Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[ ] Preliminary Proxy Statement [_] Confidential, For Use
of the Commission
Only (as permitted by
Rule 14a-6(e)(2)
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-(11(c) or Rule 14a-12
ADSTAR, INC.
(Name of Registrant as Specified in Its Charter)
Name of Person(s) Filing Proxy Statement, if other than the registrant)
----------------------------------------------------------------------
Payment of Filing Fee (Check the appropriate box):
[X] No Fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 011.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies
(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):
(4) Proposed maximum aggregate value of transaction:
[_] 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:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date filed:
ADSTAR, INC.
------------
Notice of Annual Meeting of Stockholders To Be Held On
September 5, 2002 at 10:00 A.M.
------------
TO THE STOCKHOLDERS OF ADSTAR, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of AdStar,
Inc. ("AdStar") will be held at 4553 Glencoe Avenue, Marina del Rey, California
90292, on September 5, 2002 at 10:00 A.M., Pacific Time, for the following
purposes:
1. To elect five (5) directors for one year terms.
2. To approve an amendment to the AdStar, Inc. 1999 Stock Option Plan
to increase by 1,000,000 the number of shares available for issuance
thereunder.
3. To approve and ratify the March 18, 2002 transaction with Tribune
Company including the sale of 1,443,457 shares of AdStar Series A
Preferred Stock for approximately $1,800,000.
4. To ratify the selection of PricewaterhouseCoopers LLP as independent
auditors for the year ending December 31, 2002.
5. To transact such other business as may properly be brought before
the meeting or any adjournment or postponements thereof.
The Board of Directors has fixed the close of business on July 24, 2002 as
the record date for the determination of the stockholders entitled to notice of
and to vote at this meeting and at any adjournment or postponements thereof.
BY ORDER OF THE BOARD OF
DIRECTORS
/s/ Eli Rousso
---------------------------
Eli Rousso, Secretary
Dated: Marina del Rey, California
July 31, 2002
-------------------------------------------------------------------
IMPORTANT: Whether or not you expect to attend in person, please complete,
sign, date, and return the enclosed Proxy at your earliest
convenience. This will ensure the presence of a quorum at the
meeting. Promptly signing, dating, and returning the Proxy will
save AdStar the expense and extra work of additional solicitation.
An addressed envelope for which no postage is required has been
enclosed for that purpose. Sending in your Proxy will not prevent
you from voting your stock at the meeting if you desire to do so,
as your Proxy is revocable at your option.
-------------------------------------------------------------------
ADSTAR, INC.
------------
PROXY STATEMENT
------------
FOR ANNUAL MEETING OF STOCKHOLDERS
To Be Held September 5, 2002
This Proxy Statement is furnished to the stockholders of AdStar, Inc., a
Delaware corporation ("AdStar"), in connection with the solicitation by the
Board of Directors of proxies to be used at the 2002 Annual Meeting of
Stockholders of AdStar to be held at 4553 Glencoe Avenue, Marina del Rey,
California 90292, on September 5, 2002 at 10:00 A.M., Pacific Time, and at any
adjournments thereof (the "Annual Meeting"). The approximate date on which this
Statement and the accompanying proxy will be mailed to stockholders is July 26,
2002.
THE VOTING & VOTE REQUIRED
Only stockholders of record at the close of Business on July 24, 2002 (the
"Record Date"), are entitled to notice of and vote at the Annual Meeting. On the
Record Date, there were 8,173,462 outstanding shares of common stock, par value
$.0001 per share, ("Common Stock"), and 1,443,457 outstanding shares of Series A
convertible preferred stock, par value $.0001 per share, ("Series A Preferred"),
convertible into 1,443,457 shares of Common Stock as of the Record Date. At the
Annual Meeting, each share of Common Stock is entitled to one vote and each
share of Series A Preferred is entitled to one vote for each share of Common
Stock into which it can convert as of the Record Date. In the aggregate,
9,616,919 votes may be cast at the Annual Meeting. Shares represented by each
properly executed, unrevoked proxy received in time for the meeting will be
voted as specified.
Directors are elected by a plurality of the votes cast at the meeting.
Confirmation of the appointment of auditors and approval of the proposed
amendment to the AdStar, Inc. 1999 Stock Option Plan is by the affirmative vote
of a majority of the votes cast at the meeting and approval and ratification of
the sale of 1,443,457 shares of Series A Stock to Tribune Company for
approximately $1,800,000 is by the affirmative vote of a majority of the votes
cast at the meeting by the holders of Common Stock.
All shares represented by valid proxies will be voted in accordance with
the instructions contained therein. In the absence of instructions, proxies will
be voted FOR each of the stated matters being voted on at the meeting. A proxy
may be revoked by the stockholder giving the proxy at any time before it is
voted, either by oral or written notice, and a prior proxy is automatically
revoked by a stockholder giving a subsequent proxy or attending and voting at
the meeting. Attendance at the meeting, however, in and of itself does not
revoke a prior proxy. In the case of the election of directors, shares
represented by a proxy which are marked "WITHHOLD AUTHORITY" to vote for all
five (5) nominees will not be counted in determining whether a plurality vote
has been received for the election of directors. Shares represented by proxies
which are marked "ABSTAIN" on any other proposal will not be counted in
determining whether the requisite vote has been received for such proposal. In
instances where brokers are prohibited from exercising discretionary authority
for beneficial owners who have not returned proxies ("broker non-votes"), those
shares will not be included in the vote totals and, therefore, will have no
effect on the outcome of the vote.
1
ELECTION OF DIRECTORS AND MANAGEMENT INFORMATION
At this meeting five (5) directors are to be elected to serve for one-year
terms, each to hold office until his successor is duly elected and qualified. It
is not contemplated that any nominee will be unable to serve as a director, but
if such contingency should occur prior to the meeting, the persons named as
proxies in the enclosed proxy or their substitutes will have the right to vote
for substitute nominees. The nominees were selected by the Board of Directors of
AdStar and are all currently Directors. The first three nominees are also
officers of AdStar. Certain information with respect to each nominee is stated
below.
Directors Nominated for One-Year Terms:
Our executive officers and directors and their respective ages are as
follows:
Position
Name Age Position Since
- ----------------------------- ------- --------------------------------------------- -----------------
Leslie Bernhard 58 President, Chief Executive Officer and 1991
Director
Eli Rousso 65 Executive Vice President, Chief Technology 1991
Officer, Secretary, Treasurer, and Director
Jeffrey Baudo 55 Senior Vice President, Chief Operating 2001
Officer, and Director
Corey E. Shaker(1) 43 Director 2002
Stephen A. Zelnick(1) 64 Director 2002
- ---------------------------------------------------------------------------------------------------------------
(1) Members of the compensation and the audit committees of the Board of
Directors.
Leslie Bernhard, one of our co-founders, has served as our President and
Chief Executive Officer since the organization of our predecessor in 1986. Ms.
Bernhard received a B.S. degree from St. John's University. Ms. Bernhard is the
sister of Mr. Baudo.
Eli Rousso, our other co-founder, has served as our Executive Vice
President and Chief Technology Officer since the organization of our predecessor
in 1986. Mr. Rousso received a B.S. degree in Electrical Engineering from
Massachusetts Institute of Technology (MIT) and has completed graduate work at
the Polytechnic Institute (New York).
Jeffrey Baudo joined us as Chief Operating Officer in January 2001 and
became a director in February 2001. Prior to joining AdStar, Mr. Baudo served as
president and COO of a publishing division of United Advertising Publications
during the 5 prior years. Mr. Baudo received a B.A. degree from St. Johns
University. Mr. Baudo is the brother of Ms. Bernhard.
Corey E. Shaker, a director, has been the President and Chief Operating
Officer of Hometown Auto Retailers, Inc., an automotive dealership group, since
February 2000. Since August 2000 he has also been the Chief Executive Officer of
Hometown. Previously, from October 1997 to February 2000, he was Vice
President-Connecticut Operations for Hometown. Prior to that, for more than five
years, he was Chief Operating Officer and General Manager of Family Ford Inc.,
one of the constituent dealerships in Hometown. Mr. Shaker also serves on
Hometown's Board of Directors. He received a B.S. degree in Business
Administration from Providence College.
2
Stephen A. Zelnick, a director, has been a partner in the law firm Morse,
Zelnick, Rose & Lander, LLP since its inception in August 1995. Mr. Zelnick
serves on the Board of Directors of Milestone Scientific, Inc., a developer and
manufacturer of medical and dental equipment and DAG Media, Inc. a publisher of
classified telephone directories. Mr. Zelnick received a B.S. degree in
Economics with an accounting major from the Wharton School of the University of
Pennsylvania in 1957 and an LLB from Yale Law School in 1960.
All directors hold office until the next annual meeting of stockholders
and until their successors are duly elected and qualified. Officers are elected
to serve, subject to the discretion of the Board of Directors, until their
successors are appointed.
AdStar's Board of Directors has established compensation and audit
committees. The Compensation Committee reviews and recommends to the Board of
Directors the compensation and benefits of all the officers of AdStar, reviews
general policy matters relating to compensation and benefits of employees of
AdStar, and administers the issuance of stock options to AdStar's officers,
employees, directors and consultants. The Audit Committee meets with management
and AdStar's independent auditors to determine the adequacy of internal controls
and other financial reporting matters
Committees of the Board of Directors
During the last fiscal year AdStar's Board of Directors held 4 meetings.
AdStar's Board of Directors has established a Compensation Committee and an
Audit Committee.
The Compensation Committee reviews and recommends to the Board of
Directors the compensation and benefits of all the officers of AdStar, reviews
general policy matters relating to compensation and benefits of employees of
AdStar, and administers the issuance of stock options to AdStar's officers,
employees, directors and consultants. The members of the Compensation Committee
consist of Stephen Zelnick, and Corey Shaker. The Compensation Committee met 2
times in fiscal year 2001.
AdStar's Board of Directors has adopted a written charter of the Audit
Committee. The Audit Committee meets with management and AdStar's independent
auditors to determine the adequacy of internal controls and other financial
reporting matters. The Audit Committee approved the selection of
PricewaterhouseCoopers LLP as AdStar's independent auditors and met with the
auditors to review the planned scope and the results of the audit. The members
of the Audit Committee consist of Stephen Zelnick, and Corey Shaker, both of who
are independent (as defined in Rule 4200(a)(14) of the National Association of
Securities Dealers'.) The Audit Committee met 1 time in fiscal year 2001. (See
also "Audit Committee Report," below.)
All directors attended at least 75% of the aggregate of the total number
of meetings of the Board of Directors and of all committees of the Board on
which that director served.
The Board of Directors Unanimously Recommends A Vote FOR The Election Of
Each Of The Nominees.
3
APPROVAL OF AMENDMENT TO THE ADSTAR 1999 STOCK OPTION PLAN
TO INCREASE AUTHORIZED SHARES
The Board of Directors on January 28, 2002 adopted resolutions approving
an amendment to AdStar's 1999 Stock Option Plan (the "Stock Option Plan") to
increase the number of shares available for issuance thereunder from 500,000 to
1,500,000 shares and directing that the proposed amendment be submitted to a
vote of the stockholders at the Annual Meeting. The Board of Directors
determined that the amendment is in the best interests of AdStar and unanimously
recommends approval by the stockholders.
Background and Reasons for the Proposal
In June 1999, in order to attract and retain persons necessary for the
success of AdStar, we adopted our Stock Option Plan which reserved under it up
to 500,000 shares of Common Stock for award grants. Pursuant to the Stock Option
Plan officers, directors and key employees of AdStar and consultants to AdStar
are eligible to receive incentive and/or non-incentive stock options. The
purpose of the Stock Option Plan is to provide a flexible framework that permits
the Board to develop and implement stock-based incentive compensation programs
based on changing needs of AdStar in its competitive market.
A committee designated by the Board of Directors administers the Stock
Option Plan, which expires in June 2009. The selection of participants,
allotment of shares, determination of price and other conditions relating to the
purchase of options will be determined by the committee, in its sole discretion.
Stock options granted under the Stock Option Plan are exercisable for a period
of up to 10 years from the date of grant at an exercise price which is not less
than the fair market value of our Common Stock on the date of the grant, except
that the term of an incentive stock option granted under the Stock Option Plan
to a stockholder owning more than 10% of the outstanding Common Stock may not
exceed five years and its exercise price may not be less than 110% of the fair
market value of our Common Stock on the date of the grant.
4
Equity Compensation Plan Information
The following table summarizes the (i) options granted under the Stock
Option Plan, (ii) options granted outside the Stock Option Plan and (iii)
issuances of Common Stock under our Vendor Plan (described below), as of
December 31, 2001. The shares covered by outstanding options are subject to
adjustment for changes in capitalization stock splits, stock dividends and
similar events. No other equity compensation has been issued.
Equity Compensation Plan Table
-------------------------------------------------------------------
Number of
securities
remaining available
for future issuance
under equity
Number of securities Weighted-average compensation plans
to be issued upon exercise price of (excluding
exercise of outstanding securities
outstanding options, options, warrants reflected in column
warrants and rights and rights (a))
(a) (b) (c)
------------------------------------------------------------------
Equity Compensation Plans Approved By
Security Holders
- --------------------------------------------
Grants under the AdStar, Inc. 1999 Stock
Option Plan.................................. 468,459 $ 1.58 31,541
Equity Compensation Plans Not Requiring
Approval By Security Holders
Aggregate Individual Option Grants .......... 375,001 $ 5.42 Not applicable
Vendor Plan (1) ............................. 216,104 Not applicable 183,896
------- -------------- -------
Total Option Grants ......................... 843,460 $ 3.29 31,541
------- -------- -------
Total Issuances under the Vendor Plan ....... 216,104 Not applicable 183,896
------- -------------- -------
- -----------------------------------------------------------------------------------------------------------------
(1) Reflect shares of AdStar Common Stock.
o The aggregate individual option grants outside the Stock Option Plan
referred to in the table above includes: (a) warrants issued to the underwriter
in our initial public offering for the purchase of 200,000 shares of Common
Stock, with an exercise price of $7.20 per share; and (b) warrants issued to our
public relations firms for the purchase of an aggregate of 125,000 shares of
Common Stock, consisting of warrants to purchase 50,000 shares, with an exercise
price $1.50 per share, warrants to purchase 50,000 shares, with an exercise
price $2.00 per share and warrants to purchase 25,000 shares, with an exercise
price $10.00 per share.
o In December 1999, AdStar established a plan (the "Vendor Plan") to pay
vendors, who are accredited investors (as defined under Rule 215 of the
Securities Act of 1933), in shares of its Common Stock, valued at fair market
value, for goods or services. Up to 400,000 shares may be issued under the
Vendor Plan. Under the Vendor Plan, as of December 31, 2001, an aggregate of
216,104 shares of Common Stock had been issued leaving 183,896 shares available
for future issuance. Subsequently, in June 2002, 67,796 shares issued under the
Vendor Plan were returned to AdStar by a vendor in settlement of a potential
claim by AdStar.
5
Grants Under the Stock Option Plan
As of July 2002, incentive stock options covering 485,474 shares were
issued and outstanding under the Stock Option Plan leaving only 14,526 shares
available for future grants. In addition, options for 150,000 shares had been
granted to each of Leslie Bernhard, Eli Rousso and Jeffrey Baudo. In order to
continue AdStar's program of stock-based incentive compensation for its
executive officers and employees, the Board of Directors has approved an
amendment to the Stock Option Plan increasing the number of shares available for
issuance and/or grant thereunder by 1,000,000. The options granted to Leslie
Bernhard, Eli Rousso and Jeffrey Baudo will be treated as nonqualified option
grants outside the Stock Option Plan unless the amendment is approved. If the
amendment is approved those options will be treated as incentive stock options
under the Stock Option Plan. The options issued to Leslie Bernhard, Eli Rousso,
and Jeffrey Baudo (i) are exercisable at 100% of the fair market value of Common
Stock on date of the grant; (ii) have a two-year vesting schedule provided that
the option holder remain an employee during that period; and (iii) expire
automatically within five years from the date of grant.
The following table summarizes the number and value of unexercised options
granted under the Stock Option Plan and held as of July 15, 2002. The realizable
value of options represents the positive spread between the exercise price of
any such option and the market value of Common Stock on July 15, 2002.
Grants Under The 1999 Stock Option Plan
Prior to Approval of After Approval of
Proposed Amendment Proposed Amendment
----------------------------- ---------------------------
Number of
Shares of Wgt-Avg Number of Wgt-Avg
Common Exercise Realizable Shares of Exercise Realizable
Stock Price of Value of Common Stock Price of Value of
Underlying outstanding unexercised Underlying outstanding unexercised
Name and Principal Outstanding Options Options Outstanding Options Options
Position Options ($) ($) Options ($) ($)
- ------------------------- ------- ---------- ----------- ------- ---------- -------
Leslie Bernhard
President and Chief
Executive Officer 100,000 0.81 --0-- 250,000 0.68 28,500
Eli Rousso
Executive Vice
President and Chief
Technology Officer 100,000 0.81 --0-- 250,000 0.68 28,500
Jeffrey Baudo
Chief Operating Officer 100,000 1.25 --0-- 250,000 0.86 28,500
Jeffrey Diamond
Vice President-Technology 25,000 1.66 --0-- 25,000 1.66 --0--
Cris Hopkins (1)
Vice President and
Acting Chief Financial
Officer 30,000 1.14 --0-- 30,000 1.14 --0--
Executive Officers, as
a group of 3 persons 300,000 0.96 --0-- 750,000 0.74 85,500
Directors other than
Officers 0 N/A N/A N/A N/A
Other Employees 130,474 2.32 7,909 130,474 2.32 7,909
- --------------------------------------------------------------------------------------------------------------------
Number Of Options
Remaining Available For
Future Issuance 14,526 564,526
- --------------------------------------------------------------------------------------------------------------------
(1) Resigned from AdStar as of May 22, 2002.
The Board of Directors Unanimously Recommends A Vote FOR
The Approval Of An Amendment To The AdStar 1999 Stock
Option Plan Increasing The Number Of Shares Of Common
Stock Available For Issuance Thereunder.
6
APPROVAL AND RATIFICATION OF THE MARCH 18, 2002 TRANSACTION WITH TRIBUNE COMPANY
In March 2002, we entered into a series of significant contracts with the
Tribune Company. Under these agreements, we sold 1,443,457 shares of our Series
A Preferred (described below) to Tribune Company for $1.244 per share, raising
an additional $1.8 million of working capital. The sale price was at a premium
to the average closing price of $1.125 per share for our Common Stock for the 30
days prior to March 18, 2002. Additionally, we agreed to develop and customize a
version of our Web software applications to provide for Web-based technology for
recruitment classified advertising sales to all major market Tribune newspapers
and on-line services in exchange for earning volume-based ASP fees for ads
placed through the Web using our customized software. This customization will
provide a platform that allows Tribune owned newspapers, together with a Tribune
affiliated company, CareerBuilder, Inc. (www.careerbuilder.com), to receive
recruitment advertising from agencies, corporate customers, and the general
public. From a practical standpoint, the customization work will need to be
substantially completed before they will be able to begin processing the
recruitment advertising and perform the related transactions. Therefore, we will
incur significant expenditures to complete the customization effort prior to the
point in time when we begin to earn the ASP fees from this arrangement. We
believe that the value we will realize from these arrangements far exceeds the
up-front expenditures required to complete the customization effort and also
enhances our position in the marketplace. The Board of Directors determined that
sale was in the best interests of AdStar and unanimously recommends approval and
ratification by the stockholders.
Background and Description
Under our certificate of incorporation, our Board of Directors is
authorized, subject to limitations prescribed by law, without further
stockholder approval, from time to time to issue up to an aggregate of 5,000,000
shares of our preferred stock. The preferred stock may be issued in one or more
series. Each series may have different rights, preferences and designations and
qualifications, limitations and restrictions that may be established by our
Board of Directors without approval from the stockholders.
We are requesting stockholder approval and ratification of this
transaction because the anti-dilution provisions associated with the Series A
Preferred (described below under the paragraph beginning with "Conversion") can
potentially result in the issuance of greater than 20% of our Common Stock
outstanding on March 18, 2002 and at a price below its then market value of
$1.15 (based on the closing bid price on March 15, 2002) upon conversion of all
the Series A Preferred. As a result, the Nasdaq has advised us that approval of
this transaction by holders of our Common Stock would be necessary to be in
compliance with their shareholder approval requirement for such issuances and to
avoid being subject to delisting proceedings.
Series A Convertible Preferred Stock
In March 2002, our Board of Directors designated 1,443,457 shares of our
preferred stock as Series A convertible preferred stock, par value $.0001 per
share (the "Series A Preferred"). The Series A Preferred has the following
characteristics:
Voting Rights - Each holder of the Series A Preferred is entitled to the
number of votes equal to the number of shares of Common Stock into which
such holder's shares are convertible. AdStar cannot amend its certificate
of incorporation amending the rights of the Series A
Preferred stockholders, enter into any capital stock or equity agreements
with rights ranking the same or above the rights of the Series A Preferred
or liquidate without the approval of at least a majority of the holders of
the Series A Preferred then outstanding.
Liquidation Preference - In the event of any liquidation, dissolution or
winding up of the affairs of AdStar, the holders of the Series A Preferred
will be entitled to receive in preference to the holders of the Common
Stock, an amount per share equal to $1.244 plus accrued and unpaid
dividends. After such payment, the Series A Preferred stockholders share
equally with the common stockholders in any remaining assets or funds of
AdStar.
Conversion - Each share of the Series A Preferred is convertible at
anytime at the option of the holder into shares of Common Stock pursuant
to a ratio of one share of Common Stock for each share of Series A
Preferred, subject to certain stock split and stock dividend adjustments.
In addition, the conversion ratio is subject to adjustment, if AdStar
issues Common Stock at a per share price less than $1.244 per share. All
Series A Preferred will automatically convert to Common Stock on the first
day after March 18, 2004 for which the market price of the Common Stock
exceeds $2.25 per share.
Dividends - Dividends on the Series A Preferred accrue at 7% per year
through the date of liquidation or conversion. In the event of conversion
all accrued and unpaid dividends will be waived.
The Board Of Directors Re commends A Vote FOR The Approval And
Ratification Of The March 18, 2002 Transaction
With Tribune Company.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors of AdStar, subject to stockholder approval, has
appointed PricewaterhouseCoopers LLP as AdStar's independent auditors for 2002.
PricewaterhouseCoopers LLP has been AdStar's independent auditors since 1999.
The report of PricewaterhouseCoopers LLP with respect to AdStar's financial
statements appears in AdStar's annual report for the fiscal year ended December
31, 2001. A representative of PricewaterhouseCoopers LLP will be at the annual
meeting and will have an opportunity to make a statement if he desires to do so
and will be available to respond to appropriate questions. In the event the
stockholders fail to ratify the appointment, AdStar's Board will consider it a
directive to consider other auditors for the subsequent year.
The Board of Directors Unanimously Recommends A Vote FOR The Ratification
Of The Appointment Of The Independent Auditors.
7
EXECUTIVE COMPENSATION AND TRANSACTIONS WITH DIRECTORS, OFFICERS AND
PRINCIPAL HOLDERS
The following Summary Compensation Table sets forth all compensation
earned, in all capacities, during the fiscal years ended December 31, 1999, 2000
and 2001 by our (i) Chief Executive Officer, and (ii) executive officers, other
than the CEO, whose salary for the 2000 fiscal year as determined by Regulation
S-B, Item 402, exceeded $100,000 (the individuals falling within categories (i)
and (ii) are collectively referred to as the "Named Executives").
Summary Compensation Table
--------------------------------------
Long-Term Compensation
-----------------------------------
Annual Compensation Awards Payouts
--------------------------- ------------------- ------------------
Common Stock All Other
Salary Underlying Options Compensation
Name and Principal Position Year ($) (#) ($)
- -------------------------------- -------- ----------- ------------------- ------------------
Leslie Bernhard(4) 2001 251,680 100,000 0
President and Chief 2000 231,912 0 0
Executive Officer 1999 201,894 0 0
Eli Rousso(5) 2001 240,371 100,000 0
Executive Vice President 2000 230,301 0 0
and Chief Technology Officer 1999 201,894 0 0
Jeffrey Baudo(6) 2001 (1) 197,872 100,000 0
Chief Operating Officer
Jeffrey Diamond(7) 2001 187,224 0 0
Vice President -Technology 2000 138,725 25,000 0
1999 100,626 0 0
Cris Hopkins(8) 2001 (2) 107,917 20,000 0
Vice President and Acting 2000 (3) 42,051 10,000 0
Chief Financial Officer
- ----------
(1) Since commencement of employment on January 22, 2001.
(2) Appointed to the position of Acting Chief Financial Officer in
February 2001.
(3) Since commencement of employment on July 10, 2000.
(4) On July 1, 2002, Leslie Bernhard agreed to a $38,880 reduction
(compared to 2001) in her total annual compensation to $212,800.
(5) On July 1, 2002, Eli Rousso agreed to a $27,571 reduction (compared to
2001) in his total annual compensation to $212,800.
8
(6) As of July 1, 2002, Jeffrey Baudo agreed to a $21,300 reduction
(compared to 2001) in his total annual compensation to $191,700.
(7) As of July 1, 2002, Jeffrey Diamond agreed to a $62,224 reduction
(compared to 2001) in his total annual compensation to $125,000.
(8) Resigned from AdStar as of May 22, 2002.
Stock Options
The following tables show certain information with respect to incentive
and non-qualified stock options granted in 2001 to the Named Executives under
AdStar's 1999 Stock Option Plan who received options and the aggregate value at
December 31, 2001 of such options. The per share exercise price of all options
is equal to the fair market value of a share of Common Stock on the date of
grant. No options granted to any Named Executives have been exercised.
Option Grants in 2001
--------------------------------------------
Individual Grants of Options
--------------------------------------------
Number of Shares Percent of Total Exercise Price
of Common Stock Options Granted to Exercise Price
Name Underlying Options Employees in 2001 ($/Sh) Expiration Date
- ---------------------------- -------------------- -------------------- ---------------- ------------------
Leslie Bernhard 100,000 25.8% $0.810 June 2006
Eli Rousso 100,000 25.8% $0.810 June 2006
Jeffrey Baudo(1) 100,000 25.8% $1.250 February 2006
Cris Hopkins(1) 20,000 5.1% $0.875 March 2006
- ----------
(1) The options vest in 1/3 increments on each of the 1st, 2nd and 3rd of the
employee's anniversary.
Aggregated 2001 Year End Options Values
--------------------------------------------
Value of Unexercised
In-The-Money Options At
Number of Shares of Common Stock Underlying 12/31/01
Unexercised Options at 12/31/01 Exercisable (E)/
Name Exercisable (E)/ Unexercisable (U) Unexercisable (U)
- ---------------------------- --------------------------------------------- --------------------------------
Leslie Bernhard 100,000(E)/--0--(U) $--0--
Eli Rousso 100,000(E)/--0--(U) $--0--
Jeffrey Baudo --0--(E)/ 100,000(U) $--0--
Jeffrey Diamond 8,334(E)/ 16,666(U) $--0--
Cris Hopkins 10,000(E)/ 20,000(U) $--0--
9
Employment Contracts
On July 1, 2002, AdStar entered into four-year employment agreements with
each of Leslie Bernhard and Eli Rousso. Their prior agreements expired on June
30, 2002. Pursuant to her employment agreement, Leslie Bernhard was retained as
our Chief Executive Officer and her total annual compensation was reduced to
$212,800. Pursuant to his employment agreement, Eli Rousso was retained as our
Executive Vice President and his total annual compensation was reduced to
$212,800. Each agreement provides, among other things, for participation in an
equitable manner in any profit-sharing or retirement, separation and disability
plans for employees or executives and for participation in other employee
benefits applicable to employees and executives of AdStar. Each agreement
further provides for fringe benefits which commensurate with the executive's
duties and responsibilities. Under each agreement, employment may be terminated
by us with cause or by the executive with good reason. Termination by us without
cause, or by the executive for good reason, would subject us to liability for
liquidated damages in an amount equal to the terminated executive's base salary
for the remaining term of his or her employment agreement or 12 months,
whichever is greater.
In January 2001, AdStar entered into a 2-year employment contract with Mr.
Jeffrey Baudo. Pursuant to his employment agreement, Mr. Baudo was retained as
our Chief Operating Officer at an annual rate of $213,000 per year, and granted
options to purchase 100,000 shares of AdStar's common stock. Subsequently, as of
July 1, 2002, Mr. Baudo agreed to an amendment to employment agreement reducing
his annual rate of compensation to $191,700.
1999 Stock Option Plan
A description of our 1999 Stock Option Plan is provided under the heading
"Background and Reasons for the Proposal" set forth above in the proposal titled
"Approval of Amendment to the Adstar 1999 Stock Option Plan to Increase
Authorized Shares." For grants to the Named Executive Officers, see the chart
above titled "Option Grants in 2001".
10
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table, together with the accompanying footnotes, sets forth
information, as of July 24, 2002, regarding stock ownership of all persons known
by AdStar to own beneficially more than 5% of AdStar's outstanding Common Stock,
Named Executives, all directors, and all directors and officers of AdStar as a
group:
Shares of
Common Stock
Beneficially Percentage of
Name of Beneficial Owner (1) Owned (2) Ownership
- ----------------------------------------- -------------- -----------
Leslie Bernhard (3) 785,054 9.2%
Eli Rousso (3) 812,976 9.5%
Jeffrey Baudo (4) 108,333 1.3%
Jeffrey Diamond (5) 8,334 *
Stephen A. Zelnick (6) 128,636 1.6%
Corey E. Shaker (7) 25,000 *
Chester L. F. Paulson (8) 2,211,799 25.3%
Tribune Company (9) 1,443,457 14.9%
All Directors and Officers (7 persons) as a group 1,868,333 22.0%
- ----------
* less than 1%
(1) The addresses of the persons named in this table are as follows: Leslie
Bernhard, Eli Rousso, Jeffrey Baudo, Cris Hopkins, and Jeffrey Diamond c/o
AdStar, Inc., 4553 Glencoe Avenue, Suite 325, Marina del Rey, CA 90292;
Stephen A. Zelnick c/o Morse Zelnick, Rose & Lander, 450 Park Avenue, New
York, NY 10022; Corey E. Shaker 774 Straits Turnpike, Watertown
Connecticut 06795; Chester L. F. Paulson, c/o Paulson Capital Corp. 811 SW
Naito Parkway, Suite 200, Portland, OR 97204, and Tribune Company, 435 N.
Michigan Ave. Chicago IL, Attn: General Counsel.
(2) A person is deemed to be a beneficial owner of securities that can be
acquired by such person within 60 days from the filing of this report upon
the exercise of options and warrants or conversion of convertible
securities. Each beneficial owner's percentage ownership is determined by
assuming that options, warrants and convertible securities that are held
by such person (but not held by any other person) and that are exercisable
or convertible within 60 days from July 24, 2002 have been exercised or
converted. Except as otherwise indicated, and subject to applicable
community property and similar laws, each of the persons named has sole
voting and investment power with respect to the shares shown as
beneficially owned. On July 24, 2002, 8,253,257 shares of Common Stock
were outstanding which include 12,000 shares issuable to vendors under our
Vendor Compensation program.
(3) Includes an aggregate of 110,054 shares in respect of which Ms. Bernhard
and Mr. Rousso have voting power. Additionally, Ms. Bernhard and Mr.
Rousso each have options to purchase 100,000 and 75,000 shares of AdStar
common stock at $0.81 and $0.60 per share, respectively, exercisable
within 60 days.
11
(4) Consists of options to purchase 33,333 and 75,000 shares of AdStar common
stock, at $1.25 and $0.60 per share, exercisable within 60 days.
(5) Consist of options to purchase 8,334 shares of common stock of AdStar, at
$1.66 per share, exercisable within 60 days.
(6) Includes: (i) options to purchase 25,000 shares of common stock of AdStar,
at $0.60 per share, and warrants to purchase 25,000 shares of AdStar
common stock, at $1.07 per share, exercisable within 60 days; and (ii)
28,636 shares of common stock of AdStar which represents Mr. Zelnick's
proportionate interest in 114,545 shares beneficially owned by a nominee
of Morse, Zelnick, Rose & Lander, LLP, of which Mr. Zelnick is a member.
The filing of this report shall not be construed as an admission that Mr.
Zelnick is the beneficial owner of any of the shares owned by the nominee
for the purposes of Section 13(d) or 13(g) of the Securities Exchange Act
of 1934, as amended.
(7) Consists of options to purchase 25,000 shares of AdStar common stock at
$.60 per share, exercisable within 60 days.
(8) Includes currently exercisable warrants held by Mr. Paulson to purchase,
1,979 and 59,000 shares of common stock at $0.75 and $9.00, respectively,
as well as 205,200 shares of common stock. In addition, Mr. Paulson has
control over currently exercisable warrants to purchase 22,137, 250,000
and 140,500 shares of common stock at $0.75, $1.07 and $9.00,
respectively, as well as, 1,532,983 shares of common stock, all held in
the name of Paulson Investment Corp.
(9) Consists of 1,443,457 shares of Series A Preferred Stock, which currently
convert into Common Stock on a 1 for 1 basis.
Certain Relationships and Related Transactions
In February 2001, AdStar satisfied the $1.1 million note bearing interest
annually at a rate of 6%, held by Paulson Capital Corporation, of which Chester
Paulson is the controlling shareholder, by issuing 593,483 shares of common
stock to Paulson Capital Corporation in payment of principal and accrued
interest totaling $1,186,966.
During 2001, AdStar paid Morse, Zelnick, Rose and Lander LLP, its legal
counsel and of which Stephen Zelnick is a member, $83,366.58 for legal fees and
disbursements. In addition, in January 2002, AdStar issued to Morse, Zelnick,
Rose and Lander LLP, 114,545 shares of restricted common stock, at fair market
value in full settlement of a $62,500 liability for legal fees included in the
year-end financial statements.
In January 2002, AdStar completed a private offering of 1,300,000 shares
of its common stock to accredited investors, raising $650,000 in capital. In
connection with this offering AdStar paid $65,000 to Paulson Investment Company,
Inc., as part of the placement agent fees. Chester Paulson is the controlling
shareholder of Paulson Investment Company, Inc. and the beneficial owner of more
than 5% of AdStar's outstanding Common Stock. (See the table above titled
"Security Ownership of Certain Beneficial Owners and Management").
In March 2002, the Board of Directors approved the sale of 1,443,457
shares of our Series A Preferred Stock to Tribune Company for an aggregate
purchase price of approximately $1.8 million.
12
These shares carry a liquidation preference that includes a dividend of 7% per
year available only upon liquidation and currently convert on a 1:1 basis.
Shareholders of Series A Preferred Stock are entitled to vote on all matters
submitted to the stockholders for vote and vote as a single class with the
shareholders of our Common Stock. The holders of Series A preferred stock are
entitled to one vote for each share of common issuable upon conversion.
See also "Employment Contracts" above.
In July 2002, AdStar entered into a loan transaction with Leslie Bernhard
and Eli Rousso for $110,434 and $100,000, respectively. As part of the
transaction, Ms. Bernhard and Mr. Rousso each issued to AdStar an unsecured,
non-negotiable promissory note bearing interest at 5.56%with monthly principal
and interest payments of $763 and $691 payable on a monthly basis, with all
remaining outstanding principal and interest amounts due on July 31, 2022.
Concurrently, an outstanding note from Ms. Bernhard in the amount of $39,566 was
restructured under the same terms and conditions as the aforementioned new note.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires AdStar's
officers and directors, and persons who own more than ten percent (10%) of a
registered class of the AdStar's equity securities to file reports of ownership
and changes in ownership with the Securities and Exchange Commission ("SEC").
Officers, directors and greater than ten percent (10%) stockholders are required
by SEC regulations to furnish AdStar with copies of all Section 16(a) forms they
file.
To the best of AdStar's knowledge, based solely on review of the copies of
such forms furnished to AdStar, or written representations that no other forms
were required, AdStar believes that all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten percent (10%)
shareholders were complied as of the filing date of this Proxy Statement.
Audit Committee Report
The Audit Committee has reviewed AdStar's audited statements for the year
ended December 31, 2001. In conjunction with its review, the Audit Committee has
met with the management of AdStar to discuss the audited financial statements.
In addition, AdStar has discussed with its independent auditors,
PricewaterhouseCoopers LLP, the matters required pursuant to Statement on
Accounting Standards No. 61 and has received the written disclosures and the
letter from PricewaterhouseCoopers LLP required by the Independence Standards
Board No. 1. The Audit Committee has also discussed with PricewaterhouseCoopers
LLP its independence from management and AdStar. PricewaterhouseCoopers LLP has
full and free access to the Audit Committee.
Based on this review and discussion, the Audit Committee recommended to
the Board of Directors that the audited financial statements be included in
AdStar's Annual Report on Form 10-KSB for the fiscal year ended December 31,
2001 for filing with the Securities and Exchange Commission.
AUDIT COMMITTEE:
Stephen Zelnick
Corey Shaker
13
Audit Fees
The aggregate fees billed for the professional services rendered by
PricewaterhouseCoopers LLP for the audit of AdStar's annual financial statements
for fiscal year 2001 and the reviews of AdStar's quarterly financial statements
included in AdStar's Forms 10-QSB for fiscal year 2001 totaled $ 98,000.
Financial Information System Design and Implementation Fees
AdStar did not incur any fees for professional services rendered by
PricewaterhouseCoopers LLP in connection with information systems design and
implementation during the 2001 fiscal year.
All Other Fees
The aggregate fees billed for services rendered in year 2001 by
PricewaterhouseCoopers LLP, other than the services covered in the paragraph
above headed Audit Fees, totaled $15,000 for services related to the review of
AdStar's registration statement on Form S-3 and for services related to federal
and state income tax filings.
Audit Committee Consideration
AdStar's Audit Committee has considered whether PricewaterhouseCoopers
LLP's provision of the services which generated the Audit and Other Fees
reported above is compatible with maintaining PricewaterhouseCoopers LLP 's
independence as AdStar's principal independent accounting firm.
Work Performed by Principal Accountant's Full Time Permanent Employees
PricewaterhouseCoopers LLP services rendered in performing AdStar's audits
for fiscal year 2001 were performed by full time, permanent employees and
partners of PricewaterhouseCoopers LLP.
14
MISCELLANEOUS
Stockholder Proposals
Stockholder proposals intended to be presented at AdStar's 2003 Annual
Meeting must be received by AdStar for inclusion in AdStar's proxy statement
relating to that meeting not later than April 30, 2003. Such proposals should be
addressed to Eli Rousso, Secretary, AdStar, Inc., 4553 Glencoe Avenue, Suite#
325, Marina del Rey, California 90292.
Other Matters
The management knows of no other business which will be presented for
consideration at the Annual Meeting other than that stated in the notice of
meeting.
Solicitation Of Proxies
The cost of this proxy solicitation and any additional material relating
to the meeting which may be furnished to the stockholders will be borne by
AdStar. In addition, solicitation by telephone, telegraph or other means may be
made personally, without additional compensation, by officers, directors and
regular employees of AdStar. AdStar also will request brokers, dealers, banks
and voting trustees and their nominees holding shares of record but not
beneficially to forward proxy soliciting material to beneficial owners of such
shares, and AdStar, upon request, will reimburse them for their expenses in so
doing.
Reports and Financial Statements
AdStar's Annual Report for the year ended 2001, including Audited Financial
Statements is included with this proxy material. The Financial Statements
contained in the Annual Report are incorporated by reference and are part of
this soliciting material.
A copy of AdStar's Annual Report to the Securities and Exchange Commission
on Form 10-KSB/A, without exhibits, will be provided without charge to any
stockholder submitting a written request. Such request should be addressed to
Eli Rousso, Secretary, AdStar, Inc., 4553 Glencoe Avenue, Suite# 325, Marina del
Rey, California 90292.
EVERY STOCKHOLDER, WHETHER OR NOT HE OR SHE EXPECTS TO ATTEND THE ANNUAL
MEETING IN PERSON, IS URGED TO EXECUTE THE PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED BUSINESS REPLY ENVELOPE.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Eli Rousso
-----------------------------------
Eli Rousso, Secretary
Dated: Marina del Rey, California
July 31, 2002
15
APPENDIX I (FORM OF PROXY)
ADSTAR, INC.
P R O X Y
FOR ANNUAL MEETING OF THE STOCKHOLDERS
September 5, 2002
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Leslie Bernhard and Eli Rousso, and each
of them, with full power of substitution, as proxies to vote the shares which
the undersigned is entitled to vote at the Annual Meeting of the Stockholders of
AdStar, Inc. ("AdStar") to be held at 4553 Glencoe Avenue, Marina del Rey,
California 90292, on Thursday, September 5, 2002 at 10:00 A.M., Pacific Time and
at any adjournments thereof, hereby revoking any proxies heretofore given, to
vote all shares of common stock of AdStar held or owned by the undersigned as
indicated on the proposals as more fully set forth in the Proxy Statement, and
in their discretion upon such other matters as may come before the meeting.
Please mark "X" your votes as indicated :
1. ELECTION OF DIRECTORS: Leslie Bernhard, Eli Rousso, Jeffrey Baudo, Stephen A.
Zelnick and Corey E. Shaker
FOR election of all nominees [_]
WITHHOLD vote from all nominees [_]
FOR all nominees, [_]
EXCEPT for nominee(s) listed below from whom Vote is withheld.
- ------------------------------------------------------------
2. Amendment of the 1999 Stock Option Plan.
FOR [_] AGAINST [_] ABSTAIN [_]
3. Approval and Ratification of the March 18, 2002 Transaction with Tribune
Company.
FOR [_] AGAINST [_] ABSTAIN [_]
4. Confirmation of the appointment of PricewaterhouseCoopers LLP as auditors for
AdStar for the year ending December 31, 2002.
FOR [_] AGAINST [_] ABSTAIN [_]
(Continued, and to be signed, on the Reverse Side)
- --------------------------------------------------------------------------------
FOLD HERE
- --------------------------------------------------------------------------------
THIS PROXY WHEN PROPERLY SIGNED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1, 2, and 3.
The undersigned hereby acknowledges receipt of the Notice of, and Proxy
Statement for, the aforesaid Annual Meeting.
Dated: , 2002
-----------------------------------
Signature of Stockholder
-----------------------------------
Signature of Stockholder
NOTE: When shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee, or guardian, please give full title
as such. If a corporation, please sign in full corporate name by President or
other authorized officer. If a partnership, please sign in partnership name by
an authorized person.
IMPORTANT - PLEASE FILL IN, SIGN AND RETURN PROMPTLY USING THE ENCLOSED
ENVELOPE.