SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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Student Advantage, Inc.
-----------------------
(Name of Registrant as Specified In Its Charter)
n/a
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STUDENT ADVANTAGE, INC.
280 Summer Street
Boston, Massachusetts 02210
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
ON MONDAY, JUNE 30, 2003
To our Stockholders:
The 2003 Annual Meeting of Stockholders of Student Advantage, Inc. will be
held at the offices of Hale and Dorr LLP, 26th Floor, 60 State Street, Boston,
Massachusetts 02109, on Monday, June 30, 2003 at 10:00 a.m., local time. At the
meeting, stockholders will consider and vote on the following matters:
1. To elect one Class I director to serve for a three-year term.
2. To approve the amendment of our Amended and Restated Certificate of
Incorporation to decrease the number of authorized shares of our
preferred stock from 5,000,000 shares to 1,000,000 shares and to
decrease the number of authorized shares of our common stock from
150,000,000 shares to 10,000,000 shares.
3. To approve the amendment of our Amended and Restated Certificate of
Incorporation to effect a one-for-ten reverse split of our issued and
outstanding common stock and to decrease the number of authorized
shares of our preferred stock from 5,000,000 shares to 100,000 shares
and to decrease the number of authorized shares of our
common stock from 150,000,000 shares to 1,000,000 shares.
4. To act upon any other business that may properly come before the
meeting.
Stockholders of record at the close of business on May 30, 2003 will be
entitled to vote at the meeting. Your vote is important regardless of the number
of shares you own.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE
AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENVELOPE WE HAVE
PROVIDED IN ORDER TO ENSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE
AFFIXED IF THE PROXY IS MAILED IN THE UNITED STATES.
By order of the Board of Directors,
Raymond V. Sozzi, Jr., Secretary
Boston, Massachusetts
June __, 2003
STUDENT ADVANTAGE, INC.
280 Summer Street
Boston, Massachusetts 02210
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 30, 2003
INTRODUCTION
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Student Advantage for use at the 2003
Annual Meeting of Stockholders to be held on June 30, 2003, and at any
adjournment of that meeting. All proxies will be voted in accordance with the
stockholders' instructions. If no choice is specified, the proxy will be voted
in favor of the matters set forth in the accompanying notice of the meeting. A
stockholder may revoke any proxy at any time before it is exercised by giving
our secretary written notice to that effect or by voting in person at the annual
meeting.
OUR ANNUAL REPORT TO STOCKHOLDERS FOR THE FISCAL YEAR ENDED DECEMBER
31, 2002 WAS MAILED TO STOCKHOLDERS, INCLUDING OUR ANNUAL REPORT ON FORM 10-K,
AS AMENDED, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, EXCEPT FOR
EXHIBITS, ALONG WITH THESE PROXY MATERIALS, ON OR ABOUT JUNE __, 2003. EXHIBITS
WILL BE PROVIDED TO ANY STOCKHOLDER UPON WRITTEN REQUEST TO: STUDENT ADVANTAGE,
INC., ATTN: SECRETARY, STUDENT ADVANTAGE, INC., 280 SUMMER STREET, BOSTON,
MASSACHUSETTS 02210.
QUORUM REQUIREMENT
At the close of business on May 30, 2003, the record date for the
determination of stockholders entitled to notice of and to vote at the 2003
annual meeting, there were outstanding and entitled to vote an aggregate of
[_________] shares of our common stock, constituting all of our outstanding
voting stock. Holders of common stock are entitled to one vote per share.
The holders of a majority of the shares of common stock outstanding and
entitled to vote at the annual meeting shall constitute a quorum for the
transaction of business at the meeting. Shares of common stock represented in
person or by proxy (including shares which abstain or otherwise do not vote with
respect to one or more of the matters presented for stockholder approval) will
be counted for purposes of determining whether a quorum is present at the
meeting.
1
VOTES REQUIRED
The affirmative vote of the holders of shares of common stock
representing a plurality of the votes cast at the meeting is required for the
election of the directors. The affirmative vote of the holders of a majority of
the shares of common stock outstanding and entitled to vote is required to
approve the proposed amendments to our amended and restated certificate of
incorporation.
Shares which abstain from voting in the election of our Class I
director and shares held in "street name" by a broker or nominee who indicates
on a proxy that it does not have authority to vote with respect to the proposal,
will not be voted in favor of the proposal, and also will not be counted as
votes cast on the proposal. Accordingly, abstentions and "broker non-votes" will
have no effect on the voting in the election of the Class I director, because
approval of such matter requires the affirmative vote of a plurality of the
votes cast.
Shares which abstain from voting as to the proposed amendments of our
amended and restated certificate of incorporation, and shares held in "street
name" by a broker or nominee who indicates on a proxy that it does not have
authority to vote on the proposed amendments of our amended and restated
certificate of incorporation, will not be voted in favor of the proposed
amendments. Accordingly, abstentions and "broker non-votes" will have the effect
of a negative vote on the proposed amendments of our amended and restated
certificate of incorporation, because approval of the proposed amendments
requires the affirmative vote of a majority of the outstanding shares of our
common stock.
2
BENEFICIAL OWNERSHIP OF VOTING STOCK
The following table contains information regarding the beneficial
ownership of our common stock as of May 30, 2003 by:
- each person we know to beneficially own more than 5% of the
outstanding shares of common stock,
- each of our directors,
- each of the executive officers named in the Summary Compensation
Table, and
- all of our current directors and executive officers as a group.
Unless otherwise noted, each person or entity listed in the table below has sole
voting power and investment power with respect to the shares owned beneficially
and the address of each beneficial owner is c/o Student Advantage, Inc., 280
Summer Street, Boston, Massachusetts 02210. As of May 30, 2003, there were
[ ] shares of common stock outstanding.
PERCENTAGE OF
SHARES COMMON STOCK
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OUTSTANDING
------------------------ ------------------ ------------
5% STOCKHOLDERS
Entities affiliated with Scholar, Inc. (1)........................... %
Richard Jacinto II (1)(2) ...........................................
Raymond V. Sozzi, Jr. (1)............................................
Greylock IX Limited Partnership (1)(3)...............................
William S. Kaiser (1)(3).............................................
Marc J. Turtletaub...................................................
Atlas II, L.P. (1)(2)................................................
Pentagram Partners, L.P. (1)(2)......................................
G. Todd Eichler (1) .................................................
Scholar, Inc. (1) ...................................................
OTHER DIRECTORS
John M. Connolly (4).................................................
Charles E. Young (5).................................................
OTHER NAMED EXECUTIVES
Jay P. Summerall (6).................................................
Kevin M. Roche (7)...................................................
Heather L. Lourie (8) ...............................................
Michael J. Phelan (9) ...............................................
All current executive officers and directors as a group
(7 persons)(10)...................................................
- -------------------------
* Less than 1%.
3
(1) Mr. Sozzi, Altas II, L.P., Pentagram Partners, L.P., Richard Jacinto
II, Greylock IX Limited Partnership, William S. Kaiser, G. Todd Eichler
and Scholar, Inc. (collectively, the "Reporting Persons") may be deemed
to have formed a "group" under Section 13(d) of the Securities Exchange
Act of 1934, as amended, for the purpose of providing a loan to us and
discussing with a Special Committee of our Board of Directors the
possibility of a merger or acquisition of Student Advantage.
The [ ] shares of common stock deemed to be beneficially owned by
the Reporting Persons consist of the following: (1) [ ] shares,
over which Mr. Sozzi has sole voting and investment power; (2) [ ]
shares over which Atlas II, L.P. has sole voting and investment power;
(3) [ ] shares over which Pentagram Partners, L.P. has sole voting
and investment power; (4) [ ] shares and [ ] shares subject to
presently exercisable warrants held by Greylock IX Limited Partnership,
over which Greylock has sole voting and investment power; and (5)
[ ] shares over which Mr. Eichler has sole voting and investment
power. Richard Jacinto II is the General Partner of Atlas II, L.P. and
Pentagram Partners, L.P. and has sole voting and investment power with
respect to the aggregate of [ ] shares held by Atlas II, L.P. and
Pentagram Partners, L.P. 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 the shares held by Greylock IX Limited
Partnership. Mr. Kaiser disclaims beneficial ownership of such shares,
except to the extent of his pecuniary interest therein.
(2) Consists of shares held by Atlas II, L.P. and Pentagram Partners, L.P.
Atlas II, L.P. has sole voting and investment power with respect to
[ ] shares and Pentagram Partners, L.P. has sole voting and
investment power with respect to [ ] shares. Richard Jacinto II is
the General Partner of Atlas II, L.P. and Pentagram Partners, L.P. and
has sole voting and investment power with respect to the shares held by
Atlas II, L.P. and Pentagram Partners, L.P. The address for Atlas II,
L.P., Pentagram Partners, L.P. and Mr. Jacinto is 630 Fifth Avenue,
20th Floor, New York, New York 10100.
(3) Consists of [ ] shares held of record and [ ] shares subject to
warrants that were exercisable on or within 60 days of May 30, 2003
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.
(4) Consists of [ ] shares subject to options held by Mr. Connolly that
were exercisable on or within 60 days of May 30, 2003.
(5) Consists of [ ] shares subject to options held by Mr. Young that were
exercisable on or within 60 days of May 30, 2003.
(6) Consists of [ ] shares subject to options held by Mr. Summerall that
were exercisable on or before May 7, 2003 and [ ] shares held by Mr.
Summerall's minor children. Mr. Summerall resigned from his position as
Chief Operating Officer on February 7, 2003.
(7) Includes [ ] shares subject to options held by Mr. Roche that were
exercisable on or within 60 days of
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May 30, 2003. Mr. Roche resigned from his position as Vice President,
Human Resources on April 16, 2003.
(8) Includes of [ ] shares subject to options held by Ms. Lourie that
were exercisable on or within 60 days of May 30, 2003.
(9) Consists of [ ] shares subject to options held by Mr. Phelan that
were exercisable on or within 60 days of May 30, 2003. Mr. Phelan no
longer serves as an officer of Student Advantage.
(10) Includes [ ] shares subject to options held by executive officers
and directors and [ ] shares subject to a warrant that a director
may be deemed to beneficially own that were exercisable on or within 60
days of May 30, 2003.
PROPOSAL 1 - ELECTION OF DIRECTORS
Our Board of Directors is divided into three classes, with one class
being elected each year and members of each class holding office for a
three-year term. Our Board currently consists of one Class I director, whose
term expires at this annual meeting, two Class II directors, whose terms expire
at the 2004 annual meeting, and two Class III directors, whose terms expire at
the 2005 annual meeting.
At the 2003 annual meeting, stockholders will have the opportunity to
vote to elect Charles E. Young as Class I director. Dr. Young is currently a
Class I director of the Company. He has indicated his willingness to serve, if
elected, but if he should be unable or unwilling to stand for election, proxies
may be voted for substitute nominees designated by our Board.
DIRECTORS OF THE COMPANY
Set forth below are the names and certain information with respect to
each of our directors, including the nominee for Class I director.
NOMINEE FOR CLASS I DIRECTOR (HOLDING OFFICE FOR THE TERM EXPIRING AT
THIS ANNUAL MEETING; NOMINATED FOR THE TERM EXPIRING AT THE 2006 ANNUAL
MEETING):
CHARLES E. YOUNG, age 71, has served as a member of our Board of
Directors 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.
CLASS II DIRECTORS (HOLDING OFFICE FOR THE TERM EXPIRING AT THE 2004
ANNUAL MEETING):
JOHN M. CONNOLLY, age 50, has served as a member of our Board of
Directors since May 1999. Mr. Connolly founded Mainspring, Inc., an internet
e-strategy service firm, and served as its Chairman of the Board, President
and Chief Executive Officer from June 1996 until it was acquired by IBM in June
2001. From June 2001 until November 2002, Mr. Connolly served as General
Manager, Global Head for IBM Strategy & Change Consulting. Mr. Connolly
currently serves as Partner, Vice President and General Manager, Financial
Services Sector, IBM Business Consulting Services, Americas and Global Business
Consulting Services.
5
RAYMOND V. SOZZI, JR., age 34, founded the Company in 1992 and has
served as our Chairman of the Board, President and Chief Executive Officer since
our inception.
CLASS III DIRECTORS (HOLDING OFFICE FOR TERM EXPIRING AT THE 2005
ANNUAL MEETING):
WILLIAM S. KAISER, age 47, has served as a member of our Board of
Directors 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 Red Hat, Inc.
MARC J. TURTLETAUB, age 57, has served as a member of our Board of
Directors since October 1998. Mr. Turtletaub has served as Manager of Deep River
Ventures L.L.C., an entity which invests in growth companies, since December
1999. Mr. Turtletaub served as Chief Executive Officer of The Money Store, Inc.,
a financial services company, from 1979 through 1999.
BOARD AND COMMITTEE MEETINGS
Our Board of Directors met eleven times during 2002. Each of our
incumbent directors attended at least 75% of the aggregate number of meetings of
the Board and of the committees on which he served.
Our Board of Directors has a standing Audit Committee, which meets with
our auditors to review and evaluate our audit procedures and to recommend and
implement any desired changes to our audit procedures. The members of our Audit
Committee are Messrs. Kaiser and Connolly and Dr. Young. The Audit Committee met
five times during 2002.
Our Board of Directors has a standing Compensation Committee, which
establishes the compensation of each of our executive officers, compensation
policies applicable to our executive officers and the basis for the compensation
of our Chief Executive Officer. The members of the Compensation Committee are
Messrs. Kaiser, Turtletaub and Connolly. The Compensation Committee met once
during 2002.
Our Board of Directors has a standing Stock Option Committee, which
grants stock options and makes other awards under our 1998 Stock Incentive Plan
to employees who are not executive officers in accordance with the guidelines
established by the Board. The sole member of our Stock Option Committee is
Raymond V. Sozzi, Jr. The Stock Option Committee acted solely by written action
during 2002.
Our Board of Directors does not have a standing Nominating Committee.
6
COMPENSATION OF DIRECTORS
Our directors are reimbursed for expenses incurred in connection with
their attendance at Board of Directors and committee meetings. Directors receive
no other cash compensation for serving as directors.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee of the Board of Directors acts under written
charter first adopted and approved on June 13, 2000. The current members of the
Audit Committee are John M. Connolly, William S. Kaiser and Charles E. Young.
The Company believes that the Audit Committee members are independent, as
defined by the rules of the Nasdaq Stock Market.
The Audit Committee reviewed our audited financial statements for the
2002 fiscal year and discussed these financial statements with our management.
Our management is responsible for our internal controls and the financial
reporting process. Our independent auditors are responsible for performing an
independent audit of our financial statements in accordance with generally
accepted accounting principles and to issue a report on those financial
statements. The Audit Committee is responsible for monitoring and overseeing
these processes. As appropriate, the Audit Committee reviews and evaluates, and
discusses with our management, internal accounting, financial and auditing
personnel and the independent auditors, the following:
- the plan for, and the independent auditors' report on, each audit
of our financial statements;
- our financial disclosure documents, including all financial
statements and reports filed with the Securities and Exchange
Commission or sent to stockholders;
- management's selection, application and disclosure of critical
accounting policies;
- changes in our accounting practices, principles, controls or
methodologies;
- significant developments or changes in accounting rules that are
applicable to Student Advantage; and
- the adequacy of our internal controls and accounting, financial
and auditing personnel.
7
Our management represented to the Audit Committee that our financial
statements had been prepared in accordance with generally accepted accounting
principles.
The Audit Committee also reviewed and discussed the audited financial
statements and the matters required by Statement on Auditing Standards 61
(Communication with Audit Committees) with Ernst & Young LLP, our independent
auditors. SAS 61 requires our independent auditors to discuss with the Audit
Committee, among other things, the following:
- methods to account for significant unusual transactions;
- the effect of significant accounting policies in controversial or
emerging areas for which there is a lack of authoritative guidance
or consensus;
- the process used by management in formulating particularly
sensitive accounting estimates and the basis for the auditors'
conclusions regarding the reasonableness of those estimates; and
- disagreements with management over the application of accounting
principles, the basis for management's accounting estimates and
the disclosures in the financial statements.
Ernst & Young also provided the Audit Committee with the written
disclosures and the letter required by Independence Standards Board Standard No.
1 (Independence Discussions with Audit Committees). Independence Standards Board
Standard No. 1 requires auditors annually to disclose in writing all
relationships that in the auditor's professional opinion may reasonably be
thought to bear on independence, confirm their perceived independence and engage
in a discussion of independence. In addition, the Audit Committee discussed with
Ernst & Young their independence from Student Advantage.
Based on its discussions with management and Ernst & Young, and its
review of the representations and information provided by management and Ernst &
Young, the Audit Committee recommended to our Board of Directors that the
audited financial statements be included in our Annual Report on Form 10-K for
the year ended December 31, 2002.
By the Audit Committee of the Board of Directors of Student Advantage,
Inc.
John M. Connolly
William S. Kaiser
Charles E. Young
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
On May 6, 2002, we issued an aggregate of 360,000 shares of our common
stock to three investors, including Marc J. Turtletaub, a member of our Board of
Directors and Compensation Committee,
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for an aggregate purchase price of $2.7 million. We also granted these
investors the right, exercisable at any time prior to November 1, 2002, to
purchase in the aggregate an additional 45,000 shares of common stock for a
purchase price of $7.50 per share and an additional 45,000 shares of common
stock with a purchase price of $10.00 per share. On November 1, 2002, the right
to purchase additional shares expired unexercised. Mr. Turtletaub purchased
133,333 shares on May 6, 2003 and had the right until November 1, 2002 to
purchase and additional 16,666 shares for $7.50 a share and 16,666 shares for
$10.00 per share.
On September 30, 2002, we entered into a $3.5 million loan agreement
with Scholar, Inc., an entity formed by Raymond V. Sozzi, Jr., our President and
Chief Executive Officer, Atlas II, L.P., Greylock IX Limited Partnership
("Greylock") and certain other stockholders. The loan is referred to as the
Scholar loan, has an interest rate of 10% per annum, matures on January 1, 2005
and otherwise has the same terms as our credit facility with Reservoir Capital
Partners, L.P., Reservoir Capital Master Fund, L.P. and Reservoir Capital
Associates, L.P., except that repayment of all accrued but unpaid interest on
the Reservoir Capital credit facility through April 30, 2003 has been waived by
Reservoir Capital while interest accrued at 8% per annum on the Scholar loan
through April 30, 2003 continues to be payable in full. As of May 15, 2003, the
outstanding principal amount under the Scholar loan was $2.3 million. William S.
Kaiser, a member of our Board of Directors and Compensation Committee, is the
general partner of Greylock IX GP Limited Partnership, which is the general
partner of Greylock.
9
EXECUTIVE COMPENSATION
Summary Compensation
The following Summary Compensation Table sets forth certain information
concerning the compensation for each of the last three fiscal years of (i) our
Chief Executive Officer and (ii) our four most highly compensated executive
officers who were serving as executive officers on December 31, 2002
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
AWARDS (2)
ANNUAL ----------
COMPENSATION (1) SECURITIES
NAME AND FISCAL ---------------- UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS (3) OPTIONS COMPENSATION
------------------ ------ ------ --------- ---------- ------------
Raymond V. Sozzi, Jr............................
Chairman of the Board, Chief Executive Officer 2002 $180,000 $ - - $ 4,380 (4)
and President 2001 170,000 (5) - - 29,412 (6)
2000 156,000 115,000 - 24,343 (7)
Jay P. Summerall (8)............................ 2002 169,167 - - -
Executive Vice President, Student Services and 2001 147,885 - - -
Chief Operating Officer 2000 87,231 37,500 25,000 50,000 (9)
Heather L. Lourie .............................. 2002 149,583 5,276 - -
Vice President, Corporate Development 2001 137,423 35,000 - -
2000 120,193 53,500 4,500 -
Michael J. Phelan (10).......................... 2002 149,583 - - -
Vice President, Corporate Marketing and 2001 112,538 30,000 4,000 -
Partnerships 2000 - - - -
Kevin M. Roche (11)............................. 2002 144,791 - - -
Vice President, Human Resources 2001 137,800 21,000 - -
2000 120,193 35,000 5,000 -
- ------------------
(1) In accordance with the rules of the Securities and Exchange Commission,
other compensation in the form of perquisites and other personal
benefits has been omitted in those instances where such 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) We did not grant any stock appreciation rights or make any long-term
incentive plan payouts during the years ended December 31, 2000, 2001
and 2002. The amounts reflect a one-for-ten reverse split of the common
stock effected by us on June 28, 2002.
(3) The bonus amounts for 2001 include additional bonuses paid during 2002
for services provided during 2001.
(4) Represents a contribution by us to Mr. Sozzi's 401(k) account.
10
(5) Includes $24,000 which was paid to Mr. Sozzi in 2002.
(6) Represents $25,042 of legal and accounting expenses to be paid by us
for Mr. Sozzi's personal tax planning during 2001 and a parking
allowance of $4,370.
(7) Represents $19,663 of legal expenses paid by us for Mr. Sozzi's
personal tax planning and $4,680 contributed by us to Mr. Sozzi's
401(k) account.
(8) Mr. Summerall resigned from his position as Chief Operating Officer as
of February 7, 2003.
(9) Represents relocation costs paid to Mr. Summerall.
(10) Mr. Phelan joined the Company as Vice President, Corporate Marketing
and Partnerships in February 2001 but is no longer serving as an
officer of Student Advantage.
(11) Mr. Roche resigned from his position as Vice President, Human Resources
as of April 16, 2003.
Option Grants
No options were granted to any of the Named Executive Officers during
2002.
Option Exercises and Holdings
The following table sets forth certain information concerning the
number and value of unexercised options held by each of the Named Executive
Officers on December 31, 2002. No options were exercised by any of the Named
Executive Officers during 2002.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTION AT FISCAL YEAR END FISCAL YEAR END (1)
------------------------------ ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
Raymond V. Sozzi, Jr.................. -- -- -- --
Jay P. Summerall...................... 14,688 10,312 -- --
Heather L. Lourie..................... 7,500 1,999 -- --
Michael J. Phelan..................... 1,750 2,250 -- --
Kevin M. Roche........................ 5,377 2,123 -- --
- ------------------------------
(1) Based on a value of $0.39 per share, the fair market value per share of
the common stock on December 31, 2002.
11
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 and a bonus at a target level of $75,000 to be determined in the
discretion of the Board of Directors, however, the Board of Directors has
determined each year beginning in 2001, that Mr. Sozzi's base salary would be
$180,000 and his bonus target level is $100,000. Pursuant to the employment
agreement, if the Company terminates 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.
Mr. Sozzi may terminate the employment agreement if within one year after a
change in control of the Company there is a material diminution in his position
which is not cured by the Company within ten days of receiving written notice.
In addition, Mr. Sozzi has agreed to certain confidentiality, noncompetition and
nonsolicitation provisions.
Each of Messrs. Summerall and Roche and Ms. Lourie has been granted
options to purchase common stock under our 1998 Stock Incentive Plan. The option
agreements for each of these options provide for the acceleration of vesting in
the event of a change in control of Student Advantage with respect to the number
of shares of that would have vested on a monthly vesting schedule through the
date of the change of control and 50% of the remaining unvested shares. If,
following a change of 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.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 6, 2002, we issued an aggregate of 360,000 shares of our common
stock to three investors, including Marc J. Turtletaub, a member of our Board of
Directors and Compensation Committee, for an aggregate purchase price of $2.7
million. We also granted these investors the right, exercisable at any time
prior to November 1, 2002, to purchase in the aggregate an additional 45,000
shares of common stock for a purchase price of $7.50 per share and an additional
45,000 shares of common stock with a purchase price of $10.00 per share. On
November 1, 2002, the right to purchase additional shares expired unexercised.
Mr. Turtletaub purchased 133,333 shares on May 6, 2003 and had the right until
November 1, 2002 to purchase an additional 16,666 shares for $7.50 a share and
16,666 shares for $10.00 per share.
On December 30, 2002, our lenders, Reservoir Capital Partners, L.P.,
Reservoir Capital Master Fund, L.P. and Reservoir Capital Associates, L.P.
(collectively, "Reservoir Capital"), agreed to reduce the total amount of
outstanding indebtedness under our credit facility with
12
Reservoir Capital from approximately $15.7 million to $9.5 million in exchange
for a guarantee from John Katzman, a member of our Board of Directors who
resigned at the time the amendment was consummated. In exchange for his
guarantee, we agreed to pay Mr. Katzman a $1.0 million fee payable at the time
of certain loan repayments. The fee obligation to Mr. Katzman carries an annual
interest rate of 10% and must be paid by the January 1, 2005 loan maturity date
of the Reservoir Capital credit facility.
On September 30, 2002, we entered into a $3.5 million loan agreement
with Scholar, Inc., an entity formed by Raymond V. Sozzi, Jr., our President and
Chief Executive Officer, Atlas II, L.P., Greylock IX Limited Partnership
("Greylock") and certain other stockholders. The loan is referred to as the
Scholar loan, has an interest rate of 10% per annum, matures on January 31, 2005
and otherwise has the same terms as the Reservoir Capital credit facility,
except that repayment of all accrued but unpaid interest on the Reservoir
Capital credit facility through April 30, 2003 has been waived by Reservoir
Capital while interest accrued at 8% per annum on the Scholar loan through April
30, 2003 continues to be payable in full. As of May 15, 2003, the outstanding
principal amount under the Schorlar loan was $2.3 million. William S. Kaiser, a
member of our Board of Directors, Compensation Committee and Audit Committee, is
the general partner of Greylock IX GP Limited Partnership, which is the general
partner of Greylock.
As of May 20, 2002, the Company and its former Chief Financial Officer,
Kenneth S. Goldman, entered into a Transitional Services and General Release
Agreement (the "Severance Agreement"). The Severance Agreement provides, among
other things, for the termination of Mr. Goldman's full-time employment no later
than October 4, 2002 (the "Termination Date"). The Severance Agreement provides
that until the Termination Date, Mr. Goldman would assist us with transition
services at reduced hours, in exchange for payment of his annualized salary of
$170,000 and full benefits (other than the continued accruing of vacation or
sick-time or eligibility for bonuses, profit-sharing or 401(k) plan company
matching) including continued vesting of his stock options. In addition, the
Severance Agreement contains release of
13
claims and non-disparagement provisions. Any confidentiality and/or
non-competition agreements between Mr. Goldman and us remain in effect.
During 2002, Raymond V. Sozzi, Jr., our Chairman of the Board,
President and Chief Executive Officer, advanced an aggregate of $1.1 million to
the Company, all of which was repaid in 2002.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors was chartered to
establish the compensation (including salaries, bonuses and other types of
compensation) of each of our executive officers, to establish compensation
policies applicable to executive officers and to establish the basis for the
compensation of our Chief Executive Officer or CEO. The members of the
Compensation Committee are Messrs. Kaiser, Turtletaub and Connolly, three of the
Company's non-employee Directors. The executive compensation program is designed
to align the interests of the executive officers with those of our stockholders,
to encourage and reward superior performance and to attract, retain and reward
executives who are critical for the continued growth and success of Student
Advantage. In making decisions regarding executive compensation, the Committee
receives and considers input from Mr. Sozzi, our CEO. This report is submitted
by the Compensation Committee and describes the compensation policies of Student
Advantage for 2002 as they pertain to the CEO and our other executive officers.
The Committee's executive compensation philosophy is that executive
compensation should be tied to our core values and business objectives. In
establishing base salaries for executive officers, the Committee considers
factors such as the executive's scope of responsibilities, the executive's
current and future contributions, impact and value to the achievement of
financial results, the executive's performance in the prior year,
competitiveness in the marketplace for similar skills and abilities, historical
salary actions and relative salary levels of similar positions within Student
Advantage. Increases in base salary are generally based upon enhanced individual
performance targets, maintaining a competitive base salary with the external
marketplace and/or increases in an executive's scope of responsibilities. In
awarding performance bonuses to executive officers, the Committee evaluates
overall business performance against goals and the extent to which each
executive meets certain personal performance measurements which include the
executive's ability to manage change, achieve development plan goals, manage
financial controls and participate in peer development.
Our 1998 Stock Incentive Plan (the "1998 Plan") authorizes the
Committee to grant incentive or non-statutory stock options to our employees.
The Committee is authorized to determine the price and terms at which such
options are granted. The Committee believes options provide an incentive to
executives to maximize stockholder value and they compensate executives only to
the extent that our stockholders receive a return on their investment. Moreover,
because options granted to executive officers generally become exercisable over
a four-year period and terminate with the termination of the executive's
employment, stock options
14
serve as a means of retaining these executives. In addition, the Committee may
grant options in respect of past performance. In determining the total number of
shares of common stock to be covered by option grants to executive officers in a
given year, the Committee takes into account the number of outstanding shares of
common stock, the number of shares reserved for issuance under our 1998 Plan and
our projected hiring needs for the coming year. In making individual stock
option grants to executives, the Committee considers the same factors considered
in the determination of base salary and performance bonus levels, as well as the
stock and option holdings of each executive and the remaining vesting schedule
of such executive's options. The Committee did not make any grants to executive
officers during 2002.
Mr. Sozzi, Student Advantage's CEO, is eligible to participate in the
executive compensation program available to our other executives. The employment
agreement Mr. Sozzi entered into with Student Advantage in March 1996, as
amended in October 1998, provides for an annual salary of $150,000 and a target
level of $75,000 for his bonus as determined in the discretion of the Board of
Directors. Each year since 2001, the Board of Directors has determined that Mr.
Sozzi's annual salary would be $180,000 and his target bonus would be $100,000.
At Mr. Sozzi's recommendation, Mr. Sozzi was not granted any performance bonus
for 2002.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), generally disallows a tax deduction to public companies for certain
compensation in excess of $1 million paid to a company's Chief Executive Officer
and four other most highly compensated executive officers. Certain compensation,
including qualified performance-based compensation, will not be subject to the
deduction limit if certain requirements are met. The Compensation Committee
reviews the potential effect of Section 162(m) periodically and generally seeks
to structure the compensation granted to our executive officers through option
issuances under the 1998 Plan in a manner that is intended to avoid disallowance
of deductions under Section 162(m). Nevertheless, the Compensation Committee
reserves the right to use its judgment to authorize compensation payments that
may be subject to the deduction limit when the Committee believes such payments
are appropriate and in the best interests of its stockholders, after taking into
consideration changing business conditions and the performance of its employees.
In any event, there can be no assurance that compensation attributable to stock
options granted under the 1998 Plan will qualify as performance-based
compensation under Section 162(m).
Compensation Committee of the Board of Directors of Student Advantage,
Inc.
William S. Kaiser
John M. Connolly
Marc J. Turtletaub
15
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on
our common stock from June 18, 1999 (the date the common stock commenced public
trading) through December 31, 2002 with the cumulative total return during this
period of:
- the Nasdaq Composite Index,
- the J.P. Morgan H&Q Internet Index through December 31, 2001, and
- The Street.com Internet Index.
The total return as of December 31, 2002 of the J. P. Morgan H&Q Index has not
been provided as the J.P. Morgan Internet Index was no longer being produced on
such date. We have chosen The Street.com Internet Index to replace the J. P.
Morgan H&Q Internet Index. This graph assumes the investment of $100 on June 18,
1999 in our common stock, the Nasdaq Composite Index, J.P. Morgan H&Q Internet
Index and The Street.com Internet Index, and assumes dividends are reinvested.
COMPARISON OF CUMULATIVE TOTAL RETURN
ASSUMES INITIAL INVESTMENT OF $100
DECEMBER 2002
[LINE CHART]
18-Jun-99 31-Dec-99 31-Dec-00 31-Dec-01 31-Dec-02
- ------------------------------------------------------------------------------------------------------------------------------
Student Advantage $ 100.00 $ 277.35 $ 53.13 $ 15.75 $ 0.49
Nasdaq Composite Index $ 100.00 $ 165.12 $115.63 $ 81.14 $ 55.55
JP Morgan H&Q Internet Index $ 100.00 $ 223.23 $ 85.90 $ 55.27 --
TheStreet.com Internet Index $ 100.00 $ 198.82 $ 51.77 $ 33.23 $ 14.75
- ------------------------------------------------------------------------------------------------------------------------------
16
PROPOSAL 2 - APPROVAL OF AN AMENDMENT OF OUR AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION TO DECREASE THE NUMBER OF OUR AUTHORIZED SHARES
Our Board of Directors has approved an amendment of our amended and
restated certificate of incorporation to decrease the number of authorized
shares of our preferred stock from 5,000,000 shares to 1,000,000 shares and to
decrease the number of authorized shares of our common stock from 150,000,000
shares to 10,000,000 shares. The text of the proposed amendment, which we refer
to as the authorized share reduction amendment, is attached to this proxy
statement as Appendix A.
Purpose of Proposed Authorized Share Reduction Amendment. On June 28,
2002, we effected a one-for-ten reverse split of our common stock which resulted
in the reduction of the number of issued and outstanding shares of common stock
by a factor of ten, but did not reduce the number of authorized shares of either
our common stock or our preferred stock. As a result, as of May 15, 2003, we
had 5,000,000 authorized shares of preferred stock, of which no shares were
issued and outstanding, and 150,000,000 authorized shares of common stock, of
which 5,374,019 shares were issued and outstanding. In addition, as of May 15,
2003, we had 826,160 shares of common stock reserved for future issuance under
our equity compensation plans and 326,570 shares of common stock reserved for
issuance pursuant to the exercise of warrants. As of May 15, 2003, we therefore
had an aggregate of 143,473,071 shares of common stock and 5,000,000 shares of
preferred stock available for issuance. We believe that the number of shares
available for future issuance exceeds the number of shares that we currently
expect to issue in the foreseeable future.
In addition, we are a Delaware corporation and are therefore required
to pay an annual franchise tax to the State of Delaware. The franchise tax is
calculated based on one of two formulas, each of which takes into account our
number of authorized shares. Based on our current number of authorized shares,
our tax due under either calculation is $150,000, the current maximum amount of
franchise tax payable to Delaware.
Effect of Authorized Share Reduction Amendment. If stockholders approve
the proposed authorized share reduction amendment, the principal effect of the
amendment will be to reduce the number of authorized shares of our preferred
stock from 5,000,000 to 1,000,000 and the number of authorized shares of our
common stock from 150,000,000 to 10,000,000. We believe that the proposed
reduction of authorized shares would result in a savings of approximately
$140,000 per year in Delaware franchise tax. The reduction would not change the
par value of the shares of our common stock or our preferred stock or effect the
rights and restrictions of our shares currently issued and outstanding.
Board Discretion to Implement the Proposed Amendment. If the proposed
amendment is approved at the annual meeting, our Board may, in its sole
discretion, at any time prior to the filing of the certificate of amendment
with the Delaware Secretary of State, determine to abandon the proposed
amendment without further action by the stockholders.
Recommendation of the Board of Directors. THE BOARD OF DIRECTORS
RECOMMENDS A VOTE FOR THE APPROVAL OF THE PROPOSED AMENDMENT OF OUR AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION TO REDUCE THE NUMBER OF AUTHORIZED SHARES
OF COMMON STOCK AND PREFERRED STOCK.
17
PROPOSAL 3 - APPROVAL OF AN AMENDMENT OF OUR AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION TO EFFECT A ONE-FOR-TEN REVERSE SPLIT OF OUR ISSUED AND
OUTSTANDING COMMON STOCK AND TO REDUCE THE NUMBER OF OUR AUTHORIZED SHARES
Our Board of Directors has approved an amendment of our amended and
restated certificate of incorporation to effect a one-for-ten reverse split of
our issued and outstanding common stock and to decrease the number of authorized
shares of our preferred stock from 5,000,000 shares to 100,000 shares and to
decrease the number of authorized shares of our common stock from 150,000,000
shares to 1,000,000 shares. We have attached the text of the proposed amendment
to this proxy statement as Appendix B.
If the proposed amendment is approved by the stockholders and the
one-for-ten reverse stock split and the reduction in authorized shares is
implemented by us by filing a certificate of amendment with the Delaware
Secretary of State, the reverse stock split will be effective at 5:00 p.m.
eastern time on the date of filing of the certificate of amendment. At such
time, each outstanding share of common stock will automatically be changed into
one-tenth of a share of common stock and the number of shares of common stock
subject to outstanding options and warrants, and the number of shares reserved
for future issuances under our stock plans, will be reduced by a factor of ten.
In addition, the number of authorized shares of our preferred stock will be
reduced from 5,000,000 shares to 100,000 shares and the number of authorized
shares of our common stock will be reduced from 150,000,000 to 1,000,000. Our
Board of Directors may decide to abandon or postpone the proposed amendment if
such action is determined to be advisable (even if such proposal has been
approved by the stockholders). If the proposed amendment is approved by
stockholders and implemented by us by filing a certificate of amendment with the
Delaware Secretary of State, it is expected that the Board of Directors would
abandon the authorized share reduction amendment described above in Proposal 2.
Purpose of Proposed Reverse Stock Split. The purpose of the proposed
reverse stock split is to increase the per share market price of our common
stock and to reduce the number of shares of our common stock outstanding. Our
Board believes that the decrease in the number of shares of common stock
outstanding as a consequence of the reverse stock split, and the anticipated
increase in the price of the common stock, could encourage the interest of
investors in the common stock and possibly promote greater liquidity for our
stockholders, although such liquidity could be adversely affected by the reduced
number of shares outstanding after the reverse stock split. Additionally,
because brokers' commissions on low-priced stocks generally represent a higher
percentage of the stock price than commissions on higher-priced stocks, the
share price of the common stock after the reverse stock split could result in
certain individual stockholders paying transaction costs (commissions, markups
or markdowns), which are a lower percentage of their total share value than
would be the case if the share price of the common stock remained at its current
level.
There can be no assurances, however, that the foregoing events will occur,
or that the market price of the common stock immediately after the proposed
reverse stock split will be maintained for any period of time. Moreover, there
can be no assurance that the market price of the common stock after the proposed
reverse stock split will adjust to reflect the conversion ratio (e.g., if the
market price is $0.15 before the reverse stock split there can be no assurance
that the market price immediately after the reverse stock split will be $1.50
(10 x $0.15)); or that the
18
market price following the reverse stock split will either exceed or remain in
excess of the current market price.
Purpose of Proposed Decrease in Authorized Shares. In conjunction with the
reverse stock split, we are proposing to reduce our authorized shares of
preferred stock from 5,000,000 shares to 100,000 shares and our authorized
shares of common stock from 150,000,000 shares to 1,000,000 shares. Based on the
number of shares outstanding as of May 15, 2003 and taking into account the
proposed reverse stock split, we would have no shares of preferred stock
outstanding and 537,401 shares of common stock issued and outstanding. In
addition, we would have 82,616 shares of common stock reserved for future
issuance under our equity compensation plans and 32,675 shares of common stock
reserved for issuance pursuant to the exercise of warrants. If we did not reduce
the number of authorized shares, we would therefore have an aggregate of
149,347,308 shares of common stock and 5,000,000 shares of preferred stock
available for issuance. We believe that these numbers of shares available for
future issuance would exceed the number of shares that we may issue in the
foreseeable future.
In addition, as more fully set forth in proposal 2 above, we are a
Delaware corporation and are therefore required to pay an annual franchise tax
to the State of Delaware based in part on the number of our authorized shares.
Effect of Reverse Stock Split. If the proposed amendment is approved at
the annual meeting and the one-for-ten reverse stock split is effected by us by
filing a certificate of amendment with the Delaware Secretary of State, each
share of common stock outstanding immediately prior to filing will automatically
be changed, as of 5:00 p.m. on the date of filing, into one-tenth of a share of
common stock. In addition, the number of shares of common stock subject to
outstanding options and warrants, and the number of shares reserved for future
issuances under our stock plans, will be reduced by a factor of ten. No
fractional shares of common stock will be issued in connection with the proposed
reverse stock split. Holders of common stock who would otherwise receive a
fractional share of common stock pursuant to the reverse stock split will
receive cash in lieu of the fractional share as explained more fully below.
Because the reverse stock split will apply to all issued and outstanding
shares of common stock and outstanding rights to acquire common stock, the
proposed reverse stock split will not alter the relative rights and preferences
of existing stockholders. The reverse stock split will not affect the par value
of our common stock.
If the proposed amendment is approved at the annual meeting and effected
by us, some stockholders may consequently own less than one hundred shares of
common stock. A purchase or sale of less than one hundred shares (an "odd lot"
transaction) may result in incrementally higher trading costs through certain
brokers, particularly "full service" brokers. Therefore, those stockholders who
own less than one hundred shares following the reverse stock split may be
required to pay modestly higher transaction costs should they then determine to
sell their shares.
In lieu of any fractional shares to which a holder of common stock would
otherwise be entitled as a result of the reverse stock split, we will pay cash
equal to such fraction multiplied by the average of the high and low trading
prices, if any, of the common stock on the OTC Bulletin
19
Board during regular trading hours for the five trading days immediately
preceding the filing of the certificate of amendment relating to the proposed
amendment.
Stockholders have no right under Delaware law, our amended and restated
certificate of incorporation or our bylaws to exercise appraisal rights in
connection with the reverse stock split.
Effect of Decrease in Authorized Shares. If the stockholder approves the
proposed amendment, and our authorized shares are reduced to 100,000 shares of
preferred stock and 1,000,000 shares of common stock, we believe that the
proposed reduction in authorized shares would result in an aggregate savings of
approximately $145,000 per year in Delaware franchise tax.
The reduction in authorized shares will not alter the relative rights and
preferences of existing stockholders and will not affect the par value of the
common stock.
Federal Income Tax Consequences. The following description of the material
federal income tax consequences of the reverse stock split is based on the
Internal Revenue Code of 1986, as amended (the "Code"), applicable Treasury
Regulations promulgated thereunder, judicial authority and current
administrative rulings and practices as in effect on the date of this proxy
statement. Changes to the laws could alter the tax consequences described below,
possibly with retroactive effect. We have not sought and will not seek an
opinion of counsel or a ruling from the Internal Revenue Service regarding the
federal income tax consequences of the reverse stock split. This discussion is
for general information only and does not discuss the tax consequences which may
apply to special classes of taxpayers (e.g., non-resident aliens, broker/dealers
or insurance companies). The state and local tax consequences of the reverse
stock split may vary significantly as to each stockholder, depending upon the
jurisdiction in which such stockholder resides. Stockholders are urged to
consult their own tax advisors to determine the particular consequences to them.
In general, the federal income tax consequences of the reverse stock split
will vary among stockholders depending upon whether they receive cash for
fractional shares or solely a reduced number of shares of common stock in
exchange for their old shares of common stock. We believe that because the
reverse stock split is not part of a plan to increase periodically a
stockholder's proportionate interest in our assets or earnings and profits, the
reverse stock split will likely have the following federal income tax effects:
A stockholder who receives solely a reduced number of shares of common
stock will not recognize gain or loss. In the aggregate, such a stockholder's
basis in the reduced number of shares of common stock will equal the
stockholder's basis in its old shares of common stock.
A stockholder who receives cash in lieu of a fractional share as a result
of the reverse stock split will generally be treated as having received the
payment as a distribution in redemption of the fractional share, as provided in
Section 302(a) of the Code, which distribution will be taxed as either a
distribution under Section 301 of the Code or an exchange to such stockholder,
depending on that stockholder's particular facts and circumstances. Generally, a
stockholder receiving such a payment should recognize gain or loss equal to the
difference, if any, between the amount of cash received and the stockholder's
basis in the fractional share. In the aggregate, a stockholder's basis in the
reduced number of shares of common stock will equal
20
the stockholder's basis in its old shares of common stock decreased by the basis
allocated to the fractional share for which the stockholder is entitled to
receive cash.
We will not recognize any gain or loss as a result of the reverse stock
split.
Board Discretion to Implement the Proposed Amendment. If the proposed
amendment is approved at the annual meeting, our Board may, in its sole
discretion, at any time prior to the filing of the certificate of amendment with
the Delaware Secretary of State, determine to abandon the proposed amendment
without further action by the stockholders.
Recommendation of the Board of Directors. THE BOARD OF DIRECTORS
RECOMMENDS A VOTE FOR THE APPROVAL OF THE PROPOSED AMENDMENT OF OUR AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION TO EFFECT A ONE-FOR-TEN REVERSE SPLIT OF
THE ISSUED AND OUTSTANDING COMMON STOCK AND TO DECREASE THE NUMBER OF AUTHORIZED
SHARES OF OUR PREFERRED STOCK AND OUR COMMON STOCK.
21
INDEPENDENT AUDITORS
On June 27, 2002, we dismissed Arthur Andersen LLP as our independent
accountant. Arthur Andersen had served as our independent accountant since April
11, 2001. Arthur Andersen's report on our financial statements for the year
ended December 31, 2001 did not contain an adverse opinion or a disclaimer of
opinion, nor was it qualified or modified as to uncertainty, audit scope, or
accounting principles. The decision to dismiss Arthur Andersen was recommended
by our management and our Audit Committee and was approved by our Board of
Directors. During the year ended December 31, 2001 and through June 27, 2002, we
had no disagreements with Arthur Andersen on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure,
which disagreements, if not resolved to the satisfaction of Arthur Andersen,
would have caused it to make a reference to the subject matter of the
disagreements in connection with its reports. During the year ended December 31,
2001 and through June 27, 2002, there have been no "reportable events" as
defined in Item 304(a)(v) of Regulation S-K.
On July 19, 2002 and as recommended and approved by the Audit Committee
of the Board of Directors per its resolution on June 19, 2002, we engaged Ernst
& Young LLP, independent accountant, as the principal accountant to audit our
consolidated financial statements for the fiscal year ending December 31, 2002.
Ernst & Young replaced the firm of Arthur Andersen.
During the years ended December 31, 2000 and December 31, 2001 and
during the interim period prior to engaging Ernst & Young, neither Student
Advantage nor anyone on our behalf consulted Ernst & Young regarding either the
application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
our financial statements, and neither a written report was provided to Student
Advantage nor oral advice was provided that Ernst & Young concluded was an
important factor considered by Student Advantage in reaching a decision as to
the accounting, auditing or financial reporting issue or any matter that was the
subject of either a disagreement or a "reportable event" as defined in Item
304(a)(v) of Regulation S-K.
Our Board of Directors has selected Ernst & Young to serve as our
independent auditors for the fiscal year ending December 31, 2003.
Representatives of Ernst & Young will be present at the annual meeting and will
have the opportunity to make a statement if they desire to do so and will be
available to respond to appropriate questions from stockholders.
INDEPENDENT AUDITORS FEES AND OTHER MATTERS
In addition to retaining Ernst & Young to audit our consolidated
financial statements for the fiscal year ended December 31, 2002 and review the
financial statements included in each of our Quarterly Reports on Form 10-Q
during such fiscal year, we retained Ernst & Young to
22
provide tax compliance and planning services and tax advice. In addition to
retaining Arthur Andersen to audit our consolidated financial statements for the
fiscal year ended December 31, 2001 and review the financial statements included
in each of our Quarterly Reports on Form 10-Q during 2001 and the first quarter
of 2002, we retained Arthur Andersen to audit employee benefit plans, provide
due diligence services in connection with sales of assets and provide tax
compliance and planning services and tax advice. The aggregate fees billed for
professional services rendered by (1) Ernst & Young for fiscal year 2002 and,
(2) Arthur Andersen for fiscal year ended December 31, 2001 and for services for
fiscal year 2002, for these various services were:
- ---------------------------------------------------------------------------------------------------------------
TYPE OF FEES FISCAL YEAR ENDED
- --------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 2002 DECEMBER 31, 2002 DECEMBER 31, 2001 DECEMBER 31, 2001
- --------------------------------------------------------------------------------------------------------------------------------
Ernst & Young LLP Arthur Anderson LLP Ernst & Young LLP Arthur Anderson LLP
- --------------------------------------------------------------------------------------------------------------------------------
Audit Fees $149,000 $15,000 $136,500
Audit-Related Fees 8,000 23,000
Tax Fees 11,500 45,000 11,000
All Other Fees 0 25,000
- --------------------------------------------------------------------------------------------------------------------------------
Total $ 168,500 $15,000 45,000 $195,500
- --------------------------------------------------------------------------------------------------------------------------------
In the above table "Audit Fees" are fees we paid Ernst & Young or
Arthur Andersen for professional services for the audit of our consolidated
financial statements included in our Annual Report on Form 10-K and review of
financial statements included in our Quarterly Reports on Form 10-Q, or for
services that are normally provided by the auditors in connection with statutory
and regulatory filings or engagements; "Audit-Related Fees" are fees billed by
Ernst & Young or Arthur Andersen for assurance and related services that are
reasonably related to the performance of the audit or review of our financial
statements; "Tax Fees" are fees for tax compliance, tax advice and tax planning;
and "All Other Fees" are fees billed by Ernst & Young or Arthur Andersen for any
services not included in the first three categories.
23
OTHER MATTERS
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on our review of reports filed by our "reporting persons"
under Section 16 (a) of the Securities Exchange Act of 1934, as amended
("Section 16(a)"), we believe that during fiscal year 2002, all filings required
to be made by reporting persons were timely made in accordance with the
requirements of Section 16(a).
MATTERS TO BE CONSIDERED AT THE MEETING
The Board does not know of any other matters which may come before the
annual meeting. However, if any other matters are properly presented to the
annual meeting, it is the intention of the persons named in the accompanying
proxy to vote, or otherwise act, in accordance with their judgment on such
matters.
SOLICITATION OF PROXIES
All costs of solicitation of proxies will be borne by Student
Advantage. In addition to solicitations by mail, our Directors, officers and
regular employees, without additional remuneration, may solicit proxies by
telephone, telegraph, facsimile, email and personal interviews. Brokers,
custodians and fiduciaries will be requested to forward proxy soliciting
material to the owners of stock held in their names, and we will reimburse them
for their out-of-pocket expenses in this connection.
HOUSEHOLDING OF ANNUAL MEETING MATERIALS
Some banks, brokers and other nominee record holders may be
participating in the practice of "householding" proxy statements and annual
reports. This means that only one copy of our proxy statement or annual report
may have been sent to multiple stockholders in the same household. We will
promptly deliver a separate copy of either document to any stockholder upon
request by writing or calling us at the following address or phone number:
Student Advantage, Inc., 280 Summer Street, Boston, Massachusetts 02210,
Attention: Secretary or by calling 1-888-825-7823. Any stockholder who wants to
receive separate copies of the annual report and proxy statement in the future,
or who is currently receiving multiple copies and would like to receive only one
copy for his or her household, should contact his or her bank, broker, or other
nominee record holder, or contact us at the above address and phone number.
STOCKHOLDER PROPOSALS FOR 2004 ANNUAL MEETING
Any proposal that a stockholder wishes to be considered for inclusion
in our proxy statement and proxy card for the 2004 annual meeting must be
received by Student Advantage's Secretary at our principal executive offices no
later than February __, 2004.
ADVANCE NOTICE PROCEDURES
Our by-laws require that Student Advantage be given advance written
notice of stockholder nominations for election to our Board of Directors and of
other matters which stockholders wish to present for action at an annual meeting
of stockholders (other than matters included in our proxy which are discussed
above). The required notice must be given within the prescribed time frame,
which is generally calculated by reference to the date of the most recent annual
meeting. Assuming that our 2004 annual meeting is held on or after June 10, 2004
and on or before September 8, 2004 (as we currently anticipate), the bylaws
would require notice to be provided to our Secretary at our principal offices no
earlier than April 1, 2004 and no later than
24
April 21, 2004. Our by-laws also specify requirements relating to the content of
the notice which stockholders must provide to our Secretary for any matter,
including a stockholder nomination for director, to be properly presented at a
stockholder meeting.
By Order of the Board of Directors,
Raymond V. Sozzi, Jr., Secretary
June , 2003
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. PROMPT RESPONSE WILL
GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING AND YOUR COOPERATION WILL BE
APPRECIATED. STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR STOCK PERSONALLY
EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES.
25
APPENDIX A
PROPOSED AMENDMENT TO
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
DESCRIBED IN PROPOSAL 2
The proposed amendment consists of deleting the second paragraph of Article
FOURTH of the Amended and Restated Certificate of Incorporation of the
Corporation and inserting the following paragraph in lieu thereof:
"The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 11,000,000 shares,
consisting of (i) 10,000,000 shares of Common Stock, par value $0.01
per share ("Common Stock"), and (ii) 1,000,000 shares of Preferred
Stock, par value $0.01 per share ("Preferred Stock")."
A-1
APPENDIX B
PROPOSED AMENDMENT TO
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
DESCRIBED IN PROPOSAL 3
The proposed amendment consists of deleting the first and second paragraphs
of Article FOURTH of the Amended and Restated Certificate of Incorporation of
the Corporation and inserting the following two paragraphs in lieu thereof:
"FOURTH: That, effective at 5:00 p.m., eastern time, on the filing date of
the Certificate of Amendment setting forth this amendment to the Amended
and Restated Certificate of Incorporation (the "Effective Time"), a
one-for-ten reverse stock split of the Corporation's common stock shall
become effective, pursuant to which each ten shares of common stock
outstanding and held of record by each stockholder of the Corporation
(including treasury shares) immediately prior to the Effective Time (the
"Old Common Stock") shall be reclassified and combined (the "Reverse
Split") into one share of common stock automatically and without any action
by the holder thereof upon the Effective Time and shall represent one share
of common stock from and after the Effective Time (the "New Common Stock").
No fractional shares of common stock shall be issued as a result of such
reclassification and combination. In lieu of any fractional shares to which
the stockholder would otherwise be entitled, the Corporation shall pay cash
equal to such fraction multiplied by the average of the high and low
trading prices, if any, of the Common Stock on the OTC Bulletin Board
during regular trading hours for the five trading days immediately
preceding the Effective Time. Whether or not fractional shares are issuable
upon such reclassification and combination shall be determined on the basis
of the total number of shares of Old Common Stock held by a holder and the
total number of shares of New Common Stock issuable to such holder as a
result of the Reverse Split.
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 1,100,000 shares, consisting
of (i) 1,000,000 shares of Common Stock, par value $0.01 per share ("Common
Stock"), and (ii) 100,000 shares of Preferred Stock, par value $0.01 per
share ("Preferred Stock")."
B-1
PROXY
STUDENT ADVANTAGE, INC.
280 SUMMER STREET
BOSTON, MASSACHUSETTS 02210
SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
Those signing on the reverse side, revoking any prior proxies, hereby
appoint(s) each of Raymond V. Sozzi, Jr. and Sevim M. Perry, each with the full
power to appoint his or her substitute, and hereby authorizes them to represent
and to vote, as designated on the reverse side, all shares of Common Stock of
Student Advantage, Inc. (the "Company") held of record by the undersigned on May
30, 2003 at the Annual Meeting of Stockholders to be held on June 30, 2003 and
any adjournments thereof. Attendance of the undersigned at the meeting or at any
adjourned session thereof will not be deemed to revoke this proxy unless the
undersigned shall affirmatively indicate thereat the intention of the
undersigned to vote said shares in person.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED. IF NO
DIRECTION IS GIVEN WITH RESPECT TO A PARTICULAR PROPOSAL, THIS PROXY WILL BE
VOTED FOR SUCH PROPOSAL.
PLEASE MARK, DATE, SIGN, AND RETURN THIS PROXY PROMPTLY, USING THE
ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
SEE REVERSE SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE SIDE
Dear Stockholder:
Please take note of the important information enclosed with this Proxy.
Your vote counts, and you are strongly encouraged to exercise your right to vote
your shares.
Please mark the boxes on the proxy card to indicate how your shares will be
voted. Then sign the card, detach it and return your proxy in the enclosed
postage paid envelope.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
Student Advantage, Inc.
[X] PLEASE MARK
VOTES AS IN
THIS EXAMPLE.
1. To elect one Class I director to serve for a three year term.
Nominee: Charles E. Young
FOR WITHHELD FROM THE NOMINEE
[ ] [ ]
2. To approve the amendment of the Company's Amended and Restated
Certificate of Incorporation to decrease the number of authorized
shares of the Company's preferred stock from 5,000,000 shares to
1,000,000 shares and to decrease the number of authorized shares of the
Company's common stock from 150,000,000 shares to 10,000,000 shares.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. To approve the amendment of the Company's Amended and Restated
Certificate of Incorporation to effect a one-for-ten reverse split of
its issued and outstanding common stock and to decrease the number of
authorized shares of its preferred stock from 5,000,000 shares to
100,000 shares and to decrease the number of authorized shares of its
common stock from 150,000,000 shares to 1,000,000 shares.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON ANY OTHER BUSINESS
THAT MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.
MARK HERE IF YOU PLAN TO ATTEND THE ANNUAL
MEETING [ ]
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
Please sign exactly as your name appears hereon. Joint owners should each sign.
Executors, administrators, trustees, guardians or other fiduciaries should give
full title as such. If signing for a corporation, please sign in full corporate
name by a duly authorized officer.
Signature:____________________ Date:_____ Signature:_____________ Date:_________