equipment which was installed and recognized
as revenue during 1998.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the
straight line method over their estimated useful lives. Property and equipment
held under capital leases are stated at the lower of the fair market value of
the related asset or the present value of the minimum lease payments at the
inception of
F-27
<PAGE> 86
VOICE FX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the lease and are amortized using the straight-line method over the life of the
related asset or the term of the lease. Upon retirement or sale, the cost of the
assets disposed of and the related accumulated depreciation and amortization are
removed from the accounts and any resulting gain or loss is included in the
determination of net income (loss). Maintenance and repair costs are expensed as
incurred.
FX adopted Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"), on
December 31, 1997. In accordance with SOP 98-1, FX capitalizes costs of software
development for internal use which meet certain criteria and amortizes such
costs on a straight-line basis over the life of the software. These assets are
included in property and equipment.
Software Development Costs
Costs associated with purchased software, new products and enhancements to
existing products are generally capitalized, after the establishment of
technological feasibility, and amortized as the greater of the ratio of current
revenues to total expected revenues from the product or the straight-line method
over the remaining estimated economic life of the product. To date, costs of
internally developed software which qualify for capitalization have not been
material. All other research and development expenditures are charged to product
development expense in the period incurred.
Revenue Recognition
FX derives revenue from annual membership fees from colleges and
universities that allow the college or university's students to utilize FX's
Internet and telephone services. Revenue from these memberships is recognized
ratably over the annual term of the agreement. FX also derives revenue from
corporate sponsors who advertise on FX's Internet website and through FX's
telephone services. Revenue from the corporate sponsors is generally a set price
per "play" of the sponsor's advertisement; accordingly, revenue from corporate
sponsors is recognized as such plays are provided. Revenue from hardware sales
is recognized when the hardware is delivered and all implementation services
have been provided. Amounts invoiced or received in advance of revenue being
earned are recorded as deferred revenue.
General and Administrative Expense
General and administrative expense for the year ended December 31, 1997
included costs of approximately $636,000 previously capitalized in anticipation
of an initial public offering of FX's common stock. This anticipated offering
did not occur and FX no longer has plans for such an offering; accordingly,
costs previously capitalized were expensed.
Income Taxes
Deferred tax assets and liabilities are determined based on the differences
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect in the years in which the differences are expected
to reverse. Valuation allowances are provided if, based upon the weight of
available evidence, it is more likely than not that some or all of the deferred
tax assets will not be realized.
Accounting for Stock-Based Compensation
FX accounts for stock-based awards to employees using the intrinsic value
method as prescribed in Accounting Principles Board 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 equal to the fair market value of FX's
common stock at the date of grant. FX has adopted the provisions of Statement of
Financial Accounting Standards No. 123,
F-28
<PAGE> 87
VOICE FX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
"Accounting for Stock-Based Compensation," ("SFAS 123") through disclosure only.
All stock-based awards to nonemployees are accounted for in accordance with SFAS
No. 123.
Comprehensive Income (Loss)
Effective January 1, 1998, FX adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
requires the reporting of comprehensive income (loss) in addition to net income
(loss). Comprehensive income (loss) is a more inclusive reporting methodology
that includes disclosure of certain financial information that historically has
not been recognized in the calculation of net income (loss). Comprehensive
income (loss) is comprised of two components, net income (loss) and other
comprehensive income (loss). During the years ended December 31, 1997 and 1998
and the nine months ended September 30, 1998 and 1999 (unaudited), FX had no
items qualifying as other comprehensive income (loss); accordingly, the adoption
of SFAS 130 had no impact on FX's financial statements.
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, 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.
Unaudited Interim Financial Data
The interim financial data as of September 30, 1999 and for the nine months
ended September 30, 1998 and 1999 has been derived from unaudited financial
statements of FX. Management believes FX'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 nine months ended September 30, 1998 and 1999 have not
be audited and are not necessarily indicative of results to be expected for the
full fiscal year.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes accounting and
reporting standards for derivative financial instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. SFAS 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000 and is effective for FX's
fiscal year ending December 31, 2001. FX does not expect the adoption of SFAS
133 to have a material effect on its financial position or results of
operations.
In April 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities"
("SOP 98-5"). 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 new 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 financial statements for years beginning after
December 15, 1998. FX does not expect the adoption of this standard to have a
material effect on its financial position or results of operations.
F-29
<PAGE> 88
VOICE FX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at December 31, 1997 and
1998:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE
(YEARS) 1997 1998
----------- ---------- ----------
<S> <C> <C> <C>
Computer equipment................... 5 $1,361,641 $1,432,575
Office furniture and equipment....... 5 12,114 14,230
Software............................. 3 502,830 528,810
Leasehold improvements............... Shorter of estimated useful
life or life of lease 18,309 18,309
---------- ----------
1,894,894 1,993,924
Less: accumulated depreciation and
amortization....................... 865,439 1,282,822
---------- ----------
$1,029,455 $ 711,102
========== ==========
</TABLE>
At December 31, 1997 and 1998, fixed assets under capital leases included
computer equipment with a cost of approximately $145,000 and accumulated
depreciation of approximately $77,000 and $106,000, respectively.
Depreciation expense for the years ended December 31, 1997 and 1998 was
approximately $397,000 and $417,000, respectively.
4. STOCKHOLDERS' EQUITY
Notes Receivable from Stockholders
At December 31, 1997, notes receivable from stockholders included two notes
payable to FX for common stock option exercises during 1993. These notes, which
did not have a stated interest rate, were due and paid in full during January
1998.
In September 1998, two officers and directors exercised stock options to
purchased 243,364 shares of FX's common stock, through the issuance of
non-recourse notes payable to FX in the amount of $85,177. These notes had an
interest rate of 6% and are due in September 2003. Interest earned during the
year ended December 31, 1998 and the nine months ended September 30, 1999 was
$1,482 and $1,545, respectively, and is included in interest income. In April
1999, FX's Board of Directors approved the forgiveness of all amounts due under
these notes, resulting in a compensation charge of $1,142,837, based on the fair
value of the underlying common stock on the date the notes were forgiven. This
expense has been included in stock-based compensation expense for the nine
months ended September 30, 1999.
Warrants
During 1996, FX received cash proceeds totaling $3,000,000 from the
issuance of two separate notes payable. The notes had an interest rate of 13.5%.
The noteholders were issued stock purchase warrants with the right to purchase
378,807 shares of FX's common stock at a price of $0.01 per share. These
warrants were immediately exercisable. The warrants were ascribed a value of
$954,593, which was recorded as additional paid-in capital and as a discount to
the value of the note. This discount was recognized over the term of the note.
The accretion of debt discount for these warrants during 1996 was $116,400. The
notes were repaid in full during 1997 and accordingly, the remaining unamortized
discount of $838,193 was recognized as an extraordinary loss on early
extinguishment of debt in 1997. These warrants were exercised in full during
1998.
F-30
<PAGE> 89
VOICE FX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Treasury Stock
On January 2, 1998, FX repurchased 2,213,384 shares (approximately 80%) of
its outstanding common stock. These purchases were made in privately negotiated
transactions at a price per share of $1.39. FX paid $1.21 per share of the
repurchase price in January 1998 and made payments of $0.18 per share during
July 1998 upon the release of the restricted cash balance. FX plans to use these
repurchased shares for its employee stock option plans.
5. STOCK OPTIONS AND WARRANTS
During 1990, FX adopted the 1990 Stock Option Plan (the "1990 Plan"), which
provides for the grant of incentive and non-qualified stock options for the
purchase of up to 800,000 shares of FX's common stock by officers, employees,
consultants and directors of FX. On March 20, 1998, the Board of Directors
approved the adoption of the 1998 Stock Option Plan (the "1998 Plan"), which
provides for the grant of incentive and non-qualified stock options up to an
aggregate of 400,000 shares of FX's common stock to employees, officers,
directors and consultants of FX. The Board of Directors is responsible for the
administration of the 1990 Plan and the 1998 Plan. The Board determines the term
of each option, the option price, the number of shares for which each option is
granted and the rate at which each option is exercisable. Generally, options
have a term of ten years and vest over a period of three to four years.
Incentive stock options may be granted to any officer or employee at an exercise
price per share of not less than the fair value per common share on the date of
the grant (not less than 110% of fair value in the case of holders of more than
10% of FX's voting stock) and with a term not to exceed ten years from the date
of grant (five years for incentive stock options granted to holders of more than
10% of FX's voting stock). Non-qualified stock options may be granted to any
officer, employee, consultant or director.
The following table summarizes activity of FX's option plans since January
1, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
-------- --------
<S> <C> <C>
Outstanding at December 31, 1996...................... 515,426 $2.73
Granted.......................................... -- --
Exercised........................................ (28,400) 1.06
Canceled......................................... (132,600) 2.86
--------
Outstanding at December 31, 1997...................... 354,426 2.82
Granted, at fair value........................... 57,000 1.39
Granted, at below fair value..................... 314,108 0.35
Exercised........................................ (286,364) 0.31
Canceled......................................... (334,426) 2.73
--------
Outstanding at December 31, 1998...................... 104,744 $0.69
========
</TABLE>
As of December 31, 1997 and 1998, options to purchase 117,849 and 85,244
shares of common stock, respectively, were exercisable with weighted-average
exercise prices of $2.38 and $0.53, respectively. The weighted average fair
value per share of options granted at fair value and below fair value during
1998 was approximately $0.95 and $1.22, respectively. As of December 31, 1998,
28,892 shares were available for future grant under the 1998 Plan.
F-31
<PAGE> 90
VOICE FX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes the stock options outstanding at December
31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
REMAINING
EXERCISE CONTRACTUAL SHARES
PRICE SHARES LIFE EXERCISABLE
- -------- ------- ----------- -----------
<S> <C> <C> <C>
$0.35 70,744 9.7 years 70,744
$1.39 34,000 9.6 years 14,500
------- ------
104,744 85,244
======= ======
</TABLE>
During 1998, FX's Board of Directors authorized that all employee options
under the 1990 Plan would be eligible to be exchanged for options with an
exercise price at the then fair market value, as determined by the Board of
Directors, of $1.39 per share. Prior to the repricing, these options had
exercise prices ranging from $2.92 to $3.04 per share. This cancellation and
reissuance of stock options affected options for 286,426 shares.
During 1998, FX granted stock options to purchase 314,108 shares of common
stock with an exercise price of $0.35 per share. Relating to these options, FX
recorded compensation expense of $326,672, representing the aggregate difference
between the estimated fair value of the common stock on the date of grant and
the exercise price of those options. As the options were immediately
exercisable, the compensation expense was fully recognized in 1998 and was also
recorded as a component of additional paid-in capital within stockholders'
equity.
Had compensation cost been determined based on the fair value at the grant
date for awards in fiscal years 1996, 1997 and 1998 consistent with the
provisions of SFAS No. 123, FX's net losses from continuing operations before
extraordinary loss for 1997 and 1998 would have been $2,334,379 and $1,669,647,
respectively. For this purpose, the fair value of each option grant was
estimated on the grant date using the Black-Scholes option-pricing model with
the following assumptions: no dividend yield; no volatility; risk-free interest
rate of 5.5%; and an expected option term of four years. Because options vest
over several years and additional option grants are expected to be made in
future years, the above pro forma results are not representative of the pro
forma results for future years.
6. RELATED PARTY TRANSACTIONS
In January 1998, FX advanced a total of $32,009 to two officers and
directors. These advances were payable upon demand and did not have a stated
interest rate. In April 1999, FX's Board of Directors approved the forgiveness
of these advances, resulting in a compensation charge of $32,009. This expense
has been included in general and administrative expenses for the nine months
ended September 30, 1999.
7. DISCONTINUED OPERATIONS
During 1997, FX sold its sample distribution business and its corporate
teleservices division. The acquirer purchased all related assets and assumed
certain related liabilities of these businesses, including accounts receivable,
accounts payable, accrued and prepaid expenses and deferred revenue. As of
December 31, 1997 and 1998, there were no assets or liabilities related to these
businesses recorded in FX's financial statements.
Operating results of these businesses from January 1, 1997 through the date
of disposition have been reflected within the statement of operations as
discontinued operations. Revenue of the sold businesses for the year ended
December 31, 1997 was approximately $1,124,000, which has been included within
the loss from discontinued operations.
F-32
<PAGE> 91
VOICE FX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES
At December 31, 1997 and 1998, FX's deferred tax assets of approximately
$150,000 and $300,000, respectively, consisted primarily of net operating loss
carryforwards. FX has provided a valuation allowance for the full amount of its
net deferred tax assets as the realization of these future benefits cannot be
reasonably assured at December 31, 1998.
At December 31, 1998, FX had federal and state net operating loss
carryforwards of approximately $600,000 and $950,000, respectively, available to
reduce future taxable income. The federal and state net operating loss
carryforwards begin to expire in 2011.
As a result of the 1997 sale of the teleservices and sample distribution
businesses, FX recognized a gain of approximately $6.7 million. FX utilized
approximately $3.5 million of its federal tax loss carryforwards and
approximately $1.0 million of its state tax loss carryforwards to reduce the
taxable gain. As a result, total federal and state corporate income taxes for
1997 were approximately $220,000, which are included within the gain on disposal
of discontinued operations.
9. COMMITMENTS
FX leases its office space under noncancelable operating leases. Total rent
expense under these operating leases for the years ended December 31, 1997 and
1998 was approximately $76,000 and $68,000, respectively. FX also leases certain
equipment under a capital lease.
Future minimum lease payments under all noncancelable operating and capital
leases as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDING DECEMBER 31, LEASES LEASE
------------------------ --------- -------
<S> <C> <C>
1999................................................ $ 81,582 $41,332
2000................................................ 20,433 10,333
-------- -------
$102,015 51,665
========
Less: amount representing interest.................. 4,822
-------
Present value of future minimum lease payments...... 46,843
Less: amounts due within one year................... 36,763
-------
Long-term portion................................... $10,080
=======
</TABLE>
10. 401(K) SAVINGS PLAN
FX has established a retirement savings plan under Section 401(k) of the
Internal Revenue Code (the "401(k) Plan"). The 401(k) Plan covers substantially
all employees of FX who meet certain requirements and allows participants to
defer a portion of their annual compensation on a pre-tax basis. The terms of
the plan provide for FX to assume the cost of plan administration. FX may make
contributions to the 401(k) Plan at the discretion of management; to date, no
contributions by FX have been made to the 401(k) Plan.
11. SUBSEQUENT EVENT
On October 7, 1999, FX completed a merger with Student Advantage, Inc.
whereby Student Advantage acquired all of the common stock of FX by paying
approximately $1.1 million in cash and issuing 430,082 shares of Student
Advantage common stock. Assets acquired by Student Advantage consist of all
tangible assets of FX, as well as customer relationships, patents, completed
technology and FX's workforce.
F-33
<PAGE> 92
UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENT
On October 7, 1999, SA Acquisition II, Inc. ("SA"), a wholly owned
subsidiary of Student Advantage, Inc. (the "Company"), merged into Voice FX
Corporation ("FX") pursuant to an Agreement and Plan of Merger by and among the
Company, SA and FX, dated September 27, 1999. At the close of the transaction,
FX became a wholly-owned subsidiary of the Company. Voice FX provides Internet
and interactive voice response telephone services to college and university
students, primarily grade reporting, transcript ordering and financial aid
status reporting.
All of the outstanding capital stock of FX was converted into 430,082
shares of Common Stock, $.01 par value, of the Company and $1.1 million in cash.
Additionally, the Company assumed outstanding FX stock options, which were
converted into options to purchase an aggregate of 59,687 shares of Company
Common Stock. The exchange rate used to convert the capital stock and options of
FX into Common Stock and options of the Company and cash were determined as a
result of arms length negotiation.
The unaudited pro forma combined statement of operations for the year ended
December 31, 1999 presents the results of operations of the Company and FX on a
combined basis assuming the acquisition had occurred on January 1, 1999. The
acquisition was accounted for under the purchase method of accounting;
accordingly, the results of operations of FX were included in the results of the
Company as reported from October 7, 1999. The pro forma column for FX represents
its results of operations in 1999 prior to the acquisition. All material
adjustments to reflect the acquisition are set forth in the column "Pro Forma
Adjustments." An unaudited pro forma combined balance sheet is not presented
here since all effects of the acquisition are reflected in the consolidated
balance sheet of the Company as of December 31, 1999, which is presented
elsewhere herein.
The pro forma data is for informational purposes only and may not
necessarily reflect future results of operations or what the results of
operations would have been had the Company and FX been operating as a combined
entity for the specified periods. The unaudited pro forma combined financial
statement should be read in conjunction with the historical financial statements
of the Company, including the notes thereto.
F-34
<PAGE> 93
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
STUDENT
ADVANTAGE, PRO PRO
INC. VOICE FX FORMA FORMA
(AS REPORTED) CORPORATION ADJUSTMENTS COMBINED
------------- ----------- ----------- --------
<S> <C> <C> <C> <C>
Revenue
Subscription.......................... $ 7,838 $ -- $ -- $ 7,838
Other................................. 19,806 3,927 -- 23,733
--------- ------- ------- --------
Total revenue.............................. 27,644 3,927 -- 31,571
Costs and expenses
Cost of subscription revenue.......... 2,365 -- -- 2,365
Cost of other revenue................. 13,178 2,067 (296)(b) 14,949
Product development................... 9,654 411 -- 10,065
Sales and marketing................... 11,704 776 -- 12,480
General and administrative............ 8,543 635 (19)(b) 9,159
Depreciation and amortization......... 1,994 -- 1,437(a)(b) 3,431
Stock-based compensation.............. 1,119 1,143 -- 2,262
--------- ------- ------- --------
Total costs and expenses................... 48,557 5,032 1,122 54,711
--------- ------- ------- --------
Loss from operations....................... (20,913) (1,105) (1,122) (23,140)
Interest income (expense), net............. 1,358 1 -- 1,359
--------- ------- ------- --------
Net loss................................... $ (19,555) $(1,104) $(1,122) $(21,781)
========= ======= ======= ========
Basic and diluted net loss per share....... $ (0.71) $ (0.79)
=========
Shares used in computing basic and diluted
net loss per share....................... 27,410 323(c) 27,733
========= ======= ========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
F-35
<PAGE> 94
STUDENT ADVANTAGE, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENT
a.) To reflect the amortization, on a straight-line basis, of goodwill and
other intangible assets acquired, as if the acquisition had occurred on
January 1, 1999, over their expected useful lives of between three and
five years.
b.) To reclassify certain expenses within cost of other revenue and general
and administrative expenses to conform to Student Advantage's
historical presentation.
c.) The calculation of pro forma weighted-average number of shares
outstanding includes the weighted-average number of common shares
outstanding of Student Advantage for the year ended December 31, 1999,
adjusted to give effect to the issuance of 430,082 shares of Student
Advantage's common stock in connection with the acquisition, as if such
shares had been outstanding since January 1, 1999. The calculation does
not include the effect of common stock equivalents as their inclusion
would be antidilutive.
F-36
<PAGE> 95
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[STUDENT ADVANTAGE LOGO]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 96
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>
<S> <C>
SEC registration fee........................................ $ 7,153
Accounting fees and expenses................................ 50,000
Legal fees and expenses..................................... 75,000
Printing and mailing expenses............................... 45,000
Miscellaneous............................................... 2,847
--------
Total............................................. 180,000
========
</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.
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
II-1
<PAGE> 97
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.
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 January 1997. 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 January 1997, Mr. Sozzi exercised options to purchase 870 membership
units of Student Advantage LLC for $87,818.
2. In April 1997, Student Advantage LLC issued 239 membership units to Mr.
Liniado in satisfaction of obligations under an asset purchase agreement.
3. In April 1997, Student Advantage LLC issued 200 membership units to Ms.
Abegglen in satisfaction of a $24,000 note.
4. 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.
II-2
<PAGE> 98
5. In January 1998, Ms. Abegglen exercised options to purchase 350 membership
units of Student Advantage LLC for $164,914.
6. 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.
7. 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.
8. On May 27, 1999, in connection with the acquisition of substantially all of
the assets of Mentor Interactive Corp., the Registrant issued 18,056 shares
of common stock and a warrant to purchase 24,000 shares of common stock at
an exercise price of $11.08 per share.
9. On June 11, 1999, in connection with the acquisition of Transaction Service
Providers, Inc., the Registrant issued 195,000 shares of common stock to
the stockholders of Transaction Service Providers, Inc.
10. On June 18, 1999, in connection with the acquisition of University
Netcasting, Inc., the Registrant issued 2,438,875 shares of common stock to
the stockholders of University Netcasting, Inc. and assumed options to
purchase a total of 66,634 shares of common stock.
11. On July 21, 1999, in connection with entering into a marketing agreement
with Lycos, Inc., the Registrant issued a warrant to purchase 550,000
shares of common stock at an exercise price of $10.875 per share to Lycos,
Inc.
12. On October 7, 1999, in connection with the acquisition of Voice FX
Corporation, the Registrant issued 430,082 shares of common stock to the
stockholders of Voice FX Corporation and assumed options to purchase a
total of 59,687 shares of common stock.
(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 June 18, 1999, options to purchase 869,811 shares of
common stock had been exercised for a consideration of $289,937 under the
Registrant's 1998 Stock Incentive Plan and options to purchase an aggregate of
3,342,039 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> 99
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation of the
Registrant.(3)
3.2 Amended and Restated By-Laws of the Registrant.(3)
4.1 Specimen certificate for shares of common stock.(1)
5 Opinion of Hale and Dorr LLP.*
10.1 1998 Stock Incentive Plan, including form of stock option
agreement for incentive stock option.(1)
10.2 1999 Employee Stock Purchase Plan.(1)
10.3 Loan and Security Agreement between USTrust Bank and the
Registrant, dated March 31, 1999.(1)
10.4 Form of Indemnification Agreement between the Registrant and
each of its directors and officers.(1)
10.5 Investor Rights Agreement, dated as of October 20, 1998,
among the Registrant and certain stockholders.(1)
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.(1)
10.7 Agreement, effective as of February 1, 1997, between AT&T
Communications, Inc. and the Registrant.+(1)
10.8 Marketing Agreement, effective February 1, 1998, between
AT&T Corp. and the Registrant.+(1)
10.9 Notice of AT&T's Election to Extend Agreements, dated July
14, 1998.(1)
10.10 Leases for premises at 280 Summer Street, Boston,
Massachusetts.(1)
10.11 Investment Agreement, dated March 25, 1996, between the
Registrant and Princeton Review Publishing, L.L.C.(1)
10.12 Letter Agreement, dated September 8, 1997, between the
Registrant and Princeton Review Publishing, L.L.C.(1)
10.13 Letter Agreement, dated October 20, 1998, between the
Registrant and Princeton Review Publishing, L.L.C.(1)
10.14 Mailing and Fulfillment Services Agreement, dated August 8,
1996, between the Registrant and Aero Fulfillment
Services.(1)
10.15 Promissory Note (Equipment) to USTrust dated March 31,
1999.(1)
10.16 Master Note to USTrust Bank dated March 31, 1999.(1)
10.17 Letter Agreement, dated May 3, 1999, between the Registrant
and Ronald J. Kos.(1)
10.18 Letter Agreement, dated May 20, 1999, between AT&T
Communications, Inc. and the Registrant.+(1)
10.19 Common Stock Purchase Warrant, dated July 21, 1999 issued to
Lycos, Inc.(2)
10.20 Sublease, dated as of May 20, 1999, between the Registrant
and Morrison, Mahoney & Miller, LLP.*
21 Subsidiaries of the Registrant.(3)
23.1 Consent of PricewaterhouseCoopers LLP (Student Advantage,
Inc.).
23.2 Consent of PricewaterhouseCoopers LLP (Voice FX
Corporation).
23.3 Consent of Hale and Dorr LLP (included in Exhibit 5).*
27 Financial Data Schedule.
</TABLE>
- ---------------
(1) Incorporated herein by reference from the Registrant's Registration
Statement on Form S-1 (File No. 333-75807).
(2) Incorporated herein by reference from the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999.
(3) Incorporated herein by reference from the Registrant's Annual Report on Form
10-K for the year ended December 31, 1999.
* Previously filed.
II-4
<PAGE> 100
+ Confidential treatment previously granted by the Securities and Exchange
Commission as to certain portions, which portions are omitted and filed
separately with the Securities and Exchange Commission.
(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
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no
more than 20 percent change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table
in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
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.
II-5
<PAGE> 101
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Boston, Massachusetts, on this 30th
day of March, 2000.
STUDENT ADVANTAGE, INC.
By: /s/ CHRISTOPHER B. ANDREWS
------------------------------------
Christopher B. Andrews
Vice President, Finance
and Administration, Treasurer
and Secretary
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>
* Chairman of the Board, March 30, 2000
- ------------------------------------------ President and Chief
Raymond V. Sozzi, Jr. Executive Officer
/s/ CHRISTOPHER B. ANDREWS Vice President, Finance and March 30, 2000
- ------------------------------------------ Administration, Treasurer
Christopher B. Andrews and Secretary (Principal
Financial and Accounting
Officer)
* Director March 30, 2000
- ------------------------------------------
John M. Connolly
* Director March 30, 2000
- ------------------------------------------
William S. Kaiser
* Director March 30, 2000
- ------------------------------------------
John S. Katzman
* Director March 30, 2000
- ------------------------------------------
Marc J. Turtletaub
* Director March 30, 2000
- ------------------------------------------
Charles E. Young
* By: /s/ CHRISTOPHER B. ANDREWS
-----------------------------------
Christopher B. Andrews
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 102
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation of the
Registrant.(3)
3.2 Amended and Restated By-Laws of the Registrant.(3)
4.1 Specimen certificate for shares of common stock.(1)
5 Opinion of Hale and Dorr LLP.*
10.1 1998 Stock Incentive Plan, including form of stock option
agreement for incentive stock option.(1)
10.2 1999 Employee Stock Purchase Plan.(1)
10.3 Loan and Security Agreement between USTrust Bank and the
Registrant, dated March 31, 1999.(1)
10.4 Form of Indemnification Agreement between the Registrant and
each of its directors and officers.(1)
10.5 Investor Rights Agreement, dated as of October 20, 1998,
among the Registrant and certain stockholders.(1)
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.(1)
10.7 Agreement, effective as of February 1, 1997, between AT&T
Communications, Inc. and the Registrant.+(1)
10.8 Marketing Agreement, effective February 1, 1998, between
AT&T Corp. and the Registrant.+(1)
10.9 Notice of AT&T's Election to Extend Agreements, dated July
14, 1998.(1)
10.10 Leases for premises at 280 Summer Street, Boston,
Massachusetts.(1)
10.11 Investment Agreement, dated March 25, 1996, between the
Registrant and Princeton Review Publishing, L.L.C.(1)
10.12 Letter Agreement, dated September 8, 1997, between the
Registrant and Princeton Review Publishing, L.L.C.(1)
10.13 Letter Agreement, dated October 20, 1998, between the
Registrant and Princeton Review Publishing, L.L.C.(1)
10.14 Mailing and Fulfillment Services Agreement, dated August 8,
1996, between the Registrant and Aero Fulfillment
Services.(1)
10.15 Promissory Note (Equipment) to USTrust dated March 31,
1999.(1)
10.16 Master Note to USTrust Bank dated March 31, 1999.(1)
10.17 Letter Agreement, dated May 3, 1999, between the Registrant
and Ronald J. Kos.(1)
10.18 Letter Agreement, dated May 20, 1999, between AT&T
Communications, Inc. and the Registrant.+(1)
10.19 Common Stock Purchase Warrant, dated July 21, 1999 issued to
Lycos, Inc.(2)
</TABLE>
<PAGE> 103
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
10.20 Sublease, dated as of May 20, 1999, between the Registrant
and Morrison, Mahoney & Miller, LLP.*
21 Subsidiaries of the Registrant.(3)
23.1 Consent of PricewaterhouseCoopers LLP (Student Advantage,
Inc.).
23.2 Consent of PricewaterhouseCoopers LLP (Voice FX
Corporation).
23.3 Consent of Hale and Dorr LLP (included in Exhibit 5).*
27 Financial Data Schedule.
</TABLE>
- ---------------
(1) Incorporated herein by reference from the Registrant's Registration
Statement on Form S-1 (File No. 333-75807).
(2) Incorporated herein by reference from the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999.
(3) Incorporated herein by reference from the Registrant's Annual Report on Form
10-K for the year ended December 31, 1999.
* Previously filed.
+ Confidential treatment previously granted by the Securities and Exchange
Commission as to certain portions, which portions are omitted and filed
separately with the Securities and Exchange Commission.
<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 February 11, 2000 relating to the financial statements of
Student Advantage, Inc., which appears 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
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 27, 2000
<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 September 15, 1999, except as to Note 11 which is as of October
7, 1999, relating to the financial statements of Voice FX Corporation, which
appears in such Registration Statement. We also consent to the reference to us
under the heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 27, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 15,370,000
<SECURITIES> 20,546,000
<RECEIVABLES> 4,777,000
<ALLOWANCES> 250,000
<INVENTORY> 0
<CURRENT-ASSETS> 43,141,000
<PP&E> 6,850,000
<DEPRECIATION> 2,812,000
<TOTAL-ASSETS> 60,796,000
<CURRENT-LIABILITIES> 19,002,000
<BONDS> 0
0
0
<COMMON> 354,000
<OTHER-SE> 41,340,000
<TOTAL-LIABILITY-AND-EQUITY> 60,796,000
<SALES> 27,644,000
<TOTAL-REVENUES> 27,644,000
<CGS> 15,543,000
<TOTAL-COSTS> 33,014,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,358,000
<INCOME-PRETAX> (19,555,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,555,000)
<EPS-BASIC> (0.71)
<EPS-DILUTED> 0
</TABLE>
