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RULE 424(b)(4)
Registration Statement No. 333-81417
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25,0000 SHARES
PEGASUS SYSTEMS, INC.
COMMON STOCK
This prospectus relates to the offering of up to 25,000 shares of
common stock of Pegasus Systems, Inc., which is not being underwritten. We
are registering the common stock for the account of one of our stockholders
who received shares of our common stock in connection with the exercise of a
warrant.
We will not receive any of the proceeds from the sale of the shares
offered by this prospectus. All the expenses related to the registration of
the shares will be paid by us, except that the selling stockholder will pay
any underwriting, brokerage or related fees, discounts and commissions and
the fees or expenses of counsel or advisors to the selling stockholder.
The selling stockholder may sell the shares directly or through one or
more broker-dealers on the Nasdaq National Market, in negotiated
transactions or otherwise, at prices related to the prevailing market prices
or at negotiated prices. See "Plan of Distribution." Our common stock is
traded on the Nasdaq National Market under the symbol "PEGS." On July 2,
1999, the last reported sale price for the common stock on the Nasdaq
National Market was $39.44 per share.
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INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 5.
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Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or passed
upon the adequacy or accuracy of this prospectus. Any representation to the
contrary is a criminal offense.
THE DATE OF THIS PROSPECTUS IS JULY 6, 1999.
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TABLE OF CONTENTS
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Where You Can Find More Information 1
Information Incorporated by Reference 1
Summary 3
Risk Factors 5
Forward-Looking Statements 14
Use of Proceeds 14
Selling Stockholder 14
Plan of Distribution 14
Legal Matters 16
Experts 16
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WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities
Exchange Act of 1934 and therefore we file annual, quarterly and current
reports, proxy statements and other documents with the Securities Exchange
Commission ("SEC" or "Commission"). You may read and copy any of the reports,
proxy statements and any other information that we file at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0300. In addition, the SEC maintains a Internet site at http:
//www.sec.gov that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC. Our
common stock is quoted on the Nasdaq National Market under the trading symbol
"PEGS." Reports, proxy and information statements and other information about
us may be inspected at the National Association of Securities Dealers, Inc. at
1735 K Street, N.W., Washington, D.C. 20006.
We have filed with the SEC a registration statement on Form S-3 under the
Securities Act of 1933, as amended, ("Securities Act") with respect to the
shares of common stock offered in this prospectus. This prospectus is part of
that registration statement and, as permitted by the Commission's rules, does
not contain all of the information set forth in the registration statement. For
further information about us and our common stock, we refer you to those copies
of contracts or other documents that have been filed as exhibits to the
registration statement, and statements relating to such documents are qualified
in all respects by such reference. You can review and copy the registration
statement and its exhibits and schedules from the SEC at the address listed
above or from its Internet site.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" into this prospectus
information we file with the SEC in other documents. This means that we can
disclose important information to you by referring to other documents that we
file with the SEC. The information may include documents filed after the date of
this prospectus which update and supersede the information you read in this
prospectus. We incorporate by reference the documents listed below, except to
the extent information in those documents is different from the information
contained in this prospectus, and all future documents filed by us with the SEC
under Section 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934,
as amended, until the offering of these shares is terminated: (1) Our annual
report on Form 10-K for the fiscal year ended December 31, 1998; (2) The
description of our capital stock contained in our registration statement on Form
8-A filed with the Commission on August 9, 1997; (3) The description of the
rights to purchase Series A Preferred Stock contained in our registration
statement on Form 8-A filed with the Commission on October 9, 1998; and (4) Our
quarterly report on Form 10-Q for the quarter period ended March 31, 1999.
Any statement contained in a document incorporated or deemed to be
incorporated by reference in this prospectus shall be deemed modified,
superseded or replaced for purposes of this prospectus to the extent that a
statement contained in this prospectus or in any subsequently filed document
that also is or is deemed to be incorporated by reference in this prospectus
modifies, supersedes or replaces such statement. Any statement so modified,
superseded or replaced shall not be deemed, except as so modified, superseded
or replaced, to constitute a part of this prospectus.
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We will provide without charge to each person, including any
beneficial owner, to whom a copy of this prospectus is delivered, upon such
person's written or oral request, a copy of any or all of the information
incorporated by reference in this prospectus (other than exhibits to such
documents, unless such exhibits are specifically incorporated by reference into
the information that this prospectus incorporates). Requests should be directed
to Pegasus Systems, Inc., 3811 Turtle Creek Boulevard, Suite 1100, Dallas,
Texas 75219, Attention: Ric Floyd, telephone number (214) 528-5656.
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SUMMARY
This summary may not contain all of the information that you should
consider before investing in our common stock. You should read the entire
prospectus carefully, including "Risk Factors", before making an investment
decision.
PEGASUS SYSTEMS, INC.
We are a leading provider of transaction processing and electronic
commerce services to the hotel industry worldwide. We are organized into three
businesses: Pegasus Electronic Distribution, Pegasus Commission Processing and
Pegasus Business Intelligence.
o PEGASUS ELECTRONIC DISTRIBUTION includes our GDS distribution service and
Internet-based distribution services. These services improve the efficiency
and effectiveness of the hotel reservation process by enabling travel
agents and individual travelers to electronically access hotel room
inventory information and conduct reservation transactions.
-- Our GDS distribution service, formerly known as THISCO, provides an
electronic interface between a hotel's central reservation system and
the global distribution systems that travel agents use to book hotel
and airline reservations. Global distribution systems are electronic
travel information and reservation systems such as Sabre and Galileo.
-- Our Internet-based distribution services include TravelWeb.com and our
private-label reservation service. Our TravelWeb.com service provides
hotel and airline reservation capabilities to individual travelers
through our website, www.travelweb.com. Our private-label reservation
service, formerly known as NetBooker, offers comprehensive hotel
information and reservation capabilities to third-party websites. In
addition, we are developing services to help automate the hotel
reservation process for conventions and large meetings as well as for
corporate travel departments.
o PEGASUS COMMISSION PROCESSING, formerly known as HCC, is the global
leader in hotel commission payment processing. Pegasus Commission
Processing improves the efficiency and effectiveness of the commission
payment process for participating hotels and travel agencies by
consolidating payments and providing comprehensive transaction reports.
o PEGASUS BUSINESS INTELLIGENCE, formerly known as Pegasus IQ and Driving
Revenue, provides database marketing and consulting services and is being
expanded to provide data mining and reporting services for benchmark
analysis and strategic planning for the hotel industry.
The hotel industry includes a wide variety of participants processing
complex transactions and detailed information. Hotel companies pay many types
of costs associated with reserving and distributing hotel rooms. These costs
include commissions and fees paid to intermediaries, such as traditional and
Internet-based travel agencies as well as global distribution systems, staffing
costs for hotel reservation personnel and information technology expenses for
hotel reservation systems. We believe these costs represent a significant
portion of a hotel company's total operating costs.
Our services simplify the processing of room reservation information and
transaction flows and reduce room distribution costs for the hotel industry.
These services benefit many of the participants in the hotel room distribution
process, including hotels, hotel representation firms, global distribution
systems, travel agencies, convention and other large travel-related meeting
organizers, corporate travel departments and websites with travel-related
features. Our strategic position as a gateway in the hotel room distribution
chain, our transaction processing capabilities and our reputation for
reliability and neutrality enable us to offer a range of services delivering
industry-wide benefits that are difficult for an industry participant to
achieve individually. Because we
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process transactions from a wide variety of sources, we are well positioned to
capitalize on the overall growth in electronic hotel reservations, whether made
through global distribution systems, the Internet or other means. We believe
our central role in the hotel industry room reservation process positions us to
achieve our goal of being the leading provider of information services and
technology in the distribution of hotel rooms.
CORPORATE INFORMATION
References in this prospectus to "Pegasus Systems, Inc.," "Pegasus," "we,"
"our," and "us" refer to Pegasus Systems, Inc. and our consolidated
subsidiaries. Our World Wide Web address is www.pegsinc.com. Information
contained in our website does not constitute part of this prospectus.
Our address is 3811 Turtle Creek Boulevard, Suite 1100, Dallas, Texas
75219, and our telephone number is (214) 528-5656.
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RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this prospectus before purchasing our common stock.
Investing in our common stock involves a high degree of risk. Any of the
following risks could materially adversely affect our business, operating
results and financial condition and could result in a complete loss of your
investment.
WE MAY LOSE MARKET SHARE AND BE REQUIRED TO REDUCE PRICES AS A RESULT OF OUR
INTENSELY COMPETITIVE MARKETS
We compete in markets that are rapidly evolving, intensely competitive and
involve continually changing technology and industry standards. We may not be
successful in competing against our current and future competitors. Our
competitors may be able to respond more quickly than we can to new or emerging
technology, services or changes in customer requirements. We may experience
increased competition from current and potential competitors, many of which
have significantly greater financial, technical, marketing and other resources
than we do. Other participants in the hotel room distribution process,
commission processing or business information industries as well as new
competitors, could create services that are more attractive than our services.
Competitive pressures could reduce our market share or require us to reduce the
prices of our services. Our inability to compete effectively with these
services could have a material adverse effect on our business, operating
results and financial condition.
Each of our services faces unique competition from within its respective
market.
PEGASUS ELECTRONIC DISTRIBUTION
GDS distribution service
Our GDS distribution service competes with WizCom International Ltd.
Customers may change their electronic reservation interface to WizCom or to
another similar service. Also, certain hotels have established their own direct
connection to one or more global distribution systems. Other hotels may choose
to take the same action. If hotels establish this direct connection, they would
bypass the Pegasus electronic distribution technology and eliminate the need to
pay our fees. Several factors affecting the competitive success of our GDS
distribution service include:
o Our reliability
o Our pricing structure
o The number of hotel properties using our system
o Our ability to provide a neutral, comprehensive interface between
hotels and other participants in the distribution of hotel rooms
o Our ability to develop new technological solutions
Internet-based reservation services
Our TravelWeb.com site, private-label reservation service and other
Internet-based distribution services face competition in the online hotel room
reservation business from our current competitors as well as potential new
entrants, including other websites. Several of our competitors have websites
offering a more comprehensive range of travel opportunities than we do. These
websites include Preview Travel, Travelocity and Microsoft's MSN(TM)
Expedia(TM). The costs of entry into the Internet hotel room reservation
business are relatively low. There can be no assurance that our Internet-based
distribution services will compete successfully.
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PEGASUS COMMISSION PROCESSING
Pegasus Commission Processing faces competition principally from National
Processing Company, REZsolutions, Inc. and Citicorp. National Processing
Company has traditionally provided car rental and cruise line commission
processing services. REZsolutions and Citicorp provide commission consolidation
services to hotel chains. In addition, hotels that are current or potential
customers of Pegasus Commission Processing can decide to process commission
payments without, or in competition with, Pegasus Commission Processing.
Furthermore, while Pegasus Commission Processing has written agreements with
substantially all of its hotel customers, most of its travel agency customers
are not bound by any written agreement with us. If a significant portion of
these customers stop using Pegasus Commission Processing, it could have a
material adverse effect on our business, operating results and financial
condition.
PEGASUS BUSINESS INTELLIGENCE
Pegasus Business Intelligence principally competes with Smith Travel
Research, which currently provides information services to hotels.
Additionally, accounting firms and other businesses currently or may in the
future provide information services similar to our current or future service
offerings. Our competitors may have existing customer relationships that create
an obstacle to us acquiring new customers. The current or future information
service offerings of our existing competitors or new competitors may reduce the
attractiveness of our services.
RAPID CONSOLIDATION AND ECONOMIC CHANGES IN THE HOTEL INDUSTRY COULD LOWER THE
VALUE OF OUR SERVICES
Since we derive most of our revenues either directly or indirectly from the
hotel industry, our revenues may be harmed by events that result in a decrease
in hotel room use. The hotel industry is highly sensitive to any change in the
economic conditions affecting business or leisure travel. The hotel industry is
also highly susceptible to unforeseen events, including political instability,
regional hostilities, recession, gasoline price escalation, inflation or other
adverse occurrences that result in a significant decline in the utilization of
hotel rooms. Any event that results in decreased travel or increased
competition among hotels may lower hotel room reservation volumes, the average
daily rates for hotel rooms or both and could have a material adverse effect on
our business, operating results and financial condition.
We offer volume-based discounting of our fees. The recent consolidation of
the hotel industry has resulted in a higher percentage of discounted fees, and
this trend could continue. In addition, the global distribution system industry
has consolidated into four major global distribution systems. If further
consolidation occurs, the value of our services and the benefits to hotel
operators of utilizing the GDS distribution service would be reduced. Any
potential decrease in our customer base or any potential increase in the
percentage of discounted fees may have a material adverse effect on our
business, operating results and financial condition.
BECAUSE OUR EXPENSES ARE LARGELY FIXED AND WE CANNOT ACCURATELY PREDICT OUR
COMPETITIVE ENVIRONMENT, UNEXPECTED REVENUE SHORTFALLS AND QUARTERLY VARIATIONS
MAY ADVERSELY AFFECT OUR BUSINESS
Our expense levels are based primarily on our estimate of future revenues
and are largely fixed. In the future, we may not accurately predict the
introduction of new or enhanced services by us or our competitors or the degree
of customer acceptance of new services. We may also be unable to adjust
spending rapidly enough to compensate for any unexpected revenue shortfall. In
addition, our past and future operating results vary significantly from quarter
to quarter due to a variety of factors, many of which are outside our control.
It is likely that in one or more future quarters our results may fall below the
expectations of securities analysts and investors. Any significant shortfall in
revenues in relation to our planned expenditures would reduce, and possibly
eliminate, any operating income. Due to the fixed nature of our costs, and
because operating costs are based on anticipated revenues, a decline in revenue
from even a limited number of transactions, failure to achieve expected revenue
in any fiscal quarter or unanticipated variation in the recognition of revenues
can cause significant variations in operating results from quarter to quarter.
This could result in losses in some future quarter or have a material adverse
effect on our business, operating results and financial condition. We believe
that period-to-period comparisons of our operating results should not be relied
upon as an indication of future performance.
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REDUCTIONS IN HOTEL COMMISSION PAYMENTS WOULD REDUCE OUR REVENUES AND NET INCOME
Pegasus Commission Processing derives revenues based on the dollar value of
travel agency commissions paid by hotels. A substantial portion of our revenues
and net income is attributable to Pegasus Commission Processing. If there is
any change in the commission payment process or any increase in the direct
distribution of rooms by hotels, our revenues and net income could
substantially decrease. Hotels typically are under no contractual obligation to
pay room reservation commissions to travel agencies. Hotels could elect to
reduce the current customary commission rate of 10%, limit the maximum
commission generally paid for a hotel room reservation or eliminate commissions
entirely. Hotels increasingly are utilizing other direct distribution channels,
such as the Internet, or offering negotiated rates to major corporate customers
that are non-commissionable to travel agencies. Any change in the process
affecting the way Pegasus Commission Processing derives revenues could have a
material adverse effect on our business, operating results and financial
condition.
OUR FUTURE ACQUISITIONS MAY BE DIFFICULT AND DISRUPTIVE, AND WE MAY NOT REALIZE
EXPECTED BENEFITS
We regularly evaluate acquisition opportunities and have made and in the
future may make acquisitions of other companies or technologies. We have
limited experience in integrating newly acquired organizations into our
operations. Acquisitions expose us to many risks, including:
o Difficulty in assimilating technologies, products, personnel and
operations
o Diversion of management's attention from other business concerns
o Large write-offs and amortized expenses related to goodwill and other
intangible assets
o Loss of key employees of acquired organizations
o Risks of entering markets in which we have no or limited prior
experience
o Payments of cash, incurrence of debt or assumption of other liabilities
to acquire other businesses
The result of one or more of these factors could have a material adverse
effect on our business, operating results and financial condition.
WE ARE GROWING RAPIDLY AND WE MAY NOT HAVE THE RESOURCES TO EFFECTIVELY MANAGE
ADDITIONAL GROWTH
Our recent growth and potential future growth has placed significant
demands on management as well as on our administrative, operational and
financial resources. The expansion of our business to take advantage of new
market opportunities will require significant management attention and
financial resources. To manage additional growth we must:
o Expand our sales, marketing and customer support organizations
o Attract and retain additional qualified personnel
o Expand our physical facilities
o Invest in the development or enhancement of our current services and
develop new services that meet changing industry needs
o Develop systems, procedures or controls to support the expansion of our
operations
Our inability to sustain or manage any additional growth could have a
material adverse effect on our business, operating results and financial
condition.
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WE ARE DEPENDENT ON INTERNET COMMERCE FOR OUR FUTURE GROWTH
The success and growth of TravelWeb.com, our private-label reservation
service and our other Internet-based distribution services depend on the
viability of the Internet as a channel for distributing services and products.
Our services depend on the expansion of the Internet infrastructure to enable
the Internet to support the future demand created by expected growth.
Participants in the Internet industry may fail to develop necessary
infrastructure or complementary services and products, such as high speed
modems and high speed communication lines. In addition, there are critical
issues concerning the commercial use of the Internet that remain unresolved,
including issues relating to security, reliability, cost, ease of use,
accessibility and quality of service. If the issues concerning the commercial
use of the Internet are not resolved favorably, it could have a material
adverse effect on our business, operating results and financial condition.
OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO DEVELOP NEW TECHNOLOGIES AND
SERVICES TO MEET THE CHANGING NEEDS OF OUR CURRENT AND FUTURE CUSTOMERS
Our future success depends, in part, on our ability to develop leading
technologies, enhance our existing services and develop and introduce new
services. In particular, our technologies and services must meet the needs of
our current and prospective customers. They also must continue to meet the
demands of technological advances and emerging industry standards and practices
on a timely and cost-effective basis. Although we strive to be a technological
leader, future technology advances may not complement or be compatible with our
services. In addition, we may be unable to economically and timely incorporate
technology changes and technology advances into our business. We may be
unsuccessful in effectively using new technologies, adapting our services to
emerging industry standards or developing, introducing and marketing service
enhancements or new services. We may also experience difficulties that could
delay or prevent the successful development, introduction or marketing of these
services. If we are unable to develop and introduce new services or enhance
existing services on a timely and cost-effective basis or if new services do
not achieve market acceptance, it could have a material adverse effect on our
business, operating results and financial condition.
LOSS OF OUR ARRANGEMENTS WITH KEY CUSTOMERS OR THIRD-PARTY SERVICE PROVIDERS
COULD ADVERSELY AFFECT OUR BUSINESS
Our business is dependent upon our customer arrangements with hotel chains,
hotel representation firms, travel agencies, travel agency consortia and global
distribution systems. We have not entered into any written agreements with most
of our travel agencies relating to Pegasus Commission Processing. In the
future, we may be unable to continue or renew these arrangements on favorable
terms or initiate new arrangements. If we are unable to renew or continue our
customer arrangements on a favorable basis, it could result in a significant
reduction in our customer base and revenue sources. We also rely on third
parties to provide consolidation, remittance and worldwide currency exchange
services for Pegasus Commission Processing and for facility maintenance and
disaster recovery services for the computer and communications systems used in
all of our services. If we are unable to renew, extend or enter into contracts
with alternate service providers on favorable terms, it could have a material
adverse effect on our business, operating results and financial condition.
OUR COMPUTER SYSTEMS AND DATABASES MAY SUFFER SYSTEM FAILURES, BUSINESS
INTERRUPTIONS OR SECURITY RISKS
Our operations depend on our ability to protect our computer systems and
databases against damage or system interruptions from fire, earthquake, power
loss, telecommunications failure, unauthorized entry or other events beyond our
control. A significant amount of our computer equipment is located at a single
site in Phoenix, Arizona. Any unanticipated problems may cause a significant
system outage or data loss. Despite the implementation of security measures,
our infrastructure may also be vulnerable to break-ins, computer viruses or
other disruptions caused by our customers or others. Any damage to our
databases, failure of communication links, security breach or other loss that
causes interruptions in our operations could have a material adverse effect on
our business, operating results and financial condition.
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WE HAVE LITTLE CONTROL OVER THE BUSINESS OPERATIONS OF THE COMPANIES IN WHICH
WE OWN A MINORITY INTEREST
In June 1998, we purchased a minority interest in Customer Analytics, Inc.,
a new venture aimed at providing services to companies in the field of data
warehousing and data mining. We have little or no control over the success of
Customer Analytics and we cannot guarantee the success of this investment. The
failure of a minority interest investment in this or other companies could have
an adverse effect on our business, operating results and financial condition.
In September 1998, we also purchased for $1.0 million a minority interest in
Intermezzo, Inc., a developer of hotel reservation and property management
systems and software. Pegasus also lent an additional $100,000 to Intermezzo as
part of an investor bridge loan. Recently, the Board of Directors of Intermezzo
elected to cease operations and enter into an orderly plan of liquidation, and
as a result we expect a one-time write-off for the second quarter of 1999 of
approximately $700,000 or $.05 per share on an after-tax basis.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD FORCE US TO CHANGE OUR
OPERATIONS
Although certain aspects of the travel industry are heavily regulated by
the United States government, the services we currently offer are not currently
subject to any material industry-specific government regulation. Any future
regulations implemented by federal, state or foreign governmental authorities
affecting one or more of our current or future services could have a material
adverse effect on our business, operating results and financial condition.
Our primary customers consist of hotel chains, hotel representation firms
and travel agencies. Although some of our stockholders are our customers, we
believe that we operate as an entity independent from our stockholders and that
our stockholders have engaged in no anti-competitive activities through or in
connection with us. Any federal, state or foreign governmental authorities, our
competitors or our consumers raising any anti-competitive concerns regarding
our relationship with stockholders that are customers could institute an action
against us. Any such action by federal, state or foreign governmental
authorities or allegations by third parties could have a material adverse
effect on our business, operating results and financial condition.
We are subject to the same federal, state and local laws as other companies
conducting business on the Internet. Today there are relatively few laws
specifically directed towards online services. However, due to the increasing
popularity and use of the Internet and online services, it is possible that
laws and regulations will be adopted with respect to the Internet or online
services. These laws and regulations could cover issues such as online
contracts, user privacy, freedom of expression, pricing, fraud, content and
quality of products and services, taxation, advertising, intellectual property
rights and information security. Applicability to the Internet of existing laws
governing issues such as property ownership, copyrights and other intellectual
property issues, taxation, libel, obscenity and personal privacy is uncertain.
The vast majority of these laws were adopted prior to the advent of the
Internet and related technologies and, as a result, do not contemplate or
address the unique issues of the Internet and related technologies. Those laws
that do reference the Internet have not yet been thoroughly interpreted by the
courts and their applicability and reach are therefore uncertain.
Several states have proposed legislation that would limit the uses of
personal user information gathered online or require online services to
establish privacy policies. The Federal Trade Commission also has recently
settled a proceeding with one online service regarding the manner in which
personal information is collected from users and provided to third parties.
Changes to existing laws or the passage of new laws intended to address these
issues could directly affect the way we do business and could create
uncertainty in the marketplace. This could reduce demand for our services,
increase the cost of doing business as a result of litigation costs or
increased service delivery costs, or otherwise harm our business. In addition,
because our services are accessible worldwide, foreign jurisdictions may claim
that we are required to comply with their laws. Our failure to comply with
foreign laws could subject us to penalties ranging from fines to bans on our
ability to offer our services. In the United States, companies are required to
qualify as foreign corporations in states where they are conducting business.
As an Internet company, it is unclear in which states we are actually
conducting business. Our failure to qualify as a
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foreign corporation in a jurisdiction where we are required to do so could
subject us to taxes and penalties for the failure to qualify and could result
in our inability to enforce contracts in those jurisdictions. Any new
legislation or regulation, or the application of laws or regulations from
jurisdictions whose laws do not currently apply to our business, could
adversely affect our business, operating results and financial condition.
OUR PLANNED EXPANSION OF INTERNATIONAL OPERATIONS MAY MAKE US SUSCEPTIBLE TO
GLOBAL ECONOMIC FACTORS, FOREIGN TAX LAW ISSUES, FOREIGN BUSINESS PRACTICES AND
CURRENCY FLUCTUATIONS
Our pursuit of international growth opportunities may require significant
investments for an extended period of time before we realize returns on these
investments, if any. Our international operations are subject to particular
risks, including:
o Difficulties and costs of managing and staffing foreign operations
o Impact of possible adverse political and economic conditions
o Fluctuations in the value of the U.S. dollar relative to other
currencies
o Potentially adverse tax consequences
o Impact of the policies of the United States and foreign governments on
foreign trade
o Reduced protection for intellectual property rights in some countries
o Unexpected changes in regulatory requirements
o Cost of adapting our services to foreign markets
If we do not realize our expected results from international operations, it
could have a material adverse effect on our business, operating results and
financial position.
OUR SUCCESS SIGNIFICANTLY DEPENDS ON THE EXPERIENCE OF OUR KEY PERSONNEL AND
OUR ABILITY TO ATTRACT AND RETAIN ADDITIONAL PERSONNEL
Our success depends on the continued services of our executive officers and
other key personnel, including our President, John F. Davis, III, and our Chief
Operating Officer, Joseph W. Nicholson. Even though we currently have "key-man"
insurance covering Messrs. Davis and Nicholson, this insurance amount may not
adequately compensate us for the loss of their services. We believe that our
future business results also depend on our ability to identify, attract,
motivate and retain skilled technical personnel. Competition for personnel in
the electronic commerce industry is intense. We cannot assure you that we will
be able to successfully identify, attract, hire and retain other highly-skilled
personnel in a timely and effective manner. The failure to retain our officers
and key personnel or to recruit new personnel could have a material adverse
effect on our business, financial condition and results of operations.
WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS OR PREVENT THEIR
UNAUTHORIZED USE, WHICH COULD DIVERT OUR FINANCIAL RESOURCES AND HARM OUR
BUSINESS
Our success depends upon our proprietary technology, consisting of both of
our software and hardware designs. We rely upon a combination of copyright,
trade secrets, confidentiality procedures and contractual provisions to protect
this proprietary technology. Despite our current efforts to protect our
proprietary rights, these protective measures may not be adequate to prevent
misappropriation or independent third-party development of our technology. Many
foreign jurisdictions offer less protection of intellectual property rights
than the United States. Effective copyright, trademark and trade secret
protection may not be available in other jurisdictions. In addition, we may
need to litigate claims against third parties to enforce our intellectual
property rights, protect our trade
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secrets, determine the validity and scope of the proprietary rights of others
or defend against claims of infringement or invalidity. This litigation could
result in substantial cost and diversion of management resources. A successful
claim against us could effectively block our ability to use or license our
technology in the United States or abroad. If we cannot adequately protect our
proprietary rights, it could have a material adverse effect on our business,
operating results and financial condition.
WE RELY ON TECHNOLOGY LICENSES FROM THIRD PARTIES, THE LOSS OF WHICH MAY HARM
OUR ABILITY TO DEVELOP AND SELL OUR SERVICES
We currently have and in the future may procure licenses from third parties
relating to our services or technology. Our inability to obtain or maintain
these licenses could impair our ability to develop and sell our services. Our
competitors may obtain licenses with lower royalty obligations or other terms
more favorable than those received by us. If we or our suppliers are unable to
obtain licenses, we could be forced to market services without certain
technological features. Our inability to obtain licenses or our inability to
obtain such licenses on competitive terms could have a material adverse effect
on our business, operating results and financial condition.
POTENTIAL YEAR 2000 ISSUES MAY EXPOSE US TO LIABILITY OR LOSS
We utilize a significant number of computer software programs and operating
systems in our internal operations. If these programs or systems are unable to
appropriately interpret dates occurring in the upcoming calendar year 2000,
some level of modification or replacement of this software may be necessary. We
are currently evaluating our information technology and non-information
technology systems for year 2000 compliance. This evaluation includes reviewing
what actions are required to make these systems year 2000 compliant as well as
actions necessary to make us less vulnerable to year 2000 compliance problems
associated with third parties' systems.
Even though we have implemented a program designed to ensure that all
software used in connection with our services is year 2000 compliant, we may
fail to identify all year 2000 problems or correct these problems in a timely
manner. We derive nearly all of our revenues from processing electronic
reservations or consolidating hotel commissions electronically. Our inability
to effectively process electronic hotel reservations or consolidate hotel
commissions as a result of year 2000 problems could have a material adverse
affect on our business, operating results and financial condition.
We have no control over services, functions and data provided by
third-party vendors and others, which may result in our inability to provide
services. We are currently working with our material customers and vendors to
verify their degree of year 2000 compliance. However, we have no control over
third parties and cannot assure that they will be year 2000 compliant. The
extent to which third-party customers and vendors do not become year 2000
compliant on a timely basis may have a material adverse effect on our business,
operating results and financial condition.
OUR STOCK PRICE HAS BEEN AND MAY CONTINUE TO BE EXTREMELY VOLATILE
The trading price of our common stock has been and is likely to be
extremely volatile. Our stock price could be subject to wide fluctuations in
response to a variety of factors, including the following:
o Actual or anticipated variations in our quarterly operating results
o Announcements of technological innovations or new services by us or our
competitors
o Changes in financial estimates by securities analysts
o Conditions or trends in the Internet and online commerce industries
o Changes in the market valuations of other similarly situated companies
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o Developments in Internet regulations
o Announcements by us or our competitors of significant acquisitions,
strategic partnerships, joint ventures or capital commitments
o Unscheduled system downtime
o Additions or departures of key personnel
o Sales of our common stock or other securities in the open market.
o Other events or factors that may be beyond our control
We believe that factors such as quarterly fluctuations in financial results
or announcements by us, our competitors, travel agencies, hotel operators or
other hotel industry participants could cause the market price of our common
stock to fluctuate substantially. In addition, the stock market may experience
extreme price and volume fluctuations that often are unrelated to the operating
performance of specific companies. Market fluctuations or perceptions regarding
the hotel industry and general economic or political conditions may adversely
affect the market price of the common stock.
In addition, the trading prices of Internet stocks in general have
experienced extreme price and volume fluctuations in recent months. Any
negative change in the public's perception of the prospects of Internet or
e-commerce companies could depress our stock price regardless of our results.
Other broad market and industry factors may decrease the market price of our
common stock, regardless of our operating performance. Market fluctuations, as
well as general political and economic conditions, such as recession or
interest rate or currency rate fluctuations, also may decrease the market price
of our common stock. In the past, following declines in the market price of a
company's securities, securities class-action litigation often has been
instituted against that company. Litigation of this type, if instituted against
us, could result in substantial costs and a diversion of management's attention
and resources, which could have a material adverse effect on our business,
operating results and financial condition.
PROVISIONS IN OUR CHARTER DOCUMENTS MAY DETER POTENTIAL ACQUISITION BIDS FOR
OUR BUSINESS, INCLUDING BIDS WHICH MAY BE BENEFICIAL TO OUR STOCKHOLDERS
Provisions of our certificate of incorporation and bylaws could make it
more difficult for a third party to acquire us, even if doing so would be
beneficial to our stockholders. Our certificate of incorporation and bylaws
provide for a classified board of directors serving staggered terms of three
years, prevent stockholders from calling a special meeting of stockholders and
prohibit stockholder action by written consent. Our certificate of
incorporation also authorizes only the board of directors to fill director
vacancies, including newly created directorships, and states that directors may
be removed only for cause and only by the affirmative vote of holders of at
least two-thirds of the outstanding shares of our voting stock voting together
as a single class. These provisions could discourage potential acquisition
proposals and could delay or prevent a change in control transaction. They
could also discourage others from making tender offers for our shares. As a
result, these provisions may prevent the market price of our common stock from
reflecting the effects of actual or rumored takeover attempts. These provisions
may also prevent significant changes in our board of directors and our
management.
On September 28, 1998, our board of directors adopted a stockholder rights
plan and declared a dividend distribution of one right for each outstanding
share of our common stock to stockholders of record at the close of business on
October 13, 1998. Each right entitles the registered holder to purchase from us
one-thousandth of a share of our Series A Preferred Stock for each share of our
common stock held, at a price of $90. The rights are exercisable only if a
person or group of affiliated persons acquires, or has announced the intent to
acquire, 20% or more of our common stock. These rights could make it more
difficult for a third party to acquire or could discourage a third party from
acquiring control of us.
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DELAWARE LAW MAY DETER POTENTIAL ACQUISITION BIDS FOR OUR BUSINESS, INCLUDING
BIDS THAT MAY BE BENEFICIAL TO OUR STOCKHOLDERS
We are subject to the provisions of Delaware law which restrict certain
business combinations with interested stockholders even if such a combination
would be beneficial to stockholders. These provisions may inhibit a
non-negotiated merger or other business combination. The anti-takeover
provisions of the Delaware General Corporation Law prevent us from engaging in
a "business combination" with any "interested stockholder" for three years
following the date that the stockholder became an interested stockholder. For
purposes of Delaware law, a "business combination" includes a merger or
consolidation involving us and the interested stockholder and the sale of more
than 10% of our assets. In general, Delaware law defines an "interested
stockholder" as any entity or person beneficially owning more than 15% of the
outstanding voting stock of a corporation and any entity or person affiliated
with or controlling or controlled by such entity or person. Under Delaware law,
a Delaware corporation may opt out of the anti-takeover provisions. We do not
intend to opt out of these anti-takeover provisions.
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FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference contain
forward looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act which are intended to be covered by the
safe harbors created thereby. Generally, these forward-looking statements,
include but are not limited to, statements about our plans, objectives,
expectations, intentions and other statements contained in this prospectus that
are not historical facts. You can identify these statements by forward-looking
words, such as "expect," "anticipate," "intend," "plan," "believe," "seek,"
"estimate," "may," "will" and "continue" or similar words. You should read
statements that contain these words carefully because they may discuss our
future expectations, contain projections of our future results of operations or
of our financial condition or state other forward-looking information. We
caution readers that these forward-looking statements are not guarantees of
future performances or events and are subject to a number of uncertainties,
risks and other influences, many of which are beyond our control and may
influence the accuracy of the statements and projections upon which the
statements are based. The factors listed in the sections captioned "Risk
Factors" as well as any cautionary language in this prospectus, provide
examples of risks, uncertainties and events that may cause our actual results
to differ materially from the expectations we describe in our forward-looking
statements. Before you invest in our common stock, you should be aware that the
occurrence of the events described in the "Risk Factors" section and elsewhere
in this prospectus could have a material adverse effect on our business,
operating results and financial condition.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the common
stock offered by this prospectus.
SELLING STOCKHOLDER
The following table sets forth information with respect to the selling
stockholder, including the number of shares and approximate percentage of
outstanding shares beneficially owned by the selling stockholder as of June 22,
1999, the number of shares registered hereby and the number and approximate
percentage of shares to be owned after the completion of this offering, assuming
all shares of common stock offered pursuant to this prospectus are sold. There
can be no assurance that all or any of the shares offered hereby will be sold.
The selling stockholder will receive all of the net proceeds from the sale of
the common stock offered by this prospectus.
The address of the selling stockholder listed below is Three Ravinia
Drive, Suite 2900, Atlanta, Georgia 30346-2149. The selling stockholder
received the 345,723 shares pursuant to the exercise of a warrant and has sole
voting power and investment power with respect to these shares.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Name of Selling Shares Beneficially Owned Prior to Number of Shares Shares Beneficially Owned After the
Stockholder the Offering Offered Offering
- --------------------------------------------------------------------------------------------------------------------
BASS HOTELS &
RESORTS, INC. Number Percentage Number Percentage
------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
345,723 2.6% 25,000 320,723 2.4%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
We entered into an agreement with Holiday Hospitality Corporation, the
predecessor of Bass Hotels and Resorts, Inc. in June 1997 pursuant to which we
provide electronic distribution and commission processing services. Prior to
that time, we provided commission processing services to Bass.
PLAN OF DISTRIBUTION
The shares covered by this prospectus may be offered and sold from
time to time by the selling stockholders. The selling stockholders will act
independently of us in making decisions with respect to the timing, manner and
size of each sale. The selling stockholders may sell the shares being offered
hereby on the Nasdaq
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National Market, or otherwise, at prices and under terms then prevailing or at
prices related to the then current market price or at negotiated prices. Shares
may be sold by one or more of the following means of distribution:
o Block trades in which the broker-dealer so engaged will
attempt to sell such shares as agent, but may position and
resell a portion of the block as principal to facilitate the
transaction;
o Purchases by a broker-dealer as principal and resale by such
broker-dealer for its own account pursuant to this
prospectus;
o Over-the-counter distributions in accordance with the rules
of the Nasdaq National Market;
o Ordinary brokerage transactions and transactions in which the
broker solicits purchasers; and
o Privately negotiated transactions.
To the extent required, this prospectus may be amended and
supplemented from time to time to describe a specific plan of distribution. In
connection with distributions of such shares or otherwise, the selling
stockholders may enter into hedging transactions with broker-dealer or other
financial institutions. In connection with such transactions, broker-dealer or
other financial institutions may engage in short sales of our common stock in
the course of hedging the positions they assume with the selling stockholders.
The selling stockholders may also sell our common stock short and redeliver the
shares to close out such short positions. The selling stockholders may also
enter into option or other transactions with broker-dealers or other financial
institutions which require the delivery to such broker-dealer or other
financial institution of the shares offered hereby, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction). The
selling stockholders may also pledge such shares to a broker-dealer or other
financial institution, and, upon a default, such broker-dealer or other
financial institution may effect sales of such pledged shares pursuant to this
prospectus (as supplemented or amended to reflect such transaction). In
addition, any such shares that qualify for sale pursuant to Rule 144 may be
sold under Rule 144 rather than pursuant to this prospectus.
In effecting sales, brokers, dealers or agents engaged by the selling
stockholder may arrange for other brokers or dealers to participate. Brokers,
dealers or agents may receive commissions, discounts or concessions from the
selling stockholders in amounts to be negotiated prior to the sale. Such
brokers or dealers and any other participating brokers or dealers may be deemed
to be "underwriters" within the meaning of the Securities Act of 1933 in
connection with such sales, and any such commissions, discounts or concessions
may be deemed to be underwriting discounts or commissions under the Securities
Act of 1933.
In order to comply with the securities laws of certain states, if
applicable, the shares being offered hereby must be sold in such jurisdictions
only through registered or licensed brokers or dealers. In addition, in certain
states such shares may not be sold unless they have been registered or
qualified for sale in the applicable state or an exemption from the
registration or qualification requirement is available and there has been
compliance thereof.
We have advised the selling stockholder that the anti-manipulation
rules of Regulation M under the Securities Exchange Act of 1934 may apply to
sales of shares in the market and to the activities of the selling stockholder
and its affiliates. In addition, we will make copies of this prospectus
available to the selling stockholder and have informed it of the need for
delivery of copies of this prospectus to purchasers at or prior to the time of
any sale of the shares offered hereby. The selling stockholder may indemnify any
broker-dealer that participates in transactions involving the sale of the shares
against certain liabilities, including liabilities arising under the Securities
Act of 1933.
At the time a particular offer of shares is made, if required, a
prospectus supplement will be distributed that will set forth the number of
shares being offered and the terms of the offering, including the name of any
underwriter, dealer or agent, the purchase price paid by any underwriter, any
discount, commission and other item
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constituting compensation, any discount commission or concession allowed or
reallowed or paid to any dealer, and the proposed selling price to the public.
We will pay for all expenses necessary to register the securities
offered by this prospectus except for any underwriting commissions and
expenses, selling commission and fees, transfer taxes and the fees and expenses
of the advisors to the selling stockholder.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered by this
prospectus has been passed upon by Locke Liddell & Sapp LLP, Dallas, Texas.
EXPERTS
The consolidated financial statements of Pegasus Systems, Inc. as of
December 31, 1998 and 1997 and for the years ended December 31, 1998, 1997 and
1996 and the related financial statement schedule for the years ended December
31, 1998, 1997 and 1996 incorporated by reference elsewhere in the Registration
Statement have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
In January 1997, Pegasus advised Belew Averitt LLP that it would no longer
retain the firm as independent accountants. The reports of Belew Averitt on
Pegasus, formerly The Hotel Industry Switch Company, and The Hotel Clearing
Corporation for the previous years did not contain an adverse opinion or a
disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope or accounting principles. The decision to change accountants was
precipitated by our plan to complete an initial public offering in 1997 and was
approved by our board of directors on January 7, 1997. During the periods
audited by Belew Averitt and through January 7, 1997 there were no disagreements
with Belew Averitt on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which
disagreement(s) if not resolved to the satisfaction of Belew Averitt, would have
caused it to make reference to the subject matter of the disagreements in
connection with its reports. PricewaterhouseCoopers LLP was engaged by Pegasus
as its independent accountants on January 7, 1997.
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===============================================================================
25,000 SHARES
COMMON STOCK
---------------
PROSPECTUS
---------------
JULY 6, 1999
You should rely only on information contained in this prospectus. We have
not authorized anyone to give any information or make any representations in
connection with this offering other than those contained in this prospectus. If
anyone gives you any such information or makes any such representations, you
should not rely on it or them as having been authorized by us. This prospectus
is not an offer to sell common stock and it is not soliciting an offer to buy
common stock in any state where the offer and sale is not permitted. The
information contained in this prospectus is accurate only as of the date of
this prospectus, regardless of the time of delivery of this prospectus or of
any sale of our common stock.
===============================================================================
