SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 1)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<Table>
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
</Table>
Student Advantage, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
n/a
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies: common
stock $0.01 par value per share
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11
(Set forth the amount on which the filing fee is calculated and state
how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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STUDENT ADVANTAGE, INC.
280 SUMMER STREET
BOSTON, MASSACHUSETTS 02210
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS TO BE HELD
ON MONDAY, MARCH 15, 2004
To the Stockholders of Student Advantage, Inc.:
A special 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, March 15, 2004 at 10:00 a.m., local time. At the
meeting, stockholders will consider and vote on the following matters:
1. The approval and adoption of a Purchase and Sale Agreement (the
"Purchase and Sale Agreement"), dated November 18, 2003, by and between
Student Advantage and NCSN, Inc. ("NCSN"), and the transactions
contemplated thereby, pursuant to which Student Advantage will sell the
assets used in its college sports business, the Official College Sports
Network, and its college newspaper business, U-WIRE, to NCSN (the "Asset
Sale").
2. The approval and adoption of an Agreement and Plan of Merger (the
"Merger Agreement"), dated November 18, 2003, by and among Student
Advantage, Athena Ventures Parent, Inc. ("Athena Ventures"), and Athena
Ventures Acquisition Sub, Inc., a wholly-owned subsidiary of Athena
Ventures ("Acquisition Sub"), and the transactions contemplated thereby,
pursuant to which, among other things and provided the Asset Sale has been
consummated, Acquisition Sub will be merged with and into Student
Advantage, with Student Advantage as the surviving corporation, and Student
Advantage will become a wholly-owned subsidiary of Athena Ventures (the
"Merger" and together with the Asset Sale, the "Transactions").
3. To grant to the proxyholders the authority to vote in their
discretion on a motion to adjourn or postpone the special meeting,
including for the purpose of soliciting additional proxies in the event
that there are not sufficient votes at the time of the special meeting to
approve the Transactions and approve and adopt the Merger Agreement and the
Purchase and Sale Agreement.
4. To act upon any other business that may properly come before the
meeting.
The proposal is described in detail in the accompanying proxy statement and
the annexes thereto. You are urged to read these materials very carefully in
their entirety before deciding how to vote.
Stockholders of record at the close of business on February 6, 2004 will be
entitled to vote at the meeting. Only holders of record of shares of Student
Advantage common stock at the close of business on the record date are entitled
to notice of, and to vote at, the special meeting or any adjournments or
postponements thereof. Your vote is important regardless of the number of shares
you own.
AFTER CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS OF STUDENT ADVANTAGE,
UPON THE RECOMMENDATION OF A SPECIAL COMMITTEE COMPRISED OF INDEPENDENT MEMBERS
OF THE BOARD OF DIRECTORS OF STUDENT ADVANTAGE, DETERMINED THAT THE ASSET SALE
AND THE MERGER ARE FAIR AND ADVISABLE, ADOPTED THE PURCHASE AND SALE AGREEMENT
AND THE MERGER AGREEMENT AND NOW RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE
TRANSACTIONS AND APPROVAL AND ADOPTION OF THE PURCHASE AND SALE AGREEMENT AND
THE MERGER AGREEMENT.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENVELOPE 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.
Chairman of the Board
Chief Executive Officer, President and
Secretary
Boston, Massachusetts
February , 2004
IF YOU DO NOT WISH TO ACCEPT THE MERGER CONSIDERATION PROVIDED IN THE
MERGER AGREEMENT, YOU HAVE THE RIGHT TO EXERCISE APPRAISAL RIGHTS UNDER SECTION
262 OF THE DELAWARE GENERAL CORPORATION LAW AND OBTAIN THE "FAIR VALUE" OF YOUR
SHARES OF COMMON STOCK OF STUDENT ADVANTAGE, PROVIDED THAT YOU COMPLY WITH THE
CONDITIONS ESTABLISHED UNDER APPLICABLE DELAWARE LAW. FOR A DISCUSSION REGARDING
YOUR APPRAISAL RIGHTS, SEE THE SECTION TITLED "OTHER MATTERS -- DISSENTERS'
RIGHTS OF APPRAISAL" IN THE ACCOMPANYING PROXY STATEMENT AND APPENDIX E THERETO,
WHICH SETS FORTH THAT STATUTE.
STUDENT ADVANTAGE, INC.
280 SUMMER STREET
BOSTON, MASSACHUSETTS 02210
PROXY STATEMENT
FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MONDAY, MARCH 15, 2004
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Student Advantage, Inc. for use at a
special meeting of its stockholders to be held on March 15, 2004, at the offices
of Hale and Dorr LLP, 26th Floor, 60 State Street, Boston, Massachusetts 02109,
at 10:00 a.m., local time, and at any adjournment of that meeting. This Proxy
Statement and the enclosed form of proxy are first being mailed to stockholders
beginning on or about February , 2004.
Only stockholders of record as of the close of business on February 6,
2004, are entitled to notice of and to vote at the special meeting. As of the
record date, there were outstanding and entitled to vote an aggregate of 537,309
shares of common stock, $0.01 par value per share, constituting all of Student
Advantage's outstanding voting stock. Holders of the common stock are entitled
to one vote per share.
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 written notice to
that effect to Student Advantage's secretary or by affirmatively indicating in
person at the special meeting an intent to vote the shares in person. See "THE
SPECIAL MEETING" below for more information.
At the special meeting, stockholders will consider and vote upon proposals
to approve both the sale of Student Advantage's assets relating to its college
sports business, the Official College Sports Network, and its college newspaper
business, U-WIRE, to NCSN, which is referred to in this proxy statement as the
"Asset Sale" and, following the Asset Sale, the merger of a wholly-owned
subsidiary of Athena Ventures, which is wholly-owned by Raymond V. Sozzi, Jr.,
Student Advantage's Chairman of the Board, President and Chief Executive
Officer, with and into Student Advantage, pursuant to which each stockholder of
Student Advantage, other than Athena Ventures and Acquisition Sub, will receive
a cash payment of $1.05 for each share of common stock, which is referred to in
this proxy statement as the "Merger" and together with the Asset Sale, the
"Transactions". ALTHOUGH STOCKHOLDERS ARE BEING ASKED TO APPROVE EACH
TRANSACTION SEPARATELY, STUDENT ADVANTAGE WILL NOT COMPLETE THE ASSET SALE OR
THE MERGER UNLESS BOTH TRANSACTIONS ARE APPROVED BY STOCKHOLDERS AND COMPLETED
BY THE PARTIES. These proposals are described in more detail below and in the
Agreement and Plan of Merger and Purchase and Sale Agreement attached to this
proxy statement as APPENDIX A and APPENDIX B, respectively.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION ("SEC") NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THE TRANSACTIONS, PASSED UPON
THE MERITS OR FAIRNESS OF THE TRANSACTIONS OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THE DISCLOSURE IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
<Table>
Introduction................................................ 1
Summary Term Sheet.......................................... 5
The Transactions.......................................... 5
The Merger................................................ 8
The Asset Sale............................................ 11
The Special Meeting of Stockholders......................... 12
Cautionary Statements Regarding Forward-Looking
Information............................................... 14
The Special Meeting......................................... 15
Purpose................................................... 15
Voting by Proxy........................................... 15
Who Can Vote; Quorum...................................... 15
Vote Required............................................. 16
Other Business............................................ 16
Proxy Solicitation........................................ 16
Special Factors............................................. 17
Background of the Transactions............................ 17
The Parties............................................... 23
Recommendation of the Board of Directors; Fairness of the
Transactions........................................... 23
Reasons for the Special Committee's Recommendation........ 24
The Merger and the Merger Agreement....................... 24
The Asset Sale and the Purchase and Sale Agreement........ 25
Reasons for the Board of Directors' Recommendation........ 27
Position of Raymond V. Sozzi, Jr. and Athena Ventures as
to the Fairness of the Merger.......................... 33
Projections Provided to Financial Advisor................. 34
Opinions of Financial Advisor to the Special Committee.... 36
Purpose and Structure of the Merger....................... 43
Athena Ventures' Financing of the Merger.................. 44
Effects of the Merger..................................... 44
Plans for Student Advantage Following the Merger.......... 45
Executive Officers and Directors of the Surviving
Corporation............................................ 45
Interests of Raymond V. Sozzi, Jr.; Appointment of Special
Committee; Certain Relationships....................... 45
Interests of Raymond V. Sozzi, Jr...................... 45
The Special Committee.................................. 46
Voting Agreement with Raymond V. Sozzi, Jr............. 46
Certain Transactions................................... 46
Merger Consideration to be Received by Raymond V. Sozzi,
Jr., Athena Ventures and Acquisition Sub............... 47
Merger Consideration to be Received by Directors and
Executive Officers of Student Advantage Other than
Raymond V. Sozzi, Jr................................... 47
Purpose of the Asset Sale................................. 47
Effects of the Asset Sale................................. 48
Use of Proceeds of the Asset Sale......................... 48
The Merger Agreement........................................ 49
The Merger................................................ 49
</Table>
2
<Table>
Effective Time of Merger.................................. 49
Certificate of Incorporation, Bylaws and Directors and
Officers of Student Advantage as the Surviving
Corporation............................................ 49
Conversion of Common Stock................................ 49
Payment for Shares........................................ 50
Stockholders of Student Advantage should not forward stock
certificates to the exchange agent until they have
received the letter of transmittal..................... 50
Transfer of Shares........................................ 50
Treatment of Stock Options and Warrants................... 50
Student Advantage Special Meeting......................... 51
Indemnification and Insurance............................. 51
Representations and Warranties............................ 51
Conduct of Business Pending the Merger.................... 53
Solicitation.............................................. 54
Access To Information..................................... 56
Conditions to the Merger.................................. 56
Waiver.................................................... 57
Termination of the Merger Agreement....................... 58
Expenses of the Parties................................... 59
Amendments................................................ 59
The Purchase and Sale Agreement............................. 60
The Asset Sale............................................ 60
Assets and Liabilities to be Sold......................... 60
Excluded Assets and Liabilities........................... 61
Purchase Price............................................ 61
Completion of the Asset Sale.............................. 62
Representations and Warranties............................ 62
Conduct of Business Pending the Asset Sale................ 63
Limitation on Soliciting Other Transactions............... 64
Preparation of Proxy Statement; Stockholders Meeting...... 64
Conditions to Completing the Asset Sale................... 64
Post-Closing Covenants and Agreements..................... 65
Employee Matters.......................................... 66
Approvals and Consents.................................... 66
Termination............................................... 66
Indemnification........................................... 67
Expenses and Termination Fees............................. 68
Other Agreements Relating to the Asset Sale............... 68
Voting Agreement....................................... 68
Note Agreement......................................... 68
Warrant................................................ 69
The Transactions............................................ 69
Conduct of the Business of Student Advantage if the
Transactions Are Not Completed......................... 69
Estimated Fees and Expenses of the Transactions........... 69
Accounting Treatment...................................... 69
Certain Material United States Federal Income Tax
Considerations......................................... 70
</Table>
3
<Table>
Provisions for Public Stockholders........................ 71
Certain Regulatory Matters................................ 71
Information about Student Advantage......................... 72
Business.................................................. 72
Properties................................................ 79
Legal Proceedings......................................... 79
Directors and Officers of Student Advantage............... 80
Information about Athena Ventures and Acquisition Sub....... 81
Athena Ventures and Acquisition Sub....................... 81
Directors and Officers of Athena Ventures and Acquisition
Sub.................................................... 81
Beneficial Ownership of Voting Stock........................ 82
Prior Stock Purchases and Other Transactions.............. 83
Market for the Common Stock................................. 83
Price Range of Student Advantage Common Stock............. 83
Dividend Policy........................................... 84
Prior Public Offerings.................................... 84
Consolidated Selected Financial Data........................ 85
Unaudited Pro Forma Consolidated Financial Statements....... 87
Management's Division and Analysis of Financial Condition
and Results of Operations................................. 91
Results of Continuing Operations.......................... 95
Comparison of the Nine Months Ended September 30, 2003
with the Nine Months Ended September 30, 2002.......... 95
Comparison of the Year Ended December 31, 2002 with the
Year Ended December 31, 2001........................... 96
Results of Discontinued Operations........................ 101
Liquidity and Capital Resources........................... 102
Recent Accounting Pronouncements.......................... 104
Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure.................... 105
Quantitative and Qualitative Disclosures About Market
Risk................................................... 105
Other Matters............................................... 105
Dissenters' Rights of Appraisal........................... 105
Other Matters at the Special Meeting...................... 108
Future Stockholder Proposals.............................. 109
Householding of Proxy Materials........................... 109
Available Information..................................... 109
Index to Consolidated Financial Statements.................. 110
APPENDIX A -- Agreement and Plan of Merger.................. A-1
APPENDIX B -- Purchase and Sale Agreement................... B-1
APPENDIX C -- Opinion of Luminary Capital Regarding the
Merger.................................................... C-1
APPENDIX D -- Opinion of Luminary Capital Regarding the
Asset Sale................................................ D-1
APPENDIX E -- Section 262 of the General Corporation Law of
the State of Delaware Regarding Dissenters' Rights........ E-1
</Table>
4
SUMMARY TERM SHEET
This Summary Term Sheet summarizes material information contained elsewhere
in this proxy statement, but does not contain all of the information that is
important to you. You should read the entire proxy statement carefully,
including the attached documents.
THE TRANSACTIONS
The Parties (page 23)......... Student Advantage, Inc., a Delaware
corporation, is a media and commerce company
focused on the higher education market. Student
Advantage works with hundreds of colleges,
universities and campus organizations, and more
than 15,000 merchant locations to develop
products and services that enable students to
make purchases less expensively and more
conveniently on and around campus. The company
currently reaches its consumer base offline
through the Student Advantage Membership and
online through its Web sites,
studentadvantage.com and CollegeSports.com, the
hub site for its Official College Sports
Network.
Student Advantage's principal executive offices
are located at 280 Summer Street, Boston,
Massachusetts 02210 and its phone number is
(617) 912-2000.
Athena Ventures and Acquisition Sub are newly
formed Delaware corporations, which were formed
at the direction of Raymond V. Sozzi, Jr. for
the purpose of effecting the Merger
transaction. Acquisition Sub is wholly-owned by
Athena Ventures and Athena Ventures is
wholly-owned by Mr. Sozzi. Acquisition Sub
shall cease to exist as a separate corporate
entity upon consummation of the Merger.
Athena Venture's and Acquisition Sub's
principal executive offices are located at 280
Summer Street, Boston, Massachusetts 02210 and
their phone number is (617) 912-2000.
Raymond V. Sozzi, Jr. has served as the
Chairman of the Board, President and Chief
Executive Officer of Student Advantage since
its inception. Mr. Sozzi has also served as the
sole director, President and Secretary of each
of Athena Ventures and Acquisition Sub since
their formation in October 2003. Mr. Sozzi's
address is c/o Student Advantage, Inc., 280
Summer Street, Boston, Massachusetts 02210 and
his phone number is (617) 912-2000.
Each of Student Advantage, Athena Ventures,
Acquisition Sub and Mr. Sozzi have filed a
Transaction Statement on Schedule 13E-3 with
the SEC in connection with the Transactions and
are considered "filing persons" for the
purposes of the Schedule 13E-3.
NCSN, a Delaware corporation, owns and controls
CSTV: College Sports Television, a 24-hour
college sports network that televises regular
season and championship event coverage in
football, basketball, baseball, hockey, soccer
and other sports from all of the major college
conferences and associations. CSTV also
presents NCAA postseason action in baseball,
women's ice hockey, field hockey, men's and
women's lacrosse,
5
men's and women's water polo, gymnastics and
track & field, and other programming related to
college sports and lifestyles.
NCSN's principal executive offices are located
at Chelsea Piers, Pier 62, New York, New York
10011 and its phone number is (212) 342-8700.
Interests of Certain Persons
in the Transactions (page
45)........................... Raymond V. Sozzi, Jr., the Chairman of the
Board, Chief Executive Officer and President of
Student Advantage, is the sole stockholder of
Athena Ventures. As a result of his ownership
of Athena Ventures, which will become the sole
stockholder of Student Advantage following the
Merger, Mr. Sozzi will continue to have an
equity interest in Student Advantage and
participate in any future earnings and growth
of Student Advantage. Accordingly, Mr. Sozzi
may have interests that are different from, or
in addition to, the interests of Student
Advantage stockholders generally. In connection
with the Asset Sale, Mr. Sozzi, who holds
approximately 14.1% of the outstanding common
stock of Student Advantage, has entered into an
agreement with NCSN pursuant to which he has
agreed to vote his shares in favor of the
Transactions.
All of the proceeds to be received by Student
Advantage from the Asset Sale will be used to
satisfy the Company's debt obligations to
Reservoir Capital Partners, L.P. and its
affiliates ("Reservoir"), Scholar, Inc.
("Scholar") and John S. Katzman, its secured
lenders. Scholar was formed by Mr. Sozzi,
Pentagram Partners, L.P. ("Pentagram"), which
is an affiliate of Atlas II, L.P. ("Atlas"),
Greylock IX Limited Partnership ("Greylock"),
of which William S. Kaiser, a member of Student
Advantage's Board of Directors is a general
partner, and G. Todd Eichler, a former
executive officer of Student Advantage, who are
all presently stockholders of Scholar and of
Student Advantage. (See "BENEFICIAL OWNERSHIP
OF VOTING STOCK" below on page 82.) As of
September 30, 2003, the outstanding principal
and interest amount under the Scholar loan was
$2.5 million. Mr. Katzman is a former member of
the Board of Directors, who resigned in
December 2002 when he provided a guarantee of
Student Advantage's obligations to Reservoir in
exchange for a guarantee fee of $1 million to
be paid upon repayment of the Reservoir loan.
Reservoir, Scholar and Mr. Katzman have agreed,
subject to the closing of the proposed
Transactions, to accept $4.25 million in the
form of the non-cash consideration paid by NCSN
(the Note and the warrant), $2.25 million and
$550,000, respectively, as full payment of all
amounts outstanding to them. As secured
lenders, these Student Advantage stockholders
have interests in the Transactions that differ
from stockholders who are not secured lenders
because they will receive proceeds from the
Asset Sale as payment for Student Advantage's
loan. Except as described above these secured
lenders are unaffiliated with the management of
Student Advantage and have no other interest in
the Transactions.
6
The Special Committee Position
Regarding the Fairness of the
Transactions (page 24)........ Due to the interest of Raymond V. Sozzi, Jr.,
the Chairman of the Board, Chief Executive
Officer and President of Student Advantage, in
any potential acquisition of Student Advantage
by Mr. Sozzi or an entity formed by Mr. Sozzi,
Student Advantage's Board of Directors formed a
Special Committee of independent directors to,
with the advice and assistance of its own legal
and financial advisors, evaluate, negotiate
and, if deemed appropriate, recommend any
acquisition proposals for Student Advantage,
including the Merger and the Asset Sale and the
terms and conditions of the Merger Agreement
and Purchase and Sale Agreement. The members of
the Special Committee are John M. Connolly and
Charles E. Young. The Special Committee
consists solely of independent directors who
are not officers or employees of Student
Advantage, NCSN, Acquisition Sub or Athena
Ventures and who have no financial interest in
the completion of the proposed Transactions
different from Student Advantage's stockholders
generally.
Opinions of the Financial
Advisor to the Special
Committee (page 36)........... In deciding to approve the terms of the Merger
Agreement and the Merger and the Purchase and
Sale Agreement and the Asset Sale, the Board of
Directors and the Special Committee considered
the opinions of Luminary Capital, LLC
("Luminary Capital"), the Special Committee's
financial advisor. Luminary Capital concluded
that the consideration to be received by
Student Advantage, in the case of the Asset
Sale, and by the stockholders of Student
Advantage, in the case of the Merger, is fair,
from a financial point of view to Student
Advantage (in the case of the Asset Sale) and
to unaffiliated Student Advantage stockholders
(in the case of the Merger). The complete
Luminary Capital opinion relating to the
Merger, dated November 18, 2003, including
applicable limitations and assumptions,
describes the basis for the opinion and is
attached as Appendix C to this proxy statement.
The complete Luminary Capital opinion relating
to the Asset Sale, dated November 18, 2003,
including applicable limitations and
assumptions, describes the basis for the
opinion and is attached as Appendix D to this
proxy statement.
Recommendation of the Board of
Directors Regarding Approval
of the Transactions (page
23)........................... After careful consideration and based in part
upon the recommendation of the Special
Committee, and the written opinion of Luminary
Capital, relating to the Merger, dated November
18, 2003, that, based on and subject to the
considerations, limitations, assumptions and
qualifications set forth in the opinion, the
$1.05 per share cash consideration to be
received by Student Advantage stockholders in
the proposed Merger is fair, from a financial
point of view, to unaffiliated Student
Advantage stockholders, the Board of Directors
of Student Advantage determined that the Merger
Agreement and the Merger are fair to, and in
the best interests of, Student Advantage and
its unaffiliated stockholders.
7
After careful consideration and based in part
upon the recommendation of the Special
Committee and the written opinion relating to
the Asset Sale, dated November 18, 2003, of
Luminary Capital, the Board of Directors of
Student Advantage determined that it was
advisable, fair to, and in the best interests
of, Student Advantage to adopt the Purchase and
Sale Agreement and approve the Asset Sale.
Accordingly, the Board of Directors of Student
Advantage recommends that you vote "FOR" the
approval of the Transactions and the approval
and adoption of the Merger Agreement and the
Purchase and Sale Agreement.
Position of Raymond V. Sozzi,
Jr. and Athena Ventures
Regarding the Fairness of the
Merger (page 33).............. Based on its belief regarding the
reasonableness of the conclusions and analyses
of the Special Committee and the Board of
Directors with respect to the Merger, Mr. Sozzi
and Athena Ventures adopted the analyses and
conclusions underlying the Special Committee's
and the Board of Directors' fairness
determination described above and believe that
the $1.05 per share cash consideration is fair
to Student Advantage's unaffiliated
stockholders.
Appraisal Rights (page 105)... Under Delaware law, you may seek an appraisal
of the fair value of your shares of common
stock, but only if you comply with all
requirements set forth under Delaware law as
described on pages 105 through 108 of this
proxy statement and in APPENDIX E of this proxy
statement. Depending on the determination of
the Delaware Court of Chancery, the appraised
fair value of your shares of common stock,
which will be paid to you if you seek an
appraisal, may be more than, less than or equal
to the $1.05 per share to be paid as a result
of the Merger.
THE MERGER
Structure of the Merger (page
43)........................... The proposed acquisition of Student Advantage
has been structured as a merger of Acquisition
Sub with and into Student Advantage, with
Student Advantage surviving as a wholly-owned
subsidiary of Athena Ventures. At the effective
time of the Merger, each outstanding share of
common stock (other than shares held by Athena
Ventures or Acquisition Sub) will be converted
into the right to receive $1.05 in cash, all
outstanding options will be cancelled in
exchange for a payment, if any, for each share
of common stock subject to such option, equal
to $1.05 less the exercise price per share of
such option and holders of outstanding warrants
to purchase shares of common stock will become
entitled to receive, upon exercise of such
warrant, a payment, if any, for each share of
common stock subject to such warrant, equal to
$1.05 less the exercise price per share of such
warrant.
Effective Time of the Merger
(page 49)..................... Student Advantage and Athena Ventures are
working toward consummating the Merger as
quickly as possible. If the Transactions are
approved by the stockholders and the other
8
conditions to the Merger are satisfied or
waived, including consummation of the Asset
Sale, which is expected to occur on or about
March 15, 2004, the Merger is expected to be
completed promptly after the closing of the
Asset Sale. As a result of the Merger, Mr.
Sozzi will acquire all of the assets and
liabilities of Student Advantage that remain
after consummation of the Asset Sale, which
will include the Student Advantage Membership
Program and remaining assets of the SA Cash
business. Because of various risks and
uncertainties to the consummation of the
Merger, however, there can be no assurance that
the Merger will be completed by such date or at
all.
Effects of the Merger (page
44)........................... At the effective time of the Merger, trading in
Student Advantage's common stock on the OTC
Bulletin Board will cease and there will no
longer be a public market for its common stock.
Price quotations for its common stock will no
longer be available and the registration of its
common stock under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), will
be terminated.
Payment of the Merger
Consideration (page 50)....... Upon consummation of the Merger, all shares of
the common stock, other than shares held by
Student Advantage stockholders who perfect
their appraisal rights under Delaware law,
shares held by Student Advantage as treasury
stock and shares held by Athena Ventures or
Acquisition Sub, automatically will be
converted into the right to receive $1.05 in
cash, without interest. Only stockholders who
do not elect to seek appraisal rights (or
improperly seek such appraisal rights) under
Delaware law will be entitled to receive the
merger consideration. Mr. Sozzi is expected to
contribute his shares of Student Advantage
common stock to Athena Ventures prior to the
closing of the Merger.
At the effective time of the Merger, Athena
Ventures will deposit with an exchange agent
sufficient funds to pay the merger
consideration. As soon as reasonably
practicable after the effective time of the
Merger, the exchange agent will mail to each
record holder of shares of common stock
outstanding immediately prior to the effective
time a letter of transmittal and instructions
to effect the surrender of their certificate(s)
in exchange for payment of the merger
consideration.
Amount to be Received by
Student Advantage Option and
Warrant Holders (page 50)..... Upon consummation of the Merger, all
outstanding and unexercised options to purchase
shares of common stock, whether or not then
vested, will, as of the effective time of the
Merger, be cancelled and each holder will be
entitled to receive a cash payment in an amount
equal to the product of (1) the number of
shares of common stock subject to such option,
and (2) the excess, if any, of $1.05 over the
exercise price per share subject to such
option, for each cancelled option. Options with
an exercise price equal to or greater than
$1.05 per share will be
9
cancelled at the effective time of the Merger
without any payment or other consideration
therefor.
Upon consummation of the Merger, the holders of
all outstanding warrants to purchase shares of
common stock, will be entitled to receive, upon
exercise, a cash payment, if any, equal to the
product of (1) the number of shares of common
stock subject to such warrant, and (2) the
excess, if any, of $1.05 over the exercise
price per share subject to such warrant.
Holders of warrants with an exercise price
equal to or greater than $1.05 per share will
not be entitled to receive any payment or other
consideration therefor upon exercise.
Other Conditions to Completion
of the Merger (page 56)....... The Merger is subject to the satisfaction of a
number of conditions, including but not limited
to, the approval of the Transactions, the
consummation of the Asset Sale, the
satisfaction of all of Student Advantage's
obligations to its primary lenders, the
settlement of certain pending litigation
against Student Advantage, there being not more
than 5% of the outstanding shares of common
stock held by Student Advantage stockholders
demanding appraisal and that no event has
occurred, or condition exists, that has
resulted in or would reasonably be likely to
result in a material adverse effect on Student
Advantage.
Termination of the Merger
Agreement (page 58)........... Student Advantage and Athena Ventures may agree
to terminate the Merger Agreement at any time
before the Merger. In addition, the Merger
Agreement may be terminated by either Student
Advantage or Athena Ventures for a number of
other reasons, such as the failure of the other
party to comply with certain obligations under
the Merger Agreement or the failure to obtain
stockholder approval of the Transactions. Under
certain circumstances, Student Advantage would
be required to pay Athena Ventures a
termination fee of $150,000 as well as to
reimburse Athena Ventures for its out-of-pocket
expenses in an amount not to exceed $75,000.
U.S. Federal Income Tax
Considerations (page 70)...... Generally, your receipt of cash for shares of
common stock in the Merger will be a taxable
transaction for United States federal income
tax purposes and also may be a taxable
transaction under applicable state, local,
foreign or other tax laws. You will recognize
taxable capital gain or loss in the amount of
the difference between $1.05 and your adjusted
tax basis for each share of common stock that
you own.
YOU ARE URGED TO CAREFULLY READ THE INFORMATION
REGARDING U.S. FEDERAL INCOME TAX CONSEQUENCES
CONTAINED IN THIS PROXY STATEMENT, AND TO
CONSULT WITH YOUR TAX ADVISOR REGARDING THE TAX
CONSEQUENCES OF THE MERGER TO YOU.
10
THE ASSET SALE
Assets and Liabilities Being
Sold (page 60)................ Student Advantage has agreed to sell to NCSN
substantially all of the assets relating to its
operation of its college sports business,
including the Official College Sports Network,
and Student Advantage's college newspaper
business, U-WIRE (collectively, the "OCSN
Business"). NCSN will assume all of Student
Advantage's obligations relating to the
ownership or operations of the OCSN Business
and related assets that arise or are incurred
after the closing of the Asset Sale, including
all liabilities and obligations of Student
Advantage under the transferred contracts
arising after the closing of the Asset Sale.
Excluded Assets and
Liabilities (page 61)......... Student Advantage will retain cash and cash
equivalents, certain retained contracts,
property, records and intellectual property,
certain assets and properties relating to
corporate functions, corporate governance
matters, real estate and employee benefits.
Except as described above and more fully set
forth in the Purchase and Sale Agreement,
Student Advantage will retain all other
liabilities and obligations relating to its
business, including those relating to certain
of its employees, its stockholders, the
retained contracts and, with respect to the
transferred contracts and certain other
liabilities including taxes, that arise from or
relate to events or circumstances existing
prior to the closing of the Asset Sale.
Purchase Price (page 61)...... NCSN has agreed to pay Student Advantage a
purchase price of $2.85 million in cash,
subject to adjustment for Student Advantage's
failure to obtain certain consents, a note in
the aggregate principal amount of $4.25 million
and a warrant to purchase 580,601 shares
(subject to adjustment in accordance with the
terms of the warrant) of common stock of NCSN.
The purchase price is also subject to
adjustment based on the working capital as of
the closing and certain other specified
conditions. Other than stockholders who are
also secured lenders, the stockholders of
Student Advantage will not receive any of the
proceeds from the Asset Sale. The purchase
price will be paid to Student Advantage and
used by it to repay its outstanding debt
obligations to its secured lenders, including
its obligations to Scholar, of which Mr. Sozzi,
Greylock, Pentagram, and Mr. Eichler are
stockholders, and to Mr. Katzman, a former
member of the Board of Directors. All of the
Scholar stockholders and Mr. Katzman are
stockholders of Student Advantage.
Completion of the Asset Sale
(page 62)..................... Student Advantage expects to complete the Asset
Sale as soon as practicable, after all of the
conditions to completion contained in the
Purchase and Sale Agreement have been satisfied
or waived. NCSN and Student Advantage are
working toward satisfying these conditions to
closing and plan to complete the Asset Sale on
or about March 15, 2004 shortly following the
special meeting of Student Advantage's
stockholders, assuming Student Advantage's
stockholders approve the Transactions and
approve and adopt the
11
Purchase and Sale Agreement and the Merger
Agreement and that the other conditions to
closing are satisfied or waived. If Student
Advantage's stockholders do not approve the
Transactions, neither the Asset Sale nor the
Merger will occur.
Conditions to Closing the
Asset Sale (page 64).......... Student Advantage's and NCSN's obligations to
complete the Asset Sale are subject to
specified conditions, including but not limited
to, the approval of the Transactions, such as
stockholder approval of the Transactions, the
closing of the Merger and that no event has
occurred, or condition exists, that has
resulted in or would reasonably be likely to
result in a material adverse effect on the OCSN
Business.
Termination of the Purchase
and Sale Agreement (page
66)........................... Student Advantage and NCSN may terminate the
Purchase and Sale Agreement by mutual consent
of the parties. In addition, the Purchase and
Sale Agreement may be terminated by either
Student Advantage or NSCN for a number of other
reasons, such as the failure of the other party
to comply with certain obligations under the
Purchase and Sale Agreement or the failure to
obtain stockholder approval of the
Transactions.
Use of Proceeds of the Asset
Sale (page 48)................ All of the proceeds to be received by Student
Advantage from the Asset Sale will be used to
satisfy the Company's debt to Reservoir,
Scholar and Mr. Katzman, its secured lenders.
Reservoir, Scholar and Mr. Katzman have agreed
subject to the closing of the proposed
Transactions, to accept $4.25 million in the
form of the non-cash consideration paid by NCSN
(the Note and the warrant), $2.25 million and
$550,000, respectively, as full payment of all
amounts owed to them.
THE SPECIAL MEETING OF STOCKHOLDERS
Date, Place and Time (page
15)........................... The special meeting of Stockholders will be
held on March 15, 2004, at the offices of Hale
and Dorr LLP, 26th Floor, 60 State Street,
Boston, Massachusetts 02109, at 10:00 a.m.,
local time.
Matters to be Voted Upon
(page 15)..................... At the special meeting, stockholders will
consider and vote upon the approval of the
Transactions, which includes both the Asset
Sale and the Merger, and approval and adoption
of the Purchase and Sale Agreement and the
Merger Agreement, and any other matters that
are properly brought before the special
meeting.
Stockholders Entitled to Vote
(page 15)..................... Holders of common stock of Student Advantage at
the close of business on the record date of
February 6, 2004, are entitled to notice of and
to vote at the special meeting. There were
537,309 shares of common stock outstanding on
February 6, 2004. Each share of common stock is
entitled to one vote.
Voting by Proxy (page 15)..... You may vote at the special meeting in person
or by proxy by providing voting instructions on
the enclosed proxy card. The enclosed proxy is
solicited by the Board of Directors of Student
12
Advantage. If you return a signed proxy card
but do not provide voting instructions, the
persons named as proxies on the proxy card will
vote for the approval of the Transactions and
the approval and adoption of the Purchase and
Sale Agreement and Merger Agreement and will
vote on any other matters to be considered at
the special meeting. You may revoke your proxy
before it is voted by sending to Student
Advantage's Secretary either a later-dated
proxy or a written later-dated notice of
revocation. The address of the Secretary is
Student Advantage, Inc., 280 Summer Street,
Boston, Massachusetts 02210. You may also
revoke your proxy before it is voted by
affirmatively indicating in person at the
special meeting an intent to vote the shares in
person. Your attendance at the special meeting
will not, in and of itself, revoke your proxy.
Unless you revoke your proxy by one of these
means, your proxy it will be voted in
accordance with the instructions on your proxy
card.
Vote Required to Approve the
Transactions (page 16)........ 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 Transactions and to approve and
adopt the Purchase and Sale Agreement and the
Merger Agreement. If Student Advantage's
stockholders do not approve both Transactions,
neither the Asset Sale nor the Merger will
occur. Shares which abstain from voting as to
the proposal, 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 this
proposal (a "broker non-vote"), will not be
voted in favor of the proposal. Accordingly,
abstentions and "broker non-votes" will have
the effect of a negative vote on the proposal,
because approval of the proposal requires the
affirmative vote of the holders of a majority
of all outstanding shares of common stock. If
you return a signed proxy without direction,
the proxy will be voted "FOR" approval of the
Transactions and approval and adoption of the
Purchase and Sale Agreement and the Merger
Agreement
Intent to Vote by Certain
Interested Parties (page
16)........................... Raymond V. Sozzi, Jr., the Chairman of the
Board, Chief Executive Officer and President of
Student Advantage, who owns approximately 14.1%
of the outstanding shares of Student
Advantage's common stock, entered into an
agreement with NCSN in which he agreed to vote
to approve the Transactions and to approve and
adopt the Purchase and Sale Agreement and,
therefore, the Merger Agreement. The remaining
directors and executive officers of Student
Advantage and Greylock, of which Mr. Kaiser, a
member of Student Advantage's Board of
Directors, is a general partner, own, in the
aggregate, shares of common stock representing
an additional approximately 16% of the
outstanding shares and intend to vote to
approve the Transactions and to approve and
adopt the Purchase and Sale Agreement and the
Merger Agreement, primarily for the reasons
that motivated the Special Committee to
recommend the approval of the Transactions.
13
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
This proxy statement and the documents attached hereto contain or are based
upon "forward looking" information and involve risks and uncertainties. Such
forward looking statements reflect, among other things, management's current
expectations and anticipated results of operations, all of which are subject to
known and unknown risks, uncertainties and other factors that may cause Student
Advantage's actual results, performance or achievements, or industry results, to
differ materially from those expressed or implied by such forward looking
statements. Therefore, any statements contained herein or in the documents
attached that are not statements of historical fact may be forward looking
statements and should be evaluated as such. Without limiting the foregoing, the
words "believes," "anticipates," "plans," "intends," "will," "expects" and
similar words and expressions are intended to identify forward looking
statements. Except to the extent required by the federal securities laws,
Student Advantage assumes no obligation to update any such forward-looking
information to reflect actual results or changes in the factors affecting such
forward looking information. The many factors that could cause actual results to
differ materially from those expressed in, or implied by, the forward looking
statements include, without limitation:
- the impact of Student Advantage's substantial accumulated deficit and
outstanding debt on its ability to generate revenues, consummate
transactions or achieve and sustain profitability;
- the risk that Student Advantage will not be able to continue as a going
concern;
- the effect of general economic conditions and seasonal fluctuations in
operating performance on Student Advantage's business;
- the risk that Student Advantage might not prevail in any pending or
future litigation;
- the reluctance of colleges and universities to permit businesses to
market products and services on campus;
- the risk that new and proposed laws and regulations regarding federal
banking requirements and privacy could result in increased liability
risks or costs or limit Student Advantage's service offerings;
- the risk of significant competition;
- costs and charges related to the Transactions;
- failure to obtain required stockholder approval of the Transactions;
- the risk that the Purchase and Sale Agreement or the Merger Agreement
could be terminated or the Asset Sale or Merger not closing for any other
reason; and
- other factors disclosed in Student Advantage's Annual Report on Form 10-K
for the fiscal year ended December 31, 2002, as amended, and in other
reports filed by Student Advantage from time to time with the SEC.
14
THE SPECIAL MEETING
PURPOSE
This proxy statement is furnished to Student Advantage stockholders in
connection with the solicitation of proxies by Student Advantage's Board of
Directors for use at the special meeting to be held on March 15, 2004, at the
offices of Hale and Dorr LLP, 26th Floor, 60 State Street, Boston, Massachusetts
02109, at 10:00 a.m., local time, or at any adjournments or postponements
thereof.
At the special meeting, the stockholders of Student Advantage will be asked
to consider and vote upon the approval of the Transactions as set forth below
and any other matters that are properly brought before the meeting:
- the Merger of Student Advantage and Acquisition Sub, pursuant to an
Agreement and Plan of Merger, dated November 18, 2003, by and among
Student Advantage, Athena Ventures and Acquisition Sub, pursuant to which
all outstanding shares of Student Advantage common stock (other than
shares held by Athena Ventures or Acquisition Sub) will be converted into
the right to receive $1.05 per share in cash, and Student Advantage will
become a wholly-owned subsidiary of Athena Ventures, and
- the sale by Student Advantage of the assets relating to its OCSN Business
to NCSN for a purchase price of $2.85 million in cash, a Note in the
aggregate principal amount of $4.25 million and warrants to purchase
580,601 shares (subject to adjustment in accordance with terms of the
warrant) of common stock of NCSN, such purchase price subject to
adjustment, pursuant to the Purchase and Sale Agreement, dated November
18, 2003, by and between Student Advantage and NCSN.
VOTING BY PROXY
The enclosed proxy is solicited by the Board of Directors of Student
Advantage. If you return a signed proxy card but do not provide voting
instructions, the persons named as proxies on the proxy card will vote for the
approval of the Transactions and the approval and adoption of the Purchase and
Sale Agreement and the Merger Agreement and any other matters to be considered
at the special meeting. You may revoke your proxy at any time before it is voted
by sending to Student Advantage's Secretary either a later-dated proxy or a
written later-dated notice of revocation. The address of the Secretary is
Student Advantage, Inc., 280 Summer Street, Boston, Massachusetts 02210. You may
also revoke your proxy by affirmatively indicating in person at the special
meeting an intent to vote your shares in person.
Your attendance at the special meeting will not, in and of itself, revoke
your proxy. Unless you revoke your proxy by indicating an intent to vote your
shares in person at the special meeting, your shares will be voted in accordance
with the instructions on your proxy card.
WHO CAN VOTE; QUORUM
If you are a holder of record of common stock at the close of business on
the record date of February 6, 2004, you are entitled to notice of and to vote
your shares at the special meeting of stockholders. 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 special meeting. The presence in person or by proxy of a majority
of the shares entitled to vote at the special meeting is required to constitute
a quorum for transaction of business at the special meeting.
There were 537,309 shares of common stock outstanding on February 6, 2004.
Each share of common stock is entitled to one vote.
15
VOTE REQUIRED
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 Transactions
and approve and adopt the Purchase and Sale Agreement and the Merger Agreement.
Shares which abstain from voting as to the proposal, 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 this proposal (a "broker non-vote"), will not be voted
in favor of such proposal. Accordingly, abstentions and "broker non-votes" will
have the effect of a negative vote on the proposal, because approval of the
proposal requires the affirmative vote of a majority of all outstanding shares
of common stock.
If you return a signed proxy without direction, the proxy will be voted
"FOR" approval of the Transactions and approval and adoption of the Purchase and
Sale Agreement and the Merger Agreement.
The approval of the Transactions is not assured. The Transactions will not
be completed if the required vote described above is not received. Your vote is
very important.
Raymond V. Sozzi, Jr., the Chairman of the Board, Chief Executive Officer
and President of Student Advantage, who owns approximately 14.1% of the
outstanding shares of the common stock, has agreed with NCSN that he will vote
to approve the Transactions and to approve and adopt the Purchase and Sale
Agreement and, therefore, the Merger Agreement. The remaining directors and
executive officers of Student Advantage and Greylock, of which Mr. Kaiser, a
member of Student Advantage's Board of Directors, is a general partner, own, in
the aggregate, shares of common stock representing an additional approximately
16% of the outstanding shares and intend to vote to approve the Transactions and
to approve and adopt the Purchase and Sale Agreement and the Merger Agreement,
primarily for the reasons that motivated the Special Committee to recommend the
approval of the Transactions. If Mr. Sozzi and all of these officers and
directors vote their shares in favor of these proposals, the affirmative vote of
the holders of approximately 28.5% of the remaining shares of common stock
outstanding will be required to approve the proposals.
OTHER BUSINESS
The Board of Directors is not aware of any other matters to be presented at
the special meeting of stockholders. If any other matters should properly come
before the special meeting, the persons named as proxies in the enclosed proxy
card will vote the proxies in accordance with their best judgment.
PROXY SOLICITATION
Student Advantage will pay all expenses of soliciting the proxies described
in this proxy statement. Solicitations will be made primarily by mail but some
of Student Advantage's officers and other employees may solicit proxies
personally, by telephone and by mail, if deemed appropriate. Brokers and
nominees will be requested to obtain voting instructions from beneficial owners
of stock registered in their names.
Student Advantage has not authorized anyone to give any information or make
any representation about the Transactions or Student Advantage that differs
from, or adds to, the information in this document or in Student Advantage's
documents that are publicly filed with the SEC. Therefore, if anyone does give
you different or additional information, you should not rely on it.
16
SPECIAL FACTORS
BACKGROUND OF THE TRANSACTIONS
In the opinion of Student Advantage's Board of Directors, Student
Advantage's public market valuation has been constrained for at least the past
two years due to a number of factors including, but not limited to, its:
- stock being delisted from the Nasdaq National Market in February 2003;
- inability to generate the operating cash flow required to meet its
working capital needs and to satisfy its fully secured short term debt
obligations;
- small market capitalization, which at November 17, 2003 (the day before
the Merger Agreement was executed) was only $274,000;
- stock having limited public float, which was only approximately 408,990
shares as of November 17, 2003;
- stock having relatively low trading volume, which over the last year
averaged only approximately 1,500 shares per week; and
- lack of research coverage from securities analysts in the past year.
The forgoing factors were first considered by the Board of Directors in
July 2002, approximately 12 months in advance of the maturity of Student
Advantage's then outstanding secured debt owed to Reservoir. As a result of
Student Advantage's constrained market valuation, the Board of Directors
determined that Student Advantage should explore a number of strategic
alternatives in order to best ensure that it would be able satisfy its debt
obligations and continue to fund its ongoing operations. The alternatives
included the restructuring of its secured debt, the raising of additional equity
and/or debt capital, the sale of certain assets and the sale of the entire
company.
After such discussions by the Board of Directors, Raymond V. Sozzi, Jr.,
Chairman of the Board, Chief Executive Officer and President of Student
Advantage, advised the Board of Directors that he was interested in pursuing a
management buyout of Student Advantage. Mr. Sozzi noted that he was considering
such a transaction because:
- Student Advantage had continued to incur substantial expenses, in excess
of $1 million annually, associated with being a publicly held company and
anticipated that these expenses would increase in the future;
- Student Advantage's stock was at risk of being delisted from the Nasdaq
National Market, a move that would further hinder the company; and
- The prospect of raising $20 million in equity and/or debt capital,
approximately the amount required to satisfy the company's secured debt
and meet its ongoing working capital needs, was not feasible in light of
the company's public market capitalization.
However, Mr. Sozzi cautioned the Board of Directors that any offer from him
would be contingent on his ability to secure sufficient financing. Mr. Sozzi
also suggested that, because of an actual or perceived conflict of interest
resulting from his proposal to acquire Student Advantage, it would be
appropriate and necessary for the Board of Directors to appoint a Special
Committee of independent directors that would be responsible for evaluating any
proposal of his to acquire Student Advantage or any other acquisition proposal
by a third party. After lengthy discussion regarding the procedures that would
need to be followed, the Board of Directors approved the appointment of a
Special Committee to evaluate Mr. Sozzi's potential proposal and any other
acquisition proposal by a third party. The Board of Directors also determined
that John Katzman and Charles Young were two members of the Board of Directors
who were independent of Mr. Sozzi's potential proposal. Accordingly, they were
appointed as the members of the Special Committee with authority to take any and
all actions on behalf of Student Advantage with respect
17
to negotiating any proposal that might be made by Mr. Sozzi or any third party,
and with the authority to engage independent legal and financial advisors to
advise the Special Committee. The Board of Directors also resolved to make all
non-public information about Student Advantage available to the advisors to the
Special Committee and to interested buyers who executed confidentiality
agreements. The Board of Directors also approved the payment of a non-contingent
fee of $35,000 to each of Mr. Katzman and Mr. Young for their service on the
Special Committee, all of which was paid in early 2003.
As a result of the appointment of the Special Committee, Mr. Katzman and
Mr. Young were charged with the responsibility of negotiating on behalf of the
unaffiliated stockholders of Student Advantage, and Mr. Sozzi was free to engage
in discussions in his capacity as the potential acquiror.
In July 2002, the Special Committee held a meeting and selected Luminary
Capital as its independent financial advisor after having discussions with two
other investment banks. The Special Committee selected Luminary Capital
primarily because (1) although Luminary Capital was a relatively new firm, its
principals had an excellent reputation; (2) Luminary Capital's proposed fees
were reasonable; and (3) Luminary Capital had familiarity with Student
Advantage's industry. The Special Committee also determined to engage Patterson
Belknap LLP as independent counsel to the Special Committee. At the first
meeting, representatives of Patterson Belknap reviewed with the members of the
Special Committee their duties and responsibilities in connection with any
forthcoming offer to acquire Student Advantage. The Special Committee, with the
participation of Patterson Belknap, also identified significant matters which
would have to be satisfactorily addressed in connection with any proposal,
including the fiduciary duties of Student Advantage's Board of Directors under
Delaware law, that there be adequate assurances that financing for any
transaction be available, and there be an adequate opportunity for Student
Advantage to receive, consider and act upon third party offers.
Over the course of several meetings with the Special Committee, Luminary
Capital reviewed possible strategic alternatives to maximize stockholder value
and proceeded to focus on soliciting offers for the company as a whole as well
as for each of its several operating businesses. Throughout August and September
2002, Luminary Capital had preliminary discussions with more than 20 potential
suitors and entered into non-disclosure agreements and provided confidential
financial information to 11 companies. In addition, in the same time period,
Luminary Capital and the Special Committee entered into negotiations with a
group of stockholders led by Mr. Sozzi regarding the sale of the entire company.
Such negotiations focused primarily on value and the ability to finance and
consummate any such transaction.
The group made a preliminary proposal to acquire Student Advantage, but the
proposal was conditioned on obtaining sufficient financing and the negotiation
of a definitive agreement. In late September, Mr. Sozzi informed the Special
Committee that the group was unable to secure sufficient financing and
discussions regarding his proposal were subsequently abandoned. However, on
September 30, 2002, Student Advantage entered into a $3.5 million loan agreement
with Scholar, an entity formed by Mr. Sozzi and certain other Student Advantage
stockholders, including Pentagram, which is an affiliate of Atlas, and Greylock,
of which William S. Kaiser, a member of Student Advantage's Board of Directors,
is a general partner. Student Advantage and Scholar entered into the loan
agreement so that Student Advantage could continue to meet its ongoing working
capital needs. On December 30, 2002, Student Advantage, Scholar and Reservoir
agreed to further amend the terms of the credit facility to reduce Student
Advantage's total indebtedness to Reservoir from approximately $15.7 million to
$9.5 million in exchange for a guarantee by Mr. John Katzman, a member of
Student Advantage's Board of Directors who resigned at the time the amendment
was consummated. At that point, the role of the Special Committee ceased and
matters relating to a sale of all or a portion of Student Advantage was handled
by the full Board of Directors.
Luminary Capital's solicitations produced no offers for the entire company
from a third party. However, Luminary Capital's solicitations did generate
interest in two of Student Advantage's operating businesses, SA Cash and OCM
Direct. After considerable discussion with the Special Committee, Luminary
Capital and Mr. Sozzi, the Board of Directors authorized Luminary Capital to
pursue the sale of SA Cash, which was completed in February 2003, as well as the
sale of OCM Direct, which was
18
completed in May 2003. Approximately two-thirds of the proceeds generated from
the asset sales were used to re-pay a portion of Student Advantage's then
outstanding secured debt owed to Reservoir, Scholar and Katzman, and the company
was able to extend the maturity of its remaining secured indebtedness from June
30, 2003 to January 31, 2005. The remainder of the proceeds was used to fund
ongoing operations.
On June 12, 2003, the Board of Directors once again met to review the
ongoing working capital needs of the company as well as to discuss how the
company would meet its remaining secured debt obligations. After deliberation,
the Board of Directors determined that although the company's total indebtedness
had been reduced considerably, many of the factors that led the Board of
Directors to pursue strategic alternatives the year before were still very much
in place. In addition, Mr. Sozzi expressed interest in continuing to pursue a
management buyout of the company's remaining businesses. At this time, Mr. Sozzi
was acting individually and not with any other stockholders of Student
Advantage.
Once again, the Board of Directors directed a reconstituted Special
Committee to work with Luminary Capital in evaluating any potential proposal of
Mr. Sozzi to acquire Student Advantage or any other acquisition proposal by a
third party and to review any proposed arrangement with any lenders who were
affiliates of Student Advantage. The Special Committee included Charles Young
and John Connolly who replaced Mr. Katzman on the Special Committee following
Mr. Katzman's resignation from the Board in December 2002. The Special Committee
chose to continue the relationship with Luminary Capital as its independent
financial advisor and determined to engage Greenberg Traurig, LLP as the new
independent counsel to the Special Committee.
Throughout July and August 2003, Luminary Capital once again attempted to
solicit offers for the company as a whole as well as its two remaining operating
divisions, OCSN Business and the Student Advantage Membership business. In
addition, Luminary Capital and the Special Committee entered into negotiations
with Mr. Sozzi regarding his potential acquisition of the entire company. During
the same time period, Student Advantage, through the Special Committee and
Luminary Capital, negotiated with the holders of its secured indebtedness to
compromise the total amount that would be acceptable as repayment. Mr. Sozzi
assisted with the negotiations with Reservoir and Mr. Katzman, but, due to his
conflict of interest not with Scholar.
On August 15, 2003, a meeting of the Special Committee was held with
Luminary Capital and with Alan I. Annex, a shareholder with Greenberg Traurig,
in attendance. Luminary Capital informed the Special Committee that their
solicitation produced no third party offers for the entire company or for the
Student Advantage Membership division. However, Luminary Capital did receive an
informal offer to purchase substantially all of the assets related to the
company's OCSN business for $7.1 million from NCSN. Student Advantage had no
previous relationship with NCSN. In addition, Luminary Capital informed the
Special Committee that Mr. Sozzi had made a verbal offer to purchase the company
in a transaction that would result in a $0.85 per share cash payment to Student
Advantage's stockholders. Mr. Sozzi's offer was made on his own behalf and not
on behalf of any other stockholders of Student Advantage. Luminary Capital was
directed by the Special Committee to continue negotiations with Mr. Sozzi as
well as with NCSN.
On September 7, 2003, the Special Committee held a telephonic meeting
attended by representatives of Greenberg Traurig and Luminary Capital to further
discuss the status of Mr. Sozzi's offer as well as the progress on the potential
sale of the OCSN business to NCSN. At the meeting, Luminary Capital discussed
certain preliminary valuation analyses it had performed and advised the Special
Committee that NCSN's $7.1 million offer for the OCSN business and Mr. Sozzi's
proposed $0.85 per share price both appeared to be in line with the indicative
valuations suggested by their preliminary valuation analysis. In addition,
Luminary Capital explained that the holders of the company's secured
indebtedness were willing to make certain compromises that would allow the
company to retire substantially all of the debt with the proceeds from the sale
of the OCSN business.
Luminary Capital further indicated that the preparation of a formal
valuation analysis for both offers would be subject to study and refinement, and
that Luminary Capital would require additional discussions
19
with management and conduct further due diligence before it could develop a
complete valuation analysis. Thereafter, in order to facilitate the negotiation
process, the Special Committee determined to hold another meeting to discuss the
offers after Luminary Capital performed further due diligence and analysis and
continued its negotiations to further strengthen the offers from Mr. Sozzi and
NCSN.
On September 18, 2003, Shack Siegel Katz & Flaherty P.C., counsel to Mr.
Sozzi, delivered to Greenberg Traurig, a written non-binding proposal by Mr.
Sozzi in the form of a draft merger agreement to effectuate a "going private"
transaction on terms which would result in a $1.00 per share cash payment to
Student Advantage's stockholders. The proposal was contingent upon the company's
sale of the OCSN business on the terms then offered by NCSN. The proposal also
contained a proposed termination fee of $400,000 plus out-of-pocket expenses
payable in the event that, in the exercise of its fiduciary duties, the Board of
Directors withdrew a favorable recommendation of the transaction to Student
Advantage's stockholders after execution of a merger agreement with Mr. Sozzi.
On September 21, 2003, the Special Committee held a telephonic meeting
attended by representatives of Greenberg Traurig and representatives of Luminary
Capital at which the new merger proposal and NCSN offer were discussed. At the
meeting, Luminary Capital reviewed a summary fairness analysis which summarized
the various valuation analyses performed by Luminary Capital and the price per
share of common stock implied thereby. The summary fairness analysis included a
summary of the proposed Merger, valuation analyses of selected comparable
companies, prices at which comparable companies were sold, historical financial
data analyses, historical stock price and trading volume data and trends,
discounted cash flow analyses, and other matters Luminary Capital considered
relevant to a valuation analysis of Student Advantage. Luminary Capital reviewed
a similar analysis with respect to NCSN's offer for the OCSN business. Luminary
Capital then discussed the information contained in the summary fairness
analysis with the Special Committee. Luminary Capital also confirmed that if a
satisfactory Merger Agreement was concluded, it would be prepared to issue an
opinion that the price of $7.1 million for the OCSN Business, which funds would
be used to repay the company's secured debt, followed by a payment of $1.00 per
share for the outstanding shares not held by Mr. Sozzi was fair to Student
Advantage's stockholders from a financial point of view. After hearing Luminary
Capital's presentation, the Special Committee discussed the valuation analysis
and the prior negotiations regarding the proposed price, and concluded that it
concurred with the valuation analysis provided by Luminary Capital. The Special
Committee then re-examined the other considerations that it considered relevant
to its deliberations, such as (1) the lack of liquidity of the shares of the
Company's common stock due to the absence of an active trading market in the
common stock and the lack of analyst coverage, (2) the value to unaffiliated
stockholders of Student Advantage of an opportunity to realize a substantial
premium on disposition of a relatively illiquid investment as compared to the
loss of the opportunity to participate in any future growth potential of Student
Advantage, (3) the negative trends in both the trading volume and market price
of Student Advantage stock over the past two years, and (4) the substantial
ongoing expenses incurred by Student Advantage as a public reporting company
with obligations to file periodic reports with the SEC. The Special Committee
then designated, after consultation with counsel, the additions and changes in
the draft merger agreement for which it would negotiate. In particular, the
Special Committee wanted a substantially lower termination fee in the event of a
superior offer.
On September 24, 2003, Bryan Cave LLP, counsel to NCSN, delivered to
Raymond Thek of Hale and Dorr LLP, counsel chosen by Student Advantage to work
with Luminary Capital and the management of the company to negotiate the sale of
the OCSN Business, a written non-binding proposal by NCSN in the form of a draft
purchase and sale agreement to effectuate a purchase by NCSN of substantially
all of the assets of the company's OCSN business for $7.1 million, consisting of
$2.85 million in cash, a $4.25 million secured Note and warrants to purchase
NCSN stock. (see "THE PURCHASE AND SALE AGREEMENT -- PURCHASE PRICE" below).
On October 1, 2003, after considerable negotiation between Mr. Sozzi and
the Special Committee with respect to the merger consideration and termination
fee, Shack Siegel transmitted to Greenberg Traurig a revised draft merger
agreement with a proposed price of $1.05 per share and a termination fee of
$150,000. Additional changes that were negotiated into the Merger Agreement
included a right on the part
20
of Student Advantage and the Special Committee during a 30-day period following
the execution of the agreement to entertain any and all offers, whether bona
fide or not, to acquire Student Advantage (see "THE MERGER
AGREEMENT -- SOLICITATION" below) and a $75,000 limitation on the obligation by
Student Advantage to reimburse Mr. Sozzi for his out-of-pocket expenses if
Student Advantage received and accepted a superior offer.
On October 7, 2003, the Special Committee held a telephonic meeting
attended by representatives of Greenberg Traurig and Luminary Capital. At this
meeting, Luminary Capital delivered its completed valuation report, which
updated the preliminary fairness analysis presented at the September 21, 2003
meeting through October 2, 2003, and advised the Special Committee that it was
prepared to deliver its fairness opinions when a definitive Merger Agreement and
Purchase and Sale Agreement were executed. The members of the Special Committee,
based upon Luminary Capital's fairness analyses and the other factors it
considered relevant to the value of the transaction to Student Advantage's
stockholders resolved that, subject to satisfactory further negotiations of
provisions of the Merger Agreement that the Special Committee believed were not
material, the proposed transaction was, in the opinion of the Special Committee,
fair to and in the best interests of Student Advantage's unaffiliated
stockholders; that the Merger and Merger Agreement as well as the related Asset
Sale and Purchase and Sale Agreement should be approved and recommended to the
Board of Directors; and that the Special Committee would recommend that Student
Advantage's stockholders approve and adopt the Merger and Merger Agreement as
well as the Asset Sale and Purchase and Sale Agreement when submitted for their
approval.
On October 7, 2003, a meeting of the Board of Directors was held for the
purpose of considering whether to approve the Merger and the Merger Agreement as
well as the Asset Sale and the Purchase and Sale Agreement. Attending this
meeting via teleconference were all members of the Board of Directors and
representatives from Luminary Capital, Greenberg Traurig and Hale and Dorr. Mr.
Sozzi stated that the purpose of the meeting was to discuss the proposed Merger
and Merger Agreement as well as the Asset Sale and Purchase and Sale Agreement.
Mr. Annex stated further that the Special Committee had determined, based in
part upon the report of Luminary Capital, that both the Merger upon the terms
set forth in the Merger Agreement and the Asset Sale upon the terms set forth in
the Purchase and Sale Agreement were fair to, and in the best interests of
Student Advantage's unaffiliated stockholders, in the case of the Merger, and
its stockholders, in the case of the Asset Sale, and was recommending that the
Board of Directors vote to approve the Merger and the Merger Agreement as well
as the Asset Sale and the Purchase and Sale Agreement. Luminary Capital then
presented its fairness analysis to the Board of Directors in support of its
opinion as to the fairness from a financial point of view of the consideration
to be paid to Student Advantage's unaffiliated stockholders. Luminary Capital's
analysis consisted of an executive summary, a situation analysis and a valuation
analysis. Luminary Capital discussed certain valuation issues, Student
Advantage's common stock suffering from illiquidity and a lack of visibility in
the investment community, and Student Advantage's common stock trading at a
significant discount to its peer group. Luminary Capital reported on the results
of its comparable company analysis, comparable transaction analysis, discounted
cash flow analysis, premiums paid analysis and liquidation analysis. Based on
the foregoing analyses, Luminary Capital concluded that:
- The discounted cash flow analysis based on management's projections
yielded a range of stock prices from $(0.73) to $1.14 per share;
- The premiums paid analysis resulted in an average premium of 31.3% over
the stock price from October 2, 2003; and
- The proposed $1.05 per share price represented a substantial premium to
book value per share and Luminary Capital's estimate of liquidation value
per share.
Based upon the foregoing analyses, Luminary Capital presented its
conclusion that the proposed price of $1.05 per share of common stock was fair,
from a financial point of view, to Student Advantage's unaffiliated
stockholders.
21
Mr. Annex then presented a summary of the events that developed since June
2003, including the various meetings held by the Special Committee and
negotiations with Mr. Sozzi. The Board of Directors agreed to review all of the
materials and reconvene within five days to vote on the proposal.
On October 12, 2003, a meeting of the Board of Directors was held for the
purpose of considering whether to approve the Merger Agreement and the Merger as
well as the Asset Sale and the Purchase and Sale Agreement. Attending this
meeting via teleconference were all members of the Board of Directors and
representatives from Luminary Capital, Greenberg Traurig and Hale and Dorr.
Following deliberations among the members of the Board of Directors, the Board
determined that the Merger and the Merger Agreement as well as the Asset Sale
and the Purchase and Sale Agreement were in the best interests of Student
Advantage and its unaffiliated stockholders, in the case of the Merger, and its
stockholders, in the case of the Asset Sale, and voted to adopt and approve the
Merger and the Merger Agreement as well as the Asset Sale and the Purchase and
Sale Agreement and to recommend to Student Advantage's stockholders that they
adopt and approve the Merger and the Merger Agreement as well as the Asset Sale
and the Purchase and Sale Agreement. Mr. Sozzi abstained from the vote.
Between October 12, 2003 and November 10, 2003, representatives of Student
Advantage and NCSN finalized the definitive Purchase and Sale Agreement.
On November 10, 2003, the Special Committee held a telephonic meeting
attended by representatives of Greenberg Traurig and Luminary Capital to review
the status of negotiations with Mr. Sozzi and with NCSN and to ensure that
Luminary Capital's written analysis and opinion from October 7, 2003 had not
changed since the prior meeting. Luminary Capital also advised the Special
Committee that Student Advantage's management was recommending the sale of one
of the company's websites, collegeclub.com, and that such sale did not in any
way change Luminary Capital's opinion with respect to the fairness of the
proposed Merger and Merger Agreement. However, due to the amount of time that
had elapsed since the vote of the Board of Directors on October 12, 2003,
Greenberg Traurig recommended that another vote be taken.
On November 11, 2003, another meeting of the Board of Directors was held
for the purpose of reaffirming the approval of the Merger and the Merger
Agreement as well as the Asset Sale and the Purchase and Sale Agreement.
Attending this meeting via teleconference were all members of the Board of
Directors and representatives from Luminary Capital and Greenberg Traurig. Mr.
Annex confirmed that the Special Committee had met the day before and, based in
part upon the oral update of Luminary Capital, determined that the Merger upon
the terms set forth in the Merger Agreement and the Asset Sale upon the terms
set forth in the Purchase and Sale Agreement were fair to, and in the best
interests of Student Advantage's unaffiliated stockholders, in the case of the
Merger, and stockholders, in the case of the Asset Sale, and was recommending
that the Board of Directors vote to approve the Merger and the Merger Agreement
as well as the Asset Sale and the Purchase and Sale Agreement. Following a
deliberation among the members of the Board of Directors, the Board once again
determined that the Merger Agreement and Asset Sale were in the best interests
of Student Advantage and its unaffiliated stockholders, in the case of the
Merger, and stockholders, in the case of the Asset Sale, and again voted to
adopt and approve the Merger and the Merger Agreement as well as the Asset Sale
and the Purchase and Sale Agreement and to recommend to Student Advantage's
stockholders that they adopt and approve the Merger and the Merger Agreement as
well as the Asset Sale and the Purchase and Sale Agreement. Mr. Sozzi abstained
from the vote.
On November 18, 2003, the company executed the Merger Agreement as well as
the Purchase and Sale Agreement. At that time, Luminary Capital delivered its
written opinions, copies of which are attached to this proxy statement as
APPENDIX C and APPENDIX D, that the merger consideration is fair to Student
Advantage's unaffiliated stockholders from a financial point of view and the
consideration offered for the OCSN business was fair to Student Advantage from a
financial point of view.
22
THE PARTIES
Student Advantage, a Delaware corporation, is a media and commerce company
focused on the higher education market. Student Advantage works with hundreds of
colleges, universities and campus organizations, and more than 15,000
participating national and local business locations to develop products and
services that enable students to make purchases less expensively and more
conveniently on and around campus. Student Advantage's Official College Sports
Network business is the largest, most trafficked network on the web devoted
exclusively to college sports, providing online brand management and content
delivery to more than 135 schools and athletic conferences. See "INFORMATION
ABOUT STUDENT ADVANTAGE, INC." below for more information.
NCSN, a Delaware corporation, owns and controls CSTV: College Sports
Television, a 24-hour college sports network that televises regular season and
championship event coverage in football, basketball, baseball, hockey, soccer
and other sports from all of the major college conferences and associations.
CSTV also presents NCAA post season action in baseball, women's ice hockey,
field hockey, men's and women's lacrosse, men's and women's water polo,
gymnastics and track and field, and other programming related to college sports
and lifestyles.
Raymond V. Sozzi, Jr. has served as the Chairman of the Board, Chief
Executive Officer and President of Student Advantage since its inception. Mr.
Sozzi has also served as the sole director, President and Secretary of each of
Athena Ventures and Acquisition Sub since their formation in October 2003. See
"INFORMATION ABOUT STUDENT ADVANTAGE, INC." below for more information.
Athena Ventures and its wholly-owned subsidiary Acquisition Sub, are each
newly formed Delaware corporations, formed at the direction of Raymond V. Sozzi,
Jr. solely for the purpose of engaging in the transactions contemplated by the
Merger Agreement. Athena Ventures is wholly-owned by Mr. Sozzi. See "INFORMATION
ABOUT ATHENA VENTURES AND ACQUISITION SUB" below for more information.
RECOMMENDATION OF THE BOARD OF DIRECTORS; FAIRNESS OF THE TRANSACTIONS
The Special Committee of the Board of Directors has determined that the
terms of the Merger and the Merger Agreement and the Asset Sale and the Purchase
and Sale Agreement are substantively and procedurally fair to, and in the best
interests of, the unaffiliated stockholders, in the case of the Merger, and the
stockholders, in the case of the Asset Sale, of Student Advantage.
The Special Committee recommended to the Board of Directors that the Merger
and the Merger Agreement be adopted and approved. The Special Committee
considered a number of factors, as more fully described above under "BACKGROUND
OF THE TRANSACTIONS" and as described below under "REASONS FOR THE SPECIAL
COMMITTEE'S RECOMMENDATION," in making its recommendation. The Board of
Directors, acting in part upon the recommendation of the Special Committee,
determined that the terms of the Merger and the Merger Agreement are
substantively and procedurally fair to, and in the best interests of, Student
Advantage's unaffiliated stockholders.
The Special Committee recommended to the Board of Directors that the Asset
Sale and the Purchase and Sale Agreement be adopted and approved. The Special
Committee considered a number of factors, as more fully described above under
"BACKGROUND OF THE TRANSACTIONS" and as described below under "REASONS FOR THE
SPECIAL COMMITTEE'S RECOMMENDATION," in making its recommendation. The Board of
Directors, acting in part upon the recommendation of the Special Committee,
determined that the terms of the Asset Sale and the Purchase and Sale Agreement
are substantively and procedurally fair to, and in the best interests of,
Student Advantage's stockholders.
THE BOARD OF DIRECTORS, BASED IN PART ON THE RECOMMENDATION OF THE SPECIAL
COMMITTEE, RECOMMENDS THAT STUDENT ADVANTAGE'S STOCKHOLDERS VOTE "FOR" THE
APPROVAL OF THE TRANSACTIONS AND THE ADOPTION AND APPROVAL OF THE MERGER
AGREEMENT AND THE PURCHASE AND SALE AGREEMENT.
23
REASONS FOR THE SPECIAL COMMITTEE'S RECOMMENDATION
THE MERGER AND THE MERGER AGREEMENT
In recommending adoption and approval of the Merger Agreement and the
Merger to the Board of Directors, the Special Committee considered a number of
factors that it believed supported its recommendation that the Transaction is
substantively fair to Student Advantage's unaffiliated stockholders. The
material factors that the Special Committee considered were as follows:
- The valuation analysis prepared by Luminary Capital and Luminary
Capital's interpretation of the valuation analysis, which analysis and
interpretation of that analysis was adopted by the Special Committee.
Such valuation analysis included several valuation calculations which the
Special Committee considered, including a range of discounted cash flow
values based upon management projections and a range of discounted cash
flow values based upon goal case projections developed by Luminary
Capital, which placed the merger consideration at the high end of that
range of values. See "OPINION OF THE FINANCIAL ADVISOR TO THE SPECIAL
COMMITTEE" below.
- The analysis prepared by Luminary Capital regarding the premium of the
merger consideration of $1.05 per share over closing sales prices for the
shares of common stock on the OTC Bulletin Board. Luminary Capital's
analysis accounted for the fact that share prices on the OTC Bulletin
Board are not always reflective of a company's underlying value for the
reasons discussed in the next bullet below.
- The lack of liquidity of the shares of common stock due to the absence of
an active trading market in the common stock, the absence of analyst
coverage and the value to unaffiliated stockholders of Student Advantage
of an opportunity to realize a substantial premium on disposition of an
otherwise relatively illiquid investment as compared to the loss of the
opportunity to participate in the future growth potential of Student
Advantage.
- The liquidation of Student Advantage is not a practicable alternative to
the Merger, since Luminary Capital's conclusion was that the prospective
realizable asset values on liquidation, net of liabilities, are, in the
aggregate, substantially below the $1.05 per share merger consideration.
- The substantial ongoing expenses incurred by Student Advantage as a
public reporting company with obligations to file periodic reports with
the SEC. Such ongoing expenses would impede Student Advantage's ability
to execute its business plan effectively.
- The degree of likelihood that the Merger will be completed. In connection
with this factor, the Special Committee considered, among other things,
the lack of a financing or due diligence condition to closing. These
factors were an important aspect in the Special Committee's ultimate
approval of the Transactions.
- The terms and conditions of the Merger Agreement, including those
described above and those which provide Student Advantage with the right,
subject to a termination fee of $150,000 and an obligation to reimburse
Athena Ventures for out-of-pocket expenses not to exceed $75,000, which
the Special Committee believed would not be an impediment to a
competitive offer from a third party, for Student Advantage to negotiate
for a superior transaction with a third party that approaches Student
Advantage prior to the vote on the Merger and to entertain offers,
whether bona fide or not, for a period of 30 days after the signing of
the Merger Agreement, permit the Special Committee and the Board of
Directors to terminate the Merger Agreement if a superior offer is made
and Athena Ventures does not provide an offer considered equivalent or
superior by the Special Committee, provided that the Special Committee
and the Board of Directors may withdraw their recommendations of the
Merger to stockholders if such withdrawal is required as a matter of
fiduciary duty, and require that any amendments to the Merger Agreement
must be approved by the Special Committee. These factors were an
important aspect in the Special Committee's ultimate approval of the
Transactions.
24
- The unaffiliated stockholders of Student Advantage will receive a fixed
amount of cash, rather than securities or some form of deferred payment.
In recommending adoption and approval of the Merger Agreement and the
Merger to the Board of Directors, the Special Committee also considered a number
of factors that it believed supported its determination of the procedural
fairness of the process under which the Merger Agreement was negotiated and the
procedural fairness of the transaction itself. The material factors that the
Special Committee considered were as follows:
- That the Special Committee exercised exclusive and unlimited authority
to, among other things, evaluate, negotiate and recommend the terms of
any proposed transaction and had received advice from its own independent
legal and financial advisors.
- That extensive time and attention was devoted to the transaction by the
members of the Special Committee.
- That the proposed transaction resulted from negotiations that were active
and lengthy and intended to simulate arm's length negotiations.
- That these negotiations resulted in increases in the original per share
price offer and in material improvements in the financial and
non-financial terms of the originally proposed Merger Agreement.
- The rights of dissenting stockholders to seek appraisal of the value of
their shares of common stock under Delaware law; the obligation of the
Special Committee to consider third party offers after the execution of
the Merger Agreement; the right of the Special Committee to terminate the
Merger Agreement if a superior offer is received, subject only to the
break-up fee; and the right of the Special Committee to withdraw its
favorable recommendation if required to do so in the exercise of its
fiduciary duty.
The Special Committee also considered a variety of risks and other
potentially negative factors concerning the Merger but determined that these
factors were outweighed by the benefits of the factors supporting the Merger.
These negative factors were:
- The conflicts of interest of Mr. Sozzi who will continue as the owner of
Student Advantage after the Merger.
- The risk that the stockholders will not approve the Transactions.
- The unaffiliated stockholders will lose the opportunity to participate in
any future growth of Student Advantage but will also be insulated from
any decline in the current value of Student Advantage.
- That Student Advantage may be entering into the Merger at the bottom of a
market cycle.
After considering these factors, the Special Committee concluded that the
positive factors relating to the Merger outweighed the negative factors. Because
of the variety of factors considered, the Special Committee did not find it
practicable to quantify or otherwise assign relative weights to, and did not
make specific assessments of, the specific factors considered in reaching its
determination. However, individual members of the Special Committee may have
assigned different weights to various factors. The determination of the Special
Committee was made after considering all of the factors together.
THE ASSET SALE AND THE PURCHASE AND SALE AGREEMENT
In recommending adoption and approval of the Purchase and Sale Agreement
and the Purchase and Sale to the Board of Directors, the Special Committee
considered a number of factors that it believed supported its recommendation
that the transaction is substantively fair to Student Advantage's stockholders.
The material factors that the Special Committee considered were as follows:
- The proposals received from several potential acquirers and analysis of
the various alternative proposals, which were less favorable to Student
Advantage.
25
- The belief that, after reviewing Student Advantage's on-going financial
condition, results of operations and business and earning prospects, and
notwithstanding the concerted efforts of management and the Board of
Directors to scale its business and increase revenues and profitability,
remaining an independent operating company focusing on Student
Advantage's historical business was not reasonably likely to create
greater value for its stockholders than the prospects presented by the
Asset Sale.
- The opinion of Luminary Capital, to the effect that as of October 7,
2003, the purchase price set forth in the Purchase and Sale Agreement was
fair, from a financial point of view, to Student Advantage, and the board
of director's view that the material information and data upon which
Luminary Capital's fairness opinion relating to the Asset Sale is based
did not materially change between that date and November 18, 2003, the
date the Purchase and Sale Agreement was executed.
- The belief that, while no assurances can be given, the Asset Sale is
likely to be completed because of the limited nature of the closing
conditions included in the Purchase and Sale Agreement.
- Uncertainties concerning the economy in general, Student Advantage's
industry in particular, and the capital markets.
- The belief that the benefits to Student Advantage contemplated in
connection with the Asset Sale, in particular the fact that the receipt
of the purchase price at closing will be used by Student Advantage to pay
all amounts outstanding to Reservoir, Scholar and Mr. Katzman under its
existing loan agreements.
- That Student Advantage may not be able to generate sufficient cash flow
from operations to fund its long-term financing obligations, including
its debt owed to Reservoir, Scholar and Mr. Katzman.
- The due diligence and negotiation process undertaken by NCSN in
connection with the preparation of the Purchase and Sale Agreement.
- The amount and form of the consideration to be paid in the Asset Sale.
- The terms of the Purchase and Sale Agreement, including the limitation on
the Company's potential indemnification, compensation and reimbursement
obligations for breaches of Student Advantage's representations and
warranties to NCSN under the terms of the Purchase and Sale Agreement.
- The potential cost savings through the transfer of assets and reduction
of workforce.
- The fact that the Asset Sale was not subject to a financing condition.
The Special Committee also considered a variety of risks and other
potentially negative factors concerning the Asset Sale but determined that these
factors were outweighed by the benefits of the factors supporting the Asset
Sale. These negative factors included, but were not limited to, the following:
- The conflicts of interest of Mr. Sozzi, who owns 14.1% of Student
Advantage's common stock and 25% of Scholar's common stock, Mr. Kaiser,
who is a general partner of Greylock, which owns 8.4% of Student
Advantage's common stock and 18.75% of Scholar's common stock, Pentagram,
which owns 7.3% of Student Advantage's common stock and 50% of Scholar's
common stock and is an affiliate of Atlas, which owns 7.6% of Student
Advantage's common stock, and Mr. Eichler, who owns less than 5% of
Student Advantage's common stock and 6.25% of Scholar's common stock,
each of whom will receive repayment of outstanding indebtedness owed to
them by Student Advantage if the Asset Sale is consummated.
- The risk that the Asset Sale may not be consummated, including the risks
associated with obtaining the necessary approval of Student Advantage's
stockholders and the consent from certain third parties required to
complete the Asset Sale.
26
- The risk of management and employee disruption associated with the Asset
Sale, including the risk that key personnel might not remain employed by
Student Advantage through the consummation of the Asset Sale.
- The potential impact of the Asset Sale on employees of Student Advantage
not offered employment by NCSN.
- The significant costs involved in consummating the Asset Sale.
- The potential impact of the two-year non-competition provisions set forth
in the Purchase and Sale Agreement.
- Under the terms of the Purchase and Sale Agreement, Student Advantage is
unable to solicit other acquisition proposals for the OCSN Business.
- That Student Advantage may be selling its assets at the bottom of a
market cycle.
After considering these factors, the Special Committee concluded that the
positive factors relating to the Asset Sale outweighed the negative factors.
Because of the variety of factors considered, the Special Committee did not find
it practicable to quantify or otherwise assign relative weights to, and did not
make specific assessments of, the specific factors considered in reaching its
determination. However, individual members of the Special Committee may have
assigned different weights to various factors. The determination of the Special
Committee was made after considering all of the factors together.
REASONS FOR THE BOARD OF DIRECTORS' RECOMMENDATION
THE MERGER AND THE MERGER AGREEMENT
The Board of Directors consists of five directors, two of whom served on
the Special Committee. In reporting to the Board of Directors regarding its
determination and recommendation, the Special Committee, with its legal and
financial advisors participating, advised the other members of the Board of
Directors at the special meetings of the Board of Directors held on each of
October 12 and November 11, 2003 to consider and vote upon the Merger, on the
course of its negotiations with Athena Ventures, its review of the Merger
Agreement and the factors it took into account in reaching its determination
that the terms of the Merger Agreement, including the original offer price of
$0.85 per share and the subsequent increase thereof to $1.05 per share, and the
Merger are fair to and in the best interests of Student Advantage and its
unaffiliated stockholders. In view of the wide variety of factors considered in
its evaluation of the proposed Merger, the Board of Directors did not find it
practicable to quantify or otherwise assign relative weights to, and did not
make specific assessments of, the specific factors considered in reaching its
determination. Rather, the Board of Directors based its position on the totality
of the information presented and considered, including Luminary Capital's oral
opinion originally delivered on October 7, 2003, subsequently confirmed by its
written opinion, dated November 18, 2003, that, based on and subject to the
considerations, limitations, assumptions and qualifications set forth in the
opinion, as of November 18, 2003, the $1.05 per share cash consideration that
was to be received by Student Advantage's unaffiliated stockholders in the
proposed Merger was fair, from a financial point of view to Student Advantage's
unaffiliated stockholders. In connection with its consideration of the
recommendation of the Special Committee, as part of its determination with
respect to the Merger, the Board of Directors adopted the analysis and
conclusions underlying the Special Committee's fairness determination based upon
its view as to the reasonableness of that analysis.
The Board of Directors believes that the Merger, the Merger Agreement and
the related transactions are substantively and procedurally fair to, and in the
best interests of, the unaffiliated stockholders of Student Advantage for all of
the reasons set forth below even though no disinterested representative, other
than the Special Committee, consisting of two independent directors, and its
legal and financial advisors, was retained to act solely on behalf of the
unaffiliated stockholders and no separate vote of Student
27
Advantage's unaffiliated stockholders will be conducted. In addition to the
recommendation of the Special Committee, the Board of Directors considered the
following material factors:
- The valuation analysis prepared by Luminary Capital and Luminary
Capital's interpretation of the valuation analysis, which analysis and
interpretation of that analysis was adopted by the Special Committee and
the Board of Directors. Such valuation analysis included several
valuation calculations which the Special Committee considered, including
a range of discounted cash flow values based upon management projections
and a range of discounted cash flow values based upon goal case
projections developed by Luminary Capital, which placed the merger
consideration at the high end of that range of values. See "OPINION OF
THE FINANCIAL ADVISOR TO THE SPECIAL COMMITTEE" below.
- The analysis prepared by Luminary Capital regarding the premium of the
merger consideration of $1.05 per share over closing sales prices for the
shares of common stock on the OTC Bulletin Board. Luminary Capital's
analysis accounted for the fact that share prices on the OTC Bulletin
Board are not always reflective of a company's underlying value for the
shares as discussed in the next bullet below.
- The lack of liquidity of the shares of common stock due to the absence of
an active trading market in the common stock, the absence of analyst
coverage and the value to unaffiliated stockholders of Student Advantage
of an opportunity to realize a substantial premium on disposition of an
otherwise relatively illiquid investment as compared to the loss of the
opportunity to participate in the future growth potential of Student
Advantage.
- The liquidation of Student Advantage is not a practicable alternative to
the Merger, since Luminary Capital's conclusion was that the prospective
realizable asset values on liquidation, net of liabilities, are, in the
aggregate, substantially below the $1.05 per share merger consideration.
- The substantial ongoing expenses incurred by Student Advantage as a
public reporting company with obligations to file periodic reports with
the SEC. Such ongoing expenses would impede Student Advantage's ability
to execute its business plan effectively.
- The degree of likelihood that the Merger will be completed. In connection
with this factor, the Board of Directors considered, among other things,
the lack of a financing or due diligence condition to closing. These
factors were an important aspect in the Board's ultimate approval of the
Transactions.
- The terms and conditions of the Merger Agreement, including those
described above and those which provide Student Advantage with the right,
subject to a termination fee of $150,000 and an obligation to reimburse
Athena Ventures for out-of-pocket expenses not to exceed $75,000, which
the Board of Directors believed would not be an impediment to a
competitive offer from a third party, for Student Advantage to negotiate
for a superior transaction with a third party that approaches Student
Advantage prior to the vote on the Merger and to entertain offers,
whether bona fide or not, for a period of 30 days after the signing of
the Merger Agreement, permit the Special Committee and the Board of
Directors to terminate the Merger Agreement if a superior offer is made
and Athena Ventures does not provide an offer considered equivalent or
superior by the Special Committee, provided that the Special Committee
and the Board of Directors may withdraw their recommendations of the
Merger to stockholders if such withdrawal is required as a matter of
fiduciary duty, and require that any amendments to the Merger Agreement
must be approved by the Special Committee. These factors were an
important aspect in the Board's ultimate approval of the Transactions.
- The unaffiliated stockholders of Student Advantage will receive a fixed
amount of cash, rather than securities or some form of deferred payment.
In recommending adoption and approval of the Merger Agreement and the
Merger, the Board of Directors also considered a number of factors that it
believed supported its determination of the procedural
28
fairness of the process under which the Merger Agreement was negotiated and the
procedural fairness of the transaction itself. The material factors that the
Board of Directors considered were as follows:
- That the Special Committee exercised exclusive and unlimited authority
to, among other things, evaluate, negotiate and recommend the terms of
any proposed transaction and had received advice from its own independent
legal and financial advisors.
- That extensive time and attention was devoted to the transaction by the
members of the Special Committee.
- That the proposed transaction resulted from negotiations that were active
and lengthy and intended to simulate arm's length negotiations.
- That these negotiations resulted in increases in the original per share
price offer and in material improvements in the financial and
non-financial terms of the originally proposed Merger Agreement.
- The rights of dissenting stockholders to seek appraisal of the value of
their shares of common stock under Delaware law; the obligation of the
Special Committee to consider third party offers after the execution of
the Merger Agreement; the right of the Special Committee to terminate the
Merger Agreement if a superior offer is received, subject only to the
break-up fee; and the right of the Special Committee to withdraw its
favorable recommendation if required to do so in the exercise of its
fiduciary duty.
The Board of Directors also considered a variety of risks and other
potentially negative factors concerning the Merger but determined that these
factors were outweighed by the benefits of the factors supporting the Merger.
These negative factors were:
- The conflicts of interest of Mr. Sozzi who will continue as the owner of
Student Advantage after the Merger.
- The risk that the stockholders will not approve the Transactions.
- The unaffiliated stockholders will lose the opportunity to participate in
any future growth of Student Advantage but will also be insulated from
any decline in the current value of Student Advantage.
- That Student Advantage may be entering into the Merger at the bottom of a
market cycle.
The Board of Directors believes that it was not necessary to retain a
disinterested representative to negotiate on behalf of the unaffiliated
stockholders or to structure the Merger to require approval of at least a
majority of unaffiliated stockholders because:
- the Board of Directors established a Special Committee of directors,
consisting of directors who are not employees of Student Advantage and
who will not have any continuing interest in or other relationship with
Student Advantage as the surviving corporation, to negotiate the terms of
the Merger;
- the Special Committee retained an independent financial advisor, who
delivered its opinion that the merger consideration was fair to Student
Advantage stockholders; and
- the Merger was approved by all of the directors of Student Advantage who
are not employees of Student Advantage and who will not have any
continuing interest in or other relationship with Student Advantage as
the surviving corporation.
In reaching its conclusions, the Board of Directors considered it
significant that:
- The merger consideration of $1.05 in cash per share was the highest price
Athena Ventures indicated it was willing to pay following extensive
arm's-length negotiations between the Special Committee, Luminary Capital
and representatives of Athena Ventures;
29
- no member of the Special Committee has an interest in the proposed Merger
different from that of Student Advantage stockholders generally;
- the Special Committee retained its own financial and legal advisors who
have extensive experience with transactions similar to the Merger and who
assisted the Special Committee in evaluating the Merger and in
negotiating with Athena Ventures; and
- Luminary Capital was retained to, among other things, advise the Special
Committee as to the fairness, from a financial point of view, of offers
received. Luminary Capital reached the conclusion expressed in its
written opinion dated November 18, 2003 that, subject to the
considerations and limitations set forth in the opinion, the per share
consideration of $1.05 is fair, from a financial point of view, to the
unaffiliated stockholders of Student Advantage.
THE ASSET SALE AND THE PURCHASE AND SALE AGREEMENT
As noted above, the Board of Directors consists of five directors, two of
whom served on the Special Committee. In reporting to the Board of Directors
regarding its determination and recommendation, the Special Committee, with its
legal and financial advisors participating, advised the other members of the
Board of Directors at the special meetings of the Board of Directors held on
each of October 12, 2003 and November 11, 2003 to consider and vote upon the
Asset Sale, on the course of its negotiations with NCSN, its review of the
Purchase and Sale Agreement and the factors it took into account in reaching its
determination that the terms of the Purchase and Sale Agreement, including the
aggregate purchase price and portion of the purchase price to be paid by the
delivery of the Note, and the Asset Sale are fair to and in the best interests
of Student Advantage's stockholders. In view of the wide variety of factors
considered in its evaluation of the proposed Asset Sale, the Board of Directors
did not find it practicable to quantify or otherwise assign relative weights to,
and did not make specific assessments of, the specific factors considered in
reaching its determination. Rather, the Board of Directors based its position on
the totality of the information presented and considered, including Luminary
Capital's oral opinion on October 12, 2003 and updated oral opinion on November
11, 2003, subsequently confirmed by its written opinion, dated November 18,
2003, that, based on and subject to the considerations, limitations, assumptions
and qualifications set forth in the opinion, as of November 18, 2003, the
purchase price set forth in the Purchase and Sale Agreement was fair, from a
financial point of view, to Student Advantage, and the board of director's view
that the material information and data upon which Luminary Capital's fairness
opinion is based did not materially change between that date and November 18,
2003, the date the Purchase and Sale Agreement was executed. In connection with
its consideration of the recommendation of the Special Committee, as part of its
determination with respect to the Asset Sale, the Board of Directors adopted the
analysis and conclusions underlying the Special Committee's fairness
determination based upon its view as to the reasonableness of that analysis.
The Board of Directors believes that the Asset Sale, the Purchase and Sale
Agreement and the related transactions are substantively and procedurally fair
to, and in the best interests of, the stockholders of Student Advantage for all
of the reasons set forth below even though no disinterested representative,
other than the Special Committee, consisting of two independent directors, and
its legal and financial advisors, was retained to act solely on behalf of the
unaffiliated stockholders and no separate vote of Student Advantage's
unaffiliated stockholders will be conducted. In addition to the recommendation
of the Special Committee, the Board of Directors considered the following
material factors:
- The proposals received from several potential acquirers and analysis of
the various alternative proposals, which were less favorable to Student
Advantage. Student Advantage's other alternatives, in the current
economic environment, including bankruptcy and liquidation, were also
less favorable to Student Advantage.
- The belief that, after reviewing Student Advantage's on-going financial
condition, results of operations and business and earning prospects, and
notwithstanding the concerted efforts of management and the Board of
Directors to scale its business and increase revenues and profitability,
remaining an independent operating company focusing on Student
Advantage's historical business
30
was not reasonably likely to create greater value for its stockholders than the
prospects presented by the Asset Sale.
- The continuing nature of Student Advantage's operating losses and the
likelihood that such losses would continue in the future and the
questionable sustainability of Student Advantage's current business
model.
- The opinion of Luminary Capital, to the effect that as of October 7,
2003, the purchase price set forth in the Purchase and Sale Agreement was
fair, from a financial point of view, to Student Advantage, and the board
of director's view that the material information and data upon which
Luminary Capital's fairness opinion relating to the Asset Sale is based
did not materially change between that date and November 18, 2003, the
date the Purchase and Sale Agreement was executed.
- The belief that, while no assurances can be given, the Asset Sale is
likely to be completed because of the limited nature of the closing
conditions included in the Purchase and Sale Agreement.
- Uncertainties concerning the economy in general, Student Advantage's
industry in particular, and the capital markets.
- The belief that the benefits to Student Advantage contemplated in
connection with the Asset Sale, in particular the fact that the receipt
of the purchase price at closing will be used by Student Advantage to pay
all amounts outstanding to Reservoir, Scholar and Mr. Katzman under its
existing loan agreements.
- That Student Advantage may not be able to generate sufficient cash flow
from operations to fund its long-term financing obligations, including
its debt owed to Reservoir, Scholar and Mr. Katzman.
- The due diligence and negotiation process undertaken by NCSN in
connection with the preparation of the Purchase and Sale Agreement.
- The amount and form of the consideration to be paid in the Asset Sale.
- The terms of the Purchase and Sale Agreement, including the limitation on
the Company's potential indemnification, compensation and reimbursement
obligations for breaches of Student Advantage's representations and
warranties to NCSN under the terms of the Purchase and Sale Agreement.
- The potential cost savings through the transfer of assets and reduction
of workforce.
- The fact that the Asset Sale was not subject to a financing condition.
The Board of Directors also considered a variety of risks and other
potentially negative factors concerning the Asset Sale but determined that these
factors were outweighed by the benefits of the factors supporting the Asset
Sale. These negative factors included, but were not limited to, the following:
- The conflicts of interest of Mr. Sozzi, who owns 14.1% of Student
Advantage's common stock and 25% of Scholar, Mr. Kaiser, due to his
position as a general partner of Greylock, which owns 8.4% of Student
Advantage's common stock and 18.75% of Scholar, Pentagram, which owns
7.3% of Student Advantage's common stock and 50% of Scholar's common
stock and is an affiliate of Atlas, which owns 7.6% of Student
Advantage's common stock, and Mr. Eichler, who owns less than 5% of
Student Advantage's common stock and 6.25% of Scholar, which will receive
repayment of outstanding indebtedness owed to it by Student Advantage if
the Asset Sale is consummated.
- The risk that the Asset Sale may not be consummated, including the risks
associated with obtaining the necessary approval of Student Advantage's
stockholders and the consent from certain third parties required to
complete the Asset Sale.
31
- The risk of management and employee disruption associated with the Asset
Sale, including the risk that key personnel might not remain employed by
Student Advantage through the consummation of the Asset Sale.
- The potential impact of the Asset Sale on employees of Student Advantage
not offered employment by NCSN and on Student Advantage's strategic
partners and employees.
- The significant costs involved in consummating the Asset Sale.
- The risk that the potential strategic benefits of the Asset Sale may not
be realized, in part or at all.
- The potential negative effect on Student Advantage's stock price as a
result of the public announcement of the Asset Sale.
- The potential impact of the two-year non-competition provisions set forth
in the Purchase and Sale Agreement.
- Under the terms of the Purchase and Sale Agreement, Student Advantage is
unable to solicit other acquisition proposals for the OCSN Business.
- That Student Advantage may be selling its assets at the bottom of a
market cycle.
In recommending adoption and approval of the Asset Sale and the Purchase
and Sale Agreement, the Board of Directors also considered a number of factors
that it believed supported its determination of the procedural fairness of the
process under which the Purchase and Sale Agreement was negotiated and the
procedural fairness of the transaction itself. The material factors that the
Special Committee considered were as follows:
- That the Special Committee exercised exclusive and unlimited authority
to, among other things, evaluate, negotiate and recommend the terms of
any proposed transaction and had received advice from its own independent
legal and financial advisors.
- That extensive time and attention was devoted to the transaction by the
members of the Special Committee.
- That the proposed transaction resulted from arm's length negotiations
that were active and lengthy.
The Board of Directors believes that it was not necessary to retain a
disinterested representative to negotiate on behalf of the unaffiliated
stockholders or to structure the Asset Sale to require approval of at least a
majority of unaffiliated stockholders because:
- the Board of Directors established a Special Committee of directors,
consisting of directors who are not employees of Student Advantage and
who, upon consummation of the Transactions will not have any continuing
interest in or other relationship with Student Advantage as the surviving
corporation, to negotiate the terms of the Asset Sale;
- the purchaser is an unaffiliated third party;
- the Special Committee retained an independent financial advisor, who
delivered its opinion that the consideration to be paid in connection
with the Asset Sale was fair to Student Advantage; and
- the Asset Sale was approved by all of the directors of Student Advantage
who are not employees of Student Advantage and who, upon consummation of
the Transactions will not have any continuing interest in or other
relationship with Student Advantage as the surviving corporation.
In reaching its conclusions, the Board of Directors considered it
significant that:
- the consideration to be paid in connection with the Asset Sale of $2.85
million in cash, the Note in the aggregate principal amount of $4.25
million and a warrant to purchase 580,601 shares (subject to adjustment
in accordance with terms of the warrant) of NCSN common stock was the
highest price NCSN indicated it was willing to pay following extensive
arm's-length negotiations between the Special Committee, Luminary Capital
and representatives of NCSN;
32
- no member of the Special Committee has an interest in the proposed Asset
Sale different from that of Student Advantage stockholders generally;
- the Special Committee retained its own financial and legal advisors who
have extensive experience with transactions similar to the Asset Sale and
who assisted the Special Committee in evaluating the Asset Sale and in
negotiating with NCSN;
- Luminary Capital was retained to, among other things, advise the Special
Committee as to the fairness, from a financial point of view, of offers
received. Luminary Capital reached the conclusion expressed in its
written opinion dated November 18, 2003 that, subject to the
considerations and limitations set forth in the opinion the purchase
price set forth in the Purchase and Sale Agreement is fair, from a
financial point of view, to Student Advantage.
After consideration of all the material factors, as described above, and
based in part on the recommendation of the Special Committee, the Board of
Directors recommends that the stockholders of Student Advantage vote "FOR" the
approval of the Transactions and adoption and approval of the Merger Agreement
and the Purchase and Sale Agreement.
POSITION OF RAYMOND V. SOZZI, JR. AND ATHENA VENTURES AS TO THE FAIRNESS OF THE
MERGER
The rules of the SEC require Mr. Sozzi and Athena Ventures to express their
belief as to the fairness of the Merger Agreement and the proposed Merger to
Student Advantage's unaffiliated stockholders. Mr. Sozzi was not part of, and
did not participate in the deliberations of, the Special Committee. However, as
a director of Student Advantage, Mr. Sozzi participated in the deliberations of
the Board of Directors described above under "BACKGROUND OF THE TRANSACTIONS,"
"REASONS FOR THE SPECIAL COMMITTEE'S RECOMMENDATION" and "REASONS FOR THE BOARD
OF DIRECTORS' RECOMMENDATIONS." Based on his belief regarding the reasonableness
of the conclusions and analyses of the Special Committee and the Board of
Directors, Mr. Sozzi and Athena Ventures adopted the analyses and conclusions
underlying the Special Committee's and the Board of Directors' fairness
determination described above and believe that the $1.05 merger consideration is
substantively and procedurally fair to Student Advantage's unaffiliated
stockholders.
Mr. Sozzi and Athena Ventures have determined that the Merger is
substantively fair to the unaffiliated stockholders. In making such
determination, Mr. Sozzi and Athena Ventures considered the following factors:
- The relationship between the $1.05 per share to be paid in the Merger and
the recent and historical market prices of Student Advantage's common
stock. The Merger price of $1.05 per share to be paid in the Merger
represents approximately a 106% premium to the closing price of Student
Advantage's common stock on November 18, 2003, the last trading day
before the public announcement on November 19, 2003 of the signing of the
Merger Agreement, and exceeds the closing sales prices of Student
Advantage's common stock for approximately 90 days prior to that date.
- The terms of the Merger Agreement, including the ability of the Board of
Directors, in the exercise of its fiduciary duties to stockholders, to
consider competing superior proposals. Mr. Sozzi and Athena Ventures also
considered that the Merger is subject to various conditions, and that the
Merger contemplates the payment of a termination fee under certain
circumstances.
Mr. Sozzi and Athena Ventures have determined that the Merger is
procedurally fair to the unaffiliated stockholders. In making such
determination, Athena Ventures considered the following factors:
- The negotiation and deliberation process conducted by the Special
Committee which led to the approval of the Merger Agreement by the
Special Committee and the Board of Directors; Luminary Capital's opinion
as to the fairness of the Merger, from a financial point of view, to the
unaffiliated stockholders; and that the Special Committee was permitted
for a limited time after signing the Merger Agreement to seek alternative
transaction proposals.
33
- The fact that the Special Committee received an opinion delivered by
Luminary Capital stating that the $1.05 per share consideration to be
received by Student Advantage's unaffiliated stockholders in the Merger
was fair, from a financial point of view, to such holders.
- Under Delaware law, Student Advantage stockholders have the right to
demand an appraisal by the Delaware Court of Chancery of the "fair value"
of their shares, which may be determined to be more or less than the
$1.05 per share merger consideration.
- The overall procedural fairness of the process under which the Merger
Agreement was negotiated and the procedural fairness of the transaction
itself due to the Special Committee's exercise of exclusive and unlimited
authority to, among other things, evaluate, negotiate and recommend the
terms of the Merger Agreement, the Special Committee retaining its own
independent legal and financial advisors, and the extensive time and
attention devoted to the transaction by the Special Committee throughout
the negotiation process.
Mr. Sozzi and Athena Ventures considered the fact that the Merger did not
require the vote of only unaffiliated stockholders. In evaluating this factor,
Mr. Sozzi and Athena Ventures considered the rights of dissenting stockholders
to seek appraisal of the value of their shares of common stock under Delaware
law; the obligation of the Special Committee to enter into and maintain or
continue discussions or negotiations with any person or group in furtherance of
any unsolicited inquiry, whether such inquiry is bona fide or reasonably likely
to lead to a takeover proposals after the execution of the Merger Agreement (of
which there were no inquiries); the right of the Special Committee to terminate
the Merger Agreement if a superior offer is received, subject only to a break-up
fee and reimbursement of expenses; and the right of the Special Committee to
withdraw its favorable recommendation if required to do so in the exercise of
its fiduciary duty.
In reaching its determination as to fairness, Mr. Sozzi and Athena Ventures
did not assign specific weight to particular factors, but rather considered all
of the foregoing factors as a whole to support their belief that the Merger is
fair to the unaffiliated stockholders of Student Advantage. This belief,
however, should not be construed as a recommendation to stockholders as to how
they should vote on the Merger.
In view of the number and wide variety of factors considered in connection
with making a determination as to the fairness of the Merger to Student
Advantage's unaffiliated stockholders, and the complexity of these matters, Mr.
Sozzi and Athena Ventures did not find it practicable to, nor did they attempt
to, quantify, rank or otherwise assign relative weights to the specific factors
it considered. Moreover, Mr. Sozzi and Athena Ventures have not undertaken to
make any specific determination to assign any particular weight to any single
factor, but have conducted an overall analysis of the factors described above.
Mr. Sozzi and Athena Ventures did not consider the net book value or
liquidation value of Student Advantage to be material to their conclusion
regarding the fairness of the Merger because it is their view that neither book
value nor liquidation value accurately reflects the value of Student Advantage
in light of Student Advantage not being a capital intensive business, and that,
based upon the opinion received by the Special Committee from Luminary Capital,
a liquidation of Student Advantage would not yield net proceeds to Student
Advantage stockholders in excess of $1.05 per share.
PROJECTIONS PROVIDED TO FINANCIAL ADVISOR
Student Advantage does not, as a matter of course, publicly disclose
forecasts as to future revenues or earnings. The forecasts were not prepared
with a view to public disclosure and are included in this proxy statement only
because this information was made available to Luminary Capital in connection
with its analysis of Student Advantage. The forecasts were not prepared with a
view to comply with the published guidelines of the SEC regarding forecasts, nor
were they prepared in accordance with the guidelines established by the American
Institute of Certified Public Accountants for preparation and presentation of
financial forecasts. Moreover, Ernst & Young LLP, Student Advantage's
independent auditor, has not examined, compiled or applied any procedures to the
forecasts in accordance with standards established by the American Institute of
Certified Public Accountants and expresses no opinion or any assurance on their
reasonableness, accuracy or achievability.
34
The projections below are or involve forward-looking statements and are
based upon a variety of assumptions. These assumptions involve judgments with
respect to future economic, competitive and regulatory conditions, financial
market conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond Student
Advantage's control. The projections are based upon, among other things,
estimates and assumptions with respect to (1) Student Advantage's ability to
achieve strategic goals, objectives and targets over the applicable periods, (2)
renewal of all current sponsor agreements in the Student Advantage Membership
program, (3) double digit annual growth in the revenue generated by the Student
Advantage Membership program, (4) the repayment of its secured debt from the
proceeds of the Asset Sale and (5) the inclusion of ongoing results from Student
Advantage's Collegeclub business, which was subsequently acquired by a third
party in November 2003. The projections do not take into account annual cost
savings associated with going private. Many important factors, in addition to
those discussed elsewhere in this proxy statement, could cause Student
Advantage's results to differ materially from those expressed or implied by the
forward-looking statements. These factors include Student Advantage's
competitive environment, economic and other market conditions in which Student
Advantage operates and matters affecting business generally, all of which are
difficult to predict and many of which are beyond Student Advantage's control.
Accordingly, there can be no assurance that the projections are indicative of
Student Advantage's future performance or that actual results will not differ
materially from those in the projections set forth below. See "Cautionary
Statement Regarding Forward-Looking Statements."
In light of the uncertainties inherent in projections of any kind, the
inclusion of these projections in this proxy statement should not be regarded as
a representation by Student Advantage, the Board of Directors of Student
Advantage, the Special Committee, or any of their advisors, agents or
representatives that these projections will prove to be correct.
The following is a summary of the financial projections for the fiscal
years ending December 31, 2003 through December 31, 2007. The first table
assumes the continued ownership of the OCSN Business by Student Advantage. The
second table assumes the sale of the OCSN Business to NCSN.
Projections Including the OCSN Business:
<Table>
<Caption>
2003 2004 2005 2006 2007
------- ------- ------- ------- -------
(IN THOUSANDS)
Total Revenue................................ $17,630 $19,694 $22,318 $25,336 $28,806
EBITDA(1).................................... $(2,906) $ (903) $ 441 $ 1,999 $ 3,801
</Table>
Projections Excluding the OCSN Business:
<Table>
<Caption>
2003 2004 2005 2006 2007
------- ------- ------ ------ ------
(IN THOUSANDS)
Total Revenue................................ $ 5,900 $ 6,615 $7,277 $8,039 $8,915
EBITDA(1).................................... $(2,726) $(1,344) $ (902) $ (382) $ 227
</Table>
- ---------------
(1) We define EBITDA for purposes of these projections as operating earnings
before interest, taxes, depreciation and amortization.
As described above, factors such as industry performance and general
business, economic, regulatory, market and financial conditions, all of which
are difficult to predict, may cause the forecasts to be inaccurate as compared
to actual results. Accordingly, it is expected that there will be differences
between actual and forecasted results, and you are cautioned that actual results
may be materially different from those contained in the forecasts.
The inclusion of the forecasts should not be regarded as an indication that
Student Advantage considers the forecasts to be a guaranty or accurate
prediction of future results. The forecasts represent Student Advantage
management's reasonable estimate of possible future performance as of October 1,
2003, the date of the forecasts, and were not made or updated as of any later
date. You should take all of the foregoing qualifications into account when
evaluating any factors or analyses based on the forecasts.
35
OPINIONS OF FINANCIAL ADVISOR TO THE SPECIAL COMMITTEE
Luminary Capital was retained by the Special Committee to, among other
things, render an opinion as to the fairness, from a financial point of view, of
the per share consideration to be received by the unaffiliated stockholders of
Student Advantage in connection with the Merger and the fairness to Student
Advantage, from a financial point of view, of the consideration to be received
from NCSN in the Asset Sale. Although a new firm, the principals of Luminary
Capital are investment bankers who are regularly engaged in the evaluation of
businesses and their securities in connection with mergers and acquisitions. The
Special Committee selected Luminary Capital based on the reputation of its
principals, the reasonableness of its proposed fees, and its familiarity with
Student Advantage's industry.
Copies of Luminary Capital's opinions discussed below have been filed as
appendices to this proxy statement and as exhibits to the Rule 13e-3 Transaction
Statement on Schedule 13E-3, filed with the SEC with respect to the
Transactions, and will be made available for inspection and copying at Student
Advantage's principal executive offices at 280 Summer Street, Boston,
Massachusetts 02210 during regular business hours by an interested stockholder
or his or her representative who has been so designated in writing.
FEES PAYABLE TO LUMINARY CAPITAL
On July 29, 2002, Student Advantage entered into an engagement agreement
with Luminary Capital which was subsequently amended on May 1, 2003 and further
amended on September 23, 2003, pursuant to which Student Advantage agreed to pay
Luminary Capital a non-contingent fee of two $25,000 payments, payable upon
delivery of its fairness opinions as described below and to reimburse Luminary
Capital for all of its reasonable travel and other out-of-pocket expenses. In
connection with such amended engagement agreement, Student Advantage also agreed
to pay Luminary Capital a financial advisory fee equal to $100,000, of which
$50,000 is payable upon the completion of all required contract assignments
under the Asset Sale and $50,000 is payable upon the closing of the
Transactions. In addition, Student Advantage agreed to indemnify Luminary
Capital and its affiliates against liabilities relating to or arising out of its
engagement, except for liabilities found to have resulted from the willful
misconduct or gross negligence of Luminary Capital.
THE MERGER AND MERGER AGREEMENT
On October 12, 2003, at a meeting of the Board of Directors, Luminary
Capital delivered its oral opinion that, as of such date, based upon and subject
to the assumptions made, matters considered, and limitations on its review as
set forth in the opinion, from a financial point of view, the consideration to
be received in the Merger is fair to Student Advantage's unaffiliated
stockholders. Subsequently, on November 11, 2003, Luminary Capital updated its
oral opinion, which was followed by its written opinion, that as of November 18,
2003, based upon and subject to the assumptions made, matters considered, and
limitations on its review as set forth in the opinion, from a financial point of
view, the consideration to be received in the Merger is fair to the unaffiliated
stockholders from a financial point of view.
THE FULL TEXT OF THE WRITTEN OPINION OF LUMINARY CAPITAL DATED AS OF
NOVEMBER 18, 2003 IS ATTACHED AS APPENDIX C AND IS INCORPORATED BY REFERENCE
(THE "LUMINARY OPINION"). YOU ARE URGED TO READ THE LUMINARY OPINION CAREFULLY
AND IN ITS ENTIRETY FOR A DESCRIPTION OF THE ASSUMPTIONS MADE, MATTERS
CONSIDERED, PROCEDURES FOLLOWED AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY
LUMINARY CAPITAL IN RENDERING ITS OPINION. THE SUMMARY OF THE LUMINARY OPINION
SET FORTH IN THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FULL TEXT OF SUCH OPINION.
The Luminary Opinion is addressed to the Board of Directors and addresses
only the fairness from a financial point of view of the consideration to be
received by Student Advantage stockholders, other than Mr. Sozzi and Athena
Ventures, pursuant to the Merger. The Luminary Opinion does not address the
36
merits of Student Advantage's underlying decision to engage in the Merger. The
Luminary Opinion does not constitute, nor should it be construed as, a
recommendation as to any action any stockholder of Student Advantage should take
in connection with the Merger. In connection with the preparation of the
Luminary Opinion, Luminary Capital, among other things:
- reviewed, from a financial point of view, a draft of the Merger
Agreement;
- reviewed certain publicly available historical business and financial
information and other data relating to Student Advantage, including but
not limited to information contained in Student Advantage's Form 10-K for
the year ended December 31, 2002 and its Quarterly Reports on Form 10-Q
for the periods ended March 31, 2003 and June 30, 2003 (but not any
subsequent public filings);
- reviewed and discussed with representatives of the management of Student
Advantage certain other financial and operating information relating to
Student Advantage furnished to Luminary Capital by Student Advantage,
including financial analyses and projections and related assumptions;
- considered the historical financial results and present financial
condition of Student Advantage;
- inquired about and discussed the proposed Merger and other matters
related thereto with Student Advantage's management and its legal
counsel;
- reviewed the reported historical and recent market prices and trading
volumes of the common stock;
- compared the financial and operating performance of Student Advantage
with certain other companies deemed comparable;
- reviewed the financial terms, to the extent applicable, of certain other
acquisition transactions deemed comparable; and
- performed such other analyses and examinations as Luminary Capital deemed
appropriate.
Luminary Capital also took into account economic, market and financial
conditions generally and within the industry in which Student Advantage is
engaged. In preparing the Luminary Opinion, Luminary Capital assumed and relied
on the accuracy and completeness of all information supplied or otherwise made
available to it, discussed with or reviewed by it, or publicly available.
Luminary Capital also assumed that the Asset Sale will be consummated in
accordance with the terms described herein, without any further material
amendments or modifications thereto, and without waiver of the material
conditions to any obligations thereunder. Luminary Capital did not assume any
responsibility for independently verifying such information or undertaking an
independent evaluation or appraisal of the assets or liabilities of Student
Advantage nor was it furnished with any such independent evaluation or
appraisal. In addition, Luminary Capital has not assumed any obligation to
conduct any physical inspection of the properties or facilities of Student
Advantage. With respect to the financial projection information furnished to or
discussed with Luminary Capital by Student Advantage, Luminary Capital has
assumed that they have been reasonably prepared and reflect the best currently
available estimates and judgment of Student Advantage's management as to the
expected future financial performance of Student Advantage. Luminary Capital
expresses no opinion as to such financial projection information or the
assumptions on which they were based. Luminary Capital's opinion is necessarily
based upon market, economic and other conditions as they exist and can be
evaluated, and on the information made available to Luminary Capital, as of the
date of the opinion. In accordance with customary investment banking practice,
Luminary Capital employed generally accepted valuation methods in reaching the
opinions expressed in the Luminary Opinion.
The following is a summary of the financial analysis used by Luminary
Capital in connection with providing the Luminary Opinion. The financial
analyses contained therein were prepared as of October 2, 2003. Some of these
summaries of financial analyses include information in tabular format. In order
to understand fully the financial analyses used by Luminary Capital, the tables
must be read together with
37
the text of each summary. The tables alone do not constitute a complete
description of the financial analyses. Considering the data set forth below in
the tables without considering the full narrative description of the financial
analyses, including the methodologies and assumptions underlying the analyses,
could create a misleading or incomplete view of Luminary Capital's financial
analyses. In arriving at its opinion, Luminary Capital considered the results of
all of its analyses described below and all of the factors it considered as a
whole and did not assign specific weights to particular analyses or factors
considered, but, rather, made qualitative judgments as to the significance and
relevance of all the analyses and factors considered. Accordingly, Luminary
Capital believes that its analyses, and the summary set forth below, must be
considered as a whole, and that selecting portions of the analyses and of the
factors considered by Luminary Capital, without considering all of the analyses
and factors, could create a misleading or incomplete view of the processes
underlying the Luminary Opinion. Luminary Capital confirmed to the Special
Committee and to the Board of Directors on November 11, 2003 and on November 12,
2003, that any changes subsequent to October 7, 2003 only served to improve the
fairness, from a financial point of view, of the merger consideration to be
received by the unaffiliated stockholders.
HISTORICAL SHARE PRICE PERFORMANCE
Luminary Capital reviewed the historical common stock performance of
Student Advantage. Luminary Capital noted that the implied premium of the
consideration of $1.05 per share to be paid in the Merger compared to various
Student Advantage stock prices was as of October 2, 2003, the prior 30-day
trading period and the prior 90-day trading period was 31.3%, 47.4% and 52.2%,
respectively.
Luminary Capital performed a premiums paid analysis for Student Advantage
based upon the review and analysis of the range of premiums paid in acquisitions
that were similar in size announced during the period between September 4, 2001
and September 17, 2003. For the period selected, Luminary Capital reviewed 90
selected transactions that Luminary Capital deemed relevant where the equity
values were below $25 million and where over 50% of the target was acquired.
Using information obtained from publicly available information, Luminary Capital
obtained the premium of the offer price per share relative to the target
company's stock price one day, five days and thirty days prior to the date of
announcement of the respective transactions (the "Announcement"). The range of
premiums paid to the target company's stock price one day, five days and thirty
days prior to Announcement were (90.7%) to 243.8%, (91.4%) to 261.4%, and
(94.5%) to 258.6%, respectively. These ranges are very broad and thus this
analysis was given little weight by Luminary Capital.
STUDENT ADVANTAGE DISCOUNTED CASH FLOW ANALYSIS
Luminary Capital performed a discounted cash flow analysis of Student
Advantage based on certain financial projections prepared by Student Advantage's
management for the fiscal years 2004 to 2007, and taking into account publicly
available information and discussions with certain members of Student
Advantage's management. Luminary Capital discounted the free cash flows of
Student Advantage over the forecast period at a range of discount rates
representing an estimated weighted average cost of capital for Student
Advantage, and applied terminal values based on a range of EBITDA multiples
based on current public market valuation implied EBITDA multiples of comparable
companies. Luminary Capital compared the current public market valuation implied
EBITDA multiples of publicly traded companies engaged primarily in the Internet
direct marketing industry. These companies were as follows: Alloy, Inc.,
iVillage, Inc., MemberWorks, Inc. and SportsLine.com, Inc. Unlevered free cash
flow was calculated as net income available to common shareholders plus the
aggregate of depreciation and amortization, deferred taxes and other non-cash
expenses and after-tax net interest expense less the sum of capital expenditures
and investment in non-cash working capital. For purposes of this analysis,
Luminary Capital calculated Student Advantage's discounted free cash flow value
using a discount rate range of 15% to 19%. The discounted cash flow analysis
implied a range of values for Student Advantage's common stock of approximately
$(0.73) to $1.14 per share. The merger consideration is nearer the upper end of
the range derived from the discounted cash flow analysis of management's
projections. Luminary Capital does not consider Student Advantage's projections
as necessarily indicative of actual future results.
38
CONSIDERATION OF THE PRECEDENT TRANSACTIONS VALUATION ANALYSIS AND SELECTED
COMPARABLE PUBLIC COMPANIES ANALYSIS METHODOLOGIES
While a Precedent Transactions Valuation Analysis and Selected Comparable
Public Companies Analyses are commonly used valuation methodologies, Luminary
Capital performed such analyses but determined that such analyses were not
relevant for the purposes of rendering its opinion and such analyses were not
discussed as part of the oral presentation to the Special Committee. Given the
lack of public acquisition targets with a comparable mix of business lines,
Luminary Capital considered the mergers and acquisitions multiples from the
Selected Precedent Transactions Analysis and the trading multiples from the
Selected Comparable Public Companies Analysis inappropriate for valuing Student
Advantage. The Precedent Transactions Valuation Analysis and Selected Comparable
Public Companies Analysis were included in the materials provided by Luminary
Capital to the Special Committee and to the Board of Directors, which are
included as exhibits to the Schedule 13E-3 filed with the SEC.
The summary set forth above is a discussion of all the material analysis
presented by Luminary Capital. The preparation of a fairness opinion is a
complex process and is not necessarily susceptible to partial analysis or
summary description. Luminary Capital believes that selecting any portion of its
analysis or of the summary set forth above, without considering the analyses as
a whole, would create an incomplete view of the process underlying Luminary
Capital's opinion. In arriving at its opinion, Luminary Capital considered the
results of all such analyses. The analyses performed by Luminary Capital are not
necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than those suggested by such analyses. The
analyses do not purport to be appraisals or to reflect the prices at which
Student Advantage might actually be sold or the prices at which Student
Advantage shares may trade at any time in the future. Such analyses were
prepared solely for the purposes of Luminary Capital providing its opinion to
the Special Committee as to the fairness, from a financial point of view, of the
merger consideration to be received by unaffiliated holders of Student Advantage
shares in the merger. Analyses based upon projections or future results are not
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by such analyses. Because
such analyses are inherently subject to uncertainty, being based upon numerous
factors and events, including, without limitation, factors related to general
economic and competitive conditions beyond the control of the parties or their
respective advisors, none of Luminary Capital, Student Advantage, Raymond V.
Sozzi, Jr. or any other person assumes responsibility if future results or
actual values are materially different from those projected. The foregoing
summary does not purport to be a complete description of the analysis performed
by Luminary Capital and is qualified by reference to the written opinion dated
as of November 18, 2003 of Luminary Capital as attached as APPENDIX C hereto. In
addition, Luminary Capital may have given various analyses more or less weight
than other analyses, and may have deemed various assumptions more or less
probable than other assumptions, so that the range of valuations resulting from
any particular analysis described above should not be taken to be Luminary
Capital's view of the actual value of Student Advantage. Luminary Capital
believes that Student Advantage is a unique company with a limited number of
comparable public companies in terms of size, business plan and geographical
scope. Accordingly, two of the analyses performed by Luminary Capital were
deemed meaningless and were given little weight by Luminary Capital and the
Special Committee. In particular, Luminary Capital gave particular weight to the
discounted cash flow and historical share price analyses, Student Advantage's
ability to pay future debt obligations, and the ability of the Special Committee
to entertain third party offers and the negotiated termination fee in the Merger
Agreement, all of which Luminary Capital believes resulted in a meaningful
assessment of the proposed Merger.
THE ASSET SALE AND PURCHASE AND SALE AGREEMENT
Luminary Capital also was retained by the Board of Directors to, among
other things, render an opinion as to the fairness, from a financial point of
view, of the consideration to be received by Student Advantage in connection
with the Asset Sale. The stockholders of Student Advantage will not receive any
of the proceeds from the Asset Sale. The purchase price will be paid to Student
Advantage and used by it to repay its outstanding debt obligations, including
its debt to Scholar.
39
On October 12, 2003, at a meeting of the Board of Directors, Luminary
Capital delivered its oral opinion that, as of such date, based upon and subject
to the assumptions made, matters considered, and limitations on its review as
set forth in the opinion, from a financial point of view, the consideration to
be received in the Asset Sale is fair to Student Advantage. Subsequently, on
November 11, 2003, Luminary Capital updated its oral opinion, which was followed
by its written opinion, that as of November 18, 2003, based upon and subject to
the assumptions made, matters considered, and limitations on its review as set
forth in the opinion, from a financial point of view, the consideration to be
received in the Asset Sale is fair to Student Advantage from a financial point
of view.
THE FULL TEXT OF THE WRITTEN OPINION OF LUMINARY CAPITAL DATED AS OF
NOVEMBER 18, 2003 IS ATTACHED AS APPENDIX D AND IS INCORPORATED BY REFERENCE
(THE "LUMINARY ASSET OPINION"). YOU ARE URGED TO READ THE LUMINARY ASSET OPINION
CAREFULLY AND IN ITS ENTIRETY FOR A DESCRIPTION OF THE ASSUMPTIONS MADE, MATTERS
CONSIDERED, PROCEDURES FOLLOWED AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY
LUMINARY CAPITAL IN RENDERING ITS OPINION. THE SUMMARY OF THE LUMINARY ASSET
OPINION SET FORTH IN THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH OPINION.
The Luminary Asset Opinion is addressed to the Board of Directors of
Student Advantage and addresses only the fairness from a financial point of view
of the consideration to be received by Student Advantage pursuant to the Asset
Sale. The Luminary Asset Opinion does not address the merits of Student
Advantage's underlying decision to engage in the Asset Sale. The Luminary Asset
Opinion does not constitute, nor should it be construed as, a recommendation as
to any action any stockholder of Student Advantage should take in connection
with the Asset Sale. In connection with the preparation of the Luminary Asset
Opinion, Luminary Capital, among other things:
- reviewed, from a financial point of view, a draft of the Asset Sale
Agreement;
- reviewed certain publicly available historical business and financial
information and other data relating to the OCSN Business, including but
not limited to information contained in Student Advantage's Form 10-K for
the year ended December 31, 2002 and its Quarterly Reports on Form 10-Q
for the periods ended March 31, 2003 and June 30, 2003 (but not any
subsequent public filings);
- reviewed and discussed with representatives of the management of Student
Advantage certain other financial and operating information relating to
the OCSN Business furnished to Luminary Capital by Student Advantage,
including financial analyses and projections and related assumptions;
- considered the historical financial results and present financial
condition of the OCSN Business;
- inquired about and discussed the proposed Asset Sale and other matters
related thereto with Student Advantage's management and its legal
counsel;
- compared the financial and operating performance of the OCSN Business
with certain other companies deemed comparable;
- reviewed the financial terms, to the extent applicable, of certain other
acquisition transactions deemed comparable; and
- performed such other analyses and examinations as Luminary Capital deemed
appropriate.
Luminary Capital also took into account economic, market and financial
conditions generally and within the industry in which Student Advantage is
engaged. In preparing the Luminary Asset Opinion, Luminary Capital assumed and
relied on the accuracy and completeness of all information supplied or otherwise
made available to it, discussed with or reviewed by it, or publicly available.
Luminary Capital did not assume any responsibility for independently verifying
such information or undertaking an independent evaluation or appraisal of the
assets or liabilities of Student Advantage nor was it furnished
40
with any such independent evaluation or appraisal. In addition, Luminary Capital
has not assumed any obligation to conduct any physical inspection of the
properties or facilities of Student Advantage. With respect to the financial
projection information furnished to or discussed with Luminary Capital by
Student Advantage, Luminary Capital has assumed that they have been reasonably
prepared and reflect the best currently available estimates and judgment of
Student Advantage's management as to the expected future financial performance
of Student Advantage. Luminary Capital expresses no opinion as to such financial
projection information or the assumptions on which they were based. Luminary
Capital's opinion is necessarily based upon market, economic and other
conditions as they exist and can be evaluated, and on the information made
available to Luminary Capital, as of the date of the opinion. In accordance with
customary investment banking practice, Luminary Capital employed generally
accepted valuation methods in reaching the opinions expressed in the Luminary
Asset Opinion.
The following is a summary of the financial analysis used by Luminary
Capital in connection with providing the Luminary Asset Opinion. In arriving at
its opinion, Luminary Capital considered the results of all of its analyses
described below and all of the factors it considered as a whole and did not
assign specific weights to particular analyses or factors considered, but,
rather, made qualitative judgments as to the significance and relevance of all
the analyses and factors considered. Accordingly, Luminary Capital believes that
its analyses, and the summary set forth below, must be considered as a whole,
and that selecting portions of the analyses and of the factors considered by
Luminary Capital, without considering all of the analyses and factors, could
create a misleading or incomplete view of the processes underlying the Luminary
Asset Opinion.
DISCOUNTED CASH FLOW ANALYSIS
Luminary Capital performed a discounted cash flow analysis of the OCSN
Business based on certain financial projections prepared by Student Advantage's
management for the fiscal years 2004 to 2007, and taking into account publicly
available information and discussions with certain members of Student
Advantage's management. Luminary Capital discounted the free cash flows of the
OCSN Business over the forecast period at a range of discount rates representing
an estimated weighted average cost of capital for the OCSN Business, and applied
terminal values based on a range of EBITDA multiples based on current public
market valuation implied EBITDA multiples of comparable companies. Free cash
flow was calculated as net income available to common shareholders plus the
aggregate of depreciation and amortization, deferred taxes and other non-cash
expenses and after-tax net interest expense less the sum of capital expenditures
and investment in non-cash working capital. For purposes of this analysis,
Luminary Capital calculated the OCSN Business' discounted free cash flow value
using a discount rate range of 18% to 22%. The discounted cash flow analysis
implied a range of asset values for the OCSN Business of approximately $5.6
million to $7.4 million. The consideration to be received by Student Advantage
in the Asset Sale is nearer the upper end of the range derived from the
discounted cash flow analysis of management's projections. Luminary Capital does
not consider the OCSN Business' projections as necessarily indicative of actual
future results.
PRECEDENT TRANSACTIONS VALUATION ANALYSIS
Luminary Capital compared the asset value range of the OCSN Business with
publicly available information with respect to nine acquisition transactions
identified below that Luminary Capital believed to be appropriate for
comparison. These transactions were selected because the targets are publicly
traded Internet direct marketing companies. The following transactions were
selected for use in Luminary Capital's analysis: Alloy, Inc.'s acquisition of
dELiA*s, Barnes & Noble's acquisition of barnesandnoble.com, Drugstore.com's
acquisition of Custom Nutrition Services, 1-800 Contacts' acquisition of Lens
Express Inc., ValueVision Media, Inc.'s acquisition of FanBuzz, GSI Commerce's
acquisition of Ashford.com, management-led going private transaction of Buy.com,
Autobytel's acquisition of Autoweb and Universal Music Group's acquisition of
Emusic.com, Inc.
Using publicly available information concerning financial performance,
Luminary Capital calculated the transaction values for the target companies as a
multiple of Latest Twelve Months ("LTM") Revenue
41
for the Comparable Transactions for the latest twelve months immediately
preceding the announcement of the respective transactions, resulting in a range
of $0.4 million to $11.3 million (as compared to the Asset Sale's value of $7.1
million). Luminary Capital also calculated the transaction values for target
companies as a multiple of One-Year Forward Revenue for the Comparable
Transactions, resulting in a range of $0.4 million to $12.7 million. No company
utilized in the Comparable Transaction Analyses described above is identical to
the OCSN Business nor is any transaction identical to the contemplated
transaction between the OCSN Business and NCSN. An analysis of the results
therefore requires complex considerations and judgments regarding the financial
and operating characteristics of the OCSN Business and the companies involved in
the Comparable Transactions, as well as other facts that could affect their
publicly traded and/or transaction value. The numerical results are not in
themselves meaningful in analyzing the contemplated transaction as compared to
Comparable Transactions.
SELECTED COMPARABLE PUBLIC COMPANIES ANALYSIS
Luminary Capital compared the asset value range of the OCSN Business with
the corresponding asset value range of a group of publicly traded companies
engaged primarily in the Internet direct marketing industry that Luminary
Capital deemed to be comparable to the OCSN Business. For the purpose of its
analyses, the following companies were used as companies comparable to the OCSN
Business: dELiA*s, barnesandnoble.com, 1-800 Contacts, 1-800 Flowers and, GSI
Commerce (collectively the "Comparable Companies"). For the Comparable
Companies, Luminary Capital calculated a range of asset value as a multiple of
LTM Revenue of $3.6 million to $22.9 million (as compared to the Asset Sale
value of $7.1 million). Luminary Capital also calculated the asset value for the
Comparable Companies as a multiple of 2003 Estimated Revenue and 2004 Estimated
Revenue, resulting in ranges of $10.6 million to $23.1 million and $10.7 million
and $21.3 million, respectively (as compared to the Asset Sale's value of $7.1
million). To calculate the multiples utilized in the Comparable Company
Analysis, Luminary Capital used publicly available information concerning the
historical financial performance of the Comparable Companies. None of the
Comparable Companies is, of course, identical to the OCSN Business. Accordingly,
a complete analysis of the results of the foregoing calculations cannot be
limited to a quantitative review of such results and involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the Comparable Companies, as well as that of the OCSN
Business. For the Comparable Company Analysis, companies that engage in direct
marketing and delivery of content over the Internet were selected for
comparison. Based upon Luminary Capital's analysis, the value of the
consideration is within the range of the implied valuation derived from the
Comparable Company Analysis.
The summary set forth above is a discussion of all the material analysis
presented by Luminary Capital. The preparation of a fairness opinion is a
complex process and is not necessarily susceptible to partial analysis or
summary description. Luminary Capital believes that selecting any portion of its
analysis or of the summary set forth above, without considering the analyses as
a whole, would create an incomplete view of the process underlying Luminary
Capital's opinion. In arriving at its opinion, Luminary Capital considered the
results of all such analyses. The analyses performed by Luminary Capital are not
necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than those suggested by such analyses. The
analyses do not purport to be appraisals or to reflect the prices at which the
OSCN Business might actually be sold at any time in the future. Such analyses
were prepared solely for the purposes of Luminary Capital providing its opinion
to the Special Committee as to the fairness, from a financial point of view, of
the consideration to be received by Student Advantage in the Asset Sale.
Analyses based upon projections or future results are not necessarily indicative
of actual values or future results, which may be significantly more or less
favorable than suggested by such analyses. Because such analyses are inherently
subject to uncertainty, being based upon numerous factors and events, including,
without limitation, factors related to general economic and competitive
conditions beyond the control of the parties or their respective advisors, none
of Luminary Capital, Student Advantage, Raymond V. Sozzi, Jr. or any other
person assumes responsibility if future results or actual values are materially
different from those projected. The foregoing summary does not purport to be a
complete description of the analysis performed by Luminary Capital and is
qualified by reference to the written
42
opinion dated as of November 18, 2003 of Luminary Capital as attached as
Appendix D hereto. In addition, Luminary Capital may have given various analyses
more or less weight than other analyses, and may have deemed various assumptions
more or less probable than other assumptions, so that the range of valuations
resulting from any particular analysis described above should not be taken to be
Luminary Capital's view of the actual value of the OCSN Business.
PURPOSE AND STRUCTURE OF THE MERGER
For Student Advantage, the purpose of the Merger is to allow Student
Advantage stockholders to realize the value of their investment in Student
Advantage in cash at a price that represents a premium of over 106% over the
closing market price of the common stock as quoted on the OTC Bulletin Board on
the last trading day before the public announcement of the execution of the
Merger Agreement. The Board of Directors believes that Student Advantage has not
been able to realize fully the benefits of public company status. The reasons
for their belief include the limited ability of Student Advantage's stockholders
to sell their stock quickly at the current market price due to the low trading
volume and the under valuation of the common stock in the public market due to
Student Advantage's small market capitalization, limited public float, limited
research coverage from securities analysts and the inability to generate the
type of rapid revenue and unit growth generally expected by the public markets.
At the same time, public company status has imposed a number of limitations on
Student Advantage and its management in conducting Student Advantage's
operations, including being subject to the possible use of Student Advantage's
required publicly disclosed information by its competitors. These limitations
include the costs and time associated with public company reporting obligations
and the short-term focus on quarter-to-quarter performance goals to meet
expectations of the public markets. Accordingly, one of the purposes of the
Merger is to afford greater operating flexibility, allowing management to
concentrate on long-term growth and to reduce its attention to the
quarter-to-quarter performance and to be able to pursue opportunities that
Student Advantage could not previously pursue because of its duties to the
public stockholders. Further, the Merger is intended to enable Student Advantage
to use in its operations those funds that would otherwise be expended in
complying with requirements applicable to public companies.
For Mr. Sozzi and Athena Ventures, the purpose of the Merger is to acquire
complete ownership of Student Advantage. As a result of the Merger, Mr. Sozzi
will acquire all of the assets of Student Advantage that remain after
consummation of the Asset Sale, which will include the Student Advantage
Membership Program and the remaining assets of the SA Cash business. Athena
Ventures believes that Student Advantage has good potential business prospects,
based upon publicly available information regarding Student Advantage and based
upon its knowledge of the Student Advantage membership business. Athena Ventures
will have greater operating flexibility to focus on its long-term value by
emphasizing growth and operating cash flow without the constraint of the public
market's emphasis on quarterly earnings. The transaction has been structured as
a merger of Acquisition Sub into Student Advantage in order to preserve Student
Advantage's identity, goodwill and existing contractual arrangements with third
parties. Athena Ventures chose to make the offer for Student Advantage stock now
because Student Advantage has not attracted, and Athena Ventures did not believe
that Student Advantage would be able to attract, any interest or following of
institutional investors and research analysts due to its failure to generate
sufficient growth in revenues and earnings.
The transaction has been structured as a merger in which each outstanding
share of common stock (other than shares held by Student Advantage as treasury
shares, shares held by stockholders who perfect their appraisal rights and
shares held by Athena Ventures or Acquisition Sub) will convert into the right
to receive a cash payment of $1.05 per share, in which Acquisition Sub will be
merged with and into Student Advantage. Mr. Sozzi is expected to contribute his
shares of Student Advantage common stock to Athena Ventures prior to the
consummation of the Merger. As a result, the shares currently held by Mr. Sozzi
will be cancelled in the Merger. Student Advantage will be the surviving
corporation in the Merger. The Merger has not been structured to require the
approval of at least a majority of Student Advantage's unaffiliated
stockholders. Student Advantage's purpose in submitting the Merger to the vote
of its stockholders with a favorable recommendation at this time is to allow the
stockholders an opportunity
43
to receive a cash payment at a fair price, to provide a prompt and orderly
transfer of ownership of Student Advantage to Athena Ventures and to provide the
unaffiliated stockholders with cash for all of their shares of its common stock.
ATHENA VENTURES' FINANCING OF THE MERGER
The Merger will be funded solely by Mr. Sozzi with his personal funds.
Total funds to be used in the Merger are estimated to be approximately $485,000.
Mr. Sozzi is expected to contribute his shares of Student Advantage common stock
to Athena Ventures prior to the closing of the Merger, in which case no merger
consideration will be paid in respect of such shares and they will be cancelled
at the effective time of the Merger.
EFFECTS OF THE MERGER
Upon consummation of the Merger, Student Advantage will be a privately held
corporation, wholly owned by Athena Ventures. The current unaffiliated
stockholders of Student Advantage will cease to have ownership interests in
Student Advantage or rights as Student Advantage stockholders and will not
benefit from any continuing operations or growth of Student Advantage, or any
transactions in which Student Advantage may be involved in the future. The
unaffiliated stockholders of Student Advantage will be entitled to receive $1.05
in cash for each share of common stock which they own. All outstanding and
unexercised options to purchase shares of common stock, whether or not then
vested, will, as of the effective time of the Merger, be cancelled and each
holder will be entitled to receive a cash payment, if any, in an amount equal to
the product of (1) the number of shares of common stock subject to such option,
and (2) the excess of $1.05 over the exercise price per share subject to such
option, for each cancelled option. Options with an exercise price equal to or
greater than $1.05 per share will be cancelled at the effective time of the
Merger without any payment or other consideration therefor. In addition, as of
the effective time of the Merger, each holder of an outstanding warrant to
purchase shares of common stock, will become entitled to receive a cash payment
upon exercise, if any, in an amount equal to the product of (1) the number of
shares of common stock subject to such warrant, and (2) the excess, if any, of
$1.05 over the exercise price per share subject to such warrant. Holders of
warrants with an exercise price equal to or greater than $1.05 per share will
not be entitled to receive any payment or other consideration therefor upon
exercise. As a result of the Merger, all shares of Acquisition Sub common stock
outstanding and held by Athena Ventures immediately prior to the effective time
of the Merger will become shares of common stock of Student Advantage as the
surviving corporation.
As a result of the Merger, Student Advantage will be a privately held
corporation, and there will be no public market for its common stock. After the
Merger, shares of Student Advantage's common stock will cease to be quoted on
the OTC Bulletin Board, and price quotations of shares of its common stock in
the public market will no longer be available. In addition, registration of its
common stock under the Exchange Act will be terminated. This termination will
make most provisions of the Exchange Act, such as the short-swing profit
recovery provisions of Section 16(b), the requirement of furnishing a proxy or
information statement in connection with stockholders' meetings and the new
corporate governance requirements under the Sarbanes-Oxley Act of 2002 no longer
applicable to Student Advantage. Accordingly, after the effective time of the
Merger, Student Advantage will no longer be required to file periodic reports
with the SEC.
At the effective time of the Merger:
- Raymond V. Sozzi, Jr. will be the sole director and officer of Student
Advantage as the surviving corporation;
- Student Advantage's certificate of incorporation will be amended and will
be the certificate of incorporation of the surviving corporation; and
- Acquisition Sub's bylaws, as in effect immediately prior to the effective
time of the Merger, will be the bylaws of Student Advantage as the
surviving corporation.
44
PLANS FOR STUDENT ADVANTAGE FOLLOWING THE MERGER
It is expected that, upon consummation of the Merger, the operations of
Student Advantage will be conducted substantially as they currently are being
conducted. Student Advantage will continue to own all of the assets and
liabilities of Student Advantage that remain after consummation of the Asset
Sale, which will include the Student Advantage Membership Program as well as the
remaining assets of the SA Cash business. Student Advantage and Athena Ventures
do not have any present plans or proposals that relate to or would result in an
extraordinary corporate transaction following completion of the Merger involving
Student Advantage's corporate structure, business or management, such as a
merger, reorganization, liquidation, relocation of any operations or sale or
transfer of a material amount of assets. However, Student Advantage as the
surviving corporation, will continue to evaluate Student Advantage's business
and operations after the Merger and may develop new plans and proposals that
Student Advantage considers to be in the best interests of Student Advantage and
its then current stockholders.
EXECUTIVE OFFICERS AND DIRECTORS OF THE SURVIVING CORPORATION
As a condition to the closing of the Merger, each of the current directors
of Student Advantage and its subsidiaries will resign from their positions.
Raymond V. Sozzi, Jr., the current sole officer and director of Acquisition
Sub, will be the sole officer and sole director of Student Advantage, as the
surviving corporation, immediately following the Merger. See "INFORMATION ABOUT
ATHENA VENTURES AND ACQUISITION SUB" below for more information about the
current officer and director of Acquisition Sub.
INTERESTS OF RAYMOND V. SOZZI, JR.; APPOINTMENT OF SPECIAL COMMITTEE; CERTAIN
RELATIONSHIPS
INTERESTS OF RAYMOND V. SOZZI, JR.
The following table sets forth Mr. Sozzi's interest in the net book value
and net loss of Student Advantage as of September 30, 2003, based upon the
percentage of his beneficial ownership of its common stock as of September 30,
2003:
<Table>
<Caption>
NAME OWNERSHIP PERCENTAGE NET BOOK VALUE(1) NET LOSS(2)
- ---- -------------------- ----------------- ------------
Raymond V. Sozzi, Jr.................. 14.1% $(632,000) $(511,000)
</Table>
- ---------------
(1) Based on Student Advantage's stockholders' deficit as of September 30, 2003
(unaudited).
(2) Based on Student Advantage's net income for the three quarters ended
September 30, 2003.
Following the consummation of the Merger, Mr. Sozzi will continue to be the
sole stockholder of Athena Ventures, which will be the sole stockholder of
Student Advantage, as the surviving corporation in the Merger. As a result, Mr.
Sozzi will be the indirect owner of Student Advantage.
Student Advantage has a deferred tax asset for federal and state net
operating loss carryforwards. However, the right of Student Advantage to use net
operating losses and certain other tax deductions or credits following the
Transactions will be subject to limitation in the manner set forth in Section
382 of the Internal Revenue Code, as amended (the "Code"), as a result of the
change in ownership of Student Advantage. These net operating losses, subject to
varying federal and state limitations, will be available to offset future
taxable income. To the extent Student Advantage is able to use the net operating
loss carryforwards after the Merger, Student Advantage's sole stockholder after
the merger, Athena Ventures, would indirectly benefit from the net operating
loss carryforwards.
Other than as disclosed in this section of the proxy statement, there are
no other interests arising from the ownership of Student Advantage's common
stock where Mr. Sozzi will receive any extra or special benefit not shared on a
pro rata basis by all other Student Advantage stockholders.
45
THE SPECIAL COMMITTEE
In considering the recommendation of the Board of Directors, Student
Advantage stockholders should be aware that Mr. Sozzi has interests different
from Student Advantage stockholders generally. As a result of this conflict of
interest, the Board of Directors appointed the Special Committee, consisting of
independent directors who are not officers or employees of Student Advantage and
who have no financial interest in the Merger different from Student Advantage
stockholders generally. The Special Committee was appointed to evaluate,
negotiate and, if appropriate, recommend the Merger Agreement and to evaluate
whether the Merger is in the best interests of Student Advantage stockholders.
The Special Committee was aware of the differing interests between Mr. Sozzi and
Student Advantage stockholders generally, and considered such differing
interests, among other matters, in evaluating and negotiating the Merger
Agreement and the Merger and in recommending to the Board of Directors that the
Merger Agreement and the Merger be adopted and approved.
The Board of Directors of Student Advantage approved the payment by Student
Advantage to each of Mr. Katzman and Mr. Young, in consideration of their
services as members of the Special Committee, a non-contingent fee of $35,000,
all of which was paid in early 2003. No additional consideration has been paid
to Mr. Young and no consideration has been paid to Mr. Connolly (who replaced
Mr. Katzman as a member of the Special Committee in December 2002) for services
as members of the Special Committee.
VOTING AGREEMENT WITH RAYMOND V. SOZZI, JR.
In connection with the Purchase and Sale Agreement, Raymond V. Sozzi, Jr.,
Student Advantage's Chairman of the Board, President, and Chief Executive
Officer, has entered into a voting agreement with NCSN in which he has agreed,
and will cause his affiliates that own any capital stock of Student Advantage,
to vote (i) in favor of the Asset Sale, and (ii) against any other sale or other
business combination between Student Advantage and any person or entity, or any
other action or agreement that would result in the breach of any covenant,
representation or warranty or any other obligation or agreement of Student
Advantage under the Purchase and Sale Agreement or which would result in any of
the conditions to Student Advantage's obligations under the Purchase and Sale
Agreement to not be fulfilled.
CERTAIN TRANSACTIONS
During the year ended December 31, 2002, Mr. Sozzi advanced an aggregate of
$1.1 million to Student Advantage, all of which was repaid during the year ended
December 31, 2002. There were no advances made by Mr. Sozzi for the year ended
December 31, 2003.
As discussed above under "BACKGROUND OF THE TRANSACTIONS," on September 30,
2002, Student Advantage announced that a Special Committee of its Board of
Directors, formed to consider strategic alternatives, was in discussions
regarding a proposal for the acquisition of Student Advantage made by a group of
stockholders, including Mr. Sozzi and Atlas. The proposal was subject to, among
other things, the receipt of sufficient financing and the negotiation of a
definitive agreement. Mr. Sozzi was unable to secure sufficient financing and
the proposal was abandoned.
On September 30, 2002, Student Advantage entered into a $3.5 million loan
agreement with Scholar, Inc., an entity formed by Mr. Sozzi and certain other
Student Advantage stockholders, including Pentagram, which is an affiliate of
Atlas, Greylock, of which William S. Kaiser, a member of Student Advantage's
Board of Directors is a general partner, and G. Todd Eichler, a former executive
officer of Student Advantage. The loan, which has the same terms as Student
Advantage's loan agreement with Reservoir, has an interest rate of 10% per annum
and a maturity date of January 31, 2005. As of September 30, 2003, the
outstanding principal and interest outstanding under the Scholar loan was $2.5
million. Mr. Sozzi's, Pentagram's, Greylock's and Mr. Eichler's ownership
interests in Scholar are 25%, 50%, 18.75% and 6.25%, respectively. The ownership
interests of Mr. Sozzi, Greylock, Pentagram and Atlas in Student Advantage are
set forth under "BENEFICIAL OWNERSHIP OF VOTING STOCK" below. Mr. Eichler owns
less than 5% of Student Advantage's outstanding common stock.
46
In December 2002, John S. Katzman, a former member of Student Advantage's
Board of Directors, provided a guarantee of Student Advantage's obligations
under the loan agreement with Reservoir in exchange for a guarantee fee of
$1,000,000 to be paid upon repayment of the Reservoir loan. Mr. Katzman resigned
from Student Advantage's Board of Directors at the time the guarantee was
provided. Mr. Katzman has agreed to accept, subject to the close of the
Transactions, $550,000 in cash as full payment of the amount outstanding to him.
On May 6, 2002, Student Advantage issued an aggregate of 36,000 shares of
common stock to three investors, including Marc J. Turtletaub, a member of its
Board of Directors and Compensation Committee, and Pentagram which now holds
approximately 7.3% of Student Advantage's common stock an is an affiliate of
Atlas, which holds approximately 7.6% of Student Advantage's common stock, for
an aggregate purchase price of $2.7 million. Student Advantage also granted
these investors the right, exercisable at any time prior to November 1, 2002, to
purchase in the aggregate an additional 4,500 shares of common stock for a
purchase price of $75.00 per share and an additional 4,500 shares of common
stock with a purchase price of $100.00 per share. On November 1, 2002, the right
to purchase additional shares expired unexercised. Mr. Turtletaub and Pentagram
purchased 13,333 shares and 22,670 shares, respectively, on May 6, 2002 and had
the right until November 1, 2002 to purchase an additional 1,666 shares and
2,833 shares, respectively, for $75.00 a share and 1,666 shares and 2,833
shares, respectively, for $100.00 per share.
MERGER CONSIDERATION TO BE RECEIVED BY RAYMOND V. SOZZI, JR., ATHENA VENTURES
AND ACQUISITION SUB
All shares of common stock held by Athena Ventures or Acquisition Sub will
be cancelled and will not be converted into the right to receive the $1.05 per
share merger consideration. Mr. Sozzi is expected to contribute his shares of
Student Advantage common stock to Athena Ventures prior to the closing of the
Merger. Thus, Athena Ventures, Acquisition Sub and Mr. Sozzi (if he contributes
his shares to Athena Ventures) will not receive any merger consideration in
connection with the Merger.
MERGER CONSIDERATION TO BE RECEIVED BY DIRECTORS AND EXECUTIVE OFFICERS OF
STUDENT ADVANTAGE OTHER THAN RAYMOND V. SOZZI, JR.
The directors and executive officers of Student Advantage other than Mr.
Sozzi who are also stockholders will be entitled to receive $1.05 per share of
common stock held by them upon completion of the Merger. None of the options or
warrants held by the executive officers and directors have an exercise price in
excess of $1.05, so no consideration will be payable in respect of such options
and warrants. As of December 15, 2003, the following executive officers and
directors of Student Advantage will be entitled to receive the following amounts
in the Merger for their shares of common stock:
<Table>
<Caption>
AGGREGATE MERGER
NAME NUMBER OF SHARES CONSIDERATION
- ---- ---------------- ----------------
Sevim M. Perry........................................ -- --
Heather Lourie........................................ 357 $ 375
John M. Connolly...................................... -- --
William S. Kaiser(1).................................. 42,500 $44,625
Marc J. Turtletaub.................................... 43,333 $45,450
Charles E. Young...................................... -- --
</Table>
- ---------------
(1) Mr. Kaiser may be deemed to beneficially own shares held by Greylock, of
which he is a general partner. See "BENEFICIAL OWNERSHIP OF VOTING STOCK"
below.
PURPOSE OF THE ASSET SALE
For Student Advantage, the purpose of the Asset Sale is to allow Student
Advantage to realize the value of the assets related to its OCSN business and
use the consideration received in the sale to satisfy the obligations to its
lenders. The consideration to be received by Student Advantage from OCSN in the
Asset Sale represents the results of an arms length negotiations and the highest
price NCSN indicated it was willing to pay for the OCSN assets.
47
The transaction has been structured as an acquisition of the OCSN Business
for cash, the Note and a warrant to purchase NCSN stock in order to maximize
total value based on NCSN's unwillingness to pay more in cash and Student
Advantage's lenders being willing to accept the Note and warrant in lieu of cash
in settlement of its debt obligations. The Asset Sale has not been structured to
require the approval of at least a majority of Student Advantage's unaffiliated
stockholders.
EFFECTS OF THE ASSET SALE
Under Section 271 of the Delaware General Corporation Law, the sale by
Student Advantage of "all, or substantially all" of its assets requires approval
by the affirmative vote of the holders of a majority of the outstanding shares
of common stock on the record date. Student Advantage believes that the sale of
the OCSN Business to NCSN requires such stockholder approval because the Asset
Sale constitutes the sale of "all, or substantially all" of the assets of
Student Advantage. As a result, approval of Student Advantage's stockholders has
been included as a condition to the obligation of the parties to the Purchase
and Sale Agreement to consummate the transactions contemplated by the agreement.
Accordingly, the Asset Sale is being submitted to stockholders for approval,
together with the Merger.
If the stockholders approve the Transactions, and the Asset Sale is
completed, the consideration received by Student Advantage at closing will be
used by Student Advantage to pay all amounts outstanding to Reservoir under its
existing loan agreements and related amendments with Reservoir, and all amounts
due to Scholar and John S. Katzman in connection with the Reservoir loan
agreement. Mr. Sozzi and certain other stockholder of Student Advantage,
including Greylock, of which Mr. Kaiser, a member of Student Advantage's Board
of Directors is a general partner, are the stockholders of Scholar. Repayment of
this indebtedness will allow Student Advantage, as the surviving corporation in
the Merger, to avoid the limitations imposed on its business by this
indebtedness and the terms of the loan agreement.
The current unaffiliated stockholders of Student Advantage will continue to
have the ownership interests in Student Advantage and rights as Student
Advantage stockholders and will not receive any consideration as a result of the
Asset Sale.
It is expected that, upon consummation of the Asset Sale, the remaining
operations of Student Advantage will be conducted substantially as they
currently are being conducted. Student Advantage does not have any plans or
proposals that relate to or would result in an extraordinary corporate
transaction following completion of the Asset Sale involving Student Advantage's
corporate structure, business or management, such as a merger, reorganization,
liquidation, relocation of any operations or sale or transfer of a material
amount of assets, other than the closing of the Merger promptly following the
Asset Sale. However, Student Advantage as the surviving corporation, will
continue to evaluate Student Advantage's business and operations after the
closing of the Transactions and may develop new plans and proposals that Student
Advantage considers to be in the best interests of Student Advantage and its
then current stockholders.
USE OF PROCEEDS OF THE ASSET SALE
As of September 30, 2003, Student Advantage had $8.0 million of total
indebtedness, consisting of $5.5 million in principal borrowings and interest
under the Reservoir credit facility and $2.5 million in principal borrowings and
interest under the Scholar loan, respectively. The amount outstanding under the
Reservoir credit facility includes a guarantee fee of $1.0 million owed to John
S. Katzman, a former member of Student Advantage's Board of Directors who
provided a guarantee of its obligations to Reservoir in exchange for such fee.
The debt obligations to Reservoir, Scholar and Mr. Katzman have a maturity date
of January 31, 2005. Reservoir, Scholar and Mr. Katzman have agreed, subject to
the closing of the proposed Transactions, to accept $4.25 million in the form of
the non-cash consideration to be paid by NCSN (the Note and the warrant to
purchase NCSN common stock), $2.25 million and $550,000, respectively, in cash
as full payment of all amounts outstanding to them. As noted above, Mr. Sozzi
and other stockholders of Student Advantage are the stockholders of Scholar. In
the event the proposed Transactions are not consummated, the terms of the
Reservoir loan agreement, Scholar loan and Mr. Katzman's guarantee fee would
remain unchanged.
48
THE MERGER AGREEMENT
The following description of the Merger Agreement describes the material
terms of the Merger Agreement. A complete copy of the Merger Agreement appears
as APPENDIX A to this proxy statement and is incorporated into this proxy
statement by reference. You are urged to read the entire Merger Agreement
carefully.
THE MERGER
The Merger Agreement provides that, subject to the conditions summarized
below, Acquisition Sub will merge with and into Student Advantage. Upon
consummation of the Merger, Acquisition Sub will cease to exist and Student
Advantage will continue as the surviving corporation and wholly owned subsidiary
of Athena Ventures.
EFFECTIVE TIME OF MERGER
The Merger will become effective upon the filing of a certificate of merger
with the Secretary of State of the State of Delaware in accordance with the
Delaware General Corporation Law or at such later time as is specified in the
certificate of merger. This time is referred to as the "effective time." Student
Advantage and Acquisition Sub have agreed to file the certificate of merger no
later than two business days following satisfaction or waiver of the conditions
to closing of the Merger set forth in the Merger Agreement.
CERTIFICATE OF INCORPORATION, BYLAWS AND DIRECTORS AND OFFICERS OF STUDENT
ADVANTAGE AS THE SURVIVING CORPORATION
When the Merger is completed:
- the certificate of incorporation of Student Advantage as in effect
immediately prior to the effective time will be the certificate of
incorporation of Student Advantage as the surviving corporation, such
certificate having been amended to reduce, among other things, the number
of authorized shares of common stock to 3,000;
- the by-laws of Acquisition Sub as in effect immediately prior to the
effective time will be the by-laws of Student Advantage as the surviving
corporation;
- Raymond V. Sozzi, Jr., the sole director of Acquisition Sub immediately
prior to the effective time, will be the initial director of Student
Advantage as the surviving corporation; and
- Raymond V. Sozzi, Jr., the sole officer of Acquisition Sub immediately
prior to the effective time, will be the initial officer of Student
Advantage as the surviving corporation.
CONVERSION OF COMMON STOCK
At the effective time, each outstanding share of Student Advantage common
stock will automatically be converted into and represent the right to receive
$1.05 in cash, without interest, except for:
- shares of common stock held by Student Advantage in treasury and shares
of common stock held by Athena Ventures or Acquisition Sub (including the
shares expected to be contributed by Mr. Sozzi immediately prior to the
consummation of the Merger), all of which will be cancelled without any
payment therefor; and
- shares held by stockholders seeking appraisal rights in accordance with
Delaware law.
At the effective time, since the certificate of incorporation of Student
Advantage as in effect immediately prior to the effective time will be the
certificate of incorporation of Student Advantage as the surviving corporation,
and will have been amended to reduce the number of authorized shares of common
stock to 3,000, Athena Ventures will then hold all outstanding shares of common
stock of Student Advantage as the surviving corporation.
49
PAYMENT FOR SHARES
As of the effective time of the Merger, Athena Ventures will deposit with
the exchange agent designated by Athena Ventures (and approved by Student
Advantage) sufficient funds to pay the merger consideration. As soon as
reasonably practicable after the effective time of the Merger, the exchange
agent will mail to each record holder of shares of common stock immediately
prior to the effective time a letter of transmittal and instructions to effect
the surrender of their certificate(s) in exchange for payment of the merger
consideration.
STOCKHOLDERS OF STUDENT ADVANTAGE SHOULD NOT FORWARD STOCK CERTIFICATES TO THE
EXCHANGE AGENT UNTIL THEY HAVE RECEIVED THE LETTER OF TRANSMITTAL.
Each of Student Advantage's stockholders will be entitled to receive $1.05
per share only upon surrender to the exchange agent of a stock certificate,
together with a letter of transmittal, properly completed in accordance with the
instructions provided in the letter of transmittal. If a stock certificate has
been lost, stolen or destroyed, the holder of such certificate is required to
make an affidavit of that fact. In addition, Student Advantage, as the surviving
corporation, may require that such stockholder provide a bond in such reasonable
amount as Student Advantage may determine as indemnity against any claim that
may be made against Student Advantage with respect to such lost stock
certificate before any payment of the merger consideration will be made to such
holder. If payment of the merger consideration is to be made to a person whose
name is other than that of the person in whose name the stock certificate is
registered, it will be a condition of payment that (1) the surrendered stock
certificate be properly endorsed or otherwise in proper form for transfer and
(2) the person requesting such exchange pay any transfer or other taxes that may
be required to the satisfaction of the exchange agent. No interest will accrue
or be paid to any stockholders on any merger consideration.
Beginning 180 days after the effective time of the Merger, Athena Ventures
will be entitled to require the exchange agent to deliver to it all cash and
documents in its possession, which have been deposited with the exchange agent
and which have not been disbursed to stockholders. Thereafter, holders of
certificates representing shares of Student Advantage common stock outstanding
before the effective time will surrender their certificates to Athena Ventures
and will be entitled to look only to Athena Ventures and only as general
unsecured creditors for payment of any claims for merger consideration to which
they may be entitled. None of Athena Ventures, Student Advantage, as the
surviving corporation, or the exchange agent will be liable to any person in
respect of any merger consideration delivered to a public official pursuant to
any applicable abandoned property, escheat or similar law.
TRANSFER OF SHARES
At the effective time, the stock transfer books of Student Advantage will
be closed and there will be no further transfers on the records of Student
Advantage as the surviving corporation, or by its transfer agent of certificates
representing shares of common stock outstanding before the effective time. Any
stock certificates presented to Student Advantage for transfer will be
cancelled. From and after the effective time, the holders of stock certificates
representing shares of Student Advantage's common stock before the effective
time will cease to have any rights with respect to these shares except as
otherwise provided for in the Merger Agreement or by applicable law. All merger
consideration paid upon the surrender for exchange of those stock certificates
in accordance with the terms of the Merger Agreement will be deemed to have been
issued and paid in full satisfaction of all rights pertaining to the stock
certificates.
TREATMENT OF STOCK OPTIONS AND WARRANTS
Each outstanding stock option, whether or not then vested or exercisable,
will, as of the effective time of the Merger, be cancelled and converted, at the
effective time, into the right to receive in cash from Student Advantage an
amount, if any, equal to the product of (1) the number of shares of Student
Advantage's common stock subject to such options, whether or not then
exercisable, and (2) the excess, if any, of $1.05 over the exercise price per
share subject or related to such option.
50
As of the effective time of the Merger, each holder of an outstanding
warrant to purchase common stock, will, upon exercise of such warrant after the
effective time of the merger, become entitled to receive in cash from Student
Advantage an amount, if any, equal to the product of (1) the number of shares of
Student Advantage's common stock subject to such warrant, and (2) the excess, of
$1.05 over the exercise price per share subject or related to such warrant.
STUDENT ADVANTAGE SPECIAL MEETING
Student Advantage has agreed with Athena Ventures and Acquisition Sub to
provide due notice of and convene as promptly as practicable a special meeting
of its stockholders for the purpose of voting upon the approval of the Merger
Agreement and the Merger (and the transactions contemplated by the Merger
Agreement and the Merger). Student Advantage (through the Student Advantage
Board of Directors) has agreed to recommend to Student Advantage stockholders
the approval of the Merger Agreement and the Merger; and use its best efforts to
solicit the vote of the holders of a majority of Student Advantage's outstanding
common stock in favor of approval of the Merger Agreement (including, if
necessary, adjourning or postponing and subsequently reconvening, the special
meeting for the purpose of obtaining such votes). However, Student Advantage's
Board of Directors may, with respect to a third party proposal, withdraw, modify
or change its recommendation if failure to take such action would be contrary to
their fiduciary obligations as board members under applicable law.
INDEMNIFICATION AND INSURANCE
The Merger Agreement provides that all rights to indemnification set forth
in Student Advantage's certificate of incorporation, bylaws or indemnification
agreements existing as of the date of the Merger Agreement in favor of the
directors and officers of Student Advantage, with respect to their activities as
such at or prior to the effective time of the Merger, will continue in full
force and effect for at least six years after the effective time of the Merger.
In addition, to the extent not provided by an existing right of indemnification
or other agreement or policy, following the completion of the Merger, Student
Advantage as the surviving corporation is required to indemnify, defend and hold
harmless all current and former officers and directors of Student Advantage from
(1) all liabilities, costs, expenses and claims arising out of the fact that
such person is or was a director or officer arising out of or pertaining to
matters existing or occurring at or prior to the effective time of the Merger
whether asserted at or prior to or after the effective time of the Merger and
(2) all liabilities arising out of or pertaining to the Merger Agreement, or the
transactions contemplated thereby. Student Advantage as the surviving
corporation is also required to use its reasonable best efforts to (i) maintain
for a period of one year directors' and officers' liability insurance policies
with coverage in a maximum amount of $5,000,000 with respect to acts or
omissions prior to the effective time which were committed by such officers and
directors in connection their capacity as such and (ii) maintain any existing
directors and officers liability insurance policies of Student Advantage until
their expiration on June 30, 2004.
REPRESENTATIONS AND WARRANTIES
Representations and Warranties of Student Advantage. The Merger Agreement
contains various customary representations and warranties (which will not
survive completion of the Merger) made by Student Advantage to Athena Ventures
and Acquisition Sub, subject to identified exceptions, qualifications and
limitations, relating to, among other things:
- Student Advantage's and its subsidiaries' due organization, valid
existence, good standing and requisite corporate power and authority to
own, lease and operate its assets and properties and to carry on its
business as it is now being conducted;
- the capitalization of Student Advantage;
- the authorization, execution, delivery and enforceability of the Merger
Agreement;
51
- the absence of any conflicts between the Merger Agreement and Student
Advantage's certificate of incorporation and bylaws, charter or bylaws of
any Student Advantage subsidiary, any applicable laws and material
contracts and agreements;
- the absence of consents, approvals, authorizations or permits of
governmental authorities, except those specified in the Merger Agreement,
required for Student Advantage to complete the Merger;
- compliance with applicable federal, state, local, or foreign statutes,
orders, judgments, decrees, laws, rules, regulations or ordinances;
- the adequacy and accuracy of filings made by Student Advantage with the
SEC since January 1, 2000;
- the conduct of Student Advantage's business in the ordinary course and
the absence of material changes in Student Advantage's business,
capitalization or accounting practices since September 30, 2003;
- the absence of any action, claim, suit, investigation or proceeding
actually pending or threatened against Student Advantage or its
subsidiaries that if adversely determined, would, individually or in the
aggregate, be reasonably expected to have a material adverse effect on
Student Advantage's business or results of operations, except for those
disclosed in Student Advantage's reports filed with the SEC;
- the accuracy of information concerning Student Advantage in this proxy
statement;
- the filing of tax returns, payment of taxes and other tax matters;
- certain matters relating to employee benefit plans and certain labor
matters;
- compliance with laws related to environmental matters;
- the stockholder voting requirements to approve the Merger;
- the inapplicability of Delaware anti-takeover laws to the Merger and the
Merger Agreement;
- the right to use, and absence of infringement of, material intellectual
property of Student Advantage;
- title to all property and assets used in the conduct of Student Advantage
and its subsidiaries;
- certain matters relating to material contracts, agreements and
commitments of Student Advantage;
- the absence of undisclosed brokers', finders' or other fees or
commissions fees; and
- the receipt by the Special Committee of Student Advantage's Board of
Directors of the fairness opinion of Luminary Capital.
Representations and Warranties of Athena Ventures and Acquisition Sub. The
Merger Agreement contains various customary representations and warranties
(which will not survive completion of the Merger) made by Athena Ventures and
Acquisition Sub to Student Advantage, subject to identified exceptions,
qualifications and limitations, relating to, among other things:
- the due organization, valid existence, good standing and requisite
corporate power and authority of Athena Ventures and Acquisition Sub to
own, lease and operate its assets and properties and to carry on its
business as it is now being conducted;
- the capitalization of Athena Ventures and Acquisition Sub;
- the authorization, execution, delivery and enforceability of the Merger
Agreement;
- the absence of any conflicts between the Merger Agreement on the one hand
and Athena Ventures' and Acquisition Sub's certificate of incorporation
or bylaws, any applicable law or material contracts or agreements;
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- the absence of consents, approvals, authorization or permits of
governmental authorities, except those specified in the Merger Agreement,
required for Athena Ventures and Acquisition Sub to complete the Merger;
- compliance with applicable federal, state, local, or foreign statutes,
orders, judgments, decrees, laws, rules, regulations or ordinances; and
- the accuracy of information concerning information provided by Athena
Ventures and Acquisition Sub in connection with this proxy statement.
CONDUCT OF BUSINESS PENDING THE MERGER
The Merger Agreement imposes various restrictions on Student Advantage's
conduct and operations until the Merger is completed. Student Advantage has
agreed that, prior to the effective time of the Merger, Student Advantage and
each of its subsidiaries will operate their respective businesses in the
ordinary course consistent with past practices, use commercially reasonable
efforts to preserve intact their present business organization and goodwill,
preserve their relationships with their respective customers and suppliers and
others having business dealings with them, keep available the services of its
officers and employees, and maintain and keep material properties and assets in
as good repair and condition as at present, ordinary wear and tear excepted.
Student Advantage has also agreed, subject to identified exceptions, that it
will not and will not permit any of its subsidiaries to do, among other things,
any of the following, without the prior written consent of Athena Ventures,
which consent shall not be unreasonably withheld:
- declare or pay any dividend or make other distributions in respect of, or
split, combine or reclassify, or redeem, repurchase or otherwise acquire,
any shares of Student Advantage's or any of its subsidiaries' capital
stock;
- issue, agree to issue, deliver, sell, pledge, dispose of or otherwise
encumber any shares of Student Advantage's or any of its subsidiaries'
capital stock of any class or any securities convertible into or
exchangeable for, or any rights, warrants or options to acquire, any such
shares or convertible or exchangeable securities;
- amend its certificate of incorporation or bylaws or similar governing
documents;
- acquire or agree to acquire, by merging or consolidating with, by
purchasing a substantial equity interest in or a substantial portion of
the assets of, or by any other manner, any business or any corporation or
other business organization, or otherwise acquire or agree to acquire any
material amount of assets other than in the ordinary course of business;
- sell, lease or otherwise dispose of any assets, other than the Asset Sale
and in the ordinary course of business consistent with past practice;
- enter into, adopt, amend or increase or accelerate the amount payable
under any employee benefit plan, or otherwise increase the compensation
or benefits of any director, officer or other employee, except for normal
increases for non-officer employees in the ordinary course of business
consistent with past practice that, in the aggregate, do not result in a
material increase in benefits or compensation expense;
- enter into or amend any employment, severance or special pay arrangement
with respect to the termination of employment of any director or officer;
- except as required by law, rule, regulation or GAAP, make any change in
its accounting methods;
- take any action that would or is reasonably likely to result in a
material breach of any provision of the Merger Agreement or in any of its
representations and warranties set forth in the Merger Agreement being
untrue on the closing date of the Merger;
- pay, discharge or satisfy any material claims, liabilities or
obligations;
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- enter into, modify, amend or terminate, any material contract or
agreement, except in the ordinary course of business consistent with past
practice;
- incur any indebtedness for borrowed money, other than any indebtedness
existing on the date of the Merger Agreement, or guarantee any such
indebtedness for any other person; and
- make or rescind any tax election, settle or compromise any tax liability
or amend any tax return.
SOLICITATION
Athena Ventures and Acquisition Sub agreed that during the 30 day period
that commenced on November 18, 2003, Student Advantage, its subsidiaries, the
Special Committee of Student Advantage's Board of Directors and their respective
officers, directors, employees, accountants, counsel, investment bankers,
financial advisors and other representatives are, if approached with an
unsolicited inquiry (whether such inquiry is bona fide or reasonably likely to
lead to a takeover proposal (as defined below)), obligated to enter into and
maintain or continue discussions or negotiations with any person or group in
furtherance of such unsolicited inquiry, but only pursuant to appropriate
confidentiality and standstill agreements with any such third parties
prohibiting the purchase by such third parties of common stock for a six-month
period. During the 30 day period that commenced on November 18, 2003 and as of
the date of this proxy, no unsolicited inquiries have been made by any third
parties. See "SPECIAL FACTORS -- BACKGROUND OF THE TRANSACTIONS" above.
Student Advantage has agreed that following the 30 day period described
above until the earlier of the effective time of the Merger or the termination
of the Merger Agreement, it will not, and it will cause its subsidiaries not to
authorize or permit its respective officers, directors, employees, accountants,
counsel, investment bankers, financial advisors and other representatives
directly or indirectly to:
- solicit, initiate, encourage, induce or facilitate the making, submission
or announcement of any takeover proposal;
- furnish any information regarding Student Advantage or any of its
subsidiaries to any person in connection with or in response to a
takeover proposal;
- engage in negotiations or discussions with any person with respect to a
takeover proposal;
- approve, endorse or recommend any takeover proposal; or
- enter into any letter of intent or similar document or any contract
contemplating an acquisition of Student Advantage.
The Merger Agreement provides, however, that Student Advantage, the Board
of Directors and the Special Committee of the Board of Directors are not
prohibited from (1) complying with the rules of the Exchange Act, or making any
public announcement, disclosure, or filing required pursuant to the rules of any
national securities exchange or U.S. inter-dealer quotation system, (2)
maintaining or continuing discussions or negotiations with any person who
submitted a takeover proposal within the thirty day period following the date of
the Merger Agreement, or (3) from furnishing information regarding Student
Advantage or any of its subsidiaries to, or entering into discussions with, any
person in response to a takeover proposal that is submitted by such person (and
not withdrawn) if:
- neither Student Advantage nor any officers, directors, employees,
accountants, counsel, investment bankers, financial advisors and other
representatives of Student Advantage or any of its subsidiaries have
violated any non-solicitation restrictions contained in the Merger
Agreement;
- a majority of Student Advantage's Board of Directors or the Special
Committee of the Board of Directors concludes in good faith that the
failure to take action, furnish information or enter into discussions
regarding a takeover proposal would be inconsistent with its fiduciary
obligations;
- a majority of Student Advantage's Board of Directors or the Special
Committee of the Board of Directors determines in good faith that taking
such action would be reasonably likely to lead to delivery of a superior
offer (as defined below);
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- prior to furnishing any such information to, or entering into discussions
with, such person, Student Advantage gives Athena Ventures and
Acquisition Sub written notice of the identity of such person (to the
extent it can do so without breaching its fiduciary duties or violating
the takeover proposal) and Student Advantage receives from such person a
confidentiality agreement containing customary terms and conditions; and
- Student Advantage furnishes any nonpublic information to Athena Ventures
at or prior to the time delivered to any person.
As used in the Merger Agreement the term "takeover proposal" means any
offer, proposal, letter of intent, inquiry or expression or indication of
interest contemplating or otherwise relating to any "acquisition transaction."
As used in the Merger Agreement an "acquisition transaction" means any
transaction or series of transactions involving:
- any merger, consolidation, share exchange, business combination, issuance
of securities, direct or indirect acquisition of securities, tender
offer, exchange offer or other similar transaction in which (1) Student
Advantage or any of its subsidiaries is a constituent corporation, (2) a
person or "Group" (as defined in the Exchange Act and the rules
promulgated thereunder) of persons directly or indirectly acquires
beneficial or record ownership of securities representing more than 10%
of the outstanding securities of any class of voting securities of
Student Advantage or any of its subsidiaries, or (3) Student Advantage or
any of its subsidiaries issues securities representing more than 10% of
the outstanding securities of any class of voting securities of Student
Advantage or any of its subsidiaries;
- any direct or indirect sale, lease, exchange, transfer, license,
acquisition or disposition of any business or businesses or of assets or
rights that constitute or account for 10% or more of the consolidated net
revenues, net income or assets of Student Advantage or any of its
subsidiaries; or
- any liquidation or dissolution of Student Advantage or any of its
subsidiaries.
As used in the Merger Agreement the term "superior offer" means a bona fide
written offer made by a third party for a merger, consolidation, business
combination, sale of substantial assets, sale of shares of capital stock
(including by way of a tender offer) or similar transaction with respect to
Student Advantage or any of its subsidiaries on terms that the Board of
Directors of Student Advantage or the Special Committee of the Board of
Directors determines, in good faith (after consultation with outside legal
counsel and a nationally recognized independent financial advisor), if accepted,
is reasonably likely to be consummated, taking into account all legal, financial
and regulatory aspects of the offer and the person making the offer, and would,
if consummated, be more favorable to Student Advantage's stockholders, from a
financial point of view, than the transactions contemplated by the Merger
Agreement. However, any such offer will not be deemed to be a "superior offer"
if (1) any financing required to consummate the transaction contemplated by such
offer is not committed or is not, in the good faith judgment of Student
Advantage, reasonably capable of being obtained by such third party on a timely
basis or (2) Athena Ventures and Acquisition Sub have, within two business days
after receipt of written notice from Student Advantage of such bona fide
superior offer, submitted an alternative takeover proposal which the Board of
Directors of Student Advantage or the Special Committee of the Board of
Directors determines, in good faith (after consultation with outside legal
counsel and a nationally recognized independent financial advisor), if accepted,
is more favorable to Student Advantage's stockholders, from a financial point of
view, than such proposed superior offer.
Student Advantage has agreed to advise Athena Ventures and Acquisition Sub
promptly (and in no event later than 24 hours) after receipt of any takeover
proposal or any request for nonpublic information related to Student Advantage
or any of its subsidiaries (including, to the extent it may do so without
breaching its fiduciary duties and without violating any of the conditions of
the takeover proposal, the identity of the person making or submitting such
takeover proposal, and the terms thereof to the extent then known) that is made
or submitted by any person prior to the closing of the Merger. Student
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Advantage has agreed to keep Athena Ventures and Acquisition Sub fully informed
with respect to the status of any such takeover proposal, and any modification
or proposed modification thereto. Student Advantage has agreed simultaneously to
provide to Athena Ventures and Acquisition Sub any nonpublic information
concerning Student Advantage provided to any person in connection with any
takeover proposal, which was not previously provided to Athena Ventures and
Acquisition Sub.
The recommendations of the Board of Directors of Student Advantage or the
Special Committee of the Board of Directors may be withheld, withdrawn or
modified in a manner adverse to Athena Ventures and Acquisition Sub if:
- the Board of Directors of Student Advantage or the Special Committee
determines in good faith, after consultation with Student Advantage's
outside legal counsel, that the failure to withdraw or modify such
recommendations would be inconsistent with its fiduciary obligations;
- Student Advantage shall have released Athena Ventures and Acquisition Sub
from the provisions of any standstill or similar agreement restricting
Athena Ventures and Acquisition Sub from acquiring securities of Student
Advantage; and
- neither Student Advantage nor any of its officers, directors, employees,
accountants, counsel, investment bankers, financial advisors and other
representatives shall have violated any of the non-solicitation
restrictions of the Merger Agreement.
ACCESS TO INFORMATION
Student Advantage has agreed that between the date of the Merger Agreement
and the effective time of the Merger it will, and will cause its subsidiaries
to, afford to Athena Ventures' officers, employees, counsel, accountants and
other representatives reasonable access, during normal business hours, to all of
its properties, books, contracts, commitments, personnel and records. Student
Advantage has further agreed that during such period it will promptly furnish to
Athena Ventures (a) a copy of each report, schedule, registration statement and
other document filed or received by it pursuant to the requirements of federal
or state securities laws or filed with the SEC, and (b) all other information
concerning its business, properties, assets and personnel as Athena Ventures may
reasonably request.
CONDITIONS TO THE MERGER
Conditions to Each Party's Obligation. The obligations of Student
Advantage, Athena Ventures and Acquisition Sub to complete the Merger are
subject to the satisfaction or waiver on or prior to the effective time of
certain conditions, including the following:
- the absence of any law, order or injunction that prohibits the completion
of the Merger;
- the parties to the Merger Agreement have obtained all authorizations,
consents, orders or approvals of, or declarations or filings with, or
expirations of waiting periods imposed by, any governmental entity needed
in connection with the Merger and the other transactions contemplated by
the Merger Agreement; and
- the Merger and the Merger Agreement shall have been adopted and approved
by the holders of a majority of the outstanding shares of common stock.
Conditions to Athena Ventures and Acquisition Sub's Obligation. The
obligations of Athena Ventures and Acquisition Sub to complete the Merger are
subject to the satisfaction, or waiver by Athena Ventures and Acquisition Sub,
on or prior to the effective time of certain conditions, including the
following:
- Student Advantage shall have performed in all material respects its
agreements and covenants contained in or contemplated by the Merger
Agreement required to be performed at or prior to the effective time of
the Merger;
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- the representations and warranties made by Student Advantage in the
Merger Agreement must be true and correct in all material respects as of
the date of the Merger Agreement and as of the closing date of the
Merger;
- no action or proceeding by any governmental entity has been instituted or
is pending (1) seeking to restrain, prohibit or otherwise interfere with
the ownership or operation by Athena Ventures or any of its subsidiaries
of all or any portion of the business of Student Advantage or any of its
subsidiaries, or of Athena Ventures or any of its subsidiaries or to
compel Athena Ventures or any of its subsidiaries to dispose of or hold
separate all or any portion of the business or assets of Student
Advantage or any of its subsidiaries or of Athena Ventures or any of its
subsidiaries, (2) seeking to impose or confirm limitations on the ability
of Athena Ventures or any of its subsidiaries effectively to exercise
full rights of ownership of Student Advantage common stock (or shares of
stock of Student Advantage as the surviving corporation) including the
right to vote any such shares on any matters properly presented to
stockholders or (3) seeking to require divestiture by Athena Ventures or
any of its subsidiaries of any such shares;
- Athena Ventures shall have received the resignations of each director of
Student Advantage and its subsidiaries;
- the Asset Sale shall have been consummated;
- Student Advantage shall have completed the settlement of its pending
litigation with the trustee of the CollegeClub bankruptcy estate;
- Student Advantage shall have satisfied its obligations to Reservoir,
Scholar and Mr. Katzman and terminated the Reservoir loan agreement;
- holders of not more than 5% of the outstanding shares of common stock
shall have exercised their right to appraisal under the Delaware General
Corporation Law;
- no event has occurred that could reasonably be expected to have a
material adverse effect on Student Advantage; and
- Student Advantage shall have received and furnished to Athena Ventures
and Acquisition Sub all material approvals and consents from third
parties and governmental entities necessary or required to complete the
transactions contemplated by the Merger Agreement.
Conditions to Student Advantage's Obligation. The obligation of Student
Advantage to effect the Merger is subject to the satisfaction, or waiver by
Student Advantage, on or prior to the effective time, of certain conditions,
including the following:
- Athena Ventures and Acquisition Sub will have performed in all material
respects their agreements and covenants contained in or contemplated by
the Merger Agreement required to be performed at or prior to the
effective time of the Merger; and
- the representations and warranties made by Athena Ventures and
Acquisition Sub in the Merger Agreement must be true and correct in all
material respects as of the date of the Merger Agreement and as of the
closing date of the Merger.
WAIVER
At any time prior to the effective time of the Merger, any party to the
Merger Agreement may, with respect to any other party:
- extend the time for the performance of any of the obligations or other
acts;
- waive any inaccuracies in the representations and warranties contained in
the Merger Agreement or in any document delivered pursuant to the Merger
Agreement; or
- waive compliance with any of the agreements or conditions contained in
the Merger Agreement. Any such waiver by Student Advantage is subject to
the approval of the Special Committee.
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TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated before the effective time of the
Merger, whether before or after the stockholders of Student Advantage have
approved and adopted the Transactions:
- if the parties agree by mutual written consent;
- by either Student Advantage or Athena Ventures, if the Merger is not
completed on or before April 30, 2004;
- by either Student Advantage or Athena Ventures if the Transactions have
not been approved by the requisite vote of the holders of the outstanding
shares of common stock;
- by either Student Advantage or Athena Ventures if a court of competent
jurisdiction or other governmental authority has issued a final and
non-appealable order, decree or ruling or taken any other action, in each
case having the effect of permanently restraining, enjoining, or
otherwise prohibiting the Merger;
- by Athena Ventures, if a triggering event (as defined below) has
occurred;
- by Athena Ventures, if Student Advantage has breached or failed to
perform in any respect any of its representations, warranties or
covenants required to be performed by it under the Merger Agreement, and
such breach or failure is not cured within a 10-day period following
notice of the breach or failure from Athena Ventures and Acquisition Sub;
- by Student Advantage, if Athena Ventures or Acquisition Sub has breached
or failed to perform in any respect any of their material
representations, warranties or covenants required to be performed by it
under the Merger Agreement, and such breach or failure is not cured
within a 10-day period following notice of the breach or failure from
Student Advantage; or
- by Student Advantage, if (1) Student Advantage has received a bona fide
proposal that the Board of Directors has determined in good faith after
consultation with its financial advisor is a "superior offer" (as used in
the Merger Agreement), (2) Student Advantage has complied with its
obligations with respect to non-solicitations, (3) the Board of Directors
has determined in good faith after consultation with its outside legal
counsel that termination of the Merger Agreement is required for the
Board to fulfill its fiduciary duties under applicable law and (4)
contemporaneously with, and as a condition to, its termination of the
Merger Agreement, Student Advantage pays to Athena Ventures the fees and
expenses discussed below.
Under the Merger Agreement, a "triggering event" will be deemed to have
occurred if:
- there shall have been submitted to Student Advantage a takeover proposal
and:
- the Board of Directors of Student Advantage has failed to make and
include in the proxy statement, or shall have withdrawn, or modified in
a manner adverse to Athena Ventures and Acquisition Sub, the
recommendations of Student Advantage's Board of Directors to the
stockholders of Student Advantage to vote to approve the Merger
Agreement;
- the Board of Directors of Student Advantage or the Special Committee of
the Board of Directors has publicly recommended the takeover proposal or
has publicly announced an intention to do so, or Student Advantage shall
have entered into an agreement providing for an acquisition transaction;
or
- Student Advantage has materially breached its non-solicitation
obligations under the Merger Agreement.
- a tender offer or exchange offer for Student Advantage common stock has
been commenced, and the Board of Directors of Student Advantage or the
Special Committee of the Board of Directors has publicly recommended that
stockholders tender or exchange their shares or fails to recommend
against such tender or exchange; or
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- for any reason Student Advantage fails to hold the special meeting or
submit the Merger for stockholder approval by April 30, 2004.
Generally, if the Merger Agreement is terminated, other than as described
below, there will be no liability on the part of either Athena Ventures and
Acquisition Sub or Student Advantage or their respective officers or directors.
Student Advantage will be obligated to reimburse Athena Ventures for all
reasonable out-of-pocket fees and expenses actually incurred by Athena Ventures
and Acquisition Sub in connection with the Merger, which fees and expenses will
not exceed $75,000, and to pay Athena Ventures and Acquisition Sub a
non-refundable fee in the amount of $150,000, in the event of termination of the
Merger Agreement:
- by Athena Ventures if the Merger is not completed by April 30, 2004 and
if the conditions to the Merger, other than those controlled by certain
third parties, are not satisfied;
- by Athena Ventures as a result of a "triggering event" (as defined
above);
- by Athena Ventures as a result of Student Advantage being in breach of or
failing to perform any representation, warranty, covenant or agreement
beyond any applicable cure period;
- by Athena Ventures or Student Advantage if the Merger Agreement and the
Merger have not been approved by the requisite vote of the holders of its
common stock; or
- by Student Advantage if (1) Student Advantage has received a bona fide
proposal that the Board of Directors has determined in good faith after
consultation with its financial advisor is a "superior offer" as defined
above, (2) Student Advantage has complied with its obligations with
respect to non-solicitations and (3) the Board of Directors has
determined in good faith after consultation with its outside legal
counsel that termination of the Merger Agreement is required for the
Board to fulfill its fiduciary duties under applicable law.
In the event the Merger Agreement is terminated by either Student Advantage
or Athena Ventures and Acquisition Sub as a result of certain conditions of
Student Advantage having not been satisfied or waived by April 30, 2004 and
Athena Ventures and Acquisition Sub are not in material breach of its
obligations under the Merger Agreement, Student Advantage will be obligated to
reimburse Athena Ventures for all reasonable out-of-pocket fees and expenses
actually incurred by Athena Ventures and Acquisition Sub in connection with the
Merger, which fees and expenses shall not exceed $75,000.
EXPENSES OF THE PARTIES
Except for fees payable to Athena Ventures in the event of termination of
the Merger Agreement as described above, Student Advantage, Athena Ventures and
Acquisition Sub are responsible for their own fees and expenses incurred in
connection with the solicitation of proxies in connection with the Merger,
including the fees and expenses associated with the preparation of this proxy
statement. Student Advantage has agreed to pay all of the fees and expenses
(other than Athena Ventures' attorneys' fees and expenses) associated with the
filing, printing and mailing of this proxy statement and any amendments to this
proxy statement. See "THE TRANSACTIONS -- ESTIMATED FEES AND EXPENSES" below.
AMENDMENTS
The Merger Agreement may be amended by the parties to the Merger Agreement
pursuant to action of the Special Committee of Student Advantage and the
respective boards of directors of the parties, at any time before or after
approval of the Merger Agreement by the stockholders of Athena Ventures,
Acquisition Sub and Student Advantage and prior to the effective time of the
Merger. However, after any such stockholder approval has been obtained, no
amendment will be made that by law requires further approval by such
stockholders without the further approval of such stockholders. The Merger
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties.
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THE PURCHASE AND SALE AGREEMENT
The following is a description of the material aspects of the Asset Sale,
including the Purchase and Sale Agreement. The description is not complete and
is qualified in its entirety by reference to the copy of the Purchase and Sale
Agreement attached to this proxy statement as APPENDIX B and incorporated by
reference herein. You should carefully read this document and the documents to
which you are referred for a more complete understanding of the Asset Sale and
related transactions.
THE ASSET SALE
Under the terms of the Purchase and Sale Agreement, NCSN has agreed to
purchase substantially all of the assets relating to the operation of the OCSN
Business, including all of its intellectual property and technology and to
assume certain of Student Advantage's obligations under those contracts assumed
by NCSN in exchange for $2.85 million in cash, subject to adjustment for Student
Advantage's failure to obtain certain consents (described in more detail below
under "PURCHASE PRICE"), the Note in the aggregate principal amount of $4.25
million and a warrant to purchase 580,601 shares (subject to adjustment in
accordance with terms of the warrant) of NCSN common stock. The purchase price
is also subject to adjustment based on the working capital of the OCSN Business
as of the date of the closing (described in more detail below under "PURCHASE
PRICE").
ASSETS AND LIABILITIES TO BE SOLD
Student Advantage has agreed to sell to NCSN substantially all of the
assets relating to the operation of Student Advantage's OCSN Business, including
the following:
- all of the intellectual property, intellectual property rights and
related goodwill;
- all of the accounts receivable and notes receivable;
- all of the tangible personal property, including computers, equipment,
furniture, and fixtures;
- all of the leased real property;
- all of the rights to agreements with third parties, including license
agreements, web hosting agreements, and media services agreements;
- all telephone and facsimile numbers;
- all goods and services received after the closing arising out of Student
Advantage's payments prior to the closing;
- all prepaid deposits and other prepaid asset items; and
- all books, records, accounts, ledgers, files, and other documents and
printed or written materials related to the purchased assets.
NCSN will assume substantially all of Student Advantage's liabilities
relating to the OCSN Business, as follows:
- all liabilities reflected on the interim balance sheet (as of June 30,
2003) of the OCSN Business and all liabilities incurred after such
balance sheet in the ordinary course of business, except to the extent
satisfied prior to the closing and excluding intercompany payables;
- all liabilities under the contracts and leases transferred under the
Asset Sale, except for those liabilities arising on or prior to the
closing;
- all liabilities relating to the operation of the OCSN Business or the
purchased assets arising after the closing;
- all liabilities arising out of the real property leases occurring after
the closing;
- certain liabilities with respect to employees and employee benefits;
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- all tax liabilities arising after the closing; and
- all liabilities arising out of a third party consents, which if obtained,
would constitute a breach of the third party agreement.
EXCLUDED ASSETS AND LIABILITIES
Student Advantage is not selling to NCSN, and will retain, the following
assets:
- all of its cash, cash equivalents and liquid investments, bank accounts,
commercial paper, certificates of deposit, and marketable securities;
- all properties, rights, tangible and intangible assets other than those
specifically included in the Asset Sale;
- all rights to insurance claims, related refunds and proceeds for the
benefit of Student Advantage;
- all rights under the Purchase and Sale Agreement, and the consideration
to be paid to Student Advantage pursuant to the terms of the Purchase and
Sale Agreement;
- any claims and causes of actions relating to transactions arising before,
on or after the date of the closing, except with respect to the assets
purchased by NCSN;
- any rights relating to refunds or recoupments of any taxes;
- any books, records, accounts, ledgers, files, and other documents and
printed or written materials, except with respect to the assets purchased
by NCSN; and
- any corporate functions, facilities, assets and properties servicing
Student Advantage's business as a whole and which are not related to the
OCSN Business, such as payroll systems, finance and accounting functions.
Student Advantage will retain all liabilities not specifically assumed by
NCSN following the closing of the Asset Sale.
PURCHASE PRICE
NCSN will pay to Student Advantage an aggregate purchase price of $7.1
million consisting of $2.85 million in cash (subject to adjustment as more fully
described below), a Note in the principal amount of $4.25 million, and warrants
to purchase 580,601 shares (subject to adjustment in accordance with the terms
of the warrant) of NCSN common stock. In the event NCSN provides written notice
to Student Advantage prior to the closing that delivery of the Note to Student
Advantage would place NCSN in breach of the terms of the Note, Student Advantage
may either accept (a) $4.25 million in cash, or (b) delivery of the Note and the
warrant, with a waiver and release of any of NCSN's breaches of any of its
representations or warranties of which Student Advantage had knowledge.
The purchase price is subject to adjustment as follows:
- if the estimated working capital exceeds $50,000 or is less than negative
$50,000, the cash consideration can be adjusted upwards or downwards by
such excess or shortfall; and
- if Student Advantage fails to obtain certain third party consents with
respect to the assignment of certain contracts of the OCSN Business to
NCSN, the cash consideration is subject to a reduction of up to $255,000.
As of the date hereof, Student Advantage had obtained all but one of
these consents, which limits this adjustment to a maximum of $30,000.
Student Advantage has not agreed to accept any alternative financing
arrangements from NCSN.
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COMPLETION OF THE ASSET SALE
Student Advantage expects to complete the Asset Sale in the first quarter
of 2004, after the special meeting of Student Advantage's stockholders is held
(assuming approval of the Transactions by Student Advantage's stockholders), and
all conditions to closing described below under "CONDITIONS TO COMPLETING THE
ASSET SALE" have been met or waived by the parties.
REPRESENTATIONS AND WARRANTIES
Representations and Warranties of Student Advantage. Student Advantage has
made a number of customary representations and warranties, subject in some cases
to customary qualifications, to NCSN regarding aspects of its OCSN Business,
financial condition, customer contracts, intellectual property and other facts
pertinent to the Asset Sale, including:
- its corporate organization, existence, good standing and qualification to
do business;
- its authority to enter into and perform its obligations under the
Purchase and Sale Agreement, the approval of the Purchase and Sale
Agreement and the Asset Sale by its Board of Directors and stockholders,
and the enforceability of the Purchase and Sale Agreement;
- its financial statements;
- its compliance with applicable laws and regulations;
- the absence of conflicts with Student Advantage's charter or bylaws, and
existing agreements resulting from the execution and delivery of the
Purchase and Sale Agreement, or the consummation of the Asset Sale;
- the absence of any material adverse changes and certain other material
changes in the OCSN Business, or the purchased assets since June 30,
2003;
- the use of brokers or financial advisors in connection with the Asset
Sale;
- the absence of any orders, judgments, actions, suits, claims, or
proceedings relating to the Asset Sale or any of the assets or properties
related to the OCSN Business;
- the sufficiency of the purchased assets for the conduct of the OCSN
Business in the manner that it is presently conducted and the manner in
which Student Advantage currently proposes to conduct it;
- the right, title and interest in Student Advantage's proprietary
information, intellectual property and the enforceability and
non-infringement of such intellectual property;
- the protection of Student Advantage's confidential information;
- the assets being purchased by NCSN and Student Advantage's ownership of
such assets;
- its payment of applicable taxes;
- the property leased by the OCSN Business and the enforceability of such
leases;
- the existence and provisions of Student Advantage's customer and third
party contracts related to the OCSN Business;
- the employees of the OCSN Business and the existence of the employee
benefit plans for such employees;
- the agreements with Student Advantage's affiliates;
- the existence and enforceability of the insurance policies of the OCSN
Business;
- the absence of undisclosed liabilities;
- the highest producers of revenue for the OCSN Business;
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- the accounts receivable of the OCSN Business;
- its solvency; and
- the existence and receipt of an opinion from Luminary Capital stating
that the consideration to be received by Student Advantage in connection
with the Asset Sale is fair to Student Advantage from a financial point
of view.
All of Student Advantage's representations and warranties will survive for
a period of one year following the date of the closing, except that Student
Advantage's representations and warranties relating to (a) its compliance with
applicable laws and other regulations, the existence of employee benefit plans,
and its payment of applicable taxes shall continue until the expiration of the
applicable statute of limitations, and (b) broker's fees, and its title to the
purchased assets, will continue in full force and effect forever. In addition,
if at any time prior to the end of these periods Student Advantage receives
notice from NCSN of a claim for indemnification, then that claim will survive,
including any adverse consequences NCSN may suffer after the end of the survival
period, until the claim is fully and finally resolved, despite the limitations
outlined above.
Representations and Warranties of NCSN. NCSN has made a number of
customary representations and warranties, subject in some cases to customary
qualifications, to Student Advantage regarding aspects of its business,
financial condition, and other facts pertinent to the Asset Sale, including:
- the corporate organization, existence, and good standing of NCSN;
- NCSN's authority to enter into and perform its obligations under the
Purchase and Sale Agreement, the approval of its Board of Directors, and
the enforceability of Purchase and Sale Agreement;
- the absence of conflicts with applicable laws and regulations, NCSN's
charter or bylaws, and existing agreements resulting from the execution
and delivery of the Purchase and Sale Agreement or the consummation of
the Asset Sale;
- NCSN's ability to pay the purchase price; and
- the absence of any orders, judgments, actions, suits, claims, or
proceedings relating to the Asset Sale or the transaction contemplated by
the Purchase and Sale Agreement.
NCSN's representations and warranties will survive for a period of one year
following the date of the closing.
CONDUCT OF BUSINESS PENDING THE ASSET SALE
Under the Purchase and Sale Agreement, Student Advantage has agreed that,
unless NCSN otherwise consents in writing, it will comply with certain
restrictions relating to the operation of the OCSN Business prior to the closing
of the Asset Sale. These restrictions include provisions relating to the
following matters:
- operating the OCSN Business in the ordinary course and using commercially
reasonable efforts to preserve the business substantially intact;
- preserving Student Advantage's relationships with the customers and
suppliers of the OCSN Business and keeping the services provided by the
OCSN Business available to such customers;
- making capital expenditures in the excess of $5,000 without providing
NCSN with at least two business days notice;
- maintaining the insurance policies relating to the OCSN Business;
- entering into any contracts outside the ordinary course of business;
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- selling, assigning or transferring any of the purchased assets in an
amount in excess of $5,000, except for those assets which are not useful
in the OCSN Business;
- making severance payments or increasing compensation payments to the
employees of the OCSN Business, or entering into any employment or
deferred compensation agreements with such employees;
- incurring or guaranteeing any indebtedness for borrowed money, except in
the ordinary course of business;
- failing to take steps to prevent the abandonment of the intellectual
property of the OCSN Business;
- providing NCSN with at least 2 business days notice before entering into
any licensing arrangement with any programming network substantially
devoted to sports programming;
- materially changing Student Advantage's accounting principles and
procedures;
- acquiring any operating business;
- adopting any plan of reorganization, other than one in connection with
the Asset Sale;
- taking any action which might delay or interfere with the completion of
the Asset Sale; and
- agreeing to take any of the actions described above.
LIMITATION ON SOLICITING OTHER TRANSACTIONS
Student Advantage has agreed that it will not initiate, solicit, or
encourage any proposal, offer or discussion with any party, other than NCSN,
concerning any merger, business combination, sale of stock or sale of assets,
other than sales of assets in the ordinary course of business, involving the
OCSN Business. Notwithstanding these agreements, Student Advantage's Board of
Directors may authorize discussions or negotiations about any acquisition
proposal with any person, if the Board of Directors determines in the exercise
of its fiduciary duties that such action is in the best interest of Student
Advantage's stockholders.
PREPARATION OF PROXY STATEMENT; STOCKHOLDERS MEETING
Student Advantage has agreed to call and hold a special meeting of its
stockholders to approve the Asset Sale and related transactions and matters. In
connection with this special meeting, Student Advantage has also agreed to
solicit from its stockholders proxies in favor of the adoption and approval of
the Asset Sale. These actions include the preparation and filing of this proxy
statement with the SEC.
CONDITIONS TO COMPLETING THE ASSET SALE
Conditions to NCSN's Obligation. NCSN's obligations to complete the Asset
Sale are subject to the satisfaction or waiver at or prior to the closing of
each of the following conditions:
- the Asset Sale will have been approved by a majority vote of Student
Advantage's stockholders entitled to vote on the Asset Sale;
- each of Student Advantage's representations and warranties must have been
accurate in all material respects as of date of the closing (unless
otherwise specified), except where the failure to be so accurate does not
have and would not reasonably be expected to have a material adverse
effect on the OCSN Business;
- Student Advantage must have performed or complied with all of the
covenants and obligations required to be performed or complied with by us
under the terms of the Purchase and Sale Agreement, except where the
failure to be so accurate does not have and would not reasonably be
expected to have a material adverse effect on the OCSN Business;
- no legal proceeding will be pending that challenges the Asset Sale;
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- Student Advantage must have delivered a certificate to NCSN stating that
the conditions specified above have been met;
- Student Advantage must have obtained all third party consents required to
assign the contracts of the OCSN Business to NCSN, except that a failure
to obtain certain consents will not be considered a violation this
condition;
- NCSN must have received a legal opinion from Hale and Dorr LLP, counsel
to Student Advantage, with respect to Student Advantage's good standing,
corporate power and authority, due organization and lack of conflict with
its certificate of incorporation and by-laws;
- NCSN must have received a non-competition agreement executed between
Raymond V. Sozzi, Jr. and Student Advantage, which has been assigned to
NCSN;
- NCSN must have received access to the data on Student Advantage's
accounting system;
- NCSN must have received customary certificates showing authorization of
the transaction;
- Student Advantage must have paid all applicable compensation to the
employees of the OCSN Business; and
- Student Advantage must have obtained a waiver of, or cured, any defaults
relating to certain leases.
Conditions to Student Advantage's Obligation. Student Advantage's
obligations to complete the Asset Sale are subject to the satisfaction or waiver
at or prior to the closing of each of the following conditions:
- the Asset Sale will have been approved by a majority vote of Student
Advantage's stockholders entitled to vote on the Asset Sale;
- each of NCSN's representations and warranties must have been accurate in
all material respects as of date of the closing (unless otherwise
specified), except where the failure to be so accurate does not have and
would not reasonably be expected to have a material adverse effect on
NCSN's ability to consummate the transaction contemplated by the Purchase
and Sale Agreement;
- NCSN must have performed or complied with all of the covenants and
obligations required to be performed or complied with by it under the
terms of the Purchase and Sale Agreement, except where the failure to be
so accurate does not have and would not reasonably be expected to have a
material adverse effect on NCSN's ability to consummate the transaction
contemplated by the Purchase and Sale Agreement;
- no legal proceeding will be pending that challenges the Asset Sale;
- NCSN must have delivered a certificate to Student Advantage stating that
the conditions specified above have been met;
- NCSN must have obtained all required third party consents;
- Student Advantage must have received customary certificates showing
authorization of the transaction; and
- Student Advantage will have closed the Merger, except that if such
closing has not occurred as a result of a breach by any of the parties to
the Merger Agreement, Student Advantage will be deemed to have waived
this condition.
The closing of the Asset Sale is not contingent on NCSN obtaining
financing.
POST-CLOSING COVENANTS AND AGREEMENTS
After the closing, both Student Advantage and NCSN have agreed to cooperate
and afford reasonable access to records related to the OCSN Business and
personnel of the other party, at the cost of the party
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asking for such access. Each party also agrees to use commercially reasonable
efforts to keep the information it receives in strict confidence.
After the closing, Student Advantage has agreed to collect and forward to
NCSN any accounts receivable related to the OCSN Business that Student Advantage
receives after the closing, and use its best efforts to continue to obtain third
party consents to assign the contracts acquired as part of the Asset Sale.
Student Advantage will also provide NCSN with access to the data included in its
accounting systems relating to the period beginning April 1, 2002 through the
closing.
Student Advantage has also agreed not to take any action that is intended
to have the effect of discouraging any lessor, licensor, customer, supplier or
other business associate from maintaining the same business relationship with
Student Advantage as it had prior to the closing.
Student Advantage has also agreed not to compete in certain respects with
NCSN. For two years after the closing, Student Advantage has agreed not to
engage in, render any services to, become associated with, or have any ownership
interest in any business providing a network devoted to college sports which (a)
offers content delivery, brand management, or consumer marketing solutions to
university athletic departments through the internet or VOD distribution, (b)
includes an on-line wire service offering content of college newspapers, or (c)
engages in activities similar to those provided on the OCSN Business websites.
After the closing, NCSN has agreed to reimburse Student Advantage for any
amounts paid after the closing related to the purchased assets and assumed
liabilities, and pay any sales taxes, stock transfer taxes, real estate transfer
taxes, personal property taxes or other similar taxes incurred in connection
with the Asset Sale.
EMPLOYEE MATTERS
NCSN has agreed to offer employment to Student Advantage employees actively
employed and primarily or exclusively engaged in the OCSN Business as of the
closing of the Asset Sale. Student Advantage is responsible for any compensation
and benefits payable to these employees prior to the closing while NCSN is
responsible for any compensation and benefits payable to these employees after
the closing. In addition, in the event that any of the six identified OCSN
Business employees accepted employment with NCSN and are terminated without
cause by NCSN within six months following the closing, such employee will
receive the same compensation and benefits from NCSN for the six month period
following the closing.
APPROVALS AND CONSENTS
Student Advantage has agreed to obtain all third party consents required to
assign the contracts of the OCSN Business to NCSN, except that a failure to
obtain certain consents will not be considered a violation this condition.
Student Advantage has also agreed to continue to use its best efforts to obtain
any third party consents not obtained prior to the closing of the Asset Sale. In
addition, Student Advantage has agreed to repay certain amounts to NCSN in the
event that it is unable to obtain certain of the specified third party consents.
These amounts, which could be substantial, will, if repaid, reduce the purchase
price received by Student Advantage with respect to the Asset Sale as described
above under "PURCHASE PRICE."
TERMINATION
The Purchase and Sale Agreement may be terminated:
- by mutual agreement of the parties;
- by either Student Advantage or NCSN, if Student Advantage's stockholders
do not approve the Asset Sale by the requisite vote;
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- by NCSN if there is a breach by Student Advantage of its obligations
under the Purchase and Sale Agreement that would cause a material adverse
effect which is not cured within 30 days of written notice by NCSN to
Student Advantage;
- by Student Advantage if there is a breach by NCSN of its obligations
under the Purchase and Sale Agreement that would cause a material adverse
effect which is not cured within 30 days of written notice by Student
Advantage to NCSN;
- by Student Advantage if the closing shall not have occurred on or prior
to April 30, 2004, by reason of the failure of any of the conditions to
its obligation to close, unless the failure results primarily from
Student Advantage's breach of any representation, warranty, or covenant
contained in the Purchase and Sale Agreement (see "CONDITIONS TO
COMPLETING THE ASSET SALE" above);
- by NCSN, if the closing shall not have occurred on or prior to April 30,
2004, by reason of the failure of any of the conditions to NCSN's
obligation to close, unless the failure results primarily from NCSN's
breach of any representation, warranty, or covenant contained in the
Purchase and Sale Agreement (see "CONDITIONS TO COMPLETING THE ASSET
SALE" above); or
- by NCSN, in the event Student Advantage provides an update to the
disclosure schedules to the Purchase and Sale Agreement prior to the
closing which contains information that, absent such, would have the
effect of causing, among other things, the representations and warranties
of Student Advantage, set forth in the Purchase and Sale Agreement, to be
untrue, and Student Advantage has failed to cure the event or condition
causing the failure of such conditions within 30 days following delivery
by NCSN of written notice relating thereto.
INDEMNIFICATION
Under the Purchase and Sale Agreement, Student Advantage agreed to
indemnify NCSN, its affiliates, officers, directors, assigns and successors for
any loss arising from or as a result of, or in connection with:
- any breach by Student Advantage of any of its representations or
warranties set forth in the Purchase and Sale Agreement;
- any breach by Student Advantage of any of its covenants set forth in the
Purchase and Sale Agreement;
- any liability that arises from or in connection with its failure to
comply with any bulk transfer or similar laws in connection with the
Asset Sale;
- any liability that arises from or in connection with its failure to pay
any sales, use or similar taxes with respect to the OCSN Business
attributable to the Asset Sale occurring on or prior to the closing; or
- any liability or asset not specifically assumed by NCSN.
Student Advantage will indemnify NCSN for a maximum aggregate amount of
$1.5 million, except that its maximum aggregate liability will be the purchase
price (see "PURCHASE PRICE" above) for:
- breaches of its representations or warranties with respect to: (a)
certain employee matters, (b) the ownership of the purchased assets, (c)
the payment of taxes, (d) the obligations under employee benefit plans,
and (e) its compliance with applicable laws and other regulations,
- its failure to provide required notices under the Worker Adjustment and
Retraining Notification Act or the Consolidated Omnibus Budget
Reconciliation Act of 1986, or
- any tax liabilities.
Subject to any losses in connection with fraud, Student Advantage's
indemnification obligations do not arise until the aggregate amount of losses to
NCSN exceeds $150,000 (the "Deductible Amount"). When
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the Deductible Amount is reached, Student Advantage will only pay for losses to
NCSN in excess of the Deductible Amount, except in the event of (a) breach of
its representation and warranty regarding its obligation to disclose the
intellectual property exclusively or primarily used in the OCSN Business, or (b)
any liabilities or obligations arising after the closing (in such case the
deductible amount will be $50,000). In addition, if Student Advantage breaches
its representation and warranty with respect to its ownership of the purchased
assets, the deductible amount will be $10,000 instead of $150,000.
Under the Purchase and Sale Agreement, NCSN has agreed to indemnify Student
Advantage, its affiliates, officers, directors, assigns and successors for any
loss arising from or as a result of, or in connection with:
- any breach of its representations, warranties, and covenants; or
- NCSN's failure to pay any of the liabilities it assumes.
NCSN will indemnify Student Advantage for a maximum aggregate amount of
$1.5 million, except that NCSN's maximum aggregate liability will be the
purchase price (see "PURCHASE PRICE" above) for (a) breaches of covenants with
respect to the employees of the OCSN Business (see "EMPLOYEE MATTERS"), and (b)
any of its tax liabilities.
Subject to any losses in connection with fraud, NCSN's indemnification
obligations do not arise until the aggregate amount of losses to Student
Advantage exceed the Deductible Amount. When the Deductible Amount is reached,
NCSN will only pay for losses to Student Advantage in excess of the Deductible
Amount.
EXPENSES AND TERMINATION FEES
Each party has agreed to bear its own costs and expenses. Neither party
will pay a termination fee if the Asset Sale does not close. See "THE
TRANSACTIONS -- ESTIMATED FEES AND EXPENSES" below.
OTHER AGREEMENTS RELATING TO THE ASSET SALE
VOTING AGREEMENT
In connection with the Purchase and Sale Agreement, Raymond V. Sozzi, Jr.,
Student Advantage's Chairman of the Board, President, and Chief Executive
Officer, has entered into a voting agreement with NCSN in which he has agreed,
and will cause his affiliates that own any capital stock of Student Advantage,
to vote (a) in favor of the Asset Sale, and (b) against any other sale or other
business combination between Student Advantage and any person or entity, or any
other action or agreement that would result in the breach of any covenant,
representation or warranty or any other obligation or agreement of Student
Advantage under the Purchase and Sale Agreement or which would result in any of
the conditions to Student Advantage's obligations under the Purchase and Sale
Agreement to not be fulfilled.
NOTE AGREEMENT
In connection with the Purchase and Sale Agreement, NCSN has agreed to
issue to Student Advantage a senior secured and guaranteed Note (see "PURCHASE
PRICE" above) in an aggregate amount of $4.25 million. The Note will bear
interest at a rate equal to the prime rate (as announced by Citibank, N.A., at
its principal office in New York City) plus 3%, but in no event less than 7%.
Under the terms of the Note, NCSN has agreed to pay Student Advantage the
outstanding principal amount of $4.25 million within two years from the date
that the Note is issued. Upon an initial public offering or a change of control
of NCSN, NCSN will have to pay the outstanding amount of the Note in full.
Student Advantage expects to deliver the Note and the warrant described below to
its secured lenders in satisfaction of its obligations under the Reservoir
credit facility.
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WARRANT
In connection with the Purchase and Sale Agreement and the Note, NCSN has
agreed to issue Student Advantage a warrant to purchase 580,601 shares (subject
to adjustment in accordance with terms of the warrant) of NCSN common stock, par
value $0.01 per share. Such number of shares may be adjusted from time to time,
and such adjustment is calculated by dividing the principal and accrued and
unpaid interest outstanding under the Note by the exercise price then in effect.
The exercise price for the warrant is $7.32 per share, subject to adjustment in
accordance with the terms of the warrant. Student Advantage may exercise the
warrant upon an initial public offering or change in control of NCSN, or upon
the second anniversary of the date of issuance of the warrant. If the warrant is
not exercised at such time, the warrant will expire.
THE TRANSACTIONS
CONDUCT OF THE BUSINESS OF STUDENT ADVANTAGE IF THE TRANSACTIONS ARE NOT
COMPLETED
If the Transactions are not completed, the Board of Directors expects to
continue to operate Student Advantage's business substantially as presently
operated. The Board of Directors would reassess the strategic alternatives
available to Student Advantage to enhance stockholder value, including the
possibility of a sale of Student Advantage and alternatives that would keep
Student Advantage independent and publicly owned.
ESTIMATED FEES AND EXPENSES OF THE TRANSACTIONS
Whether or not the Transactions are consummated and except as otherwise
described herein, all fees and expenses incurred in connection with the
Transactions will be paid by the party incurring such fees and expenses.
Estimated fees and expenses to be incurred by Student Advantage and Athena
Ventures in connection with the Transactions are as follows:
<Table>
Financial advisor's fees and expenses....................... $160,000
Securities and Exchange Commission filing fees.............. $ 113
Legal, accounting and consulting fees and expenses.......... $500,000
Printing, mailing fees and expenses......................... $ 40,000
Special Committee fees (maximum)............................ $ 70,000
Exchange agent fees and expenses............................ $ 11,500
--------
Total....................................................... $781,613
</Table>
None of Student Advantage, Athena Ventures, Acquisition Sub or Mr. Sozzi,
will pay any fees or commission to any broker, dealer or other person for
soliciting proxies pursuant to the Merger. Prior to the effective time, Student
Advantage and Athena Ventures will designate an exchange agent. The exchange
agent will receive reasonable and customary compensation for its services in
connection with the Merger, plus reimbursement for out-of-pocket expenses.
The expense of soliciting proxies from stockholders, as well as preparing
and mailing the notice of special meeting, the proxy statement and the proxy
card(s), will be paid by Student Advantage.
These expenses will not reduce the merger consideration to be received by
Student Advantage stockholders in the Merger.
ACCOUNTING TREATMENT
The Asset Sale will be accounted for, by Student Advantage, in accordance
with SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets,"
under accounting principles generally accepted in the United States of America.
Upon the completion of the Asset Sale, Student Advantage will recognize a
financial reporting gain, if any, equal to the net proceeds (the sum of the
purchase price
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received less the expenses relating to the Asset Sale) less the net book value
of the assets purchased and the fair value of the indemnification liability
retained.
The Merger will be accounted for, by Student Advantage, in accordance with
the purchase method of accounting, under accounting principles generally
accepted in the United States of America.
CERTAIN MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
THE ASSET SALE
The Asset Sale will result in the following United States federal income
tax consequences to Student Advantage. Student Advantage will recognize gain or
loss in an amount equal to the cash received plus liabilities assumed (if any)
in exchange for the assets, less Student Advantage's adjusted tax basis in the
purchased assets. Student Advantage's gain (if any) will be offset to the extent
of current year losses from operations plus available net operating loss (NOL)
carryforwards, subject to applicable limitations under the ownership change
rules and the alternative minimum tax rules under the Code. Where an ownership
change occurs, the annual utilization of the NOL carryforwards may be
restricted. Additionally, to the extent any gain on the sale of assets exceeds
the current year loss from operations, an alternative minimum tax may be due on
the excess. Any tax liabilities generated as a result of the Asset Sale are
expected to be immaterial.
THE MERGER
The following discussion is a summary of the material United States federal
income tax consequences of the Merger to stockholders of Student Advantage. This
discussion addresses only the United States federal income tax consequences to
stockholders who hold their stock as a capital asset and does not address all of
the United States federal income tax consequences that may be relevant to
particular stockholders in light of their individual circumstances. This
discussion does not address the tax consequences to stockholders who are subject
to special rules, including, without limitation, financial institutions,
tax-exempt organizations, insurance companies, dealers in securities or foreign
currencies, foreign holders, persons who hold their shares as or in a hedge
against currency risk, persons who hold their shares as a result of a
constructive sale or as part of a conversion transaction, or holders who
acquired their stock pursuant to the exercise of employee stock options or
otherwise as compensation. This discussion does not address the tax consequences
to holders of warrants or options to purchase stock. In addition, this
discussion does not address the tax consequences to stockholders under any
state, local or foreign tax laws or the alternative minimum tax provisions of
the Code.
The following summary is not binding on the Internal Revenue Service (the
"IRS") or a court. It is based on the Code, laws, regulations, rulings and
decisions in effect on the date hereof, all of which are subject to change,
possibly with retroactive effect, which could result in United States federal
income tax consequences different from those described below. As a result,
Student Advantage cannot assure you that the tax consequences described in this
discussion will not be challenged by the IRS or will be sustained by a court if
challenged by the IRS. No ruling has been or will be sought from the IRS, and no
opinion of counsel has been or will be rendered, as to the United States federal
income tax consequences of the Merger. Stockholders are urged to consult their
own tax advisors as to the specific tax consequences of the Merger to them,
including the applicable federal, state, local and foreign tax consequences of
the Merger to them and the effect of possible changes in tax laws.
TAX CONSEQUENCES TO STOCKHOLDERS
The Merger will result in the following United States federal income tax
consequences to stockholders of Student Advantage:
- Upon the closing, each stockholder of Student Advantage (other than
Athena Ventures and Acquisition Sub) will recognize gain or loss in an
amount equal to the difference between (i) the
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cash received by the holder in exchange for the holder's stock, and (ii)
the holder's adjusted tax basis in the stock exchanged therefor.
- Such gain or loss generally will be long-term capital gain or loss if the
stock exchanged was held for more than one year as of the closing and
will be short-term capital gain or loss if the stock was held for a
shorter period.
Certain noncorporate stockholders may be subject to backup withholding on
cash received pursuant to the Merger. Backup withholding will not apply,
however, to a holder who (1) furnishes a correct taxpayer identification number
and certifies that the holder is not subject to backup withholding on IRS Form
W-9 or a substantially similar form, (2) provides a certification of foreign
status on an appropriate Form W-8 or successor form, or (3) is otherwise exempt
from backup withholding. If a holder does not provide a correct taxpayer
identification number on IRS Form W-9 or a substantially similar form, the
holder may be subject to penalties imposed by the IRS. Amounts withheld, if any,
are generally not an additional tax and may be refunded or credited against the
holder's federal income tax liability, provided that the holder furnishes the
required information to the IRS.
THE ABOVE DISCUSSION IS INTENDED TO PROVIDE ONLY A SUMMARY OF THE MATERIAL
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER. IT IS NOT INTENDED
TO BE A COMPLETE ANALYSIS OR DESCRIPTION OF ALL POTENTIAL UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER. IT DOES NOT ADDRESS CERTAIN CATEGORIES OF
STOCKHOLDERS, AND IT DOES NOT ADDRESS STATE, LOCAL, OR FOREIGN TAX CONSEQUENCES.
IN ADDITION, AS NOTED ABOVE, IT DOES NOT ADDRESS TAX CONSEQUENCES THAT MAY VARY
WITH, OR ARE CONTINGENT UPON, INDIVIDUAL CIRCUMSTANCES. STUDENT ADVANTAGE
STRONGLY URGE YOU TO CONSULT YOUR TAX ADVISOR TO DETERMINE YOUR PARTICULAR
UNITED STATES FEDERAL, STATE, LOCAL OR FOREIGN INCOME OR OTHER TAX CONSEQUENCES
RESULTING FROM THE MERGER, IN LIGHT OF YOUR INDIVIDUAL CIRCUMSTANCES.
PROVISIONS FOR PUBLIC STOCKHOLDERS
No provision has been made in connection with the Transactions to grant the
public stockholders access to the corporate files of Student Advantage or any
other party to the Transactions or to obtain counsel or appraisal services at
Student Advantage's expense.
CERTAIN REGULATORY MATTERS
The approval of the Transactions and the approval and adoption of the
Merger Agreement and the Purchase and Sale Agreement by Student Advantage's
stockholders is required under the corporate law of the State of Delaware and
will be sought at the special meeting.
Student Advantage and Athena Ventures do not believe that any governmental
filings are required with respect to the Merger other than (1) the filing of the
certificate of merger with the Secretary of State of the State of Delaware, and
(2) filings with the SEC and the OTC Bulletin Board. Student Advantage and
Athena Ventures do not believe that they are required to make a filing with the
Department of Justice and the Federal Trade Commission pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, although each
agency has the authority to challenge the Merger on antitrust grounds before or
after the Merger is completed. Student Advantage and NCSN do not believe that
any governmental filings are required with respect to the Asset Sale.
Other than as set forth above, the parties do not believe that there are
any federal or state regulatory requirements that must be complied with or
approvals that must be obtained in connection with the Transactions.
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INFORMATION ABOUT STUDENT ADVANTAGE
STUDENT ADVANTAGE, INC.
Student Advantage's principal executive offices are located at 280 Summer
Street, Boston, Massachusetts 02210, and its telephone number is (617) 912-2000.
Student Advantage has not been convicted of a criminal proceeding or been a
party to any judicial or administrative proceeding during the past five years
that resulted in a judgment, decree or final order enjoining Student Advantage
from future violations of, or prohibiting activities subject to, federal or
state securities laws.
BUSINESS
OVERVIEW
Student Advantage, an integrated media and commerce company focused on the
higher education market, works with hundreds of colleges, universities and
campus organizations, and more than 15,000 participating national and local
business locations to develop products and services that enable students to make
purchases less expensively and more conveniently on and around campus.
Student Advantage reaches consumers offline through its Student Advantage
Membership Program, and online through its highly trafficked websites
studentadvantage.com and its Official College Sports Network ("OCSN"). The
Student Advantage Membership Program is a national fee-based membership program
that provides its student members with exclusive benefits including ongoing
discounts on products and services currently offered by more than 15,000
participating national and local business locations. Discounts are made
available to students both through the studentadvantage.com website and at
sponsors' retail and online locations. OCSN is the largest, most trafficked
network on the web devoted exclusively to college sports, providing online brand
management and content delivery to more than 135 schools and athletic
conferences.
Student Advantage was incorporated in the State of Delaware on October 20,
1998. Student Advantage 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, its revenue was derived primarily from annual membership fees
generated by the Student Advantage Membership program. Since that time, Student
Advantage has expanded its product and service offerings through internal growth
as well as acquisitions. However, despite the expansion of its products and
service offerings, Student Advantage operates as one business segment.
"Student Advantage", "U-WIRE", "OCSN" and "SA Cash", 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.
BUSINESS DEVELOPMENTS DURING 2002 AND 2003
In February 2002, Student Advantage's subsidiary, OCM Direct and its two
subsidiaries, CarePackages, Inc. and Collegiate Carpets, Inc., entered into a
revolving loan agreement with Bank of America providing for a $5.0 million loan
facility, which is referred to as the OCM loan. On May 5, 2003, in connection
with the sale of substantially all of the assets of OCM Direct to Alloy, Inc.,
Alloy assumed substantially all of the liabilities of OCM Direct and its
subsidiaries, including its obligations under the OCM loan with Bank of America
as they existed on May 1, 2003.
Effective April 1, 2002, Student Advantage entered into a two year Sales
Agency Agreement with Alloy, Inc., appointing Alloy as the primary,
non-exclusive agent for the purpose of selling its CollegeClub.com media
inventory. Under the agreement, Student Advantage received an agent fee of $4.9
million, must make quarterly payments to Alloy for agent performance and base
commissions and may make additional variable commission payments to Alloy based
on CollegeClub.com media revenues
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over the two-year term of the agreement. For each quarter for the first twelve
months of the agreement, the payments for agent performance were $0.2 million
per quarter. For each quarter during the term of the agreement, the base
commission payments are $0.1 million per quarter. On November 14, 2003, Student
Advantage completed the sale of substantially all of its assets related to its
CollegeClub.com business to 360 Youth LLC, a wholly-owned subsidiary of Alloy,
Inc., for cash consideration of $600,000, the assumption of certain liabilities
and a performance-based earn-out providing for the potential to earn additional
proceeds of up to $600,000 based on the revenues of the CollegeClub.com business
earned from November 15, 2003 through February 29, 2004. In addition, Student
Advantage agreed to provide certain transition services, the cost of which is
expected to equal Student Advantage's earnings under the performance earn-out.
Effective May 8, 2002, Student Advantage sold the assets relating to its SA
Marketing Group brand to Triple Dot, Inc., a subsidiary of Alloy, Inc., for a
cash payment of $6.5 million and an opportunity to earn up to an additional $1.5
million based on the performance of certain pending proposals. In June 2002,
Triple Dot prepaid to Student Advantage $1.0 million of the potential earn-out
that was scheduled to be paid in August 2003. At the time of the agreement, the
parties entered into a non-compete agreement under which Student Advantage
agreed to certain restrictions regarding its events and promotions activities
until November 2005. In addition, the parties entered into a marketing services
agreement providing for pre-payments by Student Advantage of $2.2 million in May
2002 to Alloy for future marketing services. Student Advantage received the $2.2
million of marketing services in 2002.
On September 30, 2002, Student Advantage announced that a Special Committee
of its Board of Directors, formed to consider strategic alternatives, was in
discussions regarding a proposal for the acquisition of Student Advantage made
by a group of stockholders, including Raymond V. Sozzi, Jr., Student Advantage's
President and Chief Executive Officer, and Atlas. The proposal was subject to,
among other things, the receipt of sufficient financing and the negotiation of a
definitive agreement. See "SPECIAL FACTORS -- BACKGROUND OF THE TRANSACTIONS"
above for additional information.
On September 30, 2002, Student Advantage agreed to borrow $3.5 million from
Scholar, Inc., an entity formed by Raymond V. Sozzi, Jr., Student Advantage's
President and Chief Executive Officer, Pentagram, which is an affiliate of
Atlas, Greylock, of which William S. Kaiser, a member of Student Advantage's
Board of Directors is a general partner and G. Todd Eichler, a former executive
officer and current stockholder of Student Advantage. The loan is referred to as
the Scholar loan, initially had an annual interest rate of 8%, a maturity date
of July 1, 2003 and, otherwise had the same terms as the Reservoir credit
facility.
During 2002, Student Advantage entered into several agreements with
Reservoir to modify the credit facility. On May 6, 2002, Student Advantage
agreed with Reservoir to delete from the Reservoir loan agreement its obligation
to comply with the financial covenants. On September 30, 2002, Reservoir agreed,
absent future defaults, not to demand payment for principal, interest and fees
due under the credit facility prior to the July 1, 2003 maturity date for the
credit facility. Reservoir also agreed to cancel the warrants previously issued
under the credit facility and the associated right to require Student Advantage
to repurchase the warrants for cash in exchange for a $4.2 million increase in
the principal amount outstanding under the credit facility.
On December 30, 2002, Reservoir agreed to further amend the terms of the
credit facility to reduce Student Advantage's total indebtedness to them from
approximately $15.7 million to $9.5 million in exchange for a guarantee by Mr.
John Katzman, a member of Student Advantage's Board of Directors who resigned at
the time the amendment was consummated. In exchange for his guarantee, Student
Advantage agreed to pay Mr. Katzman a $1.0 million fee payable at the time of
certain loan repayments. In addition, Reservoir agreed to lend Student Advantage
an additional $2.0 million, which is not secured by Mr. Katzman. As of December
31, 2002, the debt obligations to Reservoir and Mr. Katzman carried an annual
interest rate of 12% and required payments of $3.5 million on January 31, 2003,
$4.0 million on March 31, 2003 and the remaining balance on the July 1, 2003
loan maturity date.
73
On each of January 31, 2003, March 14, 2003, April 14, 2003 and April 28,
2003, the terms of the Reservoir credit facility were further amended. On
January 31, 2003, Reservoir agreed to reduce the $3.5 million payment due on
January 31, 2003 to $1.5 million, which payment was made on that date. On March
14, 2003, Reservoir agreed to lend Student Advantage an additional $0.5 million.
On March 31, 2003, Reservoir agreed to lend Student Advantage an additional $1.5
million and agreed to change the date on which Student Advantage was required to
repay $4.0 million of borrowings under the loan agreement from March 31, 2003 to
April 14, 2003. On April 14, 2003, the repayment date for the $4.0 million was
amended to become April 28, 2003. On April 28, 2003, the repayment date for the
$4.0 million was amended to become May 2, 2003.
Effective May 1, 2003, Student Advantage amended its loan agreement with
Reservoir and John Katzman, to provide for a payment of $7.8 million of the
principal amount outstanding under the Reservoir credit facility upon the
consummation of the sale of the assets of its OCM Direct subsidiary to Alloy,
Inc. The payment was made on May 6, 2003. In addition, Reservoir and Mr. Katzman
agreed to extend the maturity date of their loans from July 1, 2003 to January
31, 2005, to set the interest rate at 10% per annum beginning May 1, 2003 and
require quarterly payments of interest beginning September 30, 2003. Reservoir
and Mr. Katzman also agreed to waive all accrued and unpaid interest under the
loan through April 30, 2003. In addition, Student Advantage agreed to pay a fee
of $0.1 million on December 31, 2003 and June 30, 2004 if any of the loans are
outstanding as of such date.
In January 2003, Student Advantage sold the portion of its assets relating
to its SA Cash brand to Blackboard, Inc. In connection with the sale, Student
Advantage entered into a limited licensing agreement with Blackboard under which
it will continue to offer the SA Cash product line to a set of designated
colleges and universities, but otherwise will not compete with Blackboard in the
SA Cash business other than in connection with schools operating on the Diebold
payments platform until January 2010. Student Advantage does not anticipate that
the SA Cash product will be a significant source of revenue in the future.
On May 5, 2003, Student Advantage completed the sale of substantially all
the assets of its OCM Direct subsidiary to Alloy Inc., for cash consideration of
$15.6 million and $1.8 million as settlement of the intercompany balance between
OCM Direct and Student Advantage and the amendment of the terms of OCM Direct's
outstanding indebtedness to Bank of America. Of the cash consideration of $15.6
million, $1.0 million was placed into an escrow account, which expires on May 1,
2005, and may be drawn down by Student Advantage upon payment of tax liabilities
related to OCM Direct prior to that date. The assets sold consisted of primarily
cash, accounts receivable, property and equipment, goodwill and intangible
assets, inventory and prepaid expenses. Alloy also assumed certain accounts
payable, accrued liabilities and the outstanding balance on the OCM loan. In
connection with the sale, Student Advantage agreed not to compete with Alloy in
the business of selling diploma frames, carpets, residence halls linens and
related dorm accessories as well as care packages and related sampling programs
except as currently done through its websites and membership program until May
2007.
On November 11, 2003, Student Advantage's Board of Directors approved,
subject to the approval of its stockholders, the Merger and Asset Sale described
in more detail under "SPECIAL FACTORS," "THE MERGER AGREEMENT" and "THE PURCHASE
AND SALE AGREEMENT" above.
On November 13, 2003, Student Advantage entered into a letter agreement
with Reservoir, Scholar and Mr. Katzman, pursuant to which Reservoir, Scholar
and Mr. Katzman agreed to accept the $4.25 million OCSN Non-cash Consideration,
$2.25 million and $550,000, respectively, as full payment of all amounts
outstanding to them by Student Advantage through the date of the closing of the
proposed Transactions. In the event the proposed Transactions are not
consummated, the terms of the Loan Agreement, Scholar Loan and Mr. Katzman's
guarantee fee would remain unchanged.
STRATEGY
Student Advantage's objective following the completion of the Transactions
is to continue setting the standard for commerce in higher education by working
with universities and businesses to make what
74
students need easily available to them, by making it less expensive and helping
them pay for it more conveniently. Student Advantage intends to achieve these
objectives through the following:
Enhance Student Commerce Through University-Endorsed
Relationships. Student Advantage intends to continue its focus on increasing
the volume and average value of transactions in its core Membership Program by
enhancing its value to students and their parents through new products and
services marketed offline and online in conjunction with its university and
business partners.
Continue to Build the Student Advantage Brand. Student Advantage believes
that in order to attract and expand its membership base and its service
offerings to colleges and universities, and corporate partners, it must continue
to build strong brands. By partnering with leading national and local sponsors
and universities, Student Advantage works to integrate commerce opportunities
into the student experience. Student Advantage remains its most important
consumer brand. Student Advantage will also continue to enhance its branding
both directly and through co-marketing arrangements with its sponsors.
Aggressively Grow Student Reach. Student Advantage intends to continue to
grow the number of paid participants in the Student Advantage Membership
Program, as well as the number of registered users on its network of websites
through a variety of initiatives including:
- increasing the frequency of new paid memberships through online
membership sales on studentadvantage.com through corporate sponsored
distributions and through university and college sales, and
- increasing its number of corporate sponsors, and therefore, the content
on its network of websites and the benefits of its Membership Program.
Continue to Pursue Strategic Alliances. Student Advantage intends to
continue to enter into strategic alliances in order to expand and strengthen its
offerings to students, their parents, universities and corporate partners.
PRODUCTS AND SERVICES
Student Advantage works with colleges and universities and in cooperation
with businesses to develop products and services that are easily available to
students and their parents. The Student Services division offers students a
broad range of products and services, through the Student Advantage Membership
Program, as well as services and content on its websites specifically created
for their unique needs. The Corporate and University Services division offers
corporate customers marketing services and offers universities content, commerce
and data management services. The following describes Student Advantage's
current products and services, however, if the Asset Sale is completed, Student
Advantage will no longer provide the products and services described below under
"Official College Sports Network ("OCSN")."
The Student Advantage Membership Program and studentadvantage.com. The
Student Advantage Membership Program is an annual fee-based program, providing
students with discounts and partner benefits at nearly 15,000 participating
retail locations serving college campuses nationwide. Companies such as
Amtrak(R), Greyhound, Tower Records, 1800 Flowers, Dollar Rent-a-Car, US
Airways, Foot Locker and BarnesandNoble.com utilize Student Advantage's
membership platform as a customer relationship management program for
acquisition, activation and usage of their products and services. By aggregating
and communicating with students through the Membership Program, Student
Advantage offers its partners a single point-of-contact to access, influence and
reward student-purchasing behaviors. Memberships are distributed in several
ways. Student Advantage sells memberships directly to parents and students for
an annual membership fee that is currently $20, distributes memberships at no
cost to certain qualified students and sells memberships to certain of its
corporate partners and universities for resale to students at their retail
locations and campuses. Complementing the membership program is
studentadvantage.com, an online resource of commerce relationships, proprietary
information and services developed exclusively for students. In addition,
Student Advantage's online technology store, formerly Edu.com, gives verified
75
college students, faculty and staff access to academic pricing on name-brand
computer hardware and software.
Official College Sports Network ("OCSN"). Through its official athletic
sites, OCSN provides online brand management, content delivery and e-commerce
services to more than 135 university athletic departments and athletic
conferences throughout the country. CollegeSports.com serves as the network hub
for individual official athletic sites. In addition, through OCSN's U-WIRE , a
newswire service which is free for college newspaper media, OCSN distributes
student-produced content to more than 600 U-WIRE member publications,
professional media outlets and syndication partners such as Yahoo! Sports,
NYTimes.com and Lexis-Nexis. Student Advantage's sponsors and business partners
can utilize U-WIRE to send press releases directly to the student editors at
member college newspapers.
CUSTOMERS
Student Advantage's primary customers are consumers -- college students,
their parents and alumni -- who purchase products and services that it makes
available to them offline and online. Student Advantage also works with
approximately 1,100 colleges and universities, campus organizations, and alumni
associations to develop and market valuable and highly-relevant products and
services. These relationships provide Student Advantage with resources to reach
its primary customers as well as certain content and commerce rights that give
Student Advantage a strong competitive advantage by differentiating it in the
marketplace. Student Advantage's corporate customers are the third essential
element of its customer base. Many of them serve as Student Advantage's
marketing partners by adopting the Student Advantage Membership Program as the
platform by which they extend student discounts, thereby increasing the value of
the program to students, while other corporate clients pay Student Advantage
advertising and related promotional fees to gain access to its customer base.
SALES AND MARKETING
As of September 30, 2003, Student Advantage had a direct sales organization
consisting of 6 professionals, who are engaged in a variety of sales functions,
including selling banner advertising and sponsorships, enlisting additional
national sponsors for its Membership Program, seeking opportunities for
corporate-sponsored events and promotions targeted at college students and
managing existing sponsor relationships.
Student Advantage uses a variety of online and traditional marketing
programs to increase brand recognition. Its marketing strategy for its brands
contains a mix of online advertising, programs which direct members to its
websites, 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 10 marketing professionals as of September 30, 2003.
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.
Student Advantage's current strategy is to license commercially available
technology whenever possible rather than seek internally developed solutions.
Student Advantage uses internal resources to develop the specialized software
necessary for its business, such as the software required to register members
online.
Consistent with its preference for off-the-shelf software components, the
hardware systems that Student Advantage utilizes also consist of commercially
available components. Student Advantage believes that this architecture provides
the ability to increase scale quickly and reliably at a relatively low cost.
Student Advantage's existing infrastructure currently exceeds present demand,
and as such, it has no plans for additional upgrades.
76
The Student Advantage membership database and the related system hardware
are currently hosted at Navisite, Inc. in Massachusetts. The Student Advantage
membership database utilizes Oracle 8i database software running in a
primary/standby mode on Sun Microsystems hardware. Student Advantage's
production web/application servers utilize Compaq hardware running Apache web
server and Tomcat JSP software.
The Official College Sports Network web environment is currently hosted at
Cable & Wireless in Irvine, Calif. The front-end web and application environment
runs on Dell hardware, running the Linux operating system and Apache web server.
The database environment utilizes Oracle 8i, running on a Sun Microsystems and
EMC hardware platform. The Ecommerce environment runs on Dell hardware, running
the Windows NT and Windows 2000 operating systems and Microsoft Internet
Information Services web server.
A group of systems administrators and network managers at OCSN operate the
web sites and network operations and monitor its systems 24 hours a day.
Navisite and Cable & Wireless manage its data centers and Internet connectivity
operations.
Student Advantage's operations are dependent upon the ability of Navisite
and Cable & Wireless 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 and are equipped with redundant file systems, which allows
for prompt replacement of defective disks without interruption of service.
Student Advantage's systems are copied to backup tapes each night and stored at
an off-site storage facility for one year.
COMPETITION
Student Advantage competes with other companies targeting the student
population, such as:
- publishers and distributors of traditional offline media, particularly
those targeting college students, such as campus newspapers, other print
media, television and radio; and
- vendors of college student information, merchandise, products and
services distributed through online and offline means, including retail
stores, direct mail and schools.
Student Advantage competes 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 through the Internet will proliferate
in the foreseeable future. To the extent such proliferation occurs, it could
have a material adverse effect on the demand for membership programs.
Competition for online users and advertisers is intense and is expected to
increase over time, as barriers to entry are relatively low. Student Advantage
competes for visitors, traffic, sponsors and online merchants with web
directories, search engines, content sites, online service providers and
traditional media companies. Student Advantage also faces competition from other
companies maintaining websites dedicated to college students as well as
high-traffic websites sponsored by companies such as AOL Time Warner, CBS,
Disney, Terra Lycos, Microsoft, MTV and Yahoo!.
Many of its competitors have longer operating histories, greater name
recognition, larger customer bases and significantly greater financial,
technical and marketing resources than Student Advantage. In addition,
substantially all of its current advertising customers have established
collaborative relationships with other high-traffic websites. As a result, its
advertising customers might conclude that other Internet businesses, such as
search engines, commercial online services and sites that offer professional
editorial content are more effective sites for advertising than Student
Advantage's sites. Moreover, Student Advantage may be unable to maintain either
the level of traffic on its web sites or a stable membership
77
base, which would make its sites less attractive than those of its competitors.
Increased competition from these and other sources could require Student
Advantage to respond to competitive pressures by establishing pricing, marketing
and other programs or seeking out additional strategic alliances or acquisitions
that may be less favorable to it than it could otherwise establish or obtain.
INTELLECTUAL PROPERTY AND PROPERTY RIGHTS
Student Advantage regards its copyrights, service marks, trademarks, trade
dress, trade secrets, proprietary technology and similar intellectual property
as important to its success, and relies on trademark and copyright law, trade
secret protection and confidentiality and/or license agreements with its
employees, customers, independent contractors, sponsors and others to protect
its proprietary rights. Student Advantage strategically pursues the registration
of its trademarks and service marks. However, effective patent, trademark,
service mark, copyright and trade secret protection may not be available in all
instances. There can be no assurance that the steps taken by Student Advantage
to protect its proprietary rights will be adequate or that third parties will
not infringe or misappropriate its patents, 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 Student Advantage to protect its
intellectual property in a meaningful manner could have a material adverse
effect on its business, financial condition and results of operations. In
addition, litigation may be necessary in the future to enforce its intellectual
property rights, to protect its 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 Student Advantage's 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.
Student Advantage may be required to obtain licenses from others to refine,
develop, market and deliver new products and services. There can be no assurance
that Student Advantage 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.
GOVERNMENT REGULATION
Student Advantage is subject to various laws and regulations relating to
its business. Although there are currently few laws or regulations directly
governing access to or commerce on the internet, due to the increasing
popularity and use of the internet, a number of laws and regulations may be
adopted regarding user privacy, pricing, acceptable content, taxation and
quality of products and services. In addition, several telecommunications
providers have petitioned the Federal Communications Commission to regulate and
impose fees on internet service providers and online service providers in a
manner similar to long distance telephone carriers. The adoption of any such
laws or regulations could adversely affect Student Advantage's product and
service offerings, adversely affect the growth in use of its products and
services, decrease the acceptance of the internet as a communications and
commercial medium or restrict its ability to introduce new products. Moreover,
it may take years to determine the extent to which existing laws relating to
issues such as property ownership, libel and personal privacy are applicable to
the internet. Any new laws or regulations relating to the internet could
decrease demand for its products and services or otherwise have a material
adverse effect on its business.
EMPLOYEES
As of September 30, 2003, Student Advantage employed 108 full-time
employees. Student Advantage also hires temporary employees, particularly at the
beginning of each school semester, and contract service providers as necessary.
None of its employees are represented by a labor union or is the subject of a
collective bargaining agreement. Student Advantage believes that relations with
its employees are generally
78
good. Competition for qualified personnel in its industry is intense,
particularly among sales, online product development and technical staff.
Student Advantage believes that its future success will depend in part on its
continued ability to attract, hire and retain qualified personnel.
All share and per share amounts in this proxy statement have been adjusted
to reflect the one-for-ten reverse split of the common stock effected on each of
June 28, 2002, and June 30, 2003.
PROPERTIES
Student Advantage's principal executive offices are located at 280 Summer
Street in Boston, Massachusetts, where it presently leases an aggregate of
approximately 18,000 square feet. Student Advantage's current leases for this
facility expire at various times through 2005. Student Advantage also maintains
regional offices in Carlsbad, California and Atlanta, Georgia. In total, its
leased office and warehouse space aggregates approximately 34,000 square feet.
Student Advantage believes that its current facilities and other facilities
that will be available to it will be adequate to accommodate its needs for the
foreseeable future. There can be no assurance that Student Advantage will be
successful in obtaining or disposing of additional space, if required, or if
such transactions to lease or dispose of the space will be on terms acceptable
to it.
LEGAL PROCEEDINGS
In November 2002, Student Advantage was named as a defendant in a lawsuit
filed against it and General Motors by Richard M. Kipperman, Liquidating Trustee
of the bankruptcy estate of CollegeClub.com, Inc., Campus24, Inc. and
CollegeStudent.com, Inc., in the U.S. Bankruptcy Court for the Southern District
of California. The suit sought damages of $2.25 million and interest and costs
relating to payments received by Student Advantage under an agreement with
General Motors that it acquired from CollegeClub.com. The trustee alleged that
the payments were earned by CollegeClub.com prior to Student Advantage's
acquisition of the agreement and were not sold to it as part of the agreement.
On October 8, 2003, Student Advantage entered into a settlement agreement with
the Liquidating Trustee, whereby it will pay $250,000 in cash and issued a
promissory note for $150,000, which accrues interest at a rate of five percent
per year and is due on August 31, 2004 to the bankruptcy estate. If Student
Advantage elects to pay the promissory note by March 15, 2004, the Liquidating
Trustee has agreed to accept $100,000 as full payment for the note.
Student Advantage is periodically a party to contractual disputes,
litigation and potential claims arising in the ordinary course of its business.
Student Advantage does not believe that the resolution of these matters will
have a material adverse effect on its financial condition or results of
operations.
Student Advantage has not been convicted of a criminal proceeding or been a
party to any judicial or administrative proceeding during the past five years
that resulted in a judgment, decree or final order enjoining Student Advantage
from future violations of, or prohibiting activities subject to, federal or
state securities laws.
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DIRECTORS AND OFFICERS OF STUDENT ADVANTAGE
Below are the name, age and principal occupations for the last five years
of Student Advantage's directors and executive officers as of December 15, 2003.
Each of the persons named below is a citizen of the United States of America.
<Table>
<Caption>
NAME AGE POSITION
- ---- --- --------
Raymond V. Sozzi, Jr.................. 35 Chairman of the Board of Directors,
Chief Executive Officer, President and
Secretary
John M. Connolly...................... 51 Director
William S. Kaiser..................... 48 Director
Marc J. Turtletaub.................... 57 Director
Charles E. Young...................... 71 Director
Sevim M. Perry........................ 33 Chief Financial Officer, Vice
President, Finance and Assistant
Treasurer
Heather L. Lourie..................... 32 Vice President, Corporate Development
</Table>
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.
John M. Connolly has served as a member of Student Advantage's 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.
William S. Kaiser has served as a member of Student Advantage's 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 has served as a member of Student Advantage's 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.
Charles E. Young has served as a member of Student Advantage's 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.
Sevim M. Perry has served as Vice President, Finance and Assistant
Treasurer of Student Advantage since February 2002 and Chief Financial Officer
since May 2003. From February 2000 to February 2002, Ms. Perry served as
Corporate Controller of HighGround Systems, a network storage company. Before
joining Highground Systems, Ms. Perry was the Assistant Corporate Controller and
Assistant Treasurer of Marcam Solutions, an international software and services
business, from January 1999 to February 2000. From January 1998 to January 1999,
she was a member of the finance organization at USWest. From 1993 to February
1998, Ms. Perry was a member in the audit division of Coopers and Lybrand LLP, a
public accounting firm.
Heather L. Lourie has served as Vice President, Corporate Development of
Student Advantage since January 2000 and as Director, Corporate Development
since May 1999. From 1993 to April 1999,
80
Ms. Lourie was a member and a manager in the Transaction Services Division of
PricewaterhouseCoopers LLP, a public accounting firm.
To the knowledge of Student Advantage, during the last five years, none of
the foregoing directors or executive officers has been convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors) or has been
party to a civil proceeding before a judicial or administrative body of
competent jurisdiction (except for matters that were dismissed without sanction
or settlement) resulting in a judgment, decree or final order enjoining such
person from future violations of, or prohibiting such person from activities
subject to, federal or state securities laws, or finding violations by such
person with respect to such laws.
The business address and business telephone number for each director and
executive officer of Student Advantage listed above is c/o Student Advantage,
Inc., 280 Summer Street, Boston, MA 02210 and (617) 912-2000.
INFORMATION ABOUT ATHENA VENTURES AND ACQUISITION SUB
ATHENA VENTURES AND ACQUISITION SUB
Athena Ventures is a newly formed Delaware corporation, which was formed at
the direction of Raymond V. Sozzi, Jr. Mr. Sozzi is the sole stockholder of
Athena Ventures, which was formed solely for the purposes of engaging in the
transactions contemplated by the Merger Agreement.
Acquisition Sub is a newly formed Delaware corporation which was formed at
the direction of Mr. Raymond Sozzi, Jr. It is a wholly-owned subsidiary of
Athena Ventures. Acquisition Sub was formed solely for the purposes of engaging
in the transactions contemplated by the Merger Agreement.
Neither Athena Ventures nor Acquisition Sub has been convicted of a
criminal proceeding or been a party to a judicial or administrative proceeding
during the past five years that resulted in a judgment, decree or final order
enjoining Athena Ventures or Acquisition Sub from future violations of, or
prohibiting activities subject to, federal or state securities laws, or a
finding of any violation of federal or state securities laws.
DIRECTORS AND OFFICERS OF ATHENA VENTURES AND ACQUISITION SUB
Below are the name, age and principal occupation for the last five years of
Athena Ventures' sole director and executive officer as of December 15, 2003 and
Acquisition Sub's sole director and executive officer as of December 15, 2003.
The person named below is a citizen of the United States of America.
<Table>
<Caption>
NAME AGE POSITION
- ---- --- --------
Raymond V. Sozzi, Jr........................ 35 President, Secretary and sole Director
</Table>
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. In October 2003, Mr. Sozzi founded Athena
Ventures and Acquisition Sub and has served as the President, Secretary and sole
director or each entity since inception.
To the knowledge of Athena Ventures and Acquisition Sub, during the last
five years, Mr. Sozzi has not been convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors) nor has he been party to a civil
proceeding before a judicial or administrative body of competent jurisdiction
(except for matters that were dismissed without sanction or settlement)
resulting in a judgment, decree or final order enjoining Mr. Sozzi from future
violations of, or prohibiting him from activities subject to, federal or state
securities laws, or finding violations by him with respect to such laws.
The business address and business telephone number for Mr. Sozzi is c/o
Athena Ventures, 280 Summer Street, Boston, MA 02210 and (617) 912-2000.
81
BENEFICIAL OWNERSHIP OF VOTING STOCK
The following table contains information regarding the beneficial ownership
of the common stock of Student Advantage as of December 15, 2003 by:
- each person known to beneficially own more than 5% of the outstanding
shares of common stock,
- each of Student Advantage's directors and "named executive officers", as
defined in Item 402(a)(3) of Regulation S-K,
- all of Student Advantage's current directors and executive officers as a
group, and
- Athena Ventures, Acquisition Sub and the sole executive officer and
director thereof.
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 December 15, 2003,
there were 537,309 shares of common stock outstanding.
<Table>
<Caption>
PERCENTAGE OF
SHARES COMMON
BENEFICIALLY STOCK
NAME OF BENEFICIAL OWNER OWNED OUTSTANDING
- ------------------------ ------------------- -------------
5% STOCKHOLDERS
Raymond V. Sozzi, Jr.(1)................................ 75,629 14.1%
Greylock IX Limited Partnership(2)...................... 45,000 8.4
William S. Kaiser(2).................................... 45,000 8.4
Marc J. Turtletaub...................................... 43,333 8.1
Atlas II, L.P.(3)....................................... 40,912 7.6
Pentagram Partners, L.P.(3)............................. 39,461 7.3
OTHER DIRECTORS OF STUDENT ADVANTAGE
John M. Connolly(4)..................................... 100 *
Charles E. Young(5)..................................... 126 *
OTHER NAMED EXECUTIVES OF STUDENT ADVANTAGE
Heather L. Lourie(6).................................... 1,295 *
Michael J. Phelan(7).................................... 225 *
Jay P. Summerall(8)..................................... 80 *
Kevin M. Roche(9)....................................... 0 *
All executive officers and directors as a group (8
persons)(10).......................................... 167,893 31.1
OTHER PARTIES
Athena Ventures(1)...................................... 0 *
Acquisition Sub......................................... 0 *
Raymond V. Sozzi, Jr.(1)................................ 75,629 14.1
</Table>
- ---------------
* Less than 1%.
(1) Mr. Sozzi intends to contribute his shares of common stock to Athena
Ventures prior to the closing of the Merger.
(2) Consists of 42,500 shares held of record and 2,500 shares subject to
warrants that were exercisable on or within 60 days of December 15, 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
82
pecuniary interest therein. The address for Greylock IX Limited Partnership
and Greylock IX GP Limited Partnership is One Federal Street, Boston,
Massachusetts 02110. This information is based solely on a Schedule 13D/A
filed with the SEC on May 30, 2003.
(3) 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 40,912 shares
and Pentagram Partners, L.P. has sole voting and investment power with
respect to 39,461 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. This
information is based solely on a Schedule 13D/A filed with the SEC on May
30, 2003.
(4) Consists of 100 shares subject to options held by Mr. Connolly that were
exercisable on or within 60 days of December 15, 2003.
(5) Consists of 126 shares subject to options held by Mr. Young that were
exercisable on or within 60 days of December 15, 2003.
(6) Includes of 938 shares subject to options held by Ms. Lourie that were
exercisable on or within 60 days of December 15, 2003.
(7) Consists of 225 shares subject to options held by Mr. Phelan that were
exercisable on or within 60 days of December 15, 2003. Mr. Phelan's
employment with Student Advantage terminated on August 1, 2003.
(8) Consists of 80 shares held by Mr. Summerall's minor children. Mr. Summerall
resigned from his position as Chief Operating Officer on February 7, 2003.
(9) Mr. Roche resigned from his position as Vice President, Human Resources on
April 16, 2003 and his options expired on July 16, 2003.
(10) Includes 1,064 shares subject to options held by current executive officers
and directors and 2,500 shares subject to a warrant that a director may be
deemed to beneficially own that were exercisable on or within 60 days of
December 15, 2003.
PRIOR STOCK PURCHASES AND OTHER TRANSACTIONS
In the past two years, no purchases of Student Advantage common stock have
been made by Student Advantage, Athena Ventures, Acquisition Sub or Mr. Sozzi,
except that Mr. Sozzi purchased 950 shares of common stock during the first
quarter of 2002 at prices ranging from $85.00 to $99.00 per share. The average
purchase price Mr. Sozzi paid during the quarter was $94.00 per share.
No transaction in Student Advantage common stock has occurred during the
past 60 days effected by Student Advantage, Athena Ventures and any of their
executive officers, directors, controlling persons, associates or majority-owned
subsidiary or subsidiaries.
MARKET FOR THE COMMON STOCK
PRICE RANGE OF STUDENT ADVANTAGE COMMON STOCK
Student Advantage's common stock, $0.01 par value per share, 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 the common stock. On June 28, 2002,
Student Advantage effected a one-for-ten reverse split of the common stock. On
June 30, 2003, Student Advantage effected a second one-for-ten reverse split of
the common stock. All share and per share amounts in the table below have been
adjusted to reflect these one-for-ten reverse splits. On February 13, 2003, the
common stock was delisted from the Nasdaq National Market and commenced trading
on the OTC Bulletin Board under the symbol "STAD.OB". Effective on July 1, 2003,
the trading symbol for the common stock on the OTC Bulletin Board changed to
"STUA.OB" as a result of the reverse stock split. As of December 15, 2003, there
were 537,309 shares of common stock outstanding and 398 record holders of common
stock. As indicated above under "THE MERGER
83
AGREEMENT -- STRUCTURE OF THE MERGER", if the Transactions are consummated,
Athena Ventures will be the sole holder of Student Advantage common stock, and
due to Mr. Sozzi's ownership of all of the outstanding stock of Athena Ventures,
he will indirectly own all outstanding shares of Student Advantage common stock.
The table below sets forth the high and low closing sales prices per share
for the common stock on the Nasdaq National Market and the OTC Bulletin Board
for the periods indicated. The over-the-counter market quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.
<Table>
<Caption>
HIGH LOW
------- -------
FISCAL YEAR ENDED DECEMBER 31, 2001
First quarter............................................... $587.50 $206.30
Second quarter.............................................. $288.00 $175.00
Third quarter............................................... $219.00 $ 90.00
Fourth quarter.............................................. $153.00 $ 96.00
FISCAL YEAR ENDED DECEMBER 31, 2002
First quarter............................................... $149.99 $ 85.00
Second quarter.............................................. $ 92.00 $ 17.00
Third quarter............................................... $ 21.86 $ 6.50
Fourth quarter.............................................. $ 13.40 $ 3.90
FISCAL YEAR ENDED DECEMBER 31, 2003
First quarter............................................... $ 4.10 $ 0.40
Second quarter.............................................. $ 1.50 $ 0.60
Third quarter............................................... $ 0.80 $ 0.35
Fourth quarter.............................................. $ 0.98 $ 0.51
FISCAL YEAR ENDING DECEMBER 31, 2004
First Quarter (through February 6, 2004).................... $ 1.02 $ 0.93
</Table>
DIVIDEND POLICY
Student Advantage has never paid or declared any cash dividends on its
common stock. Student Advantage's loan agreement with Reservoir prohibits the
payment of both cash and stock dividends.
PRIOR PUBLIC OFFERINGS
Student Advantage has not made an underwritten public offering of its
common stock for cash during the past three years.
84
CONSOLIDATED SELECTED FINANCIAL DATA
The following selected consolidated financial data are derived from the
financial statements of Student Advantage. 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
the 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, the EDU.com step acquisition accounting, and the disposition of OCM
Direct, Inc. in May 2003, which is presented in the financial statements as a
discontinued operation.
Effective June 18, 1999, the date Student Advantage acquired University
Netcasting, Inc., University Netcasting, Inc.'s fiscal year end was changed from
March 31 to December 31 to conform to Student Advantage' fiscal year end.
University Netcasting, Inc.'s results of operations for the years ended March
31, 1999 have been included in Student Advantage's results of operations for the
years ended December 31, 1998. 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 $0.7 million and $1.6 million,
respectively. This net loss amount has been reported as an adjustment to the
consolidated accumulated deficit.
<Table>
<Caption>
NINE MONTHS
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------------------ -------------------------
1998 1999 2000 2001 2002 2002 2003
-------- ----------- ----------- ------------ ------------ ----------- -----------
(RESTATED)* (RESTATED)* (RESTATED)** (RESTATED)** (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Statement of Operations Data
Revenue
Student services.......... $ 15,174 $ 19,722 $ 28,099 $ 31,246 $ 24,271 $ 17,219 $11,331
Corporate and university
solutions............... 4,186 7,922 19,915 13,783 4,524 3,673 2,083
-------- -------- -------- -------- -------- -------- -------
Total revenue........... 19,360 27,644 48,014 45,029 28,795 20,892 13,414
-------- -------- -------- -------- -------- -------- -------
Costs and expenses
Cost of student services
revenue................. 7,416 11,093 10,263 8,253 9,576 5,834 4,534
Cost of corporate and
university solutions.... 2,963 4,541 9,929 7,070 2,147 2,092 --
Product development....... 5,169 9,974 18,377 17,125 7,414 5,405 4,411
Sales and marketing....... 7,759 12,251 17,880 18,385 15,582 10,475 3,922
General and
administrative.......... 5,555 8,876 11,196 10,112 7,102 5,484 2,580
Restructuring and
impairment of long-lived
assets.................. -- -- -- 6,651 242 -- --
Interest (income) expense,
net..................... (121) (1,358) (1,434) 1,718 3,718 2,383 (279)
Non-cash NBC media
expense................. -- -- -- 3,348 -- -- --
Depreciation and
amortization............ 1,155 1,822 6,382 12,772 7,767 5,904 3,861
-------- -------- -------- -------- -------- -------- -------
Total costs and
expenses.............. 29,896 47,199 72,593 85,434 53,548 37,577 19,029
-------- -------- -------- -------- -------- -------- -------
</Table>
85
<Table>
<Caption>
NINE MONTHS
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------------------ -------------------------
1998 1999 2000 2001 2002 2002 2003
-------- ----------- ----------- ------------ ------------ ----------- -----------
(RESTATED)* (RESTATED)* (RESTATED)** (RESTATED)** (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Operating loss from
continuing operations... (10,536) (19,555) (24,579) (40,405) (24,753) (16,685) (5,615)
Equity interest in edu.com
net loss................ -- (316) (3,776) (495) -- -- --
Realized gain on debt
restructuring........... -- -- -- -- 2,937 -- --
Realized gain (loss) on
sale of assets.......... -- -- (367) 1,508 6,805 6,532 5,838
-------- -------- -------- -------- -------- -------- -------
Loss from continuing
operations before income
taxes................... (10,536) (19,871) (28,722) (39,392) (15,011) (10,153) 223
Provision for income
taxes................... -- -- -- (207) (61) -- --
-------- -------- -------- -------- -------- -------- -------
Loss from continuing
operations.............. (10,536) (19,871) (28,722) (39,599) (15,072) (10,153) 223
-------- -------- -------- -------- -------- -------- -------
Discontinued operations:
Income (loss) from
operations of
discontinued
subsidiary.............. -- -- -- 3,811 (858) 814 (3,159)
Loss on disposal of
discontinued
operations.............. -- -- -- -- -- -- (690)
-------- -------- -------- -------- -------- -------- -------
Net Loss.................... $(10,536) $(19,871) $(28,722) $(35,788) $(15,930) $ (9,339) $(3,626)
-------- -------- -------- -------- -------- -------- -------
Earnings per share -- Basic
and Diluted:
Loss from continuing
operations.............. $ (59.49) $ (72.50) $ (78.58) $ (88.91) $ (29.29) $ (20.14) $ 0.42
Income (loss) from
discontinued
operations.............. -- -- -- 8.56 (1.67) 1.62 (7.18)
-------- -------- -------- -------- -------- -------- -------
Basic and diluted net loss
per share................. $ (59.49) $ (72.50) $ (78.58) $ (80.35) $ (30.96) $ (18.53) $ (6.76)
-------- -------- -------- -------- -------- -------- -------
Shares used in computing
basic and diluted net
loss per share.......... 177 274 366 445 515 504 536
-------- -------- -------- -------- -------- -------- -------
</Table>
- ---------------
* restatement pertains to Edu.com step acquisition accounting
** restatement pertains to disposition of OCM Direct, Inc.
*** All share and per share items have been adjusted to reflect the one-for-ten
reverse split of the Common Stock effected on each of June 28, 2002 and June
30, 2003
86
<Table>
<Caption>
DECEMBER 31,
------------------------------------------------------------------ SEPTEMBER 30,
1998 1999 2000 2001 2002 2003
-------- ----------- ----------- ------------ ------------ -------------
(RESTATED)* (RESTATED)* (RESTATED)** (RESTATED)** (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Balance Sheet Data
Cash and cash equivalents........ $ 6,140 $15,370 $12,762 $ 3,688 $ 1,468 $ 2,075
Restricted cash.................. -- -- -- 667 515 483
Marketable securities............ -- 20,546 -- -- -- --
Working capital (deficit)........ (2,355) 24,139 4,257 (9,263) (28,354) (1,247)
Total assets..................... 11,704 60,480 51,570 58,131 38,489 10,793
Deferred revenue and other
advances....................... 7,064 9,576 4,013 3,521 8,280 2,489
Long-term obligation under
capital leases................. -- -- 1,861 628 -- --
Redeemable convertible preferred
stock.......................... 10,196 -- -- -- -- --
Stockholders' equity (deficit)... (10,548) 41,378 30,543 11,791 (853) (4,479)
</Table>
- ---------------
* restatement pertains to Edu.com step acquisition accounting
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited condensed pro forma financial statements as of the
nine months ended September 30, 2003 and the year ended December 31, 2002 have
been prepared to effect for the sale of the net assets of Student Advantage's
Collegeclub and OCSN businesses as well as the repayment of Student Advantage's
secured debt. The condensed pro forma statements reflect the disposition as of
September 30, 2003 for balance sheet purposes and as if the disposition had
occurred on January 1, 2002 and January 1, 2003 for income statement purposes.
Student Advantage has not provided pro forma data giving effect to the Merger as
it does not believe such information is material. The only change to Student
Advantage's financial position resulting from the Merger will be the repayment
of debt from the proceeds of the Asset Sale. In addition, the Merger
consideration payable to Student Advantage stockholders consists solely of cash
and, if the Merger is consummated, Student Advantage's common stock will cease
to be publicly traded. As a result, Student Advantage does not believe that the
changes to its financial condition resulting from the Merger would provide
meaningful or relevant information in evaluating the Merger and Merger
Agreement, since Student Advantage's stockholders will not be stockholders of,
and will have no interest in, Student Advantage following the Merger.
The pro forma financial statements have been prepared by management of
Student Advantage and are based upon the historical financial statements of
Student Advantage. The unaudited pro forma consolidated balance sheet has been
adjusted to reflect the following transactions:
- The sale of the net assets of Student Advantage's CollegeClub business
for proceeds of $0.6 million in cash plus an estimated achieved earnout
of $0.45 million (of a potential $0.6 million earnout), an approximate
gain on the transaction of $0.9 million, net of transaction costs and
estimated accrued exit costs, and removes all of the assumed liabilities
of CollegeClub.
- The sale of the net assets of OCSN for proceeds of $7.1 million
(including the non-cash consideration of $4.25 million), an approximate
gain on the transaction of $6.1 million, net of transaction costs, and
removes all of the assets and liabilities of OCSN.
- The repayment of Student Advantage's secured debt with the cash and the
$4.25 million non-cash consideration received from the Asset Sale.
Pro forma adjustments are described in the accompanying notes. The pro forma
statements of operations may not be indicative of the results of operations that
actually would have occurred if the transaction had been in effect as of the
beginning of the respective periods nor do they purport to indicate the results
of future operations of Student Advantage.
87
STUDENT ADVANTAGE, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS -- (UNAUDITED)
<Table>
<Caption>
AS REPORTED COLLEGECLUB OCSN DEBT
SEPTEMBER 30, PRO FORMA PRO FORMA PRO FORMA PRO FORMA
2003 ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS COMBINED
------------- ----------- ----------- ----------- ---------
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
Current assets
Cash and cash equivalents.................. $ 2,075 $1,153a $ 2,198b $(2,800)c $ 2,626
Restricted cash............................ 350 -- (250)b -- 100
Accounts receivable........................ 1,915 -- (1,078)b -- 837
Prepaid expenses........................... 790 -- (222)b -- 568
Other current assets....................... 861 -- -- -- 861
--------- ------ ------- ------- ---------
Total current assets..................... 5,991 1,153 648 (2,800) 4,992
Notes receivable........................... 3,420 -- 4,250b (4,250)c 3,420
Long term restricted cash.................. 133 -- -- -- 133
Property and equipment, net................ 1,249 -- (277)b -- 972
--------- ------ ------- ------- ---------
Total assets............................. $ 10,793 $1,153 $ 4,621 $(7,050) $ 9,517
========= ====== ======= ======= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable........................... $ 1,299 $ -- $ (725)b $ -- $ 574
Other accrued expenses..................... 3,326 368a (520)b (498)c 2,676
Accrued compensation....................... 122 -- -- -- 122
Deferred revenue and other advances........ 2,489 (146)a (192)b -- 2,151
Current obligation under capital lease..... 2 -- -- -- 2
--------- ------ ------- ------- ---------
Total current liabilities................ 7,238 222 (1,437) (498) 5,525
Deferred gain.............................. 534 -- -- -- 534
Notes payable.............................. 5,250 -- -- (5,250)c --
Related party note payable................. 2,250 -- -- (2,250)c --
--------- ------ ------- ------- ---------
Total long-term obligations.............. 8,034 -- -- (7,500) 534
--------- ------ ------- ------- ---------
Total liabilities........................ 15,272 222 (1,437) (7,998) 6,059
--------- ------ ------- ------- ---------
Stockholders' equity (deficit)
Preferred stock, $0.01 par value, 100,000
shares authorized, no shares issued and
outstanding.............................. -- -- -- -- --
Common stock, $0.01 par value; authorized:
1,000,000; issued and outstanding:
536,261.................................. 5 -- -- -- 5
Additional paid-in capital................. 124,006 -- -- -- 124,006
Accumulated deficit........................ (128,440) 931a 6,058b 948c (120,503)
Note receivable from stockholder........... (50) -- -- -- (50)
--------- ------ ------- ------- ---------
Total stockholders' equity (deficit)..... (4,479) 931 6,058 948 3,458
--------- ------ ------- ------- ---------
Total liabilities and stockholders'
equity (deficit)....................... $ 10,793 $1,153 $ 4,621 $(7,050) $ 9,517
========= ====== ======= ======= =========
</Table>
- ---------------
* All share and per share items have been adjusted to reflect the one-for ten
reverse split of the common stock effected on June 30, 2003
88
The following table sets forth selected historical financial information
for Student Advantage as previously reported and pro forma excluding the
interest expense from Student Advantage's secured debt and the results of
operations of the CollegeClub and OCSN businesses for the nine months ended
September 30, 2003. The pro forma net income and per share amounts exclude the
estimated gains on the sale of the CollegeClub and OCSN assets and the gain on
the repayment of secured debt.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2003 -- (UNAUDITED)
<Table>
<Caption>
AS REPORTED COLLEGECLUB OCSN DEBT
SEPTEMBER 30, PRO FORMA PRO FORMA PRO FORMA PRO FORMA
2003 ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS COMBINED
------------- ----------- ----------- ----------- ---------
(IN THOUSANDS)
Revenues........................... $13,414 $(1,484)d $(6,357)e $ -- $ 5,573
Costs and expenses
Cost of revenues................. 4,534 (66)d (2,969)e -- 1,499
Product development.............. 4,411 (629)d (1,866)e -- 1,916
Sales and marketing.............. 3,922 (778)d (1,296)e -- 1,848
General and administrative....... 2,580 (85)d (650)e -- 1,845
Depreciation and amortization.... 3,861 (1,421)d (119)e -- 2,321
------- ------- ------- ---- -------
Total costs and expenses...... 19,308 (2,979) (6,900) -- 9,429
------- ------- ------- ---- -------
Loss from operations............... (5,894) 1,495 543 -- (3,856)
Realized gain on sale of assets.... 5,838 -- -- -- 5,838
Interest and other income
(expense)........................ 279 -- -- (35)f 244
------- ------- ------- ---- -------
Income from continuing
operations....................... 223 1,495 543 (35) 2,226
------- ------- ------- ---- -------
Discontinued operations:
Loss from operations of
discontinued subsidiary....... (3,159) -- -- -- (3,159)
Loss on disposal of discontinued
subsidiary.................... (690) -- -- -- (690)
------- ------- ------- ---- -------
Net loss........................... $(3,626) $ 1,495 $ 543 $(35) $(1,623)
======= ======= ======= ==== =======
Earnings per share -- Basic and
Diluted:
Income from continuing
operations....................... 0.42 4.15
Loss from discontinued
operations....................... (7.18) (7.18)
------- -------
Net loss........................... $ (6.76) $ (3.03)
======= =======
Weighted-average number of
shares........................... 536 536
======= =======
</Table>
- ---------------
* All share and per share items have been adjusted to reflect the one-for ten
reverse split of the common stock effected on June 30, 2003
89
The following table sets forth selected historical financial information
for Student Advantage as previously reported and pro forma excluding the
interest expense and the gain on restructured debt from Student Advantage's
secured debt and the results of operations of the CollegeClub and OCSN
businesses for the year ended December 31, 2002. The pro forma net income and
per share amounts exclude the estimated gains on the sale of the college club
and OCSN assets and the gain on the repayment of secured debt.
STUDENT ADVANTAGE, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2002
<Table>
<Caption>
AS REPORTED COLLEGECLUB OCSN DEBT
31-DEC PRO FORMA PRO FORMA PRO FORMA PRO FORMA
2002 ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS COMBINED
----------- ----------- ----------- ----------- -----------
(AUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
Revenues........................... $ 28,795 $(6,312)d $(10,285)e $ -- $ 12,198
Costs and expenses
Cost of revenues.............. 11,723 (657)d (5,975)e -- 5,091
Product development........... 7,414 (1,514)d (3,262)e -- 2,638
Sales and marketing........... 15,582 (3,900)d (1,829)e -- 9,853
General and administrative.... 7,102 (313)d (929)e -- 5,860
Depreciation and
amortization................ 7,767 (2,909)d (102)e -- 4,756
-------- ------- -------- ------- --------
Total costs and expenses.... 49,588 (9,293) (12,097) -- 28,198
-------- ------- -------- ------- --------
Loss from operations............... (20,793) 2,981 1,812 -- (16,000)
Realized gain on sale of assets.... 6,805 -- -- -- 6,805
Realized gain on restructured
debt............................. 2,937 -- -- (2,937)f --
Impairment of long-lived assets.... (242) -- -- -- (242)
Interest and other income
(expense), net................... (3,718) -- (3)e (1,840)f (5,561)
-------- ------- -------- ------- --------
Loss from continuing operations
before income taxes.............. (15,011) 2,981 1,809 (4,777) (14,998)
-------- ------- -------- ------- --------
Provision for income tax......... (61) -- -- -- (61)
-------- ------- -------- ------- --------
Loss from continuing operations.... (15,072) 2,981 1,809 (4,777) (15,059)
-------- ------- -------- ------- --------
Discontinued operations:
Loss from operations of
discontinued operations..... (858) -- -- -- (858)
-------- ------- -------- ------- --------
Net loss........................... $(15,930) $ 2,981 $ 1,809 $(4,777) $(15,917)
======== ======= ======== ======= ========
Earnings per share -- Basic and
Diluted:
Loss from continuing operations.... $ (29.27) $ (29.24)
Loss from discontinued
operations....................... (1.67) (1.67)
-------- --------
Net loss........................... $ (30.94) $ (30.91)
======== ========
Weighted-average number of
shares........................... 515 515
======== ========
</Table>
- ---------------
* All share and per share items have been adjusted to reflect the one-for ten
reverse split of the common stock effected on June 30, 2003
90
(a) To reflect the sale of the net assets of Student Advantage's CollegeClub
business for proceeds of $0.6 million in cash plus an estimated achieved
earnout of $0.45 million (of a potential $0.6 million earnout), an
approximate gain on the transaction of $0.9 million, net of transaction
costs and estimated accrued exit costs, and removes all of the assumed
liabilities of CollegeClub.
(b) To reflect the sale of the net assets of OCSN for proceeds of $7.1 million
(including the non-cash consideration of $4.25 million), an approximate
gain on the transaction of $6.1 million, net of transaction costs, and
removes all of the assets and liabilities of OCSN.
(c) To reflect the reduction of Student Advantage's secured debt and the
related accrued interest by the proceeds to be received at closing from the
Asset Sale and the estimated gain of $0.9 million on restructured debt.
(d) To eliminate the revenues and related costs and expenses for CollegeClub.
(e) To eliminate the revenues and related costs and expenses for OCSN.
(f) To eliminate interest expense and the gain on restructured debt recognized
from Student Advantage's December 31, 2002 restructuring of its debt with
its secured lenders. The interest expense and the gain on restructured
debt are related to the secured debt that will be paid with the proceeds
of the Asset Sale and related to Student Advantage's secured debt.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with Student Advantage's
consolidated financial statements for the years ended December 31, 2000, 2001
and 2002 and for the nine months ended September 30, 2003 and related notes
included elsewhere in this document.
RECENT DEVELOPMENTS
As described in more detail above under "SPECIAL FACTORS," Student
Advantage has entered into the Merger Agreement with Athena Ventures and
Acquisition Sub, pursuant to which Acquisition Sub will be merged with and into
Student Advantage. Student Advantage will remain as the surviving corporation
and will be a wholly-owned subsidiary of Athena Ventures. Upon the effective
time of the Merger, all of the outstanding shares of common stock of Student
Advantage (other than shares held by dissenting shareholders, Athena Ventures or
Acquisition Sub) will be converted into the right to receive $1.05 cash
consideration. Simultaneous to the execution of the Merger Agreement, Student
Advantage has entered into a Purchase and Sale Agreement with NCSN for the sale
of Student Advantage's OCSN Business for $7.1 million. The proceeds from the
OCSN Sale will be used to repay Student Advantage's secured debt.
BUSINESS OVERVIEW
As described in more detail above under "INFORMATION ABOUT STUDENT
ADVANTAGE", Student Advantage is a media and commerce company focused on the
higher education market. Student Advantage works with colleges and universities
and in cooperation with businesses to develop products and services that enable
students to make less expensive and more convenient purchases on and around
campus. Student Advantage reports revenue in two categories: student services
revenue and corporate and university solutions revenue.
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of Student Advantage's financial condition and
results of operations are based upon Student Advantage's consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires Student Advantage to make estimates and judgments that
affect the reported amount of assets, liabilities, revenues and expenses.
On an on-going basis, management evaluates its estimates and judgments,
including those related to revenue recognition, bad debts, intangible assets,
contingencies and litigation. Management bases its estimates on historical
experience and on various other factors that are believed to be reasonable under
the
91
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. However, results may differ from these estimates under different
assumptions or conditions. Student Advantage's significant accounting policies
are described in Note 2 to the consolidated financial statements included
elsewhere herein. Critical accounting policies are those that are reflective of
significant judgments and uncertainties, and could potentially result in
materially different results under different assumptions and conditions. Student
Advantages most critical accounting polices are described below.
ACCOUNT RECEIVABLE
Student Advantage evaluates the collectibility of its accounts receivable
based on a combination of factors. In circumstances where Student Advantage
becomes aware of a specific customer's inability to meet its financial
obligations, such as a bankruptcy filing or a substantial down-grading of a
customer's credit rating, Student Advantage records a specific reserve to reduce
its net receivable to the amount Student Advantage reasonably expects to
collect. Student Advantage also records reserves for bad debts based on the
length of time its receivables are past due, the payment history of its
individual customers and the current financial condition of its customers based
on obtainable data and historical payment and loss trends. Student Advantage's
allowance for doubtful accounts was $0.7 million, $0.2 million and $0.2 million
at December 31, 2001, December 31, 2002 and September 30, 2003, respectively.
The decrease in its estimate during 2002 resulted from the write-off of
previously reserved accounts receivables. Uncertainties affecting its estimates
include future industry and economic trends and the related impact on the
financial condition of its customers, as well as the ability of its customers to
generate cash flows sufficient to pay Student Advantage's amounts due. If
circumstances change, such as higher than expected defaults or an unexpected
material adverse change in a customer's ability to meet its financial
obligations, its estimates of the recoverability of the receivables due could be
reduced by a material amount.
REVENUE RECOGNITION
Student Advantage reports revenues in two categories: student services
revenue and corporate and university solutions revenue. Student services revenue
is attributable to the parts of Student Advantage's business focused primarily
on providing goods and services to students, their parents and alumni. Student
Advantage derives student services revenue from commerce, subscription and
advertising. Commerce revenue from continuing operations is derived primarily
from transaction-based revenue earned for reselling products and services and
processing stored value transactions. Until May 2003, commerce revenue primarily
included revenue received from the sale of residence hall linens and related
accessories, care packages and diploma frames through direct mail marketing,
fees from SA Cash transactions and e-commerce revenue from Student Advantage's
network of websites. As a result of the May 2003 sale of the assets of its OCM
Direct subsidiary, revenue from the sale of residence hall linens and related
accessories, care packages and diploma frames will be presented in the results
of discontinued operations on Student Advantage's Consolidated Statements of
Operations. Commerce revenue is recognized upon the completion of the related
contractual obligations. Subscription revenue is derived from membership fees
related to enrolling students in the Student Advantage Membership Program.
Subscription revenue is recognized ratably from the date of subscription to the
end of the annual membership period. Advertising revenue consists primarily of
fees for banner advertisements and sponsorships on Student Advantage's network
of websites. Website advertising revenue is recognized as the related
impressions are displayed, provided that no significant obligations remain and
collection of the related receivable is assured. 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 obligations remain and collection of the receivable is
assured, or (2) a pro-rata portion of contract revenue based upon impressions
delivered relative to minimum guaranteed impressions to be delivered. In the
past, Student Advantage also derived revenue from advertisements placed in SAM,
Student Advantage Magazine. Revenue from fees related to advertisements placed
in SAM was recognized when the magazine was shipped to members. The revenues
92
related to SAM are only applicable to the year 2000 as no issues were produced
during 2001, 2002 or 2003.
Corporate and university solutions revenue is attributable to the parts of
business focused primarily on providing goods and services to corporations and
universities and consists of marketing services revenue from corporate clients
and licensing, management and consulting fees from universities. Marketing
services revenue is derived primarily from providing tailored event management
and execution services to businesses seeking to market their products and
services to college students. This revenue is recognized upon the completion of
the related contractual obligations. 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 assured. Payments received in
advance of revenue being earned are recorded as deferred revenue.
In accordance with the EITF Issue No. 99-17 "Accounting for Advertising
Barter Transactions," barter revenue and expense is recorded based upon the fair
value of the advertising surrendered in the transaction. Fair value is
established by reference to comparable cash transactions during the six-month
period preceding the barter transaction. Generally, barter transactions involve
exchanges of banner advertising. For the years ended December 31, 2000, 2001,
2002 and for the nine months ended September 30, 2003, Student Advantage
recorded $1.2 million, $4.1 million, $2.9 million and $19,000, respectively, of
barter revenue and $1.2 million, $4.1 million, $2.9 million and $19,000 of
barter expense recorded as sales and marketing expense, respectively.
In accordance with Staff Accounting Bulletin No. 101 "Revenue Recognition
in Financial Statements" and EITF Issue No. 99-19 "Reporting Revenue Gross as a
Principal versus Net," Student Advantage has evaluated its revenue and
determined that it is being reported in accordance with the guidance. Student
Advantage has recorded certain of its commerce revenue at gross, as it is
considered the primary obligor in the transaction.
In November 2001, the Emerging Issues Task Force concluded its discussions
on EITF Issue 01-9 "Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of the Vendor's Products)". This guidance requires that an
entity account for consideration given to a customer as a reduction of revenue
unless it can demonstrate an identifiable benefit that can be sufficiently
separable from the sale of the products or services to the customer, and can
reasonably estimate the fair value of the benefit identified. Student Advantage
adopted EITF Issue 01-9 effective January 1, 2002. In accordance with EITF 01-9,
the amortization of consideration given to certain vendors is offset against
revenue (for the nine-months ended September 30, 2003, this approximated $0.9
million). While consideration given and received by Student Advantage is carried
at the gross value of the amounts on the balance sheet, any revenue recognized
is reflected on a net basis in the accompanying statement of operations.
GOODWILL AND OTHER INTANGIBLE ASSETS
Intangible assets include the excess of the purchase price over
identifiable tangible net assets acquired in acquisitions. Such assets include
goodwill, completed technology, workforce, customer lists, non-compete
agreements, websites and other intangible assets, which are being amortized on a
straight-line basis over their estimated economic lives ranging from two to
fifteen years. As a result of the application of SFAS 142 in 2002, Student
Advantage stopped amortizing the remaining goodwill related to the acquisition
of OCM Direct in the first quarter of 2002. Student Advantage continued to
amortize the remaining value of its intangible assets related to completed
technology, workforce, customer lists, non-compete agreements and contracts
related to its acquisitions of OCM Direct and CollegeClub. As of May 1, 2003, in
relation to Student Advantage's sale of the assets of OCM Direct, it removed
$17.8 million of net goodwill and intangible assets as part of the overall loss
on sale calculation. As of September 30, 2003, the remaining intangible asset
related to its acquisition of CollegeClub had been fully amortized. Amortization
expense from continuing operations for the nine month period ended September 30,
2002 and 2003 was $1.1 million and $0.8 million, respectively.
93
Student Advantage completed an analysis to assess the carrying value of the
remaining goodwill amounts, as of December 31, 2002, and determined there was no
impairment.
LONG-LIVED ASSETS
Student Advantage assesses the realizability of long-lived assets in
accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets." Long-lived assets are reviewed for impairment if events and
circumstances indicate the carrying amount of an asset may not be recoverable.
Due to its announced restructuring in the fourth quarter of 2001 and its
continued restructuring in 2002, Student Advantage evaluated the realizability
of its long-lived assets based on profitability and cash flow expectations for
the related assets. As a result of its review, Student Advantage recorded asset
impairment charges of $1.9 million and $0.2 million for the years ended December
31, 2001 and December 31, 2002, respectively.
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. All
stock-based awards to non-employees are accounted for at their fair value in
accordance with SFAS No. 123.
During 1998 and 1999, Student Advantage granted stock options to purchase
23,130 and 476 shares of its common stock with exercise prices of $33.00 and
$187.00 per share, respectively. Deferred compensation of $4.2 million and $0.2
million was recorded in 1998 and 1999, respectively, representing the difference
between estimated fair market value of the common stock on the date of grant and
the exercise price. These amounts were offset by reductions of $0.3 million,
$0.7 million and $0.2 million, in 1999, 2000 and 2001, respectively, due to
stock option cancellations as a result of employee terminations. Of the
remaining $3.2 million deferred, the full amount had been amortized to expense
as of March 31, 2002, of which $0.8 million, $0.5 million and $49,000 was
recorded as an expense in 2000, 2001 and 2002, respectively. The stock based
compensation charges have been included in the individual operating expense line
items in the financial statements.
DISCONTINUED OPERATIONS
Effective May 1, 2003, Student Advantage completed the sale of
substantially all the assets of its OCM Direct subsidiary to Alloy Inc., for
cash consideration of $15.6 million and $1.8 million as settlement of the
intercompany balance between Student Advantage and OCM Direct and the amendment
of the terms of OCM Direct's outstanding indebtedness to Bank of America. Of the
$15.6 million cash consideration, $1.0 million of the consideration paid was
placed into an escrow account, which expires on May 1, 2005, and may be drawn
down by upon payment of tax liabilities related to OCM Direct prior to that
date. The assets sold consisted of primarily cash, accounts receivable, property
and equipment, goodwill and intangible assets, inventory and prepaid expenses.
Alloy also assumed certain accounts payable, accrued liabilities and the
outstanding balance on the Bank of America line of credit. OCM Direct's sales,
reported in discontinued operations, for the years ended December 2001 and 2002
and for the nine months ended September 30, 2003, were $20.3 million, $28.5
million and $4.2 million, respectively. OCM Direct's income (loss), reported in
discontinued operations, for the years ended December 2001 and 2002 and for the
nine months ended September 30, 2003, were $3.8 million, $(0.9) million and
$(3.2) million, respectively. The results of operations of the OCM Direct
business are reported in the results of discontinued operations for all periods
presented.
94
RESULTS OF CONTINUING OPERATIONS
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2003 WITH THE NINE MONTHS
ENDED SEPTEMBER 30, 2002
Student Services Revenue. Student services revenue decreased to $11.3
million in the first nine months of 2003 from $17.2 million in the first nine
months of 2002. The decrease in student services revenue was primarily due to a
reduction in barter revenue of $2.5 million, a $1.5 million reduction in the
amount of revenue related to the contract with General Motors, which expired in
May 2003, and the sale of substantially all of the assets of the SA Cash brand
in February 2003.
Corporate and University Solutions Revenue. Corporate and university
solutions revenue decreased to $2.1 million in the first nine months of 2003
from $3.7 million in the first nine months of 2002. The decrease in revenue was
due to the sale of the assets of the SA Marketing Group brand on May 8, 2002,
and partially offset by increases in licensing fees from universities.
For the nine month period ended September 30, 2003 and 2002 there was no
individual customer that accounted for more than 10% of total revenue.
Cost of Student Services Revenue. Cost of student services revenue
decreased to $4.5 million in the first nine months of 2003 from $5.8 million in
the first nine months of 2002. The decrease was primarily due to the sale of
substantially all the assets of the SA Cash brand in February 2003, consistent
with the decrease in the related revenue.
Cost of Corporate and University Solutions Revenue. There was no cost of
corporate and university solutions revenue in the first nine months of 2003
compared to $2.1 million in the first nine months of 2002, consistent with the
sale of the SA Marketing Group assets on May 8, 2002, which constituted the only
cost against the corporate and university solutions revenue.
Product Development. Product development expenses decreased to $4.4
million in the first nine months of 2003 from $5.4 million in the first nine
months of 2002. The decrease was primarily due to the sale of substantially all
of the assets of the SA Cash brand in February 2003, the reduction in number of
employees engaged in product development in the first nine months of 2003 and a
general reduction in technology spending.
Sales and Marketing. Sales and marketing expenses decreased to $3.9
million in the first nine months of 2003 from $10.5 million in the first nine
months of 2002. The decrease was primarily related to a reduction in barter
expense of $2.5 million, the sale of the SA Marketing Group assets in May 2002,
and the sale of substantially all of the assets of the SA Cash brand in February
2003.
General and Administrative. General and administrative expenses decreased
to $2.6 million in the first nine months of 2003 from $5.5 million in the first
nine months of 2002. The decrease was primarily due to a significant reduction
in the number of employees engaged in general and administrative functions.
Depreciation and Amortization. Depreciation expense decreased to $3.1
million in the first nine months of 2003 from $4.8 million in the first nine
months of 2002, primarily due to decreased capital expenditures in 2002 and
2003. Amortization expense decreased to $0.8 million in the first nine months of
2003 from $1.1 million in the first nine months of 2002 resulting from the full
amortization of Student Advantage's intangible assets in April 2003 relating to
the acquisition of CollegeClub.
Realized Gain (Loss) on Sale of Assets. On February 3, 2003, Student
Advantage completed the sale of certain assets of the SA Cash brand to
Blackboard Inc. for a cash payment of $4.5 million and recorded a net gain of
$4.3 million. In May 2002, Student Advantage sold the assets of the SA Marketing
Group brand to Triple Dot, Inc., for a cash payment of $6.5 million and an
opportunity to earn up to an additional $1.5 million based on the performance of
certain pending proposals. For the nine-month period ended September 30, 2002,
Student Advantage recorded a gain of $7.0 million. Effective May 5, 2003,
Student Advantage amended the purchase agreement with Triple Dot, Inc., to
provide that all obligations had been met by both parties in relation to the
$1.5 million earn-out in the original agreement.
95
$1.5 million as additional gain on sale during the nine month period ended
September 30, 2003 was recorded. For the nine-month period ended September 30,
2002, the gain was partially offset by the sale of certain fixed assets at a
price lower than the net book value.
Interest and Other Income (Expense), Net. Interest and other income, net,
includes interest income, net, of $0.3 million in the first nine months of 2003
compared to $(2.4) million of interest expense, net, in the first nine months of
2002. The decrease in interest expense was mainly a result of December 31, 2002
debt restructuring with Student Advantage's lenders. In accordance with SFAS 15
"Accounting by Debtors and Creditors Regarding Troubled Debt Restructuring",
Student Advantage recorded the anticipated total interest expense over the
remaining term of the debt as of December 31, 2002. Accordingly, no interest
expense was recorded for the three-month period ended March 31, 2003. The
decrease in interest expense was also a result of the May 1, 2003 amendment to
the Reservoir credit facility. Reservoir agreed to waive $0.5 million of accrued
and unpaid interest under the loan through April 30, 2003 and Student Advantage
made payments on its principal debt balance of approximately $9.1 million from
the proceeds of the sale of the OCM Direct subsidiary in May 2003.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 2002 WITH THE YEAR ENDED DECEMBER
31, 2001
Student Services Revenue. Student services revenue decreased to $24.3
million in 2002 from $31.2 million in 2001. The decrease in revenue was
primarily due to the one time recognition of $1.0 million in revenue related to
Edu.com in the first quarter of 2001, divestitures of eStudentLoan and Rail
Connection in 2001 and a decrease in advertising revenue resulting from
decreased online advertising on the network of web sites during 2002.
Corporate and University Solutions Revenue. Corporate and university
solutions revenue decreased to $4.5 million in 2002 from $13.8 million in 2001.
The decrease in revenue was primarily due to the sale of the Voice FX assets on
December 31, 2001, the sale of the SA Marketing Group assets on May 8, 2002 and
the reduction in fees related to the restructuring of the AT&T agreement under
which Student Advantage did not earn any fees from AT&T after August 31, 2001.
The decrease was also a result of the reduction in marketing spending by several
corporate customers. The reduction in marketing spending is attributable to the
continued overall slow-down in the economy and more specifically, the
advertising and marketing sectors.
For the twelve month period ended December 31, 2002 there were no
individual customers that accounted for more than 10% of total revenue. For the
twelve month period ended December 31, 2001, General Motors Corp. and Capital
One accounted for approximately 16% and 13% of total revenue, respectively.
Cost of Student Services Revenue. Cost of student services revenue
consists of the costs associated with subscriptions, commerce and advertising
revenue. Subscription costs consist of the costs associated with the fulfillment
of membership subscriptions and customer service. Commerce costs include costs
of goods sold paid to partners in connection with selling products and
personnel-related costs associated with acquiring customers. Advertising costs
consist primarily of royalties paid to colleges and universities and fees paid
to partners in exchange for the right to place media inventory on such parties'
websites. Cost of student services revenue increased to $9.6 million in 2002
from $8.3 million in 2001. The increase in cost of student service revenue was
due to the 2002 revenue mix including a higher overall percentage of e-commerce
revenue which historically has low gross margins as compared to the revenue mix
in 2001 which had a lower percentage of e-commerce revenue and a higher
percentage of high margin marketing revenue and membership subscription revenue.
Cost of Corporate and University Solutions Revenue. Cost of corporate and
university solutions revenue consists primarily of the costs of marketing
services and the costs of acquiring customers on behalf of corporate clients.
Marketing services costs primarily include the direct and indirect costs
associated with planning and implementing events and promotions. Cost of
corporate and university solutions revenue decreased to $2.1 million in 2002
from $7.1 million in 2001, consistent with decreases in revenues for
96
marketing services, decreases in revenues due to the sale of the Voice FX assets
on December 31, 2001 and the sale of the SA Marketing Group assets on May 8,
2002.
Product Development. Product development expenses consist primarily of
personnel-related and consulting costs associated with the development and
enhancement of the Student Advantage suite of products, which includes the
Student Advantage Membership Program and its network of websites. Product
development expenses decreased to $7.4 million in 2002 from $17.1 million in
2001. The decrease was primarily due to the reduction in number of employees
engaged in product development throughout 2002, an overall reduction in
technology spending, the sale of the eStudentLoan and Voice FX assets in the
fourth quarter of 2001 and the sale of the SA Marketing Group assets on May 8,
2002.
Sales and Marketing. Sales and marketing expenses consist primarily of
personnel and other costs related to the sales and marketing programs. Sales and
marketing expenses decreased to $15.6 million in 2002 from $21.7 million in
2001. The decrease was primarily related to $3.4 million of non-cash expense for
television advertising recorded in the second quarter of 2001, the sale of the
Voice FX assets on December 31, 2001 and the sale of the SA Marketing Group
assets in May 2002. The decrease was partially offset by the $2.2 million
expense relating to the marketing agreement with Alloy in May 2002.
General and Administrative. General and administrative expenses consist
primarily of costs related to general corporate functions, including executive
management, finance, human resources, facilities, accounting and legal. General
and administrative expenses decreased to $7.1 million in 2002 from $10.1 million
in 2001. The decrease was primarily due to the sale of the Voice FX and SA
Marketing Group assets on December 31, 2001 and May 8, 2002, respectively.
Depreciation and Amortization. Depreciation expense decreased to $6.1
million in 2002 from $6.4 million in 2001, due primarily to reductions due to
the sale of assets, impairment of remaining assets and an overall decline in
capital spending. Amortization expense decreased to $1.7 million in 2002 from
$6.4 million in 2001 as a result of the application of SFAS 142 in 2002. In
accordance with SFAS 142, Student Advantage continued to amortize the value of
the acquired customer contract attributable to the acquisition of College Club.
On July 15, 2002, Student Advantage agreed to a lease termination regarding the
facility in San Diego, CA. The facility was acquired during the October 2000
acquisition of CollegeClub and at that time Student Advantage stated its
intention to vacate the facility. As a result, Student Advantage provided for an
accrual on unused space for the future lease obligation as part of the purchase
price. At the time of the lease termination, Student Advantage carried a $2.4
million accrual related to the purchase price accrual. In accordance with EITF
95-3, the accrual against a portion of the remaining goodwill related to the
acquisition during the quarter ended September 30, 2002 was reversed.
Stock-Based Compensation. During 1998 and 1999, Student Advantage granted
stock options to purchase 231,300 and 4,755 shares of its common stock with
exercise prices of $3.30 and $18.70 per share, respectively. Student Advantage
recorded deferred compensation of $4.2 and $0.2 million in 1998 and 1999,
respectively, representing the difference between estimated fair market value of
the common stock on the date of grant and the exercise price. These amounts were
offset by reductions of $0.3, $0.7 and $0.2 million, in 1999, 2000 and 2001,
respectively, due to stock option cancellations as a result of employee
terminations. Of the remaining $3.2 million deferred, the full amount had been
amortized to expense as of March 31, 2002, of which $0.8 million, $0.5 million
and $49,000 was recorded as an expense in 2000, 2001 and 2002, respectively. The
stock based compensation charges have been included in the individual operating
expense line items in the financial statements.
Interest Income (Expense), Net. Interest income (expense), net, was $(3.7)
million in 2002 compared to $(1.7) million in 2001. The increase in interest
expense was partially a result of the September 2002 amendment to Student
Advantage's credit facility with Reservoir. Reservoir agreed to cancel warrants
previously issued under the credit facility and the associated right to require
Student Advantage to repurchase the warrants for cash in exchange for a $4.2
million increase in the amount of principal indebtedness under the Reservoir
credit facility. Prior to the amendment, Student Advantage recorded warrant
liability and deferred financing costs of $2.5 million and had amortized $1.5
million of the deferred financing as interest expense since the inception of the
loan in June 2001. As a result of the
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amendment, the $2.5 million of warrant liability was reclassified to notes
payable and recorded an additional $1.7 million to notes payable and deferred
financing costs. The remaining balance of $2.7 million in deferred financing
costs was being amortized to interest expense over the remaining nine-month term
of the loan. On December 30, 2002, the credit facility with Reservoir was again
amended resulting in an overall decrease of approximately $6.2 million to the
debt balance. In accordance with SFAS 15 "Accounting by Debtors and Creditors
Regarding Troubled Debt Restructuring," Student Advantage recorded the $3.0
million gain on forgiveness of debt net of expenses, including $0.5 million of
anticipated interest expense based on the payment schedule and remaining
deferred financing costs of $1.8 million. Both of these amounts were recorded
against the gain on forgiveness of debt and not as interest expense. The $0.9
million deferred financing charge for the three-months ended December 31, 2002
was appropriately recorded as interest expense. The increase in interest expense
from 2002 to 2001 is also a result of borrowings under the Scholar loan entered
into in September 2002.
Impairment of Long-Lived Assets. Student Advantage recorded a charge of
$0.2 million for the impairment of long-lived assets during 2002 related to a
write-down of certain fixed assets. Student Advantage also recorded a charge of
$1.9 million for the impairment of long-lived assets in the fourth quarter of
2001 relating in part to a write-down of $1.6 million of goodwill associated
with its acquisitions of or asset purchases from Edu.com, College411, Collegiate
Advantage and Campus Agency. The remaining $0.3 million was a write-down of
certain fixed assets that were acquired from Edu.com. Student Advantage
performed an evaluation of long-lived assets in accordance with FAS 121 as a
result of the restructuring activity in the fourth quarter of 2001 and the
continued restructuring during 2002.
Restructuring Charges. In the fourth quarter of 2001, Student Advantage
announced a restructuring, which included a reduction in staff of approximately
15% of the total employees and charges related to operating leases for office
space no longer utilized in its current operations. The costs associated with
this restructuring charge aggregated approximately $4.7 million and were
recorded in 2001.
Equity Interest in Edu.com. In the second quarter of 2001, Student
Advantage purchased substantially all of the assets of Edu.com, Inc. Prior to
the acquisition, it held a minority interest in Edu.com, which was accounted for
under the cost method of accounting. The resulting treatment of the additional
investment in the second quarter of 2001 was in accordance with Accounting
Principles Board Opinion 18: The Equity Method for Accounting for Investments in
common stock ("APB 18"), which requires the application of step accounting in
accordance with Accounting Research Bulletin 51: Consolidated Financial
Statements Elimination of Intercompany Investment ("ARB 51"). Accordingly,
Student Advantage retroactively restated its investment in Edu.com on the equity
method of accounting and recorded its ownership percentage of Edu.com's net
loss. As a result of applying the equity method to the Edu.com investment,
Student Advantage recorded an equity interest in Edu.com's net loss of $0.5
million for the twelve months ended December 31, 2001.
Realized Gain on Sale of Assets, Net. On May 8, 2002, Student Advantage
sold its SA Marketing Group assets to Triple Dot, Inc., a subsidiary of Alloy,
Inc., for a cash payment of $6.5 million, assumption by Triple Dot of negative
working capital of $0.5 million and an opportunity to earn up to an additional
$1.5 million based on the performance of certain pending proposals. In relation
to the sale of the SA Marketing Group assets, Student Advantage recorded a gain
of $7.0 million. For the twelve month period ended December 31, 2002, the gain
was partially offset by the sale of certain fixed assets at a price lower than
the net book value. For the twelve month period ended December 31, 2002, Student
Advantage recorded a net gain of $6.8 million. The gain of $1.5 million in 2001
was a result of the sales of the Rail Connection, Voice FX and eStudentLoan
assets during 2001.
Realized Gain on Restructured Debt. On December 30, 2002, Reservoir agreed
to amend the terms of the Reservoir credit facility to reduce the total
indebtedness to them from approximately $15.7 million to $9.5 million in
exchange for a guarantee from Mr. John Katzman, a member of the Board of
Directors who resigned at the time the amendment was consummated. In exchange
for his guarantee, Student Advantage agreed to pay Mr. Katzman a $1.0 million
fee payable at the time of certain loan repayments. The debt obligations to
Reservoir and Mr. Katzman carry an annual interest rate of 12% and as of
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December 31, 2002, required payments of $3.5 million on January 31, 2003, $4.0
million on March 31, 2003 and the remaining balance on the July 1, 2003 loan
maturity date (see discussion of subsequent amendments to the Reservoir Credit
facility under "Item 1. Business"). In accordance with SFAS 15 "Accounting by
Debtors and Creditors Regarding Troubled Debt Restructuring," Student Advantage
recorded the $3.0 million gain on forgiveness of debt net of expenses, including
$0.5 million of anticipated interest expense based on the payment schedule,
remaining deferred financing costs of $1.8 million, and the $1.0 million
guarantee fee paid to Mr. Katzman.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 2001 WITH THE YEAR ENDED DECEMBER
31, 2000
Student Services Revenue. Student services revenue increased to $31.2
million in 2001 from $28.1 million in 2000. The increase in student services
revenue was primarily due to organic growth in the Official College Sports
Network and CollegeClub brands. Additionally, online advertising on the network
of websites increased primarily as a result of increased advertising from
CollegeClub.com, which was acquired in the fourth quarter of 2000, and online
campaigns provided to General Motors Corp. Transaction-based commerce revenues
from the SA Cash programs also contributed to the increase. These increases were
offset, in part, by significant decreases in fees from AT&T as a result of the
restructuring of the AT&T agreements in June 2000.
Corporate and University Solutions Revenue. Corporate and university
solutions revenue decreased to $13.8 million in 2001 from $19.9 million in 2000.
Decreases in marketing services revenues resulted from decreased marketing
spending by several corporate customers. This decrease is attributed to the
overall slow-down in the economy and the events of September 11, 2001 and more
specifically, the declines in spending by the advertising and marketing
industries. Revenues related to the Voice FX business decreased as a result of a
lower volume in mailings by corporate customers, which has a direct effect on
the volume of transactions.
General Motors Corp. accounted for approximately 16% and 3% of total
revenue in 2001 and 2000, respectively. Additionally, General Motors accounted
for approximately 21% and 5% of student services revenue in 2001 and 2000,
respectively. Capital One accounted for approximately 13% and 16% of total
revenue and 42% and 36% of corporate and university solutions revenue for 2001
and 2000, respectively. AT&T accounted for approximately 5% and 34% of total
revenue for 2001 and 2000, respectively. Additionally, AT&T accounted for
approximately 6% and 46% of student services revenue and 5% and 17% of corporate
and university solutions for 2001 and 2000, respectively.
Cost of Student Services Revenue. Cost of student services revenue
consists of the costs associated with subscriptions, commerce and advertising
revenue. Subscription costs consists of the costs associated with the
fulfillment of membership subscriptions and customer service. Commerce costs
include costs of goods sold paid to third parties in connection with selling
products, and personnel-related costs associated with acquiring customers and
corporate clients. Advertising costs consist primarily of production and mailing
costs for SAM, Student Advantage Magazine, certain royalties paid to colleges
and universities and fees paid to partners in exchange for the right to place
media inventory on such parties' websites. The costs related to SAM are only
applicable to the year 2000 as no issues were produced during 2001. Cost of
student services revenue decreased to $8.3 million in 2001 from $10.3 million in
2000. The decrease was primarily due to no costs being incurred for the
production of SAM in 2001.
Cost of Corporate and University Solutions Revenue. Cost of corporate and
university solutions revenue consists primarily of the costs of marketing
services and the costs of acquiring customers on behalf of corporate clients.
Marketing services costs primarily include the direct and indirect costs
associated with planning and implementing events and promotions. Cost of
corporate and university solutions revenue decreased to $7.1 million in 2001
from $9.9 million in 2000. This decrease is primarily due to the decrease in
costs consistent with the decrease in both marketing services and revenues
provided by the Voice FX business.
Product Development. Product development expenses consist primarily of
personnel-related and consulting costs associated with the development and
enhancement of the suite of products, which includes
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the Student Advantage Membership Program, the SA Cash Programs and the network
of websites. Product development expenses decreased to $17.1 million in 2001
from $18.4 million in 2000. The decrease is due in part to the capitalization of
internally developed software costs in 2001 and the impact of the restructuring
charge taken in the fourth quarter of 2001. The decrease was offset in part by
the acquisitions of substantially all the assets of CollegeClub.com in 2000 and
certain assets of Edu.com in 2001.
Sales and Marketing. Sales and marketing expenses consist primarily of
personnel and other costs related to sales and marketing programs. Sales and
marketing expenses increased to $21.7 million in 2001 from $17.9 million in
2000. The increase in sales and marketing expenses was due to increased
expenditures related to the expansion of the sales force, expanding and
servicing the corporate and university base of partners, university commissions
paid to colleges for the use of organizational names and logos, building brand
awareness, supporting the marketing services business and as a result of
acquisitions of certain assets of CollegeClub.com during 2000 and certain of
Edu.com's assets in 2001. In addition, the increase was due, in large part, to a
non-cash expense of $3.4 million for television advertising relating to
CollegeClub.
General and Administrative. General and administrative expenses consist
primarily of costs related to general corporate functions, including executive
management, finance, human resources, facilities, accounting and legal. General
and administrative expenses decreased to $10.1 million in 2001 from $11.2
million in 2000. The decrease was primarily due to the impact of the
restructuring charge taken in 2001. The decrease was offset, in part, by
increases in general and administrative expenses were primarily due to higher
facilities, legal, accounting and personnel related costs associated with
continued growth, as well as acquisitions of businesses over the past year,
including certain assets of CollegeClub.com during 2000 and certain of Edu.com's
assets in 2001.
Depreciation and Amortization. Depreciation expense increased to $6.4
million in 2001 from $2.9 million in 2000 primarily as a result of fixed asset
purchases during the latter part of 2000 and 2001 and amortization of capital
leases. Amortization expense increased to $6.4 million in 2001 from $3.5 million
in 2000, primarily as a result of the acquisitions of ScholarAid, College411 and
certain assets of eStudentLoan and CollegeClub.com during the second and third
quarters of 2000.
Stock-Based Compensation. Student Advantage recorded deferred compensation
charges of $4.2 and $0.2 million in 1998 and 1999, respectively, which were
offset by reductions of $0.3, $0.7 and $0.2 million, during 1999, 2000 and 2001,
respectively, due to stock option cancellations as a result of employee
terminations. The remaining $3.2 million was mostly amortized as of December 31,
2001, of which $0.8 and $0.5 million were recorded as expense in 2000 and 2001,
respectively. The remaining amount of deferred compensation of $49,000 will be
amortized in 2002. The stock based compensation charges have been included in
the individual operating expense line items in the financial statements.
Interest Income (Expense), Net. Interest income (expense), net, includes
interest income from cash balances and interest expense related to financing
obligations. Interest income (expense), net, was $(1.7) million in 2001 compared
to $1.4 million in 2000. The increase in interest expense during 2001 was a
result of the $10.2 million term loan and $5.0 million revolving loan entered
into in June 2001 with Reservoir.
Impairment of Long-Lived Assets. Student Advantage recorded a charge of
$1.9 million for the impairment of long-lived assets in the fourth quarter of
2001 relating in part to a write-down of $1.6 million of goodwill associated to
acquisitions of or asset purchases from Edu.com, College411, Collegiate
Advantage and Campus Agency. The remaining $0.3 million was a write-down of
certain fixed assets that were acquired from Edu.com. Student Advantage
performed an evaluation of long-lived assets in accordance with FAS 121 as a
result of the restructuring activity in the fourth quarter of 2001.
Restructuring Charges. In the fourth quarter of 2001, Student Advantage
announced a restructuring, which included a reduction in staff of approximately
15% of the total employees and charges related to
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operating leases for office space no longer utilized in the current operations.
The costs associated with the restructuring charge aggregated approximately $4.7
million.
Equity Interest in Edu.com. In the second quarter of 2001, Student
Advantage purchased substantially all assets of Edu.com, Inc. Prior to the
acquisition Student Advantage held a minority interest in Edu.com, which was
accounted for under the cost method of accounting. The resulting treatment of
the additional investment in the second quarter of 2001, was in accordance with
Accounting Principles Board Opinion 18: The Equity Method for Accounting for
Investments in common stock ("APB 18"), which requires the application of step
accounting in accordance with Accounting Research Bulletin 51: Consolidated
Financial Statements Elimination of Intercompany Investment ("ARB 51").
Accordingly, Student Advantage retroactively restated the investment in Edu.com
on the equity method of accounting and recorded its ownership percentage of
Edu.com's net loss. As a result of applying the equity method to the Edu.com
investment, Student Advantage recorded an equity interest in Edu.com's net loss
of $3.8 and $0.5 million for the years ended December 31, 2000 and 2001,
respectively.
Realized Gain (Loss) on Sale of Assets and Write-off of
Investments. Realized gain (loss) was $1.5 million in 2001 compared to $(0.4)
million in 2000. The gain on sale of assets of $1.5 million in 2001 was a result
of the sales of the Rail Connection, Voice FX and eStudentLoan assets during
2001. Realized loss on investment in 2000 represented the write-off of the
investment in alumnipride.com, Inc.
RESULTS OF DISCONTINUED OPERATIONS
Effective May 1, 2003, Student Advantage sold substantially all of the
assets of the OCM Direct subsidiary to Alloy, Inc., for a cash payment of $15.6
million and $1.8 million in settlement of the intercompany balance between OCM
Direct and Student Advantage.
OCM Direct is accounted for as a discontinued operation in the accompanying
financial statements in accordance with Statement of Financial Accounting
Standards (SFAS) No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets." OCM Direct's results of operations and cash flows have been
removed from the results of continuing operations for all periods presented. All
related disclosures have also been adjusted to reflect the discontinued
operation. Summarized selected financial information from discontinued
operations for the periods indicated is as follows:
<Table>
<Caption>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
----------------- -------------------------
2001 2002 2002 2003
------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
Revenue................................... $20,334 $28,483 $23,632 $ 4,187
------- ------- ------- -------
Income (loss)............................. $ 3,811 $ (858) $ 814 $(3,159)
======= ======= ======= =======
</Table>
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The assets and liabilities of the discontinued operation are stated separately
in the balance sheet. The following is a summary of the primary asset and
liability categories as of December 31, 2001 and 2002:
<Table>
<Caption>
DECEMBER 31,
-----------------
2001 2002
------- -------
(IN THOUSANDS)
Cash........................................................ $ 1,405 $ 1,290
Accounts receivable, net.................................... 758 1,047
Prepaid Expenses and other current assets................... 314 787
Inventories (finished goods)................................ 1,753 1,413
Property and equipment, net................................. 1,487 1,049
Goodwill.................................................... 18,261 16,843
Intangible assets........................................... -- 1,194
------- -------
Total assets.............................................. $23,978 $23,623
======= =======
Accounts payable............................................ $ 809 $ 553
Accrued liabilities......................................... 1,756 1,584
Borrowings under line of credit............................. -- 1,670
Other liabilities........................................... 272 196
------- -------
Total Liabilities......................................... $ 2,837 $ 4,003
======= =======
</Table>
LIQUIDITY AND CAPITAL RESOURCES
Since inception, Student Advantage has financed its operations primarily
through the private placement and public offering of securities, cash from
operations, borrowings under its term loan, credit facilities, loans from equity
holders, sales of accounts receivable and dispositions of businesses. Liquidity
needs arise primarily from operating losses, working capital requirements, debt
service on the indebtedness to Reservoir, which is referred to as the Reservoir
credit facility and debt service on the Scholar loan. In addition, Student
Advantage expects to have additional liquidity needs as a result of required
repayments of the Reservoir credit facility, the Scholar loan and the guarantee
fee to Mr. Katzman. As of December 31, 2002 and September 30, 2003, Student
Advantage had $16.5 million and $8.0 million of total indebtedness, consisting
of $13.0 million and $5.5 million in principal borrowings and interest under the
Reservoir credit facility and $3.5 million and $2.5 million in principal
borrowings and interest under the Scholar loan, respectively. The debt
obligations to Reservoir, Scholar and Mr. Katzman require payments of interest
accrued at a rate of 10% per annum beginning September 30, 2003 and have a
maturity date of January 31, 2005. Reservoir, Scholar and Mr. Katzman have
agreed, subject to the closing of the Transactions, to waive all interest due to
them through the closing of the Transactions and accept $4.25 million in the
form of the non-cash consideration from the Asset Sale, $2.25 million and
$550,000, respectively, as full payment of all amounts outstanding to them. In
the event the Transactions are not consummated, the terms of the Reservoir
credit facility, Scholar loan and Mr. Katzman's guarantee fee would remain
unchanged.
As of September 30, 2003, Student Advantage had cash and cash equivalents
of $2.1 million. In addition, it had current restricted cash of $0.4 million,
which represents amounts held by a third party credit card processor, and
long-term restricted cash of $0.1 million held in escrow pursuant to the terms
of the acquisition agreement entered into relating to the sale of OCM Direct.
Net cash used in operating activities from continuing operations was $11.8
million for the nine months ended September 30, 2003, an increase of $3.2
million compared to net cash used for operating activities of $8.6 million for
the nine months ended September 30, 2002. Net cash used in operating activities
from continued operations in the nine months ended September 30, 2003 was
primarily a result of a net gain on sale of assets of $5.8 million, a decrease
in accounts payable of $3.4 million, a decrease in
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deferred revenue of $4.8 million and a decrease in other accrued expenses of
$1.0 million, partially offset by depreciation and amortization of $3.9 million.
Net cash provided by investing activities from continuing operations was
$21.7 million for the nine months ended September 30, 2003. Net cash provided by
investing activities was $5.6 million for the nine months ended September 30,
2002. Net cash provided by investing activities in the nine months ended
September 30, 2003 was primarily a result of the proceeds received for the sale
of the assets of OCM Direct in May 2003 and SA Cash in February 2003, which was
partially offset by purchases of fixed assets. Net cash provided by investing
activities the first nine months of 2002 was a result of the proceeds received
for the sale of the assets of its SA Marketing Group brand in May 2002, offset
by purchases of fixed assets.
Net cash (used in) provided by financing activities from continuing
operations was $(8.5) million and $0.4 million for the nine months ended
September 30, 2003 and 2002, respectively. The net cash used in financing
activities in the nine months ended September 30, 2003 was primarily the result
of net repayment of $8.5 million under the Reservoir credit facility. The net
cash provided by financing activities in the nine months ended September 30,
2002 was primarily the result of the net proceeds of $2.7 million from the sale
of 36,000 shares of common stock in a private placement in May 2002, partially
offset by the net repayment of $1.8 million of Student Advantage's obligations
to Reservoir.
On September 30, 2002, Student Advantage agreed to borrow $3.5 million from
Scholar, an entity formed by Raymond V. Sozzi, Jr., its President and Chief
Executive Officer, Pentagram, which is an affiliate of Atlas, Greylock and G.
Todd Eichler. The loan is referred to as the Scholar loan, has an interest rate
of 10% per annum and a maturity date of January 31, 2005 and otherwise has the
same terms as the Reservoir credit facility.
On December 30, 2002, Reservoir agreed to reduce the total indebtedness to
it from approximately $15.7 million to $9.5 million in exchange for a guarantee
from Mr. John Katzman, a member of the Board of Directors who resigned at the
time the amendment was consummated. In exchange for his guarantee, Student
Advantage agreed to pay Mr. Katzman a $1.0 million fee payable at the time of
certain loan repayments. In addition, Reservoir agreed to lend Student Advantage
an additional $2.0 million, which was not secured by Mr. Katzman's guarantee. On
January 31, 2003, Reservoir Capital agreed to reduce the $3.5 million payment
due on January 31, 2003 to $1.5 million.
Effective April 30, 2003, Student Advantage amended its loan agreements
with Reservoir, Scholar and Mr. Katzman, to provide for payments of $7.8 million
of the principal amount outstanding under the Reservoir credit facility and $1.2
million of the principal outstanding under the Scholar loan upon the
consummation of the sale of substantially all the assets of the OCM Direct
subsidiary to Alloy, Inc. In addition, Reservoir agreed to extend the maturity
date of the loan from July 1, 2003 to January 31, 2005, to set the interest rate
at 10% per annum beginning May 1, 2003 and require quarterly payments of
interest beginning on September 30, 2003. Reservoir and Mr. Katzman also agreed
to waive all accrued and unpaid interest under the loan through April 30, 2003.
In addition, Student Advantage agreed to pay a fee of $0.1 million on December
31, 2003 and June 30, 2004 if any of the loans are outstanding as of such date.
After payment of an aggregate of $9.0 million on May 6, 2003 in accordance with
the terms of the amendments, the outstanding principal amounts under the
Reservoir credit facility and the Scholar loan were $5.3 million and $2.3
million, respectively. In connection with the sale of substantially all of the
assets of OCM Direct to Alloy, Inc., Alloy assumed substantially all of the
liabilities of OCM Direct and its subsidiaries, including its obligations under
the OCM loan with Bank of America. Student Advantage's guarantee of the loan was
terminated as of May 1, 2003.
Reservoir, Scholar and Mr. Katzman have agreed, subject to the closing of
the Transactions, to waive all interest due to them through the closing of the
Transactions and accept the $4.25 million non-cash consideration from the Asset
Sale, $2.25 million and $550,000, respectively, as full payment of all amounts
outstanding to them. In the event the Transactions are not consummated, the
terms of the Reservoir credit facility, Scholar loan and Mr. Katzman's guarantee
fee would remain unchanged.
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Student Advantage has experienced substantial net losses since its
inception and, as of September 30, 2003, had an accumulated deficit of $128.4
million. Such losses and accumulated deficit resulted primarily from significant
costs incurred in the development of Student Advantage's products and services
and the establishment of infrastructure. Student Advantage has also experienced
a reduction in revenue and an increase in net losses as a result of the economic
downturn, in particular, the downturn in the media and advertising sector, and
as a result of the sale of various assets, including the OCM Direct business.
During 2003, Student Advantage has continued to reduce its operating costs.
Student Advantage intends to carefully manage its use of cash and attempt
to increase revenues through the closing of the Transactions. However, in the
event the Transactions are not consummated, cash requirements for debt service,
primarily the repayment of debt, and continued operations are substantial and
available resources may not be sufficient to fund such obligations, requiring
additional financing or the sale of additional assets. Student Advantage
believes that its available cash resources are sufficient to meet its current
obligations. However, if the Transactions are not consummated and Student
Advantage is unable to realize an anticipated increase in revenue for the
remainder of 2003 and cost savings through significant reductions in net cash
loss, it may be required to obtain additional financing or sell additional
assets. In addition, based on current expectations, it will be required to raise
additional financing in order to repay outstanding indebtedness when the
indebtedness becomes due beginning on January 31, 2005.
In the event the Transactions are not consummated, there can be no
assurance that new or additional sources of financing will be available or will
be available upon terms acceptable to Student Advantage. To the extent that its
requirements are financed through the issuance of additional equity securities,
any such issuance would result in dilution to the interests of the stockholders.
Furthermore, to the extent that indebtedness is incurred in connection with
financing activities, Student Advantage will be subject to all of the risks
associated with incurring substantial indebtedness, including the risk that
interest rates may fluctuate and cash flow may be insufficient to pay principal
and interest on any such indebtedness. The loan agreement with Reservoir imposes
significant restrictions on the ability of Student Advantage to raise funds
through the sale of equity, make investments and acquisitions, restructure
operations, obtain other financing and realize proceeds from sales of assets or
equity financings. As of the filing of the annual report on Form 10-K, as
amended, for the year ended December 31, 2002, these and other factors raised
concerns about the ability of Student Advantage to continue as a going concern.
With the proceeds of the sales of the SA Cash product line and substantially all
of the assets of OCM Direct subsidiary, the related reduction of its debt
obligations and restructuring of remaining debt, Student Advantage believes that
it has sufficient cash resources for at least the next 12 months.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2002, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure -- amendment of SFAS 123", "SFAS 148".
SFAS 148 amends Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation", "SFAS 123" to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based compensation. In addition, this statement amends the disclosure
requirements for SFAS 123, to require prominent disclosure in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results.
Student Advantage has elected to continue to account for stock-based
compensation using the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees",
"APB 25", and related interpretations. Accordingly, compensation cost for stock
options and restricted stock awards is measured as the excess, if any, of the
quoted market price of Student Advantage's stock at the date of the grant over
the exercise price an employee must pay to acquire the stock. Student Advantage
has adopted the annual disclosure provisions of SFAS 148 in its financial
statements for the year ended December 31, 2002 and will adopt the interim
disclosure provisions in its financial statements for the quarter ended March
31, 2003. Since the adoption of SFAS 148 involves
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disclosure only, Student Advantage does not expect a material impact on Student
Advantage earnings or financial position.
The requirements of FASB Interpretation No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantee", is effective for financial statements of
interim or annual periods after December 15, 2002. Student Advantage does not
believe that the adoption of this standard will have an impact on these
financial statements.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities," ("Interpretation 46") to clarify the conditions
under which assets, liabilities and activities of another entity should be
consolidated into the financial statements of a company. Interpretation 46
requires the consolidation of a variable interest entity (including a special
purpose entity such as that utilized in an accounts receivable securitization
transaction) by a company that bears the majority of the risk of loss from the
variable interest entity's activities, is entitled to receive a majority of the
variable interest entity's residual returns or both. The provisions of
Interpretation 46 are required to be adopted by Student Advantage in fiscal
2003. Student Advantage does not believe the adoption of Interpretation 46 will
have a material impact on its overall financial position or results of
operations.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
On June 27, 2002, upon the recommendation and approval of its Audit
Committee, Student Advantage dismissed Arthur Andersen LLP ("Arthur Andersen")
as its independent accountants and engaged Ernst & Young, LLP ("E&Y") on July
19, 2002 as independent accountants for the year ended December 31, 2002. The
information required by Item 9 of Form 10-K and Item 304 of Regulation S-K is
included in the Current Reports on Form 8-K filed with the SEC on June 27, 2002
and July 25, 2002, respectively.
Under applicable rules and regulations of the Securities and Exchange
Commission, the proxy statement to be delivered to stockholders in connection
with the pending Transactions must include audited financial statements that
reclassify any business sold since the financial statements were originally
published, as a discontinued operation for all periods presented in such
statements. The consolidated financial statements as of and for the fiscal year
ended December 31, 2001 were originally audited by Arthur Andersen. On August
31, 2002, Arthur Andersen ceased practicing before the SEC. Student Advantage
engaged E&Y to perform the required re-audit of the year ended December 31, 2001
due to the sale of the OCM Direct subsidiary in May 2003. If Student Advantage
had not sold OCM Direct, no re-audit of its historical audited annual financial
statements would have been required in connection with the preparation of the
proxy statement. The re-audit does not result from any inquiry made by the
Securities and Exchange Commission or any other party, and would be required of
any similarly situated public company.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Student Advantage does not believe that it has any material market risk
exposure with respect to derivative or other financial instruments.
OTHER MATTERS
DISSENTERS' RIGHTS OF APPRAISAL
Due to the provisions of the Delaware General Corporation Law (DGCL) which
require the approval of Student Advantage's stockholders in order to complete
the Merger, under Section 262 of the DGCL, if you do not vote in favor of or
consent to the approval of the Merger and the approval and adoption of the
Merger Agreement, you will be entitled to elect to have the fair value of your
shares, exclusive of any element of value arising from the accomplishment or
expectation of the Transactions, judicially determined and paid to you in cash.
105
Holders of Student Advantage common stock will not have appraisal or
dissenters' rights in connection with the Asset Sale. Neither the DGCL nor
Student Advantage's certificate of incorporation provides a stockholder of
Student Advantage with appraisal or dissenters' rights in connection with the
Asset Sale.
The following discussion is not a complete statement of the law pertaining
to appraisal rights under the DGCL and is qualified in its entirety by the full
text of Section 262, which is provided as APPENDIX D to this proxy statement.
All references in Section 262 and in this summary to a "stockholder" are to the
record holder of the shares of Student Advantage common stock as to which
appraisal rights are asserted. If you have a beneficial interest in shares of
common stock held of record in the name of another person, such as a broker or
nominee, you must act promptly to cause the record holder to follow properly the
steps summarized below in a timely manner to perfect your appraisal rights.
Under Section 262, where a proposed transaction is to be submitted for
approval at a meeting of stockholders, as in the case of the special meeting of
Student Advantage stockholders described in this proxy statement, the
corporation, not less than 20 days prior to the meeting, must notify each of its
stockholders entitled to appraisal rights that such appraisal rights are
available and include in such notice a copy of Section 262. This proxy statement
is that notice to you, and the applicable statutory provisions of the DGCL are
attached to this proxy statement as Appendix D. If you wish to exercise such
appraisal rights or wish to preserve the right to do so, you should review
carefully Section 262 and are urged to consider seeking advice of legal counsel,
since failure to comply fully with the procedures of that Section will result in
the loss of appraisal rights.
If you wish to exercise the right to dissent from the Merger and demand
appraisal under Section 262 of the DGCL, you must satisfy each of the following
conditions:
- You must deliver to Student Advantage a written demand for appraisal of
your shares before the vote on the Merger at the special meeting, which
demand will be sufficient if it reasonably informs Student Advantage of
your identity, and that you intend to demand the appraisal of your
shares.
- You must not vote in favor of the Merger and approval and adoption of the
Merger Agreement. Because a proxy that does not contain voting
instructions will, unless revoked, be voted in favor of the Merger and
approval and adoption of the Merger Agreement, if you vote by proxy and
wish to exercise appraisal rights, you must vote against or abstain from
voting on the Merger and approval and adoption of the Merger Agreement.
- You must continuously hold your shares from the date of making your
demand through the effective time of the Merger. If you hold shares of
common stock on the date the written demand for appraisal is made but
thereafter sell, transfer or otherwise dispose of your shares prior to
the effective time of the Merger, you will lose any right to appraisal in
respect of the shares.
Neither voting in person or by proxy against, abstaining from voting on nor
failing to vote on the proposal to approve the Merger and approval and adoption
of the Merger Agreement will constitute a written demand for appraisal within
the meaning of Section 262. The written demand for appraisal must be in addition
to and separate from any such proxy or vote.
Only a holder of record of shares of Student Advantage common stock is
entitled to assert appraisal rights for the shares of common stock registered in
that holder's name. A demand for appraisal should be executed by or on behalf of
the stockholder of record, fully and correctly, as that stockholder's name
appears on such stock certificates, should specify the stockholder's name and
mailing address, the number of shares of common stock owned and that the
stockholder intends thereby to demand appraisal of the stockholder's common
stock.
If your shares are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of the demand must be made by or on
behalf of the record owner. If your shares are owned of record by more than one
person as in a joint tenancy or tenancy in common, the demand must be executed
by or on behalf of all owners. An authorized agent, including an agent for one
or more joint
106
owners, may execute a demand for appraisal on behalf of a stockholder of record;
however, the agent must identify the record owner or owners and expressly
disclose the fact that, in executing the demand, the agent is acting as agent
for the record owner or owners.
A record holder such as a broker who holds shares as nominee for several
beneficial owners may exercise appraisal rights with respect to the shares held
for one or more beneficial owners while not exercising those rights with respect
to the shares held for one or more other beneficial owners; in such case, the
written demand should set forth the number of shares as to which appraisal is
sought, and where no number of shares is expressly mentioned, the demand will be
presumed to cover all shares held in the name of the record owner. If you hold
your shares in brokerage accounts or other nominee forms and wish to exercise
appraisal rights, you are urged to consult with your broker to determine the
appropriate procedures for the making of a demand for appraisal by such a
nominee.
A stockholder who elects to exercise appraisal rights pursuant to Section
262 must mail or deliver a written demand to Student Advantage, Inc., 280 Summer
Street, Boston, Massachusetts 02210, Attention: Secretary.
Within ten days after the effective time of the Merger, Student Advantage,
as the surviving corporation, must send a notice as to the effectiveness of the
Merger to each former Student Advantage stockholder who has made a written
demand for appraisal in accordance with Section 262 and who has not voted in
favor of the Merger and approval and adoption of the Merger Agreement. Within
120 days after the effective time of the Merger, but not thereafter, either
Student Advantage or any stockholder who has complied with the requirements of
Section 262 may file a petition in the Delaware Chancery Court demanding a
determination of the fair value of all shares held by stockholders who have
asserted appraisal rights. Student Advantage is under no obligation to and has
no present intent to file a petition for appraisal, and you should not assume
that Student Advantage will file such a petition or that Student Advantage will
initiate any negotiations with respect to the fair value of the shares.
Within 120 days after the effective time of the Merger, any stockholder who
has complied with the provisions of Section 262 to that point in time will be
entitled to receive from Student Advantage, as the surviving corporation, upon
written request, a statement setting forth the aggregate number of shares of
common stock not voted in favor of the Merger and approval and adoption of the
Merger Agreement and with respect to which demands for appraisal have been
received by Student Advantage and the aggregate number of holders of such
shares. Student Advantage must mail this statement to the stockholder within 10
days of receipt of the request or within 10 days after expiration of the period
for delivery of demands for appraisal under Section 262, whichever is later.
A stockholder timely filing a petition for appraisal with the Delaware
Court of Chancery must deliver a copy to Student Advantage, which will then be
obligated within 20 days to file in the Delaware Court of Chancery a duly
verified list containing the names and addresses of all stockholders who have
demanded appraisal of their shares. After notice to the stockholders, the
Delaware Court of Chancery is empowered to conduct a hearing on the petition to
determine which stockholders are entitled to appraisal rights. The Delaware
Court of Chancery may require stockholders who have demanded an appraisal for
their shares and who hold stock represented by certificates to submit their
certificates to the Register in Chancery for notation thereon of the pendency of
the appraisal proceedings, and if any stockholder fails to comply with the
requirement, the Delaware Court of Chancery may dismiss the proceedings as to
that stockholder.
After determining the stockholders entitled to an appraisal, the Delaware
Court of Chancery will appraise the "fair value" of their shares, exclusive of
any element of value arising from the accomplishment or expectation of the
Merger, together with a fair rate of interest, if any, to be paid upon the
amount determined to be the fair value. The costs of the action may be
determined by the Delaware Chancery Court and taxed upon the parties as the
Delaware Chancery Court deems equitable. Upon application of a stockholder
asserting appraisal rights, the Delaware Chancery Court may also order that all
or a portion of the expenses incurred by any stockholder in connection with the
appraisal proceeding, including, without limitation, reasonable attorneys' fees
and the fees and expenses of experts, be charged pro rata against the value of
all of the shares entitled to appraisal. If you consider seeking appraisal, you
107
should be aware that the fair value of your shares as determined under Section
262 could be more than, the same as or less than the $1.05 per share you would
receive pursuant to the Merger Agreement if you did not seek appraisal of your
shares. You should also be aware that investment banking opinions are not
opinions as to fair value under Section 262.
Although Student Advantage believes that the merger consideration is fair,
no representation is made as to the outcome of the appraisal of fair value as
determined by the Court and stockholders should recognize that such an appraisal
could result in a determination of a value higher or lower than, or the same as,
the merger consideration. Moreover, Student Advantage does not anticipate
offering more than the merger consideration to any stockholder exercising
appraisal rights and reserves the right to assert, in any appraisal proceeding,
that, for purposes of Section 262, the "fair value" of a share of common stock
is less than the merger consideration. In determining fair value and, if
applicable, a fair rate of interest, the Delaware Chancery Court is to take into
account all relevant factors. In Weinberger v. UOP, Inc., the Delaware Supreme
Court discussed the factors that could be considered in determining fair value
in an appraisal proceeding, stating that "proof of value by any techniques or
methods which are generally considered acceptable in the financial community and
otherwise admissible in court" should be considered, and that "[f]air price
obviously requires consideration of all relevant factors involving the value of
a company." The Delaware Supreme Court stated that, in making this determination
of fair value, the court must consider market value, asset value, dividends,
earnings prospects, the nature of the enterprise and any other facts that could
be ascertained as of the date of the Merger that throw any light on future
prospects of the merged corporation. Section 262 provides that fair value is to
be "exclusive of any element of value arising from the accomplishment or
expectation of the Merger." In Cede & Co. v. Technicolor, Inc., the Delaware
Supreme Court stated that such exclusion is a "narrow exclusion [that] does not
encompass known elements of value," but which rather applies only to the
speculative elements of value arising from such accomplishment or expectation.
In Weinberger, the Delaware Supreme Court stated that "elements of future value,
including the nature of the enterprise, which are known or susceptible of proof
as of the date of the Merger and not the product of speculation, may be
considered."
Any stockholder who has duly demanded an appraisal in compliance with
Section 262 will not, from and after the effective time of the Merger, be
entitled to vote such stockholder's shares of common stock subject to such
demand for any purpose or to receive payment of dividends or other distributions
on those shares (except dividends or other distributions payable to holders of
record of shares as of a record date prior to the effective time of the Merger).
You may withdraw your demand for appraisal and accept the $1.05 per share
merger consideration by delivering to Student Advantage a written withdrawal of
your demand for appraisal as an acceptance of the Merger, except that:
- any attempt to withdraw such demand made more than 60 days after the
effective time of the Merger will require written approval of Student
Advantage, and
- no appraisal proceeding in the Delaware Chancery Court will be dismissed
as to any stockholder without the approval of the Delaware Chancery
Court, and that approval may be conditioned upon the terms as the
Delaware Chancery Court deems just.
OTHER MATTERS AT THE SPECIAL MEETING
The Board of Directors does not know of any other matters which may come
before the special meeting. However, if any other matters are properly presented
to the special 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.
108
FUTURE STOCKHOLDER PROPOSALS
Any proposal that a stockholder wishes to be considered for inclusion in
Student Advantage's proxy statement and proxy card for the 2004 annual meeting
must be received by Student Advantage's Secretary at its principal executive
offices no later than February 10, 2004.
Student Advantage's by-laws require that it be given advance written notice
of stockholder nominations for election to its 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 its proxy statement 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 the 2004 annual meeting is held on or after June
10, 2004 and on or before September 8, 2004 (as Student Advantage currently
anticipates), the bylaws would require notice to be provided to the Secretary at
Student Advantage's principal offices no earlier than April 1, 2004 and no later
than April 21, 2004. Student Advantage's by-laws also specify requirements
relating to the content of the notice which stockholders must provide to the
Secretary for any matter, including a stockholder nomination for director, to be
properly presented at a stockholder meeting.
HOUSEHOLDING OF PROXY 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 Student Advantage's proxy statement or annual report
may have been sent to multiple stockholders in the same household. Student
Advantage will promptly deliver a separate copy of either document to any
stockholder upon request by writing or calling Student Advantage 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 Student
Advantage at the above address and phone number.
AVAILABLE INFORMATION
Student Advantage files reports, proxy statements and other documents with
the SEC. You may read and copy any document Student Advantage files at the SEC's
public reference room at Judiciary Plaza Building, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549. You should call 1-800-SEC-0330 for more
information on the public reference room. Student Advantage's SEC filings are
also available to you on the SEC's Internet site at http://www.sec.gov.
By Order of the Board of Directors,
Raymond V. Sozzi, Jr., Secretary
February , 2004
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.
109
STUDENT ADVANTAGE, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<Table>
<Caption>
Report of Independent Accountants........................... 112
Consolidated Balance Sheets as of December 31, 2001 and
2002...................................................... 113
Consolidated Statements of Operations for the years ended
December 31, 2000, 2001 and 2002.......................... 114
Consolidated Statements of Changes in Stockholders Equity
(Deficit) for the years ended December 31, 2000, 2001 and
2002...................................................... 115
Consolidated Statements of Cash Flows for the years ended
December 2000, 2001 and 2002.............................. 116
Notes to Consolidated Financial Statements.................. 118
Unaudited Consolidated Balance Sheet as of September 30,
2003...................................................... 146
Unaudited Consolidated Statements of Operations for the
three and nine months ended September 30, 2002 and 2003... 147
Unaudited Consolidated Statements of Cash Flows for the nine
months ended September 30, 2002 and 2003.................. 148
Notes to Unaudited Consolidated Financial Statements........ 149
</Table>
110
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of Student Advantage, Inc:
We have audited the accompanying consolidated balance sheets of Student
Advantage, Inc. as of December 31, 2002 and 2001, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for
each of the two years in the period ended December 31, 2002. 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. The financial statements of the Company as of and for the year ended
December 31, 2000 were audited by other auditors whose report dated February 7,
2001, expressed an unqualified opinion on those statements.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Student
Advantage, Inc. at December 31, 2002 and 2001, and the consolidated results of
its operations and its cash flows for each of the two years in the period ended
December 31, 2002, in conformity with accounting principles generally accepted
in the United States.
The accompanying financial statements have been prepared assuming that
Student Advantage, Inc. will continue as a going concern. As more fully
described in Note 1, the Company has incurred significant operating losses and
has a working capital deficiency. These conditions raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. The financial statements
do not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
October 13, 2003
Except as to the matter discussed in Note 17
as to which the date is December 10, 2003
111
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Student Advantage, Inc.
In our opinion, the consolidated statements of operations, of changes in
stockholders equity (deficit) and of cash flows present fairly, in all material
respects, the results of operations and cash flows of Student Advantage, Inc.
and its subsidiaries for the year December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America. 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 of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
As discussed in Note 2, the accompanying consolidated financial statements
for the year ended December 31, 2000 have been restated to reflect the
application of the equity method of accounting for the Company's investment in
Edu.com, Inc.
/s/ PRICEWATERHOUSECOOPERS, LLP
Portland, Maine
February 7, 2001
Except as to the restatement described in Note 2,
as to which the date is May 10, 2001
112
STUDENT ADVANTAGE, INC.
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
DECEMBER 31,
-------------------------
2001 2002
----------- -----------
(RESTATED)* (RESTATED)*
(IN THOUSANDS,
EXCEPT SHARE DATA)
ASSETS
Current assets
Cash and cash equivalents................................. $ 3,688 $ 1,468
Restricted cash........................................... 667 515
Accounts receivable (net of reserves of $737 and $207 at
December 31, 2001 and 2002, respectively)............... 5,405 1,901
Inventory................................................. 110 11
Prepaid expenses.......................................... 2,795 1,204
Other current assets...................................... -- 557
Current assets of discontinued operations................. 4,230 4,537
--------- ---------
Total current assets.................................... 16,895 10,193
Notes receivable.......................................... 4,378 4,156
Property and equipment, net............................... 10,546 4,296
Intangible and other assets, net.......................... 6,564 758
Noncurrent assets of discontinued operations.............. 19,748 19,086
--------- ---------
Total assets............................................ $ 58,131 $ 38,489
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable............................................. $ -- $ 12,500
Related party note payable................................ -- 3,500
Borrowings under revolving line of credit................. 2,500 --
Accounts payable.......................................... 4,387 4,717
Accrued compensation...................................... 1,598 691
Other accrued expenses.................................... 10,219 4,950
Deferred revenue and other advances....................... 3,521 8,280
Current obligation under capital lease.................... 1,232 14
Current liabilities of discontinued operations............ 2,701 3,895
--------- ---------
Total current liabilities............................... 26,158 38,547
--------- ---------
Long-term obligations
Deferred gain............................................. 534 534
Other accrued expenses.................................... 4,188 153
Warrants payable.......................................... 1,996 --
Borrowings under revolving line of credit................. 2,500 --
Notes payable............................................. 10,200 --
Long-term obligation under capital lease.................. 628 --
Long-term obligations of discontinued operations.......... 136 108
--------- ---------
Total long-term obligations............................. 20,182 795
--------- ---------
Total liabilities....................................... 46,340 39,342
--------- ---------
Commitments and Contingencies (see Note 14)
Stockholders' equity (deficit)
Preferred stock, $0.01 par value, 5,000,000 shares
authorized, no shares issued and outstanding.............. -- --
Common stock, $0.01 par value; 150,000,000 shares
authorized; issued and outstanding:
475,313 and 536,261 at December 31, 2001 and 2002,
respectively............................................ 5 5
Additional paid-in capital................................ 120,769 124,006
Accumulated deficit....................................... (108,884) (124,814)
Notes receivable from stockholders........................ (50) (50)
Deferred compensation..................................... (49) --
--------- ---------
Total stockholders' equity (deficit).................... 11,791 (853)
--------- ---------
Total liabilities and stockholders' equity (deficit).... $ 58,131 $ 38,489
========= =========
</Table>
- ---------------
* restatement pertains to disposition of OCM Direct, Inc.
** All share and per share items have been adjusted to reflect the one-for-ten
reverse splits of the common stock effected on each of June 28, 2002 and June
30, 2003.
The accompanying notes are an integral part of these consolidated financial
statements.
113
STUDENT ADVANTAGE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-----------------------------------------
2000 2001 2002
----------- ------------ ------------
(RESTATED)* (RESTATED)** (RESTATED)**
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenue
Student services....................................... $ 28,099 $ 31,246 $ 24,271
Corporate and university solutions..................... 19,915 13,783 4,524
-------- -------- --------
Total revenue....................................... 48,014 45,029 28,795
Costs and expenses
Cost of student services revenue....................... 10,263 8,253 9,576
Cost of corporate and university solutions revenue..... 9,929 7,070 2,147
Product development.................................... 18,377 17,125 7,414
Sales and marketing.................................... 17,880 21,733 15,582
General and administrative............................. 11,196 10,112 7,102
Depreciation and amortization.......................... 6,382 12,772 7,767
-------- -------- --------
Total costs and expenses............................ 74,027 77,065 49,588
-------- -------- --------
Loss from operations..................................... (26,013) (32,036) (20,793)
Interest income (expense), net......................... 1,434 (1,718) (3,718)
Impairment of long-lived assets........................ -- (1,916) (242)
Equity interest in Edu.com net loss.................... (3,776) (495) --
Realized gain on restructured debt..................... -- -- 2,937
Realized gain on sale of assets........................ -- 1,508 6,805
Realized loss on write-off of investment............... (367) -- --
Restructuring charges.................................. -- (4,735) --
-------- -------- --------
Loss from continuing operations before income taxes...... (28,722) (39,392) (15,011)
-------- -------- --------
Provision for income tax............................... -- (207) (61)
-------- -------- --------
Loss from continuing operations.......................... (28,722) (39,599) (15,072)
-------- -------- --------
Discontinued operations:
Income (loss) from operations of discontinued
subsidiary.......................................... -- 3,811 (858)
-------- -------- --------
Net Loss................................................. $(28,722) $(35,788) $(15,930)
======== ======== ========
Earnings per share -- Basic and Diluted:
Loss from continuing operations.......................... $ (78.58) $ (88.91) $ (29.27)
Income (loss) from discontinued operations............... -- 8.56 (1.67)
-------- -------- --------
Net loss per share....................................... $ (78.58) $ (80.35) $ (30.94)
======== ======== ========
Shares used in computing basic and diluted net loss per
share.................................................. 366 445 515
======== ======== ========
</Table>
- ---------------
* restatement pertains to Edu.com step acquisition accounting
** restatement pertains to disposition of OCM Direct, Inc.
*** All share and per share items have been adjusted to reflect the one-for-ten
reverse split of the common stock effected on each of June 28 2002 and June
30, 2003.
The accompanying notes are an integral part of these consolidated financial
statements.
114
STUDENT ADVANTAGE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<Table>
<Caption>
NOTES
COMMON STOCK ADDITIONAL RECEIVABLE
----------------- PAID-IN ACCUMULATED FROM TREASURY DEFERRED
SHARES AMOUNT CAPITAL DEFICIT STOCKHOLDERS STOCK COMPENSATION
-------- ------ ---------- ----------- ------------ ------------ -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
Balance December 31, 1999............ 354,354 $ 4 $ 88,040 $ (44,374) $(79) $(2,213) $ 41,378
-------- ----- -------- --------- ---- ------- --------
Exercise of common stock options..... 3,900 -- 172 -- -- -- 172
Sale of common stock under employee
stock purchase plan................ 1,456 -- 414 -- -- -- 414
Issuance of common stock in
connection with the acquisitions of
ScholarAid and College411.......... 3,255 -- 1,715 -- -- -- 1,715
Issuance of common stock and warrants
to At Home Corporation and John
Hancock Small Cap Value Fund....... 20,000 -- 9,965 -- -- -- 9,965
Issuance of common stock in
connection with the acquisition of
CollegeClub........................ 13,248 -- 4,821 -- -- -- 4,821
Deferred compensation related to
cancellation of stock options for
terminated employees............... -- -- (677) -- -- 677 --
Compensation relating to grants of
stock options...................... -- -- -- -- -- 771 771
Repayment of stock subscription...... -- -- -- -- 29 -- 29
Net loss............................. -- -- -- (28,722) -- -- (28,722)
-------- ----- -------- --------- ---- ------- --------
Balance December 31, 2000............ 396,212 $ 4 $104,450 $ (73,096) $(50) $ (765) $ 30,543
-------- ----- -------- --------- ---- ------- --------
Exercise of common stock options..... 1,182 -- 72 -- -- -- 72
Sale of common stock under employee
stock purchase plan................ 1,684 -- 269 -- -- -- 269
Issuance of common stock and warrants
in connection with the acquisition
of Edu.com......................... 900 -- 1,164 -- -- -- 1,164
Issuance of common stock in
connection with the Greylock,
Jennison & Stark PIPES financing,
net of financing fees.............. 50,000 1 9,799 -- -- -- 9,800
Issuance of common stock in
connection with the acquisition of
OCM................................ 24,333 -- 5,110 -- -- -- 5,110
Issuance of common stock in
connection with the acquisition of
CarePackages....................... 1,000 -- 82 -- -- -- 82
Deferred compensation related to
cancellation of stock options for
terminated employees............... -- -- (177) -- -- 177 --
Compensation relating to grants of
stock options...................... -- -- -- -- -- 539 539
Net loss............................. -- -- -- (35,788) -- -- (35,788)
-------- ----- -------- --------- ---- ------- --------
Balance December 31, 2001............ 475,313 $ 5 $120,769 $(108,884) $(50) $ (49) $ 11,791
-------- ----- -------- --------- ---- ------- --------
Exercise of common stock options..... 332 -- 14 -- -- -- 14
Issuance of common stock in
connection with the OCM earn out... 20,000 -- 440 -- -- -- 440
Sale of common stock under employee
stock purchase plan................ 4,617 -- 58 -- -- -- 58
Issuance of common stock in
connection with private
placement.......................... 36,000 -- 2,725 -- -- -- 2,725
Compensation relating to grants of
stock options...................... -- -- -- -- -- 49 49
Net loss............................. -- -- -- (15,930) -- -- (15,930)
-------- ----- -------- --------- ---- ------- --------
Balance December 31, 2002............ 536,261 $ 5 $124,006 $(124,814) $(50) $ -- $ (853)
======== ===== ======== ========= ==== ======= ========
</Table>
- ---------------
* All share and per share items have been adjusted to reflect the one-for-ten
reverse split of the common stock effected on each of June 28, 2002 and June
30, 2003
The accompanying notes are an integral part of these consolidated financial
statements.
115
STUDENT ADVANTAGE, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-----------------------------------------
2000 2001 2002
----------- ------------ ------------
(RESTATED)* (RESTATED)** (RESTATED)**
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES OF CONTINUING
OPERATIONS:
Loss from continuing operations........................... $(28,722) $(39,599) $(15,072)
Adjustments to reconcile loss from continuing operations
to net cash used in operating activities:
Depreciation............................................ 2,925 6,383 6,060
Amortization of intangible assets....................... 3,457 6,389 1,709
Net gain on forgiveness of debt......................... -- -- (2,974)
Net gain on sale of assets.............................. -- -- (6,532)
Deferred financing amortization......................... -- -- 2,147
Impairment of long term assets.......................... -- 1,916 242
Restructuring charge, net............................... -- 3,113 --
Equity interest in Edu.com net loss..................... 3,776 495 --
Reserve for allowances and bad debts.................... 487 655 (107)
Compensation expense relating to issuance of equity..... 771 539 49
Issuance of stock in exchange for services.............. -- 15 --
Exchange of notes receivable for assets sold............ -- (480) --
Amortization of marketing expense associated with common
stock warrant......................................... 888 888 --
Realized loss on write-off of investment................ 367 -- --
Changes in current assets and liabilities, net of
effects of acquisitions:
Accounts and notes receivable......................... (1,904) (1,858) 3,834
Prepaid expenses, other current assets................ 1,512 1,560 639
Inventory............................................. -- (110) 99
Accounts payable...................................... 128 1,072 330
Accrued compensation.................................. 1,299 (1,166) (907)
Other accrued expenses................................ 2,768 549 (5,257)
Long-term accrued expenses............................ -- 2,335 --
Deferred gain on sale of Voice FX..................... -- (534) --
Deferred revenue and other advances................... (5,811) (239) 4,759
-------- -------- --------
Net cash used in operating activities from continuing
operations................................................ (18,059) (18,077) (10,981)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES OF CONTINUING
OPERATIONS:
Purchases of fixed assets................................. (3,098) (3,529) (1,368)
Acquisitions of businesses for cash and common stock...... (10,992) (9,361) --
Purchases of marketable securities........................ (8,813) -- --
Proceeds from sale of marketable securities............... 29,359 -- --
Purchase of investment.................................... (1,368) -- --
Proceeds from sale of Voice FX............................ -- 338 --
Proceeds from sale of eStudentLoan........................ -- 2,077 --
Proceeds from sale of assets.............................. -- -- 6,770
-------- -------- --------
Net cash provided by (used in) investing activities from
continuing operations..................................... 5,088 (10,475) 5,402
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES OF CONTINUING
OPERATIONS:
Increase (decrease) in restricted cash.................... -- (667) 152
Proceeds from sale of preferred and common stock, net of
issuance costs.......................................... 9,965 9,800 2,725
Repayment of note from stockholder........................ 29 -- --
Proceeds from exercise of common stock options, warrants
and employee stock purchase plan........................ 586 341 71
Repayment of capital lease obligations.................... (217) (1,209) (1,054)
Proceeds of revolving line of credit, net................. -- 11 --
Proceeds from related party note payable.................. -- -- 3,500
Repayment of note payable................................. -- (1,100) (7,700)
Proceeds of notes payable................................. -- 10,200 4,500
-------- -------- --------
Net cash provided by financing activities from continuing
operations................................................ 10,363 17,376 2,194
-------- -------- --------
Net cash provided by discontinued operations................ -- 2,102 1,165
-------- -------- --------
Net decrease in cash and cash equivalents................... (2,608) (9,074) (2,220)
Cash and cash equivalents, beginning of period.............. 15,370 12,762 3,688
-------- -------- --------
Cash and cash equivalents, end of period.................... $ 12,762 $ 3,688 $ 1,468
======== ======== ========
</Table>
- ---------------
* restatement pertains to Edu.com step acquisition accounting
** restatement pertains to disposition of OCM Direct, Inc.
The accompanying notes are an integral part of these consolidated financial
statements.
116
STUDENT ADVANTAGE, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
------------------------------------
2000 2001 2002
---------- ---------- ----------
(RESTATED) (RESTATED) (RESTATED)
(IN THOUSANDS)
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest.................... $ 5 $ 315 $1,084
======== ======= ======
Cash paid during the year for taxes....................... $ -- $ -- $ 159
======== ======= ======
Supplemental Disclosure of Noncash Activities:
Issuance of warrants to purchase common stock............. $ 2,100 $ 6,000 $ --
======== ======= ======
During 2000, the Company acquired businesses as follows:
Fair value of intangible and tangible assets and goodwill
acquired............................................... $ 21,292 $ -- $ --
Common stock, common stock options and warrants issued.... (6,536) -- --
Cash paid................................................. (11,004) -- --
-------- ------- ------
Liabilities assumed....................................... $ 3,752 $ -- $ --
======== ======= ======
During 2001, the Company acquired businesses as follows:
Fair value of intangible and tangible assets and goodwill
acquired............................................... $ -- $30,744 $ --
Common stock, common stock options and warrants issued.... -- (6,331) --
Cancellation of debt...................................... -- (1,000) --
Decrease in prior investment.............................. -- (3,200) --
Cash paid................................................. -- (9,198) --
-------- ------- ------
Liabilities assumed....................................... $ -- $11,015 $ --
======== ======= ======
During 2001, the Company disposed of product lines as
follows:
Cash received............................................. $ -- $ 2,966 $ --
Notes received............................................ -- 5,140 --
Net assets given up....................................... -- (6,270) --
Deferred gain............................................. -- (534) --
Other gain................................................ -- 206 --
-------- ------- ------
Gain on sale.............................................. $ -- $ 1,508 $ --
======== ======= ======
During 2002, the Company disposed of product lines and
assets as follows:
Cash received............................................. -- -- 6,770
Net assets given up....................................... -- -- (465)
Other gain................................................ -- -- 500
-------- ------- ------
Gain on sale.............................................. $ -- $ -- $6,805
======== ======= ======
</Table>
- ---------------
* restatement pertains to Edu.com step acquisition accounting
** restatement pertains to disposition of OCM Direct, Inc.
The accompanying notes are an integral part of these consolidated financial
statements.
117
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION, NATURE OF BUSINESS AND BASIS OF PRESENTATION
Student Advantage, Inc. is an integrated media and commerce company focused
exclusively on the higher education market. The Company works with colleges and
universities and in cooperation with businesses to develop products and services
that are easily available to students and alumni.
The Company is subject to the risks and uncertainties common to growing
companies, including reliance on certain customers, 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
President and Chief Executive Officer, and limited operating history.
The Company has experienced substantial net losses since its inception and,
as of December 31, 2002, had an accumulated deficit of $124.8 million. Such
losses and accumulated deficit resulted primarily from significant costs
incurred in the development of the Company's products and services and the
establishment of the Company's infrastructure. As of the filing of the Company's
annual report on Form 10-K, as amended, for the year ended December 31, 2002,
certain factors raised concerns about the Company's ability to continue as a
going concern. The Company has taken significant steps through the sale of its
SA Cash product line in February 2003 for proceeds of $4.5 million, the sale of
the assets of its OCM Direct subsidiary in early May 2003 for cash proceeds of
$15.6 million, $1.8 million in settlement of intercompany obligations and the
assumption by Alloy of OCM Direct's outstanding indebtedness to Bank of America,
enabling the Company to significantly reduce its outstanding debt obligations
and to restructure the remainder of its debt obligations. The Company's
operating and financing plan for the remainder of 2003, assumes that it will be
able to achieve significant reduction in net cash loss for the remainder of 2003
and into 2004. However, if the Company's revenue and expense projections do not
materialize as anticipated, the Company will be required to obtain additional
financing. Failure to generate sufficient revenues, reduce certain discretionary
spending and obtain additional capital or financing, if needed, would have a
material adverse effect on the Company's ability to achieve its intended
business objectives. With the proceeds of the sales of its SA Cash product line
and the assets of its OCM Direct subsidiary, the related reduction of its debt
obligations and restructuring of its remaining debt, the Company believes that
it has sufficient cash resources for at least the next 12 months.
The 2000 financial statements have been retroactively restated to reflect
the investment in Edu.com on the equity method of accounting due to step
acquisition accounting. See Note 2 for further discussion. The 2001 and 2002
financial statements have been restated to reflect the disposition of OCM
Direct, Inc. in May 2003. The results of OCM Direct, Inc. are presented in the
financial statements in the results of discontinued operations. See Note 16 for
further discussion.
All share and per share items in these Notes to the Consolidated Financial
Statements have been adjusted to reflect the one-for-ten reverse split of the
Company's Common Stock effected on each of June 28, 2002 and June 30, 2003.
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.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash and cash equivalents. The
Company invests its excess cash in money markets and certificates of deposit,
which are subject to minimal credit and market risk. The Company's cash
118
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
equivalents are classified as "available for sale" and are recorded at cost,
which approximates fair value. As of December 31, 2001 and 2002, the Company had
cash and cash equivalents of $3.7 million and $1.5 million, respectively. In
addition to the Company's restricted cash of $0.7 million and $0.5 million at
December 31, 2001 and 2002, respectively which is being held by our third party
credit card processor and in an escrow account as agreed in certain
acquisitions.
INVESTMENTS
The Company's investments have historically not had readily determinable
fair values and were, therefore, accounted for using the cost method. The
Company periodically reviews the value of its investments to consider whether an
"other than temporary" decline in market value, below the related carrying
amount, has occurred. Factors considered include the current estimated fair
value of the investment, the length of time and extent to which market value has
been less than cost and the financial condition and near-term prospects of the
issuer. When appropriate an impairment loss is recognized related to a decline
in investment value.
On November 12, 1999, the Company made an equity investment in Edu.com,
Inc. ("Edu.com"), a privately held e-commerce company. The Company paid
approximately $4.3 million in exchange for approximately 922,000 shares of
Series B preferred stock of Edu.com. In January 2000, the Company invested an
additional $1.0 million in exchange for approximately 217,000 shares of Series B
preferred stock of Edu.com. On May 10, 2001, the Company acquired certain assets
of Edu.com in exchange for 900 shares of Student Advantage common stock and a
warrant to purchase 2,250 shares of common stock, with an exercise price of
$228.00 and a warrant to purchase 2,250 shares of common stock with an exercise
price of $342.00, and assumed certain liabilities of Edu.com. In addition, the
Company canceled the $1.0 million secured promissory note previously issued to
the Company by Edu.com in exchange for the assets securing the note. This
consideration and the Company's previous investment in preferred stock of
Edu.com was accounted for under the purchase method of accounting. The
accounting treatment of the additional investment was in accordance with
Accounting Principles Bulletin: The Equity Method for Accounting for Investments
in Common Stock ("APB 18"), which requires the application of step accounting in
accordance with Accounting Research Bulletin 51: Consolidated Financial
Statements Elimination of Intercompany Investment ("ARB 51"). Accordingly, the
Company retroactively restated its investment in Edu.com on the equity method of
accounting and recorded its ownership percentage of Edu.com's net loss for the
year ended December 31, 2000. As a result of applying the equity method in
Edu.com, a portion of the cost of the Company's investment was allocated to the
equity in the net assets of Edu.com, amounting to approximately $0.2 and $0.5
million for the transactions occurring in 2000 and 2001 respectively. During the
fourth quarter of 2001, the Company evaluated the value of the acquisition under
FAS 121, due to the announced restructuring of the Company. As a result, the
Company determined that the remaining balance of goodwill was permanently
impaired and accordingly recorded a loss on investment of $0.9 million. In
addition to the loss, the Company had amortized $0.7 million of goodwill as of
December 31, 2001.
On July 12, 2000, the Company made an investment in alumnipride.com, Inc.,
("alumnipride.com"), a privately held company providing customized websites to
national alumni associations. The Company paid approximately $0.4 million in
exchange for approximately 97,000 shares of Series B preferred stock of
alumnipride.com. In October 2000, alumnipride.com was acquired by
UConnections.com, Inc. ("Uconnections.com"), and the shares of preferred stock
of alumnipride.com were exchanged for 270,569 shares of common stock of
UConnections.com. At December 31, 2000 the Company evaluated the investment and
determined that the fair value had been permanently impaired and accordingly
recorded a realized loss in the amount of $0.4 million.
119
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INVENTORY
The Company's inventories are carried at the lower of cost or market. Cost
is determined by the first-in, first-out or commonly known as the FIFO method.
The entire inventory of the Company is finished goods.
ACCOUNTS RECEIVABLE
Our consolidated accounts receivable balance is net of allowances for
doubtful accounts of $0.7 million and $0.2 million at December 31, 2001 and
December 31, 2002, respectively. A rollforward of the allowance for doubtful
accounts is as follows.
<Table>
<Caption>
BALANCE AT
PREVIOUS END BALANCE AT END
OF YEAR ADDITIONS(A) DEDUCTIONS(B) OF YEAR
------------ ------------ ------------- --------------
(IN THOUSANDS)
December 31, 2000:
Allowance for doubtful
accounts..................... $328 $527 $ (40) $815
December 31, 2001:
Allowance for doubtful
accounts..................... $815 $655 $(733) $737
December 31, 2002:
Allowance for doubtful
accounts..................... $737 $460 $(990) $207
</Table>
- ---------------
(a) Includes recoveries and amounts charged to costs and expense.
(b) Includes accounts deemed uncollectible.
REVENUE RECOGNITION
We report revenues in two categories: student services revenue and
corporate and university solutions revenue. Student services revenue is
attributable to the parts of our business focused primarily on providing goods
and services to students, their parents and alumni. We derive student services
revenue from commerce, subscription and advertising. Commerce revenue from
continuing operations is derived primarily from transaction-based revenue earned
for reselling products and services and processing stored value transactions.
Until May 2003, commerce revenue primarily included revenue that we received
from the sale of residence hall linens and related accessories, care packages
and diploma frames through direct mail marketing, fees from SA Cash transactions
and e-commerce revenue from our network of websites. As a result of the May 2003
sale of the assets of our OCM Direct subsidiary, revenue from the sale of
residence hall linens and related accessories, care packages and diploma frames
will be presented in the results of discontinued operations on our Consolidated
Statements of Operations. Commerce revenue is recognized upon the completion of
the related contractual obligations. Subscription revenue is derived from
membership fees related to enrolling students in the Student Advantage
Membership Program. Subscription revenue is recognized ratably from the date of
subscription to the end of the annual membership period. Advertising revenue
consists primarily of fees for banner advertisements and sponsorships on our
network of websites. Website advertising revenue is recognized as the related
impressions are displayed, provided that no significant obligations remain and
collection of the related receivable is assured. 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 assured, or (2) a pro-rata portion of contract revenue based upon impressions
delivered relative to minimum guaranteed impressions to be delivered. In the
past, we also derived revenue from advertisements placed in SAM, Student
Advantage Magazine. Revenue from fees
120
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
related to advertisements placed in SAM was recognized when the magazine was
shipped to members. The revenues related to SAM are only applicable to the year
2000 as no issues were produced during 2001 or 2002.
Corporate and university solutions revenue is attributable to the parts of
the Company's business which are focused primarily on providing goods and
services to corporations and universities and is made up of marketing services
revenue from corporate clients and licensing, management and consulting fees
from universities. Marketing services revenue is derived primarily from
providing tailored event management and execution services to businesses seeking
to market their products and services to college students. This revenue is
recognized upon the completion of the related contractual obligations. 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 assured. Payments received in advance of revenue being earned are recorded as
deferred revenue.
In accordance with the EITF Issue No. 99-17 "Accounting for Advertising
Barter Transactions," the Company has appropriately recorded barter revenue and
expense based upon the fair value of the advertising surrendered in the
transaction. Fair value is established by reference to comparable cash
transactions during the six-month period preceding the barter transaction.
Generally, barter transactions involve exchanges of banner advertising. For the
year ended December 31, 2000, 2001 and 2002, the Company recorded $1.2 million,
$4.1 million and $2.9 million, respectively, of barter revenue and $1.2 million,
$4.1 million and $2.9 million of barter expense recorded as sales and marketing
expense, respectively.
In accordance with Staff Accounting Bulletin No. 101 "Revenue Recognition
in Financial Statements" and EITF Issue No. 99-19 "Reporting Revenue Gross as a
Principal versus Net," the Company has evaluated our revenue and determined that
it is being reported in accordance with the guidance. The Company records
certain of its commerce revenue at gross, as it is considered the primary
obligor in the transaction.
In November 2001, the Emerging Issued Task Force concluded its discussions
on EITF Issue 01-9 "Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of the Vendor's Products)". This guidance requires that an
entity account for consideration given to a customer as a reduction of revenue
unless it can demonstrate an identifiable benefit that can be sufficiently
separable from the sale of the products or services to the customer, and can
reasonably estimate the fair value of the benefit identified. The Company
adopted EITF 01-9 effective January 1, 2002. In accordance with EITF 01-9, the
Company has offset amortization of consideration given to certain vendors
against revenue. While consideration given and received by the Company is
carried at the gross value of the amounts on the balance sheet, the transaction
is reflected on a net basis in the accompanying statement of operations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States requires management to make
estimates and assumptions that affect the reported amounts of 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 these estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, which include
cash equivalents, investments, notes receivable, accounts payable, accrued
expenses and notes payable, approximate their fair values at December 31, 2001
and 2002.
121
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
SFAS No. 105, "Disclosure of Information about Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk", requires disclosure of any significant off-balance sheet risk and
concentrations of credit risk. The Company does not have any significant off-
balance sheet risk. Financial instruments, which potentially expose the Company
to concentration of credit risk, are comprised primarily of cash, cash
equivalents and trade accounts receivable. The Company places its cash and cash
equivalents 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
counter parties and, accordingly, does not require collateral. Concentration of
credit risk with respect to accounts receivable is limited to certain customers
to whom the Company makes substantial sales. To reduce risk, the Company
routinely assesses the financial strength of its customers and, as a
consequence, believes that its accounts receivable credit risk exposure is
limited. The Company maintains reserves for potential credit losses and such
losses, in the aggregate, have not exceeded management's expectations. For the
year ended December 31, 2000 and 2001, two customers accounted for 50% of total
revenue, and three customers accounted for 34% of total revenue, respectively.
For the year ended December 31, 2002 no single customer accounted for 10% or
more of total revenue. At December 31, 2000 and 2001, two customers accounted
for 36% of accounts receivable, and one customer accounted for 37% of accounts
receivable, respectively. At December 31, 2002, no single customer accounted for
10% or more of accounts receivable.
PRODUCT DEVELOPMENT
Costs incurred in product development are expensed as incurred.
PROPERTY AND EQUIPMENT
Fixed assets are recorded at cost. Depreciation is recorded using the
straight-line method over estimated useful lives as follows:
<Table>
<Caption>
YEARS
-----
Furniture and fixtures...................................... 3
Computer equipment and software............................. 2-3
Equipment................................................... 3
</Table>
Amortization of capitalized leased assets and leasehold improvements is
recorded using the straight-line method over the shorter of the lease term or
the useful life. Repair and maintenance costs are expensed as incurred. When
fixed assets are retired or otherwise disposed of, the asset cost and
accumulated depreciation and amortization are removed from the accounts and any
resulting gain or loss is reflected in income.
CAPITALIZED COMPUTER SOFTWARE COSTS
The Company records expenditures for computer software in accordance with
the provision of Statement of Position 98-1, "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use". In accordance with
this statement, costs incurred for data conversion, training and maintenance are
expensed as incurred. Once the preliminary project stage is completed, direct
costs incurred during the application development stage are capitalized and
amortized over the estimated useful life of the asset. The Company capitalized
$1.6 million and $1.1 million in 2001 and 2002, respectively. Amortization of
software cost is provided on a straight-line basis over the estimated useful
life, which is approximately two or three years.
122
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
WEB SITE DEVELOPMENT COSTS
The Company records expenditures for website development in accordance with
the provision of the Emerging Issues Task Force Issue No. 00-2, "Accounting for
Web Site Development Costs." In accordance with this statement, costs incurred
for data conversion, training and maintenance are expensed as incurred. Once the
preliminary project stage is completed, direct costs incurred during the
application development stage are capitalized and amortized over the estimated
useful life of the asset. The Company capitalized $0.6 million in 2001 and zero
in 2002, respectively. Amortization of website development cost is provided on a
straight-line basis over the estimated useful life, which is approximately two
years.
GOODWILL AND OTHER INTANGIBLE ASSETS
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets, effective for fiscal years beginning after December 15, 2001.
As of January 1, 2002, the Company adopted SFAS No. 142. This Standard
eliminates goodwill amortization from the Statement of Income and requires an
evaluation of goodwill for impairment upon adoption of this Standard, as well as
subsequent evaluations on an annual basis, and more frequently if circumstances
indicate a possible impairment. For these evaluations, the Company is using an
implied fair value approach, which uses a discounted cash flow analysis and
other valuation methodologies. These evaluations use many assumptions and
estimates in determining an impairment loss, including certain assumptions and
estimates related to future earnings to be derived from the Company's turnaround
initiatives.
Intangible assets include the excess of the purchase price over
identifiable tangible net assets acquired in acquisitions. Such assets include
goodwill, completed technology, workforce, customer lists, non-compete
agreements, websites and other intangible assets, which are being amortized on a
straight-line basis over their estimated economic lives ranging from two to
fifteen years. Accumulated amortization was $10.0 million and $11.3 million at
December 31, 2001 and 2002, respectively. As a result of the application of SFAS
142 in 2002, the company stopped amortizing the remaining goodwill related to
the acquisitions of OCM Direct in the first quarter of 2002. The Company is
continuing to amortize the remaining value of our intangible assets related to
contracts. The Company periodically evaluates its intangible assets for
potential impairment. On July 15, 2002, the Company agreed to a lease
termination regarding its facility in San Diego, CA. The lease obligation was
acquired during the October 2000 acquisition of College Club and at that time
the Company identified its intentions to vacate the facility. As a result, the
Company provided for an accrual on unused space for the future lease obligation
as part of the purchase price. At the time of the lease termination, the Company
carried a $2.4 million accrual related to the purchase price accrual. In
accordance with EITF 95-3, the company reversed the accrual against a portion of
the remaining goodwill related to the acquisition.
A reconciliation of previously reported net income and earnings per share,
to the amounts adjusted for the exclusion of goodwill follow (in thousands,
except per share amounts). These amounts are adjusted for each of the periods
presented in the Form 10-K. In the fourth quarter of 2002, the Company performed
an
123
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
analysis to assess the carrying value of the remaining goodwill amounts and
determined there was no impairment.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------
2000 2001 2002
-------- ---------- ----------
(RESTATED) (RESTATED)
Reported loss from continuing operations............. $(28,722) $(39,599) $(15,072)
Add: Goodwill amortization........................... 4,568 4,269 --
-------- -------- --------
Adjusted loss from continuing operations............. $(24,154) $(35,330) $(15,072)
Basic and diluted loss per share:
Reported loss from continuing operations per share... $ (78.58) $ (88.91) $ (29.27)
Add: Goodwill amortization........................... 12.50 9.58 --
-------- -------- --------
Adjusted basic and diluted loss from continuing
operations per share............................... $ (66.08) $ (6.95) $ (29.27)
</Table>
The company has completed an impairment evaluation using these assumptions
as of December 31, 2002 and has concluded that no impairment exists relative to
the carrying value of the goodwill.
LONG-LIVED ASSETS
The Company assesses the realizability of long-lived assets in accordance
with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets." The Company reviews its long-lived assets for impairment if events and
circumstances indicate the carrying amount of an asset may not be recoverable.
Due to the announced restructuring in the fourth quarter of 2001 and the
Company's continued restructuring in 2002, the Company evaluated the
realizability of its long-lived assets based on profitability and cash flow
expectations for the related asset. As a result of its review, the Company
recorded asset impairment charges of $1.9 million and $0.2 million for the year
ended December 31, 2001 and 2002, respectively. The impairment for 2001 related
to $1.6 million of goodwill associated to the Company's acquisitions of or asset
purchases from Edu.com, College411, Collegiate Advantage and Campus Agency. The
remaining $0.3 million in 2001 was related to certain fixed assets acquired from
Edu.com. The $0.2 million impairment for 2002 related to certain fixed assets
acquired from CollegeClub.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company 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 the Company's common stock at the date of
grant. The Company has adopted the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation," through disclosure only (Note 9). All stock-based
awards to non-employees are accounted for at their fair value in accordance with
SFAS No. 123.
124
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, the Company's net loss and net loss per share would have increased
to the pro forma amounts indicated below:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------
2000 2001 2002
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net loss:
As reported........................................ $(28,722) $(35,788) $(15,930)
Pro forma.......................................... (33,739) (42,004) (18,838)
Basic and diluted net loss per share:
As reported........................................ (78.58) (80.35) (30.94)
Pro forma.......................................... (92.18) (94.39) (36.58)
</Table>
INCOME TAXES
The Company applies Statement of Financial Accounting Standards (SFAS) No.
109, Accounting for Income Taxes, which requires the Company to recognize
deferred tax assets and liabilities for expected future tax consequences of
events that have been recognized in the financial statements or tax returns.
Under this method, deferred tax assets and liabilities are determined based on
the difference between the financial statement and tax bases of assets and
liabilities using the enacted tax rates and laws that will be in effect for the
year in which the differences are expected to reverse. SFAS No. 109 requires
deferred tax assets and liabilities to be adjusted when the tax rates or other
provisions of the income tax laws change.
ADVERTISING EXPENSE
The Company recognizes advertising expense as incurred. Advertising expense
from continuing operations was approximately $1.0 million, $3.6 million and $3.7
million for the years ended December 31, 2000, 2001 and 2002, respectively.
NET LOSS PER SHARE
In accordance with SFAS No.128, "Earnings per Share", basic and diluted net
loss per share is computed by dividing the net loss available to common
stockholders for the period by the weighted average basic and diluted number of
shares of common stock outstanding during the period. The calculation of diluted
net loss per share excludes potential common stock, as their effect is
anti-dilutive. All share and per share amounts have been adjusted to reflect the
one-for-ten reverse split of the Company's Common Stock on June 30, 2003.
All outstanding options and warrants to purchase common stock in 2002
totaling 39,746 were excluded from the calculation of diluted earnings per share
for all periods presented because their inclusion would have been anti-dilutive.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2002, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure -- amendment of SFAS 123", "SFAS 148".
SFAS 148 amends Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation", "SFAS 123" to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based compensation. In addition, this statement amends the disclosure
requirements for SFAS 123, to require prominent disclosure in both annual and
interim financial statements about the method of
125
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accounting for stock-based employee compensation and the effect of the method
used on reported results. The Company has elected to continue to account for
stock-based compensation using the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", "APB 25", and related interpretations. Accordingly, compensation
cost for stock options and restricted stock awards is measured as the excess, if
any, of the quoted market price of our stock at the date of the grant over the
exercise price an employee must pay to acquire the stock. The Company has
adopted the annual disclosure provisions of SFAS 148 in our financial statements
for the year ended December 31, 2002 and will adopt the interim disclosure
provisions in our financial statements for the quarter ended March 31, 2003.
Since the adoption of SFAS 148 involves disclosure only, the Company does not
expect a material impact on our earnings or on our financial position.
The requirements of FASB Interpretation No. 45 Guarantor's Accounting and
Disclosure Requirements for Guarantee, is effective for financial statements of
interim or annual periods after December 15, 2002. The Company does not believe
that the adoption of this standard will have an impact on these financial
statements.
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.
On May 17, 2000, the Company acquired College411.com, Inc. ("College411"),
a provider of web-based college and university student-focused content. In
connection with the acquisition, the Company issued 1,939 shares of common
stock, assumed all of College411's outstanding common stock options, which were
converted into options to purchase a total of 362 shares of the Company's common
stock, and forgave a loan of approximately $0.3 million. The acquisition was
accounted for as a purchase business combination in accordance with APB Opinion
No. 16, "Business Combinations", and the Company has consolidated the operations
of College411 beginning on the date of acquisition. Goodwill and other
intangible assets in the aggregate amount of $1.5 million have been recorded in
connection with the acquisition and are being amortized on a straight-line basis
over two years. At December 31, 2001, due to the company restructuring in the
fourth quarter, the company evaluated the value of its intangible assets in
accordance with FAS 121. As a result, in 2001 the Company wrote down $0.3
million related to the remaining goodwill of College411.
On May 18, 2000, the Company acquired ScholarAid.com, Inc. ("ScholarAid"),
a provider of web-based scholarship and educational research tools. In
connection with the acquisition, the Company issued 1,316 shares of common
stock, assumed all of ScholarAid's outstanding common stock options, which were
converted into options to purchase a total of 213 shares of the Company's common
stock, and forgave a loan of approximately $0.5 million. The acquisition was
accounted for as a purchase business combination in accordance with APB Opinion
No. 16, "Business Combinations", and the Company has consolidated the operations
of ScholarAid beginning on the date of acquisition. Goodwill and other
intangible assets in the aggregate amount of $1.4 million have been recorded in
connection with the acquisition and are being amortized on a straight-line basis
over three years. On November 26, 2001, in relation to the sale of eStudentLoan,
the remaining $0.7 million of goodwill was written off against the gain on the
eStudentLoan transaction.
On July 28, 2000, the Company acquired from CollegeClub.com, Inc.
("CollegeClub"), certain assets of its eStudentLoan, LLC ("eStudentLoan")
subsidiary relating to its student loan search engine business, in exchange for
approximately $0.9 million in cash. The acquisition was accounted for as a
purchase business combination in accordance with APB Opinion No. 16, "Business
Combinations", and the Company has consolidated the operations of eStudentLoan
beginning on the date of acquisition. An
126
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
intangible asset in the approximate amount of $1.1 million was recorded in
connection with the acquisition and is being amortized on a straight-line basis
over three years. On November 26, 2001, the Company completed the sale of its
eStudentLoan business to a third-party. As consideration for the transaction the
Company received net proceeds of $2.3 million in cash. The Company has
recognized $0.9 million as a gain in their statement of operations related to
this transaction during the year ended December 31, 2001. The recorded gain was
net of $1.2 million of remaining goodwill related to the acquisitions of
eStudentLoan and ScholarAid.
On October 31, 2000, the Company acquired substantially all of the assets
of CollegeClub, an integrated communications and media internet company for
college students, and certain of its subsidiaries that had filed for protection
under Chapter 11 of the federal Bankruptcy Code, in exchange for approximately
$8.3 million in cash, 13,248 shares of common stock and the assumption of
certain liabilities. The sale was approved by the federal Bankruptcy Court in
Southern California. The acquisition was accounted for as a purchase business
combination in accordance with APB Opinion No. 16, "Business Combinations", and
the Company has consolidated the operations of College Club beginning on the
date of acquisition. An intangible asset, related to a contract with a customer
that was acquired through the acquisition, in the approximate amount of $4.6
million was recorded in connection with the acquisition and is being amortized
on a straight-line basis over thirty months. As of December 31, 2002, $3.9
million had been amortized. The remaining $0.7 million will be amortized during
the first two quarters of 2003.
The acquired assets and assumed liabilities associated with the purchase of
CollegeClub have been allocated as follows (in thousands):
<Table>
Working capital, net........................................ $ 2,359
Long-term obligation under capital leases................... (2,045)
Fixed assets................................................ 8,769
Contracts................................................... 4,649
-------
Total purchase price...................................... $13,732
=======
</Table>
The following unaudited pro forma data summarizes the results of operations
for the year ended December 31, 2000 as if the acquisition of CollegeClub had
been completed on the first day of the 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, 2000, or that may be
obtained in the future. The pro forma amounts below do not include amounts
related to insignificant acquisitions that occurred during 2000.
<Table>
<Caption>
(UNAUDITED, IN THOUSANDS,
EXCEPT PER SHARE DATA)
-------------------------
Net revenue................................................. $ 54,239
Net loss.................................................... $(73,074)
Net loss per common share:
Basic and diluted......................................... $(200.00)
</Table>
On May 10, 2001, the Company acquired certain assets of Edu.com, Inc., a
privately held e-commerce company specializing in sales of consumer electronics,
hardware and software to students. Prior to the acquisition, the Company was a
stockholder of Edu.com and a party to a marketing and distribution agreement
with Edu.com. On November 12, 1999, the Company made an equity investment in
Edu.com of approximately $4.3 million in exchange for approximately 9,220 shares
of Series B preferred stock and entered into a marketing and distribution
agreement with Edu.com providing for payments of $2.0 million to the Company
over the term of the agreement. In January 2000, the Company invested an
127
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
additional $1.0 million in exchange for approximately 21,700 shares of Series B
preferred stock. At December 31, 2000, $1.0 million remained payable under the
agreement. In satisfaction of this obligation, the Company accepted a secured
promissory note, which was payable on December 31, 2001, from Edu.com. In
connection with the Company's acquisition of certain assets of Edu.com in May
2001, the Company issued 900 shares of its common stock and a warrant to
purchase 2,250 shares of common stock with an exercise price of $228.00 and a
warrant to purchase 2,250 shares of common stock with an exercise price of
$342.00, and assumed certain liabilities of Edu.com. In addition, the Company
canceled the $1.0 million secured promissory note previously issued to it by
Edu.com in exchange for the transfer of assets securing the note. This
consideration, including the Company's previous investment in Edu.com was
accounted for as a purchase business combination in accordance with APB Opinion
No. 16, "Business Combinations". The resulting treatment of the additional
investment is in accordance with Accounting Principles Board Opinion No. 19: The
Equity Method for Accounting for Investments in Common Stock ("APB 18"), which
requires the application of step accounting in accordance with Accounting
Research Bulletin 51: Consolidated Financial Statements Elimination of
Intercompany Investment ("ARB 51"). Accordingly, the Company retroactively
restated its investment in Edu.com on the equity method of accounting and
recorded its ownership percentage of Edu.com's net loss for the year ended
December 31, 2000. As a result of applying the equity method in Edu.com, a
portion of the cost of the Company's investment has been allocated to the equity
in the net assets of Edu.com, amounting to approximately $0.2, and $0.5 million
for the transactions occurring in 2000 and 2001 respectively. Goodwill and other
intangible assets aggregated approx. $1.6 million in connection with the
acquisition of Edu.com. During the fourth quarter of 2001, the Company evaluated
the value of the acquisition under FAS 121, due to the announced restructuring
of the Company. As a result, the Company determined that the remaining balance
of goodwill was permanently impaired and accordingly recorded a loss on
investment of $0.9 million. In addition to the loss, the Company had amortized
$0.7 million of goodwill as of December 31, 2001.
On June 25, 2001, the Company entered into an Agreement and Plan of Merger
(the "OCM Acquisition Agreement"), by and among the Company, Orion Acquisition
Corp., a wholly owned subsidiary of the Company ("Orion"), OCM Enterprises, Inc.
("OCM") and Devin A. Schain, Michael S. Schoen, Howard S. Dumhart, Jr., Paul D.
Bogart and Steven L. Matejka (the "OCM Stockholders"). Pursuant to the OCM
Acquisition Agreement, OCM was merged with and into Orion, which survived the
merger and changed its name to OCM Direct, Inc. ("OCM Direct"). The aggregate
consideration paid by the Company to the OCM Stockholders in connection with the
acquisition of OCM was (i) $8.0 million in cash paid at the closing, (ii) 24,333
shares of the Company's common stock, issued at the closing, (iii) shares of
common stock to be issued not later than June 25, 2002 with a value of $1.25
million at the time of issuance based on the average of the last reported sales
prices per share of common stock over the ten trading days ending on the trading
day that is three days prior to the date of issuance, provided that the number
of shares will not be less than 2,083 or greater than 12,500, and (iv) in the
event that OCM Direct attains certain revenue performance goals described in the
OCM Acquisition Agreement after the closing, up to $1.5 million payable at the
Company's option in either shares of common stock or a combination of shares of
common stock and cash, with the shares of common stock valued at the time of
issuance based on the average of the last reported sales prices per share over
the ten trading days ending on the trading day that is three days prior to the
date of issuance or $1.00, whichever is greater, subject to adjustment under
certain circumstances described in the OCM Acquisition Agreement. In June 2002,
the Company and the OCM Stockholders agreed to an issuance of 20,000 shares of
common stock in satisfaction of the deferred payment and the revenue performance
goals. Under certain circumstances, the Company agreed to register with the
Securities and Exchange Commission the shares of common stock issued in
connection with the acquisition of OCM for resale by the OCM Stockholders. The
acquisition was accounted for as a purchase business combination in accordance
with APB Opinion No. 16, "Business Combinations", and the Company has
consolidated the operations of
128
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OCM Direct beginning on the date of acquisition. Goodwill and other intangible
assets aggregated $18.5 million in connection with the acquisition of OCM
Direct.
The acquired assets and assumed liabilities associated with the purchase of
OCM Direct have been allocated as follows (in thousands):
<Table>
Working capital, net........................................ $ 4,921
Long-term obligation under capital leases................... (552)
Fixed assets................................................ 1,633
Contracts................................................... 1,400
Technology.................................................. 300
Goodwill.................................................... 16,818
-------
Total purchase price........................................ $24,520
=======
</Table>
The following unaudited pro forma data summarizes the results of operations
for the years ended December 31, 2001 as if the acquisition of OCM Direct had
been completed on the first day of the 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, 2001, or that may be
obtained in the future. The pro forma amounts below do not include amounts
related to insignificant acquisitions that occurred during 2001.
<Table>
<Caption>
2001
---------
(UNAUDITED, IN THOUSANDS,
EXCEPT PER SHARE DATA)
Net revenue................................................. $ 71,387
Net loss.................................................... $(40,164)
Net loss per common share:
Basic and diluted......................................... $ (88.00)
</Table>
On October 1, 2001, the Company and its wholly-owned subsidiary, OCM
Direct, Inc., acquired substantially all of the assets of CarePackages.com, LLC,
a privately held e-commerce company specializing the sale of direct mail gift
packages or care packages to college students. The acquisition was accounted for
as a purchase business combination in accordance with APB Opinion No. 16,
"Business Combinations", and the Company has consolidated the operations of OCM
Direct beginning on the date of acquisition. In connection with the acquisition,
the Company issued 1,000 shares of the Company's common stock, and paid $30,000
in cash to creditors of CarePackages.com, LLC. Goodwill and other intangible
assets aggregated $0.1 million in connection with the acquisition.
4. DISPOSITIONS
On May 31, 2001, the Company completed the sale of its Rail Connection
business to Wandrian, Inc. (Wandrian), for aggregate consideration of $0.6
million, in the form of a secured promissory note for $0.2 million payable over
the next three years and a second promissory note for $0.4 million convertible
into Wandrian's Series B Preferred Stock and maturing on May 31, 2006. As a
result of this transaction, the Company recorded a gain of $0.3 million, which
was net of remaining goodwill of approximately $68,000, in its results for the
period ended December 31, 2001. On September 18, 2002, the Company amended the
promissory note for $0.2 million to provide for early settlement in exchange for
a payment of $0.1 million.
129
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On November 7, 2001, the Company transferred substantially all of the
assets and liabilities relating to its Voice FX business to a newly formed,
wholly owned limited liability company, Voice FX, LLC ("Voice FX"). As of the
same date, two former managers and owners (the "Buyers") of its Voice FX
business, who sold the business to Student Advantage in 1999, entered into a
call option agreement (the "Option") with the Company to purchase all of the
Company's interest in Voice FX. In consideration for the entering into the
Option the Company received $0.9 million, of which $0.6 million was paid in cash
and $0.3 million was in the form of a Promissory Note (the "First Note"),
bearing interest of 12.9%, with an original maturity of December 31, 2002. The
Option was exercised on November 7, 2001 and on December 31, 2001, the Company
sold its interest in Voice FX to the Buyer, for consideration consisting of a
Promissory Note for $3.0 million (the "Second Note"), a Promissory Note for $0.9
million (the "Third Note"), and $1.1 million related to the net working capital
of the Voice FX business, of which $0.2 million was received January 3, 2002 and
$0.9 million was received in March 2002 and potential earn out payments based on
future revenues. The Second Note, bearing interest of 14.5%, requires payments
of interest to begin on March 31, 2003, with the principal and remaining
interest coming due on December 31, 2006. The Third Note, which is non-interest
bearing, requires payments of principal beginning June 30, 2003, with the final
payment coming due on December 31, 2007. The Company recorded the Second Note
and Third Note at their net present value using a discount rate of 8%. As a
result of the transaction, the Company recorded a total gain of $1.0 million,
which was net of $0.3 million in transaction expenses. Of the gain, $0.5 million
was deferred until such time as the outstanding notes are collected. At the time
the Buyers consummated the transaction in December 2001, the Company and the
Buyer entered into two marketing agreements, under which the Company would
provide marketing and promotional services to the Buyer for a cumulative fee of
$2.7 million. The services were to be provided from January 1, 2002 through
March 31, 2006.
In August 2002, the parties amended certain documents executed in
connection with the transaction and the Buyers paid the Company $50,000 in full
satisfaction of obligations potentially due from earn out calculations on Voice
FX's future revenues. The Buyers and the Company amended the marketing services
and card fulfillment agreement executed in December 2001 to provide for payments
totaling $1.0 million in August and September of 2002 as full satisfaction of
$2.0 million in payment obligations under that agreement which would have
otherwise commenced in quarterly payments starting March 2003. The parties also
modified certain financial and operating covenants, modified certain payment
terms under the various promissory notes, and exchanged releases concerning
certain ancillary claims arising under the Option Agreement. The $0.7 million
payment for the promotional services agreement was paid in the first quarter of
2002.
On November 26, 2001, the Company completed the sale of its eStudentLoan
business to a third-party. As consideration for the transaction the Company
received net proceeds of $2.3 million in cash. The Company recognized $0.9
million as a gain in their statement of operations related to this transaction
during the year ended December 31, 2001. The recorded gain was net of $1.2
million of remaining goodwill related to the acquisitions of eStudentLoan and
ScholarAid.
Effective May 8, 2002, the Company sold the assets relating to its SA
Marketing brand to Triple Dot, Inc., a subsidiary of Alloy, Inc., for a cash
payment of $6.5 million and an opportunity to earn up to an additional $1.5
million based on the performance of certain pending proposals. In June 2002,
Triple Dot prepaid to the Company $1.0 million of the potential earn-out. This
amount was deferred and as of December 31, 2002 remains classified as deferred
revenue since per the agreement, the earn-out calculation will be reviewed in
August 2003. At the time of the agreement, the parties entered into a non-
compete agreement under which the Company agreed to certain restrictions
regarding its events and promotions activities until November 2005. In addition,
the parties entered into a marketing services agreement providing for payments
to Alloy of $2.2 million for future marketing services. These payments
130
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
were made in May 2002 and recorded as prepaid expenses by the Company. The
Company has expensed the $2.2 million in 2002.
On February 3, 2003, the Company completed the sale of certain assets of
its SA Cash brand to Blackboard Inc. for aggregate consideration of $4.5 million
in cash. As part of the agreement, the Company will become the exclusive
provider of membership and rewards programs to Blackboard's client base. In the
connection with the SA Cash sale, the Company agreed that it would not compete
with Blackboard in the SA Cash business other than in connection with schools
operating on the Diebold payments platform until January 2010. In addition,
Blackboard and the Company entered into a limited licensing agreement whereby it
will continue to offer the SA Cash product line to a set of designated colleges
and universities.
Effective May 1, 2003, the Company completed the sale of substantially all
the assets of its OCM Direct subsidiary to Alloy Inc., for cash consideration of
$15.6 million, $1.8 million as settlement of the intercompany balance between
OCM Direct and the Company and the assumption by Alloy of OCM Direct's
outstanding indebtedness to Bank of America. Of the $15.6 million cash
consideration, $1.0 million was placed into an escrow account, which expires on
May 1, 2005, and may be drawn down by the Company upon payment of tax
liabilities related to OCM Direct prior to that date. The assets sold consisted
of primarily cash, accounts receivable, property and equipment, goodwill and
intangible assets, inventory and prepaid expenses. Alloy also assumed certain
accounts payable, accrued liabilities and the outstanding balance on the Bank of
America line of credit. OCM Direct's sales, reported in discontinued operations,
for the years ended December 31, 2001 and 2002 were $20.3 million and $28.5
million, respectively. OCM Direct's income (loss), reported in discontinued
operations, for the years ended December 31, 2001 and 2002 were $3.8 million and
$(0.9) million respectively. In connection with the sale, the Company agreed not
to compete with Alloy in the business of selling diploma frames, carpets,
residence halls linens and related dorm accessories as well as care packages and
related sampling programs except as currently done through the Company's
websites and membership program until May 2007.
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<Table>
<Caption>
DECEMBER 31,
-----------------
2001 2002
------- -------
Furniture and fixtures...................................... $ 422 $ 449
Computer equipment and software............................. 9,717 11,040
Equipment................................................... 9,328 5,626
Leasehold improvements...................................... 843 843
------- -------
20,310 17,958
Less: Accumulated depreciation.............................. 9,764 13,662
------- -------
$10,546 $ 4,296
======= =======
</Table>
Depreciation expense with respect to property and equipment and capital
leases for the years ended December 31, 2000, 2001 and 2002 was $2.9 million,
$6.4 million and $6.1 million, respectively. The Company has capitalized
computer software costs of $2.2 million and $1.1 million at December 31, 2001
and December 31, 2002, respectively. Amortization expense with respect to
capitalized software costs was $0.8 million, $1.2 million and $2.1 million for
the years ended December 31, 2000, December 31, 2001 and December 31, 2002,
respectively.
131
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. BORROWINGS
On June 25, 2001, the Company entered into a loan agreement (the "Loan
Agreement") by and among the Company, the subsidiaries of the Company and
Reservoir Capital Partners, L.P., Reservoir Capital Associates, L.P. and
Reservoir Capital Master Fund, L.P. (collectively the "Lenders") providing for
the establishment of credit facility in the aggregate principal amount of up to
$15.0 million, consisting of a $10.0 million term loan and a $5.0 million
revolving loan. The Company borrowed $10.0 million in the form of a term loan
(the "Term Loan") and $5.0 million in the form of a revolving loan (the
"Revolving Loan"), and used substantially all of these proceeds to pay the cash
portion of the purchase price for the acquisition and existing debt of OCM
Direct (formerly OCM Enterprises), Inc. The remainder of the proceeds from the
credit facility were used for working capital and general corporate purposes of
the Company. The credit facility is secured by a lien against substantially all
of the assets of the Company, and is guaranteed by all the Company's
subsidiaries (excluding OCM Direct and it's subsidiaries), which guarantees are
also secured, excluding OCM Direct and its subsidiaries. From time to time the
terms of the credit facility have been amended.
In February 2002, the Company's subsidiary, OCM Direct and its two
subsidiaries, CarePackages, Inc. and Collegiate Carpets, Inc., entered into a
revolving loan agreement with Bank of America providing for a $5.0 million loan
facility, which is referred to as the OCM loan. On May 5, 2003, in connection
with the Company's sale of substantially all of the assets of OCM Direct to
Alloy, Inc., Alloy assumed substantially all of the liabilities of OCM Direct
and its subsidiaries, including its obligations under the OCM loan with Bank of
America as they existed on May 1, 2003. Until May 1, 2003, the Company provided
an unsecured guaranty of the obligations of its three subsidiaries to Bank of
America and the interest rate under the OCM loan was LIBOR plus 2.5.
On September 30, 2002, Reservoir Capital agreed to amend the credit
facility and absent future defaults, not to demand payment for principal,
interest and fees due under the credit facility prior to the July 1, 2003
maturity date for the credit facility. Reservoir Capital also agreed to cancel
the warrants previously issued under the credit facility and the associated
right to require the Company to repurchase the warrants for cash in exchange for
a $4.2 million increase in the amount outstanding under the credit facility.
Prior to the amendment, the Company had previously recorded a warrant liability
and deferred financing costs of $2.5 million and had amortized $1.5 million of
the deferred financing cost as interest expense since the inception of the loan
in June 2001. Consequently, the Company reclassified the $2.5 million of warrant
liability to notes payable and recorded an additional $1.7 million to notes
payable and deferred financing costs. The remaining balance of $2.7 million in
deferred financing costs was being amortized to interest expense over the
remaining nine-month term of the loan.
On September 30, 2002, the Company agreed to borrow $3.5 million from
Scholar, Inc., an entity formed by the Company's President and Chief Executive
Officer an affiliate of Atlas II, L.P. and certain other of its stockholders.
The loan is referred to as the Scholar loan, had an annual interest rate of 8%
through April 30, 2003 and otherwise has the same terms as the Reservoir credit
facility. As of December 31, 2002, $3.5 million was outstanding under the
Scholar Loan. On May 6, 2003, pursuant to an amendment to the Scholar Loan, the
Company made a payment of $1.3 million of the principal outstanding under the
Scholar loan with a portion of the proceeds from the sale of the assets of the
Company's OCM Direct subsidiary to Alloy, Inc. Scholar agreed to extend the
maturity date of the loan from July 1, 2003 to January 31, 2005, to set the
interest rate at 10% per annum beginning May 1, 2003 and to require quarterly
payments of interest beginning September 30, 2003. In addition, the Company
agreed to pay a fee of $0.1 million on December 31, 2003 and June 30, 2004 if
any amount of the loan is outstanding as of such date.
On December 30, 2002, the Reservoir Lenders agreed to reduce the total
indebtedness to them from approximately $15.7 million to $9.5 million in
exchange for a guarantee by Mr. John Katzman, a member
132
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of the Company's Board of Directors who resigned at the time the amendment was
consummated. In addition, the Reservoir Lenders agreed to lend the Company an
additional $2.0 million. In exchange for his guarantee, the Company agreed to
pay Mr. Katzman a $1.0 million fee payable at the time of certain loan
repayments. As of December 31, 2002, the debt obligations to the Reservoir
Lenders and Mr. Katzman carried an annual interest rate of 12% and required
payments of $3.5 million on January 31, 2003, $4.0 million on March 31, 2003 and
the remaining balance on the July 1, 2003 loan maturity date. In accordance with
SFAS 15 "Accounting by Debtors and Creditors Regarding Troubled Debt
Restructuring," the Company recorded the $3.0 million gain on forgiveness of
debt net of expenses, including $0.5 million of anticipated interest expense
based on the payment schedule, remaining deferred financing costs of $1.8
million, and the $1.0 million guarantee fee paid to Mr. Katzman.
On each of January 31, 2003, March 14, 2003, April 14, 2003 and April 28,
2003, the terms of the Reservoir Capital credit facility were further amended.
On January 31, 2003, the Reservoir Lenders agreed to reduce the $3.5 million
payment due on January 31, 2003 to $1.5 million, which payment was made on that
date. On March 14, 2003, the Reservoir Lenders agreed to lend the Company an
additional $0.5 million. On March 31, 2003, Reservoir Capital agreed to lend the
Company an additional $1.5 million and agreed to change the date on which the
Company is required to repay $4.0 million of borrowings under the loan agreement
from March 31, 2003 to April 14, 2003. On April 14, 2003, the repayment date for
the $4.0 million was amended to become April 28, 2003. On April 28, 2003, the
repayment date for the $4.0 million was amended to become May 2, 2003.
Effective May 1, 2003, the Company amended its loan agreement with the
Reservoir Lenders and John Katzman, to provide for a payment of $7.8 million of
the principal amount outstanding under the Reservoir credit facility upon the
consummation of the sale of the assets of the Company's OCM Direct subsidiary to
Alloy, Inc. The payment was made on May 6, 2003. In addition, the Reservoir
Lenders and Mr. Katzman agreed to extend the maturity date of their loans from
July 1, 2003 to January 31, 2005, to set the interest rate at 10% per annum
beginning May 1, 2003 and require quarterly payments of interest beginning
September 30, 2003. The Reservoir Lenders and Mr. Katzman also agreed to waive
all accrued and unpaid interest under the loan through April 30, 2003. In
addition, the Company agreed to pay a fee of $0.1 million on December 31, 2003
and June 30, 2004 if any of the loans are outstanding as of such date.
As of December 31, 2001 and 2002 the Company had total borrowings
outstanding of $15.2 and $16.5 million, respectively.
7. PREFERRED STOCK
UNDESIGNATED PREFERRED STOCK
On April 5, 1999, the Company'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. At December 31, 2001 and
2002 there were no shares of undesignated preferred stock issued or outstanding.
On June 30, 2003, the Company's shareholders approved a reduction in the
number of authorized shares of preferred stock from 5,000,000 to 100,000.
133
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. STOCKHOLDERS' EQUITY
PRIVATE PLACEMENT
On October 27, 2000, the Company issued 8,000 shares of common stock to At
Home Corporation ("Excite@Home"), a provider of broadband services, and 12,000
shares of common stock to John Hancock Small Cap Value Fund, for an aggregate
purchase price of $10.0 million. The Company also issued to these investors
warrants to purchase a total of 10,000 shares of common stock, half of which
were issued with an exercise price of $500.00 per share and half of which were
issued with an exercise price of $600.00 per share. In connection with the
transaction, the Company entered into an alliance agreement with Excite@Home to
jointly market Excite@Home's broadband service and Student Advantage Network
content to student and university customers.
On May 1, 2001, the Company issued 50,000 shares of common stock to five
investors, for an aggregate purchase price of $10.0 million. We also issued to
these investors warrants to purchase an additional 23,000 shares of common
stock, including warrants to purchase 15,000 shares of common stock with an
exercise price of $300.00 per share and warrants to purchase 8,000 shares of
common stock with an exercise price of $100.00 per share.
See warrant footnote below for discussion of the valuation of warrants.
On May 6, 2002, the Company issued 36,000 shares of Student Advantage
common stock to three investors for an aggregate purchase price of $2.7 million.
The Company also granted these investors the right, exercisable at any time
prior to November 1, 2002, to purchase in the aggregate an additional 4,500
shares of common stock for a purchase price of $75.00 per share and an
additional 4,500 shares of common stock with a purchase price of $100.00 per
share. On November 2002, the right to purchase additional shares expired
unexercised. No additional shares were issued under the agreement.
On June 26, 2002, the Company issued 20,000 shares of Student Advantage
common stock to former shareholders of OCM Direct, Inc. as final payment for the
acquisition of OCM Direct. The shares were valued at the previous days close
price of $22.00 per share or $0.4 million and recorded as additional goodwill
related to the OCM acquisition.
WARRANTS
In July 1999, the Company entered into a marketing agreement with Lycos,
Inc. In connection with the transaction, Lycos was granted a warrant (the "Lycos
warrant") to purchase 5,500 shares of common stock at a purchase price of
$1,088.00 per share. The Lycos warrant expired unexercised on July 21, 2002. The
Company valued the Lycos warrant, using the Black-Scholes method, at $2.2
million, which was included in other assets and recognized as a sales and
marketing expense. During 2000 and 2001, $0.9 and $0.9 million of the warrants
value was recognized as sales and marketing expense, respectively. As of
December 31, 2001 the Company had completely amortized the asset.
In May 1999, the Company issued a warrant for the purchase of 240 shares of
common stock at a purchase price of $1,108.00 per share in connection with its
acquisition of Mentor Interactive Corp. This warrant was exercisable upon
issuance and expired unexercised on May 27, 2000.
In October 2000, in connection with the private placement, the Company
issued two warrants to Exite@Home. The first warrant for the purchase of 2,000
shares of common stock at an exercise price of $500.00 was exercisable upon
issuance and expired unexercised on October 26, 2002. The second warrant for the
purchase of 2,000 shares of common stock at an exercisable price of $600.00 was
exercisable upon issuance and expired unexercised on October 26, 2003. The
Company valued the warrants, using the Black-Scholes method, at $0.8 million.
134
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In October 2000, in connection with the private placement, the Company
issued two warrants to John Hancock Small Cap Value Fund. The first warrant for
the purchase of 3,000 shares of common stock at an exercise price of $500.00 was
exercisable upon issuance and expired unexercised on October 26, 2002. The
second warrant for the purchase of 3,000 shares of common stock at an
exercisable price of $600.00 was exercisable upon issuance and expired
unexercised on October 26, 2003. The Company valued the warrants, using the
Black-Scholes method, at $1.3 million.
In May 2001, in connection with the Company's private placement, the
Company issued warrants to purchase 23,000 shares of common stock. Of the
warrants issued, 8,000 and 15,000 have exercise prices of $100.00 and $300.00,
respectively. These warrants were exercisable upon issuance and expire on May 1,
2005. The Company valued the warrants, using the Black-Scholes method, at $3.8
million, and recorded the amount as a cost of the private placement.
In May 2001, in connection with the purchase of certain Edu.com assets, the
Company issued a warrant for the purchase of 2,250 shares of common stock with
an exercise price of $228.00 and an additional warrant for the purchase of 2,250
shares of common stock with an exercise price of $342.00. These warrants were
exercisable upon issuance and expire May 9, 2006. The Company valued the
warrants, using the Black-Scholes method, at $0.9 million.
In June 2001, in connection with the transaction contemplated by the Loan
Agreement with Reservoir Capital Partners, L.P., Reservoir Capital Associates,
L.P. and Reservoir Capital Master Fund, L.P. (collectively, "Reservoir Capital")
the Company entered into a Warrant Agreement (the "Warrant Agreement"), dated
June 25, 2001, by and among the Company and Reservoir Capital, under which the
Company issued to Reservoir Capital warrants to purchase a number of shares of
common stock based on the outstanding balance of the term loan and revolving
loan with an exercise price of $1.00 per share. These warrants were cancelled
with the December 30, 2002 amendment of the Reservoir Capital credit facility.
In September 2001, the Company issued a warrant for the purchase of 175
shares of common stock with an exercise price of $150.00 in connection with
certain services provided. The Company valued the warrant, using the
Black-Scholes method, at $15,000, which was recorded as a sales and marketing
expense.
On November 6, 2001, the Company modified certain provisions and covenants
of its loan agreement with Reservoir Capital Partners, Reservoir Capital
Associates and Reservoir Capital Master Fund (collectively, the "Lenders") and
issued immediately exercisable warrants to purchase an aggregate of 1,000 shares
of common stock with an exercise price of $1.00 per share. These warrants were
cancelled in connection with the December 30, 2002 amendment of the Reservoir
Capital credit facility.
As of December 31, 2002, the Company has reserved 32,675 shares of its
common stock for the exercise of these warrants.
9. 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 cliff
vesting at the end of the first year of 25% followed by monthly vesting over the
remaining three years. Stock option activity under this plan is reflected in the
table below.
135
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 cliff vesting at the end of the first year of 25%
followed by monthly vesting over the remaining three year period. 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 the Company'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 an amendment to the 1998 Stock Plan,
which the stockholders approved in May 1999, providing for the issuance of up to
an aggregate 75,000 shares of the Company's common stock to eligible employees,
officers, the Board of Directors with terms to be defined therein.
On May 19, 2000, the Board approved an amendment to the 1998 Stock Plan,
which the stockholders approved in May 2000, providing for an increase in the
number of shares of common stock issuable under the plan from 75,000 to 95,000
shares.
On May 21, 2001, the Board approved an amendment to the 1998 Stock Plan,
which the stockholders approved in May 2001, providing for an increase in the
number of shares of common stock issuable under the plan from 95,000 shares to
120,000 shares.
During 1998 and 1999, the Company granted stock options to purchase 23,130
and 476 shares of its common stock with exercise prices of $33.00 and $187.00
per share, respectively. During 1998 and 1999, the Company recorded deferred
compensation of $4.2 million and $0.2 million, respectively, representing the
differences between the estimated fair market value of the common stock on the
date of grant and the exercise price. In 2000 and 2001, as a result of employee
terminations, deferred compensation related to certain of these options was
reduced by approximately $0.7 million and $0.2 million, respectively. During
2000 and 2001 the Company recorded compensation expense relating to these
options totaling, $0.8 million and $0.5 million, respectively. 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. 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, the
Company's net loss and net loss per share would have increased to the pro forma
amounts indicated below:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------
2000 2001 2002
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net loss:
As reported........................................ $(28,722) $(35,788) $(15,930)
Pro forma.......................................... (33,739) (42,004) (18,838)
Basic and diluted net loss per share:
As reported........................................ (78.58) (80.35) (30.96)
Pro forma.......................................... (92.18) (94.39) (36.58)
</Table>
136
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Because additional option grants are expected to be made subsequent to
December 31, 2002 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. The weighted average grant date fair values of
options granted during 2000, 2001 and 2002 were $196.00, $208.00 and $95.50,
respectively.
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 with
the following weighted-average assumptions used for grants made during the years
ended December 31, 2000, 2001 and 2002: no dividend yield; risk free interest
rates of 5.35%, 5.10% and 5.00%, respectively; 100%, 88% and 100% volatility in
2000, 2001 and 2002, respectively, and an expected option term of 6, 6 and 5
years, respectively.
Stock option activity under the Company's option plans since January 1,
2000 is as follows:
<Table>
<Caption>
OUTSTANDING OPTIONS
------------------------------------------------------------------
2000 2001 2002
-------------------- -------------------- --------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- --------- --------
Outstanding -- beginning of year...... 38,834 $707.00 64,908 $575.00 64,091 $457.80
Granted, at fair value.............. 49,747 $475.00 14,402 $213.60 303 $ 52.20
Granted, at below fair value........ -- $ -- 2,944 $187.60 -- $ --
Granted, at above fair value........ -- $ -- 6,362 $205.60 6,838 $101.30
Exercised........................... (4,573) $ 44.00 (1,186) $ 33.10 (331) $ 46.10
Canceled............................ (19,100) $727.00 (23,338) $551.10 (31,155) $492.60
------- ------- -------
Outstanding at December 31,........... 64,908 $575.00 64,091 $457.80 39,746 $373.47
======= ======= =======
Exercisable at December 31,........... 6,783 $748.00 25,625 $518.20 22,710 $445.00
======= ======= =======
</Table>
As of December 31, 2002, 40,462 shares were available for grant under the
1998 Stock Plan.
The following table summarizes information about stock options outstanding
at December 31, 2002:
<Table>
<Caption>
OPTIONS EXERCISABLE
OPTIONS OUTSTANDING -----------------------
----------------------------------- NUMBER OF
NUMBER WEIGHTED SHARES
OUTSTANDING AVERAGE WEIGHTED EXERCISABLE WEIGHTED
AS OF REMAINING AVERAGE AS OF AVERAGE
DECEMBER 31, LIFE EXERCISE DECEMBER 31, EXERCISE
2002 (YEARS) PRICE 2002 PRICE
------------ --------- -------- ------------ --------
$ 5.70 - $ 33.00............ 2,232 7.35 $ 24.94 1,407 $ 33.00
$ 67.00 - $ 105.00............. 4,818 9.15 $104.42 48 $ 87.06
$110.00 - $ 150.00............. 1,047 8.72 $139.40 110 $134.46
$160.00 - $ 173.00............. 4,456 8.62 $171.87 1,589 $171.96
$175.00 - $ 210.00............. 4,079 8.48 $204.83 2,755 $206.38
$213.00 - $ 306.30............. 5,805 7.71 $282.80 4,833 $285.90
$312.50 - $ 437.50............. 4,566 4.93 $374.02 2,545 $375.65
$440.60 - $ 500.00............. 1,730 7.41 $494.17 1,269 $492.98
$525.00 - $ 562.50............. 4,545 1.50 $561.82 2,966 $561.48
$570.00 - $1,625.00............ 6,469 6.64 $893.52 5,189 $880.88
------ ------
39,746 22,710
====== ======
</Table>
137
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 provided for the issuance of up to 4,500 shares of the
Company's common stock to eligible employees. Under the Purchase Plan, the
Company 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
2000, 640 shares of the Company's common stock were purchased under the Purchase
Plan at $260.00 per share and 817 shares of the Company's common stock were
purchased under the Purchase Plan at $303.00 per share. During 2001, 879 shares
of the Company's common stock were purchased under the Purchase Plan at $213.00
per share and 805 shares of the Company's common stock were purchased under the
Purchase Plan at $102.00 per share. During 2002, 3,043 shares of the Company's
common stock were purchased under the Purchase Plan at $16.20 per share and
1,574 shares of the Company's common stock were purchased under the Purchase
Plan at $6.00 per share. On May 16, 2002, the board approved an amendment to the
1999 Employee stock Purchase Plan, providing for an increase in the number of
shares of common stock issuable under the plan from 4,500 shares to 10,000
shares.
10. LOSS PER SHARE
Basic loss per share excludes dilution and is computed by dividing net
earnings available to common stockholders by the weighted average number of
common shares outstanding for the period. For all periods, diluted net loss per
share does not differ from basic net loss per share since potential common
shares from exercise of stock options and warrants are anti-dilutive. Options to
purchase 64,908, 64,092 and 39,746 shares of common stock were outstanding at
December 31, 2000, December 31, 2001 and December 31, 2002, respectively, but
were not included in the computation of diluted earnings per share, as the
effect would have been anti-dilutive.
The following table sets forth the computation of basic and diluted loss
from continuing operations per share (amounts in thousands, except per share
data):
<Table>
<Caption>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
2000 2001 2002
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Basic and diluted loss from continuing operations per
share:
Loss from continuing operations...................... $(28,722) $(39,599) $(15,072)
======== ======== ========
Basic and diluted weighted average common shares
outstanding(1)(2).................................. 366 445 515
======== ======== ========
Basic and diluted net loss per share................. $ (78.58) $ (88.91) $ (29.27)
======== ======== ========
</Table>
11. INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of
SFAS 109, "Accounting for Income Taxes". Under SFAS 109, a deferred tax asset or
liability is recorded for all temporary differences between book and tax
reporting of assets and liabilities. A deferred tax valuation allowance is
required if it is more likely than not that all or a portion of any deferred tax
assets will not be realized. At December 31, 2002, the Company has available net
operating losses (NOL's) of approximately $93.3 million that are available to
offset future taxable income through 2020. It is likely that the Company
experienced an ownership change as defined by Section 382 of the Internal
Revenue
138
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Code, during the current year. Under this section of the IRC, there could be
substantial annual limitations on the Company's ability to carryforward these
losses to offset taxable income in future years. Due to the uncertainty
surrounding the Company's ability to realize these NOL's and the Company's other
deferred tax assets, a full valuation allowance has been placed against the
otherwise recognizable tax asset.
The approximate income tax effect of each type of temporary difference and
carryforwards is as follows:
<Table>
<Caption>
DECEMBER 31,
-----------------------
2001 2002
------------ --------
Deferred tax assets:
Deferred revenue.......................................... $ 1,272 $ 1,464
Net operating loss carryforwards.......................... 37,062 36,963
Non current assets........................................ 2,187 2,768
Accruals.................................................. 1,467 2,803
Other..................................................... 164 164
-------- --------
Total deferred tax assets.............................. 42,152 44,162
Deferred tax asset valuation allowance...................... $(42,152) $(44,162)
-------- --------
$ -- $ --
======== ========
</Table>
A reconciliation of the federal statutory rate to the effective rate as of
December 31, 2002 is as follows:
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
2002
------------
Federal statutory rate...................................... (34.00)%
State taxes, net of federal benefit......................... (5.01)%
Nondeductible amortization.................................. 1.69%
Increase in valuation allowance............................. 37.58%
Other....................................................... 0.22%
------
Effective rate............................................ 0.48%
------
</Table>
12. EMPLOYEE SAVINGS PLAN
During 1998, the Company 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%. For the year ended December
31, 2000, 2001, and 2002, the Company provided for employer match funds to the
401(k) Plan on behalf of its employees of $0.2 million, $0.2 million and zero,
respectively. The employer match for 2001 was partially funded in 2002. The
remaining $0.1 million was funded in the second quarter of 2003.
13. RELATED PARTY AND OTHER TRANSACTIONS
Effective May 15, 2000, the Company entered into an Affiliate and
E-Commerce Agreement with Princeton Review Publishing, LLC, and The Princeton
Review Management, LLC ("TPR"). Princeton Review Publishing, LLC is a
stockholder of the Company and one of its officers and equity holders was a
member of the Company's Board of Directors until September 2002. Under the
agreement, TPR paid the Company a fee to participate in the Student Advantage
network by placing the Student Advantage logo
139
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and content on The Princeton Review's review.com website. In addition, TPR
provided discounts as part of the Student Advantage Membership Program and
marketed the discount to high school, college and university students.
Additionally, under the agreement the Company paid TPR a fee in exchange for
exclusive advertising sales responsibilities for the review.com website. The
agreement expired on March 31, 2002. The Company recorded revenues of $0.6
million, $0.8 million and $0.2 million, and expenses of $0.7 million, $0.7
million and $0.2 million related to this agreement for the year ended December
31, 2000, 2001 and 2002, respectively. Additionally, the Company recorded
revenue and expenses of approximately $0.5 million and $0.5 million,
respectively, related to additional work performed by both parties for the
twelve month period ended December 31, 2002.
On December 30, 2002, Reservoir Capital agreed to reduce the total
indebtedness to them from approximately $15.7 million to $9.5 million in
exchange for a guarantee from Mr. John Katzman, a member of the Company's Board
of Directors who resigned at the time the amendment was consummated. In
addition, Reservoir Capital agreed to lend the Company an additional $2.0
million. In exchange for his guarantee, the Company agreed to pay Mr. Katzman a
$1.0 million fee payable at the time of certain loan repayments. The debt
obligations to Reservoir Capital and Mr. Katzman carry an annual interest rate
of 12% and require payments of $3.5 million on January 31, 2003, $4.0 million on
March 31, 2003 and the remaining balance on the July 1, 2003 loan maturity date.
For the year ended December 31, 2002, Raymond V. Sozzi, Jr., the Company's
President and Chief Executive Officer, advanced an aggregate of $1.1 million to
the Company, all of which was repaid during the year ended December 31, 2002.
There were no advances for the year ended December 31, 2001.
On September 30, 2002, the Company entered into a $3.5 million loan
agreement with Scholar, Inc., an entity formed by Raymond V. Sozzi, Jr., the
Company's President and Chief Executive Officer, Atlas II, L.P. and certain
other stockholders. The loan is referred to as the Scholar loan, has an interest
rate of 8% per annum, matures on July 1, 2003 and otherwise has the same terms
as the Reservoir Capital credit facility.
14. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases its operating facility and certain office equipment
under noncancelable operating lease agreements. Rent expense under these leases
for the years ended December 31, 2000, 2001 and 2002 totaled approximately $1.9
million, $1.5 million and $1.2 million, respectively.
As a result of the Company's acquisitions of ScholarAid and CollegeClub
during 2000 and certain assets of Edu.com in 2001, the Company assumed certain
capital leases of computer equipment. Initial lease terms range from 3 to 5
years.
140
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments under noncancelable operating and capital
leases at December 31, 2002 are as follows (in thousands):
<Table>
<Caption>
CAPITAL OPERATING
YEAR ENDING DECEMBER 31, LEASES LEASES
- ------------------------ ------- ---------
2003........................................................ $14 $ 769
2004........................................................ -- 436
2005........................................................ -- 289
Thereafter.................................................. -- --
--- ------
Total minimum lease payments................................ $14 $1,494
=== ======
Less: Imputed interest (at rates from 4.48% to 27.72%)...... --
---
Present Value of net minimum lease payments................. $14
===
</Table>
On July 15, 2002, the Company agreed to a lease termination regarding its
facility in San Diego, CA. The facility was acquired during the October 2000
acquisition of CollegeClub and at that time the Company identified its intention
to vacate the facility. As a result, the Company provided for an accrual on
unused space for the future lease obligation as part of the original accounting
of the purchase price. At the time of the termination of the lease, the Company
had $2.4 million accrual remaining related to unused space. In accordance with
EITF 95-3 "Recognition of Liabilities in Connection with a Purchase Business
Combination", the Company reversed the accrual against the goodwill related to
the acquisition during the quarter ended September 30, 2002.
LEGAL PROCEEDINGS
The Company is from time to time subject to legal proceedings and claims
that 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 the Company's financial position or results of
operations.
In November 2002, the Company was named as a defendant in a lawsuit filed
against it and General Motors by Richard M. Kipperman, Liquidating Trustee of
the bankruptcy estate of CollegeClub.com, Inc., Campus24, Inc. and
CollegeStudent.com, Inc., in the U.S. Bankruptcy Court for the Southern District
of California. The suit sought damages of $2.25 million and interest and costs
relating to payments received by the Company under an agreement with General
Motors that the Company acquired from CollegeClub.com. The trustee alleged that
the payments were earned by CollegeClub.com prior to the Company's acquisition
of the agreement and were not sold to the Company as part of the agreement. On
October 8, 2003, the Company entered into a settlement agreement with the
Liquidating Trustee, whereby the Company agreed to pay $250,000 in cash and
issued a promissory note for $150,000, which accrues interest at a rate of five
percent per year and is due on August 31, 2004 to the bankruptcy estate. If the
Company elects to pay the promissory note by March 15, 2004, the Liquidating
Trustee has agreed to accept $100,000 as full payment for the note.
15. RESTRUCTURING CHARGE
For the year ended December 31, 2001, the Company recorded a $4.7 million
charge in connection with a restructuring of the Company's operations. Included
in the $4.7 million charge was $1.1 million related to a reduction in staff of
approximately 15% of the Company's total employees and $3.6 million in charges
related to operating leases for office space no longer utilized in our current
operations. The balance of the severance and related charges were incurred in
association with the Company's decision to restructure certain of its operations
in order to improve workflow efficiencies.
141
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 2002, $0.3 million in restructuring charges related to
the facility lease costs are accrued and unpaid.
A rollforward of the restructuring accrual is as follows:
<Table>
<Caption>
BALANCE AT
PREVIOUS BALANCE AT
END OF YEAR ADDITIONS CASH PAYMENTS END OF YEAR
----------- --------- ------------- -----------
December 31, 2001:
Restructuring accrual................ $ -- $4,735 $(1,463) $3,272
December 31, 2002:
Restructuring accrual................ $3,272 $ -- $(3,001) $ 271
</Table>
16. DISCONTINUED OPERATIONS
On May 5, 2003, the Company completed the sale of substantially all the
assets of its OCM Direct subsidiary to Alloy Inc., for cash consideration of
$15.6 million, $1.8 million as settlement of the intercompany balance between
OCM Direct and the Company and the assumption by Alloy of OCM Direct's
outstanding indebtedness to Bank of America. Of the $15.6 million cash
consideration, $1.0 million was placed in an escrow account, which expires on
May 31, 2005, and may be drawn down by the Company upon payment of tax
liabilities related to OCM Direct prior to that date. The Company recorded a net
loss of $0.7 million, inclusive of transaction costs of $1.0 million.
OCM Direct is accounted for as discontinued operations in the accompanying
financial statements in accordance with Statement of Financial Accounting
Standards (SFAS) No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets." OCM Direct's results of operations and cash flows have been
removed from the Company's results of continuing operations for all periods
presented. All related disclosures have also been adjusted to reflect the
discontinued operations. Summarized selected financial information from
discontinued operations for fiscal 2000 through fiscal 2002 (excluding the loss)
is as follows:
<Table>
<Caption>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
----------------- -------------------------
2001 2002 2002 2003
------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
Revenue.................................... $20,334 $28,483 $23,632 $ 4,187
------- ------- ------- -------
Income (loss).............................. $ 3,811 $ (858) $ 814 $(3,159)
======= ======= ======= =======
</Table>
142
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The assets and liabilities of the discontinued operation are stated
separately in the condensed consolidated balance sheets. The primary asset and
liability categories follow:
<Table>
<Caption>
DECEMBER 31,
-----------------
2001 2002
------- -------
(IN THOUSANDS)
Cash........................................................ $ 1,405 $ 1,290
Accounts receivable, net.................................... 758 1,047
Prepaid Expenses and other current assets................... 314 787
Inventories (finished goods)................................ 1,753 1,413
Property and equipment, net................................. 1,487 1,049
Goodwill.................................................... 18,261 16,843
Intangible assets........................................... -- 1,194
------- -------
Total assets.............................................. $23,978 $23,623
======= =======
Accounts payable............................................ $ 809 $ 553
Accrued liabilities......................................... 1,756 1,584
Borrowings under line of credit............................. -- 1,670
Other liabilities........................................... 272 196
------- -------
Total Liabilities......................................... $ 2,837 $ 4,003
======= =======
</Table>
17. SUBSEQUENT EVENT
On November 19, 2003, the Company announced that it had entered into a
merger agreement with Athena Ventures, Inc. an entity wholly owned by Raymond V.
Sozzi, Jr., the Company's Chief Executive Officer and President, providing for
the merger of the Company and Athena Ventures (the "Merger"), whereby each
outstanding share of common stock of the Company will be converted into and
represent the right to receive $1.05 per share in cash. As a result of the
Merger, Mr. Sozzi would acquire all of the outstanding shares of capital stock
of the Company. The Company also announced that (1) on November 14, 2003, it
sold the assets related to its CollegeClub business to Alloy, Inc. for $0.6
million in cash at the closing plus a potential earn-out of up to $0.6 million
and (2) it had entered into an asset purchase agreement with NCSN, Inc., a
wholly-owned subsidiary of CSTV, Inc., providing for the sale (the "OCSN Sale"
and together with the Merger, the "proposed Transactions") of the assets of its
Official College Sports Network business ("OCSN") for $2.85 million in cash and
a convertible note in the amount of $4.25 million and warrants to purchase
580,601 shares for $7.32 per share (the notes and warrants are referred to
herein as the "OCSN Non-cash Consideration"). The proposed Transactions are
subject to various closing conditions, including approval of our stockholders.
In connection with the execution of the agreements relating to the proposed
Transaction, the Reservoir Lenders, Scholar and Mr. Katzman agreed to accept
$4.25 million (or at the option of the Company, the OCSN Non-cash
Consideration), $2.25 million and $550,000, respectively, as full payment of all
amounts outstanding to them through the date of the closing of the proposed
Transactions. In the event the proposed Transactions are not consummated, the
terms of the Loan Agreement, Scholar Loan and Mr. Katzman's guarantee fee would
remain unchanged.
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth unaudited quarterly statement of operations
data for each of the four quarters in the years ended December 31, 2001 and
2002. In the opinion of management, the unaudited financial statements have been
prepared on a basis consistent with the audited financial statements and
143
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
include all adjustments, which are only normal recurring adjustments, necessary
for a fair presentation of the financial position and results of operations for
the unaudited periods. The results of operations for any quarter are not
necessarily indicative of the results of operations for any future period.
All revenue for the Company has been generated in the United States,
therefore no geographic disclosure is required.
<Table>
<Caption>
QUARTER ENDED
-----------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
2001 2001 2001 2001 2002
--------- ----------- ----------- ----------- -----------
(RESTATED)* (RESTATED)* (RESTATED)* (RESTATED)*
(UNAUDITED, IN THOUSANDS)
Revenue
Student services......... $ 9,038 $ 7,880 $ 7,247 $ 7,081 $ 7,181
Corporate and university
solutions.............. 4,170 3,145 2,835 3,633 1,476
------- ------- ------- -------- -------
Total revenue.......... 13,208 11,025 10,082 10,714 8,657
------- ------- ------- -------- -------
Costs and expenses
Cost of student services
revenue................ 1,810 1,781 1,631 3,031 1,972
Cost of corporate and
university solutions
revenue................ 2,437 1,570 1,330 1,732 1,038
Product development...... 5,821 4,757 3,759 2,786 2,038
Sales and marketing...... 6,049 6,121 6,414 3,149 3,408
General and
administrative......... 2,830 2,750 2,303 2,231 3,045
Depreciation and
amortization........... 2,711 3,498 3,406 3,156 1,629
------- ------- ------- -------- -------
Total costs and
expenses............. 21,658 20,477 18,843 16,085 13,130
------- ------- ------- -------- -------
Loss from operations....... (8,450) (9,452) (8,761) (5,371) (4,473)
Interest income
(expense), net......... (70) (47) (500) (1,102) (586)
Impairment of long-lived
assets................. -- -- -- (1,916) --
Restructuring charges.... -- -- -- (4,735) --
Equity interest in
edu.com net loss....... (495) -- -- -- --
Realized gain on
restructured debt...... -- -- -- -- --
Realized gain (loss) on
sale of assets......... -- 288 -- 1,220 --
------- ------- ------- -------- -------
Loss from continuing
operations before income
taxes.................... (9,015) (9,211) (9,261) (11,904) (5,059)
------- ------- ------- -------- -------
Provision for income
taxes.................. -- -- -- (207) --
------- ------- ------- -------- -------
Loss from continuing
operations............... (9,015) (9,211) (9,261) (12,111) (5,059)
------- ------- ------- -------- -------
Discontinued operations:
Income (loss) from
operations of
discontinued
subsidiary............. -- 818 2,948 45 (2,502)
------- ------- ------- -------- -------
Net Loss................... $(9,015) $(8,393) $(6,313) $(12,066) $(7,561)
======= ======= ======= ======== =======
<Caption>
QUARTER ENDED
---------------------------------------
JUNE 30, SEPT. 30, DEC. 31,
2002 2002 2002
----------- ----------- -----------
(RESTATED)* (RESTATED)* (RESTATED)*
(UNAUDITED, IN THOUSANDS)
Revenue
Student services......... $ 5,246 $ 4,792 $ 7,052
Corporate and university
solutions.............. 1,353 844 851
------- ------- -------
Total revenue.......... 6,599 5,636 7,903
------- ------- -------
Costs and expenses
Cost of student services
revenue................ 1,850 2,012 3,741
Cost of corporate and
university solutions
revenue................ 818 236 55
Product development...... 1,542 1,825 2,010
Sales and marketing...... 3,818 3,249 5,107
General and
administrative......... 1,158 1,281 1,618
Depreciation and
amortization........... 2,170 2,105 1,863
------- ------- -------
Total costs and
expenses............. 11,356 10,708 14,394
------- ------- -------
Loss from operations....... (4,757) (5,072) (6,491)
Interest income
(expense), net......... (584) (1,213) (1,335)
Impairment of long-lived
assets................. -- -- (242)
Restructuring charges.... -- -- --
Equity interest in
edu.com net loss....... -- -- --
Realized gain on
restructured debt...... -- -- 2,937
Realized gain (loss) on
sale of assets......... 6,953 (421) 273
------- ------- -------
Loss from continuing
operations before income
taxes.................... 1,612 (6,706) (4,858)
------- ------- -------
Provision for income
taxes.................. -- -- (61)
------- ------- -------
Loss from continuing
operations............... 1,612 (6,706) (4,919)
------- ------- -------
Discontinued operations:
Income (loss) from
operations of
discontinued
subsidiary............. (60) 3,376 (1,672)
------- ------- -------
Net Loss................... $ 1,552 $(3,330) $(6,591)
======= ======= =======
</Table>
144
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
QUARTER ENDED
-----------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
2001 2001 2001 2001 2002
--------- ----------- ----------- ----------- -----------
(RESTATED)* (RESTATED)* (RESTATED)* (RESTATED)*
(UNAUDITED, IN THOUSANDS)
Earnings per
share -- Basic:
Loss from continuing
operations............... $(22.73) $(20.24) $(19.62) $ (25.57) $(10.64)
Loss from discontinued
operations............... -- 1.80 6.24 0.09 (5.26)
------- ------- ------- -------- -------
Net loss per share......... $(22.73) $(18.44) $(13.37) $ (25.47) $(15.90)
======= ======= ======= ======== =======
397 455 472 474 476
======= ======= ======= ======== =======
Earnings per
share -- Diluted:
Loss from continuing
operations............... $(22.73) $(20.24) $(19.62) $ (25.57) $(10.64)
Loss from discontinued
operations............... -- 1.80 6.24 0.09 (5.26)
------- ------- ------- -------- -------
Net loss per share......... $(22.73) $(18.44) $(13.37) $ (25.47) $(15.90)
======= ======= ======= ======== =======
Weighted-average number of
shares -- diluted........ 397 455 472 474 476
======= ======= ======= ======== =======
<Caption>
QUARTER ENDED
---------------------------------------
JUNE 30, SEPT. 30, DEC. 31,
2002 2002 2002
----------- ----------- -----------
(RESTATED)* (RESTATED)* (RESTATED)*
(UNAUDITED, IN THOUSANDS)
Earnings per
share -- Basic:
Loss from continuing
operations............... $ 3.21 $(12.54) $ (9.13)
Loss from discontinued
operations............... (0.12) 6.31 (3.10)
------- ------- -------
Net loss per share......... $ 3.09 $ (6.23) $(12.24)
======= ======= =======
502 535 539
======= ======= =======
Earnings per
share -- Diluted:
Loss from continuing
operations............... $ 3.16 $(12.54) $ (9.13)
Loss from discontinued
operations............... (0.12) 6.31 (3.10)
------- ------- -------
Net loss per share......... $ 3.04 $ (6.23) $(12.24)
======= ======= =======
Weighted-average number of
shares -- diluted........ 510 535 539
======= ======= =======
</Table>
- ---------------
* restatement pertains to disposition of OCM Direct, Inc.
** All share and per share items have been adjusted to reflect the one-for-ten
reverse split of the Common Stock effected on June 30, 2003
145
STUDENT ADVANTAGE, INC.
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
SEPTEMBER 30, 2003
------------------
(UNAUDITED)
(IN THOUSANDS,
EXCEPT SHARE DATA)
ASSETS
Current assets
Cash and cash equivalents................................. $ 2,075
Restricted cash........................................... 350
Accounts receivable (net of reserves of $178)............. 1,915
Inventory (finished goods)................................ --
Prepaid expenses.......................................... 790
Notes receivable.......................................... 290
Other current assets...................................... 571
---------
Total current assets.................................... 5,991
Notes receivable.......................................... 3,420
Long term restricted cash................................. 133
Property and equipment, net............................... 1,249
---------
Total assets............................................ $ 10,793
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable.......................................... $ 1,299
Other accrued expenses.................................... 3,326
Accrued compensation...................................... 122
Deferred revenue and other advances....................... 2,489
Obligation under capital lease............................ 2
---------
Total current liabilities............................... 7,238
---------
Deferred gain............................................. 534
Notes payable............................................. 5,250
Related party note payable................................ 2,250
---------
Total long-term obligations............................. 8,034
---------
Total liabilities....................................... 15,272
---------
Commitments and Contingencies (see Note 7)
Stockholders' deficit
Preferred stock, $001 par value, 100,000 shares authorized
and no shares issued and outstanding.................... --
Common stock, $001 par value; authorized: 1,000,000
shares; issued and outstanding: 536,261 shares.......... 5
Additional paid-in capital................................ 124,006
Accumulated deficit....................................... (128,440)
Note receivable from stockholder.......................... (50)
---------
Total stockholders' deficit............................. (4,479)
---------
Total liabilities and stockholders' deficit............. $ 10,793
=========
</Table>
- ---------------
* All share and per share items have been adjusted to reflect the one-for-ten
reverse split of the common stock effected on June 30, 2003
The accompanying notes are an integral part of these consolidated financial
statements.
146
STUDENT ADVANTAGE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -----------------
2003 2002 2003 2002
-------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Revenue
Student services..................................... $ 3,958 $ 4,792 $11,331 $17,219
Corporate and university solutions................... 782 844 2,083 3,673
------- ------- ------- -------
Total revenue..................................... 4,740 5,636 13,414 20,892
Costs and expenses
Cost of student services revenue....................... 1,726 2,012 4,534 5,834
Cost of corporate and university solutions revenue... -- 236 -- 2,092
Product development.................................. 1,355 1,825 4,411 5,405
Sales and marketing.................................. 1,185 3,249 3,922 10,475
General and administrative........................... 830 1,281 2,580 5,484
Depreciation and amortization........................ 911 2,105 3,861 5,904
------- ------- ------- -------
Total costs and expenses.......................... 6,007 10,708 19,308 35,194
------- ------- ------- -------
Operating loss from continuing operations.............. (1,267) (5,072) (5,894) (14,302)
Realized gain (loss) on sale of assets................. -- (421) 5,838 6,532
Interest and other income (expense).................... (164) (1,213) 279 (2,383)
------- ------- ------- -------
Income (loss) from continuing operations............... (1,431) (6,706) 223 (10,153)
------- ------- ------- -------
Discontinued operations:
Income (loss) from operations of discontinued
subsidiary........................................ -- 3,376 (3,159) 814
Loss on disposal of discontinued operations.......... -- -- (690) --
------- ------- ------- -------
Net loss............................................... $(1,431) $(3,330) $(3,626) $(9,339)
======= ======= ======= =======
Earnings per share -- Basic and Diluted:
Income (loss) from continuing operations............... $ (2.67) $(12.53) $ 0.42 $(20.14)
Income (loss) from discontinued operations............. -- 6.31 (7.18) 1.62
------- ------- ------- -------
Net loss............................................... $ (2.67) $ (6.22) $ (6.76) $(18.52)
======= ======= ======= =======
Weighted-average number of shares...................... 536 535 536 504
======= ======= ======= =======
</Table>
- ---------------
* All share and per share items have been adjusted to reflect the one-for-ten
reverse split of the common stock effected on June 30, 2003.
The accompanying notes are an integral part of these consolidated financial
statements.
147
STUDENT ADVANTAGE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
-------------------
2003 2002
-------- --------
(UNAUDITED)
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES OF CONTINUING
OPERATIONS:
Income (loss) from continuing operations.................. $ 223 $(10,153)
Adjustments to reconcile income (loss) from continuing
operations to net cash used in operating activities:
Depreciation........................................... 3,103 4,766
Amortization of intangible assets...................... 758 1,137
Gain on sale of assets................................. (5,838) (6,532)
Deferred financing amortization........................ -- 900
Reserve for allowances and bad debts................... -- 295
Compensation expense relating to issuance of equity.... -- 49
Changes in current assets and liabilities, net of
effects of acquisitions:
Accounts and notes receivable........................ (14) 3,497
Prepaid expenses and other current assets............ 350 (1,483)
Inventory............................................ (34) 47
Accounts payable..................................... (3,409) (675)
Accrued compensation................................. (808) (817)
Other accrued expenses............................... (1,379) (4,865)
Deferred revenue..................................... (4,791) 5,284
-------- --------
Net cash used in operating activities of continuing
operations................................................ (11,839) (8,550)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES OF CONTINUING
OPERATIONS:
Purchases of fixed assets................................. (236) (1,198)
Proceeds from sale of fixed assets........................ 117 170
Proceeds from notes receivable............................ 394 100
Proceeds from sale of assets, net of $1,002 cash sold..... 21,409 6,500
-------- --------
Net cash provided by investing activities of continuing
operations................................................ 21,684 5,572
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES OF CONTINUING
OPERATIONS:
Decrease in restricted cash............................... 32 153
Proceeds from issuance of stock........................... -- 2,725
Proceeds from exercise of common stock options and
employee stock purchase plan........................... -- 61
Repayment of capital lease obligations.................... (12) (708)
Repayment of note payable................................. (10,500) (5,200)
Proceeds of notes payable................................. 2,000 3,400
-------- --------
Net cash (used in) provided by financing activities of
continuing operations..................................... (8,480) 431
-------- --------
Net cash (used in) provided by discontinued operations...... (2,048) 2,677
-------- --------
Increase (decrease) in cash and cash equivalents............ (683) 130
Cash and cash equivalents, beginning of period, including
cash related to discontinued operations................... 2,758 5,093
-------- --------
Cash and cash equivalents, end of period.................... $ 2,075 $ 5,223
======== ========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
148
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- THE COMPANY
Student Advantage, Inc. is an integrated media and commerce company focused
on the higher education market. The Company works with hundreds of colleges,
universities and campus organizations, and more than 15,000 participating
national and local business locations to develop products and services that
enable students to make purchases less expensively and more conveniently on and
around campus.
Student Advantage, Inc. was incorporated in the State of Delaware on
October 20, 1998. The Company 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, the Company's revenue was derived primarily from annual
membership fees. From 1998 through June 2001 the Company expanded its product
and service offerings through internal growth as well as acquisitions. However,
despite the expansion of products and service offerings, the Company operates as
one reporting segment. From November 2001 through the present, the Company has
sold various assets as it has refocused its market strategy and as a result of
debt repayment obligations.
The Company has experienced substantial net losses since its inception and,
as of September 30, 2003, had an accumulated deficit of $128.4 million. Such
losses and accumulated deficit resulted primarily from significant costs
incurred in the development of the Company's products and services and the
establishment of the Company's infrastructure. As of the filing of the Company's
annual report on Form 10-K, as amended, for the year ended December 31, 2002,
certain factors raised concerns about the Company's ability to continue as a
going concern. The Company has taken significant steps through the sale of its
SA Cash product line in February 2003 for proceeds of $4.5 million, the sale of
the assets to Alloy of its OCM Direct subsidiary in early May 2003 for cash
proceeds of $15.6 million, $1.8 million in settlement of intercompany
obligations and the assumption by Alloy of OCM Direct's outstanding indebtedness
to Bank of America, enabling the Company to significantly reduce its outstanding
debt obligations and to restructure the remainder of its debt obligations. The
Company's operating and financing plan for the remainder of 2003 assumes that it
will be able to achieve significant reduction in net cash loss for the remainder
of 2003 and into 2004. However, if the Company's revenue and expense projections
do not materialize as anticipated, the Company will be required to obtain
additional financing or sell additional assets. Failure to generate sufficient
revenues, reduce certain discretionary spending and obtain additional capital or
financing, if needed, would have a material adverse effect on the Company's
ability to achieve its intended business objectives. With the proceeds of the
sales of its SA Cash product line and the assets of its OCM Direct subsidiary,
the related reduction of its debt obligations and restructuring of its remaining
debt, the Company believes that it has sufficient cash resources for at least
the next 12 months.
All share and per share items in these Notes to the Consolidated Financial
Statements have been adjusted to reflect the one-for-ten reverse split of the
Company's Common Stock effected on June 30, 2003.
These financial statements should be read in conjunction with the
consolidated financial statements and related footnotes included in our Annual
Report on Form 10-K, as amended, for the year ended December 31, 2002.
UNAUDITED INTERIM FINANCIAL INFORMATION
The unaudited interim consolidated financial statements of Student
Advantage for the three and nine months ended September 30, 2003 and 2002,
respectively, included herein have been prepared in accordance with accounting
principles generally accepted in the United States for interim financial
information and with the instructions from Form 10-Q under the Securities
Exchange Act of 1934, as
149
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amended, and Article 10 of Regulation S-X under the Securities Act of 1933, as
amended. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States have been condensed or omitted pursuant to such
rules and regulations relating to interim financial statements.
In the opinion of management, the accompanying unaudited interim
consolidated financial statements reflect all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial position
of Student Advantage at September 30, 2003, and the results of its operations
for the three and nine months ended September 30, 2003 and 2002, respectively,
and its cash flows for the nine months ended September 30, 2003 and 2002,
respectively. The results for the three and nine months ended September 30, 2003
are not necessarily indicative of the expected results for the full fiscal year
or any future period due, in part, to the seasonal nature of the Company's
Student Advantage Membership Program revenue cycle.
NOTE 2 -- COMPUTATION OF UNAUDITED NET INCOME (LOSS) PER SHARE
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- ------------------
2003 2002 2003 2002
-------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
BASIC AND FULLY DILUTED NET LOSS PER SHARE:
Income (loss) from continuing operations...... $(1,431) $(6,706) $ 223 $(10,153)
======= ======= ======= ========
Net loss...................................... $(1,431) $(3,330) $(3,626) $ (9,339)
======= ======= ======= ========
Basic and diluted weighted average common
shares outstanding(2), (3).................. 536 535 536 504
======= ======= ======= ========
Basic and diluted income (loss) from
continuing operations per share............. $ (2.67) $(12.53) $ 0.42 $ (20.14)
======= ======= ======= ========
Basic and diluted net loss per share.......... $ (2.67) $ (6.22) $ (6.76) $ (18.52)
======= ======= ======= ========
</Table>
- ---------------
(1) Net income (loss) per share is computed under SFAS No. 128, "Earnings Per
Share." Basic net income (loss) per share is computed using the weighted
average number of common shares outstanding during the period. Diluted net
income (loss) per share is computed by using the weighted average number of
common shares and dilutive potential common shares and warrants outstanding
during the period.
(2) For all periods, diluted net income (loss) per share does not differ from
basic net income (loss) per share since potential common shares from the
exercise of stock options and warrants are anti-dilutive.
(3) As of September 30, 2003, Student Advantage had reserved 23,007 shares of
its common stock for the exercise of various options with exercise prices
ranging from $0.40 to $1,587.50 per share. As of September 30, 2003, Student
Advantage had reserved 32,675 shares of its common stock for the exercise of
various warrants with exercise prices ranging from $100.00 to $1,108.00 per
share.
NOTE 3 -- STOCK COMPENSATION
In December 2002, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure -- amendment of SFAS 123," ("SFAS
148", SFAS 148 amends Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation,") "SFAS 123", to provide
150
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based compensation. In addition, SFAS 148 amends
the disclosure requirements for SFAS 123, to require prominent disclosure in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The Company has elected to continue to account for stock-based
compensation using the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
"APB 25," and related interpretations. Accordingly, compensation cost for stock
options and restricted stock awards is measured as the excess, if any, of the
quoted market price of our stock at the date of the grant over the exercise
price an employee must pay to acquire the stock. The Company has adopted the
annual disclosure provisions of SFAS 148 in our financial statements for the
year ended December 31, 2002 and has adopted the interim disclosure provisions
in our financial statements for the quarter ended September 30, 2003. 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, the Company's net loss and net loss per share would have increased to
the pro forma amounts indicated below:
<Table>
<Caption>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------- --------------------
2003 2002 2003 2002
--------- --------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Net loss:
As reported................................. $(1,431) $(3,330) $(3,626) $ (9,339)
Add: Stock-based employee compensation
expense included in reported net
loss, net of related tax effects.... -- 49 -- 49
Deduct: Total stock-based employee
compensation determined under fair
value based method for all awards,
net of related tax effects.......... (534) (735) (1,810) (2,190)
------- ------- ------- --------
Pro forma net loss.......................... $(1,965) $(4,016) $(5,436) $(11,480)
======= ======= ======= ========
Basic and diluted net loss per share:
As reported................................. $ (2.67) $ (6.22) $ (6.76) $ (18.52)
Pro forma................................... $ (3.67) $ (7.51) $(10.14) $ (21.42)
</Table>
NOTE 4 -- RELATED PARTY TRANSACTIONS
Effective May 15, 2000, the Company entered into an Affiliate and
E-Commerce Agreement with Princeton Review Publishing, LLC, and The Princeton
Review Management, LLC ("TPR"). One of the officers and equity holders of
Princeton Review Publishing was a member of the Company's Board of Directors
until December 30, 2002 and is currently a guarantor of the Company's debt
obligation to Reservoir Capital. The agreement expired on March 31, 2002. The
Company recorded revenues of $0.2 million and expenses of $0.2 million related
to this agreement during the nine months ended September 30, 2002. Additionally,
the Company recorded revenue and expenses of approximately $0.4 million and $0.5
million, respectively, related to additional work performed by both parties for
the nine months ended September 30, 2002. No revenue or expenses were recorded
related to this agreement for the nine months ended September 30, 2003.
On September 30, 2002, the Company entered into a $3.5 million loan
agreement with Scholar, Inc., an entity formed by Raymond V. Sozzi, Jr., the
Company's President and Chief Executive Officer, an
151
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
affiliate of Atlas II, L.P. and certain other stockholders. The loan is referred
to as the Scholar Loan, has an interest rate of 10% per annum and a maturity
date of January 31, 2005, and otherwise has the same terms as the Reservoir
Capital credit facility (See Note 5). As of September 30, 2003, the outstanding
principle and interest amount under the Scholar Loan was $2.5 million.
NOTE 5 -- BORROWINGS
On June 25, 2001, the Company entered into a loan agreement (the "Loan
Agreement") by and among the Company, the subsidiaries of the Company and
Reservoir Capital Partners, L.P., Reservoir Capital Associates, L.P. and
Reservoir Capital Master Fund, L.P. (collectively the "Reservoir Lenders")
providing for the establishment of credit facility in the aggregate principal
amount of up to $15.0 million, consisting of a $10.0 million term loan and a
$5.0 million revolving loan. The Company borrowed $10.0 million in the form of a
term loan and $5.0 million in the form of a revolving loan, and used
substantially all of these proceeds to pay the cash portion of the purchase
price for the acquisition and existing debt of OCM Direct, Inc. The remainder of
the proceeds from the credit facility was used for working capital and general
corporate purposes of the Company. The credit facility is secured by a lien
against substantially all of the assets of the Company, and is guaranteed by all
the Company's subsidiaries, which guarantees are also secured. From time to time
the terms of the credit facility have been amended as described below.
As noted above, on September 30, 2002, the Company borrowed $3.5 million
from Scholar, Inc., an entity formed by the Company's President and Chief
Executive Officer, an affiliate of Atlas II, L.P. and certain other
stockholders. The Scholar Loan had an annual interest rate of 8% through April
30, 2003 and otherwise has the same terms as the Reservoir credit facility. On
May 6, 2003, pursuant to an amendment to the Scholar Loan, the Company made a
payment of $1.3 million of the principal amount outstanding. Scholar agreed to
extend the maturity date of the loan from July 1, 2003 to January 31, 2005, to
set the interest rate at 10% per annum beginning May 1, 2003 and to require
quarterly payments of interest beginning September 30, 2003. In addition, the
Company agreed to pay a fee of $0.1 million on December 31, 2003 and June 30,
2004 if any amount of the loan is outstanding as of such date. As of September
30, 2003, the outstanding principal and interest amount under the Scholar loan
was $2.5 million.
On December 30, 2002, the Reservoir Lenders agreed to reduce the total
indebtedness to them from approximately $15.7 million to $9.5 million in
exchange for a guarantee by Mr. John Katzman, a member of the Company's Board of
Directors who resigned at the time the amendment was consummated. In addition,
the Reservoir Lenders agreed to lend the Company an additional $2.0 million. In
exchange for his guarantee, the Company agreed to pay Mr. Katzman a $1.0 million
fee payable at the time of certain loan repayments. As of December 31, 2002, the
debt obligations to the Reservoir Lenders and Mr. Katzman carried an annual
interest rate of 12% and required payments of $3.5 million on January 31, 2003,
$4.0 million on March 31, 2003 and the remaining balance on the July 1, 2003
loan maturity date.
On each of January 31, 2003, March 14, 2003, April 14, 2003 and April 28,
2003, the terms of the Loan Agreement were further amended. On January 31, 2003,
the Reservoir Lenders agreed to reduce the $3.5 million payment due on January
31, 2003 to $1.5 million, which payment was made on that date. On March 14,
2003, the Reservoir Lenders agreed to lend the Company an additional $0.5
million. On March 31, 2003, the Reservoir Lenders agreed to lend the Company an
additional $1.5 million and agreed to change the date on which the Company is
required to repay $4.0 million of borrowings under the Loan Agreement from March
31, 2003 to April 14, 2003. On April 14, 2003, the repayment date for the $4.0
million was amended to become April 28, 2003. On April 28, 2003, the repayment
date for the $4.0 million was amended to become May 2, 2003.
152
STUDENT ADVANTAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Effective May 1, 2003, the Company amended its Loan Agreement with the
Reservoir Lenders and John Katzman, to provide for a payment of $7.8 million of
the principal amount outstanding under the Reservoir credit facility upon the
consummation of the sale of the assets of the Company's OCM Direct subsidiary to
Alloy, Inc. The payment was made on May 6, 2003. In addition, the Reservoir
Lenders and Mr. Katzman agreed to extend the maturity date of their loans from
July 1, 2003 to January 31, 2005, to set the interest rate at 10% per annum
beginning May 1, 2003 and require quarterly payments of interest beginning on
September 30, 2003. The Reservoir Lenders and Mr. Katzman also agreed to waive
all accrued and unpaid interest under the loan through April 30, 2003. In
addition, the Company agreed to pay a fee of $0.1 million on December 31, 2003
and June 30, 2004 if any of the loans are outstanding as of such date. As of
September 30, 2003, the outstanding principal and interest amount under the
Reservoir credit facility was $5.5 million.
As of November 12, 2003, the Company had accrued but not made the required
interest payments of $0.3 million due under the loan agreement with the
Reservoir Lenders and Scholar on September 30, 2002. The Company is currently
engaged in discussions with the lenders regarding an extension of the interest
payment loan.
As of September 30, 2003 and December 31, 2002, the Company had total
borrowings outstanding of $8.0 million and $18.2 million, respectively. The
total borrowings as of December 31, 2002 under the OCM Loan of $1.7 million are
included as current liabilities of discontinued operations on the Company's
Consolidated Balance Sheets.
NOTE 7 -- COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
The Company is from time to time subject to legal proceedings and claims
that 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 the Company's financial position or results of
operations.
In November 2002, the Company was named as a defendant in a lawsuit filed
against it and General Motors by Richard M. Kipperman, Liquidating Trustee of
the bankruptcy estate of CollegeClub.com, Inc., Campus24, Inc. and
CollegeStudent.com, Inc., in the U.S. Bankruptcy Court for the Southern District
of California. The suit sought damages of $2.25 million and interest and costs
relating to payments received by the Company under an agreement with General
Motors that the Company acquired from CollegeClub.com. The trustee alleged that
the payments were earned by CollegeClub.com prior to the Company's acquisition
of the agreement and were not sold to the Company as part of the agreement. On
October 8, 2003, the Company entered into a settlement agreement with the
Liquidating Trustee, whereby the Company agreed to pay $250,000 in cash and
issued a promissory note for $150,000, which accrues interest at a rate of five
percent per year and is due on August 31, 2004 to the bankruptcy estate. If the
Company elects to pay the promissory note by March 15, 2004, the Liquidating
Trustee has agreed to accept $100,000 as full payment for the note. The Company
has reserved for the full amount of the settlement as of September 30, 2003.
153
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ATHENA VENTURES PARENT, INC.,
ATHENA VENTURES ACQUISITION SUB, INC.
AND
STUDENT ADVANTAGE, INC.
DATED AS OF NOVEMBER 18, 2003
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
ARTICLE I THE MERGER................................................ 1
1.1 Effective Time of the Merger................................ 1
1.2 Closing..................................................... 1
1.3 Effects of the Merger....................................... 2
1.4 Directors and Officers...................................... 2
1.5 Subsequent Actions.......................................... 2
ARTICLE II CONVERSION OF SECURITIES................................. 2
2.1 Conversion of Capital Stock................................. 2
2.2 Exchange of Certificates.................................... 3
2.3 Dissenting Shares........................................... 4
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY........... 5
3.1 Organization, Standing and Power; Subsidiaries.............. 5
3.2 Capitalization.............................................. 5
3.3 Authority; No Conflict; Required Filings and Consents....... 7
3.4 SEC Filings; Financial Statements; Information Provided..... 8
3.5 No Undisclosed Liabilities.................................. 9
3.6 Absence of Certain Changes or Events........................ 9
3.7 Taxes....................................................... 10
3.8 Owned and Leased Real Properties............................ 10
3.9 Intellectual Property....................................... 10
3.10 Agreements, Contracts and Commitments....................... 11
3.11 Litigation.................................................. 11
3.12 Employee Benefit Plans...................................... 11
3.13 Compliance With Laws........................................ 12
3.14 Labor Matters............................................... 12
3.15 Opinion of Financial Advisor................................ 13
3.16 Section 203 of the DGCL Not Applicable...................... 13
3.17 Brokers; Schedule of Fees and Expenses...................... 13
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE BUYER AND THE
TRANSITORY SUBSIDIARY............................................. 13
4.1 Organization, Standing and Power............................ 13
4.2 Authority; No Conflict; Required Filings and Consents....... 14
4.3 SEC Filings; Financial Statements; Information Provided..... 15
4.4 Operations of the Transitory Subsidiary..................... 15
ARTICLE V CONDUCT OF BUSINESS....................................... 15
5.1 Covenants of the Company.................................... 15
ARTICLE VI ADDITIONAL AGREEMENTS.................................... 17
6.1 No Solicitation............................................. 17
6.2 Proxy Statement; Schedule 13E-3............................. 20
6.3 Access to Information....................................... 20
6.4 Company Stockholders Meeting................................ 20
6.5 Legal Conditions to the Merger.............................. 21
6.6 Public Disclosure........................................... 22
</Table>
A-i
<Table>
<Caption>
PAGE
----
6.7 Options; Warrants and Stock Plans........................... 22
6.8 Stockholder Litigation...................................... 22
6.9 Indemnification............................................. 23
6.10 Notification of Certain Matters............................. 23
6.11 Exemption from Liability Under Section 16(b)................ 23
6.12 338(h)(10) Election......................................... 23
6.13 SEC Filings................................................. 23
ARTICLE VII CONDITIONS TO MERGER.................................... 24
7.1 Conditions to Each Party's Obligation To Effect the
Merger...................................................... 24
7.2 Additional Conditions to Obligations of the Buyer and the
Transitory Subsidiary....................................... 24
7.3 Additional Conditions to Obligations of the Company......... 25
ARTICLE VIII TERMINATION AND AMENDMENT.............................. 26
8.1 Termination................................................. 26
8.2 Effect of Termination....................................... 27
8.3 Fees and Expenses........................................... 27
8.4 Amendment................................................... 28
8.5 Extension; Waiver........................................... 28
ARTICLE IX MISCELLANEOUS............................................ 28
9.1 Nonsurvival of Representations and Warranties............... 28
9.2 Notices..................................................... 28
9.3 Entire Agreement............................................ 29
9.4 No Third Party Beneficiaries................................ 29
9.5 Assignment.................................................. 29
9.6 Severability................................................ 29
9.7 Counterparts and Signature.................................. 30
9.8 Interpretation.............................................. 30
9.9 Governing Law............................................... 30
9.10 Remedies.................................................... 30
9.11 WAIVER OF JURY TRIAL........................................ 30
9.12 No Recourse to Officers, Directors or Stockholders of the
Buyer....................................................... 30
</Table>
A-ii
TABLE OF DEFINED TERMS
<Table>
<Caption>
REFERENCE IN
TERMS AGREEMENT
- ----- ---------------
Acquisition Proposal Section 6.1(b)
Affiliate Section 3.2(c)
Agreement Preamble
Alternative Acquisition Agreement Section 6.1(b)
Buyer Preamble
Buyer Disclosure Schedule Article IV
Buyer Material Adverse Effect Section 4.1
Certificate of Merger Section 1.1
Certificates Section 2.2(b)
Closing Section 1.2
Closing Date Section 1.2
Code Section 2.2(f)
Company Preamble
Company Acquisition Transaction Section 6.1(b)
Company Balance Sheet Section 3.4(b)
Company Board Preamble
Company Common Stock Section 2.1(b)
Company Disclosure Schedule Article III
Company Employee Plans Section 3.12(a)
Company Intellectual Property Section 3.9(b)
Company Leases Section 3.8
Company Material Adverse Effect Section 3.1(a)
Company Material Contracts Section 3.10(a)
Company Preferred Stock Section 3.2(a)
Company Required Statutory Approvals Section 3.3(c)
Company SEC Reports Section 3.4(a)
Company Stock Options Section 6.7(a)
Company Stock Plans Section 6.7(a)
Company Stockholder Approval Section 3.3(a)
Company Stockholders Meeting Section 3.4(c)
Company Voting Proposal Section 3.3(a)
Company Warrants Section 6.7(b)
DGCL Preamble
Dissenting Shares Section 2.3(a)
Effective Time Section 1.1
Environmental Law Section 3.13
ERISA Section 3.12(a)
Exchange Act Section 3.3(c)
Exchange Agent Section 2.2(a)
Exchange Fund Section 2.2(a)
GAAP Section 3.4(b)
Governmental Entity Section 3.3(c)
</Table>
A-iii
<Table>
<Caption>
REFERENCE IN
TERMS AGREEMENT
- ----- ---------------
Indemnified Parties Section 6.9(a)
Insurance Policies Section 3.15
Liens Section 3.2(e)
Luminary Capital Section 3.15
Merger Preamble
Merger Consideration Section 2.1(c)
NASD Section 6.4(a)
OCSN Transaction Preamble
Option Consideration Section 6.7(a)
Ordinary Course of Business Section 3.2(d)
Outside Date Section 8.1(b)
Proxy Statement Section 3.4(c)
Representatives Section 6.1(a)
SEC Section 3.3(c)
Securities Act Section 3.2(d)
Schedule 13E-3 Section 3.4(c)
Special Committee Preamble
Subsidiary Section 3.1(b)
Surviving Corporation Section 1.3
Tax Returns Section 3.7(a)
Taxes Section 3.7(a)
Third Party Intellectual Property Section 3.9(b)
Transitory Subsidiary Preamble
Warrant Consideration Section 6.7(b)
</Table>
A-iv
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of November
18, 2003, is by and among Athena Ventures Parent, Inc., a Delaware corporation
(the "Buyer"), Athena Ventures Acquisition Sub, Inc., a Delaware corporation and
a wholly owned subsidiary of the Buyer (the "Transitory Subsidiary"), and
Student Advantage, Inc., a Delaware corporation (the "Company").
WHEREAS, the Board of Directors of the Buyer deems it advisable and in the
best interest of the stockholders of the Buyer to acquire the Company, upon the
terms and subject to the terms and conditions set forth herein;
WHEREAS, the sole stockholder of each of Buyer and Transitory Subsidiary
have approved this Agreement and the transactions contemplated hereby;
WHEREAS, the Board of Directors of the Company (the "Company Board"),
acting upon the recommendation of a special committee of the Company Board
comprised of independent directors of the Company (the "Special Committee"),
has, in light of the terms and conditions set forth herein, (i) determined that
the Merger (as defined below) is fair to the stockholders of the Company and in
the best interests of such stockholders and (ii) approved and adopted this
Agreement and the transactions contemplated hereby and resolved to recommend
that the stockholders of the Company approve and adopt this Agreement;
WHEREAS, the Company has, simultaneous with the execution of this
Agreement, entered into an asset purchase agreement with NCSN, Inc. for the sale
of the Company's OCSN division (the "OCSN Transaction");
WHEREAS, the acquisition of the Company shall be effected through a merger
(the "Merger") of the Transitory Subsidiary with and into the Company in
accordance with the terms of this Agreement and the General Corporation Law of
the State of Delaware (the "DGCL"), as a result of which the Company shall
become a wholly owned subsidiary of the Buyer;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
Buyer, the Transitory Subsidiary and the Company agree as follows:
ARTICLE I
THE MERGER
1.1 Effective Time of the Merger. Subject to the provisions of this
Agreement, prior to the Closing, the Buyer shall prepare, and on the Closing
Date or as soon as practicable thereafter the Buyer shall cause to be filed with
the Secretary of State of the State of Delaware, a certificate of merger (the
"Certificate of Merger") in such form as is required by, and executed by the
Surviving Corporation in accordance with, the relevant provisions of the DGCL
and shall make all other filings or recordings required under the DGCL. The
Merger shall become effective upon the filing of the Certificate of Merger with
the Secretary of State of the State of Delaware or at such later time as is
established by the Buyer and the Company and set forth in the Certificate of
Merger (the "Effective Time").
1.2 Closing. The closing of the Merger (the "Closing") shall take place
at 10:00 a.m., Eastern time, on a date to be specified by the Buyer and the
Company (the "Closing Date"), which shall be no later than the second business
day after satisfaction or waiver of the conditions set forth in Article VII
(other than delivery of items to be delivered at the Closing and other than
satisfaction of those conditions that by their nature are to be satisfied at the
Closing, it being understood that the occurrence of the Closing shall remain
subject to the delivery of such items and the satisfaction or waiver of such
conditions at the Closing), at the offices of Hale and Dorr LLP, 60 State
Street, Boston, Massachusetts, unless another date, place or time is agreed to
in writing by the Buyer and the Company.
A-1
1.3 Effects of the Merger. At the Effective Time (i) the separate
existence of the Transitory Subsidiary shall cease and the Transitory Subsidiary
shall be merged with and into the Company (the Company following the Merger is
sometimes referred to herein as the "Surviving Corporation"), (ii) the
certificate of incorporation of the Company as in effect on the date of this
Agreement shall be amended so that Article FOURTH of such certificate of
incorporation reads in its entirety as follows: "The total number of shares of
all classes of stock which the Corporation shall have authority to issue is
3,000, all of which shall consist of common stock, $.01 par value per share,"
and, as so amended, such certificate of incorporation shall be the certificate
of incorporation of the Surviving Corporation, until further amended in
accordance with the DGCL and (iii) the by-laws of the Transitory Subsidiary as
in effect immediately prior to the Effective Time shall be amended to change all
references to the name of the Transitory Subsidiary to refer to the name of the
Company, and, as so amended, such by-laws shall be the by-laws of the Surviving
Corporation, until further amended in accordance with the DGCL. The Merger shall
have the effects set forth in Section 259 of the DGCL.
1.4 Directors and Officers. The directors and officers of the Transitory
Subsidiary immediately prior to the Effective Time shall be the initial
directors and officers of the Surviving Corporation, each to hold office in
accordance with the certificate of incorporation and by-laws of the Surviving
Corporation.
1.5 Subsequent Actions. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of, and assume the liabilities of, either of the Company or
Transitory Subsidiary acquired or to be acquired by the Surviving Corporation as
a result of, or in connection with, the Merger or otherwise to carry out this
Agreement, the officers and directors of the Surviving Corporation shall be
authorized to execute and deliver, in the name and on behalf of either the
Company or Transitory Subsidiary, all such deeds, bills of sale, assignments and
assurances and to take and do, in the name and on behalf of each of such
corporations or otherwise, all such other actions and things as may be necessary
or desirable to vest, perfect or confirm any and all right, title and interest
in, to and under such rights, properties or assets in, and the assumption of the
liabilities of, the Surviving Corporation or otherwise to carry out this
Agreement.
ARTICLE II
CONVERSION OF SECURITIES
2.1 Conversion of Capital Stock. As of the Effective Time, by virtue of
the Merger and without any action on the part of the holder of any shares of the
capital stock of the Company or capital stock of the Transitory Subsidiary:
(a) Each share of the common stock of the Transitory Subsidiary issued
and outstanding immediately prior to the Effective Time shall be converted
into and become one fully paid and nonassessable share of common stock,
$.01 par value per share, of the Surviving Corporation.
(b) All shares of common stock, $.01 par value per share, of the
Company ("Company Common Stock") that are owned by the Company as treasury
stock or by any wholly owned Subsidiary of the Company and any shares of
Company Common Stock owned by the Buyer, the Transitory Subsidiary or any
other wholly owned Subsidiary of the Buyer immediately prior to the
Effective Time shall be cancelled and shall cease to exist and no Merger
Consideration or other consideration shall be delivered in exchange
therefor.
(c) Subject to Section 2.2, each share of Company Common Stock (other
than (i) Dissenting Shares and (ii) shares to be cancelled in accordance
with Section 2.1(b)) issued and outstanding immediately prior to the
Effective Time shall be automatically converted into the right to receive
$1.05 cash (the "Merger Consideration"), payable to the holder thereof,
without any interest thereon. As of the Effective Time, all such shares of
Company Common Stock shall no longer be outstanding and shall automatically
be cancelled and shall cease to exist, and each holder of a certificate
A-2
representing any such shares of Company Common Stock shall cease to have
any rights with respect thereto, except the right to receive the Merger
Consideration in consideration therefor upon surrender of such Certificate
(as defined below) or otherwise upon compliance with Section 2.2.
(d) The Merger Consideration shall be adjusted to reflect fully the
effect of any reclassification, stock split, reverse split, stock dividend
(including any dividend or distribution of securities convertible into
Company Common Stock), reorganization, recapitalization or other like
change with respect to Company Common Stock occurring (or for which a
record date is established) after the date hereof and prior to the
Effective Time.
2.2 Exchange of Certificates. The procedures for exchanging outstanding
shares of Company Common Stock for Merger Consideration pursuant to the Merger
are as follows:
(a) Exchange Agent. As of the Effective Time, the Buyer shall deposit
with the Buyer's transfer agent or a bank or trust company designated by
the Buyer prior to mailing of the Proxy Statement (as defined below) and
reasonably acceptable to the Company (the "Exchange Agent"), for the
benefit of the holders of shares of the Company Common Stock, for exchange
in accordance with this Section 2.2, through the Exchange Agent, cash in an
amount sufficient to make payments of the Merger Consideration for all
shares of Company Common Stock outstanding as of the Effective Time (the
"Exchange Fund").
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock (the "Certificates")
(i) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only
upon delivery of the Certificates to the Exchange Agent and shall be in
such form and have such other provisions as the Buyer may reasonably
specify) and (ii) instructions for effecting the surrender of the
Certificates in exchange for the Merger Consideration. Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent
or agents as may be appointed by the Buyer, together with such letter of
transmittal, duly executed, and such other documents as may reasonably be
required by the Exchange Agent, the holder of such Certificate shall be
entitled to receive in exchange therefor (subject to any taxes required to
be withheld) the Merger Consideration payable pursuant to Section 2.1(c),
and the Certificate so surrendered shall immediately be cancelled. In the
event of a transfer of ownership of Company Common Stock which is not
registered in the transfer records of the Company, the Merger Consideration
payable pursuant to Section 2.1(c) may be paid to a person other than the
person in whose name the Certificate so surrendered is registered, if such
Certificate is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and by evidence
that any applicable stock transfer taxes have been paid. Until surrendered
as contemplated by this Section 2.2, each Certificate shall be deemed at
any time after the Effective Time to represent only the right to receive
upon such surrender the Merger Consideration payable pursuant to Section
2.1(c) as contemplated by this Section 2.2.
(c) No Further Ownership Rights in Company Common Stock. The Merger
Consideration paid upon the surrender for payment of Certificates in
accordance with the terms hereof shall be deemed to have been paid in full
satisfaction of all rights pertaining to such shares of Company Common
Stock, and from and after the Effective Time there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Company Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation or the Exchange
Agent for any reason, they shall be cancelled and payment of the Merger
Consideration payable in respect thereof shall be delivered to the holder
thereof as provided in this Article II.
(d) Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the holders of Company Common Stock for 180
days after the Effective Time shall be delivered to the Buyer, upon demand,
and any holder of Company Common Stock who has not
A-3
previously complied with this Section 2.2 shall thereafter look only to the
Buyer, as a general unsecured creditor, for payment of its claim for Merger
Consideration.
(e) No Liability. To the extent permitted by applicable law, none of
the Buyer, the Transitory Subsidiary, the Company, the Surviving
Corporation or the Exchange Agent shall be liable to any holder of shares
of Company Common Stock for Merger Consideration delivered to a public
official pursuant to any applicable abandoned property, escheat or similar
law. If any Certificate shall not have been surrendered prior to one year
after the Effective Time (or immediately prior to such earlier date on
which any Merger Consideration payable to the holder of such Certificate
pursuant to this Article II would otherwise escheat to or become the
property of any Governmental Entity), any such Merger Consideration in
respect of such Certificate shall, to the extent permitted by applicable
law, become the property of the Surviving Corporation, free and clear of
all claims or interest of any person previously entitled thereto.
(f) Withholding Rights. Each of the Buyer and the Surviving
Corporation shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any holder of shares of
Company Common Stock such amounts as it reasonably determines that it is
required to deduct and withhold with respect to the making of such payment
under the Internal Revenue Code of 1986, as amended (the "Code"), or any
other applicable provision of law. To the extent that amounts are so
withheld by the Surviving Corporation or the Buyer, as the case may be,
such withheld amounts shall be treated for all purposes of this Agreement
as having been paid to the holder of the shares of Company Common Stock in
respect of which such deduction and withholding was made by the Surviving
Corporation or the Buyer, as the case may be.
(g) Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such Certificate to be lost, stolen or destroyed and, if
required by the Surviving Corporation, the posting by such person of a bond
in such reasonable amount as the Surviving Corporation may direct as
indemnity against any claim that may be made against it with respect to
such Certificate, the Exchange Agent shall issue in exchange for such lost,
stolen or destroyed Certificate the Merger Consideration deliverable in
respect thereof pursuant to this Agreement.
2.3 Dissenting Shares.
(a) To the extent applicable, Dissenting Shares shall not be converted into
or represent the right to receive the Merger Consideration unless such Company
stockholder shall have forfeited his, her or its right to appraisal under the
Delaware General Corporation Law or properly withdrawn his, her or its demand
for appraisal. If such Company stockholder has so forfeited or withdrawn his,
her or its right to appraisal of Dissenting Shares, then, (i) as of the
occurrence of such event, such holder's Dissenting Shares shall cease to be
Dissenting Shares and shall be converted into and represent the right to receive
the Merger Consideration payable in respect of such Company Common Stock
pursuant to Section 2.1(c), and (ii) promptly following the occurrence of such
event, the Buyer or the Surviving Corporation shall deliver to such Company
stockholder a payment representing the Merger Consideration to which such holder
is entitled pursuant to Section 2.1(c). For purposes of this Agreement,
"Dissenting Shares" shall mean shares of Company Common Stock held as of the
Effective Time by a stockholder of the Company who has not voted such shares of
Company Common Stock in favor of the adoption of this Agreement and with respect
to which appraisal shall have been duly demanded and perfected in accordance
with Section 262 of the Delaware General Corporation Law and not effectively
withdrawn or forfeited prior to the Effective Time.
(b) The Company shall give the Buyer (i) prompt notice of any written
demands for appraisal of any Company Common Stock, withdrawals of such demands,
and any other instruments that relate to such demands received by the Company
and (ii) the opportunity to direct all negotiations and proceedings with respect
to demands for appraisal under the Delaware General Corporation Law. The Company
shall not, except with the prior written consent of the Buyer, make any payment
with respect to any demands for
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appraisal of Company Shares or offer to settle or settle any such demands. Any
amounts paid to a holder pursuant to a right of appraisal will be paid by the
Surviving Corporation in accordance with the DGCL.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Buyer and the Transitory
Subsidiary that the statements contained in this Article III are true and
correct, except as expressly set forth herein or in the disclosure schedule
delivered by the Company to the Buyer and the Transitory Subsidiary on or before
the date of this Agreement (the "Company Disclosure Schedule"). The Company
Disclosure Schedule shall be arranged in paragraphs corresponding to the
numbered and lettered paragraphs contained in this Article III and the
disclosure in any paragraph shall qualify (1) the corresponding paragraph in
this Article III and (2) the other paragraphs in this Article III only to the
extent that it is clear from a reading of such disclosure that it also qualifies
or applies to such other paragraphs.
3.1 Organization, Standing and Power; Subsidiaries.
(a) Each of the Company and its Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, has all requisite corporate power and
authority to own, lease and operate its properties and assets and to carry on
its business as now being conducted and as proposed to be conducted, and is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the character of the properties it owns, operates or
leases or the nature of its activities makes such qualification necessary,
except for such failures to be so organized, qualified or in good standing,
individually or in the aggregate, that have not had, and are not reasonably
likely to have a Company Material Adverse Effect. For purposes of this
Agreement, the term "Company Material Adverse Effect" means any material adverse
change, event, circumstance or development with respect to, or material adverse
effect on (i) the business, assets, liabilities, capitalization, condition
(financial or other), or results of operations of the Company and its
Subsidiaries, taken as a whole or (ii) the ability of the Company to consummate
the transactions contemplated by this Agreement. For the avoidance of doubt, the
parties agree that the terms "material", "materially" or "materiality" as used
in this Agreement with an initial lower case "m" shall have their respective
customary and ordinary meanings, without regard to the meanings ascribed to
Company Material Adverse Effect in the prior sentence of this paragraph or Buyer
Material Adverse Effect in Section 4.1.
(b) Neither the Company nor any of its Subsidiaries directly or indirectly
owns any equity, membership, partnership or similar interest in, or any interest
convertible into or exchangeable or exercisable for any equity, membership,
partnership or similar interest in, any corporation, partnership, joint venture,
limited liability company or other business association or entity, whether
incorporated or unincorporated (other than a wholly owned Subsidiary of the
Company or a wholly owned Subsidiary thereof), and neither the Company, nor any
of its Subsidiaries, has, at any time, been a general partner or managing member
of any general partnership, limited partnership, limited liability company or
other entity. As used in this Agreement, the term "Subsidiary" means, with
respect to a party, any corporation, partnership, joint venture, limited
liability company or other business association or entity, whether incorporated
or unincorporated, of which (i) such party or any other Subsidiary of such party
is a general partner or a managing member (excluding partnerships, the general
partnership interests of which are held by such party and/or one or more of its
Subsidiaries do not have a majority of the voting interest in such partnership),
(ii) such party and/or one or more of its Subsidiaries holds voting power to
elect a majority of the board of directors or other governing body performing
similar functions, or (iii) such party and/or one or more of its Subsidiaries,
directly or indirectly, owns or controls more than 50% of the equity,
membership, partnership or similar interests.
3.2 Capitalization.
(a) The authorized capital stock of the Company consists of 1,000,000
shares of Company Common Stock and 100,000 shares of preferred stock, $.01 par
value per share ("Company Preferred Stock"). The
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rights and privileges of each class of the Company's capital stock are as set
forth in the Company's certificate of incorporation. As of October 13, 2003, (i)
537,309 shares of Company Common Stock were issued and outstanding, (ii) no
shares of Company Common Stock were held in the treasury of the Company or by
Subsidiaries of the Company, and (iii) no shares of the Company Preferred Stock
were issued or outstanding.
(b) Section 3.2(b) of the Company Disclosure Schedule lists the number of
shares of Company Common Stock reserved for future issuance pursuant to Company
Stock Options granted and outstanding as of the date of this Agreement and the
Company Stock Plans or other arrangements under which such Company Stock Options
were granted and sets forth a complete and accurate list of all holders of
outstanding Company Stock Options under the Company Stock Plans, indicating with
respect to each Company Stock Option, the number of shares of Company Common
Stock subject to such Company Stock Option and the exercise price, the date of
grant, vesting schedule and the expiration date thereof, including the extent to
which any vesting has occurred as of the date of this Agreement. Section 3.2(b)
of the Company Disclosure Schedule shows the number of shares of Company Common
Stock reserved for future issuance pursuant to Company Warrants or other
outstanding rights (other than Company Stock Options) to purchase shares of
Company Common Stock outstanding as of the date of this Agreement and the
agreement or other document under which such Company Warrants or such other
rights were granted and sets forth a complete and accurate list of all holders
of Company Warrants or such other rights indicating the number and type of
shares of Company Common Stock subject to each Company Warrant or such other
rights, and the exercise price, the date of grant and the expiration date
thereof.
(c) Except (x) as set forth in this Section 3.2 and (y) as reserved for
future grants under Company Stock Plans, (i) there are no equity securities of
any class of the Company or any of its Subsidiaries (other than equity
securities of any such Subsidiary that are directly or indirectly owned by the
Company), or any security exchangeable into or exercisable for such equity
securities, issued, reserved for issuance or outstanding and (ii) there are no
options, warrants, equity securities, calls, rights, commitments or agreements
of any character to which the Company or any of its Subsidiaries is a party or
by which the Company or any of its Subsidiaries is bound obligating the Company
or any of its Subsidiaries to issue, exchange, transfer, deliver or sell, or
cause to be issued, exchanged, transferred, delivered or sold, additional shares
of capital stock or other equity interests of the Company or any of its
Subsidiaries or any security or rights convertible into or exchangeable or
exercisable for any such shares or other equity interests, or obligating the
Company or any of its Subsidiaries to grant, extend, accelerate the vesting of,
otherwise modify or amend or enter into any such option, warrant, equity
security, call, right, commitment or agreement. Neither the Company nor any of
its Subsidiaries has outstanding any stock appreciation rights, phantom stock,
performance based rights or similar rights or obligations. There are no
obligations, contingent or otherwise, of the Company or any of its Subsidiaries
to repurchase, redeem or otherwise acquire any shares of Company Common Stock or
the capital stock of the Company or any of its Subsidiaries or any other
securities of the Company or any of its Subsidiaries, or to provide funds to or
make any material investment (in the form of a loan, capital contribution or
otherwise) in the Company or any Subsidiary of the Company or any other entity,
other than guarantees of bank obligations of Subsidiaries of the Company entered
into in the ordinary course of business consistent with past practice (the
"Ordinary Course of Business") and listed in Section 3.2(c) of the Company
Disclosure Schedule. Neither the Company nor any of its Affiliates is a party to
or is bound by any, and to the knowledge of the Company, there are no,
agreements or understandings with respect to the voting (including voting trusts
and proxies) or sale or transfer (including agreements imposing transfer
restrictions) of any shares of capital stock or other equity interests of the
Company or any of its Subsidiaries. For purposes of this Agreement, the term
"Affiliate" when used with respect to any party shall mean any person who is an
"affiliate" of that party within the meaning of Rule 405 promulgated under the
Securities Act of 1933, as amended (the "Securities Act"). There are no
registration rights, and there is no rights agreement, "poison pill"
anti-takeover plan or other agreement or understanding to which the Company or
any of its Subsidiaries is a party or by which it or they are bound with respect
to any equity security of any class of the Company or any of its Subsidiaries or
with respect to any equity security, partnership interest or similar ownership
interest of any class of any of its Subsidiaries.
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(d) All outstanding shares of Company Common Stock are, and all shares of
Company Common Stock subject to issuance as specified in Section 3.2(b) above,
upon issuance on the terms and conditions specified in the instruments pursuant
to which they are issuable, will be, duly authorized, validly issued, fully paid
and nonassessable and not subject to or issued in violation of any purchase
option, call option, right of first refusal, preemptive right, subscription
right or any similar right under any provision of the DGCL, the Company's
certificate of incorporation or by-laws or any agreement to which the Company is
a party or is otherwise bound.
(e) All of the outstanding shares of capital stock and other equity
securities or interests of each of the Company's Subsidiaries are duly
authorized, validly issued, fully paid, nonassessable and free of preemptive
rights and all such shares are owned, of record and beneficially, by the Company
or another Subsidiary of the Company free and clear of all mortgages, security
interests, pledges, liens, charges or encumbrances of any nature ("Liens") and
agreements in respect of, or limitations on, the Company's voting rights.
3.3 Authority; No Conflict; Required Filings and Consents.
(a) The Company has all requisite corporate power and authority to enter
into this Agreement and, subject only to the adoption of this Agreement and the
approval of the Merger (the "Company Voting Proposal") by the Company's
stockholders under the DGCL (the "Company Stockholder Approval"), to consummate
the transactions contemplated by this Agreement. Without limiting the generality
of the foregoing, (x) the transactions contemplated hereby have been duly
recommended by the Special Committee and (y) the Company Board, at a meeting
duly called and held, duly (i) determined that the Merger is fair and in the
best interests of the Company and its stockholders, (ii) adopted this Agreement
in accordance with the provisions of the DGCL, (iii) directed that this
Agreement and the Merger be submitted to the stockholders of the Company for
their adoption and approval and resolved to recommend that the stockholders of
the Company vote in favor of the adoption of this Agreement and the approval of
the Merger, and (iv) to the extent necessary, adopted a resolution having the
effect of causing the Company not to be subject to any state takeover law or
similar law that might otherwise apply to the Merger and any other transactions
contemplated by this Agreement. The execution and delivery of this Agreement and
the consummation of the transactions contemplated by this Agreement by the
Company have been duly authorized by all necessary corporate action on the part
of the Company, subject only to the required receipt of the Company Stockholder
Approval. This Agreement has been duly executed and delivered by the Company
and, assuming the due authorization, execution and delivery by Buyer and
Transitory Subsidiary, constitutes the valid and binding obligation of the
Company, enforceable in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally and by
general equitable principles (whether such enforceability is considered in a
proceeding in equity or at law).
(b) The execution and delivery of this Agreement by the Company do not, and
the consummation by the Company of the transactions contemplated by this
Agreement shall not, (i) conflict with, or result in any violation or breach of,
any provision of the certificate of incorporation or by-laws of the Company or
of the charter, by-laws, or other organizational document of any Subsidiary of
the Company, (ii) conflict with, or result in any violation or breach of, or
constitute (with or without notice or lapse of time, or both) a default (or give
rise to a right of termination, cancellation or acceleration of any obligation
or loss of any material benefit) under, or require a consent or waiver under,
constitute a change in control under, require the payment of a penalty under or
result in the imposition of any Lien on the Company's or any of its Subsidiary's
assets under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, license, contract or other agreement, instrument or
obligation to which the Company or any of its Subsidiaries is a party or by
which any of them or any of their properties or assets may be bound, or (iii)
subject to obtaining the Company Stockholder Approval and compliance with the
requirements specified in clauses (i) through (v) of Section 3.3(c), conflict
with or violate any permit, concession, franchise, license, judgment,
injunction, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or any of its Subsidiaries or any of its or their
properties or assets,
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except in the case of clauses (ii) and (iii) of this Section 3.3(b) for any such
conflicts, violations, breaches, defaults, terminations, cancellations,
accelerations or losses that, individually or in the aggregate, are not
reasonably likely to have a Company Material Adverse Effect. Section 3.3(b) of
the Company Disclosure Schedule lists all material consents, waivers and
approvals under any of the Company's or any of its Subsidiaries' agreements,
licenses or leases required to be obtained in connection with the consummation
of the transactions contemplated hereby.
(c) No consent, approval, license, permit, order or authorization of, or
registration, declaration, notice or filing with, any court, arbitrational
tribunal, administrative agency or commission or other governmental or
regulatory authority, agency or instrumentality or any stock market or stock
exchange on which shares of Company Common Stock are listed for trading (a
"Governmental Entity") is required by or with respect to the Company or any of
its Subsidiaries in connection with the execution and delivery of this Agreement
by the Company or the consummation by the Company of the transactions
contemplated by this Agreement, except for (i) the filing of the Certificate of
Merger with the Delaware Secretary of State and appropriate corresponding
documents with the Secretaries of appropriate authorities of other states in
which the Company is qualified as a foreign corporation to transact business,
(ii) the filing of the Proxy Statement and Schedule 13E-3 with the Securities
and Exchange Commission (the "SEC") in accordance with the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), (iii) the filing of such reports,
schedules or materials under Section 13 of or Rule 14a-12 under the Exchange Act
as may be required in connection with this Agreement and the transactions
contemplated hereby, (iv) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
state securities laws and (v) such other consents, licenses, permits, orders,
authorizations, filings, approvals and registrations which, if not obtained or
made, would be reasonably likely, individually or in the aggregate, to have a
Company Material Adverse Effect (the "Company Required Statutory Approvals"), it
being understood that references to "obtaining" such Company Required Statutory
Approvals shall mean making such declarations, filings or registrations; giving
such notice; obtaining such consents or approvals; and having such waiting
periods expire as are necessary to avoid a violation of applicable law.
(d) The affirmative vote of the holders of a majority of the outstanding
shares of Company Common Stock on the record date for the Company Stockholders
Meeting is the only vote of the holders of any class or series of the Company's
capital stock or other securities necessary for the adoption of this Agreement
and for the consummation by the Company of the other transactions contemplated
by this Agreement. There are no bonds, debentures, notes or other indebtedness
of the Company having the right to vote (or convertible into, or exchangeable
for, securities having the right to vote) on any matters on which stockholders
of the Company may vote.
3.4 SEC Filings; Financial Statements; Information Provided.
(a) The Company has filed all registration statements, forms, reports and
other documents required to be filed by the Company with the SEC since January
1, 2000, and has made available to the Buyer copies of all registration
statements, forms, reports and other documents filed by the Company with the SEC
since such date, all of which are publicly available on the SEC's EDGAR system.
All such registration statements, forms, reports and other documents (including
those that the Company may file after the date hereof until the Closing) are
referred to herein as the "Company SEC Reports." The Company SEC Reports (i)
were (other than the Annual Report on Form 10-K for the year ended December 31,
2002, which was filed April 15, 2003 and amended April 30, 2003) or will be
filed on a timely basis, (ii) at the time filed, were or will be prepared in
compliance in all material respects with the applicable requirements of the
Securities Act and the Exchange Act, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such Company SEC Reports, and
(iii) did not or will not at the time they were or are filed, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated in such Company SEC Reports or necessary in order to make the statements
in such Company SEC Reports, in the light of the circumstances under which they
were made, not misleading. No Subsidiary of the Company is subject to the
reporting requirements of Section 13(a) or Section 15(d) of the Exchange Act.
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(b) Each of the consolidated financial statements (including, in each case,
any related notes and schedules) contained or to be contained in the Company SEC
Reports at the time filed (i) complied or will comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, (ii) were or will be prepared in
accordance with United States generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods involved (except as may be
indicated in the notes to such financial statements or, in the case of unaudited
interim financial statements, as permitted by the SEC on Form 10-Q under the
Exchange Act) and (iii) fairly presented or will fairly present the consolidated
financial position of the Company and its Subsidiaries as of the dates indicated
and the consolidated results of its operations and cash flows for the periods
indicated, consistent with the books and records of the Company and its
Subsidiaries, except that the unaudited interim financial statements were or are
subject to normal and recurring year-end adjustments which were not or are not
expected to be material in amount. The consolidated, unaudited balance sheet of
the Company as of June 30, 2003 is referred to herein as the "Company Balance
Sheet."
(c) The information to be supplied by or on behalf of the Company for
inclusion or incorporation by reference in the Transaction Statement on Schedule
13E-3 under the Exchange Act (the "Schedule 13E-3"), or to be included or
supplied by or on behalf of the Company for inclusion in any filing pursuant to
Rule 14a-12 under the Exchange Act, shall not at the time the Schedule 13E-3 or
such filing is filed with the SEC, or at any time the Schedule 13E-3 or such
filing is amended or supplemented, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading. The
information to be supplied by or on behalf of the Company for inclusion in the
proxy statement (the "Proxy Statement") to be sent to the stockholders of the
Company in connection with the meeting of the Company's stockholders to consider
the Company Voting Proposal (the "Company Stockholders Meeting"), which shall be
deemed to include all information about or relating to the Company, the Company
Voting Proposal and the Company Stockholder Meeting) shall not, on the date the
Proxy Statement is first mailed to stockholders of the Company, or, as the same
may be amended or supplemented at the time such amendment or supplement is
mailed to stockholders at the time of the Company Stockholders Meeting or at the
Effective Time, contain any statement which, at such time and in light of the
circumstances under which it shall be made, is false or misleading with respect
to any material fact, or omit to state any material fact necessary in order to
make the statements made in the Proxy Statement not false or misleading; or omit
to state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Company
Stockholders Meeting which has become false or misleading. If at any time prior
to the Effective Time any fact or event relating to the Company or any of its
Affiliates which should be set forth in an amendment to the Schedule 13E-3 or a
supplement to the Proxy Statement should be discovered by the Company or should
occur, the Company shall promptly inform the Buyer of such fact or event.
3.5 No Undisclosed Liabilities. Except as disclosed in the Company SEC
Reports filed prior to the date of this Agreement, and except for normal and
recurring liabilities incurred since the date of the Company Balance Sheet in
the Ordinary Course of Business, the Company and its Subsidiaries do not have
any liabilities, either accrued, contingent or otherwise (whether or not
required to be reflected in financial statements in accordance with GAAP), and
whether due or to become due, that, individually or in the aggregate, are
reasonably likely to have a Company Material Adverse Effect.
3.6 Absence of Certain Changes or Events. Except as disclosed in the
Company SEC Reports filed prior to the date of this Agreement, since the date of
the Company Balance Sheet, the Company and its Subsidiaries have conducted their
respective businesses only in the Ordinary Course of Business and, since such
date, there has not been (i) any change, event, circumstance, development or
effect that, individually or in the aggregate, has had, or is reasonably likely
to have, a Company Material Adverse Effect; or (ii) any other action or event
that would have required the consent of the Buyer pursuant to Section 5.1 of
this Agreement had such action or event occurred after the date of this
Agreement.
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3.7 Taxes.
(a) The Company and each of its Subsidiaries has filed all Tax Returns that
it was required to file, and all such Tax Returns were correct and complete in
all material respects. The Company and each of its Subsidiaries has paid on a
timely basis all Taxes that are shown to be due and payable on any such Tax
Returns except for those contested in good faith and for which adequate reserves
have been taken. The unpaid Taxes of the Company and its Subsidiaries for Tax
periods through the date of the Company Balance Sheet do not exceed the accruals
and reserves for Taxes set forth on the Company Balance Sheet exclusive of any
accruals and reserves for "deferred taxes" or similar items that reflect timing
differences between Tax and financial accounting principles. All Taxes that the
Company or any of its Subsidiaries is or was required by law to withhold or
collect have been duly withheld or collected and, to the extent required, have
been paid to the proper Governmental Entity. For purposes of this Agreement, (i)
"Taxes" means all taxes, charges, fees, levies or other similar assessments or
liabilities, including income, gross receipts, ad valorem, premium, value-added,
excise, real property, personal property, sales, use, services, transfer,
withholding, employment, payroll and franchise taxes imposed by the United
States of America or any state, local or foreign government, or any agency
thereof, or other political subdivision of the United States or any such
government, and any interest, fines, penalties, assessments or additions to tax
resulting from, attributable to or incurred in connection with any tax or any
contest or dispute thereof and (ii) "Tax Returns" means all reports, returns,
declarations, statements or other information required to be supplied to a
taxing authority in connection with Taxes.
(b) Neither the Company nor any of its Subsidiaries has any actual or
potential liability for any Taxes of any person (other than the Company and its
Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any similar
provision of law in any jurisdiction), or as a transferee or successor, by
contract, or otherwise.
3.8 Owned and Leased Real Properties. Neither the Company nor any of its
Subsidiaries owns any real property. Neither the Company nor any of its
Subsidiaries nor, to the Company's knowledge, any other party to any Company
Lease, is in default under any of the Company Leases, except where the existence
of such defaults, individually or in the aggregate, has not had, and is not
reasonably likely to have a Company Material Adverse Effect. Each of the Company
Leases is in full force and effect and is enforceable in accordance with its
terms and shall not cease to be in full force and effect as a result of the
transactions contemplated by this Agreement. Neither the Company nor any of its
Subsidiaries leases, subleases or licenses any real property to any person other
than the Company and its Subsidiaries. For purposes of this Agreement, "Company
Leases" shall mean all real property leased, subleased or licensed by the
Company or any of its Subsidiaries.
3.9 Intellectual Property.
(a) The Company and its Subsidiaries own, or license or otherwise possess
legally enforceable rights to use all Intellectual Property used or necessary to
conduct the business of the Company and its Subsidiaries as currently conducted,
or that would be used or necessary as such business is planned to be conducted
(in each case excluding generally commercially available, "off-the-shelf"
software programs licensed pursuant to shrinkwrap or "click-and-accept"
licenses). For purposes of this Agreement, the term "Intellectual Property"
means (i) patents, trademarks, service marks, trade names, domain names,
copyrights, designs and trade secrets, (ii) applications for and registrations
of such patents, trademarks, service marks, trade names, domain names,
copyrights and designs, (iii) processes, formulae, methods, schematics,
technology, know-how, computer software programs and applications, and (iv)
other tangible or intangible proprietary or confidential information and
materials.
(b) The execution and delivery of this Agreement and consummation of the
Merger will not result in the breach of, or create on behalf of any third party
the right to terminate or modify, (i) any license, sublicense or other agreement
relating to any Intellectual Property owned by the Company that is material to
the business of the Company and its Subsidiaries, taken as a whole, including
software that is used in the manufacture of, incorporated in, or forms a part of
any product or service sold by or expected to be sold by the Company or any of
its Subsidiaries (the "Company Intellectual Property") or (ii) any license,
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sublicense and other agreement as to which the Company or any of its
Subsidiaries is a party and pursuant to which the Company or any of its
Subsidiaries is authorized to use any third party Intellectual Property that is
material to the business of the Company and its Subsidiaries, taken as a whole,
including software that is used in the manufacture of, incorporated in, or forms
a part of any product or service sold by or expected to be sold by the Company
or any of its Subsidiaries (the "Third Party Intellectual Property").
(c) All patents and registrations and applications for trademarks, service
marks and copyrights which are held by the Company or any of its Subsidiaries
and which are material to the business of the Company and its Subsidiaries,
taken as a whole, are valid and subsisting. The Company and its Subsidiaries
have taken reasonable measures to protect the proprietary nature of the Company
Intellectual Property. To the knowledge of the Company, no other person or
entity is infringing, violating or misappropriating any of the Company
Intellectual Property or Third Party Intellectual Property, except for
infringements, violations or misappropriations that, individually or in the
aggregate, are not reasonably likely to have a Company Material Adverse Effect.
(d) None of the (i) products previously or currently sold by the Company or
any of its Subsidiaries or (ii) business or activities previously or currently
conducted by the Company or any of its Subsidiaries infringes, violates or
constitutes a misappropriation of, any Intellectual Property of any third party,
except for such infringements, violations and misappropriation that,
individually or in the aggregate, are not reasonably likely to have a Company
Material Adverse Effect. Neither the Company nor any of its Subsidiaries has
received any complaint, claim or notice alleging any such infringement,
violation or misappropriation.
3.10 Agreements, Contracts and Commitments.
(a) The Company has filed with the SEC all contracts and agreements
required to be filed by the Company under Item 601 of Regulation S-K or which it
would be required to file if it were required to file an Annual Report on Form
10-K on the date of this Agreement (the "Company Material Contracts"). The
Company has made available to the Buyer a complete and accurate copy of each
Company Material Contract. Each Company Material Contract is in full force and
effect and is enforceable in accordance with its terms. Neither the Company nor
any of its Subsidiaries nor, to the Company's knowledge, any other party to any
Company Material Contract is in violation of or in default under (nor does there
exist any condition which, upon the passage of time or the giving of notice or
both, would cause such a violation of or default under) (x) any loan or credit
agreement, note, bond, mortgage, indenture, lease, permit, concession,
franchise, license or other contract, arrangement or understanding to which it
is a party or by which it or any of its properties or assets is bound, except
for violations or defaults that, individually or in the aggregate, have not had,
and are not reasonably likely to have, a Company Material Adverse Effect or (y)
any Company Material Contract.
(b) Except as disclosed in the Company SEC Reports filed prior to the date
of this Agreement, neither the Company nor any of its Subsidiaries has entered
into any transaction with any Affiliate of the Company or any of its
Subsidiaries or any transaction that would be subject to proxy statement
disclosure pursuant to Item 404 of Regulation S-K.
3.11 Litigation. Except as disclosed in the Company SEC Reports filed
prior to the date of this Agreement, there is no action, suit, proceeding,
claim, arbitration or investigation pending or, to the knowledge of the Company,
threatened against or affecting the Company or any of its Subsidiaries that (i)
seeks equitable relief, (ii) in any manner challenges or seeks to prevent,
enjoin, alter or delay the transactions contemplated by this Agreement or (iii)
individually or in the aggregate, has had, or is reasonably likely to have, a
Company Material Adverse Effect. There are no material judgments, orders or
decrees outstanding against the Company or any of its Subsidiaries.
3.12 Employee Benefit Plans.
(a) Each Company Employee Plan has been administered in accordance with its
terms, and the Company and its Subsidiaries have met their obligations with
respect to each Company Employee Plan and has timely made all required
contributions thereto, and the Company, each Subsidiary and each
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Company Employee Plan fiduciary, is in compliance with applicable provisions of
ERISA and the Code and the regulations thereunder (including Section 4980B of
the Code). All filings and reports as to each Company Employee Plan required to
have been submitted to the Internal Revenue Service or to the United States
Department of Labor have been accurately and fully completed and timely
submitted. For purposes of this Agreement, "Company Employee Plans" means all
employee benefit plans as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") and any written or oral plan,
agreement or arrangement involving direct or indirect compensation, including,
without limitation, insurance coverage, severance benefits, disability benefits,
deferred compensation, bonuses, stock options, stock purchase, phantom stock,
stock appreciation or other forms of incentive compensation or post-retirement
compensation, maintained or contributed to by the Company or any member of the
controlled group of which it is a member under Sections 414(b), (c), (m) or (o)
of the Code or which covers any Company employee.
(b) With respect to the Company Employee Plans, there are no benefit
obligations for which contributions have not been made or properly accrued and
there are no benefit obligations which have not been accounted for by reserves,
or otherwise properly footnoted in accordance with generally accepted accounting
principles on the most recent Company financial statements. The Company and each
Subsidiary has no liability (contingent or otherwise) for any benefits under any
Company Employee Plan, except as set forth in the most recent Company financial
statements. The assets of each Company Employee Plan are reported at their fair
market value on the books and records of such Company Employee Plan.
(c) Each Company Employee Plan intended to be qualified under Section
401(a) of the Code has received a determination letter from the Internal Revenue
Service to that effect with respect to all applicable law other than the
Economic Growth and Tax Relief Reconciliation Act of 2001 and that the trust
related thereto is exempt from US federal income taxes under Sections 401(a) and
501(a), respectively of the Code, no such determination letter has been revoked
and revocation has not been threatened and no such Company Employee Plan has
been amended since receipt of such letter. Each Company Employee Plan which is
required to satisfy Section 401(k)(3) or Section 401(m)(2) of the Code has been
tested for compliance with, and satisfies the requirements of said provisions
for each plan year ending prior to the Closing.
3.13 Compliance With Laws. The Company and each of its Subsidiaries has
complied with, is not in violation of, and has not received any notice alleging
any violation with respect to, any applicable provisions of any statute, law or
regulation with respect to the conduct of its business, or the ownership or
operation of its properties or assets, including without limitation any
Environmental Law, except for failures to comply or violations that,
individually or in the aggregate, have not had, and are not reasonably likely to
have, a Company Material Adverse Effect. For purposes of this Agreement,
"Environmental Law" means any law, regulation, order, decree, permit,
authorization, opinion, common law or agency requirement of any jurisdiction
relating to: (a) the protection, investigation or restoration of the
environment, human health and safety, or natural resources, (b) the handling,
use, storage, treatment, manufacture, transportation, presence, disposal,
release or threatened release of any substance that is (i) listed, classified,
regulated or which falls within the definition of a "hazardous substance,"
"hazardous waste" or "hazardous material" pursuant to any Environmental Law;
(ii) any petroleum product or by-product, asbestos-containing material,
lead-containing paint, pipes or plumbing, polychlorinated biphenyls, radioactive
materials or radon; or (iii) any other substance which is the subject of
regulatory action by any Governmental Entity pursuant to any Environmental Law,
or (c) noise, odor, wetlands, pollution, contamination or any injury or threat
of injury to persons or property.
3.14 Labor Matters. Except as disclosed in the Company SEC Reports filed
prior to the date of this Agreement, no employee of the Company or any of its
Subsidiaries (i) has an employment agreement, (ii) to the Company's knowledge is
in violation of any term of any patent disclosure agreement, non-competition
agreement, or any restrictive covenant to a former employer relating to the
right of any such employee to be employed by the Company or any of its
Subsidiaries because of the nature of the business conducted or presently
proposed to be conducted by the Company or any of its
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Subsidiaries or to the use of trade secrets or proprietary information of
others, or (iii) in the case of any key employee or group of key employees, has
given notice to the Company or any of its Subsidiaries that such employee or any
employee in a group of key employees intends to terminate his or her employment
with the Company.
3.15 Opinion of Financial Advisor. The financial advisor of the Company,
Luminary Capital, LLC ("Luminary Capital") has delivered to the Company and the
Special Committee an opinion dated October 12, 2003 to the effect, as of such
date, that the Merger Consideration and the consideration to be received by the
Company in connection with the OCSN Transaction are each fair to the holders of
Company Common Stock from a financial point of view, a signed copy of which
opinion has been delivered to the Buyer.
3.16 Section 203 of the DGCL Not Applicable. The Company Board has taken
all actions necessary so that the restrictions contained in Section 203 of the
DGCL applicable to a "business combination" (as defined in Section 203) shall
not apply to the execution, delivery or performance of this Agreement, the
formation of the Buyer, the contribution of shares of Company Common Stock to
the Buyer by the stockholders of the Buyer or the consummation of the Merger or
the other transactions contemplated by this Agreement.
3.17 Brokers; Schedule of Fees and Expenses.
(a) No agent, broker, investment banker, financial advisor or other firm or
person is or shall be entitled, as a result of any action, agreement or
commitment of the Company or any of its Affiliates, to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with any of
the transactions contemplated by this Agreement, except Luminary Capital, whose
fees and expense shall be paid by the Company. The Company has made available to
the Buyer a complete and accurate copy of all agreements pursuant to which
Luminary Capital is entitled to any fees and expenses in connection with any of
the transactions contemplated by this Agreement.
(b) Section 3.17(b) of the Company Disclosure Schedule sets forth a
complete and accurate list of the estimated fees and expenses incurred and to be
incurred by the Company and any of its Subsidiaries in connection with this
Agreement and the transactions contemplated by this Agreement (including the
fees and expenses of Luminary Capital and of the Special Committee's legal
counsel).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE
BUYER AND THE TRANSITORY SUBSIDIARY
The Buyer and the Transitory Subsidiary represent and warrant to the
Company that the statements contained in this Article IV are true and correct,
except as expressly set forth herein or in the disclosure schedule delivered by
the Buyer and the Transitory Subsidiary to the Company on or before the date of
this Agreement (the "Buyer Disclosure Schedule"). The Buyer Disclosure Schedule
shall be arranged in paragraphs corresponding to the numbered and lettered
paragraphs contained in this Article IV and the disclosure in any paragraph
shall qualify (1) the corresponding paragraph in this Article IV and (2) the
other paragraphs in this Article IV only to the extent that it is clear from a
reading of such disclosure that it also qualifies or applies to such other
paragraphs.
4.1 Organization, Standing and Power. Each of the Buyer and the
Transitory Subsidiary is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation, has all
requisite corporate power and authority to own, lease and operate its properties
and assets and to carry on its business as now being conducted and as proposed
to be conducted, and is duly qualified to do business and is in good standing as
a foreign corporation in each jurisdiction in which the character of the
properties it owns, operates or leases or the nature of its activities makes
such qualification necessary, except for such failures to be so organized,
qualified or in good standing, individually or in the aggregate, that have not
had, and are not reasonably likely to have, a Buyer Material
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Adverse Effect. For purposes of this Agreement, the term "Buyer Material Adverse
Effect" means any material adverse change, event, circumstance or development
with respect to, or any material adverse effect on, (i) the business, assets,
liabilities, capitalization, condition (financial or other), or results of
operations of the Buyer and its Subsidiaries, taken as a whole or (ii) the
ability of the Buyer or the Transitory Subsidiary to consummate the transactions
contemplated by this Agreement.
4.2 Authority; No Conflict; Required Filings and Consents.
(a) Each of the Buyer and the Transitory Subsidiary has all requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated by this Agreement. The execution and delivery of this
Agreement and the consummation of the transactions contemplated by this
Agreement by the Buyer and the Transitory Subsidiary have been duly authorized
by all necessary corporate action on the part of each of the Buyer and the
Transitory Subsidiary (including the approval of the Merger by the Buyer in its
capacity as the sole stockholder of the Transitory Subsidiary). This Agreement
has been duly executed and delivered by each of the Buyer and the Transitory
Subsidiary and, assuming the due authorization, execution and delivery by the
Company, constitutes the valid and binding obligation of each of the Buyer and
the Transitory Subsidiary, enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles (whether such enforceability is
considered in a proceeding in equity or at law).
(b) The execution and delivery of this Agreement by each of the Buyer and
the Transitory Subsidiary do not, and the consummation by the Buyer and the
Transitory Subsidiary of the transactions contemplated by this Agreement shall
not, (i) conflict with, or result in any violation or breach of, any provision
of the certificate of incorporation or by-laws of the Buyer or the Transitory
Subsidiary, (ii) conflict with, or result in any violation or breach of, or
constitute (with or without notice or lapse of time, or both) a default (or give
rise to a right of termination, cancellation or acceleration of any obligation
or loss of any material benefit) under, require a consent or waiver under,
constitute a change in control under, require the payment of a penalty under or
result in the imposition of any Lien on the Buyer's or the Transitory
Subsidiary's assets under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, lease, license, contract or other agreement,
instrument or obligation to which the Buyer or the Transitory Subsidiary is a
party or by which any of them or any of their properties or assets may be bound,
or (iii) subject to compliance with the requirements specified in clause (i),
(ii), (iii) and (iv) of Section 4.2(c), conflict with or violate any permit,
concession, franchise, license, judgment, injunction, order, decree, statute,
law, ordinance, rule or regulation applicable to the Buyer or the Transitory
Subsidiary or any of its or their properties or assets, except in the case of
clauses (ii) and (iii) of this Section 4.2(b) for any such conflicts,
violations, breaches, defaults, terminations, cancellations, accelerations or
losses that, individually or in the aggregate, are not reasonably likely to have
a Buyer Material Adverse Effect.
(c) No consent, approval, license, permit, order or authorization of, or
registration, declaration, notice or filing with, any Governmental Entity is
required by or with respect to the Buyer or the Transitory Subsidiary in
connection with the execution and delivery of this Agreement by the Buyer or the
Transitory Subsidiary or the consummation by the Buyer or the Transitory
Subsidiary of the transactions contemplated by this Agreement, except for (i)
the filing of the Certificate of Merger with the Delaware Secretary of State and
appropriate corresponding documents with the Secretaries of State of other
states in which the Company is qualified as a foreign corporation to transact
business, (ii) the filings of such reports, schedules or materials under Section
13 of or Rule 14a-12 under the Exchange Act as may be required in connection
with this Agreement and the transactions contemplated hereby, (iii) such
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable state securities laws and (iv) such
other consents, licenses, permits, orders, authorizations, filings, approvals
and registrations which, if not obtained or made, would not be reasonably
likely, individually or in the aggregate, to have a Buyer Material Adverse
Effect.
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4.3 SEC Filings; Financial Statements; Information Provided. The
information in the Schedule 13E-3 and Proxy Statement (except, in each case, for
information supplied by or on behalf of the Company for inclusion or
incorporation by reference in the Schedule13E-3 and Proxy Statement, as the case
may be, as to which the Buyer makes no representation), shall not at the time
the Schedule 13E-3 or the Proxy Statement, as the case may be, is filed with the
SEC, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading. If at any time prior to the Effective Time
any fact or event relating to the Buyer or any of its Affiliates which should be
set forth in an amendment to the Schedule 13E-3 or the Proxy Statement, as the
case may be, should be discovered by the Buyer or should occur, the Buyer shall
promptly inform the Company of such fact or event.
4.4 Operations of the Transitory Subsidiary. The Transitory Subsidiary was
formed solely for the purpose of engaging in the transactions contemplated by
this Agreement, has engaged in no other business activities and has conducted
its operations only as contemplated by this Agreement.
ARTICLE V
CONDUCT OF BUSINESS
5.1 Covenants of the Company. Except as expressly provided in this Section
5.1 or as otherwise contemplated in this Agreement, or as consented to in
writing by the Buyer, from and after the date of this Agreement until the
earlier of the termination of this Agreement in accordance with its terms or the
Effective Time, the Company shall, and shall cause each of its Subsidiaries to,
act and carry on its business in the usual, regular and ordinary course in
substantially the same manner as previously conducted, pay its debts and Taxes
and perform its other obligations when due (subject to good faith disputes over
such debts, Taxes or obligations), comply with all applicable laws, rules and
regulations, and use reasonable efforts, consistent with past practices, to
maintain and preserve its and each Subsidiary's business organization, assets
and properties, keep available the services of its present officers and
employees and preserve its advantageous business relationships with customers,
strategic partners, suppliers, distributors and others having business dealings
with it to the end that its goodwill and ongoing business shall be unimpaired at
the Effective Time. Without limiting the generality of the foregoing, from and
after the date of this Agreement until the earlier of the termination of this
Agreement in accordance with its terms or the Effective Time, the Company shall
not, and shall not permit any of its Subsidiaries to, directly or indirectly, do
any of the following without the prior written consent of the Buyer, which
consent shall not be unreasonably withheld:
(a) (i) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, securities or other property) in respect
of, any of its capital stock (other than dividends and distributions by a
direct or indirect wholly owned Subsidiary of the Company to its parent);
(ii) split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock or any of its other
securities; or (iii) purchase, redeem or otherwise acquire any shares of
its capital stock or any other of its securities or any rights, warrants or
options to acquire any such shares or other securities (except, in the case
of this clause (iii), for the acquisition of shares of Company Common Stock
(A) from holders of Company Stock Options in full or partial payment of the
exercise price payable by such holder upon exercise of Company Stock
Options to the extent required under the terms of such Company Stock
Options as in effect on the date hereof; or (B) from former employees,
directors and consultants in accordance with agreements providing for the
repurchase of shares at their original issuance price in connection with
any termination of services to the Company or any of its Subsidiaries);
(b) issue, deliver, sell, grant, pledge or otherwise dispose of or
encumber any shares of its capital stock, any other voting securities or
any securities convertible into or exchangeable for, or any rights,
warrants or options to acquire, any such shares, voting securities or
convertible or exchangeable securities (other than the issuance of shares
of Company Common Stock upon the exercise of
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Company Stock Options or Company Warrants outstanding on the date of this
Agreement in accordance with their terms as in effect on the date hereof);
(c) amend its certificate of incorporation, by-laws or other
comparable charter or organizational documents, except as expressly
provided by this Agreement;
(d) acquire (i) by merging or consolidating with, or by purchasing all
or a substantial portion of the assets or any stock of, or by any other
manner, any business or any corporation, partnership, joint venture,
limited liability company, association or other business organization or
division thereof or (ii) any assets that are material, in the aggregate, to
the Company and its Subsidiaries, taken as a whole, except purchases of
inventory and components in the Ordinary Course of Business;
(e) except for sales of inventory in the Ordinary Course of Business,
sell, lease, license, pledge, or otherwise dispose of or encumber any
properties or assets of the Company or of any of its Subsidiaries;
(f) whether or not in the Ordinary Course of Business and other than
the OCSN Transaction, sell, dispose of or otherwise transfer any assets
material to the Company and its Subsidiaries, taken as a whole (including
any accounts, leases, contracts or intellectual property or any assets or
the stock of any of its Subsidiaries, but excluding the sale or
non-exclusive license of products in the Ordinary Course of Business);
(g) adopt or implement any stockholder rights plan;
(h) except for a confidentiality agreement as permitted by Section
6.1, enter into an agreement with respect to any merger, consolidation,
liquidation or business combination, or any acquisition or disposition of
all or substantially all of the assets or securities of the Company or any
of its Subsidiaries;
(i) (i) incur or suffer to exist any indebtedness for borrowed money
other than such indebtedness which existed as of the date of this
Agreement, or guarantee any such indebtedness of another person, (ii)
issue, sell or amend any debt securities or warrants or other rights to
acquire any debt securities of the Company or any of its Subsidiaries,
guarantee any debt securities of another person, enter into any "keep well"
or other agreement to maintain any financial statement condition of another
person or enter into any arrangement having the economic effect of any of
the foregoing, (iii) make any loans, advances (other than routine advances
to employees of the Company and its Subsidiaries in the Ordinary Course of
Business) or capital contributions to, or investment in, any other person,
other than the Company or any of its direct or indirect wholly owned
Subsidiaries or (iv) enter into any hedging agreement or other financial
agreement or arrangement designed to protect the Company or its
Subsidiaries against fluctuations in commodities prices or exchange rates;
(j) make any changes in accounting methods, principles or practices,
except insofar as may have been required by a change in GAAP or, except as
so required, change any assumption underlying, or method of calculating,
any bad debt, contingency or other reserve;
(k) (i) pay, discharge, settle or satisfy any claims, liabilities or
obligations (whether absolute, accrued, asserted or unasserted, contingent
or otherwise), other than the payment, discharge or satisfaction, in the
Ordinary Course of Business or in accordance with their terms as in effect
on the date of this Agreement, of claims, liabilities or obligations
reflected or reserved against in, or contemplated by, the most recent
consolidated financial statements (or the notes thereto) of the Company
included in the Company SEC Reports filed prior to the date of this
Agreement (to the extent so reflected or reserved against) or incurred
since the date of such financial statements in the Ordinary Course of
Business, or (ii) waive any material benefits of, modify in any adverse
respect, fail to enforce, or consent to any matter with respect to which
its consent is required under, any confidentiality, standstill or similar
agreements to which the Company or any of its Subsidiaries is a party;
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(l) except in the Ordinary Course of Business, modify, amend or
terminate any material contract or agreement to which the Company or any of
its Subsidiaries is party, or knowingly waive, release or assign any
material rights or claims (including any write-off or other compromise of
any accounts receivable of the Company or any of its Subsidiaries);
(m) (i) except in the Ordinary Course of Business enter into any
material contract or agreement relating to the rendering of services or the
distribution, sale or marketing by third parties of the products, of, or
products licensed by, the Company or any of its Subsidiaries or (ii)
license any material intellectual property rights to or from any third
party;
(n) except as required to comply with applicable law or agreements,
plans or arrangements existing on the date hereof, (i) take any action with
respect to, adopt, enter into, terminate or amend any employment, severance
or similar agreement or benefit plan for the benefit or welfare of any
current or former director, officer, employee or consultant, (ii) increase
in any material respect the compensation or fringe benefits of, or pay any
bonus to, any director, officer, employee or consultant (except for annual
increases of the salaries of non-officer employees in the Ordinary Course
of Business), (iii) amend or accelerate the payment, right to payment or
vesting of any compensation or benefits, including any outstanding options
or restricted stock awards, (iv) pay any material benefit not provided for
as of the date of this Agreement under any benefit plan, (v) grant any
awards under any bonus, incentive, performance or other compensation plan
or arrangement or benefit plan, including the grant of stock options, stock
appreciation rights, stock based or stock related awards, performance units
or restricted stock, or the removal of existing restrictions in any benefit
plans or agreements or awards made thereunder or (vi) take any action other
than in the Ordinary Course of Business to fund or in any other way secure
the payment of compensation or benefits under any employee plan, agreement,
contract or arrangement or benefit plan;
(o) make or rescind any Tax election, settle or compromise any Tax
liability or amend any Tax return;
(p) commence any offering of shares of Company Common Stock pursuant
to the Company's Employee Stock Purchase Plan;
(q) initiate, compromise or settle any material litigation or
arbitration proceeding; or
(r) authorize any of, or commit or agree, in writing or otherwise, to
take any of, the foregoing actions or any action which would make any
representation or warranty of the Company in this Agreement untrue or
incorrect in any material respect, or would materially impair or prevent
the satisfaction of any conditions in Article VII hereof.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 No Solicitation.
(a) Subject to the terms of Section 6.1(b) below, during the period (x)
beginning on the date of this Agreement and (y) continuing until the thirty (30)
day anniversary of the date of this Agreement, the Company, its Subsidiaries,
the Special Committee or any of its or their directors, officers, employees,
investment bankers, attorneys, accountants or other advisors or representatives
(such directors, officers, employees, investment bankers, attorneys,
accountants, other advisors and representatives, collectively,
"Representatives") shall have an obligation to enter into and maintain or
continue discussions or negotiations with any person or group in furtherance of
any unsolicited inquiry (whether such unsolicited inquiry is bona fide or
reasonably likely to lead to an Alternative Acquisition Proposal) and to obtain
or induce such person or group to make or submit an Acquisition Proposal.
Without limiting the generality of any of the foregoing, the Company
acknowledges and agrees that any violation of any of the restrictions set forth
in the preceding sentence by any Representative of the Company or any of its
Subsidiaries, whether
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or not such Representative is purporting to act on behalf of the Company or any
of its Subsidiaries, shall be deemed to constitute a breach of this Section
6.1(a) by the Company.
(b) Subject to the limitations set forth herein and other than in response
to any unsolicited inquiry as provided in Section 6.1(a), during the period (x)
beginning on the date of this Agreement and (y) continuing until the Effective
Time, the Company shall not directly or indirectly, and shall not authorize or
permit any of its Subsidiaries or any of its Representatives directly or
indirectly to, (i) solicit, initiate, encourage, induce or facilitate the
making, submission or announcement of any Acquisition Proposal or take any
action that could reasonably be expected to lead to a Acquisition Proposal, (ii)
furnish any information regarding the Company or any of its Subsidiaries to any
person in connection with or in response to an Acquisition Proposal, (iii)
engage in discussions or negotiations with any person with respect to any
Acquisition Proposal, (iv) approve, endorse or recommend any Acquisition
Proposal or (v) enter into any letter of intent or similar document or any
contract contemplating or otherwise relating to any Company Acquisition
Transaction (as defined below); provided, however, that nothing in this Section
6.1(b) shall prohibit (A) the Company, or the Company Board or the Special
Committee, from furnishing information regarding the Company or any of its
Subsidiaries to, or entering into discussions with, any person in response to a
Acquisition Proposal that is submitted to the Company by such person (and not
withdrawn) if (1) neither the Company nor any Representative of the Company or
any of its Subsidiaries shall have violated any of the restrictions set forth in
this Section 6.1, (2) a majority of the Company Board or the Special Committee
concludes in good faith, after consultation with its outside legal counsel, that
the failure to take such action, furnish such information or enter into such
discussions would be inconsistent with its fiduciary obligations under
applicable Company Required Statutory Approvals, (3) a majority of the Company
Board or the Special Committee determines in good faith, after consultation with
its outside legal counsel, that taking such action would be reasonably likely to
lead to the delivery of a Alternative Acquisition Agreement (as defined below),
(4) at least three (3) business days prior to furnishing any such information
to, or entering into discussions with, such person, the Company gives Buyer
written notice of the identity of such person (to the extent it may do so
without breaching its fiduciary duties as determined in good faith after
consultation with its outside counsel, and without violating any of the
conditions of such Acquisition Proposal) and of the Company's intention to
furnish information to, or enter into discussions with, such person, and the
Company receives from such person an executed confidentiality agreement
containing customary limitations on the use and disclosure of all written and
oral nonpublic information furnished to such person or any of such person's
Representatives by or on behalf of the Company, and (5) not later than the time
such information is furnished to such person, the Company furnishes such
nonpublic information to Buyer or Transitory Subsidiary (to the extent such
information has not been previously furnished by the Company to Buyer); (B) the
Company from complying with Rule 14d-9 and Rule 14e-2 promulgated under the
Exchange Act or making any public announcement, disclosure or filing which,
after consultation with outside legal counsel, the Company's Board of Directors
or the Special Committee concludes in good faith is required pursuant to
applicable Company Required Statutory Approvals (including the rules of any
national securities exchange or U.S. inter-dealer quotation system of a
registered national securities association) with regard to a Acquisition
Proposal; or (C) solely with respect to Acquisition Proposals made or submitted
pursuant to Section 6.1(a) above, the Company, or the Company Board or the
Special Committee maintaining or continuing discussions or negotiations with any
person or group that has expressed an interest in making or submitting a
Acquisition Proposal. Without limiting the generality of any of the foregoing,
the Company acknowledges and agrees that any violation of any of the
restrictions set forth in the preceding sentence by any Representative of the
Company or any of its Subsidiaries, whether or not such Representative is
purporting to act on behalf of the Company or any of its Subsidiaries, shall be
deemed to constitute a breach of this Section 6.1(b) by the Company. As used in
this Section 6.1, "Acquisition Proposal" shall mean any offer, proposal, letter
of intent, inquiry or expression or indication of interest (other than an offer,
proposal, letter of intent, inquiry or expression or indication of interest by
Buyer or Transitory Subsidiary) contemplating or otherwise relating to any
Company Acquisition Transaction. As used in this Section 6.1, "Company
Acquisition Transaction" shall mean any transaction or series of related
transactions involving: (a) any merger, consolidation, share exchange, business
combination, issuance of
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securities, direct or indirect acquisition of securities, tender offer, exchange
offer or other similar transaction in which (i) the Company or any of its
Subsidiaries is a constituent corporation, (ii) a person or "Group" (as defined
in the Exchange Act and the rules promulgated thereunder) of persons directly or
indirectly acquires beneficial or record ownership of securities representing
more than 10% of the outstanding securities of any class of voting securities of
the Company or any of its Subsidiaries, or (iii) the Company or any of its
Subsidiaries issues securities representing more than 10% of the outstanding
securities of any class of voting securities of the Company or any of its
Subsidiaries; (b) any direct or indirect sale, lease, exchange, transfer,
license, acquisition or disposition of any business or businesses or of assets
or rights that constitute or account for 10% or more of the consolidated net
revenues, net income or assets (including, but not limited to, OCSN) of the
Company or any of its Subsidiaries; or (c) any liquidation or dissolution of the
Company or any of its Subsidiaries. As used in this Section 6.1, "Alternative
Acquisition Agreement" shall mean a bona fide written offer made by a third
party for a merger, consolidation, business combination, sale of substantial
assets (including, but not limited to, OCSN), sale of shares of capital stock
(including without limitation by way of a tender offer) or similar transaction
with respect to the Company or any of its Subsidiaries on terms that the Company
Board or the Special Committee determines, in good faith, after consultation
with outside legal counsel and Luminary Capital or another nationally recognized
independent financial advisor, if accepted, is reasonably likely to be
consummated, taking into account all legal, financial and regulatory aspects of
the offer and the person making the offer, and would, if consummated, be more
favorable to the Company's stockholders, from a financial point of view, than
the Merger; provided, however, that any such offer shall not be deemed to be a
"Alternative Acquisition Agreement" if (x) any financing required to consummate
the transaction contemplated by such offer is not committed or is not, in the
good faith judgment of the Company, reasonably capable of being obtained by such
third party on a timely basis or (y) Buyer has, within two (2) business days
after receipt of written notice from the Company of such bona fide Alternative
Acquisition Agreement, submitted an alternative Acquisition Proposal which the
Company Board or the Special Committee determines, in good faith, after
consultation with outside legal counsel and Luminary Capital or another
nationally recognized independent financial advisor, if accepted, is more
favorable to the Company's stockholders, from a financial point of view, than
such proposed Alternative Acquisition Agreement.
(c) The Company shall promptly (and in no event later than 24 hours) after
receipt of any Acquisition Proposal or any request for nonpublic information
related to the Company or any of its subsidiaries, advise Buyer orally (and
subsequently confirm the same by delivery to Buyer in writing) of any
Acquisition Proposal or any request for nonpublic information related to the
Company or any of its Subsidiaries (including, to the extent it may do so
without breaching its fiduciary duties as determined in good faith after
consultation with its outside counsel, and without violating any of the
conditions of such Acquisition Proposal, the identity of the person making or
submitting such Acquisition Proposal, and the terms thereof to the extent then
known) that is made or submitted by any person prior to Closing. The Company
shall keep Buyer fully informed on a prompt basis with respect to the status of
any such Acquisition Proposal, and any modification or proposed modification
thereto. The Company agrees that the Company shall simultaneously provide to
Buyer any nonpublic information concerning the Company provided to any person in
connection with any Acquisition Proposal which was not previously provided to
Buyer.
(d) The Company shall immediately cease and cause to be terminated any
existing discussions with any person (other than Buyer and Transitory
Subsidiary) that relate to any Acquisition Proposal, except as may be provided
for in Section 6.1(a) or Section 6.1(b).
(e) The Company agrees not to release any person (other than Buyer and
Transitory Subsidiary) from or waive any provision of any confidentiality,
"standstill" or similar agreement to which the Company is a party (including the
provisions thereof relating to the return or physical delivery of information
furnished by the Company to any person) and will use its best efforts to enforce
each such agreement at the request of Buyer.
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Notwithstanding anything contained in this Agreement to the contrary
(including Section 6.4), the recommendations of the Company Board or the Special
Committee may be withheld, withdrawn or modified in a manner adverse to Buyer
if: (i) the Company Board or the Special Committee determines in good faith,
after consultation with the Company's outside legal counsel, that the failure to
withdraw or modify such recommendations would be inconsistent with its fiduciary
obligations; (ii) the Company shall have released Buyer and Transitory
Subsidiary from the provisions of any standstill or similar agreement
restricting Buyer and Transitory Subsidiary from acquiring securities of the
Company; and (iii) neither the Company nor any of its Representatives shall have
violated any of the restrictions set forth in Section 6.1(a) or Section 6.1(b).
6.2 Proxy Statement; Schedule 13E-3.
(a) As promptly as practicable after the execution of this Agreement, the
Buyer, in cooperation with the Company, shall prepare and file with the SEC the
Schedule 13E-3 and the Company, in cooperation with the Buyer, shall prepare and
file with the SEC the Proxy Statement. Each of the Buyer and the Company shall
respond to any comments of the SEC and shall use its respective reasonable
efforts to cause the Proxy Statement to be mailed to the stockholders of the
Company at the earliest practicable time. Each of the Buyer and the Company
shall notify the other promptly upon the receipt of any comments from the SEC or
its staff or any other government officials and of any request by the SEC or its
staff or any other government officials for amendments or supplements to the
Schedule 13E-3, the Proxy Statement or any filing pursuant to Section 6.2(b) or
for additional information and shall supply the other with copies of all
correspondence between such party or any of its representatives, on the one
hand, and the SEC, or its staff or any other government officials, on the other
hand, with respect to the Schedule 13E-3, the Proxy Statement, the Merger or any
filing pursuant to Section 6.2(b). Each of the Buyer and the Company shall use
its reasonable efforts to cause all documents that it is responsible for filing
with the SEC or other regulatory authorities under this Section 6.1 to comply in
all material respects with all applicable requirements of law and the rules and
regulations promulgated thereunder. Whenever any event occurs which is required
to be set forth in an amendment or supplement to the Proxy Statement, the
Schedule 13E-3 or any filing pursuant to Section 6.2(b), the Buyer or the
Company, as the case may be, shall promptly inform the other of such occurrence
and cooperate in filing with the SEC or its staff or any other government
officials, and/or mailing to stockholders of the Company, such amendment or
supplement.
(b) The Buyer and the Company shall promptly make all necessary filings
with respect to the Merger under the Securities Act, the Exchange Act,
applicable state blue sky laws and the rules and regulations thereunder.
6.3 Access to Information. The Company shall (and shall cause each of its
Subsidiaries to) afford to the Buyer's officers, employees, accountants, counsel
and other representatives, reasonable access, during normal business hours
during the period prior to the Effective Time, to all its properties, books,
contracts, commitments, personnel and records and, during such period, the
Company shall (and shall cause each of its Subsidiaries to) furnish promptly to
the Buyer (a) a copy of each report, schedule, registration statement and other
document filed or received by it during such period pursuant to the requirements
of federal or state securities laws and (b) all other information concerning its
business, properties, assets and personnel as the Buyer may reasonably request.
No information or knowledge obtained in any investigation pursuant to this
Section or otherwise shall affect or be deemed to modify any representation or
warranty contained in this Agreement or the conditions to the obligations of the
parties to consummate the Merger.
6.4 Company Stockholders Meeting.
(a) The Company, acting through the Company Board, shall take all actions
in accordance with applicable law, its certificate of incorporation and by-laws
and the rules of the National Association of Securities Dealers, Inc. ("NASD")
or other applicable securities regulatory agencies to promptly and duly call,
give notice of, convene and hold as promptly as practicable, and in any event
within 45 days after the mailing of the Proxy Statement, the Company
Stockholders Meeting for the purpose of considering and voting upon the Company
Voting Proposal. Subject to Section 6.1(b), to the fullest extent permitted by
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applicable law, (i) the Company Board shall recommend approval and adoption of
the Company Voting Proposal and the OCSN Transaction by the stockholders of the
Company and include such recommendation in the Proxy Statement, and (ii) neither
the Company Board nor any committee thereof shall withdraw or modify, or propose
or resolve to withdraw or modify in a manner adverse to the Buyer, the
recommendation of the Company Board that the Company's stockholders vote in
favor of the Company Voting Proposal. Subject to Section 6.1, the Company shall
take all action that is both reasonable and lawful to solicit from its
stockholders proxies in favor of the Company Voting Proposal and the OCSN
Transaction and shall take all other action necessary or advisable to secure the
vote or consent of the stockholders of the Company required by the rules of the
NASD, any other applicable securities regulatory agencies or the DGCL to obtain
such approvals. Notwithstanding anything to the contrary contained in this
Agreement, the Company, after consultation with the Buyer, may adjourn or
postpone the Company Stockholders Meeting to the extent necessary to ensure that
any required supplement or amendment to the Proxy Statement is provided to the
Company's stockholders or, if as of the time for which the Company Stockholders
Meeting is originally scheduled (as set forth in the Proxy Statement there are
insufficient shares of Company Common Stock represented (either in person or by
proxy) to constitute a quorum necessary to conduct the business of the Company
Stockholders Meeting.
(b) The Company shall call, give notice of, convene and hold the Company
Stockholders Meeting in accordance with this Section 6.4 and shall submit the
Company Voting Proposal and the OCSN Transaction to its stockholders for the
purpose of acting upon such proposal whether or not (i) the Company Board at any
time subsequent to the date hereof determines, in the manner permitted by
Section 6.1(b), that the Company Voting Proposal or the OCSN Transaction is no
longer advisable or recommends that the stockholders of the Company reject such
proposals, or (ii) any actual, potential or purported Acquisition Proposal or
Superior Proposal has been commenced, disclosed, announced or submitted to the
Company. The Company shall ensure that all proxies solicited by the Company in
connection with the Company Stockholders Meeting are solicited, in compliance
with the DGCL, its certificate of incorporation and by-laws, the rules of the
NASD or any other applicable securities regulatory agencies, and all other
applicable legal requirements.
6.5 Legal Conditions to the Merger.
(a) Subject to the terms hereof, the Company and the Buyer shall each use
its reasonable efforts to (i) take, or cause to be taken, all actions, and do,
or cause to be done, and to assist and cooperate with the other parties in
doing, all things necessary, proper or advisable to consummate and make
effective the transactions contemplated hereby as promptly as practicable, (ii)
as promptly as practicable, obtain from any Governmental Entity or any other
third party any consents, licenses, permits, waivers, approvals, authorizations,
or orders required to be obtained or made by the Company or the Buyer or any of
their Subsidiaries in connection with the authorization, execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby,
(iii) as promptly as practicable, make all necessary filings, and thereafter
make any other required submissions, with respect to this Agreement and the
Merger required under (A) the Securities Act and the Exchange Act, and any other
applicable federal or state securities laws and (B) any other applicable law and
(iv) execute or deliver any additional instruments necessary to consummate the
transactions contemplated by, and to fully carry out the purposes of, this
Agreement. The Company and the Buyer shall cooperate with each other in
connection with the making of all such filings, including providing copies of
all such documents to the non-filing party and its advisors prior to filing and,
if requested, accepting all reasonable additions, deletions or changes suggested
in connection therewith. The Company and the Buyer shall use their respective
reasonable efforts to furnish to each other all information required for any
application or other filing to be made pursuant to the rules and regulations of
any applicable law (including all information required to be included in the
Proxy Statement and the Schedule 13E-3) in connection with the transactions
contemplated by this Agreement.
(b) Each of the Company and the Buyer shall give (or shall cause their
respective Subsidiaries to give) any notices to third parties, and use, and
cause their respective Subsidiaries to use, their reasonable efforts to obtain
any third party consents related to or required in connection with the Merger
that are (A) necessary to consummate the transactions contemplated hereby, (B)
disclosed or required to be
A-21
disclosed in the Company Disclosure Schedule or the Buyer Disclosure Schedule,
as the case may be, or (C) required to prevent the occurrence of an event that
may have a Company Material Adverse Effect or a Buyer Material Adverse Effect
prior to or after the Effective Time.
6.6 Public Disclosure. Except as may be required by law or stock market
regulations, (i) the press release announcing the execution of this Agreement
shall be issued only in such form as shall be mutually agreed upon by the
Company and the Buyer and (ii) the Buyer and the Company shall each use its
reasonable efforts to consult with the other party before issuing any other
press release or otherwise making any public statement with respect to the
Merger or this Agreement.
6.7 Options; Warrants and Stock Plans.
(a) The Company shall take all actions necessary or appropriate to cause
all options to purchase or acquire Company Common Stock (individually a "Company
Stock Option" and collectively, the "Company Stock Options") granted to any
current or former employee or director of, or consultant to, the Company or any
Subsidiary under the 1998 Stock Incentive Plan (the "Company Stock Plan") or
otherwise prior to the date of this Agreement and that are outstanding
immediately prior to the Effective Time to be fully or partially vested and
exercisable, as applicable, immediately prior to the Effective Time in
accordance with the terms of the Company Stock Plan and the individual
agreements evidencing such Company Stock Options. Each Company Stock Option that
is not exercised prior to the Effective Time shall be cancelled at the Effective
Time and, in consideration thereof, each holder of such a Company Stock Option
will be entitled to receive, for each share of Company Common Stock subject to
such Company Stock Option, an amount in cash equal to the excess, if any, of (i)
the Merger Consideration over (ii) the exercise price per share of Company
Common Stock of such Company Stock Option, without interest (the "Option
Consideration"); provided, that the Option Consideration shall be reduced by any
applicable federal and state withholding taxes. The Company shall use its
reasonable best efforts to obtain prior to the Effective Time any consents of
holders of Company Stock Options required to effect the cancellation of the
Company Stock Options contemplated hereby. The Option Consideration shall be
paid as soon as reasonably practicable following the Closing Date.
(b) The Company shall take all actions necessary or appropriate to cause
all warrants and other rights to purchase or acquire Company Common Stock
(individually a "Company Warrant" and collectively, the "Company Warrants") that
are outstanding immediately prior to the Effective Time to be fully vested and
exercisable immediately prior to the Effective Time in accordance with their
terms. Each Company Warrant that is not exercised prior to the Effective Time
shall be cancelled at the Effective Time and, in consideration thereof, each
holder of such a Company Warrant will be entitled to receive, for each share of
Company Common Stock subject to such Company Warrant, an amount in cash equal to
the excess, if any, of (i) the Merger Consideration over (ii) the exercise price
per share of Company Common Stock of such Company Warrant, without interest (the
"Warrant Consideration"); provided, that the Warrant Consideration shall be
reduced by any applicable federal and state withholding taxes. The Company shall
use its reasonable best efforts to obtain prior to the Effective Time any
consents of holders of Company Warrants required to effect the cancellation of
the Company Warrants contemplated hereby. The Warrant Consideration shall be
paid as soon as reasonably practicable following the Closing Date.
(c) The Company shall terminate all Company Stock Plans immediately prior
to the Effective Time. The Company shall terminate its 1999 Employee Stock
Purchase Plan in accordance with its terms as of or prior to the Effective Time.
6.8 Stockholder Litigation. Until the earlier of the termination of this
Agreement in accordance with its terms or the Effective Time, the Company shall
give the Buyer the opportunity to participate in the defense or settlement of
any stockholder litigation against the Company or the Company Board relating to
this Agreement or any of the transactions contemplated by this Agreement, and
shall not settle any such litigation without the Buyer's prior written consent,
which will not be unreasonably withheld or delayed.
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6.9 Indemnification.
(a) From and after the Effective Time, the Buyer shall, to the fullest
extent permitted by law, cause the Surviving Corporation, for a period of six
years from the Effective Time, to honor all of the Company's obligations to
indemnify and hold harmless each present and former director and officer of the
Company (the "Indemnified Parties"), against any costs or expenses (including
attorneys' fees), judgments, fines, losses, claims, damages, liabilities or
amounts paid in settlement incurred in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to matters existing or occurring at
or prior to the Effective Time, whether asserted or claimed prior to, at or
after the Effective Time, to the extent that such obligations to indemnify and
hold harmless exist on the date of this Agreement.
(b) The provisions of this Section 6.9 are intended to be in addition to
the rights otherwise available to the current officers and directors of the
Company by law, charter, statute, by-law or agreement, and shall operate for the
benefit of, and shall be enforceable by, each of the Indemnified Parties, their
heirs and their representatives.
(c) The Buyer shall use its reasonable best efforts to cause the persons
serving as officers and directors of the Company and its Subsidiaries
immediately prior to the Effective Time to be covered for a period of one (1)
year from the Effective Time by a directors and officers liability policy with
coverage in a maximum amount of $5,000,000 with respect to acts or omissions
prior to the Effective Time which were committed by such officers and directors
in their capacity as such. The Buyer further agrees to maintain the Company's
$2,000,000 policy with Old Republic Insurance and $3,000,000 policy with XL
Specialty Insurance Company until the expiration thereof on June 30, 2004.
6.10 Notification of Certain Matters. The Buyer shall give prompt notice
to the Company, and the Company shall give prompt notice to the Buyer, of the
occurrence, or failure to occur, of any event, which occurrence or failure to
occur would be reasonably likely to cause (a) (i) any representation or warranty
of such party contained in this Agreement that is qualified as to materiality to
be untrue or inaccurate in any respect or (ii) any other representation or
warranty of such party contained in this Agreement to be untrue or inaccurate in
any material respect, in each case at any time from and after the date of this
Agreement until the Effective Time, or (b) any material failure of the Buyer and
the Transitory Subsidiary or the Company, as the case may be, or of any officer,
director, employee or agent thereof, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement. Notwithstanding the above, the delivery of any notice pursuant to
this Section 6.10 will not limit or otherwise affect the remedies available
hereunder to the party receiving such notice or the conditions to such party's
obligation to consummate the Merger.
6.11 Exemption from Liability Under Section 16(b). The Company Board, or
a committee thereof consisting of non-employee directors (as such term is
defined for purposes of Rule 16b-3(d) under the Exchange Act), shall adopt a
resolution in advance of the Effective Time providing that the disposition by
the officers and directors of the Company who are subject to the reporting
requirements of Section 16(a) of the Exchange Act of Buyer Common Stock and of
options to purchase Buyer Common Stock, in each case pursuant to the
transactions contemplated hereby, including without limitation in connection
with the contribution of such securities to the Buyer, is intended to be exempt
pursuant to Rule 16b-3 under the Exchange Act.
6.12 338(h)(10) Election. At the Buyer's request, the Company shall fully
cooperate and do all things necessary to satisfy the requirements of an election
under Section 338(h)(10) of the Code.
6.13 SEC Filings. The Company shall promptly deliver to Buyer true and
correct copies of any report, statement and schedule filed by or with respect to
it with the SEC subsequent to the date of this Agreement.
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ARTICLE VII
CONDITIONS TO MERGER
7.1 Conditions to Each Party's Obligation To Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction on or prior to the Closing Date of the
following conditions:
(a) Stockholder Approval. The Company Voting Proposal shall have been
approved and adopted at the Company Stockholders Meeting, at which a quorum
is present, by the requisite vote of the stockholders of the Company under
applicable law and the Company's certificate of incorporation and by-laws.
(b) Governmental Approvals. Other than the filing of the Certificate
of Merger, all authorizations, consents, orders or approvals of, or
declarations or filings with, or expirations of waiting periods imposed by,
any Governmental Entity in connection with the Merger and the consummation
of the other transactions contemplated by this Agreement, the failure of
which to file, obtain or occur is reasonably likely to have, directly or
indirectly, a Buyer Material Adverse Effect or a Company Material Adverse
Effect shall have been filed, been obtained or occurred on terms and
conditions which would not reasonably be likely to have a Buyer Material
Adverse Effect or a Company Material Adverse Effect.
(c) No Injunctions. No Governmental Entity of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any order,
executive order, stay, decree, judgment or injunction (preliminary or
permanent) or statute, rule or regulation which is in effect and which has
the effect of making the Merger illegal or otherwise prohibiting
consummation of the Merger or the other transactions contemplated by this
Agreement.
7.2 Additional Conditions to Obligations of the Buyer and the Transitory
Subsidiary. The obligations of the Buyer and the Transitory Subsidiary to
effect the Merger shall be subject to the satisfaction on or prior to the
Closing Date of each of the following additional conditions, any of which may be
waived, in writing, exclusively by the Buyer and the Transitory Subsidiary:
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement and in any
certificate or other writing delivered by the Company pursuant hereto shall
be true and correct (i) as of the date of this Agreement (except in the
case of this clause (i), to the extent such representations and warranties
are specifically made as of a particular date, in which case such
representations and warranties shall be true and correct as of such date)
and (ii) as of the Closing Date as though made on and as of the Closing
Date (except in the case of this clause (ii), (x) to the extent such
representations and warranties are specifically made as of a particular
date, in which case such representations and warranties shall be true and
correct as of such date, (y) for changes contemplated by this Agreement and
(z) where the failure to be true and correct (without regard to any
materiality or Company Material Adverse Effect qualifications contained
therein), individually or in the aggregate, has not had, and is not
reasonably likely to have, a Company Material Adverse Effect).
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement on or prior to the Closing Date.
(c) Third Party Consents. The Company shall have obtained all
consents and approvals of third parties referred to in Section 3.3(c) of
the Company Disclosure Schedule.
(d) No Restraints. There shall not be instituted or pending any
action or proceeding by any Governmental Entity (i) seeking to restrain,
prohibit or otherwise interfere with the ownership or operation by the
Buyer or any of its Subsidiaries of all or any portion of the business of
the Company or any of its Subsidiaries or of the Buyer or any of its
Subsidiaries or to compel the Buyer or any of its Subsidiaries to dispose
of or hold separate all or any portion of the business or assets of the
A-24
Company or any of its Subsidiaries or of the Buyer or any of its
Subsidiaries, (ii) seeking to impose or confirm limitations on the ability
of the Buyer or any of its Subsidiaries effectively to exercise full rights
of ownership of the shares of Company Common Stock (or shares of stock of
the Surviving Corporation) including the right to vote any such shares on
any matters properly presented to stockholders or (iii) seeking to require
divestiture by the Buyer or any of its Subsidiaries of any such shares.
(e) Resignations. The Buyer shall have received copies of the
resignations, effective as of the Effective Time, of each director of the
Company and its Subsidiaries.
(f) Dissenting Shares. The number of Dissenting Shares shall not
exceed 5% of the number of outstanding shares of Company Common Stock as of
the Effective Time.
(g) Certain Events. No event, occurrence, fact, condition, change,
development or effect shall exist or have occurred or come to exist or been
threatened since June 30, 2003 that, individually or in the aggregate, has
had or resulted in, or could reasonably be expected to become or result in,
a Company Material Adverse Effect.
(h) OCSN Transaction. The OCSN Transaction shall have closed pursuant
to the terms of the asset purchase agreement with respect thereto and dated
the date hereof.
(i) Katzman Arrangements. The Company shall have satisfied all its
obligations to Mr. John Katzman upon terms and conditions acceptable to
Buyer in its sole discretion.
(j) Scholar Arrangement. The Company shall have satisfied all its
obligations to Scholar, Inc. upon terms and conditions acceptable to Buyer
in its sole discretion.
(k) CollegeClub Litigation. The Company shall have settled the
litigation against the Company and others by Mr. Richard M. Kipperman,
Liquidating Trustee of the bankruptcy estate of CollegeClub.com, Inc. and
CollegeStudent.com, Inc. upon terms and conditions acceptable to Buyer in
its sole discretion.
(l) Reservoir Capital. The Company shall have satisfied all its
obligations under and terminated the Loan Agreement, dated as of June 25,
2001, as amended, among the Company, Reservoir Capital Partners, L.P. and
the other parties named therein, as amended through the date hereof.
7.3 Additional Conditions to Obligations of the Company. The
obligation of the Company to effect the Merger shall be subject to the
satisfaction on or prior to the Closing Date of each of the following
additional conditions, any of which may be waived, in writing, exclusively
by the Company:
(a) Representations and Warranties. The representations and
warranties of the Buyer and the Transitory Subsidiary set forth in this
Agreement and in any certificate or other writing delivered by the Buyer or
the Transitory Subsidiary pursuant hereto shall be true and correct (i) as
of the date of this Agreement (except in the case of this clause (i), to
the extent such representations and warranties are specifically made as of
a particular date, in which case such representations and warranties shall
be true and correct as of such date) and (ii) as of the Closing Date as
though made on and as of the Closing Date (except in the case of this
clause (ii), (x) to the extent such representations and warranties are
specifically made as of a particular date, in which case such
representations and warranties shall be true and correct as of such date,
(y) for changes contemplated by this Agreement and (z) where the failure to
be true and correct (without regard to any materiality or Buyer Material
Adverse Effect qualifications contained therein), individually or in the
aggregate, has not had, and is not reasonably likely to have, a Buyer
Material Adverse Effect).
(b) Performance of Obligations of the Buyer and the Transitory
Subsidiary. The Buyer and the Transitory Subsidiary shall have performed
in all material respects all obligations required to be performed by them
under this Agreement on or prior to the Closing Date.
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ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time (with respect to Sections 8.1(b) through 8.1(g), by written
notice by the terminating party to the other party), whether before or, subject
to the terms hereof, after adoption of this Agreement by the stockholders of the
Company or the sole stockholder of the Transitory Subsidiary:
(a) by mutual written consent of the Buyer, the Transitory Subsidiary
and the Company; or
(b) by either the Buyer or the Company if the Merger shall not have
been consummated by April 30, 2004 (the "Outside Date") (provided that the
right to terminate this Agreement under this Section 8.1(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been a principal cause of or resulted in the failure of the
Merger to occur on or before the Outside Date); or
(c) by either the Buyer or the Company if a Governmental Entity of
competent jurisdiction shall have issued a nonappealable final order,
decree or ruling or taken any other nonappealable final action, in each
case having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger; or
(d) by either the Buyer or the Company if at the Company Stockholders
Meeting (including any adjournment or postponement thereof permitted by
this Agreement) at which a vote on the Company Voting Proposal and the OCSN
Transaction is taken, the requisite vote of the stockholders of the Company
in favor of the Company Voting Proposal and the OCSN Transaction shall not
have been obtained (provided that the right to terminate this Agreement
under this Section 8.1(d) shall not be available to the Company if at such
time the Company is in breach of or has failed to fulfill its obligations
under this Agreement); or
(e) by the Buyer, if: (i) the Company Board (or any committee thereof,
including without limitation the Special Committee) shall have failed to
recommend approval of the Company Voting Proposal and the OCSN Transaction
in the Proxy Statement or shall have withdrawn or modified its
recommendation of the Company Voting Proposal and the OCSN Transaction;
(ii) the Company Board (or any committee thereof, including without
limitation the Special Committee) shall have approved or recommended to the
stockholders of the Company an Acquisition Proposal (other than the
Merger); (iii) a tender offer or exchange offer for outstanding shares of
Company Common Stock shall have been commenced (other than by the Buyer or
an Affiliate of the Buyer) and the Company Board (or any committee thereof,
including without limitation the Special Committee) recommends that the
stockholders of the Company tender their shares in such tender or exchange
offer or, within 10 business days after the commencement of such tender or
exchange offer, fails to recommend against acceptance of such offer; (iv)
the Company shall have materially breached its obligations under Section
6.1 or Section 6.4; or (v) for any reason the Company shall have failed to
hold the Company Stockholders Meeting and submit the Company Voting
Proposal and the OCSN Transaction to the Company's stockholders by the date
which is one business day prior to the Outside Date; or
(f) by the Buyer, if there has been a breach of or failure to perform
any representation, warranty, covenant or agreement on the part of the
Company set forth in this Agreement, which breach or failure to perform (i)
would cause the conditions set forth in Section 7.2(a) or 7.2(b) not to be
satisfied, and (ii) shall not have been cured within 10 days following
receipt by the Company of written notice of such breach or failure to
perform from the Buyer; or
(g) by the Company, if there has been a breach of or failure to
perform any representation, warranty, covenant or agreement on the part of
the Buyer or the Transitory Subsidiary set forth in this Agreement, which
breach or failure to perform (i) would cause the conditions set forth in
Section 7.3(a) or 7.3(b) not to be satisfied, and (ii) shall not have been
cured within 10 days
A-26
following receipt by the Buyer of written notice of such breach or failure
to perform from the Company; or
(h) by the Company, if (i) the Company after the date hereof has
received a bona fide Acquisition Proposal that the Company Board has
determined in good faith after consultation with its financial advisor is a
Superior Proposal, (ii) the Company has complied with all of the provisions
of Section 6.1, (iii) the Company Board has determined in good faith after
consultation with its outside legal counsel that termination of this
Agreement is required for the Company Board to fulfill its fiduciary duties
under applicable law, and (iv) the Company, contemporaneously with, and as
a condition to, its termination of this Agreement, pays to Buyer the fees
and expenses provided for in Section 8.3.
8.2 Effect of Termination. In the event of termination of this Agreement
as provided in Section 8.1, this Agreement shall immediately become void and
there shall be no liability or obligation on the part of the Buyer, the Company,
the Transitory Subsidiary or their respective officers, directors, stockholders
or Affiliates; provided that (i) any such termination shall not relieve any
party from liability for any willful breach of this Agreement (which includes,
without limitation, the making of any representation or warranty by a party in
this Agreement that the party knew was not true and accurate when made) and (ii)
the provisions of Sections 3.17 and 8.3 and Article IX of this Agreement shall
remain in full force and effect and survive any termination of this Agreement.
8.3 Fees and Expenses.
(a) Except as set forth in this Section 8.3, all fees and expenses incurred
in connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such fees and expenses, whether or not the Merger
is consummated; provided however, that the Company shall bear and pay all fees
and expenses (including SEC filing fees) incurred with respect to the
preparation, printing, filing and mailing of the Proxy Statement (including any
related preliminary materials) and the preparation and filing of the Schedule
13E-3 and any amendments thereto.
(b) The Company shall pay the Buyer a termination fee of $150,000 and up to
$75,000 as reimbursement for expenses of the Buyer actually incurred relating to
the transactions contemplated by this Agreement prior to termination (including,
but not limited to, fees and expenses of the Buyer's counsel, accountants and
financial advisors, but excluding any discretionary fees paid to such financial
advisors), in the event of the termination of this Agreement:
(i) by the Buyer pursuant to Section 8.1(b) if the failure to satisfy
the conditions set forth in Section 7.1 or 7.2 (other than
7.2(h),(i),(j),(k) or (l)) by the Outside Date shall have resulted in the
Closing not occurring; or
(ii) by the Buyer pursuant to Section 8.1(e); or
(iii) by the Buyer pursuant to Section 8.1(f); or
(iv) by the Buyer or the Company pursuant to Section 8.1(d); or
(v) by the Company pursuant to Section 8.1(h).
In the event of a termination of this Agreement pursuant to Section 8.1(b)
as a result of a failure to satisfy any of the conditions set forth in Section
7.2(h), (i), (j), (k) or (l), the Company shall reimburse the Buyer up to
$75,000 for expenses actually incurred by the Buyer relating to the transactions
contemplated by this Agreement prior to termination (including, but not limited
to, fees and expenses of the Buyer's counsel, accountants and financial
advisors, but excluding any discretionary fees paid to such financial advisors).
Any fees and expenses payable pursuant to this Section 8.3(b) shall be paid
by wire transfer of same-day funds not later than five (5) business days after
the date of termination of this Agreement.
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(c) The parties acknowledge that the agreements contained in this Section
8.3 are an integral part of the transactions contemplated by this Agreement, and
that, without these agreements, the parties would not enter into this Agreement.
If the Company fails to promptly pay to the Buyer any expense reimbursement or
fee due hereunder, the Company shall pay the costs and expenses (including legal
fees and expenses) in connection with any action, including the filing of any
lawsuit or other legal action, taken to collect payment, together with interest
on the amount of any unpaid fee at the publicly announced prime rate of Fleet
Bank, N.A. plus five percent per annum, compounded quarterly, from the date such
expense reimbursement or fee was required to be paid. Payment of the fees and
expenses described in this Section 8.3 shall not be in lieu of damages incurred
in the event of a breach of this Agreement.
8.4 Amendment. This Agreement may be amended by the parties hereto, by
action taken or authorized by the Special Committee and the Boards of Directors
of Buyer and Transitory Subsidiary, at any time before or after approval of the
matters presented in connection with the Merger by the stockholders of the
Company or the Transitory Subsidiary, provided, however, that, after any such
approval, no amendment shall be made which by law requires further approval by
such stockholders without such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
8.5 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by the Special Committee and the
Boards of Directors of Buyer and Transitory Subsidiary, may, to the extent
legally allowed, (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party. Such extension or waiver
shall not be deemed to apply to any time for performance, inaccuracy in any
representation or warranty, or noncompliance with any agreement or condition, as
the case may be, other than that which is specified in the extension or waiver.
The failure of any party to this Agreement to assert any of its rights under
this Agreement or otherwise shall not constitute a waiver of such rights.
ARTICLE IX
MISCELLANEOUS
9.1 Nonsurvival of Representations and Warranties. The respective
representations and warranties of the Company, the Buyer and the Transitory
Subsidiary contained in this Agreement or in any instrument delivered pursuant
to this Agreement shall expire with, and be terminated and extinguished upon,
the Effective Time. This Section 9.1 shall have no effect upon any other
obligations of the parties hereto, whether to be performed before or after the
consummation of the Merger.
9.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed duly delivered (i) four business days after being
sent by registered or certified mail, return receipt requested, postage prepaid,
or (ii) one business day after being sent for next business day delivery, fees
prepaid, via a reputable nationwide overnight courier service, in each case to
the intended recipient as set forth below:
(a) if to the Buyer or the Transitory Subsidiary, to
Athena Ventures Parent, Inc.
and
Athena Ventures Acquisition Sub, Inc.
c/o Raymond V. Sozzi, Jr.
Student Advantage, Inc.
280 Summer Street
Boston, MA 02210
A-28
with a copy to:
Shack Siegel Katz & Flaherty P.C.
530 Fifth Avenue
New York, NY 10036
Attn: Jeffrey N. Siegel, Esq.
Telecopy: (212) 730-1964
(b) if to the Company or the Special Committee, to
Student Advantage, Inc.
280 Summer Street
Boston, MA 02210
Attn: President
with a copy to:
Greenberg Taurig, LLP
Metlife Building
200 Park Avenue
New York, NY 10166
Attn: Alan I. Annex, Esq.
Telecopy: (212) 805-9323
Any party to this Agreement may give any notice or other communication
hereunder using any other means (including personal delivery, messenger service,
telecopy, telex, ordinary mail or electronic mail), but no such notice or other
communication shall be deemed to have been duly given unless and until it
actually is received by the party for whom it is intended. Any party to this
Agreement may change the address to which notices and other communications
hereunder are to be delivered by giving the other parties to this Agreement
notice in the manner herein set forth.
9.3 Entire Agreement. This Agreement (including the Schedules and
Exhibits hereto and the documents and instruments referred to herein that are to
be delivered at the Closing) constitutes the entire agreement among the parties
to this Agreement and supersedes any prior understandings, agreements or
representations by or among the parties hereto, or any of them, written or oral,
with respect to the subject matter hereof.
9.4 No Third Party Beneficiaries. Except as provided in Section 6.11,
this Agreement is not intended, and shall not be deemed, to confer any rights or
remedies upon any person other than the parties hereto and their respective
successors and permitted assigns, to create any agreement of employment with any
person or to otherwise create any third-party beneficiary hereto.
9.5 Assignment. Neither this Agreement nor any of the rights, interests
or obligations under this Agreement may be assigned or delegated, in whole or in
part, by operation of law or otherwise by any of the parties hereto without the
prior written consent of the other parties, and any such assignment without such
prior written consent shall be null and void, except that the Buyer and/or the
Transitory Subsidiary may assign this Agreement to any direct or indirect wholly
owned Subsidiary of the Buyer without consent of the Company, provided that the
Buyer and/or the Transitory Subsidiary, as the case may be, shall remain liable
for all of its obligations under this Agreement. Subject to the preceding
sentence, this Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the parties hereto and their respective successors and permitted
assigns.
9.6 Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the parties hereto agree that the court making such determination
shall have the power to limit the term or provision, to delete specific words or
phrases, or to
A-29
replace any invalid or unenforceable term or provision with a term or provision
that is valid and enforceable and that comes closest to expressing the intention
of the invalid or unenforceable term or provision, and this Agreement shall be
enforceable as so modified. In the event such court does not exercise the power
granted to it in the prior sentence, the parties hereto agree to replace such
invalid or unenforceable term or provision with a valid and enforceable term or
provision that will achieve, to the extent possible, the economic, business and
other purposes of such invalid or unenforceable term.
9.7 Counterparts and Signature. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each of the parties hereto and
delivered to the other parties, it being understood that all parties need not
sign the same counterpart. This Agreement may be executed and delivered by
facsimile transmission.
9.8 Interpretation. When reference is made in this Agreement to an
Article or a Section, such reference shall be to an Article or Section of this
Agreement, unless otherwise indicated. The table of contents, table of defined
terms and headings contained in this Agreement are for convenience of reference
only and shall not affect in any way the meaning or interpretation of this
Agreement. The language used in this Agreement shall be deemed to be the
language chosen by the parties hereto to express their mutual intent, and no
rule of strict construction shall be applied against any party. Whenever the
context may require, any pronouns used in this Agreement shall include the
corresponding masculine, feminine or neuter forms, and the singular form of
nouns and pronouns shall include the plural, and vice versa. Any reference to
any federal, state, local or foreign statute or law shall be deemed also to
refer to all rules and regulations promulgated thereunder, unless the context
requires otherwise. Whenever the words "include", "includes" or "including" are
used in this Agreement, they shall be deemed to be followed by the words
"without limitation". No summary of this Agreement prepared by any party shall
affect the meaning or interpretation of this Agreement.
9.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Delaware without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Delaware or any other jurisdiction) that would cause the application of laws of
any jurisdictions other than those of the State of Delaware.
9.10 Remedies. Except as otherwise provided herein, any and all remedies
herein expressly conferred upon a party will be deemed cumulative with and not
exclusive of any other remedy conferred hereby, or by law or equity upon such
party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement, this being in addition to any other
remedy to which they are entitled at law or in equity.
9.11 WAIVER OF JURY TRIAL. EACH OF THE BUYER, THE TRANSITORY SUBSIDIARY
AND THE COMPANY HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR
OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THE ACTIONS OF THE BUYER, THE TRANSITORY SUBSIDIARY OR
THE COMPANY IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT OF
THIS AGREEMENT.
9.12 No Recourse to Officers, Directors or Stockholders of the Buyer. The
liabilities and obligations of the Buyer under this Agreement shall be solely
and exclusively liabilities and obligations of the Buyer and in no event shall
the officers, directors or stockholders of the Buyer have any liability or
obligation whatsoever under this Agreement.
[the next page is the signature page]
A-30
IN WITNESS WHEREOF, the Buyer, the Transitory Subsidiary and the Company
have caused this Agreement to be signed by their respective officers thereunto
duly authorized as of the date first written above.
ATHENA VENTURES PARENT, INC.
By: /s/ RAYMOND V. SOZZI, JR.
------------------------------------
Name: Raymond V. Sozzi
Title: President
ATHENA VENTURES ACQUISITION SUB, INC.
By: /s/ RAYMOND V. SOZZI, JR.
------------------------------------
Name: Raymond V. Sozzi, Jr.
Title: President
STUDENT ADVANTAGE, INC.
By: /s/ SEVIM M. PERRY
------------------------------------
Name: Sevim M. Perry
Title: Chief Financial Officer
A-31
APPENDIX B
PURCHASE AND SALE AGREEMENT
BETWEEN
STUDENT ADVANTAGE, INC.
AND
NCSN, INC.
DATED AS OF NOVEMBER 18, 2003
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
ARTICLE I ASSET PURCHASE............................................. 1
1.1 Purchase and Sale of Assets; Assumption of Liabilities...... 1
1.2 Purchase Price.............................................. 4
1.3 Allocation.................................................. 5
1.4 The Closing................................................. 5
1.5 Consents to Assignment...................................... 6
1.6 Further Assurances.......................................... 7
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE SELLER.............. 7
2.1 Organization, Qualification and Corporate Power............. 7
2.2 Authority................................................... 8
2.3 Noncontravention............................................ 8
2.4 Financial Statements........................................ 9
2.5 Absence of Certain Changes.................................. 9
2.6 Undisclosed Liabilities..................................... 10
2.7 Tax Matters................................................. 10
2.8 Title to Assets; Condition of Tangible Property............. 10
2.9 Real Property............................................... 10
2.10 Intellectual Property....................................... 11
2.11 Contracts................................................... 12
2.12 Entire Business............................................. 13
2.13 Litigation.................................................. 13
2.14 Employment Matters.......................................... 13
2.15 Employee Benefits........................................... 14
2.16 Legal Compliance............................................ 14
2.17 Permits..................................................... 14
2.18 Business Relationships with Affiliates...................... 15
2.19 Brokers' Fees............................................... 15
2.20 Insurance................................................... 15
2.21 Top Producers and Suppliers; Accounts Receivable............ 15
2.22 Solvency.................................................... 15
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE BUYER.............. 16
3.1 Organization................................................ 16
3.2 Authority................................................... 16
3.3 Noncontravention............................................ 16
3.4 Litigation.................................................. 17
3.5 Financing................................................... 17
3.6 Due Diligence by the Buyer.................................. 17
ARTICLE IV PRE-CLOSING COVENANTS..................................... 17
4.1 Closing Efforts............................................. 17
4.2 Operation of Business....................................... 17
4.3 Access...................................................... 18
4.4 Exclusivity................................................. 19
</Table>
B-i
<Table>
<Caption>
PAGE
----
4.5 Stockholders Meeting; Voting Agreement...................... 19
4.6 Disclosure Schedule; Additional Information................. 20
4.7 Elimination of Intercompany Items........................... 20
4.8 Customer Contracts.......................................... 20
ARTICLE V CONDITIONS PRECEDENT TO CLOSING............................ 21
5.1 Conditions to Obligations of the Buyer...................... 21
5.2 Conditions to Obligations of the Seller..................... 22
ARTICLE VI TERMINATION............................................... 23
6.1 Termination of Agreement.................................... 23
6.2 Effect of Termination....................................... 23
ARTICLE VII EMPLOYEE MATTERS......................................... 24
7.1 Offer of Employment; Continuation of Employment............. 24
7.2 Cessation of Business Benefit Plan Participation; 401(k) 24
Plan Matters................................................
7.3 Employment Related Liabilities.............................. 24
7.4 Employee Benefits; Severance Plans.......................... 24
7.5 Welfare Plans............................................... 25
7.6 Accrued Vacation Time....................................... 25
7.7 U.S. WARN Act............................................... 25
7.8 U.S. COBRA.................................................. 25
ARTICLE VIII OTHER POST-CLOSING COVENANTS............................ 25
8.1 Access to Information; Record Retention; Cooperation........ 25
8.2 Collection of Accounts Receivable........................... 27
8.3 Payment of Assumed Liabilities and Excluded Liabilities..... 27
8.4 Transfer Taxes.............................................. 27
8.5 Transition.................................................. 27
8.6 Non-Competition............................................. 27
8.7 Third Party Consents........................................ 28
8.8 Solomon Accounting System................................... 28
ARTICLE IX INDEMNIFICATION; SURVIVAL................................. 28
9.1 Definitions................................................. 28
9.2 Indemnification Generally................................... 29
9.3 Assertion of Claims......................................... 30
9.4 Notice and Defense of Third Party Claims.................... 30
9.5 Survival of Representations and Warranties.................. 30
9.6 Characterization of Payments................................ 31
9.7 Indemnification Payments.................................... 31
ARTICLE X MISCELLANEOUS.............................................. 31
10.1 Press Releases and Announcements............................ 31
10.2 No Third Party Beneficiaries................................ 31
10.3 Action to be Taken by Affiliates............................ 31
10.4 Entire Agreement............................................ 31
10.5 Succession and Assignment................................... 31
10.6 Notices..................................................... 32
10.7 Amendments and Waivers...................................... 32
</Table>
B-ii
<Table>
<Caption>
PAGE
----
10.8 Severability................................................ 32
10.9 Expenses.................................................... 32
10.10 Specific Performance........................................ 33
10.11 Governing Law............................................... 33
10.12 Bulk Transfer Laws.......................................... 33
10.13 Construction................................................ 33
10.14 Waiver of Jury Trial........................................ 33
10.15 Remedies Cumulative......................................... 33
10.16 Incorporation of Exhibits and Schedules..................... 33
10.17 Counterparts and Facsimile Signature........................ 33
</Table>
<Table>
Exhibits:
Exhibit A Form of Note
Exhibit B Form of Warrant
Schedules:
Schedule 1.1(a)(ii) Acquired Assets
Schedule 1.1(a)(iv) Assigned Contracts
Schedule 1.1(a)(v) Intellectual Property
Schedule 1.1(b)(ii) Certain Excluded Assets
Schedule 1.3 Allocation of Purchase Price
Schedule 1.5(a) Required Consents
Schedule 1.5(b) Required Contracts
Schedule 4.2(d) Capital Expenditure Budget
Schedule 4.2(f) Permitted Employee and Compensation Charges
Schedule 7.1 Specified Business Employees
Schedule 10.1 Form of Public Announcement
</Table>
B-iii
PURCHASE AND SALE AGREEMENT
PURCHASE AND SALE AGREEMENT, dated as of November 18, 2003, between Student
Advantage, Inc., a Delaware corporation (the "Seller"), and NCSN, Inc., a
Delaware corporation (the "Buyer"). The Seller and the Buyer are referred to
together herein as the "Parties."
INTRODUCTION
1. The Seller is engaged, among other matters, in (a) providing a network
on the World Wide Web devoted to college sports known as the "Official College
Sports Network," providing online brand management, content delivery, consumer
marketing and business/commerce solutions to university athletic departments and
conferences, and (b) operating an on-line wire service known as "U-Wire" which
aggregates and syndicates to subscribers college newspaper-based content. All
such activities and all other business and activities conducted on or through
the www.ocsn.com and www.collegesports.com websites or any other websites
primarily utilized by the Seller in connection with such activities, hereinafter
referred to collectively as the "Business."
2. The Buyer desires to purchase from the Seller, and the Seller desires
to sell to the Buyer, the assets of the Seller relating exclusively or primarily
to the Business (other than assets excluded pursuant hereto), subject to the
assumption of related liabilities and upon the terms and subject to the
conditions set forth herein.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement and other good and valuable
consideration, the receipt of which is hereby acknowledged, the Parties agree as
follows:
ARTICLE I
ASSET PURCHASE
1.1 Purchase and Sale of Assets; Assumption of Liabilities.
(a) On the basis of and contingent upon the representations, warranties,
covenants and agreements and subject to the satisfaction or waiver of the
conditions set forth in this Agreement, at the Closing (as defined in Section
1.4(a)), the Seller shall sell, convey, assign, transfer and deliver to the
Buyer, and the Buyer shall purchase and acquire from the Seller, free and clear
of any and all Security Interests (as defined in Section 2.3), all of the
Seller's right, title and interest in and to the assets, properties and rights
of the Seller of every kind, nature, character and description, tangible and
intangible, real, personal or mixed, wherever located, existing as of the
Closing which are utilized exclusively or primarily by the Seller in the
Business (collectively, the "Acquired Assets"), including, without limitation,
the following assets in each case to the extent same are utilized exclusively or
primarily in the Business:
(i) all accounts receivable and other receivables, whether or not
billed;
(ii) all computers, equipment, furniture, furnishings, fixtures,
machinery, vehicles, tools and tooling and other tangible personal property
and all warranties and guarantees, if any, express or implied, existing for
the benefit of the Seller in connection therewith to the extent
transferable, including the items listed in Schedule 1.1(a)(ii) hereto;
(iii) the Leased Real Property (as defined in Section 2.9(b)) covered
by the Leases (as defined in Section 2.9(b));
(iv) the rights under all contracts or agreements to which the Seller
is a party, including those listed in Schedule 1.1(a)(iv) hereto
(collectively, the "Assigned Contracts");
(v) all "Intellectual Property," which shall mean any or all of the
following and all rights in, arising out of, or associated therewith: (1)
all United States, international and foreign registered patents and
applications therefor, including such applications and registrations listed
in
B-1
Schedule 1.1(a)(v) hereto, and all underlying patent rights, reissues,
divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof; (2) all inventions (whether patentable or
not), ideas, processes, invention disclosures, improvements, trade secrets,
proprietary information, confidential business information, know-how,
technology, improvements, discoveries, technical data, customer or vendor
lists, proprietary processes and formulae, all source and object code,
computer software and management information systems, algorithms,
architectures, structures, display screens, layouts, development tools,
including the user interface related to the "gametracker" product, and all
documentation and media constituting, describing or relating to the above,
including, without limitation, manuals, memoranda and records; (3) all
copyrights, copyrights registrations and applications therefor,
copyrightable material including derivative works, revisions,
transformations and adaptations, material that is subject to non-copyright
disclosure protections, and all other works of authorship and, and all
other rights corresponding thereto throughout the world; (4) all trade
names, logos, trade dress, common law trademarks and service marks,
trademark and service mark registrations and applications therefor,
including such applications and registrations listed in Schedule 1.1(a)(v)
hereto, throughout the world; (5) domain names, including www.ocsn.com and
www.collegesports.com; (6) web sites and related content and sites,
including sites with the web addresses www.ocsn.com and
www.collegesports.com; (7) intellectual property rights acquired by license
or agreement; (8) damages or benefits derived from any action arising out
of or related to the foregoing, including laws controlling computer and
Internet rights; (9) all manuals, documentation and materials relating to
the above; and (10) any equivalent rights to any of the foregoing anywhere
in the world;
(vi) all licenses, permits or franchises issued by any Governmental
Entity (as defined below) relating to the development, use, maintenance or
occupation of the Seller Leased Facilities or the operations of the
Business (for purposes of this Agreement, "Governmental Entity" means any
court, arbitrational tribunal, administrative agency or commission or other
governmental or regulatory authority or agency);
(vii) all goods and services and all other economic benefits to be
received subsequent to the Closing arising out of prepayments and payments
by the Seller prior to the Closing;
(viii) all prepaid deposits and other prepaid asset items;
(ix) all books (other than stock record books), records, accounts,
ledgers, files, documents, correspondence, studies, reports and other
printed or written materials, subject to any restrictions imposed by
applicable law on the transfer of employee files and other materials
related to classified programs;
(x) all telephone and facsimile numbers; and
(xi) all goodwill.
(b) Notwithstanding anything to the contrary in this Agreement, the
Acquired Assets shall not include any of the following (each, an "Excluded
Asset"):
(i) any cash and cash equivalents or similar investments, bank
accounts, commercial paper, certificates of deposit, Treasury bills and
other marketable securities;
(ii) any assets, properties or rights listed on, or arising under any
contracts or agreements listed on, Schedule 1.1(b)(ii) hereto;
(iii) any rights to insurance claims, related refunds and proceeds
arising from or related to the Excluded Assets and Excluded Liabilities (as
defined in Section 1.1(d));
(iv) any rights which accrue or will accrue to the benefit of the
Seller under this Agreement or the Ancillary Agreements (as defined in
Section 1.5(b));
B-2
(v) any rights relating to refunds or recoupment of Taxes (as defined
in Section 2.7) of the Seller, including rights under any legal or
administrative proceedings relating thereto, whether or not yet commenced;
(vi) any actions, claims, causes of action, rights of recovery, choses
in action and rights of setoff of any kind arising before, on or after the
Closing relating to the items set forth above in this Section 1.1(b) or to
any Excluded Liabilities;
(vii) any books, records, accounts, ledgers, files, documents,
correspondence, studies, reports and other printed or written materials
related exclusively or primarily to any Excluded Assets or Excluded
Liabilities; and
(viii) any of the Seller's corporate functions, facilities, assets and
properties that service the Seller's business activities as a whole and are
not primarily or exclusively related to the Business (such as, by way of
example, payroll systems, finance and accounting functions, shared business
services and the like).
(c) On the basis of the representations, warranties, covenants and
agreements and subject to the satisfaction or waiver of the conditions set forth
in this Agreement, at the Closing, the Buyer shall assume and agree to pay,
perform and discharge when due after the Closing all of the following
liabilities and obligations solely to the extent related exclusively or
primarily to the Business or the Acquired Assets (collectively, the "Assumed
Liabilities"):
(i) all liabilities (A) reflected on the face of the Interim Balance
Sheet (as defined in Section 2.4(a)) and (B) incurred after the Interim
Balance Sheet in the ordinary course of business consistent with past
practice (and which are similar in nature and amount to the liabilities
which arose during the comparable period of time in the immediately
preceding fiscal period (taking into account any corresponding increase in
expenses that are attributable to an increase in revenue)), except to the
extent satisfied prior to the Closing, in each of clauses (A) and (B) not
including any liabilities or obligations payable or otherwise owed to the
Seller or any of its Affiliates (collectively, "Intercompany Payables");
(ii) all liabilities and obligations of the Seller arising after the
Closing under the Assigned Contracts and the Leases included in the
Designated Contracts, except as provided in Section 1.5; provided, however
that the Buyer shall not assume, and does not hereby agree to pay, perform
or discharge, any liabilities or obligations relating in any manner to or
arising from any breach or default of the Seller of any Assigned Contract
occurring on or prior to the Closing Date (as defined in Section 1.4(a))
regardless of whether the Seller discloses such breach or default pursuant
to this Agreement;
(iii) all liabilities and obligations in respect of ownership or
operation of the Business or the Acquired Assets arising or incurred by the
Buyer from and after the Closing;
(iv) all liabilities and obligations arising out of the ownership,
leasing or operation of any Leased Facility or other real property from and
after the Closing;
(v) all liabilities and obligations in respect of employees or
employee benefits which are expressly assumed by the Buyer pursuant to
Article VII;
(vi) all liabilities and obligations for any Taxes relating to the
Business for periods beginning after the Closing Date (other than Taxes
imposed on the Seller's income); and
(vii) all liabilities and obligations arising out of or relating to a
Deferred Items (as defined in Section 1.5) under Section 1.5 to the extent
that the Buyer receives the benefits under such Deferred Item pursuant to
Section 1.5.
(d) Except for the Assumed Liabilities, the Buyer shall not assume or be
liable for, and does not undertake to attempt to, assume or discharge, any
payment obligation, performance obligation, contingency or liability, whether
fixed, contingent, liquidated, unliquidated, matured, unmatured, asserted or
unasserted,
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of the Seller whether or not relating to the Business and operation thereof on
or prior to the Closing Date including, without limitation, obligations of the
Seller with respect to Taxes for periods ending prior to the Closing Date, any
Taxes imposed on the Seller's income and the conduct of the Business prior to
the Closing, liabilities and obligations in respect of employees and employee
benefits not expressly assumed by the Buyer pursuant to Article VII, any
Intercompany Payables, and any liabilities arising from or relating to the
failure of the Seller to maintain adequate licenses with respect to third party
software and/or technology notwithstanding any disclosure with respect thereto
set forth in Section 2.10(b) of the Disclosure Schedule (as defined in Article
II) or elsewhere therein (collectively, the "Excluded Liabilities"), which
obligations and liabilities shall remain the sole responsibility of the Seller
and the Seller shall indemnify and hold harmless the Buyer therefor.
1.2 Purchase Price.
(a) In consideration for the sale and transfer of the Acquired Assets, the
Buyer shall at the Closing assume the Assumed Liabilities as provided in Section
1.1(c) and shall pay to the Seller at Closing $7,100,000 (such amount, as the
same may hereafter be adjusted, the "Purchase Price"), (i) $2,850,000 of which
shall be paid in cash in immediately available funds (such amount, as the same
may hereafter be adjusted, the "Cash Portion"), subject to adjustment as set
forth in Section 4.8 and in Schedule 1.5(a) hereto, and (ii) the balance (the
"Balance") of which shall be paid by delivery of a Note Agreement substantially
in the form attached hereto as Exhibit A (the "Note") and a Common Stock
Purchase Warrant substantially in the form attached hereto as Exhibit B (the
"Warrant"); provided, however, in the event that not less than four Business
Days (as defined in Section 1.4(a)) prior to the Closing Date the Buyer delivers
written notice to the Seller that upon delivery of the Note as of the Closing
Date the Buyer would be in default or breach of one or more provisions thereof
(which notice shall specify such provisions), at the option of the Seller
(exercisable by delivery to the Buyer of written notice thereof not less than
two Business Days prior to the Closing Date), at the Closing the Seller shall
either (y) accept payment of the Balance by delivery of the Note and Warrant and
deliver to the Buyer concurrently therewith a waiver (on behalf of the Seller
and its successors and assigns) of any and all such defaults and breaches, any
other defaults and breaches of which the Seller had knowledge and any defaults
or breaches under this Agreement with respect thereto (including, without
limitation, any breach by the Buyer of any of its representations or warranties
contained in this Agreement), and a release of any claims with respect thereto
or arising therefrom (the "Waiver and Release") or (z) in lieu of delivery of
the Note and the Warrant, accept payment of the Balance in cash in immediately
available funds of $4,250,000. In the event that the Seller fails to deliver
timely such written notice, the Seller shall have been deemed to have elected to
accept payment of the Balance pursuant to clause (z) above.
(b) The Purchase Price shall be adjusted at Closing as follows:
(i) if Estimated Working Capital (as hereinafter defined) exceeds
$50,000, the Cash Portion of the Purchase Price shall be increased by such
excess; or
(ii) if Estimated Working Capital is less than ($50,000) (that is,
negative $50,000), the Cash Portion of the Purchase Price shall be
decreased by such shortfall.
For purposes hereof, "Estimated Working Capital" shall mean an amount,
calculated by the Seller in good faith as at the Closing Date, equal to (A)
the sum of Specified Accounts Receivable (as hereinafter defined),
inventory, prepaid expenses and deposits (whether short or long-term), less
(B) the sum of accounts payable, deferred revenue, Pre-Closing Employee
Liabilities (as defined in Section 7.3) to the extent includable herein
pursuant to Section 7.3, and accrued expenses (not including Taxes or
expenses with respect to the Assumed Vacation Time (as defined in Section
7.6)). For purposes hereof, "Specified Accounts Receivable" means (1) the
accounts receivable set forth on the statement of net assets of the
Business as of September 30, 2003 included in Section 2.4 of the Disclosure
Schedule (other than the accounts receivable identified as "Excluded
Accounts Receivable" in Schedule 1.1(b)(ii) hereto) and (2) any accounts
receivable arising after such date and before the Closing Date in the
ordinary course of business consistent with past practice.
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(c) (i) Within 45 days after the Closing Date, the Seller shall prepare a
statement of net assets as of the Closing Date (the "Closing Date Balance
Sheet") from the books, records and accounts of the Seller based on the closing
statement of net assets used to calculate the Estimated Working Capital at the
Closing together with a statement (the "Working Capital Statement") setting
forth the Seller's calculation of actual working capital as of the Closing Date
("Proposed Final Working Capital") determined on the same basis used to
determine Estimated Working Capital. If the Buyer does not agree with the
calculation of the Proposed Final Working Capital, the Buyer shall notify the
Seller in writing (such notice, the "Dispute Notice") of its objection within 30
days (as defined in Section 1.4(a)) after its receipt of the Working Capital
Statement, which Dispute Notice shall set forth in reasonable detail the basis
for its objection. If the fails to deliver a Dispute Notice within such 30 day
period, then the Proposed Working Capital shall become the final Working Capital
(the "Final Working Capital") for all purposes of this Agreement. If the Buyer
delivers a Dispute Notice within such 30 day period, each of the Buyer and the
Seller shall negotiate in good faith a resolution of the dispute set forth in
the Dispute Notice and if the parties are not able to reach agreement as to an
appropriate Final Working Capital within 10 Business Days of delivery of the
Dispute Notice, then the Buyer and the Seller shall, within 10 Business Days
thereof, mutually agree on and appoint an independent public accounting firm
(the "Independent Auditor") to review the Working Capital Statement and the
Dispute Notice (and all related information) and determine the Final Working
Capital. Each of the Buyer and the Seller shall provide the Independent Auditor
promptly upon request therefrom with such information and documentation as the
Independent Auditor may find necessary or appropriate to determine the Final
Working Capital. The Independent Auditor shall be requested to determine the
Final Working Capital within 90 days of the Closing Date, and such determination
shall be final and binding as to all parties hereto. The costs of the
Independent Auditor shall be borne by the party whose determination of working
capital as of the Closing Date was farthest from the Independent Auditor's
determination of the Final Working Capital, or equally by the Buyer and the
Seller if the determination by the Independent Auditor is equidistant from the
determinations of the parties.
(ii) Within five Business Days after the determination of the Final Working
Capital in accordance with clause (i) above, a payment, if any, to adjust the
Purchase Price shall be made by the Buyer or the Seller, as the case may be,
consistent with Section 1.2(b)(i), (ii) and (iii).
1.3 Allocation. The Purchase Price shall be allocated among the Acquired
Assets in accordance with Schedule 1.3 hereto. In the event that the Purchase
Price is adjusted as set forth Section 1.2, such allocation shall be
appropriately adjusted in proportion thereto. The Buyer and the Seller shall
each report in their respective federal, state and local income tax returns for
the taxable year that includes the Closing Date (as defined in Section 1.4) the
federal, state and local income and other Tax consequences of the transactions
contemplated by this Agreement in a manner consistent with such allocation,
including without limitation the preparation and filing of Form 8594 under
Section 1060 of the Internal Revenue Code of 1986, as amended (the "Code"), or
any successor form or successor provision of any future Tax law, and neither the
Buyer nor the Seller shall take any position inconsistent with such allocation
unless otherwise required by applicable law.
1.4 The Closing.
(a) The closing of the transactions contemplated by this Agreement (the
"Closing") shall take place (i) at the offices of Hale and Dorr LLP in New York,
New York, on the fifth Business Day immediately following the date on which all
of the conditions set forth in Article V have been satisfied or waived or (ii)
such other time, date or place as the Buyer and the Seller may agree (the
"Closing Date"). For purposes of this Agreement, a "Business Day" shall be any
day other than (i) a Saturday or Sunday or (ii) a day on which banking
institutions located in New York, New York are permitted or required by law,
executive order or governmental decree to remain closed.
(b) At the Closing:
(i) the Seller shall deliver (or cause to be delivered) to the Buyer
the various certificates, instruments and documents required to be
delivered under Section 5.1;
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(ii) the Buyer shall deliver (or cause to be delivered) to the Seller
the various certificates, instruments and documents required to be
delivered under Section 5.2;
(iii) the Seller shall execute and deliver a Bill of Sale in form and
substance reasonably satisfactory to the Buyer and the Seller;
(iv) the Seller shall execute and deliver a Trademark Assignment in
form and substance reasonably satisfactory to the Buyer and the Seller;
(v) the Seller shall execute and deliver a Copyright Assignment in
form and substance reasonably satisfactory to the Buyer and the Seller;
(vi) the Seller shall execute and deliver a Patent Assignment in form
and substance reasonably satisfactory to the Buyer and the Seller;
(vii) the Seller shall execute and deliver a Domain Name Assignment
and Transfer Agreement in form and substance reasonably satisfactory to the
Buyer and the Seller;
(viii) the Seller and the Buyer shall execute and deliver such other
instruments of conveyance as the Buyer may reasonably request in order to
effect the sale, transfer, conveyance and assignment to the Buyer of valid
ownership of the Acquired Assets;
(ix) the Buyer shall execute and deliver to the Seller an Assumption
Agreement;
(x) the Buyer and the Seller shall execute and deliver such other
instruments as the Seller may reasonably request in order to effect the
assumption by the Buyer of the Assumed Liabilities;
(xi) the Seller shall, if applicable, deliver the Waiver and Release;
(xii) the Seller shall execute and deliver to the Buyer a certificate
setting forth the Estimated Working Capital, including the basis therefor
and a certification that such Estimated Working Capital was prepared in
good faith by the Seller based on the books, records and accounts of the
Seller maintained in the ordinary course of business;
(xiii) the Seller shall transfer to the Buyer all the books, records,
files and other data (or copies thereof) within the possession or control
of the Seller relating to the Acquired Assets and reasonably necessary for
the continued operation of the Business by the Buyer;
(xiv) the Buyer shall (A) pay in cash by wire transfer of immediately
available funds to the Seller the Cash Portion, and (B) pay the Balance in
accordance with Section 1.2(a);
(xv) the Seller shall deliver to the Buyer, or otherwise put the Buyer
in possession and control of, all of the Acquired Assets of a tangible
nature owned by the Seller; and
(xvi) the Parties shall execute and deliver to each other a
cross-receipt evidencing the transactions referred to above.
The agreements and instruments referred to in clauses (iii) through (xii)
above, together with any other documents or instruments executed and
delivered pursuant hereto, are referred to herein as the "Ancillary
Agreements."
1.5 Consents to Assignment. Anything in this Agreement to the contrary
notwithstanding but subject to the proviso below, this Agreement shall not
constitute an agreement to assign or transfer any contract, lease,
authorization, license or permit, or any claim, right or benefit arising
thereunder or resulting therefrom, if an attempted assignment or transfer
thereof, without the consent of a third party thereto or of the issuing
Governmental Entity, as the case may be, would constitute a breach thereof. If
such consent (a "Deferred Consent") is not obtained, or if an attempted
assignment or transfer thereof would be ineffective or would affect the rights
thereunder so that the Buyer would not receive all such rights, then, in each
such case, (a) the contract, lease, authorization, license or permit to which
such Deferred Consent relates (a "Deferred Item") shall be withheld from sale
pursuant to this Agreement without any reduction in the Purchase Price, (b) from
and after the Closing, the Seller and the Buyer will
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cooperate, in all reasonable respects, to obtain such Deferred Consent as soon
as practicable after the Closing, provided that the Seller shall not be required
to make any material payments or agree to any material undertakings in
connection therewith, and (c) until such Deferred Consent is obtained, the
Seller and the Buyer will cooperate, in all reasonable respects, to provide to
the Buyer the benefits under the Deferred Item to which such Deferred Consent
relates (with the Buyer entitled to all the gains and responsible for all the
losses, Taxes, liabilities and/or obligations thereunder).
In particular, in the event that any such Deferred Consent is not obtained
prior to the Closing, then the Buyer and the Seller shall enter into such
arrangements (including subleasing or subcontracting if permitted) to provide to
the Parties to the extent reasonably practicable the economic and operational
equivalent of obtaining such Deferred Consent and assigning or transferring such
contract, lease, authorization, license or permit, including enforcement for the
benefit of the Buyer of all claims or rights arising thereunder, and the
performance by the Buyer of the obligations thereunder on a prompt and punctual
basis. Notwithstanding anything herein to the contrary, the assignment or
transfer of the leases and other contracts set forth on Schedule 1.5(a) and
Schedule 1.5(b) hereto, to the extent provided therein, shall be a condition to
the Buyer's obligation to consummate the Closing.
1.6 Further Assurances. At any time and from time to time after the
Closing Date, as and when requested by any Party hereto and at such Party's
expense, the other Party or Parties shall promptly execute and deliver, or cause
to be executed and delivered, all such documents, instruments and certificates
and shall take, or cause to be taken, all such further or other actions as are
necessary to evidence and effectuate the transactions contemplated by this
Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Buyer as follows, except as set
forth in the Disclosure Schedule provided by the Seller to the Buyer on the date
hereof (the "Disclosure Schedule"). The Disclosure Schedule shall be arranged in
sections and subsections corresponding to the numbered and lettered sections and
subsections contained in this Article II. The disclosures in any section or
subsection of the Disclosure Schedule shall qualify other sections and
subsections in this Article II to the extent it is reasonably clear from a
reading of the disclosure that such disclosure is applicable to such other
sections and subsections. The inclusion of any information in the Disclosure
Schedule (or any update thereto) shall not be deemed to be an admission or
acknowledgment, in and of itself, that such information is required by the terms
hereof to be disclosed, is material to the Business, has resulted in or would
result in a Business Material Adverse Effect (as defined in Section 2.1), or is
outside the ordinary course of business. For purposes of this Article II, the
phrase "to the knowledge of the Seller" shall mean and be limited to the
knowledge of the Seller's executive officers after due inquiry. To the extent
anything contained in the Disclosure Schedule conflicts with this paragraph,
this paragraph shall prevail.
2.1 Organization, Qualification and Corporate Power. The Seller is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and is duly qualified to conduct business under the
laws of each jurisdiction where the character of the properties owned, leased or
operated by it or the nature of its activities makes such qualification
necessary, except for any such failure to be qualified that would not reasonably
be expected to result in a Business Material Adverse Effect (as defined below).
The Seller has all requisite corporate power and authority to carry on the
business in which it is now engaged and to own, lease and use the properties now
owned, leased and used by it. For purposes of this Agreement, "Business Material
Adverse Effect" means any change, effect or circumstance that, individually or
in the aggregate, (i) is materially adverse to the business, financial or other
condition, results of operations or prospects of the Business as a whole (other
than changes, effects or circumstances that are the result of economic factors
affecting the economy as a whole or that are the result of factors generally
affecting the industry in which the Business competes), or (ii) impairs or
delays in any material respect the ability of the Seller to consummate the
transactions contemplated by this Agreement or the Ancillary Agreements;
provided, however, that a "Business Material Adverse Effect" shall not include
any
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adverse change, effect or circumstance (a) arising out of or resulting primarily
from actions contemplated by the Parties in connection with this Agreement, or
(b) that is attributable to the announcement or performance of this Agreement or
the transactions contemplated by this Agreement.
2.2 Authority. The Seller has all requisite corporate power and authority
to execute and deliver this Agreement and the Ancillary Agreements to which it
will be a party and to perform its obligations hereunder and thereunder. The
execution and delivery by the Seller of this Agreement and such Ancillary
Agreements and, subject to the approval of the sale of the Acquired Assets by
the Seller to the Buyer as contemplated by this Agreement by a majority of the
votes represented by the outstanding shares of capital stock of the Seller
entitled to vote thereon (the "Requisite Seller Stockholder Approval"), the
consummation by the Seller of the transactions contemplated hereby and thereby
have been validly authorized by all necessary corporate action on the part of
the Seller. This Agreement has been, and such Ancillary Agreements will be,
validly executed and delivered by the Seller and, assuming this Agreement and
each such Ancillary Agreement constitute the valid and binding obligation of the
Buyer, constitutes or will constitute a valid and binding obligation of the
Seller, enforceable against the Seller in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium or other similar laws relating to or affecting the
rights of creditors generally and by equitable principles, including those
limiting the availability of specific performance, injunctive relief and other
equitable remedies and those providing for equitable defenses.
2.3 Noncontravention. Neither the execution and delivery by the Seller of
this Agreement or the Ancillary Agreements to which the Seller will be a party,
nor the consummation by the Seller of the transactions contemplated hereby or
thereby, will:
(a) conflict with or violate any provision of the charter or bylaws of
the Seller;
(b) require on the part of the Seller any filing with, or any permit,
authorization, consent or approval of, any third party or Governmental
Entity, except for (i) the Requisite Seller Stockholder Approval and (ii)
the consents set forth in Sections 2.9(b) and 2.11(c) of the Disclosure
Schedule;
(c) conflict with, result in a breach of, constitute (with or without
due notice or lapse of time or both) a default under, result in the
acceleration of obligations under, create in any party the right to
terminate or modify, or require any notice, consent or waiver under, any
contract, lease, sublease, license, sublicense, franchise, permit,
indenture, agreement or mortgage, instrument of indebtedness or Security
Interest to which the Seller is a party or by which the Seller is bound or
to which its assets are subject, except for (i) the consents required under
the Designated Contracts set forth in Section 2.11(c) of the Disclosure
Schedule, (ii) any conflict, breach, default, acceleration or right to
terminate or modify in any contract, lease, sublease, license, sublicense,
franchise, permit, indenture, agreement or mortgage, instrument of
indebtedness or Security Interest (other than the Designated Contracts)
that would not reasonably be expected to result in a Business Material
Adverse Effect or (iii) any notice, consent or waiver (other than the
consents required under the Designated Contracts set forth in Section
2.11(c) of the Disclosure Schedule) the absence of which would not
reasonably be expected to result in a Business Material Adverse Effect; or
(d) violate any (i) judgment, order, writ, stipulation, injunction,
decree or (ii) statute, rule or regulation applicable to the Seller or any
of its properties or assets, except, in the case of clause (ii) above, for
any violation that would not reasonably be expected to result in a Business
Material Adverse Effect.
For purposes of this Agreement, "Security Interest" means any
mortgage, pledge, security interest, encumbrance, charge or other lien
(whether arising by contract or by operation of law), other than (i) liens
arising solely by action of the Buyer, and (ii) liens on tangible personal
property which do not, individually or in the aggregate, materially impair
the use or value of the Acquired Assets.
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2.4 Financial Statements.
(a) Section 2.4 of the Disclosure Schedule includes copies of the unaudited
(a) statement of EBITDA (Earnings Before Interest, Taxes, Depreciation and
Amortization) of the Business for the 12-month period ended December 31, 2002,
and for the six-month period ended June 30, 2003 and (b) statement of net assets
of the Business as of December 31, 2002, and as of June 30, 2003 (the "Interim
Balance Sheet"). The financial statements referred to in clauses (a) and (b)
above are herein referred to collectively as the "Financial Statements." The
Financial Statements have been prepared in accordance with generally accepted
accounting principles consistently applied ("GAAP") and the methodologies
described in the footnotes thereto and fairly present, in all material respects,
the financial condition and combined results of operations of the Business as of
the respective dates thereof and for the periods referred to therein in
accordance with such methodologies; provided, however, that the foregoing
statements of net assets do not include footnotes required by GAAP, and the
interim statement of net assets is subject to year-end adjustments and the
Financial Statements do not include allocation of corporate expenses.
(b) Section 2.4 of the Disclosure Schedule includes copies of (i) the
unaudited statement of EBITDA (Earnings Before Interest, Taxes, Depreciation and
Amortization) of the Business for the three-month period ended September 30,
2003 and (ii) statement of net assets of the Business as of September 30, 2003.
Such financial statements are good faith estimates of the Seller, subject to the
Seller's ordinary period-end closing procedures; provided that nothing has come
to the attention of the Seller to indicate that any such estimates are
inaccurate as of the respective date thereof or for the period referred to
therein.
2.5 Absence of Certain Changes. Since June 30, 2003, there have not been
any changes in the financial condition, results of operations or prospects of
the Business, except for any changes that would not reasonably be expected to
result in a Business Material Adverse Effect. Except as set forth in Section 2.5
of the Disclosure Schedule, since June 30, 2003, the Seller has not taken any of
the following actions (or permitted any of the following events to occur) with
respect to the Business:
(a) sold, assigned or transferred (i) any portion of the Acquired
Assets consisting of tangible personal property in a single transaction or
series of related transactions in an amount in excess of $5,000 except in
the ordinary course of business or (ii) any other portion of the Acquired
Assets;
(b) granted or amended any rights to severance benefits, "stay pay" or
termination pay to any director, officer or other employee of the Business
or increased benefits payable or potentially payable to any such director,
officer or other employee of the Business under any previously existing
severance benefits, "stay-pay" or termination pay arrangements, in each
case (i) except as required by law and (ii) except for obligations that
will not constitute an Assumed Liability;
(c) made any capital expenditures or commitments therefor in an amount
in excess of $5,000 other than in accordance with the Business' capital
budget included in Schedule 4.2(d) hereto;
(d) acquired any operating business, whether by merger, stock purchase
or asset purchase, except for any such business which did not become part
of the Business;
(e) incurred or guaranteed any indebtedness for borrowed money;
(f) entered into any employment, compensation or deferred compensation
agreement (or any amendment to any such existing agreement) with any
officer or other employee of the Business whose annual compensation exceeds
$50,000 or otherwise outside of the ordinary course of business or not
consistent with past practice;
(g) materially amended the terms of any existing Business Benefit Plan
(as defined in Section 2.15(a)), except as required by law;
(h) materially changed its accounting principles, methods or
practices, except in each case to conform to changes in GAAP;
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(i) failed to pay or perform any liabilities or obligations which
would reasonably be expected to result in a Business Material Adverse
Effect;
(j) engaged in any loans or borrowings or payments, dividends or
transfers of assets with any officers, directors, employees or other
affiliates; or
(k) entered into any agreement or commitment with respect to any of
the matters referred to in clauses (a) through (j) of this Section 2.5.
2.6 Undisclosed Liabilities. The Business does not have any liability of
a nature which is material to the Business, except for (i) liabilities shown on
the Interim Balance Sheet, (ii) liabilities which have arisen since June 30,
2003 in the ordinary course of business consistent with past practice (and which
are similar in nature and amount to the liabilities which arose during the
comparable period of time in the immediately preceding fiscal period (taking
into account any corresponding increase in expenses that are attributable to an
increase in revenue)), (iii) liabilities set forth in Section 2.6(a) of the
Disclosure Schedule and (iv) the Excluded Liabilities.
2.7 Tax Matters. The Seller has filed or had filed on its behalf all Tax
Returns (as defined below) that it was required to file (separately or as part
of a consolidated, combined or unitary group) and all such Tax Returns were
correct and complete to the extent they relate to the Business, except for any
error or omission that would not reasonably be expected to result in a Business
Material Adverse Effect. The Seller has paid (or had paid on its behalf) all
Taxes that are shown to be due and payable on any such Tax Returns to the extent
they relate to the Business. All Taxes, to the extent they relate to the
Business, that the Seller is or was required by law to withhold or collect have
been duly withheld or collected and, to the extent required, have been paid to
the proper Governmental Entity, except for any such Taxes with respect to which
the failure to withhold, collect or pay would not reasonably be expected to
result in a Business Material Adverse Effect. The Seller is not a foreign person
within the meaning of Section 1445 of the Code. For purposes of this Agreement,
"Taxes" means (i) all taxes, including without limitation income, gross
receipts, ad valorem, value-added, excise, real property, personal property,
sales, use, transfer, withholding, employment, social security charges and
franchise taxes imposed by the United States of America or any state, local or
foreign government, or any agency thereof, or other political subdivision of the
United States or any such government, (ii) any interest, penalties, assessments
or additions to tax resulting from, attributable to or incurred in connection
with any tax or any contest or dispute thereof and (iii) any transferee
liability in respect of any items described in clauses (i) and/or (ii) above.
For purposes of this Agreement, "Tax Returns" means all reports, returns,
declarations, statements, forms or other information required to be supplied to
a governmental authority responsible for the imposition of Taxes in connection
with Taxes.
2.8 Title to Assets; Condition of Tangible Property. The Seller is the
sole owner of the Acquired Assets and has good title to, a valid leasehold
interest in or a valid license or right to use, all of the Acquired Assets, free
and clear of all Security Interests. The tangible Acquired Assets are in good
condition and repair, subject to normal wear and tear, and are suitable to
conduct the Business substantially in the same manner in which the Business has
been conducted prior to the date hereof. All of the tangible assets of the
Business are located in Carlsbad, California, Irvine, California or Atlanta,
Georgia.
2.9 Real Property.
(a) The Seller does not own any real property, and the Business has never
been located in or operated on any real property owned by the Seller or any
Affiliate of the Seller.
(b) Section 2.9(b) of the Disclosure Schedule lists all real property
included in the Acquired Assets (the "Leased Real Property") and each lease and
sublease in effect with respect thereto (each, a "Lease"). Section 2.9(b) of the
Disclosure Schedule lists each Lease that cannot be assigned on
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transferred by the Seller without the prior written consent of the other party
thereto. The Seller has made available to the Buyer true, complete and accurate
copies of each Lease. With respect to each such Lease:
(i) the Lease is a valid and binding obligation of the Seller and, to
the knowledge of the Seller, each other party to such Lease, enforceable
and in full force and effect;
(ii) except as set forth in Section 2.9(b)(ii) of the Disclosure
Schedule, neither the Seller nor, to the knowledge of the Seller, any other
party to the Lease is in breach or default and no event has occurred which,
with notice or lapse of time or both, would constitute a breach or default
or permit termination, modification or acceleration thereunder, and no
claim has been made by any other party to such Lease alleging that the
Seller is in breach of default thereunder;
(iii) the Seller has not assigned, transferred, conveyed, mortgaged,
deeded in trust or encumbered any interest in the leasehold or subleasehold
of such Lease; and
(iv) the Seller has no knowledge of any Security Interest, easement,
covenant or other restriction applicable to the Leased Real Property
subject to such Lease, except for recorded easements, covenants and other
restrictions which do not materially impair the current uses or the
occupancy of the Seller of such Leased Real Property.
2.10 Intellectual Property.
(a) The Seller has disclosed accurately and completely to the Buyer all
Intellectual Property that is used exclusively or primarily in the Business
("Seller's IP"). The Seller is the sole and exclusive owner of all right, title
and interest in and to Seller's IP (with no breaks in the chain of title
thereof), except as set forth in Section 2.10(a) of the Disclosure Schedule,
free and clear of any security interest, lien, pledge, option, charge or
encumbrance of any kind whatsoever. The Seller's rights in Seller's IP are in
full force and effect. Seller's IP has not been used or enforced or failed to be
used or enforced in a manner that would result in the abandonment, cancellation
or unenforceability of any of the Seller's rights in and to Seller's IP. In the
event that the Seller is using any material Intellectual Property in the
Business under license (the "Licensed IP"), the Seller has disclosed such
license(s) to the Buyer, and the Seller is authorized to use the Licensed IP
under license and is in compliance with the terms of any such license
agreements(s).
(b) Except as set forth in Section 2.10(b) of the Disclosure Schedule, the
Seller has not transferred all or any portion of its ownership interest in, or
granted any exclusive license with respect to, any of Seller's IP, to any third
party.
(c) With respect to each item of Seller's IP, except as set forth in
Section 2.10(c) of the Disclosure Schedule, any necessary registration,
maintenance and renewal fees in connection therewith have been paid and any
necessary documents and certificates in connection therewith have been filed
with the relevant patent, trademark or copyright authorities or any other
appropriate registrar, including, without limitation, any domain name registrar,
in the United States or abroad for the purposes of securing or maintaining
rights in such Intellectual Property.
(d) Except as set forth in Section 2.10(d) of the Disclosure Schedule, to
the extent that any of Seller's IP has been developed or created by a third
party for the Seller, the Seller has a written agreement with such third party
with respect thereto and the Seller thereby has obtained ownership of, and is
the exclusive owner of, or has a valid license to use, all Intellectual Property
in such work, material or invention by operation of law or by valid assignment
or by agreement, as the case may be.
(e) Section 2.10(e) of the Disclosure Schedule lists all material
contracts, licenses, agreements and other instruments, to which the Seller is a
party or which otherwise govern the Seller's actions with respect to Seller's IP
(collectively, the "IP Documents"). The IP Documents are in full force and
effect. The consummation of the transactions contemplated by this Agreement will
not violate or result in the breach, modification, cancellation, termination, or
suspension of the IP Documents and will not cause the forfeiture or termination
or give rise to a right of forfeiture or termination of any rights of the Seller
to any of its Intellectual Property. The Seller is in material compliance with,
and has not materially breached any
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term of any IP Document and, to the best knowledge of the Seller, all other
parties to the IP Documents are in compliance with, and have not breached any
term of, such IP Documents.
(f) Except as set forth on Section 2.10(f) of the Disclosure Schedule, the
Seller is not under obligation to pay any royalty or other compensation to any
third party or to obtain any approval or consent for the use of any Seller's IP
used in or necessary for its business as it is currently conducted or as
currently contemplated to be conducted.
(g) Except as set forth in Section 2.10(g) of the Disclosure Schedule, (i)
the Seller has not received any written notice or claim challenging the Seller's
ownership or rights in Seller's IP or claiming that any other person or entity
has any legal or beneficial ownership or other rights with respect thereto, and
the Seller is not aware of any valid basis for such claim; (ii) to the best
knowledge of the Seller, no third party is infringing, misappropriating or
otherwise violating any material right of the Seller with respect to Seller's
IP; and (iii) no Seller's IP has been refused registration or is the subject of
any inter-parties proceedings.
(h) The Seller has all right, title and interest in and to all of its
client information and related client or user data, and all proprietary
databases and data collections (collectively, "Proprietary Information"). Any
use or transfer of the Proprietary Information as contemplated under this
Agreement will not violate the rights of any third party or result in the breach
of any agreement to which the Seller is a party or which otherwise governs the
Seller's actions with respect thereto.
(i) The Seller has taken and will continue to take all reasonable and
practicable measures designed to protect its rights in its confidential
information and trade secrets or any confidential information or trade secrets
of third parties provided to the Seller. Neither the Seller nor any of its
employees or agents has permitted any such confidential information or trade
secrets to be used, divulged or appropriated for the benefit of persons to the
material detriment of the Seller of the Business.
2.11 Contracts.
(a) Section 2.11(a) of the Disclosure Schedule lists all of the contracts
or agreements, whether written or oral, to which the Seller is a party or by
which it is bound as of the date of this Agreement that relate exclusively or
primarily to the Business (excluding Leases, which are set forth in Section
2.9(b) of the Disclosure Schedule, and any contracts or agreements relating to
Excluded Assets), including, without limitation:
(i) any agreement (or group of related agreements with the same party
or affiliate thereof) for the lease of personal property from or to third
parties providing for lease payments the remaining unpaid balance of which
is in excess of $5,000;
(ii) any agreement (or group of related agreements with the same party
or affiliate thereof) for the purchase of products or services under which
the undelivered balance of such products and services is in excess of
$10,000;
(iii) any agreement (or group of related agreements with the same
party or affiliate thereof) which involves or could involve a payment to
the Seller in excess of $10,000, either pursuant to a contract with a
customer or client of the Business or pursuant to any other contract or
agreement for the sale of goods and services outside of the ordinary course
of business;
(iv) any agreement for the acquisition by the Seller of any operating
business, whether by merger, stock purchase or asset purchase, except for
any such business which did not or will not become part of the Business;
(v) any agreement establishing a partnership or joint venture;
(vi) any agreement (or group of related agreements with the same party
or affiliate thereof) under which it has created, incurred, assumed or
guaranteed (or may create, incur, assume or guarantee) indebtedness the
outstanding balance of which is more than $5,000 or under which it has
imposed a Security Interest on any of the Acquired Assets;
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(vii) any agreement that prohibits or restricts the Business from
freely engaging in business anywhere in the world;
(viii) any agreement, employment or otherwise, involving the Seller's
executive officers, directors or employees relating to the Business;
(ix) any agreement, including any termination agreement, committing to
pay severance, "stay pay" or other similar benefits to any officer or other
employee of the Business; and
(x) any agreement with any college, university, educational
institution or organization affiliated therewith, college conference or
coaches' association (each a "College Entity") or an advertiser not
otherwise disclosed in any of the foregoing.
(b) The Seller has made available to the Buyer a true, complete and
accurate copy of each contract and agreement listed in Section 2.11(a) of the
Disclosure Schedule (the "Designated Contracts"). Each Designated Contract is a
valid and binding obligation of the Seller and, to the knowledge of the Seller,
of each other party thereto, in full force and effect. Neither the Seller nor,
to the knowledge of the Seller, any other party to a Designated Contract is in
breach or default and no event has occurred which, with notice or lapse of time
or both, would constitute a breach or default or permit termination,
modification or acceleration thereunder. No written claim and, to the Seller's
knowledge, no oral claim has been made by any other party to a Designated
Contract alleging that the Seller is in breach or default thereunder. The Seller
has no knowledge that any other party intends to terminate or not renew any
Designated Contract.
(c) Section 2.11(c) of the Disclosure Schedule lists each Designated
Contract that cannot be assigned or transferred by the Seller without the prior
consent of the other party thereto.
2.12 Entire Business. Except for the Excluded Assets, the Acquired Assets
are, when utilized by a labor force substantially similar to that employed by
the Seller in connection with the Business, adequate to conduct the Business in
all material respects as currently conducted by the Seller. Section 2.12 of the
Disclosure Schedule lists any material assets or property (including
Intellectual Property) utilized in the operation of the Business and not
included in the Acquired Assets.
2.13 Litigation. Section 2.13 of the Disclosure Schedule lists each (a)
judgment, order, decree, stipulation or injunction of any Governmental Entity
with respect to this Agreement, the Business or any of the Seller's assets or
properties relating primarily thereto and (b) action, suit, claim, legal,
administrative, arbitratorial or other proceeding or investigation pending or,
the best knowledge of the Seller, threatened by or before any Governmental
Entity relating to (i) this Agreement or the consummation of the transactions
contemplated hereby, (ii) the Business or (iii) any of the Seller's assets or
properties relating to the Business.
2.14 Employment Matters.
(a) Section 2.14(a) of the Disclosure Schedule contains a list of all
employees of the Seller exclusively or primarily engaged in the Business (the
"Business Employees"), along with the position, hire date and the annual rate of
compensation of each such person. Each Business Employee listed in Section
2.14(a) of the Disclosure Schedule has entered into a confidentiality agreement
and a non-competition agreement with the Seller, true, complete and correct
copies of which have previously been delivered to the Buyer. The transaction
contemplated by this Agreement will not trigger any restrictions contained in
any of the non-competition agreements.
(b) None of the Seller's employees, with respect to the Business, is
represented for purposes of collective bargaining by a labor organization. The
Seller is not a party to or bound by any collective bargaining agreement
relating to the Business, nor has the Seller executed any document or instrument
or taken any other action, whether enforceable or unenforceable, with respect
thereto. The Seller, with respect to the Business, has not experienced, since
January 1, 1999, any material strikes, grievances, claims of unfair labor
practices or other collective bargaining disputes.
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2.15 Employee Benefits.
(a) Section 2.15 of the Disclosure Schedule contains a true, complete and
accurate list of all Employee Benefit Plans (as defined below) maintained, or
contributed to, with respect to the Business, by the Seller or any ERISA
Affiliate (as defined below) for the benefit of the Business Employees (and
their beneficiaries) that are material to the Business (the "Business Benefit
Plans"). For purposes of this Agreement, "Employee Benefit Plan" means (i) any
"employee pension benefit plan" (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), other than a
"multiemployer plan" (as defined in Section 4001(a)(3) of ERISA) (a
"Multiemployer Plan"), (ii) any "employee welfare benefit plan" (as defined in
Section 3(1) of ERISA), and (iii) to the extent applicable to more than one
employee, any other written or oral plan, agreement or arrangement involving
compensation, including without limitation insurance coverage, severance
benefits, disability benefits, deferred compensation, bonuses, stock options,
stock purchase, phantom stock, stock appreciation or other forms of incentive
compensation or post-retirement compensation, or fringe benefits, but excluding
any Employee Benefit Plan required to be maintained or contributed to under
foreign law. For purposes of this Agreement, "ERISA Affiliate" means any entity
which is a member of (i) a controlled group of corporations (as defined in
Section 414(b) of the Code), (ii) a group of trades or businesses under common
control (as defined in Section 414(c) of the Code), or (iii) an affiliated
service group (as defined under Section 414(m) of the Code or the regulations
under Section 414(o) of the Code), any of which includes the Seller. True,
complete and accurate copies of all Business Benefit Plans and all material
related trust agreements, insurance contracts and summary plan descriptions have
been made available to the Buyer.
(b) The Business Benefit Plans that are intended to be qualified under
Section 401(a) of the Code have received determination letters from the Internal
Revenue Service to the effect that such Business Benefit Plans are qualified and
the plans and the trusts related thereto are exempt from federal income Taxes
under Sections 401(a) and 501(a), respectively, of the Code or the period for
obtaining such letter has not yet expired.
(c) Neither the Seller nor any ERISA Affiliate, with respect to the
Business, has ever maintained or been required to contribute to any Employee
Benefit Plan subject to Title IV of ERISA or to any Multiemployer Plan.
(d) No act or omission has occurred and no condition exists with respect to
any Business Benefit Plan maintained by the Seller, any of its Affiliates or any
ERISA Affiliate that would subject the Seller or the Buyer to any fine, penalty,
Tax or liability of any kind imposed under ERISA or the Code (other than
liabilities for benefits accrued under Business Benefit Plans for Business
Employees and their beneficiaries).
(e) There are no unfunded obligations under any Business Benefit Plan
providing welfare benefits after termination of employment to any Business
Employee (or to any beneficiary of any such employee), excluding continuation of
health coverage required to be continued under Section 4980B of the Code or
other similar applicable laws.
2.16 Legal Compliance. Except as set forth in Section 2.16 of the
Disclosure Schedule, the Seller (with respect to the Business) is in compliance
in all material respects with all applicable laws (including rules and
regulations thereunder), including, without limitation, health, environmental
and safety, of any federal, state, local or foreign government, or any
Governmental Entity. The Seller has not received written notice of any pending
and, to the knowledge of the Seller, there is no threatened, action, suit,
proceeding, hearing, investigation, claim, demand or notice relating to the
Business alleging any failure to so comply.
2.17 Permits. Section 2.17 of the Disclosure Schedule lists all permits,
licenses, franchises or authorizations from any Governmental Authority relating
to the Business (collectively, the "Permits"). The Permits constitute all of the
permits, licenses, franchises or authorizations from any Governmental Authority
necessary to conduct the Business in all material respects as conducted by the
Seller. Each Permit listed in Section 2.17 of the Disclosure Schedule is in full
force and effect and the Seller is not in violation of or default under any
Permit and no suspension or cancellation of any such Permit has been
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threatened in writing. Section 2.17 of the Disclosure Schedule lists each Permit
that cannot be assigned or transferred by the Seller without the prior consent
of the applicable Governmental Authority.
2.18 Business Relationships with Affiliates. Section 2.18 of the
Disclosure Schedule lists any agreements (written or oral) with respect to the
Business whereby any Affiliate (as hereinafter defined) of the Seller directly
or indirectly (a) owns any property or right, tangible or intangible, which is
used in the Business, (b) has any claim or cause of action with respect to the
Business, or (c) owes any money to, or is owed any money by, the Seller with
respect to or relating to the Business. For purposes of this Agreement,
"Affiliate" shall have the meaning assigned to it in Rule 12b-2 of the
Securities Exchange Act of 1934.
2.19 Brokers' Fees. The Seller does not have any liability or obligation
to pay any fees or commissions to any broker, finder or agent with respect to
the transactions contemplated by this Agreement that would constitute an Assumed
Liability or for which the Buyer could become liable or obligated.
2.20 Insurance. Section 2.20 of the Disclosure Schedule lists each
material insurance policy (including fire, theft, casualty, comprehensive
general liability, workers compensation, business interruption, environmental,
product liability and automobile insurance policies and bond and surety
arrangements) relating to the Business or the Acquired Assets, all of which are
in full force and effect. There is no material claim pending under any such
policy as to which coverage has been questioned, denied or disputed by the
underwriter of such policy and the Seller is otherwise in compliance in all
material respects with the terms of such policies. All such insurance is in full
force and effect, and no notice of cancellation or termination, or reduction of
coverage or intention to cancel, terminate or reduce coverage, has been received
with respect to any policy for such insurance. The insurance coverage provided
by such policies of insurance will not terminate or lapse by reason of the
transactions contemplated by this Agreement and, following the consummation of
the transactions contemplated by this Agreement, the Seller will continue to be
covered under such policies for events occurring on or prior to the Closing
Date.
2.21 Top Producers and Suppliers; Accounts Receivable.
(a) Section 2.21(a) of the Disclosure Schedule lists (i) the Top Producers
(as hereinafter defined) for the period commencing January 1, 2003, and the
amount of revenues accounted for by each Top Producer during such period and
(ii) each supplier that is the sole supplier of any significant product or
service (not otherwise available from third parties on arms' length terms) to
the Business. For purposes hereof, "Top Producers" means those customers,
clients, licensees or others parties, including, without limitation, College
Entities, constituting the 20 highest producers of revenue (whether
merchandising, royalty or annual fees or other fees) reported or reportable by
the Seller in connection with the Business in accordance with GAAP.
(b) All accounts receivable included in the Acquired Assets are bona fide
receivables, represent sales actually made or services actually performed, and
are valid and legally enforceable obligations of the respective debtors, subject
to no counterclaims or setoffs.
2.22 Solvency.
(a) Assuming the Seller's current obligations to Reservoir Capital
Partners, L.P. are fully satisfied at or prior to the Closing, the Seller, in
its reasonable belief, (i) has sufficient capital to carry on its business, (ii)
is able to pay its debts as they mature and (iii) is solvent, and the value of
its property, at fair valuation, is greater than all of its debts. The Seller
has not (1) made a general assignment for the benefit of creditors, (2) filed,
or currently intends to file, any voluntary petition in bankruptcy or suffered
the filing of an involuntary petition by any of the Seller's creditors, (3)
suffered the appointment of a receiver to take possession of all, or any
substantial portion, of the Seller's assets, (4) suffered the attachment or
judicial seizure of all, or any substantial portion, of its assets, (5) admitted
in writing its inability to pay its debts as they come due or (6) made an offer
of settlement, extension or composition to its creditors generally.
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(b) The Purchase Price and other terms and provisions of this Agreement and
the Ancillary Agreements were negotiated at arms' length and are fair,
reasonable and consistent with existing market conditions. Based on the Seller's
knowledge of market conditions and other appropriate and reasonable
considerations, the Seller believes that the terms provided for in this
Agreement and the Ancillary Agreements including the price terms, represent in
their totality the most favorable terms available to the Seller. Further, the
Board of Directors of the Seller has received the written opinion, dated October
12, 2003, of Luminary Capital, its financial advisor, to the effect that the
consideration to be received by the Seller in connection with the transactions
contemplated hereby is fair to the Seller from a financial point of view, a true
and correct copy of which has been delivered to the Buyer. The transactions
contemplated by this Agreement and the Ancillary Agreements are not being
entered into by the Seller with the intention of hindering, delaying or
defrauding any of the Seller's current or future creditors.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Seller as follows:
3.1 Organization. The Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
3.2 Authority. The Buyer has all requisite corporate power and authority
to execute and deliver this Agreement, the Note, the Warrant and the Ancillary
Agreements to which it will be a party and to perform its obligations hereunder
and thereunder. The execution and delivery by the Buyer of this Agreement, the
Note, the Warrant and such Ancillary Agreements and the consummation by the
Buyer of the transactions contemplated hereby and thereby have been validly
authorized by all necessary corporate action on the part of the Buyer. This
Agreement has been, and the Note, the Warrant and such Ancillary Agreements will
be, validly executed and delivered by the Buyer and, assuming this Agreement,
the Note and each such Ancillary Agreement constitute the valid and binding
obligation of the Seller, constitutes or will constitute a valid and binding
obligation of the Buyer, enforceable against the Buyer in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, fraudulent transfer, moratorium or other similar laws relating
to or affecting the rights of creditors generally and by equitable principles,
including those limiting the availability of specific performance, injunctive
relief and other equitable remedies and those providing for equitable defenses.
3.3 Noncontravention. Neither the execution and delivery by the Buyer of
this Agreement, the Note, the Warrant or the Ancillary Agreements to which the
Buyer will be a party, nor the consummation by the Buyer of the transactions
contemplated hereby or thereby, will:
(a) conflict with or violate any provision of the charter or bylaws of
the Buyer;
(b) require on the part of the Buyer any filing with, or any permit,
authorization, consent or approval of, any third party or Governmental
Entity, except for any filing, permit, authorization, consent or approval
which if not obtained or made would not reasonably be expected to result,
individually or in the aggregate, in a material adverse effect on the
ability of the Buyer to consummate the transactions contemplated by this
Agreement (a "Buyer Material Adverse Effect");
(c) conflict with, result in a breach of, constitute (with or without
due notice or lapse of time or both) a default under, result in the
acceleration of obligations under, create in any party any right to
terminate or modify, or require any notice, consent or waiver under, any
contract or agreement to which the Buyer is a party or by which the Buyer
is bound, except for (i) any conflict, breach, default, acceleration or
right to terminate or modify that would not reasonably be expected to
result in a Buyer Material Adverse Effect or (ii) any notice, consent or
waiver the absence of which would not reasonably be expected to result in a
Buyer Material Adverse Effect; or
(d) violate any (i) judgment, order, writ, stipulation, injunction,
decree or (ii) statute, rule or regulation applicable to the Buyer or any
of its properties or assets, except, in the case of clause
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(ii) above, for any violation that would not reasonably be expected to
result in a Buyer Material Adverse Effect.
3.4 Litigation. There are no actions, suits, claims or legal,
administrative or arbitratorial proceedings or investigations pending against,
or, to the Buyer's knowledge, threatened against, the Buyer which would
adversely affect the Buyer's performance under this Agreement or the
consummation of the transactions contemplated by this Agreement.
3.5 Financing. The Buyer has, and at the Closing will have, sufficient
sources of financing in order to consummate the transactions contemplated by the
Agreement and to fulfill its obligations hereunder, including without limitation
payment to the Seller of the Purchase Price at the Closing.
3.6 Due Diligence by the Buyer. The Buyer acknowledges that it has
conducted to its satisfaction an independent investigation of the financial
condition, results of operations, assets, liabilities, properties and projected
operations of the Business and, in making its determination to proceed with the
transactions contemplated by this Agreement, the Buyer has relied solely on the
results of its own independent investigation and on the representations and
warranties of the Seller set forth in Article II and elsewhere in this
Agreement, including the Disclosure Schedule (and any updates thereto) and other
Schedules hereto, in the Ancillary Agreements to which the Seller is a party and
other documents delivered by or on behalf of the Seller in connection herewith
or therewith. Such representations and warranties by the Seller constitute the
sole and exclusive representations and warranties of the Sellers to the Buyer in
connection with the transactions contemplated hereby, and the Buyer acknowledges
and agrees that the Seller is not making any representation or warranty
whatsoever, express or implied, beyond those expressly given in this Agreement,
including the Disclosure Schedule (and any updates thereto) and other Schedules
hereto and in such Ancillary Agreements and other documents delivered by or on
behalf of the Seller in connection herewith or therewith, including any implied
warranty as to condition, merchantability, or suitability as to any of the
assets of the Business, and it is understood that the Buyer takes the Acquired
Assets and the Business as is and where is (subject to the benefit of such
representations and warranties). Notwithstanding anything in the foregoing to
the contrary, nothing herein shall be deemed to be a waiver by the Buyer of the
benefit of any and all of the representations and warranties made by the Seller
in this Agreement or in any Ancillary Agreement.
ARTICLE IV
PRE-CLOSING COVENANTS
4.1 Closing Efforts. Subject to the terms hereof, each of the Parties
shall take all actions and to do all things reasonably necessary or advisable to
consummate the transactions contemplated by this Agreement, including to: (i)
obtain all waivers, permits, consents, approvals or other authorizations from
Governmental Entities and other third parties including, without limitation, any
required consents of each party to an Assigned Contract (the "Third Party
Consents"); provided that the Seller hereby acknowledges and agrees that it has
the sole obligation to take all actions and do all things reasonably necessary
or advisable to obtain the Third Party Consents to the assignment of the
Assigned Contracts, provided further that the failure to take all such actions
with respect to any Assigned Contract other than those set forth in Schedule
1.5(a) and Schedule 1.5(b) shall not be deemed to give the Buyer a right to
terminate pursuant to Section 6.1(b), (ii) effect all registrations, filings and
notices with or to Governmental Entities (the "Governmental Filings") and (iii)
otherwise comply in all material respects with all applicable laws and
regulations in connection with the consummation of the transactions contemplated
by this Agreement. Each Party shall bear its own out-of-pocket costs associated
with obtaining such Third Party Consents. Each of the Parties shall promptly
notify each of the other Parties of any fact, condition or event known to it
that would reasonably be expected to prohibit, make unlawful or delay the
consummation of the transactions contemplated by this Agreement.
4.2 Operation of Business. Except as contemplated by this Agreement,
during the period from the date of this Agreement until the Closing Date, the
Seller shall (i) conduct the operations of the Business
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in the ordinary course consistent with past practice, (ii) use commercially
reasonable efforts to preserve the Business intact, (iii) keep available the
services of its employees and preserve its relationships with its customers,
suppliers and others with whom it deals, (iv) maintain its books, accounts and
records, (iv) have in effect and maintain at all times its policies of insurance
as set forth in Section 2.20 of the Disclosure Schedule, and (v) give the Buyer
written notice not less than two Business Days prior to any capital expenditure
or commitment therefor in an amount in excess of $5,000 that does not extend
beyond the Closing Date, unless such capital expenditure or commitment therefor
is provided for in the capital expenditure budget included in Schedule 4.2(d)
hereto. Without limiting the generality of the foregoing, prior to the Closing,
the Seller, with respect to the Business, shall not, without the prior written
consent of the Buyer:
(a) sell, assign or transfer any portion of the Acquired Assets in a
single transaction or series of related transactions in an amount in excess
of $5,000, except for sales, assignments or transfers of obsolete assets
not used or useful in the Business;
(b) incur or guarantee any indebtedness for borrowed money, except in
the ordinary course;
(c) grant any rights to severance benefits, "stay pay" or termination
pay to any Business Employee or increase the compensation or other benefits
payable or potentially payable to any Business Employee under any
previously existing severance benefits, "stay-pay" or termination pay
arrangements, in each case, except for obligations that will not constitute
an Assumed Liability;
(d) make any commitments involving capital expenditures that extend
beyond the Closing Date in an amount in excess of $5,000 in the aggregate,
except in accordance with the Business' capital expenditure budget included
in Schedule 4.2(d) hereto;
(e) acquire any operating business, whether by merger, stock purchase
or asset purchase;
(f) enter into any employment, compensation or deferred compensation
agreement (or any amendment to any such existing agreement) with any
Business Employee unless in accordance with Schedule 4.2(f) hereto;
(g) materially change its accounting principles, methods or practices
insofar as they relate to the Business, except in each case to conform to
changes in GAAP;
(h) enter into any contract or agreement outside the ordinary course
of business consistent with past practice;
(i) without giving the Buyer prior written notice thereof at least two
Business Days prior thereto, enter into any license or other agreement, as
licensor, with any programming network devoted primarily or substantially
to sports programming;
(j) change or introduce any method of management or operations except
in the ordinary course of business consistent with past practice;
(k) adopt a shareholder rights plan or any similar plan or instrument
or take any other action which could have the effect of impairing or
delaying the consummation of the transactions contemplated hereby;
(l) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization of the Seller (other than the transaction contemplated
hereby);
(m) fail to take any steps to prevent the abandonment of any of
Seller's IP; or
(n) agree in writing or otherwise to take any of the foregoing
actions.
4.3 Access.
(a) The Seller shall permit representatives of the Buyer to have access (at
reasonable times, on reasonable prior written notice and in a manner so as not
to interfere with the normal business operations
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of the Business) to the premises, properties, financial and accounting records,
contracts, and other records and documents, of or pertaining to the Business.
Notwithstanding the foregoing, the Seller shall not be obligated (i) to provide
any information, documents or access to any person unless the Buyer is
responsible, pursuant to the terms of the confidentiality letter agreement dated
March 11, 2003 between the Buyer and the Seller (the "Confidentiality
Agreement"), for the use and disclosure of any information obtained by such
person from the Seller, or such person enters into a confidentiality agreement
with the Seller on terms that are substantially the same as those set forth in
the Confidentiality Agreement or (ii) to provide any information, documents or
access that would (A) violate the provisions of any applicable laws or
regulations (including without limitation those relating to security clearance
or export controls) or any confidentiality agreement to which it is a party or
(B) cause the loss of the attorney-client privilege with respect thereto. Prior
to the Closing, the Buyer and its representatives shall not contact or
communicate with the employees, customers and suppliers of the Seller in
connection with the transactions contemplated by this Agreement, except with the
prior written consent of the Seller.
(b) The Buyer and the Seller acknowledge and agree that the Confidentiality
Agreement remains in full force and effect and that information provided by the
Seller or any its Affiliates to the Buyer pursuant to this Agreement prior to
the Closing shall be treated in accordance with the Confidentiality Agreement.
If this Agreement is terminated prior to the Closing, the Confidentiality
Agreement shall remain in full force and effect in accordance with its terms. If
the Closing occurs, the Confidentiality Agreement, insofar as it covers
information relating exclusively or primarily to the Business, shall terminate
effective as of the Closing, but shall remain in effect insofar as it covers
other information disclosed thereunder.
(c) Notwithstanding any provision of this Agreement to the contrary, the
Buyer and its representatives shall not have any access at any time prior to the
Closing to any information regarding pending or proposed bids for new contracts
or subcontracts or any related information where the Buyer or an Affiliate of
the Buyer also has submitted or intends to submit a bid for such contract or
subcontract.
4.4 Exclusivity. The Seller shall not, and shall use its best efforts to
cause its Affiliates and each of their respective officers, directors,
employees, representatives and agents not to, (i) initiate, solicit or encourage
any proposal, offer or discussion with any party (other than the Buyer)
concerning any merger, business combination, sale of stock or sale of assets
(other than sales of assets in the ordinary course of business consistent with
past practice) involving the Business or (ii) except as may be required in the
exercise of its or his fiduciary duties, engage in discussions or negotiations
with any party (other than the Buyer) or its agent or representative concerning
any such transaction.
4.5 Stockholders Meeting; Voting Agreement.
(a) The Seller shall take all actions reasonably necessary in accordance
with applicable law, its certificate of incorporation and by-laws and applicable
stock market regulations to duly call as promptly as practicable after the date
hereof, give notice of, convene and hold a special meeting of its stockholders
for the purpose of considering and voting upon the sale of the Acquired Assets
contemplated by this Agreement (the "Special Meeting"). Without limiting the
generality of the foregoing, the Seller shall prepare and file with the
Securities and Exchange Commission (the "SEC") a proxy statement, together with
a form of proxy, with respect to the Special Meeting and will use its best
efforts to have the proxy statement, together with any amendments thereof or
supplements thereto (collectively, the "Proxy Statement"), cleared by the SEC as
soon as reasonably practicable, if such clearance is required, and cause copies
of such Proxy Statement and form of proxy to be mailed promptly to the
stockholders of the Seller in accordance with the provisions of applicable law.
Such Proxy Statement will comply as to form in all material respects with the
applicable requirements of the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC. The Proxy Statement will include the
recommendation of the Seller's Board of Directors that the stockholders approve
this Agreement and the transactions contemplated hereby, unless such Board of
Directors, in the exercise of its fiduciary duties, shall determine that such
recommendation should not be made. After the delivery to the stockholders of
copies of the Proxy Statement and form of proxy, the Seller will use its best
efforts to solicit proxies in connection with the Special Meeting in favor of
the approval of this Agreement. The Seller will vote all shares of the
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Seller's capital stock owned or controlled by it in favor of the approval of
this Agreement. The Seller will use its best efforts, after consultation with
the Buyer, to respond promptly to all comments and requests of the SEC with
respect to the Proxy Statement and to file all required supplements and
amendments to the Proxy Statement with the SEC and cause them to be mailed to
the stockholders of the Seller at the earliest practicable time. The Buyer
agrees to cooperate with the Seller in the preparation of the Proxy Statement.
(b) Concurrently with the execution and delivery of this Agreement, Raymond
V. Sozzi, Jr. has entered into an agreement with the Buyer in which he has
agreed that at the Special Meeting, or at any other stockholders' meeting,
however called, and in any action by consent of the stockholders of the Seller,
he shall, and shall cause his affiliates that own any capital stock of the
Seller, to vote (i) in favor of the sale of the Acquired Assets to the Buyer as
contemplated by this Agreement and (ii) against any other sale or other business
combination between the Seller and any person or entity or any other action or
agreement that would result in the breach of any covenant, representation or
warranty or any other obligation or agreement of the Seller under this Agreement
or which would result in any of the conditions to the Seller's obligations under
this Agreement not being fulfilled.
(c) Notwithstanding any other provision of this Agreement (including
Sections 4.4, 4.5(a) and 4.5(b)), no shareholder, officer or director of the
Seller shall (i) be prevented from taking any action or (ii) be required to take
any action which would, in either case, be inconsistent with such shareholder's,
officer's or director's fiduciary obligations including, but not limited to, (x)
responding to any proposal or inquiry not obtained as a result of a breach of
Section 4.4 and (y) withholding, withdrawing or modifying any recommendation
with respect to the Agreement.
4.6 Disclosure Schedule; Additional Information.
(a) The Seller shall promptly submit to the Buyer, from time to time (and
in any event not less than once in each 30-day period commencing on the date
hereof) between the date hereof and the Closing Date, written updates to the
Disclosure Schedule disclosing any material events or developments that occurred
or any information learned between the date of this Agreement and the Closing
Date. The Seller's representations and warranties contained in this Agreement
shall be construed for all purposes of this Agreement (including, without
limitation, Section 5.1) in accordance with the Disclosure Schedule, as so
updated; provided that the Buyer shall have the right to terminate this
Agreement as a result of any such update to the Disclosure Schedule to the
extent provided in Section 6.1(c).
(b) The Seller shall deliver to the Buyer a bi-weekly update of estimated
e-commerce sales for the prior two weeks as well as a monthly update of total
estimated revenue for the Business within 15 days of the end of each calendar
month. All such updates shall be prepared from the books, records and accounts
of the Seller maintained in the ordinary course of business consistent with past
practice. Such estimates shall not in themselves constitute representations or
warranties under this Agreement but may be used by the Buyer to establish
whether covenants, representations or warranties under this Agreement have been
breached and whether Closing conditions have been satisfied.
(c) The Seller shall use its best efforts consistent with past practice to
have reduced to writing and executed all oral agreements listed in Schedule
1.1(a)(iv) hereto.
4.7 Elimination of Intercompany Items. Effective as of the Closing, all
payables, receivables, liabilities and other obligations between the Business,
on the one hand, and the Seller and its Affiliates, on the other hand, shall be
eliminated except to the extent expressly provided for herein.
4.8 Customer Contracts. The Seller shall use its best efforts to obtain
the Third Party Consents to the assignment to the Buyer of the Assigned
Contracts specified in Schedule 1.5(b) (the "Required Contracts"), provided that
the Seller shall not be required to make any material payments or agree to any
material undertakings in connection therewith. In the event that the Seller
fails to obtain such Third Party Consents for at least four of the five Required
Contracts, the Purchase Price shall be reduced as set in Schedule 1.5(b). For
purposes of this Section 4.8 only, the term "Consent" shall mean (a) an executed
written consent to assignment from the contracting customer, (b) a contract
executed by the referenced
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customer that by its terms does not require consent to assignment in connection
with this transaction or (c) an oral confirmation from such customer received on
or prior to the Closing Date that such customer intends to execute a written
consent as set forth in clause (a) or (b) above. In the event that any customer
provides consent pursuant to clause (c) above and such customer either fails to
(i) provide such written consent on or before August 1, 2004 or (ii) continue
through December 31, 2004 or the expiration pursuant to its terms of such
customer's Required Contract, if earlier, the relationship with the Buyer on
substantially similar terms as set forth in the applicable Required Contract,
then the Purchase Price shall be reduced by an amount as provided in Schedule
1.5(b) hereto and the Seller shall, within 30 days after the applicable date set
forth in clause (i) or (ii) above, repay to the Buyer an amount equal thereto.
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
5.1 Conditions to Obligations of the Buyer. The obligation of the Buyer
to consummate the transactions to be consummated at the Closing is subject to
the satisfaction (or waiver by the Buyer) of the following conditions:
(a) the sale of the Acquired Assets by the Seller to the Buyer as
contemplated by this Agreement shall have received the Requisite Seller
Stockholder Approval;
(b) the representations and warranties of the Seller set forth in this
Agreement shall be true and correct as of the Closing Date as if made as of
the Closing Date, except (i) for changes contemplated or permitted by this
Agreement, (ii) for those representations and warranties that address
matters only as of a particular date (which shall be true and correct as of
such date, subject to clause (iii) below), and (iii) where the failure of
the representations and warranties to be true and correct would not
reasonably be expected to result, individually or in the aggregate, in a
Business Material Adverse Effect (provided that any representation or
warranty that is qualified by a materiality or Business Material Adverse
Effect qualification shall not be further qualified hereby);
(c) the Seller shall have performed or complied with the agreements
and covenants required to be performed or complied with by it under this
Agreement as of or prior to the Closing, except where the failure to so
perform or comply would not reasonably be expected to result, individually
or in the aggregate, in a Business Material Adverse Effect;
(d) no action, suit or proceeding shall be pending by or before any
Governmental Entity seeking to prevent or challenge the consummation of the
transactions contemplated by this Agreement and no judgment, order, writ,
stipulation, injunction or decree enjoining or preventing the consummation
of the transactions contemplated by this Agreement shall be in effect;
(e) the Seller shall have delivered to the Buyer a certificate to the
effect that each of the conditions specified in clauses (a) through (d)
(insofar as clause (d) relates to an action, suit or proceeding involving,
or a judgment, order, writ, stipulation, injunction or decree against, the
Seller, its assets or properties, or the Business) of this Section 5.1 is
satisfied;
(f) the Seller shall have obtained all Third Party Consents and
effected all Governmental Filings to be obtained or effected by the Seller;
provided, that failure of the Seller to obtain consents to assignment of
any Assigned Contracts (other than the Assigned Contracts set forth on
Schedule 1.5(a) and Schedule 1.5(b) hereto, to the extent provided therein)
shall not be considered a failure to meet this condition;
(g) the Buyer shall have received from Hale and Dorr LLP, legal
counsel to the Seller, a written opinion with respect to good standing,
corporate power and authority, due authorization and no conflict with the
Seller's certificate of incorporation and by-laws, such opinion to be in
form and substance reasonably satisfactory to the Buyer and its counsel;
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(h) Ray V. Sozzi, Jr. shall have executed and delivered a
non-competition agreement with the Seller, which agreement shall be in form
and substance satisfactory to the Buyer and assigned to the Buyer at
Closing with the written consent of Mr. Sozzi;
(i) the Seller shall have provided access to the Buyer pursuant to
current passcodes (in read-only access that will enable the Buyer to
download reports) to all of the data with respect to the Business included
in the "Solomon" accounting system for the period commencing on April 1,
2002 through the most recent available date prior to the Closing Date;
(j) the Buyer shall have received such other customary certificates
(such as certificates of good standing of the Seller in its jurisdictions
of incorporation and certificates as to the incumbency of officers and the
adoption of authorizing resolutions) as it shall reasonably request in
connection with the Closing;
(k) the Seller shall have paid to each Business Employee all
compensation and wages to which such Business Employee is entitled pursuant
to the policies of the Seller then in effect and applicable law, except
with respect to Assumed Vacation Time; and
(l) the Seller shall have cured or obtained a complete and permanent
waiver of any and all defaults under the Lease in respect of the Leased
Real Property located in Atlanta, Georgia.
5.2 Conditions to Obligations of the Seller. The obligation of the Seller
to consummate the transactions to be consummated at the Closing is subject to
the satisfaction (or waiver by the Seller) of the following conditions:
(a) the sale of the Acquired Assets by the Seller to the Buyer as
contemplated by this Agreement shall have received the Requisite Seller
Stockholder Approval;
(b) the representations and warranties of the Buyer set forth in this
Agreement shall be true and correct as of the Closing Date as if made as of
the Closing Date, except (i) for changes contemplated or permitted by this
Agreement, (ii) for those representations and warranties that address
matters only as of a particular date (which shall be true and correct as of
such date, subject to clause (iii) below), and (iii) where the failure of
the representations and warranties to be true and correct would not
reasonably be expected to result, individually or in the aggregate, in a
Buyer Material Adverse Effect (provided that any representation or warranty
that is qualified by a materiality or Buyer Material Adverse Effect
qualification shall not be further qualified hereby);
(c) the Buyer shall have performed or complied with its agreements and
covenants required to be performed or complied with by it under this
Agreement as of or prior to the Closing, except where the failure to so
perform or comply would not reasonably be expected to result in a Buyer
Material Adverse Effect;
(d) no action, suit or proceeding shall be pending by or before any
Governmental Entity seeking to prevent consummation of the transactions
contemplated by this Agreement and no judgment, order, writ, stipulation,
injunction or decree enjoining or preventing consummation of the
transactions contemplated by this Agreement shall be in effect;
(e) the Buyer shall have delivered to the Seller a certificate to the
effect that each of the conditions specified in clauses (b) through (d)
(insofar as clause (d) relates to an action, suit or proceeding involving,
or a judgment, order, writ, stipulation, injunction or decree against, the
Buyer) of this Section 5.2 is satisfied;
(f) the Buyer shall have obtained all Third Party Consents and
effected all Governmental Filings to be obtained or effected by the Buyer;
(g) the Seller shall have received such other customary certificates
(such as a certificate of good standing of the Buyer in its jurisdiction of
incorporation and certificates as to the incumbency of officers and the
adoption of authorizing resolutions) as it shall reasonably request in
connection with the Closing; and
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(h) the closing pursuant to the Agreement and Plan of Merger, dated as
of the date hereof, among Athena Ventures Parent, Inc., Athena Ventures
Acquisition Sub, Inc. and the Seller, shall have been consummated pursuant
to the terms thereof; provided that in the event that such closing is not
consummated as a result of a breach by any of the parties thereto, the
condition set forth in this clause (h) shall be deemed waived by the Seller
in all respects, without any further action by the Seller.
ARTICLE VI
TERMINATION
6.1 Termination of Agreement. The Parties may terminate this Agreement
prior to the Closing as provided below:
(a) the Parties may terminate this Agreement by mutual written
consent;
(b) the Buyer may terminate this Agreement by giving written notice to
the Seller in the event the Seller is in breach of any representation,
warranty, covenant or agreement contained in this Agreement, and such
breach, individually or in combination with any other such breach, (i)
would cause the conditions set forth in Section 5.1(b) or Section 5.1(c)
not to be satisfied and (ii) if curable, is not cured within 30 days
following delivery by the Buyer to the Seller of written notice of such
breach;
(c) the Buyer may terminate this Agreement by giving written notice to
the Seller in the event the Seller provides an update to the Disclosure
Schedule pursuant to Section 4.7 which contains information that, absent
such disclosure and the provisions of Section 4.7 permitting the update of
representations and warranties, would have the effect of causing the
condition set forth in Section 5.1(b) not to be satisfied, and the Seller
fails to cure the event or condition causing the failure of such condition
within 30 days following delivery by the Buyer to the Seller of written
notice under this Section 6.1(c);
(d) the Seller may terminate this Agreement by giving written notice
to the Buyer in the event the Buyer is in breach of any representation,
warranty, covenant or agreement contained in this Agreement, and such
breach, individually or in combination with any other such breach, (i)
would cause the conditions set forth in Section 5.2(b) or Section 5.2(c)
not to be satisfied and (ii) if curable, is not cured within 30 days
following delivery by the Seller to the Buyer of written notice of such
breach;
(e) either Party may terminate this Agreement by giving written notice
to the other Party at any time after the stockholders of the Seller have
voted on whether to approve the sale of the Acquired Assets contemplated by
this Agreement in the event such matter failed to receive the Requisite
Seller Stockholder Approval;
(f) the Buyer may terminate this Agreement by giving written notice to
the Seller if the Closing shall not have occurred on or before April 30,
2004; provided that the Buyer may not exercise its rights to terminate this
Agreement under this clause (f) if such failure results exclusively or
primarily from a breach by the Buyer of any representation, warranty,
covenant or agreement contained in this Agreement; and
(g) the Seller may terminate this Agreement by giving written notice
to the Buyer if the Closing shall not have occurred on or before April 30,
2004; provided that the Seller may not exercise its rights to terminate
this Agreement under this clause (g) if such failure results exclusively or
primarily from a breach by the Seller of any representation, warranty,
covenant or agreement contained in this Agreement.
6.2 Effect of Termination. If any Party terminates this Agreement
pursuant to Section 6.1, all obligations of the Parties hereunder shall
terminate without any liability of any Party to the other Parties.
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Notwithstanding the foregoing, termination of this Agreement shall not relieve
any Party for any breach by such Party, prior to the termination of this
Agreement, of any covenant or agreement (but not any representation or warranty)
contained in this Agreement or impair the right of any Party to obtain such
remedies as may be available to it in law or equity with respect to such a
breach by any other Party.
ARTICLE VII
EMPLOYEE MATTERS
7.1 Offer of Employment; Continuation of Employment. The Buyer shall,
subject to satisfactory background checks on the same basis as applicable to the
Seller's employees, offer employment commencing on the Closing Date to all
Business Employees, including those on vacation, military leave, leave of
absence (whether paid or unpaid), disability or layoff with base salary that is
at least equal to the base salary each such Business Employee had earned
immediately prior to the Closing. Notwithstanding anything herein to the
contrary, and subject to the execution and delivery by each such Business
Employee of the Buyer's standard nonsolicitation and confidentiality agreement,
each Business Employee identified in Schedule 7.1 who accepts an offer of
employment with the Buyer and is terminated by the Buyer without Cause (as
defined below) within six months after the Closing Date shall continue to
receive the same compensation and benefits to which he or she would have
otherwise been entitled to receive from the Buyer under this Article VII until
the date that is six months after the Closing Date. For purposes hereof, "Cause"
shall mean (a) a significant breach of company policy, (b) insubordination, (c)
destruction or misappropriation of company funds, property or rights, or (d)
other act (including, without limitation, conviction of a felony) or omission
that negatively impacts the Buyer. Business Employees who voluntarily resign or
retire shall not be eligible to receive such compensation or benefits described
herein.
7.2 Cessation of Business Benefit Plan Participation; 401(k) Plan
Matters. Except as otherwise provided in this Article VII or as otherwise
required by applicable law, the Business Employees shall cease to participate in
or accrue further benefits under the Business Benefit Plans immediately prior to
the Closing. Effective as of the Closing, all Business Employees who participate
in the defined contribution plan qualified under Section 401 of the Code
sponsored by the Seller (the "Seller's 401(k) Plan") shall cease to participate
in said plan. The Buyer shall establish, if it does not already maintain, a
defined contribution plan qualified under Section 401 of the Code which shall
accept direct or indirect rollovers by New Buyer Employees (as defined in
Section 7.3) of their vested interest in the Seller's 401(k) Plan, unless the
Buyer determines in its sole discretion that accepting such rollovers may
adversely affect the tax qualified status of the Buyer's defined contribution
plan or its related trust.
7.3 Employment Related Liabilities. The Buyer shall assume liability for
any amounts to which any Business Employee becomes entitled as a result of, or
in connection with (i) the Buyer's failure to offer employment or to employ such
Business Employee in accordance with Section 7.1 or applicable local law and
(ii) the termination of employment of such Business Employee on or after the
Closing Date, except to the extent employment is not offered or is terminated on
the basis of an unsatisfactory background check as described in Section 7.1. The
Buyer shall have no liability with respect to any remuneration payable to any
Business Employee, including, without limitation, salary, commissions or
bonuses, for any period on or before the Closing Date (the "Pre-Closing Employee
Liabilities"), regardless of whether such Pre-Closing Employee Liabilities are
determinable or payable as of the Closing, and the Seller shall be liable for
any and all Pre-Closing Employee Liabilities. The Buyer and the Seller hereby
agree that to the extent any of the Pre-Closing Employee Liabilities are not
paid by the Seller on or before the Closing Date, such Pre-Closing Employee
Liabilities shall be included in the calculation of Estimated Working Capital
and, upon the determination of Final Working Capital pursuant to Section 1.2,
the Seller shall have no further liability therefor.
7.4 Employee Benefits; Severance Plans. Beginning on the Closing Date,
each Business Employee who accepts an offer of employment with the Buyer (each,
a "New Buyer Employee") shall be eligible to participate in the same benefit
plans, programs and arrangements in which the Buyer's similarly situated
employees participate. The Buyer will give credit for past service with the
Seller or its Affiliates under all
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the Buyer Plans including, without limitation, severance pay plans, to all New
Buyer Employees, to the same extent such service was credited under similar
plans of the Seller and its Affiliates in which the New Buyer Employees
participated prior to the Closing Date, except that no past service credit shall
be given to any New Buyer Employee for the purpose of vacation benefit accrual
with the Buyer.
7.5 Welfare Plans. With respect to any Buyer Plan that is an "employee
welfare benefit plan" (as defined in Section 3(1) of ERISA) or any plan directly
or indirectly maintained or contributed to by the Buyer providing similar
benefits to an "employee welfare benefit plan" (as defined in Section 3(1) of
ERISA), the Buyer shall (a) cause to be waived any pre-existing condition
limitations or actively-at-work requirements and (b) give effect, in determining
any deductible and maximum out-of-pocket limitations, to claims incurred and
amounts paid by, and amounts reimbursed to, such New Buyer Employees with
respect to similar plans maintained by the Seller or any of its Affiliates for
such New Buyer Employees immediately prior to the Closing Date. The Buyer shall
make appropriate arrangements to allow the use by New Buyer Employees of any
amounts available under any cafeteria plan or flexible spending account (as
defined in Section 125 of the Code) which was maintained by the Seller or any of
its Affiliates for such New Buyer Employees.
7.6 Accrued Vacation Time. The Buyer shall be liable for any accrued but
unused vacation time to which the Business Employees are entitled as of the
Closing Date pursuant to the vacation policies of the Seller then in effect and
applicable law, provided that the Buyer's obligations under this Section 7.6
shall only apply to such Business Employees who have been offered employment by
the Buyer and who have accepted such offer of employment before the Closing Date
(the "Assumed Vacation Time"). As a condition precedent to the Buyer's
obligations under this Section 7.6, the Seller shall use its best efforts to
obtain the written consent of each of its Business Employees for the Buyer to
assume such liability, and shall provide a copy of each such written consent to
the Buyer. The Buyer shall cooperate with the Seller in connection with
obtaining such written consents and the delivery of any requests therefor
concurrently with the Buyer's offers of employment pursuant to Section 7.1. The
Buyer hereby agrees that for the three-month period commencing on the Closing
Date, it shall not employ, or offer to employ, any Business Employee that (a)
did not accept the Buyer's offer of employment pursuant to Section 7.1 and (b)
was paid by the Seller for all accrued but unused vacation time to which such
Business Employee was entitled as of the Closing Date pursuant to the vacation
policies of the Seller then in effect and applicable law.
7.7 U.S. WARN Act. The Seller shall provide any required notice under the
Worker Adjustment and Retraining Notification Act ("WARN") and any other similar
applicable law and to otherwise comply with any such law with respect to any
"plant closing" or "mass layoff" (as defined in WARN) or similar event affecting
employees and occurring prior to the Closing Date or arising as a result of the
transactions contemplated hereby. The Buyer shall assume sole responsibility for
any liabilities or obligations arising under WARN or other applicable law
resulting from the actions (or inactions) of the Buyer or its Affiliates on or
after the Closing Date.
7.8 U.S. COBRA. The Seller agrees to provide any required notice under
the Consolidated Omnibus Budget Reconciliation Act of 1986 ("COBRA") and any
other similar applicable law arising from any qualifying event, as defined in
COBRA, that occurs on or prior to the Closing Date. The Buyer shall assume sole
responsibility for any liabilities or obligations arising under COBRA or other
similar applicable law resulting from the actions (or inactions) of the Buyer or
its Affiliates on or after the Closing Date.
ARTICLE VIII
OTHER POST-CLOSING COVENANTS
8.1 Access to Information; Record Retention; Cooperation.
(a) Subject to compliance with contractual obligations and applicable laws
and regulations, following the Closing, each Party shall afford to each other
Party and to such Party's authorized accountants, counsel and other designated
representatives during normal business hours in a manner so as to not
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unreasonably interfere with the conduct of business (i) reasonable access and
duplicating rights to all non-privileged records, books, contracts, instruments,
documents, correspondence, computer data and other data and information solely
relating to the Business prior to the Closing (collectively, "Information") and
within the possession or control of such Party and (ii) reasonable access to the
personnel of such Party. Requests may be made under this Section 8.1(a) for the
Information for use in connection with financial reporting and accounting
matters, preparing financial statements, preparing and filing of any Tax
Returns, prosecuting any claims for refund, defending any Tax claims or
assessment, preparing securities law or securities exchange filings,
prosecuting, defending or settling any litigation or insurance claim, performing
obligations under this Agreement and the Ancillary Agreements and any other
proper business purposes. The Seller acknowledges and agrees that
notwithstanding anything in the foregoing to the contrary, from and after the
Closing, the Buyer will be entitled to sole possession to all Acquired Assets
including, without limitation, any documents, books, records (including tax
records), agreements and financial data of any sort relating exclusively or
primarily to the Business, other than the Excluded Assets.
(b) A Party making Information or personnel available to another Party
under this Section 8.1 shall be entitled to receive from such other Party, upon
the presentation of invoices therefor, payments for such amounts relating to
supplies, disbursements and other out-of-pocket expenses, as may reasonably be
incurred in making such Information or personnel available; provided, however,
that no such reimbursements shall be required for the salary or cost of fringe
benefits or similar expenses pertaining to employees of the providing Party.
(c) Except as may otherwise be required by law or agreed to in writing by
the Parties, each Party shall use reasonable commercial efforts to preserve,
until six years after the Closing Date, all Information in its possession or
control pertaining to the Business prior to the Closing. Notwithstanding the
foregoing, in lieu of retaining any specific Information, any Party may offer in
writing to the other Party or Parties to deliver such Information to the other
Party or Parties, and if such offer is not accepted within 90 days, the offered
Information may be disposed of at any time.
(d) Each Party shall hold, and shall use commercially reasonable efforts to
cause their respective Affiliates, consultants and advisors to hold, in strict
confidence all Information concerning the other furnished to it by the other
Party or Parties or their representatives pursuant to this Section 8.1 (except
to the extent that such Information (i) is or becomes generally available to the
public other than as a result of any action or inaction by the receiving Party,
(ii) was within the possession of the receiving Party prior to it being
furnished to the receiving Party by or on behalf of the disclosing Party
pursuant hereto, provided that the source of such information was not bound by a
confidentiality agreement with or other contractual, legal or fiduciary
obligation of confidentiality to any person or entity with respect to such
information, or (iii) is or becomes available on a non-confidential basis to the
receiving Party from a source other than the disclosing Party, provided that the
source of such information was not bound by a confidentiality agreement with or
other contractual, legal or fiduciary obligation of confidentiality to any
person or entity with respect to such information), and each Party shall not
release or disclose such Information to any other person, except its auditors,
attorneys, financial advisors, bankers and other consultants and advisors,
unless compelled to disclose such Information by judicial or administrative
process or by other requirements of law or so as not to violate the rules of any
stock exchange; provided, however, that in the case of disclosure compelled by
judicial or administrative process, the receiving Party shall (to the extent
permitted by applicable law) notify the disclosing Party promptly of the request
and the documents requested thereby so that the disclosing Party may seek an
appropriate protective order or other appropriate remedy. If, in the absence of
a protective order or other remedy or the receipt of a waiver hereunder, a Party
is, in the written opinion of its counsel, compelled to disclose any Information
to any tribunal or other entity or else stand liable for contempt or suffer
other censure or penalty, such Party may so disclose the Information without
liability hereunder; provided, however, that, such Party gives written notice to
the other Party or Parties of the information to be disclosed (including copies
of the relevant portions of the relevant documents) as far in advance of its
disclosure as is practicable, uses all reasonable efforts to limit any such
disclosure to the precise terms of such requirement and cooperates
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with the disclosing Party to obtain an appropriate protective order or other
reliable assurance that confidential treatment will be accorded to such
information by the tribunal or other entity.
(e) Notwithstanding anything herein to the contrary, the Buyer acknowledges
and agrees that any Information (privileged or otherwise) included in the
Acquired Assets belongs solely to the Buyer and may be disclosed or used by the
Buyer in its sole discretion without the consent of the Seller in any instance.
In furtherance of the foregoing, (i) the disclosure or use by the Buyer of any
such Information (privileged or otherwise) shall not be deemed a breach by the
Buyer of any provision of this Agreement or any other agreement between the
Seller and the Buyer and (ii) the disclosure or use by any New Buyer Employee of
any such Information (privileged or otherwise) in furtherance of his or her
employment by the Buyer shall not be deemed a breach by such New Buyer Employee
of any confidentiality or other agreement in effect between such New Buyer
Employee and the Seller or any Affiliate thereof, and each Party hereby agrees
that each New Buyer Employee is an intended beneficiary of this clause (ii). The
Seller hereby covenants and agrees that upon the request of the Buyer or any New
Buyer Employee, the Seller shall provide written confirmation to such New Buyer
Employee that he or she is not and will not be in breach of such confidentiality
or other agreement so in effect upon such disclosure or use of Information
(privileged or otherwise) in furtherance of his or her employment by the Buyer.
8.2 Collection of Accounts Receivable. The Seller agrees that it shall
forward promptly to the Buyer any monies, checks or instruments received by the
Seller after the Closing with respect to the accounts receivable purchased by
the Buyer from the Seller pursuant to this Agreement. The Seller hereby
authorizes the Buyer to endorse and cash any checks or instruments payable or
endorsed to the Seller or its order which are received by the Buyer and which
relate to accounts receivable purchased by the Buyer from the Seller.
8.3 Payment of Assumed Liabilities and Excluded Liabilities. In the event
that the Seller (or its Affiliate) inadvertently pays or discharges, after the
Closing, any Assumed Liabilities, the Buyer shall reimburse the Seller or its
Affiliate for the amount so paid or discharged within 30 days of being presented
with written evidence of such payment or discharge. In the event that the Buyer
inadvertently pays or discharges, after the Closing, any Excluded Liability, the
Seller shall reimburse the Buyer for the amount so paid or discharged within 30
days of being presented with written evidence of such payment or discharge.
8.4 Transfer Taxes. Any sales, stock transfer taxes, real estate transfer
taxes, personal property transfer taxes or other similar taxes payable in
connection with the sale of the Acquired Assets shall be paid by the Buyer. If
any Tax Returns or other documents are required to be filed in a jurisdiction
with respect to any of the foregoing, then the Buyer shall prepare and file such
Tax Returns or other documents and shall provide copies of such Tax Returns or
other documents to the Seller.
8.5 Transition. The Seller shall not discourage or take any action that
is intended to have the effect of discouraging any lessee, lessor, licensee,
licensor, customer, supplier or other business associate from maintaining the
same business relationship with the Buyer and the Business after the Closing as
the Seller maintained prior to the Closing, or otherwise interfere or take any
such action that is intended to have the effect of interfering with any such
relationship with the Buyer or the Business.
8.6 Non-Competition.
(a) For a period of two years from the Closing Date (the "Non-Compete
Period"), the Seller shall not, and it will cause its Affiliates not to,
directly or indirectly, in the United States (i) engage in a Competitive
Business (as hereinafter defined), (ii) render any services or act as an agent
or consultant in connection with the operation of a Competitive Business, or
(iii) become associated with or have any interest in, as a shareholder, member,
partner, joint venturer or otherwise, any person, entity or business
organization that engages in a Competitive Business; provided that the Seller
shall not be deemed to have violated this provision solely by reason of an
acquisition of a controlling interest in the Seller by an entity incidentally
but not primarily engaged in a Competitive Business and, after or in connection
with such acquisition, the Seller does not contribute in any manner to such
Competitive Business activities. For
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purposes hereof, "Competitive Business" shall mean the business of providing (A)
a network devoted to college sports that provides brand management, content
delivery, consumer marketing and/or business/commerce solutions to university
athletic departments and conferences through the internet or through broadband
or VOD distribution, or (B) an on-line wire service that provides to subscribers
aggregation and syndication of college newspaper based content, or (C) any other
business and activities conducted as of the Closing Date on or through the
(www.ocsn.com) and (www.collegesports.com) websites or any other websites
primarily utilized by the Seller in connection with (A) through (C).
(b) The Seller agrees that the Non-Compete Period is reasonable and
necessary in light of the transactions entered into pursuant to this Agreement,
that breach by the Seller of this covenant would likely cause irreparable injury
to the Buyer in conducting the Business which would be difficult to compute, and
that in such event the Buyer shall be entitled, without limiting other remedies
available to it, to temporary and permanent injunctive relief against the Seller
in any court of competent jurisdiction without the posting of a bond. If the
final judgment of a court of competent jurisdiction declares that any term or
provision of this Section 8.8 is invalid or unenforceable, the Parties agree
that the court making the determination of invalidity or unenforceability shall
have the power to reduce the scope, duration or area of the term or provision,
to delete specific words or phrases, or to replace any invalid or unenforceable
term or provision with a term or provision that is valid and enforceable and
that comes closest to expressing the intention of the invalid or unenforceable
term or provision, and this Agreement shall be enforceable as so modified after
the expiration of the time within which the judgment may be appealed.
(c) The Seller hereby agrees that the covenants made by it herein are
intended to benefit any successor of the Buyer or purchaser or other assignee of
all or substantially all of the assets of the Business and that each such
successor, purchaser or assign shall be a third party beneficiary of such
covenants with full right, power and authority to enforce such covenants at law
or in equity with the same right, power and authority as the Buyer, including,
without limitation, seeking injunctive relief without the necessity of posting a
bond.
8.7 Third Party Consents(a). The Seller shall be obligated after the
Closing to continue to use its best efforts to obtain the Third Party Consents
to the assignment to the Buyer of the Assigned Contracts, provided that the
Seller shall not be required to make any material payments or agree to any
material undertakings in connection therewith.
8.8 Solomon Accounting System. As soon as practicable after the Closing
(and in any event within 60 days after the Closing Date), the Seller shall
provide access to the Buyer pursuant to current passcodes (in read-only access
that will enable the Buyer to download reports) to all of the data with respect
to the Business included in the "Solomon" accounting system for the period
commencing on April 1, 2002 through and including the Closing Date, and the
Buyer shall cooperate with the Seller to take such action as may reasonably be
necessary to enable the Seller to so provide access to such data.
ARTICLE IX
INDEMNIFICATION; SURVIVAL
9.1 Definitions. As used in this Agreement, the following terms shall
have the following meanings:
(a) "Event of Indemnification" shall mean and include:
(i) with respect to the Buyer, (A) the breach by the Seller of any of
its representations or warranties contained in this Agreement including,
without limitation, Article II hereof, (B) the breach by the Seller of any
of its representations or warranties contained in any Ancillary Agreement,
(C) the failure of the Seller to pay, perform and discharge any Excluded
Liability or any obligation or liability of the Business relating to the
Excluded Assets, (D) the non-fulfillment or breach by the Seller of any of
its covenants and agreements contained in this Agreement or in any
Ancillary Agreement, (E) the failure of the Seller to comply with any bulk
sales or bulk transfer laws or (F) the failure of the Seller to pay any
sales, use or similar Taxes with respect to the Business
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attributable to transactions occurring on or prior to the Closing Date
(each, a "Buyer Event of Indemnification"); and
(ii) with respect to the Seller, (A) the breach by the Buyer of any of
its representations or warranties contained in this Agreement including,
without limitation, Article III hereof, (B) the breach by the Buyer of any
of its representations or warranties contained in any Ancillary Agreement,
(C) the failure of the Buyer to pay, perform and discharge any Assumed
Liability or (D) the non-fulfillment or breach by the Buyer of any of its
covenants and agreements contained in this Agreement or in any Ancillary
Agreement (each, a "Seller Event of Indemnification").
(b) "Indemnified Persons shall mean and include:
(i) with respect to a Buyer Event of Indemnification, the Buyer and
its Affiliates, successors and assigns, and the respective officers and
directors of each of the foregoing; or
(ii) with respect to a Seller Event of Indemnification, the Seller and
its Affiliates, successors and assigns, and the respective officers and
directors of each of the foregoing.
(c) Indemnifying Persons shall mean and include:
(i) with respect to a Buyer Event of Indemnification, the Seller and
each of its successors and assigns (the "Seller Indemnifying Parties"); or
(ii) with respect to a Seller Event of Indemnification, the Buyer and
each of its successors and assigns (the "Buyer Indemnifying Parties").
(d) "Losses" shall mean any and all losses, demands, actions or causes of
action, suits, proceedings, investigations, arbitrations, claims, assessments,
shortages, damages, liabilities (contingent or otherwise), payments,
obligations, expenses (including reasonable attorneys' and accountants' fees),
assessments sustained, suffered or incurred by any Indemnified Person arising
from or in connection with any such matter that is the subject of
indemnification under Section 9.2 hereof.
9.2 Indemnification Generally.
(a) The Indemnifying Persons shall indemnify and hold harmless the
Indemnified Persons from and against any and all Losses with respect to, arising
out of or in connection with any Event of Indemnification; provided that, the
maximum aggregate liability hereunder of the Seller Indemnifying Parties, on the
one hand, and of the Buyer Indemnifying Parties, on the other hand, shall be an
amount equal to $1,500,000 (the "Indemnification Cap"); provided, however, that
the maximum aggregate liability with respect to any Losses to the extent with
respect to, arising out of or in connection with (i) a breach of the
representations and warranties contained in the first sentence of Section 2.8
("Section 2.8 Breaches"); (ii) a breach of the representations and warranties
set forth in Section 2.7, 2.14, 2.15 or 2.16, (iii) non-fulfillment or breach of
the covenants or agreements set forth in Article VII, and (iv) any liabilities
of a Party for Taxes (clauses (ii), (iii) and (iv) collectively, the "Carve-Out
Events"), shall be an amount equal to the Purchase Price. Notwithstanding
anything herein to the contrary, any claims for Losses to the extent with
respect to, arising out of or in connection with fraud or Section 2.23 may be
asserted without regard to the Indemnification Cap or any other maximum
liability and the applicable Indemnifying Party shall be liable for any and all
such Losses.
(b) (i) No indemnification shall be payable to an Indemnified Person until
the aggregate amount of Losses incurred by all Indemnified Persons related to
such Indemnified Person as a result of all Events of Indemnification exceeds
$150,000 (the "Deductible Amount"), whereupon such Indemnified Persons shall be
entitled to receive the amount of all Losses in excess of the Deductible Amount;
provided, however, that (A) the Deductible Amount shall not be applicable with
respect to, and the Indemnified Persons shall be entitled to payment of any and
all Losses incurred by any Indemnified Persons, with respect to any breach of
the representations and warranties set forth in the first sentence of Section
2.10(a) or in respect of any liabilities and obligations of the Seller arising
prior to the Closing Date to the extent continuing after the Closing Date
("Carry-Over Liabilities") (provided that no indemnification shall be
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paid to any Indemnified Person with respect to any Carry-Over Liabilities until
the Carry-Over Liabilities total $50,000, provided further that after such
threshold is reached any and all such Losses shall be fully indemnified from the
first dollar) and any Carve-Out Events, and (B) the Deductible Amount shall
equal $10,000 with respect to Section 2.8 Breaches. In addition, no Indemnified
Person shall have any right to indemnification to the extent that any Loss has
been reimbursed by insurance proceeds (in excess of the amount paid or payable
in insurance premiums), tax benefits actually realized, or any other actual
recovery, whether directly from the Seller or otherwise.
(i) No indemnification shall be payable in respect of any Event of
Indemnification (A) where such Indemnified Person entered into a settlement of a
Third Party Claim (as defined below) without the prior written consent of the
applicable Indemnifying Party, which consent shall not be unreasonably withheld
or delayed, or (B) pursuant to Section 9.1(a)(i)(A) and (B) with respect to
matters disclosed by the Seller to the Buyer in writing prior to the Closing.
9.3 Assertion of Claims. No claim shall be brought under Section 9.2
hereof unless the Indemnified Persons, or any of them, at any time prior to the
applicable Survival Date (as defined in Section 9.5), give the appropriate
Indemnifying Persons (a) written notice of the existence of any such claim,
specifying the nature and basis of such claim and the amount thereof, to the
extent known or (b) written notice pursuant to Section 9.4 of any Third Party
Claim, the existence of which might give rise to such a claim but the failure so
to provide such notice will not relieve the Indemnifying Persons from any
liability which they may have to the Indemnified Persons under this Agreement or
otherwise (unless and only to the extent that such failure results in the loss
or compromise of any rights or defenses of the Indemnifying Persons and they
were not otherwise aware of such action or claim). Upon the giving of such
written notice as aforesaid, the Indemnified Persons, or any of them, shall have
the right to commence legal proceedings prior or subsequent to the Survival Date
for the enforcement of their rights under Section 9.2 hereof.
9.4 Notice and Defense of Third Party Claims. Losses resulting from the
assertion of liability by third parties (each, a "Third Party Claim") shall be
subject to the following terms and conditions:
(a) The Indemnified Persons shall promptly give written notice to the
Indemnifying Persons of any Third Party Claim that might give rise to any
Loss by the Indemnified Persons, stating the nature and basis of such Third
Party Claim, and the amount thereof to the extent known. Such notice shall
be accompanied by copies of all relevant documentation with respect to such
Third Party Claim, including, without limitation, any summons, complaint or
other pleading that may have been served, any written demand or any other
document or instrument. Notwithstanding the foregoing, the failure to
provide notice as aforesaid will not relieve the Indemnifying Persons from
any liability which they may have to the Indemnified Persons under this
Agreement or otherwise (unless and only to the extent that such failure
directly results in the loss or compromise of any rights or defenses of the
Indemnifying Person and they were not otherwise aware of such action or
claim).
(b) The Indemnified Persons shall defend any Third Party Claims with
counsel of their own choosing, at the sole cost and expense of the
Indemnifying Parties, and shall act reasonably and in accordance with their
good faith business judgment in handling such Third Party Claims. The
Indemnifying Persons, on the one hand, and the Indemnified Persons, on the
other hand, shall make available to each other and their counsel and
accountants all books and records and information relating to any Third
Party Claims, keep each other fully apprised as to the details and progress
of all proceedings relating thereto and render to each other such
assistance as may be reasonably required to ensure the proper and adequate
defense of any and all Third Party Claims.
9.5 Survival of Representations and Warranties. Subject to the further
provisions of this Section 9.5, the representations and warranties of the Buyer
contained in this Agreement and any Ancillary Agreements and the representations
and warranties of by the Seller in this Agreement and any Ancillary Agreements
shall survive the Closing for a period of one year after the Closing Date;
provided that (a) the representations and warranties contained in Section 2.7,
2.15 and 2.16 shall survive for the applicable statute of limitations and (b)
the representation and warranty contained in the first sentence of
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Section 2.8 and in Section 2.19 shall survive without limitation.
Notwithstanding the preceding sentence, any representation or warranty in
respect of which indemnity may be sought under Section 9.2 shall survive the
time at which it would otherwise terminate pursuant to the preceding sentence,
if notice of the inaccuracy or breach thereof giving rise to such right to
indemnity shall have been given to the party against whom such indemnity may be
sought prior to such time. For convenience of reference, the date upon which any
representation and warranty contained herein shall terminate is referred to
herein as the "Survival Date."
9.6 Characterization of Payments. Any payments made pursuant to this
Article IX and Section 1.2(c)(ii) shall be treated for all Tax purposes as
adjustments to the Purchase Price and no party or any of its Affiliates shall
take any position on a Tax Return or in any proceeding with any taxing authority
contrary to such treatment, unless otherwise required by law.
9.7 Indemnification Payments. Without limiting any other rights it may
have at law or in equity, the Buyer shall not be entitled to offset or deduct
from any monies owed under the Note an amount equal to the indemnification
obligations hereunder of the Buyer Indemnifying Parties.
ARTICLE X
MISCELLANEOUS
10.1 Press Releases and Announcements. No Party shall issue (and each
Party shall cause its Affiliates not to issue) any other press release or public
disclosure relating to the subject matter of this Agreement without the prior
written approval of the other Party or Parties; provided, however, that any
Party may make any public disclosure it believes in good faith is required by
law, regulation or stock exchange rule (in which case the disclosing Party shall
advise the other Party or Parties and the other Party or Parties shall, if
practicable, have the right to review such press release or announcement prior
to its publication). Notwithstanding the foregoing, the public announcement of
this transaction shall be substantially in the form set forth on Schedule 10.1
hereto.
10.2 No Third Party Beneficiaries. Except as specifically set forth in
Section 8.1(e), this Agreement is not intended for the benefit of any creditor
or any third party and shall not confer any rights or remedies upon any person
other than the Parties and their respective successors and permitted assigns
and, to the extent specified herein, their respective Affiliates.
10.3 Action to be Taken by Affiliates. The Parties shall cause their
respective Affiliates to comply with all of the obligations specified in this
Agreement to be performed by such Affiliates.
10.4 Entire Agreement. This Agreement (including the documents referred
to herein) and the Confidentiality Agreement constitute the entire agreement
between the Buyer, on the one hand, and the Seller, on the other hand. This
Agreement supersedes any prior agreements or understandings among the Buyer, on
the one hand, and the Seller, on the other hand, and any representations or
statements made by or on behalf of any Party or any of its respective Affiliates
to the other Party, whether written or oral, with respect to the subject matter
hereof, other than the Confidentiality Agreement. The Confidentiality Agreement,
insofar as it covers information relating exclusively or primarily to the
Business, shall terminate effective as of the Closing, but shall remain in
effect insofar as it covers other information disclosed thereunder.
10.5 Succession and Assignment. No Party may assign either this Agreement
or any of its rights, interests, or obligations hereunder without the prior
written approval of the Seller (in the case of an assignment by the Buyer) or
the Buyer (in the case of an assignment by the Seller). Notwithstanding the
foregoing, this Agreement, and all rights, interests and obligations hereunder,
may be assigned, without such consent, (a) to any entity that acquires all or
substantially all of a Party's business or assets and (b) by the Buyer to any
direct or indirect wholly owned subsidiary; provided that no assignment of this
Agreement or any of the rights, interests or obligations hereunder shall relieve
any Party of its obligations
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under this Agreement. This Agreement shall be binding upon and inure to the
benefit of the Parties and their respective successors and permitted assigns.
10.6 Notices. All notices, requests, demands, claims and other
communications hereunder shall be in writing and delivered by hand or sent by a
nationally recognized overnight courier service or certified mail, return
receipt requested, in each case postage or delivery fee prepaid. Any notice,
request, demand, claim or other communication hereunder shall be deemed duly
delivered upon receipt thereof, in each case to the intended recipient as set
forth below:
<Table>
(a) If to the Buyer: With a copy to:
NCSN, Inc. Bryan Cave LLP
Chelsea Piers, Pier 62 1290 Avenue of the Americas
New York, NY 10011 New York, NY 10104
Telecopy: 212-342-8899 Telecopy: 212-541-4630
Attention: President Attention: Renee E. Frost, Esq.
NCSN, Inc.
Chelsea Piers, Pier 62
New York, NY 10011
Telecopy: 212-342-8899
Attention: General Counsel
(b) If to the Seller: With a copy to:
Student Advantage, Inc. Hale and Dorr LLP
280 Summer Street 60 State Street
Boston, MA 02210 Boston, MA 02109
Telecopy: 617-912-2088 Telecopy: 617-526-5000
Attention: President Attention: Mark G. Borden, Esq.
</Table>
Any Party may give any notice, request, demand, claim, or other communication
hereunder using any other means (including expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim or other communication shall be deemed to have been duly
given unless and until it actually is received by the party for whom it is
intended. Any Party may change the address to which notices, requests, demands,
claims and other communications hereunder are to be delivered by giving the
other Parties notice in the manner herein set forth.
10.7 Amendments and Waivers. The Parties may mutually amend or waive any
provision of this Agreement at any time. No amendment or waiver of any provision
of this Agreement shall be valid unless the same shall be in writing and signed
by all of the Parties. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
10.8 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the body making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified.
10.9 Expenses. Except as otherwise specifically provided to the contrary
in this Agreement, each of the Parties shall bear its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby.
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10.10 Specific Performance. Each Party acknowledges and agrees that the
other Party or Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each Party agrees that the other
Party or Parties may be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter.
10.11 Governing Law. This Agreement and any disputes hereunder shall be
governed by and construed in accordance with the internal laws of the
Commonwealth of Massachusetts without giving effect to any choice or conflict of
law provision or rule (whether of the Commonwealth of Massachusetts or any other
jurisdiction) that would cause the application of laws of any jurisdiction other
than those of the Commonwealth of Massachusetts. This Agreement shall have the
effect of an instrument under seal.
10.12 Bulk Transfer Laws. The Buyer acknowledges that the Seller will not
comply with the provisions of the bulk transfer laws of any jurisdiction in
connection with the transactions contemplated by this Agreement.
10.13 Construction.
(a) The language used in this Agreement shall be deemed to be the language
chosen by the Parties to express their mutual intent, and no rule of strict
construction shall be applied against any Party.
(b) Any reference to any federal, state, local, or foreign statute or law
shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise.
(c) The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
(d) Any reference herein to an Article, section or clause shall be deemed
to refer to an Article, section or clause of this Agreement, unless the context
clearly indicates otherwise.
(e) All references to "$", "Dollars" or "US$" refer to currency of the
United States of America.
10.14 Waiver of Jury Trial. To the extent permitted by applicable law,
each Party hereby irrevocably waives all rights to trial by jury in any action,
proceeding or counterclaim (whether based on contract, tort or otherwise)
arising out of or relating to this Agreement or the transactions contemplated
hereby or the actions of any Party in the negotiation, administration,
performance and enforcement of this Agreement.
10.15 Remedies Cumulative. The remedies provided in this Agreement shall
be cumulative and shall not preclude the assertion by any Party of any other
rights or the seeking of any other remedies against the other Party hereto.
10.16 Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
10.17 Counterparts and Facsimile Signature. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an original
but all of which together shall constitute one and the same instrument. This
Agreement may be executed by facsimile signature.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
first above written.
STUDENT ADVANTAGE, INC.
By: /s/ SEVIM M. PERRY
------------------------------------
Name: Sevim M. Perry
Title: Chief Financial Officer
and Treasurer
NCSN, INC.
By: /s/ BRIAN T. BEDOL
------------------------------------
Name: Brian T. Bedol
Title: Chief Executive Officer
and President
[SIGNATURE PAGE TO PURCHASE AND SALE AGREEMENT]
B-34
APPENDIX C
OPINION OF LUMINARY CAPITAL REGARDING THE MERGER
Luminary Capital LLC
- --------------------------------------------------------------------------------
125 Maiden Lane, 15th Floor
New York, NY 10038
(212) 480-0788
November 18, 2003
The Special Committee of the Board of Directors of
Student Advantage, Inc.
280 Summer Street
Boston, MA 02210
Members of the Board of Directors:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of the Common Stock, par value $.01 per share (the
"Common Shares"), of Student Advantage, Inc. (the "Company") of the
consideration to be received by the holders of Common Shares, excluding Raymond
V. Sozzi ("Sozzi"), the Chairman, CEO and President of the Company, and an
entity ("Buyer") formed by Sozzi, in connection with the proposed sale of all of
the outstanding capital stock of the Company (the "Proposed Transaction"), to
Buyer, pursuant to an Agreement and Plan of Merger to be entered into by and
among Buyer, a wholly-owned subsidiary of Buyer and the Company (the
"Agreement"). The Agreement provides that the per share price to be paid at
closing by Buyer for each outstanding Common Share will be $1.05 in cash. We
understand that Buyer and Sozzi collectively own approximately 15% of the
currently outstanding Common Shares.
As part of our financial advisory business, we are regularly engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions. We have acted as financial advisor to the Special Committee of
Independent Directors (the "Special Committee") of the Board of Directors (the
"Board") of the Company in connection with the Proposed Transaction and have
received fees for financial advisory services upon execution of our financial
advisory engagement with the Company and will receive additional fees for our
financial advisory services upon delivery of this opinion and at closing.
Further, we also are acting as a financial advisor to the Company in connection
with the OCSN Transaction and will receive a fee contingent upon the rendering
of our opinion in connection with the OCSN Transaction and at closing.
In arriving at our opinion set forth below, we have, among other things:
(i) reviewed, from a financial point of view, a draft of the Agreement dated
November 17, 2003; (ii) reviewed certain publicly available historical business
and financial information and other data relating to the Company, including but
not limited to information contained in the Company's Form 10-K for the year
ended December 31, 2002 and its Quarterly Reports on Form 10-Q for the periods
ended March 31, 2003 and June 30, 2003 (but not any more recent public filings);
(iii) reviewed and discussed with representatives of the management of the
Company certain other financial and operating information relating to the
Company furnished to us by the Company, including financial analyses and
projections and related assumptions, which information representatives of the
management of the Company have represented to us fairly represents the financial
condition and operating results of the Company as of the dates presented; (iv)
considered the historical financial results and present financial condition of
the Company; (v) inquired about and discussed the
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Proposed Transaction and other matters related thereto with the Company's
management and its legal counsel; (vi) reviewed the reported historical and
recent market prices and trading volumes of the Common Shares; (vii) compared
the financial and operating performance of the Company with certain other
companies deemed comparable; (viii) reviewed the financial terms, to the extent
applicable, of certain other acquisition transactions deemed comparable; and
(ix) performed such other analyses and examinations as we deemed appropriate.
In rendering our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information and data publicly
available or furnished to or otherwise reviewed by or discussed with us, without
independent verification, and have further relied upon the assurances of the
Company's management that they were not aware of any facts or circumstances that
would make any such information inaccurate or misleading. With respect to the
financial projections utilized, we have assumed that such projections have been
reasonably prepared in good faith on a basis reflecting the best currently
available estimates and judgments of the Company's management, and that such
projections provide a reasonable basis upon which we could form an opinion. We
assume no responsibility for and express no view as to such projections or the
assumptions on which they are based. We have not made a physical inspection of
the properties or facilities of the Company, and have not made or obtained, nor
do we assume any responsibility for making or obtaining, any evaluations or
appraisals of the assets or liabilities (contingent or otherwise) of the
Company. Our opinion is necessarily based upon information available to us, and
market, economic and other conditions and circumstances existing and disclosed
to us, as of the date hereof.
We have also assumed that the Proposed Transaction will be consummated in
accordance with the terms described in the form of Agreement provided to us,
without any further material amendments or modifications thereto, and without
waiver of the material conditions to any obligations thereunder. For purposes of
our opinion, we have assumed the simultaneous consummation of the OCSN
Transaction on the terms set forth in the November 18, 2003 draft of the OCSN
Agreement provided to us.
It should be understood that subsequent developments or changes in any of
the information or circumstances reviewed or considered by us may affect this
opinion, and we do not have any obligation to update, revise or reaffirm this
opinion to account for any such developments or changes.
We have not been requested to opine as to, and our opinion does not in any
manner address, the underlying business decision of the Company to enter into
the Agreement or to proceed with, or of the Company or its shareholders to
effect, the Proposed Transaction. Our opinion is limited to the fairness, from a
financial point of view, of the consideration to be received by the holders of
the Common Shares in connection with the Proposed Transaction. We express no
opinion with respect to any other reasons, legal, business or otherwise, that
may support your decision to approve or consummate the Proposed Transaction. Our
opinion is not intended to be and does not constitute a recommendation to any
director or shareholder of the Company as to how such director or shareholder
should vote, if required to, with respect to the Proposed Transaction. No
limitations were imposed on us by the Company with respect to the investigations
to be made or procedures to be followed by us in rendering our opinion.
Our opinion is for the use and benefit of the Special Committee and the
Board and is rendered to the Special Committee and the Board in connection with
its consideration of the Proposed Transaction and may not be used by the Company
for any other purpose or reproduced, disseminated, quoted or referred to by the
Company at any time, in any manner or for any purpose, without our prior written
consent, except that we hereby consent that this opinion may be reproduced in
full in any filings relating to the Proposed Transaction that the Company makes
with the U.S. Securities and Exchange Commission and references to the opinion
and to us and our relationship with the Company may be included in any such
filings. Notwithstanding the foregoing, the unaffiliated stockholders of the
Company may rely upon our opinion when making their decision to approve the
Proposed Transaction.
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Based upon and subject to the foregoing, we are of the opinion that, as of
the date hereof, the sum of $1.05 per share is fair to the Company's
stockholders, excluding Sozzi and the Buyer, from a financial point of view.
Very truly yours,
LUMINARY CAPITAL LLC
By: /s/ MATTHEW MCGOVERN
------------------------------------
Matthew McGovern
Managing Principal
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APPENDIX D
OPINION OF LUMINARY CAPITAL REGARDING THE ASSET SALE
Luminary Capital LLC
- --------------------------------------------------------------------------------
125 Maiden Lane, 15th Floor
New York, NY 10038
(212) 480-0788
November 18, 2003
The Board of Directors
Student Advantage, Inc.
280 Summer Street
Boston, MA 02210
Members of the Board of Directors:
You have requested our opinion as to the fairness to Student Advantage,
Inc. (the "Company"), from a financial point of view, of the consideration to be
received by the Company in connection with the proposed sale of the assets of
the Business (the "Proposed Transaction") to NCSN, Inc. ("Buyer"), pursuant to
and to the extent provided for in a Purchase and Sale Agreement to be entered
into between Buyer and the Company (the "Agreement"). The Agreement provides
that the aggregate consideration to be paid at closing by Buyer to the Company
and one of its creditors in connection with the Proposed Transaction will be
$7,100,000. As used herein, the "Business" shall have the meaning ascribed to
such term in the Agreement.
As part of our financial advisory business, we are regularly engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions. We have acted as financial advisor to the Board of Directors (the
"Board") of the Company in connection with the Proposed Transaction and have
received fees for financial advisory services upon execution of our financial
advisory engagement with the Company and will receive additional fees for our
financial advisory services upon delivery of this opinion and at closing.
Further, we also are acting as a financial advisor to the Special Committee of
Independent Directors of the Board of the Company in connection with the
proposed management buyout and will receive a fee contingent upon the rendering
of our opinion in connection with the management buyout and at closing.
In arriving at our opinion set forth below, we have, among other things:
(i) reviewed, from a financial point of view, a draft of the Agreement dated
November 18, 2003; (ii) reviewed certain publicly available historical business
and financial information and other data relating to the Business, including but
not limited to information contained in the Company's Form 10-K for the year
ended December 31, 2002 and its Quarterly Reports on Form 10-Q for the periods
ended March 31, 2003 and June 30, 2003 (but not any more recent public filings);
(iii) reviewed and discussed with representatives of the management of the
Company certain other financial and operating information relating to the
Business furnished to us by the Company, including financial analyses and
projections and related assumptions, which information representatives of the
management of the Company have represented to us fairly represents the financial
condition and operating results of the Business as of the dates presented; (iv)
considered the historical financial results and present financial condition of
the Business; (v) inquired about and discussed the Proposed Transaction and
other matters related thereto with the Company's management and its legal
counsel; and (vi) performed such other analyses and examinations as we deemed
appropriate.
In rendering our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information and data publicly
available or furnished to or otherwise reviewed by or discussed with us, without
independent verification, and have further relied upon the assurances of the
Company's management that they were not aware of any facts or circumstances that
would make any such
D-1
information inaccurate or misleading. With respect to the financial projections
utilized, we have assumed that such projections have been reasonably prepared in
good faith on a basis reflecting the best currently available estimates and
judgments of the Company's management, and that such projections provide a
reasonable basis upon which we could form an opinion. We assume no
responsibility for and express no view as to such projections or the assumptions
on which they are based. We have not made a physical inspection of the
properties or facilities of the Business, and have not made or obtained, nor do
we assume any responsibility for making or obtaining, any evaluations or
appraisals of the assets or liabilities (contingent or otherwise) of the
Business. Our opinion is necessarily based upon information available to us, and
market, economic and other conditions and circumstances existing and disclosed
to us, as of the date hereof.
We have also assumed that the Proposed Transaction will be consummated in
accordance with the terms described in the form of Agreement provided to us,
without any further amendments or modifications thereto, and without waiver of
any of the material conditions to any obligations thereunder.
It should be understood that subsequent developments or material changes in
any of the information or circumstances reviewed or considered by us may affect
this opinion, and we do not have any obligation to update, revise or reaffirm
this opinion to account for any such developments or changes.
We have not been requested to opine as to, and our opinion does not in any
manner address, the underlying business decision of the Company to enter into
the Agreement or to proceed with or effect the Proposed Transaction. Our opinion
is limited to the fairness to the Company, from a financial point of view, of
the consideration to be received by the Company in connection with the Proposed
Transaction. Our opinion is not intended to be and does not constitute a
recommendation to any director or shareholder of the Company as to how such
director or shareholder should vote, if required to, with respect to the
Proposed Transaction. No limitations were imposed on us by the Company with
respect to the investigations to be made or procedures to be followed by us in
rendering our opinion.
Our opinion is for the use and benefit of the Board of Directors of the
Company and is rendered to the Board of Directors in connection with its
consideration of the Proposed Transaction and may not be used by the Company for
any other purpose or reproduced, disseminated, quoted or referred to by the
Company at any time, in any manner or for any purpose, without our prior written
consent, except that we hereby consent that this opinion may be reproduced in
full in any filings relating to the Proposed Transaction that the Company makes
with the U.S. Securities and Exchange Commission and references to the opinion
and to us and our relationship with the Company may be included in any such
filings. Notwithstanding the foregoing, the stockholders of the Company may rely
on our opinion when making their decision to approve the Proposed Transaction.
Based upon and subject to the foregoing, we are of the opinion that, as of
the date hereof, the consideration to be received by the Company in connection
with the Proposed Transaction is fair, from a financial point of view, to the
Company.
Very truly yours,
LUMINARY CAPITAL LLC
By: /s/ MATTHEW MCGOVERN
------------------------------------
Matthew McGovern
Managing Principal
D-2
APPENDIX E
DELAWARE GENERAL CORPORATION LAW
sec. 262. Appraisal rights.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to sec. 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251 (other than a merger effected pursuant to
sec. 251(g) of this title), sec. 252, sec. 254, sec. 257, sec. 258, sec. 263 or
sec. 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec. 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such Merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or depository
receipts in respect thereof) or depository receipts at the effective
date of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
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(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228
or sec. 253 of this title, then either a constituent corporation before the
effective date of the merger or consolidation or the surviving or resulting
corporation within 10 days thereafter shall notify each of the holders of
any class or series of stock of such constituent corporation who are
entitled to appraisal rights of the approval of the merger or consolidation
and that appraisal rights are available for any or all shares of such class
or series of stock of such constituent corporation, and shall include in
such notice a copy of this section. Such notice may, and, if given on or
after the effective date of the merger or consolidation, shall, also notify
such stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the date
of mailing of such notice, demand in writing from the surviving or
resulting corporation the appraisal of such holder's shares. Such demand
will be sufficient if it reasonably informs the corporation of the identity
of the stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the Merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given,
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provided, that if the notice is given on or after the effective date of the
Merger or consolidation, the record date shall be such effective date. If
no record date is fixed and the notice is given prior to the effective
date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may
E-3
participate fully in all proceedings until it is finally determined that such
stockholder is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
E-4
PROXY
STUDENT ADVANTAGE, INC.
280 SUMMER STREET
BOSTON, MASSACHUSETTS 02210
SOLICITED BY THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS
Those signing on the reverse side, revoking any prior proxies, hereby
appoint(s) John M. Connolly and Charles E. Young, each with the full power to
appoint his 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 February 6, 2004 at
the Special Meeting of Stockholders to be held on March 15, 2004 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 CONTINUED AND TO BE SIGNED ON SEE REVERSE
SIDE REVERSE SIDE 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. The approval and adoption of a Purchase and Sale Agreement, dated November
18, 2003, by and between Student Advantage and NCSN, Inc., and the transactions
contemplated thereby, pursuant to which Student Advantage will sell the assets
used in its OCSN business to NCSN (the "Asset Sale").
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. The approval and adoption of an Agreement and Plan of Merger, dated November
18, 2003, by and among Student Advantage, Athena Ventures Parent, Inc. ("Athena
Ventures"), and Athena Ventures Acquisition Sub, Inc., a wholly-owned subsidiary
of Athena Ventures ("Acquisition Sub"), and the transactions contemplated
thereby, pursuant to which, among other things and provided the Asset Sale has
been consummated, Acquisition Sub will be merged with and into Student
Advantage, with Student Advantage as the surviving corporation, and Student
Advantage will become a wholly-owned subsidiary of Athena Ventures.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. To grant to the proxy holders the authority to vote in their discretion on a
motion to adjourn or postpone the Special Meeting.
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 SPECIAL 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:_____
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