UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1998 COMMISSION FILE NUMBER 000-23177
================================================================================
PREVIEW TRAVEL, INC.
DELAWARE 94-2965892
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
747 FRONT STREET, SAN FRANCISCO, CA 94111
(415) 439-1200
================================================================================
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [_]
As of September 30, 1998, there were 13,553,550 shares of the registrant's
Common Stock outstanding.
<PAGE>
INDEX
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Condensed consolidated balance sheets at September 30, 1998
and December 31, 1997
Condensed consolidated statements of operations for the
three and nine months ended September 30, 1998 and 1997
Condensed consolidated statements of cash flows for the
nine months ended September 30, 1998 and 1997
Notes to condensed consolidated financial statements
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
ITEM 5. OTHER INFORMATION.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
SIGNATURES
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
PREVIEW TRAVEL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30,December 31,
1998 1997
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents.......................... $27,130 $27,912
Marketable securities.............................. 41,843 750
Accounts receivable, net........................... 3,099 1,990
Other assets....................................... 2,735 6,087
----------- -----------
Total current assets............................. 74,807 36,739
Film library, net.................................. 2,026 2,402
Property and equipment, net........................ 5,409 3,644
----------- -----------
Total assets..................................... $82,242 $42,785
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable................................... $506 $2,189
Accrued liabilities................................ 3,595 2,480
Deferred revenues.................................. 166 255
Current portion of capital lease obligations....... 1,357 882
----------- -----------
Total current liabilities........................ 5,624 5,806
Capital lease obligations, less current portion.... 2,051 1,614
----------- -----------
Total liabilities................................ 7,675 7,420
Stockholders' equity:
Common stock..................................... 14 11
Additional paid-in capital....................... 115,161 61,676
Other stockholders' equity....................... (393) (539)
Accumulated deficit.............................. (40,215) (25,783)
----------- -----------
Total stockholders' equity....................... 74,567 35,365
----------- -----------
Total liabilities and stockholders' equity......... $82,242 $42,785
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
PREVIEW TRAVEL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------- -------------------
Sept 30, Sept 30, Sept 30, Sept 30,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Online................................ $3,956 $1,556 $9,435 $4,226
Television............................ 1,650 1,845 5,000 5,901
--------- --------- --------- ---------
Total revenues................... 5,606 3,401 14,435 10,127
--------- --------- --------- ---------
Cost of revenues:
Online................................ 1,646 909 4,293 2,672
Television............................ 1,246 1,450 3,882 4,339
--------- --------- --------- ---------
Total cost of revenues........... 2,892 2,359 8,175 7,011
--------- --------- --------- ---------
Gross profit............................ 2,714 1,042 6,260 3,116
--------- --------- --------- ---------
Operating expenses:
Marketing and sales................... 5,593 2,024 15,148 4,540
Research and development.............. 1,037 501 2,619 1,202
General and administrative............ 1,745 1,031 4,711 2,954
--------- --------- --------- ---------
Total operating expenses......... 8,375 3,556 22,478 8,696
--------- --------- --------- ---------
Loss from operations.................. (5,661) (2,514) (16,218) (5,580)
Interest income (expense), net.......... 897 (17) 1,822 3
--------- --------- --------- ---------
Loss before income taxes.............. (4,764) (2,531) (14,396) (5,577)
Income tax expense...................... (15) (1) (36) (2)
--------- --------- --------- ---------
Net loss................................ ($4,779) ($2,532) ($14,432) ($5,579)
========= ========= ========= =========
Basic and diluted net loss per share.... ($0.35) ($1.44) ($1.15) ($3.24)
========= ========= ========= =========
Weighted average shares outstanding
used in per share calculations........ 13,488 1,753 12,528 1,723
========= ========= ========= =========
SUPPLEMENTAL INFORMATION
Gross bookings.......................... $57,563 $22,074 $142,965 $54,007
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
PREVIEW TRAVEL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................ ($14,432) ($5,579)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization.......................... 1,369 697
Amortization of film library........................... 822 959
Unearned compensation.................................. 107 34
Changes related to issuance of warrants................ -- 130
Changes in operating assets and liabilities............ 2,136 (457)
---------- ----------
Net cash provided by (used
in) operating activities............................ (9,998) (4,216)
---------- ----------
Cash flows from investing activities:
Acquisition of property and equipment................... (1,912) (261)
Purchase of marketable securities....................... (41,093) --
Additions to film library............................... (446) (530)
---------- ----------
Net cash used in investing
activities.......................................... (43,451) (791)
---------- ----------
Cash flows from financing activities:
Proceeds from borrowings on long-term debt.............. -- 1,350
Payment of long-term debt............................... -- (3,350)
Payments on equipment note.............................. -- (103)
Payments on obligations under capital leases............ (860) (521)
Proceeds from repayment of stockholder notes............ 141 207
Proceeds from issuance of common stock.................. 1,006 112
Proceeds from issuance of common stock-IPO, net......... (39) --
Proceeds from issuance of common stock-secondary, net... 52,419 --
Proceeds from issuance of preferred stock............... -- 14,487
Proceeds from stock warrant exercises................... -- 449
---------- ----------
Net cash provided by (used
in) financing activities............................ 52,667 12,631
---------- ----------
Net increase (decrease) in cash..................... (782) 7,624
Cash and cash equivalents, beginning of period........... 27,912 6,016
---------- ----------
Cash and cash equivalents, end of the period............. $27,130 $13,640
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
PREVIEW TRAVEL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - The Company and Basis of Presentation
Preview Travel, Inc. (the "Company") is a leading provider of
branded online travel services for leisure and small business travelers.
The Company operates its own Web sites (www.previewtravel.com,
www.reservations.com and www.vacations.com), the primary travel service
on America Online, Inc. ("AOL") (AOL keyword: previewtravel) and co-
branded travel Web sites with Excite, Inc. (City.Net) and with Lycos,
Inc. ("Lycos"). Through its News Travel Network, Inc. subsidiary, the
Company produces entertainment programming for broadcast and cable
television and the in-flight markets. In addition to its reservation and
ticketing service, the Company offers vacation packages, discount and
promotional fares, travel news and destination content, including content
licensed from Fodor's Travel Publications, Inc. Preview Travel, Inc.
(formerly Preview Media, Inc.) was incorporated in California in March
1985 and was reincorporated in Delaware in November 1997.
The accompanying unaudited condensed consolidated financial
statements reflect all adjustments which, in the opinion of management,
are necessary for a fair presentation of the results for the period
shown. The results of operations for such periods are not necessarily
indicative of the results expected for the full fiscal year or for any
future period.
These financial statements should be read in conjunction with the
financial statements and related notes included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
Note 2 - Recent Accounting Pronouncements
The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," effective
January 1, 1998. This statement requires the disclosure of comprehensive
income and its components in a full set of general-purpose financial
statements. Comprehensive income is defined as net income plus revenues,
expenses, gains and losses that, under generally accepted accounting
principles, are excluded from net income. The components of comprehensive
income, which are excluded from net income, are not significant
individually or in the aggregate, and therefore, no separate statement of
comprehensive income has been presented.
In June, 1997, the Financial Accounting Standards Board issued
Statement of Financial Standards No. 131, "Disclosure About Segments of
an Enterprise and Required Information," which is effective for the year
ending December 31, 1998. The Company is considering additional
disclosures, if any, which will be required by this pronouncement.
Note 3 - Commitments
In September 1997, the Company entered into agreements with AOL, a
related party, and Excite, Inc. ("Excite") under which these companies
are obligated to deliver minimum numbers of annual page views to the
Company through the online areas featuring the Company's travel services.
In connection with those services, the Company has made aggregate
payments to AOL and Excite totaling $9.0 million as of September 30,
1998, and is obligated to make additional aggregate payments to AOL and
Excite totaling $3.1 million in 1998, $10.9 million in 1999, $12.4
million in 2000 and 2001 and $8.2 million in 2002. The Company is also
obligated to pay a percentage of commissions earned by the Company in
excess of certain thresholds. To retain the right to be the primary
provider of travel services on AOL, the Company must achieve specified
levels of annual travel service bookings.
In March 1998, the Company entered into an agreement with Lycos, a
search engine provider, for distribution and promotion of the Company's
online travel services. Over the two-year term of the agreement, the
Company is obligated to pay minimum amounts totaling $4.3 million, of
which $1.1 million has been paid as of September 30, 1998, as well as a
portion of commissions earned by the Company in excess of certain
thresholds under the agreement. In addition, the Company has committed to
purchase approximately $500,000 in advertising on Lycos' sites, which the
Company may resell to third parties.
The Company has also entered into distribution and licensing
agreements with other third parties requiring the Company to make
payments in the aggregate of $2.7 million during the term of such
agreements, of which $364,000 has been paid as of September 30, 1998.
Note 4 - Net Income (Loss) Per Share
In accordance with the requirements of Statement of Financial
Accounting Standards No. 128, "Earnings Per Share," a reconciliation of
the numerator and denominator of basic and diluted EPS is provided as
follows (in thousands, except per share amounts).
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------- -------------------
Sept 30, Sept 30, Sept 30, Sept 30,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Numerator--Basic and diluted EPS
Net loss................................ ($4,779) ($2,532) ($14,432) ($5,579)
========= ========= ========= =========
Denominator--Basic and diluted EPS
Weighted average common stock
outstanding............................ 13,488 1,753 12,528 1,723
========= ========= ========= =========
Basic and diluted earnings per share.... ($0.35) ($1.44) ($1.15) ($3.24)
========= ========= ========= =========
</TABLE>
Note 5 - Secondary Offering
In May 1998, the Company completed a secondary offering of
3,519,000 shares of common stock to the public at a price of $28.50 per
share. Of these shares, 1,959,000 shares were sold by the Company and the
remaining 1,560,000 shares were sold by certain selling stockholders. The
Company received approximately $52.5 million in cash, net of the
underwriting discount and offering expenses.
Note 6 - Subsequent Events
Proposed Sale of Television Operations
In October 1998, the Company announced its intention to enter
into an agreement with NewsNet Central, Inc. ("NNC"), under which
substantially all of the assets of the Company's wholly owned subsidiary,
News Travel Network, Inc. ("NTN"), will be transferred to NNC in
exchange for common stock of NNC, notes and warrants to purchase
additional common stock of NNC. James Hornthal, the Company's chairman of
the Board of Directors is an investor in NNC. The Company expects that
all of the Company's employees engaged in NTN's business will become
employees of NNC upon the closing of the proposed transaction with NNC.
The proposed transaction (the "Television Operations Divestiture") is
expected to be completed by the end of 1998.
In addition, the Company intends to enter into a Services Agreement
with NNC that will provide for the following: (a) the sublease to NNC of
the Company's television operations facilities at One Beach Street in San
Francisco, (b) the Company's right to act as the exclusive advertising
sales representative for NTN's Travel Update programs, (c) a perpetual,
nonexclusive, royalty-free license to use NTN's travel video library
(including any enhancements thereto) and (d) the continued branding of
NTN's "Travel News" and "Travel Update" programs with "Preview
Travel" marks.
If the Television Operations Divestiture is completed, the Company
expects to incur a one-time charge of approximately $4.0 million related
to the sale of the television assets. The proposed transaction is subject
to approval by the Board of Directors, the execution of definitive
agreements between the Company and NNC and closing of the transactions
thereunder.
Adoption of Stockholder Rights Plan
In October 1998, the Board of Directors adopted a stockholders
rights plan under which rights will be distributed to stockholders of
record on November 12, 1998. The rights are not exercisable until ten
days after a person or group announces the acquisition of 20 percent or
more of the Company's outstanding Common Stock or the commencement of a
tender offer which would result in ownership by the person or group of 20
percent or more of the outstanding Common Stock. Each right will entitle
stockholders to buy one one-thousandth of a share of the Company's Series
A Participating Preferred Stock at an exercise price of $100. The Company
will be entitled to redeem the rights at $0.01 per right at any time on
or before the tenth day following acquisition by a person or group of 20
percent or more of the Company's Common Stock. If a person or group
acquires 20 percent or more of The Company's Common Stock prior to
redemption of the rights, the rights will entitle stockholders other than
the potential acquiror to purchase, at the then current exercise price,
that number of shares of the Company's Common Stock (or, in certain
circumstances as determined by the Board of Directors, cash, other
property or other securities) having a market value at that time of twice
the exercise price. If, after the tenth day following acquisition by a
person or group of 20 percent or more of the Company's Common Stock, the
Company sells more than 50 percent of its assets or earning power or is
acquired in a merger or other business combination transaction, the
acquiror must assume the obligations under the rights, and the rights
will become exercisable to acquire common stock of the acquiror at the
discounted price. Under certain circumstances, the Company's Board of
Directors may also exchange the rights (other than those owned by the
acquiror or its affiliates) for its Common Stock at an exchange ratio of
one share of Common Stock per right.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
This Management's Discussion and Analysis of Financial Condition
and Results of Operations and other parts of this Form 10-Q contain
forward-looking statements that involve risks and uncertainties. Words
such as "anticipates," "expects," "intends," "plans," "believes,"
"seeks," "estimates," and similar expressions identify such forward-
looking statements. These statements are not guarantees of future
performance and are subject to certain risks and uncertainties that could
cause actual results to differ materially from those expressed or
forecasted. Factors that might cause such a difference include, but are
not limited to, those discussed in the section entitled "Risk Factors"
and those appearing elsewhere in this Form 10-Q. Readers are cautioned
not to place undue reliance on these forward-looking statements, which
reflect management's analysis only as of the date hereof. The Company
assumes no obligation to update these forward-looking statements to
reflect actual results or changes in factors or assumptions affecting
such forward-looking statements.
Overview
Preview Travel is a leading provider of branded online travel
services for leisure and small business travelers. Since its inception in
1985, the Company has operated as a producer of travel-related
programming for broadcast television stations and cable networks around
the world. In 1994, the Company began offering travel services by
developing television programs ("infomercials") designed to generate
interest in vacation packages offered by the Company. The Company sold
these vacation packages directly to consumers by telephone. At the time,
the commercial online services industry was beginning to develop as a new
medium to entertain, inform and transact with consumers. In response to
strong interest in travel from its television audience and in recognition
of new opportunities presented by the online market, the Company adopted
a new business model to address this demand in a more cost-effective
manner. Consequently, the Company shifted its business focus and
resources from infomercials to online travel services. The Company
launched its online service on America Online ("AOL") in January 1995
and on the Web in December 1995, providing users with access to travel
information and the ability to book travel services by telephone. In May
1996, the Company launched its online airline reservation service and, in
the first half of 1997, enhanced its online reservation service to
include hotels and car rentals. In April 1997, the Company launched its
co-branded Web site for Excite's Travel Channel (City.Net). In the third
quarter of 1997, the Company expanded and extended its relationships with
Excite and AOL, respectively, by entering into new five-year distribution
agreements. In February 1998, the Company launched its Destinations
Guides feature created with content licensed from Fodor's. In March 1998,
the Company entered into an agreement with Lycos, under which the Company
serves as the exclusive multiservice provider of travel reservation
services for Lycos' Travel Web Guide and Travel Network. In July 1998,
the Company began offering real-time bookings of vacation and cruise
packages through strategic partnerships with American Airlines Vacations
and Royal Caribbean Cruises Ltd.
Proposed Sale of Television Operations. In October 1998, the
Company announced its intention to enter into an agreement with NewsNet
Central, Inc. ("NNC"), under which substantially all of the assets of
the Company's wholly owned subsidiary, News Travel Network, Inc.
("NTN"), will be transferred to NNC in exchange for common stock of NNC,
notes and warrants to purchase additional common stock of NNC. James
Hornthal, the Company's chairman of the Board of Directors is an investor
in NNC. The Company expects that all of the Company's employees engaged
in NTN's business will become employees of NNC upon the closing of the
proposed transaction with NNC. The proposed transaction (the "Television
Operations Divestiture") is expected to be completed by the end of 1998.
In addition, the Company intends to enter into a Services Agreement
with NNC that will provide for the following: (a) the sublease to NNC of
the Company's television operations facilities at One Beach Street in San
Francisco, (b) the Company's right to act as the exclusive advertising
sales representative for NTN's Travel Update programs, (c) a perpetual,
nonexclusive, royalty-free license to use NTN's travel video library
(including any enhancements thereto) and (d) the continued branding of
NTN's "Travel News" and "Travel Update" programs with "Preview
Travel" marks.
If the Television Operations Divestiture is completed, the Company
expects to incur a one-time charge of approximately $4.0 million related
to the sale of the television assets. The Company further expects, that
in 1999, as a result of the proposed transaction, the Company will not
incur approximately $3.0 to $4.0 million in operating expenses previously
associated with the television operations. The proposed transaction is
subject to approval by the Board of Directors, the execution of
definitive agreements between the Company and NNC and closing of the
transactions thereunder. There can be no assurances that such agreements
will be executed or that the transaction will be consummated.
Overview of Television Operations. From inception through 1994, the
Company derived all of its revenues from its television operations. In
1995, 1996, 1997 and the nine months ended September 30, 1998, the
Company's television operations accounted for approximately 94%, 79%, 56%
and 35% of the Company's total revenues, respectively. Television
revenues are derived primarily from fees associated with sales of
advertising time and the licensing of travel-related news and
entertainment programming. Program license revenues are recognized when
all of the following conditions are met: (i) the license period begins,
(ii) the license fee and the production costs are known and (iii) the
program has been accepted by the licensee and is available for telecast.
Advertising revenues are recognized when all the terms of the advertising
agreement are met, and advertising is shown on various media as
designated by the agreement.
The Company produces travel-related news inserts and news and
entertainment programs that are syndicated in exchange for either cash or
commercial advertising time. The Company also syndicates third party news
inserts. The local commercial advertising time earned for providing these
programs is aggregated and sold to advertisers seeking to reach a
national audience. To fulfill such advertisers' requirements to reach a
national audience, the Company from time to time purchases commercial
advertising time for resale in selected markets. In addition, the Company
produces in-flight programs, primarily for Northwest Airlines. In 1996,
the Company discontinued its practice of exchanging commercial
advertising time on its news and entertainment programming for travel
services such as airline tickets, hotel rooms and car rentals ("travel
inventory"). During the year ended December 31, 1996, the Company
significantly reduced its travel inventory and wrote off the remaining
balance of unused travel inventory.
In 1995 and 1996, advertising revenue from MCI comprised 49% and
58%, respectively, of the Company's total television revenues. Commencing
in the first quarter of 1997, MCI began to phase out its sponsorship of
the Company's television programming, which phase-out was completed in
the quarter ended September 30, 1997. MCI continues to advertise in the
Company's in-flight programming. Revenues attributable to MCI comprised
30% and 7% of the Company's total television revenues for the year ended
December 31, 1997 and the nine months ended September 30, 1998,
respectively. Because the Company does not expect to receive any
additional revenues from MCI for television sponsorships, the Company
expects revenues attributable to MCI in 1998 to decrease significantly
from that in 1997. The Company currently anticipates that Best Buy Co.,
Inc. ("Best Buy") will account for a significant percentage of the
Company's television advertising revenues in future periods. Revenues
attributable to Best Buy, which began advertising with the Company in
March 1998, comprised 23% of the Company's total television revenues for
the nine months ended September 30, 1998. As is common in the television
industry, the Company does not have a long-term contract or arrangement
with Best Buy that guarantees advertising revenues from Best Buy. As a
result, if advertising revenues from Best Buy do not materialize to the
extent anticipated by the Company or if such advertising revenues
materialize and Best Buy then phases out its sponsorship of the Company's
television programming, overall revenues from the Company's television
operations would be materially and adversely affected, which could
adversely affect the Company's business operating results and financial
condition. See "Risk Factors-Risks Associated with Advertising
Revenues" and "-Risks Associated with Television Operations."
Although the Company's television operations have had positive
operating cash flow in the past, the Company experienced negative
operating cash flow from television operations in 1997 and in the first
nine months of 1998 and expects to experience negative operating cash
flow from television operations at least until completion of the
Television Operations Divestiture. As a result of the amortization of the
Company's film library as well as depreciation and other factors, the
Company's television operations incurred a net operating loss in 1997 and
in the first nine months of 1998 and the Company anticipates that its
television operations will continue to incur net operating losses at
least until completion of the Television Operations Divestiture. As a
result of these losses and the proposed divestiture of the television
operations, as well as the Company's anticipated increase in operating
expenses for its online operations, the Company believes that its future
success depends on its ability to significantly increase revenues from
its online operations, for which it has a limited operating history. See
"Risk Factors-Limited Operating History of Online Business; History of
Net Operating Losses; Accumulated Deficit," "-Anticipated Losses and
Negative Cash Flow," "-Dependence on the Travel Industry," "-
Uncertain Acceptance of the Preview Travel Brand; Dependence on Increased
Bookings," "-Dependence on Continued Growth of Online Commerce," "-
Risks Associated with Advertising Revenues," "-Management of Potential
Growth," "-Risks Associated with Television Operations" and "-Risks
Associated with International Expansion."
Overview of Online Operations. The Company's online revenues are
predominantly comprised of commissions paid by airlines, hotels, rental
car agencies, cruise lines and vacation packagers (collectively, "travel
suppliers") for travel services booked through the Company, segment fees
received from its GDS supplier and the sale of advertisements on the
Company's online sites. In addition, certain travel suppliers pay
performance-based compensation known as "override commissions" or
"overrides." Commission revenues for air travel, hotel rooms, car
rentals and vacation packages, net of allowances for cancellations, are
recognized upon the confirmation of the reservation. Overrides are
recognized on an accrual basis once the amount has been confirmed with
the travel supplier, which generally reflects the performance for a prior
quarterly period.
The Company commenced its online airline reservation service
in May 1996 and enhanced the service to include hotels and car rentals in
the first half of 1997. In July 1998, the Company began offering real-
time bookings of vacation and cruise packages through strategic
partnerships with American Airlines Vacations and Royal Caribbean Cruises
Ltd. The Company's online travel services have experienced substantial
growth since the Company first enabled customers to book travel services
online in May 1996. Gross bookings of travel services online increased
from approximately $2.8 million in the second quarter of 1996 to $57.6
million in the third quarter of 1998, which resulted in online revenues,
including advertising revenue, of approximately $424,000 and $4.0
million, respectively, for the corresponding periods. The commission
rates paid by travel suppliers, in addition to overrides, are determined
by individual travel suppliers and are subject to change. Historically,
typical standard base commission rates paid by travel suppliers have been
approximately 10% for hotel reservations, 5% to 10% for car rentals and
10% to 15% for cruises and vacation packages. During the quarter ended
June 30, 1997, the commissions paid by most of the major airlines for
online reservations was changed from a typical base rate of approximately
8% to approximately 5% (excluding overrides). In addition, in a
continuation of this trend, in the first half of 1998, one major airline
reduced its fixed rate commission structure for online roundtrip ticket
sales to ten dollars and a second major airline further reduced its cap
(the maximum amount of commissions paid per ticket) on per-roundtrip
ticket commissions payable for online ticket sales to ten dollars. These
reductions were followed by similar reductions made by other smaller
airlines. The Company expects that its weighted average commission on
online transaction revenue will decline as a result of these reductions.
Currently, the Company earns an average commission of approximately 4% on
the sale of airline tickets. During the first quarter of 1998, one hotel
chain eliminated commissions paid to the Company and other online travel
service providers for online bookings. In response, the Company
discontinued offering bookings for that hotel chain. There can be no
assurance that other hotel chains or other travel suppliers will not
reduce current industry commission rates or eliminate such commissions
entirely, which could, individually or in the aggregate, have a material
adverse effect on the Company's business, operating results and financial
condition. See "Risk Factors-Reliance on Travel Suppliers; Potential
Adverse Changes in Commission Payments."
Travel services sold through the AOL network (including the primary
AOL service and AOL.COM) accounted for 62%, 52%, 38% and 35% of the
Company's gross bookings for the three months ended December 31, 1997,
March 31, 1998, June 30, 1998 and September 30, 1998, respectively. The
decline in the percentage of gross bookings sold through the AOL network
is due to faster growth in gross bookings sold through the Company's own
Web site. Travel services sold through Excite accounted for 15%, 16%, 18%
and 15% of the Company's gross bookings for the three months ended
December 31, 1997, March 31, 1998, June 30, 1998 and September 30, 1998,
respectively. The Company's arrangements with AOL and Excite are expected
to continue to represent significant distribution channels for the
Company's travel services, and the Lycos agreement is expected to
represent a significant distribution channel in the future. Any
termination of any or all of the Company's agreements with AOL, Excite or
Lycos would likely have a material adverse effect on the Company's
business, operating results and financial condition. Since launching its
online operations, the Company's cost of revenues and operating expenses
have grown substantially and are expected to continue to grow
substantially in absolute dollars for the foreseeable future. In
particular, the Company's agreements with AOL, Excite and Lycos require
minimum aggregate payments of approximately $60.3 million during the
terms of such agreements in exchange for their providing distribution,
marketing and other services. There can be no assurance that the Company
will achieve sufficient online traffic, travel bookings or commissions to
realize economies of scale that justify the Company's significant fixed
financial obligations to AOL, Excite and Lycos. Further, there can be no
assurance that the Company will satisfy the minimum levels of travel
services bookings, or provide satisfactory content on the specified time
schedule, required to maintain the AOL and Excite agreements. Failure to
do either of the foregoing would likely have a material adverse effect on
the Company's business, operating results and financial condition. See
"Risk Factors-Reliance on Distribution Agreements with America Online,
Excite and Lycos" and "-Risk of Termination of Distribution Agreement
with America Online."
Gross Margins. Gross margins may be impacted by a number of
different factors, including the mix of television revenues versus online
revenues, the mix of online commission revenues versus online advertising
revenues, the mix of travel services sold, the mix of revenues from AOL,
Excite, Lycos and the Company's Web site, the mix of airline ticket
commissions (which vary from airline to airline) and the amount of
override commissions. The Company typically realizes higher gross margins
on advertising revenues than commission revenues, higher commissions on
vacation packages than hotel rooms and car rentals, higher commissions on
hotel rooms and car rentals than airline tickets, higher gross margins on
advertising revenues from its own Web site than through AOL, Excite or
Lycos, higher commissions from certain airlines than others, and higher
gross margins in periods of higher overrides. Any change in one or more
of the foregoing factors could materially adversely affect the Company's
gross margins and operating results in future periods. See "Risk
Factors-Unpredictability of Future Revenues; Fluctuations in Quarterly
Results."
Anticipated Losses. The Company has incurred significant operating
losses and, as of September 30, 1998, had an accumulated deficit of $40.2
million. The Company believes that its success will to a large part
depend on its ability to greatly increase sales volume to realize
economies of scale. As the Company increases its investments in product
development, advertising, international expansion, customer service and
facilities, the Company expects to continue to incur significant
operating losses on a quarterly and annual basis for the foreseeable
future, and the rate at which such losses will be incurred is expected to
increase significantly from current levels, resulting in corresponding
decreases in working capital, total assets and stockholders' equity. In
particular, the Company's operating expenses are expected to increase
substantially in 1998 as compared to 1997, primarily due to commencement
of the Company's payment obligations to AOL, Excite, Lycos and other
strategic partners and promotional and marketing expenses for the
Company's online travel services, resulting in corresponding increases in
operating losses and decreases in working capital, total assets and
stockholders' equity. See "Risk Factors-Limited Operating History of
Online Business; History of Net Operating Losses; Accumulated Deficit"
and "-Anticipated Losses and Negative Cash Flow."
Results Of Operations
The following table sets forth, for the periods indicated, the
percentage relationship of certain items from the Company's condensed
consolidated statement of operations to total revenues, except as
indicated:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------- -------------------
Sept 30, Sept 30, Sept 30, Sept 30,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Online................................ 70.6% 45.8% 65.4% 41.7%
Television............................ 29.4% 54.2% 34.6% 58.3%
--------- --------- --------- ---------
Total revenues................... 100.0% 100.0% 100.0% 100.0%
--------- --------- --------- ---------
Cost of revenues:
Online................................ 29.4% 26.7% 29.7% 26.4%
Television............................ 22.2% 42.7% 26.9% 42.8%
--------- --------- --------- ---------
Total cost of revenues........... 51.6% 69.4% 56.6% 69.2%
--------- --------- --------- ---------
Gross profit............................ 48.4% 30.6% 43.4% 30.8%
--------- --------- --------- ---------
Operating expenses:
Marketing and sales................... 99.8% 59.5% 104.9% 44.8%
Research and development.............. 18.5% 14.7% 18.1% 11.9%
General and administrative............ 31.1% 30.3% 32.8% 29.2%
--------- --------- --------- ---------
Total operating expenses......... 149.4% 104.5% 155.8% 85.9%
--------- --------- --------- ---------
Loss from operations.................. -101.0% -73.9% -112.4% -55.1%
Interest income (expense), net.......... 16.0% -0.5% 12.7% 0.0%
--------- --------- --------- ---------
Loss before income taxes.............. -85.0% -74.4% -99.7% -55.1%
Income tax expense...................... 0.2% 0.0% 0.3% 0.0%
--------- --------- --------- ---------
Net loss................................ -85.2% -74.4% -100.0% -55.1%
========= ========= ========= =========
AS A PERCENTAGE OF RELATED REVENUES:
Cost of online revenues................. 41.6% 58.4% 45.5% 63.2%
Cost of television revenues............. 75.5% 78.6% 77.6% 73.5%
</TABLE>
<PAGE>
Comparison of Three Months and Nine Months Ended September 30, 1998 and
1997
Revenues
Online Revenues. Online revenues were $4.0 million and $9.4 million
for the third quarter and first nine months of 1998, respectively, which
represent increases of 154% and 123% when compared to the corresponding
periods in 1997. The increases were due primarily to increases in the
Company's customer base and increases in paid advertising on the
Company's Web site, partially offset by lower commissions paid to online
travel services by certain airlines. The Company's database of customer
profiles grew from approximately 2.1 million profiles as of September 30,
1997 to over 5.6 million profiles as of September 30, 1998. As a result
of the reductions in commissions paid on online sales of tickets by
certain airlines, the Company anticipates that the average commissions
paid to the Company for airline tickets as a percentage of gross bookings
will decline in future periods. Online advertising revenues were $1.0
million and $1.8 million for the third quarter and first nine months of
1998, respectively, which represent increases of 452% and 415% when
compared to the corresponding periods in 1997. Gross bookings were $57.6
million and $143.0 million for the third quarter and first nine months of
1998, respectively, which represent increases of 161% and 165% when
compared to the corresponding periods in 1997. The increases in gross
bookings were due primarily to the expansion of the Company's travel
service offerings, strategic relationships and customer base, as well as
repeat purchases by existing customers. Visits to the Company's online
areas were 22.2 million and 63.1 million for the third quarter and first
nine months of 1998, respectively, which represent increases of 150% and
258% when compared to the corresponding periods in 1997.
During the third quarter of 1998, the percentage of online revenues
derived from airline commissions, nonairline commissions and the sale of
advertising on the Company's online sites was 55%, 20% and 25%,
respectively, as compared to 62%, 24% and 11%, respectively, during the
third quarter of 1997. In addition, during the third quarter of 1997, 3%
of online revenues were derived from fees paid by AOL to the Company for
AOL connect time. Fees for AOL connect time were not paid to the Company
after the Company entered into a new distribution agreement with AOL in
the third quarter of 1997. During the first nine months of 1998, the
percentage of online revenues derived from airline commissions,
nonairline commissions and the sale of advertising on the Company's
online sites was 61%, 20% and 19%, respectively, as compared to 73%, 13%
and 8%, respectively, during the first nine months of 1997. In addition,
during the first nine months of 1997, 6% of online revenues were derived
from fees paid by AOL to the Company for AOL connect time.
For the fourth quarter 1998, the Company expects that seasonality
and the performance of the Company's distribution agreements will
moderate growth in gross bookings and online revenues.
In 1996, the Company marketed its travel services primarily through
AOL. The Company expanded its online presence beyond AOL by marketing its
own Web site and by entering into strategic relationships with Excite in
1997 and with Lycos in March 1998. The Company's gross bookings from
Excite, Lycos and the Web comprised approximately 65% and 60% of the
Company's total gross bookings for the third quarter and first nine
months of 1998, respectively.
Television Revenues. Television revenues were $1.7 million and $5.0
million for the third quarter and first nine months of 1998,
respectively, which represent decreases of 11% and 15% when compared to
the corresponding periods in 1997, due primarily to decreases in cable
television sales and facilities rental revenue. The Company expects
television revenues to continue to decline in the fourth quarter of 1998
compared to the same period in 1997. Advertising revenues constitute a
majority of the Company's television revenues and comprised 70% and 61%
of television revenues in the third quarters of 1998 and 1997,
respectively, and 68% and 64% of television revenues in the first nine
months of 1998 and 1997, respectively.
Cost of Revenues
Cost of Online Revenues. Cost of online revenues includes equipment
and staffing costs associated with operating the Company's transaction
system and customer reservation center, GDS charges, printing and
delivery costs for tickets and costs associated with errors in ticket
fulfillment. Cost of online revenues was $1.6 million and $4.3 million
for the third quarter and first nine months of 1998, respectively, which
represents increases of 81% and 61% when compared to the corresponding
periods in 1997, primarily due to the increased volume of transactions in
the third quarter and first nine months of 1998. As a percentage of
online revenues, cost of online revenues decreased from 58.4% in the
third quarter of 1997 to 41.6% in the third quarter of 1998 and from
63.2% in the first nine months of 1997 to 45.5% in the first nine months
of 1998. The Company's average cost per transaction declined from
approximately $12.40 in the third quarter of 1997 to approximately $8.10
in the third quarter of 1998, due to economies of scale resulting from
increased transaction volumes, an increase in the number of electronic
air tickets issued, which have a lower per transaction fulfillment cost
than regular air tickets, and an increase in the number of car and hotel
reservations, both of which typically have lower per transaction
fulfillment costs than airline transactions.
Cost of Television Revenues. Cost of television revenues includes
advertising agency commissions, staffing costs, costs of custom
productions that have a limited useful life, amortization costs relating
to the Company's film library and the costs of purchasing commercial
advertising time to fulfill advertiser requirements. Cost of television
revenues was $1.2 million and $3.9 million for the third quarter and
first nine months of 1998, respectively, which represents decreases of
14% and 11% when compared to the corresponding periods in 1997. These
decreases were due primarily to reduced production activity and cost
reductions implemented at the end of 1997. As a percentage of television
revenues, cost of television revenues decreased from 78.6% in the third
quarter of 1997 to 75.5% in the third quarter of 1998 and increased from
73.5% in the first nine months of 1997 to 77.6% in the first nine months
of 1998 due to the allocation of costs over a variable revenue base. Film
library amortization was $274,000 and $317,000 in the third quarter of
1998 and 1997, respectively, and $822,000 and $959,000 in the first nine
months of 1998 and 1997, respectively.
Operating Expenses
Marketing and Sales. Marketing and sales expenses consist primarily
of payroll and related expenses, consulting fees, advertising, public
relations and promotional expenditures and costs relating to the
development and acquisition of content and distribution for the Company's
online sites. Marketing and sales expenses were $5.6 million and $15.1
million for the third quarter and first nine months of 1998,
respectively, which represent increases of 176% and 234% when compared to
the corresponding periods in 1997. As a percentage of total revenues,
marketing and sales expenses increased from 59.5% in the third quarter of
1997 to 99.8% in the third quarter of 1998 and from 44.8% in the first
nine months of 1997 to 104.9% in the first nine months of 1998. The
increase in marketing and sales expenses was attributable primarily to
expenses associated with the Company's online operations, including the
hiring of additional personnel for development of online content,
expenditures related to the Company's strategic agreements with AOL,
Excite and Lycos and increased advertising expenditures. The Company
continues to pursue an aggressive branding and marketing campaign,
including significant advertising expenditures. In addition, the Company
is obligated to make minimum payments totaling $56 million to AOL and
Excite over the term of its agreements with AOL and Excite, and $4.3
million to Lycos over the two-year term of its agreement with Lycos,
which payments will be accounted for as marketing and sales expense. As a
result, the Company expects marketing and sales expenses to increase
substantially from the third to the fourth quarter of 1998.
Research and Development. Research and development expenses consist
principally of personnel and equipment expenses and consulting fees for
development and enhancement of the Company's transaction processing
system and online services, such as its Destinations Guides with Fodor's
and online vacations booking capability, costs of content development in
connection with the Company's strategic relationships with Excite, AOL
and Lycos, and costs associated with network operations, systems and
telecommunications infrastructure. Research and development expenses were
$1.0 million and $2.6 million for the third quarter and first nine months
of 1998, respectively, which represent increases of 107% and 118% when
compared to the corresponding periods in 1997. As a percentage of total
revenues, research and development expenses rose from 14.7% in the third
quarter of 1997 to 18.5% in the third quarter of 1998 and from 11.9% in
the first nine months of 1997 to 18.1% in the first nine months of 1998.
The increase in research and development expenses was attributable
primarily to increased staffing and consulting fees, as well as increased
costs related to enhancing the capacity, features, content and
functionality of the Company's online services and enhancing or updating
transaction-processing systems. The Company believes that continued
investment in research and development is critical to attaining the
Company's strategic objectives and, as a result, expects research and
development expenses to increase significantly in absolute dollars in
future periods.
General and Administrative. General and administrative expenses
consist of payroll and related expenses for management, accounting and
administrative personnel, recruiting, professional services, facilities,
director and officer insurance, investor relations and other general
corporate expenses. General and administrative expenses were $1.7 million
and $4.7 million for the third quarter and first nine months of 1998,
respectively, which represent increases of 69% and 59% when compared to
the corresponding periods in 1997. As a percentage of total revenues,
general and administrative expenses rose from 30.3% in the third quarter
of 1997 to 31.1% in the third quarter of 1998 and from 29.2% in the first
nine months of 1997 to 32.8% to the first nine months of 1998. The
increase in general and administrative expenses was due primarily to
increased salaries and expenses associated with the hiring of personnel
related to the expansion of the Company's online operations and expenses
associated with being a public company. The Company expects general and
administrative expenses to increase significantly from the third to the
fourth quarter of 1998 due to increased expenses for facilities,
professional services, stockholder expenses and other corporate expenses.
Deferred Compensation. The Company grants stock options to hire
and retain employees. With respect to the grant of certain stock options
to employees in 1997, the Company recorded aggregate deferred
compensation of $570,000 in the third quarter of 1997. Deferred
compensation is recorded as a reduction of stockholders' equity and is
amortized ratably over the vesting period of the applicable options,
generally four years. Amortization of deferred compensation in the third
quarter and first nine months of 1998 for options granted was $35,000 and
$107,000, respectively, and was $34,000 for both the third quarter and
the first nine months of 1997. The Company currently expects to record
amortization of deferred compensation for options granted of
approximately $143,000, $143,000, $143,000 and $71,000 for 1998
(including the amount for the first nine months of 1998 set forth above),
1999, 2000 and 2001, respectively. The amortization of deferred
compensation will be recorded as general and administrative expenses in
such periods.
Interest Income (Expense)
Interest income, net of interest expense, was $0.9 million and $1.8
million for the third quarter and first nine months of 1998,
respectively, compared to net interest expense of $17,000 and net
interest income of $3,000 for the corresponding periods in 1997. Interest
expense is comprised primarily of interest on capital lease obligations.
The increase in net interest income was attributable primarily to a
reduction on borrowings under the Company's line of credit and interest
income earned on higher cash and marketable securities balances in the
first nine months of 1998, primarily from an equity financing completed
in September 1997 and net proceeds from the Company's initial public
offering in November 1997 and secondary public offering in May 1998.
Income Taxes
The provision for income taxes recorded in the second quarter and
first nine months of 1998 represents minimum state tax expense and
Delaware franchise taxes. The Company expects to incur a net loss for
1998; therefore, no provision for federal income taxes has been recorded
for the first nine months of 1998.
Liquidity and Capital Resources
In November 1997, the Company completed an initial public offering
of its common stock, resulting in net proceeds to the Company of
approximately $24.6 million. Additionally, in May 1998, the Company
completed a secondary public offering of its common stock, resulting in
net proceeds to the Company of approximately $52.5 million. Prior to the
two public offerings, the Company had financed its operations primarily
through private sales of common stock, convertible preferred stock and
convertible notes, which totaled $34.7 million in aggregate net proceeds
through 1997. As of September 30, 1998, the Company also had a $2.0
million line of credit, of which approximately $1.1 million was
available, based on 80% of the Company's qualifying accounts receivable.
Cash used in operating activities was $10.0 million in the first
nine months of 1998, attributable primarily to a net loss of $14.4
million, partially offset by depreciation of $1.4 million and film
library amortization of $822,000, as well as a decrease in net operating
assets. Cash used in investing activities in the first nine months of
1998 consisted primarily of $41.1 million for the purchase of marketable
securities and $1.9 million for the acquisition of property and
equipment. Cash provided by financing activities in the first nine months
of 1998 of $52.7 million consisted primarily of proceeds from the
Company's secondary stock offering.
As of September 30, 1998, the Company had $27.1 million of cash and
cash equivalents and $41.8 million of marketable securities. As of that
date, the Company's principal commitments consisted of obligations
outstanding under the agreements with AOL, Excite, Lycos and other
strategic partners and under its lease obligations. Although the Company
has no material commitments for capital expenditures, it anticipates an
increase in its capital expenditures and lease commitments consistent
with anticipated growth in operations, infrastructure and personnel. The
Company may establish additional operations as it expands globally. In
addition, pursuant to its arrangement with AOL, the Company is obligated
to make minimum payments totaling $32 million, of which $7.5 million had
been paid as of September 30, 1998, and to pay a percentage of
commissions earned by the Company in excess of certain thresholds.
Pursuant to its arrangement with Excite, the Company is obligated to make
minimum payments totaling $24 million, of which $1.5 million had been
paid as of September 30, 1998, and to pay a percentage of commissions
earned by the Company in excess of certain thresholds. Pursuant to its
arrangement with Lycos, the Company is obligated to make minimum payments
totaling $4.3 million, of which $1.1 million had been paid as of
September 30, 1998 and to pay a percentage of commissions earned by the
Company in excess of certain thresholds. In addition, the Company is
required to develop content areas featured on AOL, Excite and Lycos
sponsored primarily by advertising revenues, of which the Company is
entitled to receive a share. However, there can be no assurance that the
Company will receive significant revenues, if any, from such payments.
See "Risk Factors-Reliance on Distribution Agreements with America
Online, Excite and Lycos" and "-Risk of Termination of Distribution
Agreement with AOL."
The Company believes that its current cash, cash equivalents and
marketable securities together with the net proceeds of the secondary
offering completed in May 1998, will be sufficient to meet its
anticipated cash needs for working capital and capital expenditures
through the end of 1999. However, the Company could be required, or
could elect, to seek to raise additional financing during such period or
thereafter, through the sale of equity or debt securities or by obtaining
additional credit facilities. The sale of additional equity or
convertible debt securities could result in additional dilution to the
Company's stockholders. There can be no assurance that financing will be
available in sufficient amounts or on terms acceptable to the Company, if
at all. See "Risk Factors-Need for Additional Capital."
Year 2000
The Year 2000 issue relates to computer systems that have time and
date-sensitive programs that were designed to read years beginning with
"19," but may not properly recognize the Year 2000. If a computer system
or software application used by the Company or a third party dealing with
the Company fails because of the inability of the system or application
to properly read the year "2000," the results could include, among other
things, the inability to process transactions or conduct normal business
activities and could have a material adverse effect on the Company.
The Company's process towards Year 2000 readiness includes
planning, assessment, testing and renovation. The Company is currently
assessing its internal computer programs and systems to ensure that such
programs and systems will be Year 2000 compliant. Based on its review to
date, the Company has not uncovered any significant computer programs or
systems which would not become year 2000 compliant in a timely manner.
The Company continues to review its internal systems for year 2000
issues and expects to begin the testing phase in early 1999. The
estimated cost of these efforts are not expected to have a material
adverse effect on the Company's business, operating results or financial
condition.
The Company has also initiated contact with key suppliers whose
computer systems' functionality could impact the Company's ability to
conduct business. The Company is dependent upon certain third party
service providers including, without limitation, the Apollo GDS system,
AOL, ANS Communications, Geonet Communications and Pegasus. Any
interruption of such services due to such providers' failure to be Year
2000 compliant would be disruptive to the Company's business and could
have a material adverse effect on the Company's business, operating
results and financial condition. In particular, the Company is
substantially dependent on the Year 2000 compliance of the Apollo GDS
system, the failure of which could, in the worst case, prevent the
Company's customers from being able to reserve airline tickets, car
rentals and other travel services, which would have a material adverse
effect on the Company's business, operating results and financial
condition. In addition, the Company believes it could take up to one
year and require substantial expenditures to fully transition the
Company's travel services to an alternative GDS System. Similarly, the
failure by Pegasus to be Year 2000 compliant could prevent the Company's
customers from being able to reserve hotel rooms, which could have a
material adverse effect on the Company's business, operating results and
financial condition. Currently, the Company has not yet developed a
contingency plan to address the risk of failure of such service providers
to be Year 2000 compliant.
The foregoing assessment of the impact of the Year 2000 issue
problem on the Company is based on management's best estimates at the
present time, and could change substantially. The assessment is based
upon numerous assumptions as to future events. There can be no
guarantee that these estimates will prove accurate, and actual results
could differ from those estimated if these assumptions prove inaccurate.
Recently Issued Accounting Standards
In February 1997, Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share," was issued and was effective
for the Company's year ended December 31, 1997. As a result, the
Company's earnings per share ("EPS") data for prior periods have been
restated in the accompanying financial statements to conform with SFAS
No. 128. In March 1997, SFAS No. 129, "Disclosure of Information About
Capital Structure," was issued and is effective for the Company's year
ending December 31, 1998. In June 1997, SFAS No. 130, "Reporting
Comprehensive Income," was issued and was adopted by the Company
effective January 1, 1998. The adoption of SFAS No. 130 will have no
impact on the Company's consolidated results of operations, financial
position or cash flows. In June 1997, the FASB issued SFAS No. 131,
"Disclosures About Segments of an Enterprise." The Company is required
to adopt this statement effective for 1998. The Company is considering
additional disclosures, if any, which will be required by this
pronouncement.
Risk Factors
In addition to the other information in this Report, the following
factors should be considered carefully in evaluating the Company's
business and prospects:
Limited Operating History of Online Business; History of Net
Operating Losses; Accumulated Deficit. The Company incurred net losses of
$4.9 million, $5.6 million, $10.2 million and $14.4 million in 1995, 1996
and 1997 and the nine months ended September 30, 1998, respectively. As
of September 30, 1998, the Company had an accumulated deficit of
approximately $40.2 million. The Company's television programming
operations, which represented 56% and 35% of its total revenues in 1997
and the nine months ended September 30, 1998, respectively, have incurred
net operating losses in each of the last three years, and the Company
anticipates that its television programming operations will incur a net
operating loss for the fourth quarter of 1998. The Company initiated its
online operations in 1994, first recognized revenues from its online
operations in the first quarter of 1995 and booked its first airline
ticket reservations online in the second quarter of 1996. Accordingly,
the Company's prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in an early
stage of development, particularly companies engaged in new and rapidly
evolving markets such as online commerce. There can be no assurance that
the Company will be successful in addressing such risks, and the failure
to do so could have a material adverse effect on the Company's business,
operating results and financial condition.
Anticipated Losses and Negative Cash Flow. The Company believes
that its success will depend in large part on, among other things, its
ability to generate sufficient sales volume to achieve profitability and
effectively maintain existing relationships and develop new relationships
with travel suppliers, strategic partners and advertising customers.
Accordingly, the Company intends to expend significant financial and
management resources on brand development, marketing and promotion, site
and content development, strategic relationships and technology and
operating infrastructure. As a result, the Company expects to incur
additional losses and continued negative cash flow from operations for
the foreseeable future, and such losses are anticipated to increase
significantly from current levels. There can be no assurance that the
Company's revenues will increase or even continue at their current level
or that the Company will achieve or maintain profitability or generate
cash from operations in future periods. In view of the rapidly evolving
nature of the Company's business and its limited operating history in the
online business, the Company believes that period-to-period comparisons
of its operating results are not necessarily meaningful and should not be
relied upon as an indication of future performance.
Unpredictability of Future Revenues; Fluctuations in Quarterly
Results. As a result of the Company's limited operating history in
online commerce and the emerging nature of the markets in which the
Company competes, the Company is unable to accurately forecast its
revenues. The Company's current and future expense levels are based
predominantly on its operating plans and estimates of future revenues and
are to a large extent fixed. The Company may be unable to adjust spending
in a timely manner to compensate for any unexpected revenue shortfall.
Accordingly, any significant shortfall in revenues would likely have an
immediate material adverse effect on the Company's business, operating
results and financial condition. Further, the Company currently intends
to substantially increase its operating expenses to develop and offer new
and expanded travel services, to fund increased sales and marketing,
including obligations under its distribution agreements, and customer
service operations, and to develop its technology and transaction-
processing systems. To the extent such expenses precede or are not
subsequently followed by increased revenues, the Company's operating
results will fluctuate and net anticipated losses in a given quarter may
be greater than expected.
The Company expects that it will experience seasonality in its
business, reflecting seasonal fluctuations in the travel industry,
Internet and commercial online service usage and advertising
expenditures. The Company anticipates that travel bookings will typically
increase during the second quarter in anticipation of summer travel and
will typically decline during the fourth quarter. Internet and commercial
online service usage and the rate of growth of such usage may be expected
typically to decline during the summer. In addition, advertising sales
in traditional media, such as broadcast and cable television, generally
decline in the first and third quarters of each year. Depending on the
extent to which the Internet and commercial online services are accepted
as an advertising medium, seasonality in the level of advertising
expenditures could become more pronounced for Internet-based advertising.
Seasonality in the travel industry, Internet and commercial online
service usage and advertising expenditures are likely to cause quarterly
fluctuations in the Company's operating results and could have a material
adverse effect on the Company's business, operating results and financial
condition.
The Company expects to experience significant fluctuations in its
future quarterly operating results due to a variety of other factors,
many of which are outside the Company's control. Factors that may
adversely affect the Company's quarterly operating results include, but
are not limited to, (i) the Company's ability to retain existing
customers, attract new customers at a steady rate and maintain customer
satisfaction, (ii) changes in inventory availability from third party
suppliers or commission rates paid by travel suppliers, such as the
reduction in commissions paid by major airlines for online bookings
implemented during 1997 and the first half of 1998, (iii) the
announcement or introduction of new or enhanced sites, services and
products by the Company or its competitors, (iv) general economic
conditions and economic conditions specific to the Internet, online
commerce or the travel industry, (v) the level of use of online services
and consumer acceptance of the Internet and commercial online services
for the purchase of consumer products and services such as those offered
by the Company, (vi) the Company's ability to upgrade and develop its
systems and infrastructure and to attract new personnel in a timely and
effective manner, (vii) the level of traffic on the Company's online
sites, (viii) technical difficulties, system downtime or Internet
brownouts, (ix) the amount and timing of operating costs and capital
expenditures relating to expansion of the Company's business, operations
and infrastructure, (x) governmental regulation and (xi) unforeseen
events affecting the travel industry.
Gross margins may be impacted by a number of different factors,
including the mix of television revenues versus online revenues, the mix
of online commission revenues versus online advertising revenues, the mix
of travel services sold, the mix of revenues from AOL, Excite, Lycos and
the Company's Web site, the mix of airline ticket commissions (which vary
from airline to airline) and the amount of override commissions. The
Company typically realizes higher gross margins on advertising revenues
than commission revenues, higher commissions on vacation packages than
hotel rooms and car rentals, higher commissions on hotel rooms and car
rentals than airline tickets, higher gross margins on advertising
revenues from the Company's own Web site than through AOL, Excite or
Lycos, higher commissions from certain airlines than others and higher
gross margins in periods of higher overrides. Any change in one or more
of the foregoing factors could materially adversely affect the Company's
gross margins and operating results in future periods.
As a result of the foregoing factors, the Company's annual or
quarterly operating results may be below the expectations of public
market analysts and investors. In such event, the price of the Company's
Common Stock would likely be materially and adversely affected.
Dependence on the Travel Industry. The Company derives a
significant portion of its revenues directly or indirectly from the
travel industry, and the Company's future growth is dependent on the
travel industry. The travel industry, especially leisure travel, which is
dependent on personal discretionary spending levels, is sensitive to
changes in economic conditions and tends to decline during general
economic downturns and recessions. The travel industry is also highly
susceptible to unforeseen events, such as political instability, regional
hostilities, fuel price escalation, travel-related accidents, unusual
weather patterns or other adverse occurrences. Any event that results in
decreased travel generally would likely have a material adverse effect on
the Company's business, operating results and financial condition.
Uncertain Acceptance of the Preview Travel Brand; Dependence on
Increased Bookings. The Company believes that establishing, maintaining
and enhancing the Preview Travel brand is a critical aspect of its
efforts to attract and expand its online traffic. The number of Internet
sites that offer competing services, many of which already have well-
established brands in online services or the travel industry generally,
increase the importance of establishing and maintaining brand name
recognition. Promotion of the Preview Travel brand will depend largely on
the Company's success in providing a high-quality online experience
supported by a high level of customer service, which cannot be assured.
In addition, to attract and retain online users, and to promote and
maintain the Preview Travel brand in response to competitive pressures,
the Company may find it necessary to increase substantially its financial
commitment to creating and maintaining a strong brand loyalty among
customers. If the Company is unable to provide high-quality online
services or customer support, or otherwise fails to promote and maintain
its brand, or if the Company incurs excessive expenses in an attempt to
promote and maintain its brand, the Company's business, operating results
and financial condition would be materially adversely affected.
The Company's future success, and in particular its revenues and
operating results, depends upon its ability to successfully execute
several key aspects of its business plan. The Company must increase the
dollar volume of transactions booked through its online sites, either by
generating significantly higher and continuously increasing levels of
traffic to its online sites or by increasing the percentage of visitors
to its online sites who purchase travel services, or through some
combination thereof. The Company must also increase the number of repeat
purchasers of travel services through its online sites. In addition, the
Company must deliver a high level of customer service and compelling
content in order to attract users with demographic characteristics
valuable to advertisers. Although the Company has implemented strategies
designed to accomplish these objectives, including its relationships with
AOL, Excite, Lycos and other strategic partners, and advertising the
Company's services in online and traditional media, there can be no
assurance that these strategies will be effective in increasing the
dollar volume of transactions booked through its online sites, increasing
traffic to its online sites, increasing the percentage of visitors who
purchase travel services, increasing the number of repeat purchasers or
increasing its advertising revenues. The failure to do one or more of the
foregoing would likely have a material adverse effect on the Company's
business, operating results and financial condition.
Reliance on Distribution Agreements with America Online, Excite and
Lycos. The Company has entered into agreements with AOL, Excite and Lycos
establishing the Company as the primary and preferred provider of travel
services on AOL, the exclusive provider of travel reservations services
on Excite's Travel Channel (City.Net) until September 2002 and the
exclusive multiservice provider of travel reservations on Lycos' Travel
Web Guide and Travel Network until March 2001. Under these agreements,
AOL, Excite and Lycos are obligated to promote the Company and to deliver
minimum numbers of annual page views or impressions to the online areas
featuring the Company's travel services. In addition, the Company is
eligible to receive payments from Excite and Lycos representing a share
of advertising revenues received by Excite and Lycos in connection with
the online areas featuring the Company's travel services; however, there
can be no assurance that such payments, if any, will be significant.
During the terms of these agreements, the Company is obligated to make
minimum payments totaling $60.3 million to AOL, Excite and Lycos as well
as pay to AOL, Excite and Lycos a percentage of certain commissions
earned by the Company in excess of specified thresholds. The Company is
also obligated to share certain advertising revenues with each of AOL,
Excite and Lycos, as specified in their respective agreements. Moreover,
the Company's agreement with AOL is conditioned upon the Company
achieving specified levels of travel services bookings, which will
require the Company to significantly increase such bookings from current
levels. There can be no assurance that the Company will achieve
sufficient online traffic, travel bookings or commissions to realize
economies of scale that justify the Company's significant fixed financial
obligations to AOL, Excite and Lycos or that the Company will satisfy the
minimum levels of travel services bookings required to maintain the AOL
agreement, and failure to do so would likely have a material adverse
effect on the Company's business, operating results and financial
condition. In addition, the agreements with AOL, Excite and Lycos do not
provide the Company with renewal rights upon expiration of their
respective terms. The AOL agreement provides AOL with the right to renew
the AOL agreement for successive one-year terms on a non-exclusive basis
during which period AOL would continue to receive a percentage of
commissions and share in advertising revenues, but the Company would not
be obligated to make any additional minimum payments. There can be no
assurance that such agreements will be renewed on commercially acceptable
terms, or at all.
In addition, the Company is a party to a database services
agreement with AOL to develop and manage a travel-related destinations
database for AOL with content that is reasonably satisfactory to AOL. The
Company has committed to an aggressive schedule to develop and maintain
the destinations database which will require significant efforts and
resources on the Company's part. There can be no assurance that the
Company will be able to fulfill its commitments to AOL on the agreed upon
schedule, and failure to do so could result in a breach of the
distribution agreement with AOL, as well as the database services
agreement, which would likely have a material adverse effect on the
Company's business, operating results and financial condition.
Furthermore, the Company's significant investment in the AOL,
Excite and Lycos relationships is based on the continued positive market
presence, reputation and anticipated growth of AOL, Excite and Lycos, as
well as the commitment by each of AOL, Excite and Lycos to deliver
specified numbers of annual page views or impressions. Any decline in the
significant market presence, business or reputation of AOL, Excite or
Lycos, or the failure of AOL, Excite or Lycos to deliver the specified
numbers of annual page views, will reduce the value of these strategic
agreements to the Company and will likely have a material adverse effect
on the business, operating results and financial condition of the
Company. In addition, while the Company and both Lycos and Excite have
agreed to cooperate on advertising, AOL and the Company have the right to
separately pursue and sell advertising in the Company's content areas
distributed through AOL. There can be no assurance that the Company and
AOL will not compete for limited travel supplier advertising revenues.
Travel services sold through the AOL Network (including the primary AOL
service and AOL.COM) accounted for 62%, 52%, 38% and 35% of the Company's
gross bookings for the three months ended December 31, 1997, March 31,
1998, June 30, 1998 and September 30, 1998, respectively. Travel services
sold through Excite accounted for 15%, 16%, 18% and 15% of the Company's
gross bookings for the three months ended December 31, 1997, March 31,
1998, June 30, 1998 and September 30, 1998, respectively. The Company's
arrangements with AOL and Excite are expected to continue to represent
significant distribution channels for the Company's travel services, and
the Lycos arrangement is expected to represent a significant distribution
channel in the future. Any termination of any or all of the Company's
agreements with AOL, Excite and Lycos would likely have a material
adverse effect on the Company's business, operating results and financial
condition.
Except for its arrangements with AOL, Excite and Lycos, the Company
has no other significant long-term distribution arrangements with any
other service provider on the Internet or commercial online services and
accordingly must rely on search engines, directories and other
navigational tools which significantly affect traffic to the Company's
online sites. There can be no assurance that such cooperation will be
available to the Company on acceptable commercial terms or at all or that
such relationships will not already be established with the Company's
competitors. If the Company is unable to maintain satisfactory
relationships with AOL, Excite or Lycos, or if the Company is unable to
develop and maintain satisfactory relationships with additional third
parties on acceptable commercial terms, or if the Company's competitors
are better able to leverage such relationships, the Company's business,
operating results and financial condition could be materially adversely
affected.
Risk of Termination of Distribution Agreement with America Online.
The Company's future success depends in part upon its ability to maintain
its distribution agreement with AOL. The Company's distribution agreement
with AOL may be terminated by AOL in the event that the Company fails to
make certain minimum payments to AOL, fails to achieve specified levels
of travel services bookings or breaches its database services agreement
with AOL pursuant to which the Company is required to develop and manage
a travel-related destinations database for AOL. In particular, the
Company must achieve specified annual levels of travel services bookings,
for which the Company was in compliance with the first annual measurement
date occurring in September 1998. There can be no assurance that the
Company will be able to meet its significant financial obligations to
AOL, achieve the specified minimum levels of travel services bookings, or
deliver satisfactory content to the database. Failure to do any of the
foregoing could result in the termination by AOL of the Company's
distribution agreement with AOL, which would likely have a material
adverse effect on the Company's business, operating results and financial
condition.
Reliance on Travel Suppliers; Potential Adverse Changes in
Commission Payments. The Company is dependent on airlines, hotels and
other providers of travel services ("travel suppliers") in order to
offer its customers comprehensive access to travel services and products.
Consistent with industry practices, the Company currently has no
agreements with its travel suppliers that obligate such suppliers to sell
services or products through the Company. In addition, travel suppliers
may be unable or choose not to make their inventory of services and
products available through online distribution, including those services
offered by the Company. Accordingly, travel suppliers could elect to sell
exclusively through other sales and distribution channels or to restrict
the Company's access to their inventory, which could significantly
decrease the amount or breadth of the Company's inventory of available
travel offerings and could have a material adverse effect on the
Company's business, operating results and financial condition.
In addition, a substantial majority of the Company's online revenue
is dependent on the commissions customarily paid by travel suppliers for
bookings made through the Company's online travel service. Consistent
with industry practices, these travel suppliers are not obligated to pay
any specified commission rate for bookings made through the Company or to
pay commissions at all. For example, during the first quarter of 1998, a
major hotel chain eliminated commissions paid to the Company and other
online travel service providers for online bookings. There can be no
assurance that other hotel chains or other travel suppliers will not
reduce current industry commission rates or eliminate such commissions
entirely, which could, individually or in the aggregate, have a material
adverse effect on the Company's business, operating results and financial
condition. For example, in 1995, most of the major airlines placed a cap
on per-ticket commissions payable to all travel agencies for domestic
airline travel. In September 1997, the major U.S. airlines reduced the
commission rate payable to traditional travel agencies from 10% to 8%.
In 1997, the major U.S. airlines reduced the commission rate
payable for online reservations from approximately 8% to approximately
5%, which had a material adverse effect on the Company's results of
operations in 1997 and the nine months ended September 30, 1998. In
addition, in the first half of 1998 one major airline reduced its fixed
rate commission structure for online roundtrip ticket sales to ten
dollars and a second major airline further reduced its cap (the maximum
amount of commissions paid per ticket) on per-roundtrip ticket
commissions payable for online ticket sales to ten dollars. These
reductions were followed by similar reductions made by other smaller
airlines. The Company expects that its weighted average commission on
online transaction revenue will decline as a result of these reductions.
There can be no assurance that airlines or other of the Company's travel
suppliers will not further reduce the amount of compensation payable to
the Company and other online service providers.
In addition, certain travel suppliers have initiated direct online
distribution channels and, in some cases, have offered negotiated rates
directly to major corporate customers. Further, the Company's travel
service offerings are limited to those travel suppliers whose services
and products are available through the global distribution services
("GDS") systems accessed by the Company, namely, the Apollo GDS system
("Apollo") operated by Galileo International Partnership ("Galileo")
for airlines and car rentals and the GDS system operated by Pegasus
Systems, Inc. ("Pegasus") for hotel reservations. For example, Southwest
Airlines is currently unavailable in the Apollo GDS system, and,
therefore, the Company is unable to offer access to Southwest Airline's
inventory. There can be no assurance that the Company's current travel
suppliers will continue to sell services or products through Apollo or
Pegasus on current terms with adequate compensation to the Company, or at
all, or that the Company will be able to establish new or extend current
travel supplier relationships to ensure uninterrupted access to a
comprehensive supply of the travel services. The Company's failure to do
so would likely result in a material adverse effect on its business,
operating results and financial condition.
Reliance on Third Party Systems. The Company is dependent upon
certain third party service providers, including, without limitation, the
following: AOL and WorldCom, Inc.'s ANS Communications subsidiary (which
was acquired by WorldCom, Inc. from AOL in February 1998), which provides
AOL customers with access to the Company's online services; GeoNet
Communications, which provides the Company with a T3 data communication
line for Internet access; Pegasus, which provides the Company with access
to a global hotel reservation system and which operates an online travel
service competitive with the Company; Galileo, which provides the Company
with access to the Apollo GDS system; and AT&T, which provides the
Company with data connectivity to the Apollo GDS System.
The Company is dependent on these third party providers to continue
to offer and maintain these services. Any discontinuation of such
services, or any reduction in performance that requires the Company to
replace such services, would be disruptive to the Company's business. In
particular, if the Company were required to replace services provided by
the Apollo GDS system, the Company believes it could take up to one year
and require substantial expenditures to fully transition the Company's
travel services to an alternative service provider. In the past, these
third party providers have experienced interruptions or failures in their
systems or services, which have temporarily prevented the Company's
customers from accessing or purchasing certain travel services through
the Company's online sites. Any reduction in performance, disruption in
Internet or online access or discontinuation of services provided by AOL,
ANS Communications, GeoNet Communications or any other Internet service
provider, or any disruption in the Company's ability to access the Apollo
GDS system, Pegasus or any other travel reservation systems, could have a
material adverse effect on the Company's business, operating results and
financial condition.
In addition, the Company is dependent on Apollo and Pegasus to
ensure that all software used in connection with their GDS systems will
manage and manipulate data involving the transition of dates from 1999 to
2000 without functional or data abnormality and without inaccurate
results related to such dates. Any failure by Galileo or Pegasus to
ensure that such software complies with year 2000 requirements could have
a material adverse effect on the Company's business, operating results
and financial condition. The Company's agreements with its third party
service providers have terms of, or expire within, one year or less and
in some cases are subject to cancellation for any reason or no reason
upon short notice. Specifically, the Company does not have a written
agreement with Pegasus, and its agreement with ANS Communications is
currently on a month-to-month basis. Any cancellation of services, or
failure to renew such services upon expiration, by any of such third
party providers without notice sufficient to allow the Company to
transition to a new service provider in a timely and cost-effective
manner would have a material adverse effect on the Company's business,
operating results and financial condition. See "-Year 2000 Compliance."
Competition. The online travel services market is new, rapidly
evolving and intensely competitive, and the Company expects such
competition to intensify in the future. The Company competes primarily
with traditional travel agency and online travel reservation services. In
the online travel services market, the Company competes with other
entities that maintain similar commercial Web sites, such as Expedia
(operated by Microsoft Corporation), Travelocity (operated by SABREGroup
Holdings Inc., a majority-owned subsidiary of American Airlines), Cendant
Corporation, TravelWeb (operated by Pegasus), Internet Travel Network,
Biztravel.com, and TheTrip.com, among others. Several traditional travel
agencies, including larger travel agencies such as American Express
Travel Related Services Co. Inc., Uniglobe Travel and Carlson Wagonlit
Travel, have established, or may establish in the future, commercial Web
sites offering online travel services. Additionally, Priceline.com LLC
operates a Web site that allows users to bid on air tickets.
In addition to the traditional travel agency channel, most travel
suppliers also sell their services directly to customers, predominantly
by telephone. As the market for online travel services grows, the Company
believes that the range of companies involved in the online travel
services industry, including travel suppliers, traditional travel
agencies and travel industry information providers, will increase their
efforts to develop services that compete with the Company's services.
Most major airlines, car rental companies and hotel chains offer travel
services directly through their own Web sites, including travel services
from other travel suppliers, eliminating the need to pay commissions to
third parties such as the Company. The Company is unable to anticipate
which other companies are likely to offer competitive services in the
future. There can be no assurance that the Company's online operations
will compete successfully with any current or future competitors.
In the television and in-flight programming markets, the Company's
News Travel Network division competes for airtime for its programs with
news and entertainment programming produced by local stations, broadcast
and cable networks, infomercial producers and third party syndicators.
NTN competes for national advertising sales with networks, national
advertising firms and syndicators.
Many of the Company's current and potential competitors have longer
operating histories, larger customer bases, greater brand recognition and
significantly greater financial, marketing and other resources than the
Company and may enter into strategic or commercial relationships with
larger, more established and well-financed companies. Certain of the
Company's competitors may be able to secure services and products from
travel suppliers on more favorable terms, devote greater resources to
marketing and promotional campaigns and devote substantially more
resources to Web site and systems development than the Company. In
addition, new technologies and the expansion of existing technologies may
increase competitive pressures on the Company. In particular, Microsoft
Corporation has publicly announced its intent to invest heavily in the
area of travel technology and services. Increased competition may result
in reduced operating margins, as well as loss of market share and brand
recognition. There can be no assurance that the Company will be able to
compete successfully against current and future competitors, and
competitive pressures faced by the Company could have a material adverse
effect on the Company's business, operating results and financial
condition.
Dependence on Continued Growth of Online Commerce. The Company's
future revenues and any future profits are substantially dependent upon
the widespread acceptance and use of the Internet and commercial online
services as an effective medium of commerce by consumers. For the Company
to be successful, these consumers must accept and utilize novel ways of
conducting business and exchanging information. Convincing consumers to
purchase travel services online may be particularly difficult, as such
consumers have traditionally relied on travel agents for advice and
recommendations as to destinations and accommodations as well as
bookings, and are accustomed to a high degree of human interaction in
purchasing travel services. Rapid growth in the use of and interest in
the Web, the Internet and commercial online services is a recent
phenomenon, and there can be no assurance that acceptance and use will
continue to develop or that a sufficiently broad base of consumers will
adopt, and continue to use, the Internet and commercial online services
as a medium of commerce, particularly for purchases of travel services.
Demand for recently introduced services and products over the
Internet and commercial online services is subject to a high level of
uncertainty and there exist few proven services and products. The
development of the Internet and commercial online services as a viable
commercial marketplace is subject to a number of factors, including
continued growth in the number of users of such services, concerns about
transaction security, continued development of the necessary
technological infrastructure and the development of complementary
services and products. If the Internet and commercial online services do
not become a viable commercial marketplace, the Company's business,
operating results and financial condition would be materially adversely
affected.
Risks Associated with Advertising Revenues. During 1996 and 1997
and the nine months ended September 30, 1998, approximately 58%, 39% and
36%, respectively, of the Company's total revenues were derived from the
sale of advertising in connection with its television programming and its
online sites. The Company's advertising customers may terminate their
advertising commitments at any time without penalty. Consequently, the
Company's advertising customers may move their advertising to competing
online sites or television programs or to other traditional media quickly
and at low cost, thereby increasing the Company's exposure to competitive
pressures and fluctuations in net revenues and operating results. In
particular, to support its television operations, which are substantially
dependent on advertising revenues that historically have been derived
from a very limited customer base, the Company must overcome significant
competition from national syndicators and broadcast stations and cable
networks to obtain advertising commitments. If the Company loses
advertising customers, fails to attract new customers or is forced to
reduce advertising rates in order to retain or attract advertising
customers, the Company's business, operating results and financial
condition could be materially adversely affected. In particular, the
Company currently anticipates that Best Buy Co., Inc. ("Best Buy") will
account for a significant percentage of the Company's television
advertising revenues in future periods. As is common in the television
industry, the Company does not have a long-term contract or arrangement
with Best Buy that guarantees advertising revenues from Best Buy. As a
result, if advertising revenues from Best Buy do not materialize to the
extent anticipated by the Company or if such advertising revenues
materialize and Best Buy then phases out its sponsorship of the Company's
television programming, overall revenues from the Company's television
operations would be materially and adversely affected, which could
adversely affect the Company's business operating results and financial
condition.
Management of Potential Growth. The Company has rapidly and
significantly expanded its operations, and anticipates that further
significant expansion will be required to address potential growth in its
customer base and market opportunities. The Company has also recently
added a number of key managerial and technical employees, and the Company
expects to add additional key personnel in the future. This expansion has
placed, and is expected to continue to place, a significant strain on the
Company's management, operational and financial resources. To manage the
expected growth of its operations and personnel, the Company will be
required to improve existing and implement new transaction-processing,
operational, customer service and financial systems, procedures and
controls, implement a formal disaster recovery program and expand, train
and manage the Company's growing employee base. The Company also will be
required to expand its finance, administrative and operations staff.
Further, the Company's management will be required to maintain and expand
its relationships with various travel service suppliers, other Web sites
and other Web service providers, Internet and commercial online service
providers and other third parties necessary to the Company's business.
There can be no assurance that the Company's current and planned
personnel, systems, procedures and controls will be adequate to support
the Company's future operations, that management will be able to hire,
train, retain, motivate and manage required personnel or that the
Company's management will be able to successfully identify, manage and
exploit existing and potential market opportunities. If the Company is
unable to manage growth effectively, its business, operating results and
financial condition could be materially adversely affected.
Dependence on Attraction and Retention of Key Employees. The
Company's performance is substantially dependent on the continued
services and on the performance of its senior management and certain
other key personnel. The loss of the services of any of its executive
officers or other key employees could have a material adverse effect on
the Company's business, operating results and financial condition. The
Company does not have long-term employment agreements with any of its key
personnel. The Company's future success also depends on its ability to
identify, attract, hire, train, retain and motivate other highly skilled
technical, managerial, editorial, marketing and customer service
personnel. Competition for such personnel is intense, and there can be no
assurance that the Company will be able to successfully attract,
assimilate or retain sufficiently qualified personnel. In particular, the
Company may encounter difficulties in attracting a sufficient number of
qualified software developers for its online services and transaction-
processing systems, and there can be no assurance that the Company will
be able to retain and attract such developers. The failure to retain and
attract necessary technical, managerial, editorial, merchandising,
marketing and customer service personnel could have a material adverse
effect on the Company's business, operating results and financial
condition.
Although none of the Company's employees is represented by a labor
union, it is common for employees in the television industry to belong to
a union, and there can be no assurance that the Company's employees will
not join or form a labor union or that the Company, for certain purposes,
will not be required to become a union signatory.
Risk of Capacity Constraints; Reliance on Internally Developed
Systems; System Development Risks. The Company's revenues depend on the
number of customers who use its online travel sites to book their travel
reservations. Accordingly, the satisfactory performance, reliability and
availability of the Company's online sites, transaction-processing
systems and network infrastructure are critical to the Company's
operating results, as well as its ability to attract and retain customers
and maintain adequate customer service levels. Any system interruptions
that result in the unavailability of the Company's online sites or
reduced performance of the reservation system would reduce the volume of
reservations and the attractiveness of the Company's service offerings,
which could have a material adverse effect on the Company's business,
operating results and financial condition.
The Company uses an internally developed system for its online
sites and substantially all aspects of transaction processing, including
customer profiling, making reservations, credit card verification and
confirmations. The Company has experienced periodic system
interruptions, which it believes will continue to occur from time to
time. Any substantial increase in the volume of traffic on the Company's
online sites or the number of reservations made by customers will require
the Company to expand and upgrade further its technology, transaction-
processing systems and network infrastructure. The Company has
experienced and expects to continue to experience temporary capacity
constraints due to sharply increased traffic during "fare wars" or other
promotions, which may cause unanticipated system disruptions, slower
response times, degradation in levels of customer service, impaired
quality and speed of reservations and confirmations and delays in
reporting accurate financial information.
There can be no assurance that the Company's transaction-processing
systems and network infrastructure will be able to accommodate such
increases in traffic in the future, or that the Company will, in general,
be able to accurately project the rate or timing of such increases or
upgrade its systems and infrastructure to accommodate future traffic
levels on its online sites. In addition, there can be no assurance that
the Company will be able in a timely manner to effectively upgrade and
expand its transaction-processing systems or to successfully integrate
any newly developed or purchased modules with its existing systems. Any
inability to do so could have a material adverse effect on the Company's
business, operating results and financial condition.
Risk of System Failure; Single Site. The Company's success, in
particular its ability to successfully receive and fulfill orders online
and provide high-quality customer service, largely depends on the
efficient and uninterrupted operation of its computer and communications
hardware systems. Substantially all of the Company's computer and
communications systems are located at a single facility in San Francisco,
California. The Company's systems and operations are vulnerable to damage
or interruption from fire, flood, power loss, telecommunications failure,
break-ins, earthquake and similar events. The Company currently does not
have redundant systems or a formal disaster recovery plan. Despite the
implementation of network security measures by the Company, its servers
are vulnerable to computer viruses, physical or electronic break-ins and
similar disruptions, which could lead to interruptions, delays, loss of
data or the inability to accept and confirm customer reservations. The
occurrence of any of the foregoing risks could have a material adverse
effect on the Company's business, operating results and financial
condition.
Risks Associated with Television Operations. The Company's ability
to generate revenues from its television operations, as well as its
ability to use its television and in-flight programming to promote and
enhance its online services and brand recognition, depends upon its
ability to reflect in its programming the changing tastes of consumers,
news directors and program directors, and to secure and maintain
distribution for its television and in-flight programming on acceptable
commercial terms through local stations, domestic and international cable
and broadcast networks and airlines. These syndication agreements
typically have durations of one year or less, and there can be no
assurance that such stations, networks and airlines will continue to
renew syndication agreements for the Company's programs. In addition, the
Company's ability to cost effectively update and expand its film library
is essential to its ability to continue to offer compelling content.
Although the Company maintains a back-up of its film library in
offsite storage, both the film library and the back-up library are
vulnerable to damage from fire, flood, break-ins, earthquake and similar
events. Loss of access to the Company's film library for an extended
period of time could have a material adverse effect on the Company's
business, operating results and financial condition.
Although the Company's television operations have had positive cash
flow from operations in the past, the Company experienced negative cash
flow from television operations in 1997 and in the first nine months of
1998 and expects to experience negative cash flow from television
operations at least through the completion of the Television Operations
Divestiture. The Company must generate substantial revenues from sales of
its television programs, and, in particular, advertising sales for such
programs, in order to offset the significant fixed costs associated with
its television operations. The Company historically has derived
advertising revenues from a limited customer base. In particular, a
single customer, MCI Telecommunications Corporation ("MCI"), accounted
for 49% and 58% of the Company's television advertising revenues in 1995
and 1996, respectively. Commencing in the first quarter of 1997, MCI
began to phase out its sponsorship of the Company's television
programming, which phase-out was completed in the quarter ended September
30, 1997. MCI continues to advertise in the Company's in-flight
programming. Revenues attributable to MCI comprised 30% and 7% of the
Company's total television revenues for 1997 and the nine months ended
September 30, 1998, respectively. Because the Company does not expect to
receive any additional revenues from MCI for television sponsorships, the
Company expects revenues attributable to MCI in 1998 to decrease
significantly from that in 1997. In addition, the Company faces
significant competition from national syndicators and broadcast and cable
networks in its efforts to replace MCI's sponsorship, expand its customer
base and obtain sufficient levels of advertising sales to achieve
profitability in its television operations. In certain market conditions,
the Company could be required to substantially lower its advertising
rates in order to sell its available inventory of television time and Web
advertising space. The Company currently anticipates that Best Buy Co.,
Inc. ("Best Buy") will account for a significant percentage of the
Company's television advertising revenues in future periods. Revenues
attributable to Best Buy, which began advertising with the Company in
March 1998, comprised 23% of the Company's total television revenues for
the nine months ended September 30, 1998. As is common in the television
industry, the Company does not have a long-term contract or arrangement
with Best Buy that guarantees advertising revenues from Best Buy.
As a result, if advertising revenues from Best Buy do not
materialize to the extent anticipated by the Company or if such
advertising revenues materialize and Best Buy then phases out its
sponsorship of the Company's television programming, overall revenues
from the Company's television operations would be materially and
adversely affected, which could adversely affect the Company's business,
operating results and financial condition. The Company expects revenues
from its television operations to decline in 1998 relative to 1997.
There can be no assurance that the Company will generate sufficient
revenues from the licensing of its television programs and sale of
advertising to achieve profitability, and the failure to do so or to
complete the Television Operations Divestiture could have a material
adverse effect on the Company's business, operating results and financial
condition.
Rapid Technological Change. The Internet and the online commerce
industry are characterized by rapid technological change, changes in user
and customer requirements and preferences, frequent new product and
service introductions embodying new technologies and the emergence of new
industry standards and practices that could render the Company's existing
online sites and proprietary technology and systems obsolete. The
emerging nature of these products and services and their rapid evolution
will require that the Company continually improve the performance,
features and reliability of its online services, particularly in response
to competitive offerings. The Company's success will depend, in part, on
its ability to enhance its existing services, to develop new services and
technology that address the increasingly sophisticated and varied needs
of its prospective customers and to respond to technological advances and
emerging industry standards and practices on a cost-effective and timely
basis. The development of online sites and other proprietary technology
entails significant technical and business risks and requires substantial
expenditures and lead time. There can be no assurance that the Company
will successfully use new technologies effectively or adapt its online
sites, proprietary technology and transaction-processing systems to
customer requirements or emerging industry standards. If the Company is
unable, for technical, legal, financial or other reasons, to adapt in a
timely manner in response to changing market conditions or customer
requirements, its business, operating results and financial condition
could be materially adversely affected.
Online Commerce and Database Security Risks. A fundamental
requirement for online commerce and communications is the secure
transmission of confidential information over public networks. The
Company relies on encryption and authentication technology licensed from
third parties to provide the security and authentication necessary to
effect secure transmission of confidential information, such as customer
credit card numbers. In addition, the Company maintains an extensive
confidential database of customer profiles and transaction information.
There can be no assurance that advances in computer capabilities, new
discoveries in the field of cryptography, or other events or developments
will not result in a compromise or breach of the algorithms used by the
Company to protect customer transaction and personal data contained in
the Company's customer database. If any such compromise of the Company's
security were to occur, it could have a material adverse effect on the
Company's reputation, business, operating results and financial
condition. A party who is able to circumvent the Company's security
measures could misappropriate proprietary information or cause
interruptions in the Company's operations. The Company may be required to
expend significant capital and other resources to protect against such
security breaches or to alleviate problems caused by such breaches.
Concerns over the security of transactions conducted on the Internet and
commercial online services and the privacy of users may also inhibit the
growth of the Internet and commercial online services, especially as a
means of conducting commercial transactions. To the extent that
activities of the Company or third-party contractors involve the storage
and transmission of proprietary information, such as credit card numbers
or other personal information, security breaches could expose the Company
to a risk of loss or litigation and possible liability. There can be no
assurance that the Company's security measures will prevent security
breaches or that failure to prevent such security breaches will not have
a material adverse effect on the Company's business, operating results
and financial condition.
Need for Additional Capital. The Company requires substantial
working capital to fund its business and expects to use a portion of the
net proceeds of its initial public offering and secondary offering to
fund its operating losses. In the last two years, the Company has
experienced negative cash flow from operations and expects to continue to
experience significant negative cash flow from operations for the
foreseeable future. The Company currently anticipates that the net
proceeds of its initial public offering and secondary offering, together
with its existing capital resources, will be sufficient to meet the
Company's capital requirements through the end of 1999, although the
Company could be required, or could elect, to seek to raise additional
financing during such period or thereafter, in part to fund its financial
obligations to AOL, Excite and Lycos, or for other purposes. There can be
no assurance that such financing will be available in sufficient amounts
or on terms acceptable to the Company, if at all.
Risks Associated with Offering New Services. The Company plans to
introduce new and expanded services and to enter into new relationships
with third parties in order to generate additional revenues, attract more
consumers and respond to competition. For example, the Company may offer
travel insurance, travel financing services and travel-related
merchandise. There can be no assurance that the Company would be able to
offer such services in a cost-effective or timely manner or that any such
efforts would be successful. Furthermore, any new service launched by
the Company that is not favorably received by consumers could damage the
Company's reputation or its brand name. Expansion of the Company's
services in this manner would also require significant additional
expenses and development and may strain the Company's management,
financial and operational resources. The Company's inability to generate
revenues from such expanded services or products sufficient to offset
their cost could have a material adverse effect on the Company's
business, operating results and financial condition.
Liability for Internet and Television Content. As a publisher and
distributor of online and television content, the Company faces potential
liability for defamation, negligence, copyright, patent or trademark
infringement and other claims based on the nature and content of the
materials that the Company publishes or distributes. Such claims have
been brought, and sometimes successfully pressed, against online
services. In addition, the Company does not and cannot practically screen
all of the content generated by its users on the bulletin board system on
the Company's online sites, and the Company could be exposed to liability
with respect to such content. Although the Company carries general
liability insurance, the Company's insurance may not cover claims of
these types or may not be adequate to indemnify the Company for all
liability that may be imposed. Any imposition of liability, particularly
liability that is not covered by insurance or is in excess of insurance
coverage, could have a material adverse effect on the Company's
reputation and its business, operating results and financial condition.
Uncertain Protection of Intellectual Property; Risks of Third Party
Licenses. The Company regards its copyrights, service marks, trademarks,
trade dress, trade secrets and similar intellectual property as critical
to its success, and relies on trademark and copyright law, trade secret
protection and confidentiality and/or license agreements with the
Company's employees, customers, partners and others to protect its
proprietary rights. The Company pursues the registration of certain of
its key trademarks and service marks in the United States and
internationally. Effective trademark, service mark, copyright and trade
secret protection may not be available in every country in which the
Company's products and services are made available online. The Company
has licensed in the past, and expects that it may license in the future,
certain of its proprietary rights, such as trademarks or copyrighted
material, to third parties. While the Company attempts to ensure that the
quality of its brand is maintained by such licensees, there can be no
assurance that such licensees will not take actions that might materially
adversely affect the value of the Company's proprietary rights or
reputation, which could have a material adverse effect on the Company's
business, operating results and financial condition. There can be no
assurance that the steps taken by the Company to protect its proprietary
rights will be adequate or that third parties will not infringe or
misappropriate the Company's copyrights, trademarks, trade dress and
similar proprietary rights. In addition, there can be no assurance that
other parties will not assert infringement claims against the Company.
The Company may be subject to legal proceedings and claims from time to
time in the ordinary course of its business, including claims of alleged
infringement of the trademarks and other intellectual property rights of
third parties by the Company and its licensees. Such claims, even if not
meritorious, could result in the expenditure of significant financial and
managerial resources.
The Company also intends to continue to strategically license
certain content for its online sites from third parties, such as it did
with Fodor's, including content which is integrated with internally
developed content and used on the Company's online sites to provide key
services. There can be no assurance that these third party content
licenses will be available to the Company on commercially reasonable
terms or that the Company will be able to successfully integrate such
third party content. Such content licenses may expose the Company to
increased risks, including risks associated with the assimilation of new
content, the diversion of resources from the development of the Company's
content, the inability to generate revenues from new content sufficient
to offset associated acquisition costs and the maintenance of uniform,
appealing content. The inability to obtain any of these licenses could
result in delays in site development or services until equivalent content
can be identified, licensed and integrated. Any such delays in site
development or services could have a material adverse effect on the
Company's business, operating results and financial condition.
Governmental Regulation and Legal Uncertainties. Certain segments
of the travel industry are heavily regulated by the United States and
international governments, and accordingly, certain services offered by
the Company are affected by such regulations. For example, the Company is
subject to United States Department of Transportation ("DOT")
regulations prohibiting unfair and deceptive practices. In addition, DOT
regulations concerning the display and presentation of information that
are currently applicable to the GDS services accessed by the Company
could be extended to the Company in the future, as well as other laws and
regulations aimed at protecting consumers accessing online travel
services or otherwise. In California, under the Seller of Travel Act, the
Company is required to register as a seller of travel, comply with
certain disclosure requirements and participate in the State's
restitution fund. The television industry is also subject to extensive
regulation at federal, state and local levels, including the Federal
Communications Act and rules and regulations of the Federal
Communications Commission. In addition, legislative and regulatory
proposals under ongoing consideration by Congress and federal agencies
may materially affect the television industry and the Company's ability
to obtain distribution for its television programming.
The Company is also subject to regulations applicable to businesses
generally and laws or regulations directly applicable to access to online
commerce. Although there are currently few laws and regulations directly
applicable to the Internet and commercial online services, it is possible
that a number of laws and regulations may be adopted with respect to the
Internet or commercial online services covering issues such as user
privacy, pricing, content, copyrights, distribution, antitrust and
characteristics and quality of products and services. Furthermore, the
growth and development of the market for online commerce may prompt calls
for more stringent consumer protection laws that may impose additional
burdens on those companies conducting business online. The adoption of
any additional laws or regulations may decrease the growth of the
Internet or commercial online services, which could, in turn, decrease
the demand for the Company's products and services and increase the
Company's cost of doing business, or otherwise have a material adverse
effect on the Company's business, operating results and financial
condition.
Moreover, the applicability to the Internet and commercial online
services of existing laws in various jurisdictions governing issues such
as property ownership, sales and other taxes, libel and personal privacy
is uncertain and may take years to resolve. For example, tax authorities
in a number of states are currently reviewing the appropriate tax
treatment of companies engaged in online commerce, and new state tax
regulations may subject the Company to additional state sales and income
taxes. Any such new legislation or regulation, the application of laws
and regulations from jurisdictions whose laws do not currently apply to
the Company's business, or the application of existing laws and
regulations to the Internet and commercial online services could have a
material adverse effect on the Company's business, operating results and
financial condition.
Risks Associated with International Expansion. A key component of
the Company's strategy is to expand its operations into international
markets. The Company anticipates that it will expend significant
financial and management resources to establish local offices overseas,
create localized user interfaces and comply with local customs and
regulations. If the revenues generated by these international operations
are insufficient to offset the expense of establishing and maintaining
such operations, the Company's business, operating results and financial
condition could be materially adversely affected. To date, the Company
has no experience in developing localized versions of its online sites
and marketing and distributing its travel services internationally. There
can be no assurance that the Company will be able to successfully market
or sell its services in these international markets. In addition to the
uncertainty as to the Company's ability to expand its international
presence, there are certain risks inherent in conducting business on an
international level, such as unexpected changes in regulatory
requirements, tariffs and other trade barriers, difficulties in staffing
and managing foreign operations, political instability, currency rate
fluctuations, seasonality in leisure travel in certain countries and
potentially adverse tax consequences. There can be no assurance that one
or more of the foregoing factors will not have a material adverse effect
on the Company's future international operations and, consequently, on
its business, operating results and financial condition.
Risks Associated with Potential Acquisitions. The Company's current
strategy is to broaden the scope and content of its online sites through
the acquisition of existing online services and businesses specializing
in travel-related content, as well as through internally developed new
travel services offerings. Any future acquisitions would expose the
Company to increased risks, including risks associated with the
assimilation of new operations, sites and personnel, the diversion of
resources from the Company's existing businesses, sites and technologies,
the inability to generate revenues from new sites or content sufficient
to offset associated acquisition costs, the maintenance of uniform
standards, controls, procedures and policies and the impairment of
relationships with employees and customers as a result of any integration
of new management personnel. Acquisitions may also result in additional
expenses associated with amortization of acquired intangible assets or
potential businesses. There can be no assurance that the Company would be
successful in overcoming these risks or any other problems encountered in
connection with such acquisitions, and its inability to overcome such
risks could have a material adverse effect on the Company's business,
operating results and financial condition.
Volatility of Stock Price. The market price of the Common Stock of
the Company could be subject to significant fluctuations in response to
quarter-to-quarter variations in the Company's operating results,
announcements of technological innovations or new products by the Company
or its competitors, and other events or factors. For example, a shortfall
in revenue or net income, or increase in losses from levels expected by
securities analysts, could have an immediate and significant adverse
effect on the market price of the Company's Common Stock. In addition,
the stock market in recent years has experienced extreme price and volume
fluctuations that have particularly affected the market prices of many
high technology companies and that have often been unrelated or
disproportionate to the operating performance of companies. These
fluctuations, as well as general economic and market conditions, may
adversely affect the market price for the Common Stock.
Antitakeover Effect of Certain Charter Provisions;
StockholderRights Plan The Board of Directors has the authority to issue
up to 5,000,000 shares of Preferred Stock and to determine the price,
rights, preferences, privileges and restrictions, including voting
rights, of those shares without any further vote or action by the
stockholders. The rights of the holders of Common Stock may be subject
to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. The issuance of
Preferred Stock may have the effect of delaying, deferring or preventing
a change of control of the Company without further action by the
stockholders and may adversely affect the voting and other rights of the
holders of Common Stock, which could have an adverse impact on the market
price of the Common Stock. The Company has no present plans to issue
shares of Preferred Stock. Further, certain provisions of the Company's
charter documents, including provisions eliminating the ability of
stockholders to take action by written consent and limiting the ability
of stockholders to raise matters at a meeting of stockholders without
giving advance notice, may have the effect of delaying or preventing
changes in control or management of the Company, which could have an
adverse effect on the market price of the Company's Common Stock.
In October 1998, the Company's Board of Directors adopted a
stockholder rights plan. This plan provides stockholders with special
purchase rights under certain circumstances,including if any person or
group acquires 20 percent or more of the Company's common stock. This
plan could have the effect of making it more difficult for a third party
to acquire, or of discouraging a third party from attempting to acquire,
or of making the Company less attractive to a potential acquiror of, a
majority of the outstanding voting stock of the Company, and may
complicate or discourage a takeover of the Company.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, the Company is subject to legal proceedings and
claims in the ordinary course of business, including claims of alleged
infringement of trademarks and other intellectual property rights. The
Company currently is not aware of any legal proceedings or claims that it
believes will have, individually or in the aggregate, a material adverse
effect on the its business, operating results and financial condition.
Item 2. Changes in Securities and Use of Proceeds.
On November 19, 1997, in connection with the Company's initial
public offering, a Registration Statement on Form S-1 (No. 333-37183) was
declared effective by the Securities and Exchange Commission, pursuant to
which 2,500,000 shares of the Company's Common Stock were offered and
sold for the account of the Company at a price of $11.00 per share,
generating gross offering proceeds of $27.5 million. The managing
underwriters were Hambrecht & Quist LLC and NationsBanc Montgomery
Securities, Inc. After deducting approximately $1.9 million in
underwriting discounts and $1.0 million in other related expenses, the
net proceeds of the offering were approximately $24.6 million. The
Company has used $6.4 million of the net proceeds of the offering for a
payment to AOL under the distribution agreement with AOL, $1.5 million
for payments to Excite under the distribution agreement with Excite and
$1.1 million for a payment to Lycos under the distribution agreement with
Lycos. The remaining $15.6 million has been invested in investment grade,
interest bearing securities. The Company intends to use such remaining
proceeds for capital expenditures, including the acquisition of redundant
computer and communication systems, for payment of its obligations to
AOL, Excite and Lycos pursuant to its agreements with AOL, Excite and
Lycos, and for general corporate purposes, including working capital to
fund anticipated operating losses.
On October 28, 1998, the Board of Directors adopted a stockholder
rights plan designed to protect the long-term value of the Company for
its stockholders during any future unsolicited acquisition attempt. In
connection with the plan, the Board declared a dividend of one preferred
share purchase right for each share of the Company's Common Stock
outstanding on November 12, 1998 (the "Record Date") and further directed
the issuance of one such right with respect to each share of the
Company's common stock that is issued after the Record Date, except in
certain circumstances. The rights will expire on October 28, 2008. The
rights are initially attached to the Company's Common Stock and will not
trade separately. If a person or a group (an "Acquiring Person") acquires
beneficial ownership of 20 percent or more of the Company's Common Stock,
or announces an intention to make a tender offer for the Company's Common
Stock, the consummation of which would result in a person or group
becoming an Acquiring Person, then the rights will be distributed (the
"Distribution Date") and will thereafter trade separately from the Common
Stock. After the Distribution Date, each right may be exercised for
1/1000th of a share of Series A Participating Preferred Stock ("Series A
Preferred Stock") at an exercise price of $100. In connection with the
adoption of the plan, the Board of Directors also amended certain
provisions of the Company's Bylaws relating to the notice requirements
for the nomination of persons for election to the Board of Directors and
the proposal of business to be transacted at annual meetings of
stockholders and the ability to call special meetings of the Company's
stockholders.
Item 3. Defaults Upon Senior Securities - Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit 3.2 - Bylaws (as amended on October 28, 1998)
Exhibit 3.4 - Certificate of Designation of Rights,
Preferences and Priveleges of Series A Participating Preferred Stock
Exhibit 10.21 - Preferred Shares Rights Agreement dated October 29, 1998
Exhibit 27.1 - Financial Data Schedule
(b) Reports on Form 8-K - None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Preview Travel, Inc.
By:
/s/ KENNETH R. PELOWSKI
Kenneth R. Pelowski
Executive Vice President,
Finance and Administration,
and Chief Financial Officer
(Principal Financial Officer)
By:
/s/ BRUCE CARMEDELLE
Bruce Carmedelle
Vice President and Corporate
Controller (Principal Accounting Officer)
Date: November 16, 1998
EXHIBIT INDEX
3.2 Bylaws (as amended on October 28, 1998)
3.4 Certificate of Designation of Rights, Preferences and
Priveleges of Series A Participating Preferred Stock
10.21 Preferred Shares Rights Agreement dated October 29, 1998
27.1 Financial Data Schedule
BYLAWS OF PREVIEW TRAVEL, INC.
(as amended on April 28, 1998 and on October 28, 1998)
TABLE OF CONTENTS
Page
ARTICLE I - CORPORATE OFFICES 1
1.1 Registered Office 1
1.2 Other Offices 1
ARTICLE II - MEETINGS OF STOCKHOLDERS 1
2.1 Place Of Meetings 1
2.2 Annual Meeting 1
2.3 Special Meeting 3
2.4 Notice of Shareholder's Meeting; Affidavit Of Notice 3
2.5 Advance Notice of Stockholder Nominees 3
2.6 Quorum 4
2.7 Adjourned Meeting; Notice 4
2.8 Conduct Of Business 4
2.9 Voting 5
2.10 Waiver Of Notice 5
2.11 Record Date For Stockholder Notice; Voting 5
2.12 Proxies 6
ARTICLE III - DIRECTOR 6
3.1 Powers 6
3.2 Number Of Directors 6
3.3 Election, Qualification And Term Of Office Of
Directors 6
3.4 Resignation And Vacancies 6
3.5 Place Of Meetings; Meetings By Telephone 7
3.6 Regular Meetings 8
3.7 Special Meetings; Notice 8
3.8 Quorum 8
3.9 Waiver Of Notice 8
3.10 Board Action By Written Consent Without A Meeting 9
3.11 Fees And Compensation Of Directors 9
3.12 Approval Of Loans To Officers 9
3.13 Removal Of Directors 9
3.14 Chairman Of The Board Of Directors 10
ARTICLE IV - COMMITTEES 10
4.1 Committees Of Directors 10
4.2 Committee Minutes 10
4.3 Meetings And Action Of Committees 11
ARTICLE V - OFFICERS 12
5.1 Officers 12
5.2 Appointment Of Officers 12
5.3 Subordinate Officers 12
5.4 Removal And Resignation Of Officers 12
5.5 Vacancies In Offices 12
5.6 Chief Executive Officer 13
5.7 President 13
5.8 Vice Presidents 13
5.9 Secretary 13
5.10 Chief Financial Officer 14
5.11 Representation Of Shares Of Other Corporations 14
5.12 Authority And Duties Of Officers 15
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
AND OTHER AGENTS 15
6.1 Indemnification Of Directors And Officers 15
6.2 Indemnification Of Others 15
6.3 Payment Of Expenses In Advance 15
6.4 Indemnity Not Exclusive 16
6.5 Insurance 16
6.6 Conflicts 16
ARTICLE VII - RECORDS AND REPORTS 17
7.1 Maintenance And Inspection Of Records 17
7.2 Inspection By Directors 17
7.3 Annual Statement To Stockholders 17
ARTICLE VIII - GENERAL MATTERS 18
8.1 Checks 18
8.2 Execution Of Corporate Contracts And Instruments 18
8.3 Stock Certificates; Partly Paid Shares 18
8.4 Special Designation On Certificates 19
8.5 Lost Certificates 19
8.6 Construction; Definitions 19
8.7 Dividends 19
8.8 Fiscal Year 20
8.9 Seal 20
8.10 Transfer Of Stock 20
8.11 Stock Transfer Agreements 20
8.12 Registered Stockholders 20
ARTICLE IX - AMENDMENTS 20
BYLAWS
OF
PREVIEW TRAVEL, INC.
ARTICLE I
CORPORATE OFFICES
1.1 Registered Office.
The address of the Corporation's registered office in the
State of Delaware is 1013 Centre Road, Wilmington, Delaware, County of
New Castle. The name of its registered agent at such address is
Corporation Service Company.
1.2 Other Offices.
The Board of Directors may at any time establish other
offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 Place Of Meetings.
Meetings of stockholders shall be held at any place, within
or outside the State of Delaware, designated by the Board of Directors.
In the absence of any such designation, stockholders' meetings shall be
held at the registered office of the corporation.
2.2 Annual Meeting.
(a) The annual meeting of stockholders shall be held each
year on a date and at a time designated by the Board of Directors. At
the meeting, directors shall be elected and any other proper business may
be transacted.
(b) Nominations of persons for election to the Board of
Directors of the corporation and the proposal of business to be
transacted by the stockholders may be made at an annual meeting of
stockholders (i) pursuant to the corporation's notice with respect to
such meeting, (ii) by or at the direction of the Board of Directors or
(iii) by any stockholder of the corporation who was a stockholder of
record at the time of giving of the notice provided for in this Section
2.2, who is entitled to vote at the meeting and who has complied with the
notice procedures set forth in this Section 2.2.
(c) In addition to the requirements of Section 2.5, for
nominations or other business to be properly brought before an annual
meeting by a stockholder pursuant to clause (iii) of paragraph (b) of
this Section 2.2, the stockholder must have given timely notice thereof
in writing to the secretary of the corporation and such business must be
a proper matter for stockholder action under the General Corporation Law
of Delaware. To be timely, a stockholder's notice shall be delivered to
the secretary at the principal executive offices of the corporation not
less than twenty (20) days nor more than ninety (90) days prior to the
first anniversary of the preceding year's annual meeting of stockholders;
provided, however, that in the event that the date of the annual meeting
is more than thirty (30) days prior to or more than sixty (60) days after
such anniversary date, notice by the stockholder to be timely must be so
delivered not earlier than the ninetieth (90th) day prior to such annual
meeting and not later than the close of business on the later of the
twentieth (20th) day prior to such annual meeting or the tenth (10th) day
following the day on which public announcement of the date of such
meeting is first made. Such stockholder's notice shall set forth (i) as
to each person whom the stockholder proposes to nominate for election or
reelection as a director all information relating to such person that is
required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (including such person's written consent to being named
in the proxy statement as a nominee and to serving as a director if
elected); (ii) as to any other business that the stockholder proposes to
bring before the meeting, a brief description of such business, the
reasons for conducting such business at the meeting and any material
interest in such business of such stockholder and the beneficial owner,
if any, on whose behalf the proposal is made; and (iii) as to the
stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (A) the name and address of
such stockholder, as they appear on the corporation's books, and of such
beneficial owner and (B) the class and number of shares of the
corporation which are owned beneficially and of record by such
stockholder and such beneficial owner.
(d) Only such business shall be conducted at an annual
meeting of stockholders as shall have been brought before the meeting in
accordance with the procedures set forth in this Section 2.2. The
chairman of the meeting shall determine whether a nomination or any
business proposed to be transacted by the stockholders has been properly
brought before the meeting and, if any proposed nomination or business
has not been properly brought before the meeting, the chairman shall
declare that such proposed business or nomination shall not be presented
for stockholder action at the meeting.
(e) For purposes of this Section 2.2, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News
Service, Associated Press or a comparable national news service.
(f) Nothing in this Section 2.2 shall be deemed to affect
any rights of stockholders to request inclusion of proposals in the
corporation's proxy statement pursuant to Rule 14a-8 under the Exchange
Act.
2.3 Special Meeting.
(a) A special meeting of the stockholders may be called at
any time by the Board of Directors, or by the chairman of the board, or
by the president.
(b) Nominations of persons for election to the Board of
Directors may be made at a special meeting of stockholders at which
directors are to be selected pursuant to such notice of meeting (i) by or
at the direction of the Board of Directors or (ii) by any stockholder of
the corporation who is a stockholder of record at the time of giving of
notice provided for in Section 2.5, who shall be entitled to vote at the
meeting and who complies with the notice procedures set forth in Section
2.5.
2.4 Notice of Stockholder's Meetings; Affidavit Of Notice.
All notices of meetings of stockholders shall be in writing
and shall be sent or otherwise given in accordance with this Section 2.4
of these Bylaws not less than ten (10) nor more than sixty (60) days
before the date of the meeting to each stockholder entitled to vote at
such meeting (or such longer or shorter time as is required by Section
2.5 of these Bylaws, if applicable). The notice shall specify the place,
date, and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called.
Written notice of any meeting of stockholders, if mailed, is
given when deposited in the United States mail, postage prepaid, directed
to the stockholder at his address as it appears on the records of the
corporation. An affidavit of the secretary or an assistant secretary or
of the transfer agent of the corporation that the notice has been given
shall, in the absence of fraud, be prima facie evidence of the facts
stated therein.
2.5 Advance Notice of Stockholder Nominees.
Only persons who are nominated in accordance with the
procedures set forth in this Section 2.5 shall be eligible for election
as directors. Nominations of persons for election to the board of
directors of the corporation may be made at a meeting of stockholders by
or at the direction of the board of directors or by any stockholder of
the corporation entitled to vote for the election of directors at the
meeting who complies with the notice procedures set forth in this Section
2.5. Such nominations, other than those made by or at the direction of
the board of directors, shall be made pursuant to timely notice in
writing to the secretary of the corporation. To be timely, a
stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the corporation not less than sixty (60)
days nor more than ninety (90) days prior to the meeting; provided,
however, that in the event that less than sixty (60) days' notice or
prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received
not later than the close of business on the 10th day following the day on
which such notice of the date of the meeting was mailed or such public
disclosure was made. Such stockholder's notice shall set forth (a) as to
each person whom the stockholder proposes to nominate for election or re-
election as a Director, (i) the name, age, business address and residence
address of such person, (ii) the principal occupation or employment of
such person, (iii) the class and number of shares of the corporation
which are beneficially owned by such person and (iv) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for election of Directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (including, without limitation, such
person's written consent to being named in the proxy statement as a
nominee and to serving as a director if elected); and (b) as to the
stockholder giving the notice (i) the name and address, as they appear on
the corporation's books, of such stockholder and (ii) the class and
number of shares of the corporation which are beneficially owned by such
stockholder. At the request of the Board of Directors any person
nominated by the Board of Directors for election as a director shall
furnish to the secretary of the corporation that information required to
be set forth in a stockholder's notice of nomination which pertains to
the nominee. No person shall be eligible for election as a director of
the corporation unless nominated in accordance with the procedures set
forth in this Section 2.5. The Chairman of the meeting shall, if the
facts warrant, determine and declare to the meeting that a nomination was
not made in accordance with the procedures prescribed by the Bylaws, and
if he or she should so determine, he or she shall so declare to the
meeting and the defective nomination shall be disregarded.
2.6 Quorum.
The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy,
shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum is not present or
represented at any meeting of the stockholders, then either (a) the
chairman of the meeting or (b) the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn
the meeting from time to time, without notice other than announcement at
the meeting, until a quorum is present or represented. At such adjourned
meeting at which a quorum is present or represented, any business may be
transacted that might have been transacted at the meeting as originally
noticed.
2.7 Adjourned Meeting; Notice.
When a meeting is adjourned to another time or place, unless
these Bylaws otherwise require, notice need not be given of the adjourned
meeting if the time and place thereof are announced at the meeting at
which the adjournment is taken. At the adjourned meeting the corporation
may transact any business that might have been transacted at the original
meeting. If the adjournment is for more than thirty (30) days, or if
after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
2.8 Conduct Of Business.
The chairman of any meeting of stockholders shall determine
the order of business and the procedure at the meeting, including the
manner of voting and the conduct of business.
2.9 Voting.
(a) The stockholders entitled to vote at any meeting of
stockholders shall be determined in accordance with the provisions of
Section 2.11 of these Bylaws, subject to the provisions of Sections 217
and 218 of the General Corporation Law of Delaware (relating to voting
rights of fiduciaries, pledgors and joint owners of stock and to voting
trusts and other voting agreements).
(b) Except as may be otherwise provided in the certificate
of incorporation, each stockholder shall be entitled to one vote for each
share of capital stock held by such stockholder.
2.10 Waiver Of Notice.
Whenever notice is required to be given under any provision
of the General Corporation Law of Delaware or of the certificate of
incorporation or these Bylaws, a written waiver thereof, signed by the
person entitled to notice, whether before or after the time stated
therein, shall be deemed equivalent to notice. Attendance of a person at
a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting,
at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special
meeting of the stockholders need be specified in any written waiver of
notice unless so required by the certificate of incorporation or these
Bylaws.
2.11 Record Date For Stockholder Notice; Voting.
In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise
any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may
fix, in advance, a record date, which shall not be more than sixty (60)
nor less than ten (10) days before the date of such meeting, nor more
than sixty (60) days prior to any other action. If the Board of Directors
does not so fix a record date:
(a) The record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held.
(b) The record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board of Directors may fix a
new record date for the adjourned meeting.
2.12 Proxies.
Each stockholder entitled to vote at a meeting of
stockholders may authorize another person or persons to act for such
stockholder by a written proxy, signed by the stockholder and filed with
the secretary of the corporation, but no such proxy shall be voted or
acted upon after three (3) years from its date, unless the proxy provides
for a longer period. A proxy shall be deemed signed if the stockholder's
name is placed on the proxy (whether by manual signature, typewriting,
telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states
on its face that it is irrevocable shall be governed by the provisions of
Section 212(e) of the General Corporation Law of Delaware.
ARTICLE III
DIRECTORS
3.1 Powers.
Subject to the provisions of the General Corporation Law of
Delaware and any limitations in the certificate of incorporation or these
Bylaws relating to action required to be approved by the stockholders or
by the outstanding shares, the business and affairs of the corporation
shall be managed and all corporate powers shall be exercised by or under
the direction of the Board of Directors.
3.2 Number Of Directors.
The number of directors constituting the entire Board of
Directors shall be seven (7).
3.3 Election, Qualification And Term Of Office Of Directors.
Except as provided in Section 3.4 of these Bylaws, directors
shall be elected at each annual meeting of stockholders to hold office
until the next annual meeting. Directors need not be stockholders unless
so required by the certificate of incorporation or these Bylaws, wherein
other qualifications for directors may be prescribed. Each director,
including a director elected to fill a vacancy, shall hold office until
his or her successor is elected and qualified or until his or her earlier
resignation or removal.
Elections of directors need not be by written ballot.
3.4 Resignation And Vacancies.
Any director may resign at any time upon written notice to
the attention of the Secretary of the corporation. When one or more
directors so resigns and the resignation is effective at a future date, a
majority of the directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office as provided in
this section in the filling of other vacancies. A vacancy created by the
removal of a director by the vote of the stockholders or by court order
may be filled only by the affirmative vote of a majority of the shares
represented and voting at a duly held meeting at which a quorum is
present (which shares voting affirmatively also constitute a majority of
the quorum. Each director so elected shall hold office until the next
annual meeting of the stockholders and until a successor has been elected
and qualified.
Unless otherwise provided in the certificate of incorporation
or these Bylaws:
(a) Vacancies and newly created directorships resulting
from any increase in the authorized number of directors elected by all of
the stockholders having the right to vote as a single class may be filled
by a majority of the directors then in office, although less than a
quorum, or by a sole remaining director.
(b) Whenever the holders of any class or classes of stock
or series thereof are entitled to elect one or more directors by the
provisions of the certificate of incorporation, vacancies and newly
created directorships of such class or classes or series may be filled by
a majority of the directors elected by such class or classes or series
thereof then in office, or by a sole remaining director so elected.
If at any time, by reason of death or resignation or other
cause, the corporation should have no directors in office, then any
officer or any stockholder or an executor, administrator, trustee or
guardian of a stockholder, or other fiduciary entrusted with like
responsibility for the person or estate of a stockholder, may call a
special meeting of stockholders in accordance with the provisions of the
certificate of incorporation or these Bylaws, or may apply to the Court
of Chancery for a decree summarily ordering an election as provided in
Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a
majority of the whole board (as constituted immediately prior to any such
increase), then the Court of Chancery may, upon application of any
stockholder or stockholders holding at least ten (10) percent of the
total number of the shares at the time outstanding having the right to
vote for such directors, summarily order an election to be held to fill
any such vacancies or newly created directorships, or to replace the
directors chosen by the directors then in office as aforesaid, which
election shall be governed by the provisions of Section 211 of the
General Corporation Law of Delaware as far as applicable.
3.5 Place Of Meetings; Meetings By Telephone.
The Board of Directors of the corporation may hold meetings,
both regular and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorpora-
tion or these Bylaws, members of the Board of Directors, or any committee
designated by the Board of Directors, may participate in a meeting of the
Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation
in a meeting shall constitute presence in person at the meeting.
3.6 Regular Meetings.
Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time to time
be determined by the board.
3.7 Special Meetings; Notice.
Special meetings of the Board of Directors for any purpose or
purposes may be called at any time by the chairman of the board, the
president, any vice president, the secretary or any two directors.
Notice of the time and place of special meetings shall be
delivered personally or by telephone to each director or sent by first-
class mail or telegram, charges prepaid, addressed to each director at
that director's address as it is shown on the records of the corporation.
If the notice is mailed, it shall be deposited in the United States mail
at least four (4) days before the time of the holding of the meeting. If
the notice is delivered personally or by telephone or by telegram, it
shall be delivered personally or by telephone or to the telegraph company
at least forty-eight (48) hours before the time of the holding of the
meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the
director who the person giving the notice has reason to believe will
promptly communicate it to the director. The notice need not specify the
purpose or the place of the meeting, if the meeting is to be held at the
principal executive office of the corporation.
3.8 Quorum.
At all meetings of the Board of Directors, a majority of the
authorized number of directors shall constitute a quorum for the
transaction of business and the act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the
Board of Directors, except as may be otherwise specifically provided by
statute or by the certificate of incorporation. If a quorum is not
present at any meeting of the Board of Directors, then the directors
present thereat may adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum is present.
A meeting at which a quorum is initially present may continue
to transact business notwithstanding the withdrawal of directors, if any
action taken is approved by at least a majority of the required quorum
for that meeting.
3.9 Waiver Of Notice.
Whenever notice is required to be given under any provision
of the General Corporation Law of Delaware or of the certificate of
incorporation or these Bylaws, a written waiver thereof, signed by the
person entitled to notice, whether before or after the time stated
therein, shall be deemed equivalent to notice. Attendance of a person at
a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting,
at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special
meeting of the directors, or members of a committee of directors, need be
specified in any written waiver of notice unless so required by the
certificate of incorporation or these Bylaws.
3.10 Board Action By Written Consent Without A Meeting.
Unless otherwise restricted by the certificate of
incorporation or these Bylaws, any action required or permitted to be
taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting if all members of the board or
committee, as the case may be, consent thereto in writing and the writing
or writings are filed with the minutes of proceedings of the board or
committee. Written consents representing actions taken by the board or
committee may be executed by telex, telecopy or other facsimile
transmission, and such facsimile shall be valid and binding to the same
extent as if it were an original.
3.11 Fees And Compensation Of Directors.
Unless otherwise restricted by the certificate of incorpora-
tion or these Bylaws, the Board of Directors shall have the authority to
fix the compensation of directors. No such compensation shall preclude
any director from serving the corporation in any other capacity and
receiving compensation therefor.
3.12 Approval Of Loans To Officers.
The corporation may lend money to, or guarantee any
obligation of, or otherwise assist any officer or other employee of the
corporation or of its subsidiary, including any officer or employee who
is a director of the corporation or its subsidiary, whenever, in the
judgment of the directors, such loan, guaranty or assistance may
reasonably be expected to benefit the corporation. The loan, guaranty or
other assistance may be with or without interest and may be unsecured, or
secured in such manner as the Board of Directors shall approve,
including, without limitation, a pledge of shares of stock of the
corporation. Nothing in this section contained shall be deemed to deny,
limit or restrict the powers of guaranty or warranty of the corporation
at common law or under any statute.
3.13 Removal Of Directors.
Unless otherwise restricted by statute, by the certificate of
incorporation or by these Bylaws, any director or the entire Board of
Directors may be removed, with or without cause, by the holders of a
majority of the shares then entitled to vote at an election of directors;
provided, however, that if the stockholders of the corporation are
entitled to cumulative voting, if less than the entire Board of Directors
is to be removed, no director may be removed without cause if the votes
cast against his removal would be sufficient to elect him if then
cumulatively voted at an election of the entire Board of Directors.
No reduction of the authorized number of directors shall have
the effect of removing any director prior to the expiration of such
director's term of office.
3.14 Chairman Of The Board Of Directors.
The corporation may also have, at the discretion of the Board
of Directors, a chairman of the Board of Directors who shall not be
considered an officer of the corporation.
ARTICLE IV
COMMITTEES
4.1 Committees Of Directors.
The Board of Directors may, by resolution passed by a
majority of the whole board, designate one or more committees, with each
committee to consist of one or more of the directors of the corporation.
The board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of a member
of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not such member or members
constitute a quorum, may unanimously appoint another member of the Board
of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors or in the Bylaws of the corporation,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed
to all papers that may require it; but no such committee shall have the
power or authority to (a) amend the certificate of incorporation (except
that a committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by the
Board of Directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix the designations and any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the corporation or the
conversion into, or the exchange of such shares for, shares of any other
class or classes or any other series of the same or any other class or
classes of stock of the corporation or fix the number of shares of any
series of stock or authorize the increase or decrease of the shares of
any series), (b) adopt an agreement of merger or consolidation under
Sections 251 or 252 of the General Corporation Law of Delaware,
(c) recommend to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, (d) recommend
to the stockholders a dissolution of the corporation or a revocation of a
dissolution, or (e) amend the Bylaws of the corporation; and, unless the
board resolution establishing the committee, the Bylaws or the
certificate of incorporation expressly so provide, no such committee
shall have the power or authority to declare a dividend, to authorize the
issuance of stock, or to adopt a certificate of ownership and merger
pursuant to Section 253 of the General Corporation Law of Delaware.
4.2 Committee Minutes.
Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors when required.
4.3 Meetings And Action Of Committees.
Meetings and actions of committees shall be governed by, and
held and taken in accordance with, the provisions of Section 3.5 (place
of meetings and meetings by telephone), Section 3.6 (regular meetings),
Section 3.7 (special meetings and notice), Section 3.8 (quorum),
Section 3.9 (waiver of notice), and Section 3.10 (action without a
meeting) of these Bylaws, with such changes in the context of such
provisions as are necessary to substitute the committee and its members
for the Board of Directors and its members; provided, however, that the
time of regular meetings of committees may be determined either by
resolution of the Board of Directors or by resolution of the committee,
that special meetings of committees may also be called by resolution of
the Board of Directors and that notice of special meetings of committees
shall also be given to all alternate members, who shall have the right to
attend all meetings of the committee. The Board of Directors may adopt
rules for the government of any committee not inconsistent with the
provisions of these Bylaws.
ARTICLE V
OFFICERS
5.1 Officers.
The officers of the corporation shall be a chief executive
officer, a president, a secretary, and a chief financial officer. The
corporation may also have, at the discretion of the Board of Directors,
one or more vice presidents, one or more assistant secretaries, one or
more assistant treasurers, and any such other officers as may be
appointed in accordance with the provisions of Section 5.3 of these
Bylaws. Any number of offices may be held by the same person.
5.2 Appointment Of Officers.
The officers of the corporation, except such officers as may
be appointed in accordance with the provisions of Sections 5.3 or 5.5 of
these Bylaws, shall be appointed by the Board of Directors, subject to
the rights, if any, of an officer under any contract of employment.
5.3 Subordinate Officers.
The Board of Directors may appoint, or empower the chief
executive officer or the president to appoint, such other officers and
agents as the business of the corporation may require, each of whom shall
hold office for such period, have such authority, and perform such duties
as are provided in these Bylaws or as the Board of Directors may from
time to time determine.
5.4 Removal And Resignation Of Officers.
Subject to the rights, if any, of an officer under any
contract of employment, any officer may be removed, either with or
without cause, by an affirmative vote of the majority of the Board of
Directors at any regular or special meeting of the board or, except in
the case of an officer chosen by the Board of Directors, by any officer
upon whom such power of removal may be conferred by the Board of
Directors.
Any officer may resign at any time by giving written notice
to the attention of the Secretary of the corporation. Any resignation
shall take effect at the date of the receipt of that notice or at any
later time specified in that notice; and, unless otherwise specified in
that notice, the acceptance of the resignation shall not be necessary to
make it effective. Any resignation is without prejudice to the rights,
if any, of the corporation under any contract to which the officer is a
party.
5.5 Vacancies In Offices.
Any vacancy occurring in any office of the corporation shall
be filled by the Board of Directors.
5.6 Chief Executive Officer.
Subject to such supervisory powers, if any, as may be given
by the Board of Directors to the chairman of the board, if any, the chief
executive officer of the corporation shall, subject to the control of the
Board of Directors, have general supervision, direction, and control of
the business and the officers of the corporation. He or she shall
preside at all meetings of the stockholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the Board of
Directors and shall have the general powers and duties of management
usually vested in the office of chief executive officer of a corporation
and shall have such other powers and duties as may be prescribed by the
Board of Directors or these Bylaws.
5.7 President.
Subject to such supervisory powers, if any, as may be given
by the Board of Directors to the chairman of the board (if any) or the
chief executive officer, the president shall have general supervision,
direction, and control of the business and other officers of the
corporation. He or she shall have the general powers and duties of
management usually vested in the office of president of a corporation and
such other powers and duties as may be prescribed by the Board of
Directors or these Bylaws.
5.8 Vice Presidents.
In the absence or disability of the chief executive officer
and president, the vice presidents, if any, in order of their rank as
fixed by the Board of Directors or, if not ranked, a vice president
designated by the Board of Directors, shall perform all the duties of the
president and when so acting shall have all the powers of, and be subject
to all the restrictions upon, the president. The vice presidents shall
have such other powers and perform such other duties as from time to time
may be prescribed for them respectively by the Board of Directors, these
Bylaws, the president or the chairman of the board.
5.9 Secretary.
The secretary shall keep or cause to be kept, at the
principal executive office of the corporation or such other place as the
Board of Directors may direct, a book of minutes of all meetings and
actions of directors, committees of directors, and stockholders. The
minutes shall show the time and place of each meeting, the names of those
present at directors' meetings or committee meetings, the number of
shares present or represented at stockholders' meetings, and the
proceedings thereof.
The secretary shall keep, or cause to be kept, at the
principal executive office of the corporation or at the office of the
corporation's transfer agent or registrar, as determined by resolution of
the Board of Directors, a share register, or a duplicate share register,
showing the names of all stockholders and their addresses, the number and
classes of shares held by each, the number and date of certificates
evidencing such shares, and the number and date of cancellation of every
certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all
meetings of the stockholders and of the Board of Directors required to be
given by law or by these Bylaws. He or she shall keep the seal of the
corporation, if one be adopted, in safe custody and shall have such other
powers and perform such other duties as may be prescribed by the Board of
Directors or by these Bylaws.
5.10 Chief Financial Officer.
The chief financial officer shall keep and maintain, or cause
to be kept and maintained, adequate and correct books and records of
accounts of the properties and business transactions of the corporation,
including accounts of its assets, liabilities, receipts, disbursements,
gains, losses, capital retained earnings, and shares. The books of
account shall at all reasonable times be open to inspection by any
director.
The chief financial officer shall deposit all moneys and
other valuables in the name and to the credit of the corporation with
such depositories as may be designated by the Board of Directors. He or
she shall disburse the funds of the corporation as may be ordered by the
Board of Directors, shall render to the president, the chief executive
officer, or the directors, upon request, an account of all his or her
transactions as chief financial officer and of the financial condition of
the corporation, and shall have other powers and perform such other
duties as may be prescribed by the Board of Directors or the Bylaws.
5.11 Representation Of Shares Of Other Corporations.
The chairman of the board, the chief executive officer, the
president, any vice president, the chief financial officer, the secretary
or assistant secretary of this corporation, or any other person
authorized by the Board of Directors or the chief executive officer or
the president or a vice president, is authorized to vote, represent, and
exercise on behalf of this corporation all rights incident to any and all
shares of any other corporation or corporations standing in the name of
this corporation. The authority granted herein may be exercised either
by such person directly or by any other person authorized to do so by
proxy or power of attorney duly executed by the person having such
authority.
5.12 Authority And Duties Of Officers.
In addition to the foregoing authority and duties, all
officers of the corporation shall respectively have such authority and
perform such duties in the management of the business of the corporation
as may be designated from time to time by the Board of Directors or the
stockholders.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS
6.1 Indemnification Of Directors And Officers.
The corporation shall, to the maximum extent and in the
manner permitted by the General Corporation Law of Delaware, indemnify
each of its directors and officers against expenses (including attorneys'
fees), judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with any proceeding, arising by reason
of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.1, a "director" or "officer" of the
corporation includes any person (a) who is or was a director or officer
of the corporation, (b) who is or was serving at the request of the
corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise, or (c) who was a director or
officer of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.2 Indemnification Of Others.
The corporation shall have the power, to the maximum extent
and in the manner permitted by the General Corporation Law of Delaware,
to indemnify each of its employees and agents (other than directors and
officers) against expenses (including attorneys' fees), judgments, fines,
settlements and other amounts actually and reasonably incurred in
connection with any proceeding, arising by reason of the fact that such
person is or was an agent of the corporation. For purposes of this
Section 6.2, an "employee" or "agent" of the corporation (other than a
director or officer) includes any person (a) who is or was an employee or
agent of the corporation, (b) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, or (c) who was an employee or
agent of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.3 Payment Of Expenses In Advance.
Expenses incurred in defending any action or proceeding for
which indemnification is required pursuant to Section 6.1 or for which
indemnification is permitted pursuant to Section 6.2 following
authorization thereof by the Board of Directors shall be paid by the
corporation in advance of the final disposition of such action or
proceeding upon receipt of an undertaking by or on behalf of the
indemnified party to repay such amount if it shall ultimately be
determined that the indemnified party is not entitled to be indemnified
as authorized in this Article VI.
6.4 Indemnity Not Exclusive.
The indemnification provided by this Article VI shall not be
deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any Bylaw, agreement, vote of
shareholders or disinterested directors or otherwise, both as to action
in an official capacity and as to action in another capacity while
holding such office, to the extent that such additional rights to
indemnification are authorized in the certificate of incorporation
6.5 Insurance.
The corporation may purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted
against him or her and incurred by him or her in any such capacity, or
arising out of his or her status as such, whether or not the corporation
would have the power to indemnify him or her against such liability under
the provisions of the General Corporation Law of Delaware.
6.6 Conflicts.
No indemnification or advance shall be made under this
Article VI, except where such indemnification or advance is mandated by
law or the order, judgment or decree of any court of competent
jurisdiction, in any circumstance where it appears:
(a) That it would be inconsistent with a provision of the
certificate of incorporation, these Bylaws, a resolution of the
stockholders or an agreement in effect at the time of the accrual of the
alleged cause of the action asserted in the proceeding in which the
expenses were incurred or other amounts were paid, which prohibits or
otherwise limits indemnification; or
(b) That it would be inconsistent with any condition
expressly imposed by a court in approving a settlement.
ARTICLE VII
RECORDS AND REPORTS
7.1 Maintenance And Inspection Of Records.
The corporation shall, either at its principal executive
offices or at such place or places as designated by the Board of
Directors, keep a record of its stockholders listing their names and
addresses and the number and class of shares held by each stockholder, a
copy of these Bylaws as amended to date, accounting books, and other
records.
Any stockholder of record, in person or by attorney or other
agent, shall, upon written demand under oath stating the purpose thereof,
have the right during the usual hours for business to inspect for any
proper purpose the corporation's stock ledger, a list of its
stockholders, and its other books and records and to make copies or
extracts therefrom. A proper purpose shall mean a purpose reasonably
related to such person's interest as a stockholder. In every instance
where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of
attorney or such other writing that authorizes the attorney or other
agent to so act on behalf of the stockholder. The demand under oath
shall be directed to the corporation at its registered office in Delaware
or at its principal place of business.
7.2 Inspection By Directors.
Any director shall have the right to examine the
corporation's stock ledger, a list of its stockholders, and its other
books and records for a purpose reasonably related to his or her position
as a director. The Court of Chancery is hereby vested with the exclusive
jurisdiction to determine whether a director is entitled to the
inspection sought. The Court may summarily order the corporation to
permit the director to inspect any and all books and records, the stock
ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions
with reference to the inspection, or award such other and further relief
as the Court may deem just and proper.
7.3 Annual Statement To Stockholders.
The Board of Directors shall present at each annual meeting,
and at any special meeting of the stockholders when called for by vote of
the stockholders, a full and clear statement of the business and
condition of the corporation.
ARTICLE VIII
GENERAL MATTERS
8.1 Checks.
From time to time, the Board of Directors shall determine by
resolution which person or persons may sign or endorse all checks,
drafts, other orders for payment of money, notes or other evidences of
indebtedness that are issued in the name of or payable to the
corporation, and only the persons so authorized shall sign or endorse
those instruments.
8.2 Execution Of Corporate Contracts And Instruments.
The Board of Directors, except as otherwise provided in these
Bylaws, may authorize any officer or officers, or agent or agents, to
enter into any contract or execute any instrument in the name of and on
behalf of the corporation; such authority may be general or confined to
specific instances. Unless so authorized or ratified by the Board of
Directors or within the agency power of an officer, no officer, agent or
employee shall have any power or authority to bind the corporation by any
contract or engagement or to pledge its credit or to render it liable for
any purpose or for any amount.
8.3 Stock Certificates; Partly Paid Shares.
The shares of a corporation shall be represented by certifi-
cates, provided that the Board of Directors of the corporation may
provide by resolution or resolutions that some or all of any or all
classes or series of its stock shall be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until
such certificate is surrendered to the corporation. Notwithstanding the
adoption of such a resolution by the Board of Directors, every holder of
stock represented by certificates and upon request every holder of
uncertificated shares shall be entitled to have a certificate signed by,
or in the name of the corporation by the chairman or vice-chairman of the
Board of Directors, or the chief executive officer or the president or
vice-president, and by the chief financial officer or an assistant
treasurer, or the secretary or an assistant secretary of such corporation
representing the number of shares registered in certificate form. Any or
all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate has ceased to be such
officer, transfer agent or registrar before such certificate is issued,
it may be issued by the corporation with the same effect as if he or she
were such officer, transfer agent or registrar at the date of issue.
The corporation may issue the whole or any part of its shares
as partly paid and subject to call for the remainder of the consideration
to be paid therefor. Upon the face or back of each stock certificate
issued to represent any such partly paid shares, upon the books and
records of the corporation in the case of uncertificated partly paid
shares, the total amount of the consideration to be paid therefor and the
amount paid thereon shall be stated. Upon the declaration of any
dividend on fully paid shares, the corporation shall declare a dividend
upon partly paid shares of the same class, but only upon the basis of the
percentage of the consideration actually paid thereon.
8.4 Special Designation On Certificates.
If the corporation is authorized to issue more than one class
of stock or more than one series of any class, then the powers, the
designations, the preferences, and the relative, participating, optional
or other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or
rights shall be set forth in full or summarized on the face or back of
the certificate that the corporation shall issue to represent such class
or series of stock; provided, however, that, except as otherwise provided
in Section 202 of the General Corporation Law of Delaware, in lieu of the
foregoing requirements there may be set forth on the face or back of the
certificate that the corporation shall issue to represent such class or
series of stock a statement that the corporation will furnish without
charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other
special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or
rights.
8.5 Lost Certificates.
Except as provided in this Section 8.5, no new certificates
for shares shall be issued to replace a previously issued certificate
unless the latter is surrendered to the corporation and canceled at the
same time. The corporation may issue a new certificate of stock or
uncertificated shares in the place of any certificate previously issued
by it, alleged to have been lost, stolen or destroyed, and the
corporation may require the owner of the lost, stolen or destroyed
certificate, or the owner's legal representative, to give the corporation
a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any
such certificate or the issuance of such new certificate or
uncertificated shares.
8.6 Construction; Definitions.
Unless the context requires otherwise, the general
provisions, rules of construction, and definitions in the Delaware
General Corporation Law shall govern the construction of these Bylaws.
Without limiting the generality of this provision, the singular number
includes the plural, the plural number includes the singular, and the
term "person" includes both a corporation and a natural person.
8.7 Dividends.
The directors of the corporation, subject to any restrictions
contained in (a) the General Corporation Law of Delaware or (b) the
certificate of incorporation, may declare and pay dividends upon the
shares of its capital stock. Dividends may be paid in cash, in property,
or in shares of the corporation's capital stock.
The directors of the corporation may set apart out of any of
the funds of the corporation available for dividends a reserve or
reserves for any proper purpose and may abolish any such reserve. Such
purposes shall include but not be limited to equalizing dividends,
repairing or maintaining any property of the corporation, and meeting
contingencies.
8.8 Fiscal Year.
The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors and may be changed by the Board of
Directors.
8.9 Seal.
The corporation may adopt a corporate seal, which may be
altered at pleasure, and may use the same by causing it or a facsimile
thereof, to be impressed or affixed or in any other manner reproduced.
8.10 Transfer Of Stock.
Upon surrender to the corporation or the transfer agent of
the corporation of a certificate for shares duly endorsed or accompanied
by proper evidence of succession, assignation or authority to transfer,
it shall be the duty of the corporation to issue a new certificate to the
person entitled thereto, cancel the old certificate, and record the
transaction in its books.
8.11 Stock Transfer Agreements.
The corporation shall have power to enter into and perform
any agreement with any number of stockholders of any one or more classes
of stock of the corporation to restrict the transfer of shares of stock
of the corporation of any one or more classes owned by such stockholders
in any manner not prohibited by the General Corporation Law of Delaware.
8.12 Registered Stockholders.
The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to
receive dividends and to vote as such owner, shall be entitled to hold
liable for calls and assessments the person registered on its books as
the owner of shares, and shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of another
person, whether or not it shall have express or other notice thereof,
except as otherwise provided by the laws of Delaware.
ARTICLE IX
AMENDMENTS
The Bylaws of the corporation may be adopted, amended or
repealed by the stockholders entitled to vote; provided, however, that
the corporation may, in its certificate of incorporation, confer the
power to adopt, amend or repeal Bylaws upon the directors. The fact that
such power has been so conferred upon the directors shall not divest the
stockholders of the power, nor limit their power to adopt, amend or
repeal Bylaws.
CERTIFICATE OF DESIGNATION OF RIGHTS, PREFERENCES
AND PRIVILEGES OF
SERIES A PARTICIPATING PREFERRED STOCK
OF
PREVIEW TRAVEL, INC.
Pursuant to Section 151 of the General Corporation Law of the State of
Delaware
I, Kenneth Pelowski, the Executive Vice President and Chief
Financial Officer of Preview Travel, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware, in
accordance with the provisions of Section 103 thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of
Directors by the Certificate of Incorporation of the said Corporation,
the said Board of Directors on October 28, 1998 adopted the following
resolution creating a series of shares of Preferred Stock designated as
Series A Participating Preferred Stock:
"RESOLVED, that pursuant to the authority vested in the Board of
Directors of the corporation by the Certificate of Incorporation, the
Board of Directors does hereby provide for the issue of a Series of
Preferred Stock, $0.001 par value, of the Corporation, to be designated
"Series A Participating Preferred Stock", initially consisting of one
hundred thousand (100,000) shares and to the extent that the
designations, powers, preferences and relative and other special rights
and the qualifications, limitations and restrictions of the Series A
Participating Preferred Stock are not stated and expressed in the
Certificate of Incorporation, does hereby fix and herein state and
express such designations, powers, preferences and relative and other
special rights and the qualifications, limitations and restrictions
thereof, as follows (all terms used herein which are defined in the
Certificate of Incorporation shall be deemed to have the meanings
provided therein):
Section 1. Designation and Amount. The shares of such series
shall be designated as "Series A Participating Preferred Stock", par
value $0.001 per share, and the number of shares constituting such series
shall be one hundred thousand (100,000).
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior right of the holders
of any shares of any series of Preferred Stock ranking prior and superior
to the shares of Series A Participating Preferred Stock with respect to
dividends, the holders of shares of Series A Participating Preferred
Stock shall be entitled to receive when, as and if declared by the Board
of Directors out of funds legally available for the purpose, quarterly
dividends payable in cash on the last day of March, June, September and
December in each year (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first Quarterly
Dividend Payment Date after the first issuance of a share or fraction of
a share of Series A Participating Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to, subject to the provision for
adjustment hereinafter set forth, 1,000 times the aggregate per share
amount of all cash dividends, and 1,000 times the aggregate per share
amount (payable in kind) of all non-cash dividends or other distributions
other than a dividend payable in shares of Common Stock or a subdivision
of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock of the Corporation (the "Common
Stock") since the immediately preceding Quarterly Dividend Payment Date,
or, with respect to the first Quarterly Dividend Payment Date, since the
first issuance of any share or fraction of a share of Series A
Participating Preferred Stock. In the event the Corporation shall at any
time after October 28, 1998 (the "Rights Declaration Date") (i) declare
any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, or (iii) combine the outstanding
Common Stock into a smaller number of shares, then in each such case the
amount to which holders of shares of Series A Participating Preferred
Stock were entitled immediately prior to such event under the preceding
sentence shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number
of shares of Common Stock that were outstanding immediately prior to such
event.
(B) The Corporation shall declare a dividend or distri-
bution on the Series A Participating Preferred Stock as provided in
paragraph (A) above immediately after it declares a dividend or
distribution on the Common Stock (other than a dividend payable in shares
of Common Stock).
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Participating Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date of issue of such
shares of Series A Participating Preferred Stock, unless the date of
issue of such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares shall begin
to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record
date for the determination of holders of shares of Series A Participating
Preferred Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends
shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest.
Dividends paid on the shares of Series A Participating Preferred Stock in
an amount less than the total amount of such dividends at the time
accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The
Board of Directors may fix a record date for the determination of holders
of shares of Series A Participating Preferred Stock entitled to receive
payment of a dividend or distribution declared thereon, which record date
shall be no more than 30 days prior to the date fixed for the payment
thereof.
Section 3. Voting Rights. The holders of shares of Series A
Participating Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Participating Preferred Stock shall entitle
the holder thereof to 1,000 votes on all matters submitted to a vote of
the stockholders of the Corporation. In the event the Corporation shall
at any time after the Rights Declaration Date (i) declare any dividend on
Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock
into a smaller number of shares, then in each such case the number of
votes per share to which holders of shares of Series A Participating
Preferred Stock were entitled immediately prior to such event shall be
adjusted by multiplying such number by a fraction, the numerator of which
is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the
holders of shares of Series A Participating Preferred Stock and the
holders of shares of Common Stock shall vote together as one class on all
matters submitted to a vote of stockholders of the Corporation.
(C) Except as required by law, holders of Series A
Participating Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are
entitled to vote with holders of Common Stock as set forth herein) for
taking any corporate action.
Section 4. Certain Restrictions.
(A) The Corporation shall not declare any dividend on, make
any distribution on, or redeem or purchase or otherwise acquire for
consideration any shares of Common Stock after the first issuance of a
share or fraction of a share of Series A Participating Preferred Stock
unless concurrently therewith it shall declare a dividend on the Series A
Participating Preferred Stock as required by Section 2 hereof.
(B) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Participating Preferred Stock as
provided in Section 2 are in arrears, thereafter and until all accrued
and unpaid dividends and distributions, whether or not declared, on
shares of Series A Participating Preferred Stock outstanding shall have
been paid in full, the Corporation shall not:
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for
consideration any shares of stock ranking junior (either as to dividends
or upon liquidation, dissolution or winding up) to the Series A
Participating Preferred Stock;
(ii) declare or pay dividends on, make any other
distributions on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with Series A
Participating Preferred Stock, except dividends paid ratably on the
Series A Participating Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the total amounts to
which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series
A Participating Preferred Stock, provided that the Corporation may at any
time redeem, purchase or otherwise acquire shares of any such parity
stock in exchange for shares of any stock of the Corporation ranking
junior (either as to dividends or upon dissolution, liquidation or
winding up) to the Series A Participating Preferred Stock;
(iv) purchase or otherwise acquire for consideration
any shares of Series A Participating Preferred Stock, or any shares of
stock ranking on a parity with the Series A Participating Preferred
Stock, except in accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all holders of
such shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other relative
rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among
the respective series or classes.
(C) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares
of stock of the Corporation unless the Corporation could, under paragraph
(A) of this Section 4, purchase or otherwise acquire such shares at such
time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A
Participating Preferred Stock purchased or otherwise acquired by the
Corporation in any manner whatsoever shall be retired and canceled
promptly after the acquisition thereof. All such shares shall upon their
cancellation become authorized but unissued shares of Preferred Stock and
may be reissued as part of a new series of Preferred Stock to be created
by resolution or resolutions of the Board of Directors, subject to the
conditions and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation (voluntary or otherwise),
dissolution or winding up of the Corporation, no distribution shall be
made to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Participating Preferred Stock unless, prior thereto, the holders of
shares of Series A Participating Preferred Stock shall have received an
amount equal to accrued and unpaid dividends and distributions thereon,
whether or not declared, to the date of such payment, plus an amount
equal to the greater of (1) $1,000 per share, provided that in the event
the Corporation does not have sufficient assets, after payment of its
liabilities and distribution to holders of Preferred Stock ranking prior
to the Series A Participating Preferred Stock, available to permit
payment in full of the $1,000 per share amount, the amount required to be
paid under this Section 6(A)(1) shall, subject to Section 6(B) hereof,
equal the value of the amount of available assets divided by the number
of outstanding shares of Series A Participating Preferred Stock or (2)
subject to the provisions for adjustment hereinafter set forth, 1,000
times the aggregate per share amount to be distributed to the holders of
Common Stock (the greater of (1) or (2), the "Series A Liquidation
Preference"). In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Common Stock payable
in shares of Common Stock, (ii) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a smaller number of
shares, then in each such case the amount to which holders of shares of
Series A Participating Preferred Stock were entitled immediately prior to
such event under clause (2) of the preceding sentence shall be adjusted
by multiplying such amount by a fraction, the numerator of which is the
number of shares of Common Stock that were outstanding immediately after
such event and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
(B) In the event, however, that there are not sufficient
assets available to permit payment in full of the Series A Liquidation
Preference and the liquidation preferences of all other series of
Preferred Stock, if any, which rank on a parity with the Series A
Participating Preferred Stock, then such remaining assets shall be
distributed ratably to the holders of such parity shares in proportion to
their respective liquidation preferences.
Section 7. Consolidation, Merger, etc. In case the Corporation
shall enter into any consolidation, merger, combination or other
transaction in which the shares of Common Stock are exchanged for or
changed into other stock or securities, cash and/or any other property,
then in any such case the shares of Series A Participating Preferred
Stock shall at the same time be similarly exchanged or changed in an
amount per share (subject to the provision for adjustment hereinafter set
forth) equal to 1,000 times the aggregate amount of stock, securities,
cash and/or any other property (payable in kind), as the case may be,
into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Common Stock payable
in shares of Common Stock, (ii) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a smaller number of
shares, then in each such case the amount set forth in the preceding
sentence with respect to the exchange or change of shares of Series A
Participating Preferred Stock shall be adjusted by multiplying such
amount by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
Section 8. No Redemption. The shares of Series A Participating
Preferred Stock shall not be redeemable.
Section 9. Ranking. The Series A Participating Preferred Stock
shall rank junior to all other series of the Corporation's Preferred
Stock as to the payment of dividends and the distribution of assets,
unless the terms of any such series shall provide otherwise.
Section 10. Amendment. The Certificate of Incorporation of the
Corporation shall not be further amended in any manner which would
materially alter or change the powers, preference or special rights of
the Series A Participating Preferred Stock so as to affect them adversely
without the affirmative vote of the holders of a majority or more of the
outstanding shares of Series A Participating Preferred Stock, voting
separately as a class.
Section 11. Fractional Shares. Series A Participating Preferred
Stock may be issued in fractions of a share which shall entitle the
holder, in proportion to such holder's fractional shares, to exercise
voting rights, receive dividends, participate in distributions and to
have the benefit of all other rights of holders of Series A Participating
Preferred Stock."
IN WITNESS WHEREOF, we have executed and subscribed this
Certificate and do affirm the foregoing as true under the penalties of
perjury this 29th day of October, 1998.
/s/ Kenneth Pelowski
Kenneth Pelowski, Executive Vice
President and
Chief Financial Officer
Preview Travel, Inc.
and
U.S. Stock Transfer Corporation
Rights Agent
PREFERRED SHARES RIGHTS AGREEMENT
Dated as of October 29, 1998
TABLE OF CONTENTS
Page
Section 1. Certain Definitions 1
Section 2. Appointment of Rights Agent. 5
Section 3. Issuance of Rights Certificate 5
Section 4. Form of Rights Certificate 7
Section 5. Countersignature and Registration 8
Section 6. Transfer, Split Up, Combination and Exchange of
Rights Certificates;
Mutilated, Destroyed, Lost or Stolen Rights
Certificates 8
Section 7. Exercise of Rights; Purchase Price; Expiration Date
of Right 9
Section 8. Cancellation and Destruction of Rights Certificate 11
Section 9. Reservation and Availability of Preferred Share 11
Section 10. Preferred Shares Record Date 13
Section 11. Adjustment of Purchase Price, Number of Shares or
Number of Right 13
Section 12. Certificate of Adjusted Purchase Price or Number of
Shares 21
Section 13. Consolidation, Merger or Sale or Transfer of Assets
or Earning Power 21
Section 14. Fractional Rights and Fractional Shares 24
Section 15. Rights of Action 24
Section 16. Agreement of Rights Holders 25
Section 17. Rights Certificate Holder Not Deemed a Stockholder 25
Section 18. Concerning the Rights Agent 25
Section 19. Merger or Consolidation or Change of Name of Rights
Agent 26
Section 20. Duties of Rights Agent 26
Section 21. Change of Rights Agent 28
Section 22. Issuance of New Rights Certificates 29
Section 23. Redemption 30
Section 24. Exchange 31
Section 25. Notice of Certain Events 32
Section 26. Notices 33
Section 27. Supplements and Amendments 34
Section 28. Successors 34
Section 29. Determinations and Actions by the Board of
Directors, etc. 34
Section 30. Benefits of this Agreement 34
Section 31. Severability 35
Section 32. Governing Law 35
Section 33. Counterparts 35
Section 34. Descriptive Headings 35
EXHIBITS
Exhibit A Form of Certificate of Designation
Exhibit B Form of Rights Certificate
Exhibit C Summary of Rights
PREFERRED SHARES RIGHTS AGREEMENT
Agreement, dated as of October 29, 1998, between Preview Travel,
Inc., a Delaware corporation (the "Company"), and U.S. Stock Transfer
Corporation (the "Rights Agent").
On October 28, 1998 (the "Rights Dividend Declaration Date"), the
Board of Directors of the Company authorized and declared a dividend of
one Preferred Share purchase right (a "Right") for each Common Share (as
hereinafter defined) of the Company outstanding as of the Close of
Business (as hereinafter defined) on November 12, 1998 (the "Record
Date"), each Right representing the right to purchase one one-thousandth
of a share of Series A Participating Preferred Stock (as such number may
be adjusted pursuant to the provisions of this Agreement), having the
rights, preferences and privileges set forth in the form of Certificate
of Designation of Rights, Preferences and Privileges of Series A
Participating Preferred Stock attached hereto as Exhibit A, upon the
terms and subject to the conditions herein set forth, and further
authorized and directed the issuance of one Right (as such number may be
adjusted pursuant to the provisions of this Agreement) with respect to
each Common Share that shall become outstanding between the Record Date
and the earlier of the Distribution Date and the Expiration Date (as such
terms are hereinafter defined), and in certain circumstances after the
Distribution Date.
NOW, THEREFORE, in consideration of the promises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement,
the following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who or which,
together with all Affiliates and Associates of such Person, shall be the
Beneficial Owner of 20% or more of the Common Shares then outstanding,
but shall not include the Company, any Subsidiary of the Company or any
employee benefit plan of the Company or of any Subsidiary of the Company,
or any entity holding Common Shares for or pursuant to the terms of any
such plan. Notwithstanding the foregoing, no Person shall be deemed to
be an Acquiring Person either (i) as the result of an acquisition of
Common Shares by the Company which, by reducing the number of shares
outstanding, increases the proportionate number of shares beneficially
owned by such Person to 20% or more of the Common Shares of the Company
then outstanding; provided, however, that if a Person shall become the
Beneficial Owner of 20% or more of the Common Shares of the Company then
outstanding by reason of share purchases by the Company and shall, after
such share purchases by the Company, become the Beneficial Owner of any
additional Common Shares of the Company (other than pursuant to a
dividend or distribution paid or made by the Company on the outstanding
Common Shares in Common Shares or pursuant to a split or subdivision of
the outstanding Common Shares), then such Person shall be deemed to be an
Acquiring Person unless upon becoming the Beneficial Owner of such
additional Common Shares of the Company such Person does not beneficially
own 20% or more of the Common Shares of the Company then outstanding.
Notwithstanding the foregoing, (i) if the Board of Directors of the
Company determines in good faith that a Person who would otherwise be an
"Acquiring Person" as defined pursuant to the foregoing provisions of
this Section 1(a) has become such inadvertently (including, without
limitation, because (A) such Person was unaware that it beneficially
owned a percentage of the Common Shares that would otherwise cause such
Person to be an "Acquiring Person," as defined pursuant to the
foregoing provisions of this Section 1(a) or (B) such Person was aware of
the extent of the Common Shares it beneficially owned but had no actual
knowledge of the consequences of such beneficial ownership under this
Agreement) and without any intention of changing or influencing control
of the Company, and if such Person divested or divests as promptly as
practicable a sufficient number of Common Shares that such Person would
no longer be an "Acquiring Person," as defined pursuant to the
foregoing provisions of this Section 1(a), then such person shall not be
deemed to be or to have become an "Acquiring Person" for the purposes
of this Agreement; and (ii) if, as of the date hereof, any Person is the
Beneficial Owner of 20% or more of the Common Shares outstanding, such
Person shall not become an "Acquiring Person," as defined pursuant to
the foregoing provisions of this Section 1(a), unless and until such time
as such Person shall become the Beneficial Owner of additional Common
Shares (other than pursuant to a dividend or distribution paid or made by
the Company on the outstanding Common Shares in Common Shares or pursuant
to a split or subdivision of the outstanding Common Shares), unless, upon
becoming the Beneficial Owner of such additional Common Shares, such
Person is not then the Beneficial Owner of 20% or more of the Common
Shares then outstanding.
(b) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as in effect on the date of this Agreement.
(c) A Person shall be deemed the "Beneficial Owner" of and
shall be deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's
Affiliates or Associates beneficially owns, directly or indirectly, for
purposes of Section 13(d) of the Exchange Act and Rule 13d-3 thereunder
(or any comparable or successor law or regulation);
(ii) which such Person or any of such Person's
Affiliates or Associates has (A) the right to acquire (whether such right
is exercisable immediately or only after the passage of time) pursuant to
any agreement, arrangement or understanding, whether or not in writing
(other than customary agreements with and between underwriters and
selling group members with respect to a bona fide public offering of
securities), or upon the exercise of conversion rights, exchange rights,
rights (other than the Rights), warrants or options, or otherwise;
provided, however, that a Person shall not be deemed pursuant to this
Section l(c)(ii)(A) to be the Beneficial Owner of, or to beneficially
own, (1) securities tendered pursuant to a tender or exchange offer made
by or on behalf of such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for purchase or
exchange, or (2) securities which a Person or any of such Person's
Affiliates or Associates may be deemed to have the right to acquire
pursuant to any merger or other acquisition agreement between the Company
and such Person (or one or more of its Affiliates or Associates) if such
agreement has been approved by the Board of Directors prior to a
Triggering Event; or (B) the right to vote pursuant to any agreement,
arrangement or understanding; provided, however, that a Person shall not
be deemed the Beneficial Owner of, or to beneficially own, any security
under this Section l(c)(ii)(B) if the agreement, arrangement or
understanding to vote such security (1) arises solely from a revocable
proxy or consent given to such Person in response to a public proxy or
consent solicitation made pursuant to, and in accordance with, the
applicable rules and regulations of the Exchange Act and (2) is not also
then reportable on Schedule 13D under the Exchange Act (or any comparable
or successor report); or
(iii) which are beneficially owned, directly or indirectly,
by any other Person (or any Affiliate or Associate thereof) with which
such Person or any of such Person's Affiliates or Associates has any
agreement, arrangement or understanding (whether or not in writing)
(other than customary agreements with and between underwriters and
selling group members with respect to a bona fide public offering of
securities) for the purpose of acquiring, holding, voting (except to the
extent contemplated by the proviso to Section l(c)(ii)(B)) or disposing
of any securities of the Company; provided, however, that in no case
shall an officer or director of the Company be deemed (x) the Beneficial
Owner of any securities beneficially owned by another officer or director
of the Company solely by reason of actions undertaken by such persons in
their capacity as officers or directors of the Company or (y) the
Beneficial Owner of securities held of record by the trustee of any
employee benefit plan of the Company or any Subsidiary of the Company for
the benefit of any employee of the Company or any Subsidiary of the
Company, other than the officer or director, by reason of any influence
that such officer or director may have over the voting of the securities
held in the plan.
(d) "Board of Directors" shall mean the Board of
Directors of the Company then in office.
(e) "Business Day" shall mean any day other than a
Saturday, Sunday or a day on which banking institutions in San Francisco,
California are authorized or obligated by law or executive order to
close.
(f) "Close of Business" on any given date shall mean 5:00
P.M., San Francisco, California time, on such date; provided, however,
that if such date is not a Business Day it shall mean 5:00 P.M., San
Francisco, California time, on the next succeeding Business Day.
(g) "Common Shares" when used with reference to the Company
shall mean the shares of Common Stock of the Company, $0.001 par value.
"Common Shares" when used with reference to any Person other than the
Company shall mean the capital stock (or equity interest) with the
greatest voting power of such other Person or, if such other Person is a
Subsidiary of another Person, the Person or Persons which ultimately
control such first-mentioned Person.
(h) "Distribution Date" shall mean the earlier of (i) the
Close of Business on the tenth day (or such later date as may be
determined by action of a majority of the Board of Directors) after the
Shares Acquisition Date (or, if the tenth day after the Shares
Acquisition Date occurs before the Record Date, the Close of Business on
the Record Date) or (ii) the Close of Business on the tenth day (or such
later date as may be determined by action of a majority of the Board of
Directors) after the date that a tender or exchange offer by any Person
(other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or of any Subsidiary of the Company, or any
Person or entity organized, appointed or established by the Company for
or pursuant to the terms of any such plan) is first published or sent or
given within the meaning of Rule 14d-2(a) of the General Rules and
Regulations under the Exchange Act, if, assuming the successful
consummation thereof, such Person would be the Beneficial Owner of 20% or
more of the shares of Common Stock then outstanding.
(i) "Equivalent Shares" shall mean Preferred Shares and any
other class or series of capital stock of the Company that is entitled to
participate in dividends and other distributions, including distributions
upon the liquidation, dissolution or winding up of the Company, on a
proportional basis with the Common Shares. In calculating the number of
any class or series of Equivalent Shares for purposes of Section 11 of
this Agreement, the number of shares, or fractions of a share, of such
class or series of capital stock that is entitled to the same dividend or
distribution as a whole Common Share shall be deemed to be one share.
(j) "Expiration Date" shall mean the earliest of (i) the
Close of Business on the Final Expiration Date, (ii) the Redemption Date,
(iii) the time at which the Board of Directors orders the exchange of the
Rights as provided in Section 24 of this Agreement or (iv) the
consummation of a transaction contemplated by Section 13(d) of this
Agreement.
(k) "Final Expiration Date" shall mean October 28, 2008.
(1) "Permitted Offer" shall mean a tender offer for all
outstanding Common Shares made in the manner prescribed by Section 14(d)
of the Exchange Act and the rules and regulations promulgated thereunder;
provided, however, that a majority of the Board of Directors has
determined that the offer is both adequate and otherwise in the best
interests of the Company and its stockholders (taking into account all
factors that the Board of Directors deems relevant, including without
limitation prices that could reasonably be achieved if the Company or its
assets were sold on an orderly basis designed to realize maximum value).
(m) "Person" shall mean any individual, firm, corporation
or other entity, and shall include any successor (by merger or otherwise)
of such entity.
(n) "Preferred Shares" shall mean shares of Series A
Participating Preferred Stock of the Company.
(o) "Purchase Price" shall have the meaning set forth in
Section 4(a) of this Agreement.
(p) "Record Date" shall have the meaning set forth in the
recitals at the beginning of this Agreement.
(q) "Redemption Date" shall mean the time at which the
Board of Directors of the Company orders redemption of the Rights as
provided in Section 23 of this Agreement.
(r) "Redemption Price" shall have the meaning set forth in
Section 23(a) of this Agreement.
(s) "Right" shall have the meaning set forth in the
recitals at the beginning of this Agreement.
(t) "Rights Dividend Declaration Date" shall have the
meaning set forth in the recitals at the beginning of this Agreement.
(u) "Section 13 Event" shall mean any event described in
clause (i), (ii) or (iii) of Section 13(a) of this Agreement.
(v) "Shares Acquisition Date" shall mean the first date of
public announcement (which, for purposes of this definition, shall
include, without limitation, a report filed pursuant to Section 13(d) of
the Exchange Act) by the Company or an Acquiring Person that an Acquiring
Person has become such; provided that, if such person is determined not
to have become an Acquiring Person pursuant to Section l(a)(ii) of this
Agreement, then no Shares Acquisition Date shall be deemed to have
occurred.
(w) "Subsidiary" of any Person shall mean any corporation
or other entity of which an amount of voting securities sufficient to
elect a majority of the directors or Persons having similar authority of
such corporation or other entity is beneficially owned, directly or
indirectly, by such Person, or any corporation or other entity otherwise
controlled by such Person.
(x) "Total Exercise Price" shall have the meaning set forth
in Section 4(a) of this Agreement.
(y) "Trading Day" shall have the meaning set forth in
Section 11(d) of this Agreement.
(z) A "Triggering Event" shall be deemed to have occurred
upon any Person (other than the Company, any Subsidiary of the Company,
any employee benefit plan of the Company or any Subsidiary of the
Company, or any entity holding Common Shares for or pursuant to the terms
of any such plan), together with all Affiliates and Associates of such
Person, becoming an Acquiring Person.
Section 2. Appointment of Rights Agent. The Company hereby
appoints the Rights Agent to act as agent for the Company in accordance
with the terms and conditions of this Agreement, and the Rights Agent
hereby accepts such appointment. The Company may from time to time
appoint such co-Rights Agents as it may deem necessary or desirable.
Section 3. Issuance of Rights Certificates.
(a) Until the Distribution Date, (i) the Rights will be
evidenced (subject to the provisions of Sections 3(b) and 3(c) of this
Agreement) by the certificates for Common Shares registered in the names
of the holders thereof (which certificates shall also be deemed to be
Rights Certificates) and not by separate Rights Certificates and (ii) the
right to receive Rights Certificates will be transferable only in
connection with the transfer of Common Shares. Until the earlier of the
Distribution Date or the Expiration Date, the surrender for transfer of
such certificates for Common Shares shall also constitute the surrender
for transfer of the Rights associated with the Common Shares represented
thereby. As soon as practicable after the Distribution Date, the Company
will prepare and execute, the Rights Agent will countersign, and the
Company will send or cause to be sent (and the Rights Agent will, if
requested, send) by first-class, postage-prepaid mail, to each record
holder of Common Shares as of the close of business on the Distribution
Date, at the address of such holder shown on the records of the Company,
a Rights Certificate, in substantially the form of Exhibit B to this
Agreement (a "Rights Certificate"), evidencing one Right for each Common
Share so held, subject to adjustment as provided herein. In the event
that an adjustment in the number of Rights per Common Share has been made
pursuant to Section 11(a)(i), Section 11(i) or Section 11(p) of this
Agreement, then at the time of distribution of the Rights Certificates,
the Company shall make the necessary and appropriate rounding adjustments
(in accordance with Section 14(a) of this Agreement) so that Rights
Certificates representing only whole numbers of Rights are distributed
and cash is paid in lieu of any fractional Rights. As of the
Distribution Date, the Rights will be evidenced solely by such Rights
Certificates and may be transferred by the transfer of the Rights
Certificates as permitted hereby, separately and apart from any transfer
of one or more Common Shares, and the holders of such Rights Certificates
as listed in the records of the Company or any transfer agent or
registrar for the Rights shall be the record holders thereof.
(b) On the Record Date or as soon as practicable there-
after, the Company will send (or cause to be sent) a copy of a Summary of
Rights in substantially the form of Exhibit C to this Agreement (the
"Summary of Rights"), by first-class, postage-prepaid mail, to each
record holder of Common Shares as of the close of business on the Record
Date, at the address of such holder shown on the records of the Company.
(c) Unless the Board of Directors by resolution adopted at
or before the time of the issuance (including pursuant to the exercise of
rights under the Company's benefit plans) of any Common Shares specifies
to the contrary, Rights shall be issued in respect of all Common Shares
that are issued after the Record Date but prior to the earlier of the
Distribution Date or the Expiration Date or, in certain circumstances
provided in Section 22 of this Agreement, after the Distribution Date.
Certificates representing such Common Shares shall also be deemed to be
certificates for Rights, and shall bear the following legend:
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in a Preferred Shares Rights Agreement
between Preview Travel, Inc. and U.S. Stock Transfer Corporation,
as the Rights Agent, dated as of October 29, 1998 (the "Rights
Agreement"), the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal executive
offices of Preview Travel, Inc.. Under certain circumstances, as
set forth in the Rights Agreement, such Rights will be evidenced by
separate certificates and will no longer be evidenced by this
certificate. Preview Travel, Inc. will mail to the holder of this
certificate a copy of the Rights Agreement without charge after
receipt of a written request therefor. Under certain circumstances
set forth in the Rights Agreement, Rights issued to, or held by,
any Person who is, was or becomes an Acquiring Person or any
Affiliate or Associate thereof (as such terms are defined in the
Rights Agreement), whether currently held by or on behalf of such
Person or by any subsequent holder, may become null and void.
With respect to such certificates containing the foregoing legend, until
the earlier of (i) the Distribution Date or (ii) the Expiration Date, the
Rights associated with the Common Shares represented by such certificates
shall be evidenced by such certificates alone, and the surrender for
transfer of any such certificate shall also constitute the transfer of
the Rights associated with the Common Shares represented thereby. In the
event that the Company purchases or acquires any Common Shares after the
Record Date but prior to the Distribution Date, any Rights associated
with such Common Shares shall be deemed canceled and retired so that the
Company shall not be entitled to exercise any Rights associated with the
Common Shares which are no longer outstanding.
Section 4. Form of Rights Certificates.
(a) The Rights Certificates (and the forms of election to
purchase Common Shares and of assignment to be printed on the reverse
thereof) shall be substantially in the form of Exhibit B to this
Agreement and may have such marks of identification or designation and
such legends, summaries or endorsements printed thereon as the Company
may deem appropriate and as are not inconsistent with the provisions of
this Agreement, or as may be required to comply with any applicable law
or with any rule or regulation made pursuant thereto or with any rule or
regulation of any stock exchange on which the Rights may from time to
time be listed, or to conform to usage. Subject to the provisions of
Section 11 and Section 22 of this Agreement, the Rights Certificates,
whenever distributed, shall be dated as of the Record Date (or in the
case of Rights issued with respect to Common Shares issued by the Company
after the Record Date, as of the date of issuance of such Common Shares),
shall show the date of countersignature by the Rights Agent, and on their
face shall entitle the holders thereof to purchase such number of one-
thousandths of a Preferred Share as shall be set forth therein at the
price set forth therein (such exercise price per one one-thousandth of a
Preferred Share being hereinafter referred to as the "Purchase Price" and
the aggregate exercise price of all Preferred Shares issuable upon
exercise of one Right being hereinafter referred to as the "Total
Exercise Price"), but the number and type of securities purchasable upon
the exercise of each Right and the Purchase Price shall be subject to
adjustment as provided herein.
(b) Any Rights Certificate issued pursuant to Section 3(a)
or Section 22 of this Agreement that represents Rights beneficially owned
by: (i) an Acquiring Person or any Associate or Affiliate of an
Acquiring Person, (ii) a transferee of an Acquiring Person (or of any
such Associate or Affiliate) who becomes a transferee after the Acquiring
Person becomes such or (iii) a transferee of an Acquiring Person (or of
any such Associate or Affiliate) who becomes a transferee prior to or
concurrently with the Acquiring Person becoming such and receives such
Rights pursuant to either (A) a transfer (whether or not for
consideration) from the Acquiring Person to holders of equity interests
in such Acquiring Person or to any Person with whom such Acquiring Person
has any continuing agreement, arrangement or understanding regarding the
transferred Rights or (B) a transfer that the Board of Directors of the
Company has determined is part of a plan, arrangement or understanding
that has as a primary purpose or effect avoidance of Section 7(e) of this
Agreement, and any Rights Certificate issued pursuant to Section 6 or
Section 11 of this Agreement upon transfer, exchange, replacement or
adjustment of any other Rights Certificate referred to in this sentence,
shall contain (to the extent feasible) the following legend:
The Rights represented by this Rights Certificate are or were
beneficially owned by a Person who was or became an Acquiring
Person or an Affiliate or Associate of an Acquiring Person (as such
terms are defined in the Rights Agreement). Accordingly, this
Rights Certificate and the Rights represented hereby may become
null and void in the circumstances specified in Section 7(e) of the
Rights Agreement.
Section 5. Countersignature and Registration.
(a) The Rights Certificates shall be executed on behalf of
the Company by its Chairman of the Board, its Chief Executive Officer,
its President or any Vice President, either manually or by facsimile
signature, and by the Secretary or an Assistant Secretary of the Company,
either manually or by facsimile signature, and shall have affixed thereto
the Company's seal (if any) or a facsimile thereof. The Rights
Certificates shall be manually countersigned by the Rights Agent and
shall not be valid for any purpose unless countersigned. In case any
officer of the Company who shall have signed any of the Rights
Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the
Company, such Rights Certificates, nevertheless, may be countersigned by
the Rights Agent and issued and delivered by the Company with the same
force and effect as though the person who signed such Rights Certificates
had not ceased to be such officer of the Company; and any Rights
Certificate may be signed on behalf of the Company by any person who, at
the actual date of the execution of such Rights Certificate, shall be a
proper officer of the Company to sign such Rights Certificate, although
at the date of the execution of this Rights Agreement any such person was
not such an officer.
(b) Following the Distribution Date, the Rights Agent will
keep or cause to be kept, at its office designated for such purposes,
books for registration and transfer of the Rights Certificates issued
hereunder. Such books shall show the names and addresses of the
respective holders of the Rights Certificates, the number of Rights
evidenced on its face by each of the Rights Certificates and the date of
each of the Rights Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates.
(a) Subject to the provisions of Sections 7(e), 14 and 24
of this Agreement, at any time after the Close of Business on the
Distribution Date, and at or prior to the Close of Business on the
Expiration Date, any Rights Certificate or Rights Certificates may be
transferred, split up, combined or exchanged for another Rights
Certificate or Rights Certificates, entitling the registered holder to
purchase a like number of one-thousandths of a Preferred Share (or,
following a Triggering Event, other securities, cash or other assets, as
the case may be) as the Rights Certificate or Rights Certificates
surrendered then entitled such holder to purchase. Any registered holder
desiring to transfer, split up, combine or exchange any Rights
Certificate or Rights Certificates shall make such request in writing
delivered to the Rights Agent, and shall surrender the Rights Certificate
or Rights Certificates to be transferred, split up, combined or exchanged
at the office of the Rights Agent designated for such purpose. Neither
the Rights Agent nor the Company shall be obligated to take any action
whatsoever with respect to the transfer of any such surrendered Rights
Certificate until the registered holder shall have completed and signed
the certificate contained in the form of assignment on the reverse side
of such Rights Certificate and shall have provided such additional
evidence of the identity of the Beneficial Owner (or former Beneficial
Owner) or Affiliates or Associates thereof as the Company shall
reasonably request. Thereupon the Rights Agent shall, subject to
Sections 7(e), 14 and 24 of this Agreement, countersign and deliver to
the person entitled thereto a Rights Certificate or Rights Certificates,
as the case may be, as so requested. The Company may require payment of
a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer, split up, combination or
exchange of Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent of
evidence reasonably satisfactory to them of the loss, theft, destruction
or mutilation of a Rights Certificate, and, in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to them,
and, at the Company's request, reimbursement to the Company and the
Rights Agent of all reasonable expenses incidental thereto, and upon
surrender to the Rights Agent and cancellation of the Rights Certificate
if mutilated, the Company will make and deliver a new Rights Certificate
of like tenor to the Rights Agent for delivery to the registered holder
in lieu of the Rights Certificate so lost, stolen, destroyed or
mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights.
(a) Subject to Section 7(e), 23(b) or 24 of this Agreement,
the registered holder of any Rights Certificate may exercise the Rights
evidenced thereby (except as otherwise provided herein) in whole or in
part at any time after the Distribution Date upon surrender of the Rights
Certificate, with the form of election to purchase on the reverse side
thereof duly executed, to the Rights Agent at the office of the Rights
Agent designated for such purpose, together with payment of the Purchase
Price for each one-thousandth of a Preferred Share as to which the Rights
are exercised, at or prior to the Expiration Date.
(b) The Purchase Price for each one-thousandth of a
Preferred Share issuable pursuant to the exercise of a Right shall
initially be $100.00, shall be subject to adjustment from time to time as
provided in Sections 11 and 13 of this Agreement and shall be payable in
lawful money of the United States of America in accordance with paragraph
(c) below.
(c) Upon receipt of a Rights Certificate representing
exercisable Rights, with the form of election to purchase duly executed,
accompanied by payment of the Purchase Price for the number of one-
thousandths of a Preferred Share (or other securities or property, as the
case may be) to be purchased and an amount equal to any applicable
transfer tax required to be paid by the holder of such Rights Certificate
in accordance with Section 9 of this Agreement in cash, or by certified
check or cashier's check payable to the order of the Company, the Rights
Agent shall, subject to Section 20(k) of this Agreement, thereupon
promptly (i) (A) requisition from any transfer agent of the Preferred
Shares (or make available, if the Rights Agent is the transfer agent for
the Preferred Shares) a certificate or certificates for the number of
one-thousandths of a Preferred Share to be purchased and the Company
hereby irrevocably authorizes its transfer agent to comply with all such
requests or (B) if the Company shall have elected to deposit the total
number of one-thousandths of a Preferred Share issuable upon exercise of
the Rights hereunder with a depository agent, requisition from the
depository agent of depository receipts representing such number of one-
thousandths of a Preferred Share as are to be purchased (in which case
certificates for the Preferred Shares represented by such receipts shall
be deposited by the transfer agent with the depository agent) and the
Company hereby directs the depository agent to comply with such request,
(ii) when appropriate, requisition from the Company the amount of cash to
be paid in lieu of issuance of fractional shares in accordance with
Section 14 of this Agreement, (iii) after receipt of such certificates or
depository receipts, cause the same to be delivered to or upon the order
of the registered holder of such Rights Certificate, registered in such
name or names as may be designated by such holder and (iv) when
appropriate, after receipt thereof, deliver such cash to or upon the
order of the registered holder of such Rights Certificate. The payment
of the Purchase Price (as such amount may be reduced (including to zero)
pursuant to Section 11(a)(iv) of this Agreement) may be made in cash or
by certified check or cashier's check payable to the order of the
Company. In the event that the Company is obligated to issue other
securities of the Company, pay cash and/or distribute other property
pursuant to Section 11(a) of this Agreement, the Company will make all
arrangements necessary so that such other securities, cash and/or other
property are available for distribution by the Rights Agent, if and when
appropriate.
(d) In case the registered holder of any Rights Certificate
shall exercise less than all the Rights evidenced thereby, a new Rights
Certificate evidencing Rights equivalent to the Rights remaining
unexercised shall be issued by the Rights Agent to the registered holder
of such Rights Certificate or to his or her duly authorized assigns,
subject to the provisions of Section 14 of this Agreement.
(e) Notwithstanding anything in this Agreement to the
contrary, from and after the first occurrence of a Triggering Event or a
Section 13 Event, any Rights beneficially owned by (i) an Acquiring
Person or an Associate or Affiliate of an Acquiring Person, (ii) a
transferee of an Acquiring Person (or of any such Associate or Affiliate)
who becomes a transferee after the Acquiring Person becomes such (a "Post
Transferee"), (iii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee prior to or concurrently
with the Acquiring Person becoming such and receives such Rights pursuant
to either (A) a transfer (whether or not for consideration) from the
Acquiring Person to holders of equity interests in such Acquiring Person
or to any Person with whom the Acquiring Person has any continuing
agreement, arrangement or understanding regarding the transferred Rights
or (B) a transfer which the Board of Directors has determined is part of
a plan, arrangement or understanding which has as a primary purpose or
effect the avoidance of this Section 7(e) (a "Prior Transferee") or (iv)
any subsequent transferee receiving transferred Rights from a Post
Transferee or a Prior Transferee, either directly or through one or more
intermediate transferees, shall become null and void without any further
action and no holder of such Rights shall have any rights whatsoever with
respect to such Rights, whether under any provision of this Agreement or
otherwise. The Company shall use all reasonable efforts to ensure that
the provisions of this Section 7(e) and Section 4(b) of this Agreement
are complied with, but shall have no liability to any holder of Rights
Certificates or to any other Person as a result of its failure to make
any determinations with respect to an Acquiring Person or any of such
Acquiring Person's Affiliates, Associates or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a registered holder upon the
occurrence of any purported exercise as set forth in this Section 7
unless such registered holder shall have (i) completed and signed the
certificate contained in the form of election to purchase set forth on
the reverse side of the Rights Certificate surrendered for such exercise
and (ii) provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company shall reasonably request.
Section 8. Cancellation and Destruction of Rights Certificates.
All Rights Certificates surrendered for the purpose of exercise,
transfer, split up, combination or exchange shall, if surrendered to the
Company or to any of its agents, be delivered to the Rights Agent for
cancellation or in canceled form, or, if surrendered to the Rights Agent,
shall be canceled by it, and no Rights Certificates shall be issued in
lieu thereof except as expressly permitted by any of the provisions of
this Agreement. The Company shall deliver to the Rights Agent for
cancellation and retirement, and the Rights Agent shall so cancel and
retire, any other Rights Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver
all canceled Rights Certificates to the Company, or shall, at the written
request of the Company, destroy such canceled Rights Certificates, and in
such case shall deliver a certificate of destruction thereof to the
Company.
Section 9. Reservation and Availability of Preferred Shares.
(a) The Company covenants and agrees that it will use its
best efforts to cause to be reserved and kept available out of and to the
extent of its authorized and unissued shares of preferred stock not
reserved for another purpose (and, following the occurrence of a
Triggering Event, out of its authorized and unissued shares of Common
Shares and/or other securities), the number of Preferred Shares (and,
following the occurrence of the Triggering Event, Common Shares and/or
other securities) that will be sufficient to permit the exercise in full
of all outstanding Rights.
(b) If the Company shall hereafter list any of its
Preferred Shares on a national securities exchange, then so long as the
Preferred Shares (and, following the occurrence of a Triggering Event,
Common Shares and/or other securities) issuable and deliverable upon
exercise of the Rights may be listed on a national securities exchange,
the Company shall use its best efforts to cause, from and after such time
as the Rights become exercisable (but only to the extent that it is
reasonably likely that the Rights will be exercised), all shares reserved
for such issuance to be listed on such exchange upon official notice of
issuance upon such exercise.
(c) The Company shall use its best efforts to (i) file, as
soon as practicable following the earliest date after the first
occurrence of a Triggering Event in which the consideration to be
delivered by the Company upon exercise of the Rights has been determined
in accordance with Sections 11(a)(ii) or 11(a)(iv) of this Agreement, or
as soon as is required by law following the Distribution Date, as the
case may be, a registration statement under the Securities Act of 1933,
as amended (the "Securities Act"), with respect to the securities
purchasable upon exercise of the Rights on an appropriate form, (ii)
cause such registration statement to become effective as soon as
practicable after such filing and (iii) cause such registration statement
to remain effective (with a prospectus at all times meeting the
requirements of the Securities Act) until the earlier of (A) the date as
of which the Rights are no longer exercisable for such securities and (B)
the date of expiration of the Rights. The Company may temporarily
suspend, for a period not to exceed ninety (90) days after the date set
forth in clause (i) of the first sentence of this Section 9(c), the
exercisability of the Rights in order to prepare and file such
registration statement and permit it to become effective. Upon any such
suspension, the Company shall issue a public announcement stating, and
notify the Rights Agent, that the exercisability of the Rights has been
temporarily suspended, as well as a public announcement and notification
to the Rights Agent at such time as the suspension is no longer in
effect. The Company will also take such action as may be appropriate
under, or to ensure compliance with, the securities or "blue sky" laws of
the various states in connection with the exercisability of the Rights.
Notwithstanding any provision of this Agreement to the contrary, the
Rights shall not be exercisable in any jurisdiction, unless the requisite
qualification in such jurisdiction shall have been obtained, or an
exemption therefrom shall be available, and until a registration
statement has been declared effective.
(d) The Company covenants and agrees that it will take all
such action as may be necessary to ensure that all Preferred Shares
delivered upon exercise of Rights shall, at the time of delivery of the
certificates for such Preferred Shares (subject to payment of the
Purchase Price), be duly and validly authorized and issued and fully paid
and nonassessable shares.
(e) The Company further covenants and agrees that it will
pay when due and payable any and all federal and state transfer taxes and
charges which may be payable in respect of the original issuance or
delivery of the Rights Certificates or of any Preferred Shares upon the
exercise of Rights. The Company shall not, however, be required to pay
any transfer tax which may be payable in respect of any transfer or
delivery of Rights Certificates to a person other than, or the issuance
or delivery of certificates or depository receipts for the Preferred
Shares in a name other than that of, the registered holder of the Rights
Certificate evidencing Rights surrendered for exercise or to issue or to
deliver any certificates or depository receipts for Preferred Shares upon
the exercise of any Rights until any such tax shall have been paid (any
such tax being payable by the holder of such Rights Certificate at the
time of surrender) or until it has been established to the Company's
satisfaction that no such tax is due.
Section 10. Preferred Shares Record Date. Each person in whose
name any certificate for a number of one-thousandths of a Preferred Share
is issued upon the exercise of Rights shall for all purposes be deemed to
have become the holder of record of Preferred Shares represented thereby
on, and such certificate shall be dated, the date upon which the Rights
Certificate evidencing such Rights was duly surrendered and payment of
the Purchase Price multiplied by the number of one-thousandths of a
Preferred Share with respect to which the Rights have been exercised (and
any applicable transfer taxes) was made; provided, however, that if the
date of such surrender and payment is a date upon which the Preferred
Shares transfer books of the Company are closed, such person shall be
deemed to have become the record holder of such shares on, and such
certificate shall be dated, the next succeeding Business Day on which the
Preferred Shares transfer books of the Company are open. Prior to the
exercise of the Rights evidenced thereby, the holder of a Rights
Certificate shall not be entitled to any rights of a holder of Preferred
Shares for which the Rights shall be exercisable, including, without
limitation, the right to vote, to receive dividends or other
distributions or to exercise any preemptive rights, and shall not be
entitled to receive any notice of any proceedings of the Company, except
as provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares or
Number of Rights. The Purchase Price, the number and kind of shares or
other property covered by each Right and the number of Rights outstanding
are subject to adjustment from time to time as provided in this Section
11.
(a) (i) In the event the Company shall at any time after
the date of this Agreement (A) declare a dividend on the Common Shares
payable in Common Shares, (B) subdivide the outstanding Common Shares,
(C) combine the outstanding Common Shares (by reverse stock split or
otherwise) into a smaller number of Common Shares, or (D) issue any
shares of its capital stock in a reclassification of the Common Shares
(including any such reclassification in connection with a consolidation
or merger in which the Company is the continuing or surviving
corporation), then, in each such event, except as otherwise provided in
this Section 11(a) and Section 7(e) of this Agreement: (1) each of the
Rights outstanding at the time of the record date for such dividend or
the effective date of such subdivision, combination or reclassification
shall be proportionately adjusted to that number of Rights (calculated to
the nearest one ten-thousandth (1/10,000) of a Right) equal to a fraction
(the "Exchange Ratio"), the numerator of which shall be the total number
of Common Shares or shares of capital stock issued in such dividend,
subdivision, combination or reclassification of the Common Shares
outstanding immediately following such dividend, subdivision, combination
or reclassification and the denominator of which shall be the total
number of Common Shares outstanding immediately prior to such time, and
the number of Rights that shall thereafter be issued with respect to each
Common Share or share of such other capital stock that shall become
outstanding thereafter prior to the Distribution Date shall be equal to
the total number of outstanding Rights immediately after such event (as
adjusted pursuant to this clause (1)) divided by the total number of
outstanding Common Shares or shares of such other capital stock
immediately after such event (subject to further adjustment pursuant to
the provisions of this Agreement); (2) the Purchase Price in effect at
the time of the record date for such dividend or of the effective date of
such subdivision, combination or reclassification shall be adjusted so
that the Purchase Price thereafter shall equal the result obtained by
dividing the Purchase Price in effect immediately prior to such time by
the Exchange Ratio; provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company
issuable upon exercise of such Right; and (3) the number of Preferred
Shares or shares of such other capital stock issuable upon the exercise
of each Right shall remain unchanged immediately after such event, but,
in the event of a reclassification, the kind of shares issuable upon the
exercise of each Right immediately after such reclassification shall be
adjusted to be the kind of shares of such other capital stock issued in
such reclassification, rather than Preferred Shares. If an event occurs
which would require an adjustment under both this Section 11(a)(i) and
Section 11(a)(ii) of this Agreement, the adjustment provided for in this
Section 11(a)(i) shall be in addition to, and shall be made prior to, any
adjustment required pursuant to Section 11(a)(ii) of this Agreement.
(ii) Subject to Section 24 of this Agreement, in the
event a Triggering Event shall have occurred, then promptly following
such Triggering Event, proper provision shall be made so that each holder
of a Right, except as provided in Section 7(e) of this Agreement, shall
thereafter have the right to receive for each Right, upon exercise
thereof in accordance with the terms of this Agreement and payment of the
then-current Total Exercise Price, in lieu of a number of one-thousandths
of a Preferred Share, such number of Common Shares of the Company as
shall equal the result obtained by multiplying the then-current Purchase
Price by the then number of one-thousandths of a Preferred Share for
which a Right was exercisable (or would have been exercisable if the
Distribution Date had occurred) immediately prior to the first occurrence
of a Triggering Event, and dividing that product by 50% of the current
per share market price (determined pursuant to Section 11(d) of this
Agreement) for Common Shares on the date of occurrence of the Triggering
Event (such number of shares being hereinafter referred to as the
"Adjustment Shares").
(iii) The right to buy Common Shares of the Company
pursuant to Section 11(a)(ii) of this Agreement shall not arise as a
result of any Person becoming an Acquiring Person through an acquisition
of Common Shares pursuant to a Permitted Offer.
(iv) In lieu of issuing Common Shares in accordance
with Section 11(a)(ii) of this Agreement, the Company may, if the Board
of Directors determines that such action is necessary or appropriate and
not contrary to the interest of holders of Rights (and, in the event that
the number of Common Shares which are authorized by the Company's
Certificate of Incorporation but not outstanding or reserved for issuance
for purposes other than upon exercise of the Rights are not sufficient to
permit the exercise in full of the Rights, or if any necessary regulatory
approval for such issuance has not been obtained by the Company, the
Company shall): (A) determine the excess of (1) the value of the Common
Shares issuable upon the exercise of a Right (the "Current Value") over
(2) the Purchase Price (such excess, the "Spread") and (B) with respect
to each Right, make adequate provision to substitute for such Common
Shares, upon exercise of the Rights, (1) cash, (2) a reduction in the
Purchase Price, (3) other equity securities of the Company (including,
without limitation, shares or units of shares of any series of Preferred
Stock which the Board of Directors has deemed to have the same value as
Common Shares (such shares or units of shares of Preferred Stock are
herein called "common stock equivalents")), except to the extent that the
Company has not obtained any necessary stockholder or regulatory approval
for such issuance, (4) debt securities of the Company, except to the
extent that the Company has not obtained any necessary stockholder or
regulatory approval for such issuance, (5) other assets or (6) any
combination of the foregoing, having an aggregate value equal to the
Current Value, where such aggregate value has been determined by the
Board of Directors based upon the advice of a nationally recognized
investment banking firm selected by the Board of Directors; provided,
however, if the Company shall not have made adequate provision to deliver
value pursuant to clause (B) above within thirty (30) days following the
later of (x) the first occurrence of a Triggering Event and (y) the date
on which the Company's right of redemption pursuant to Section 23(a)
expires (the later of (x) and (y) being referred to herein as the
"Section 11(a)(ii) Trigger Date"), then the Company shall be obligated to
deliver, upon the surrender for exercise of a Right and without requiring
payment of the Purchase Price, Common Shares (to the extent available),
except to the extent that the Company has not obtained any necessary
stockholder or regulatory approval for such issuance, and then, if
necessary, cash, which shares and/or cash have an aggregate value equal
to the Spread. If the Board of Directors shall determine in good faith
that it is likely that sufficient additional Common Shares could be
authorized for issuance upon exercise in full of the Rights or that any
necessary regulatory approval for such issuance will be obtained, the
thirty (30) day period set forth above may be extended to the extent
necessary, but not more than ninety (90) days after the Section 11(a)(ii)
Trigger Date, in order that the Company may seek stockholder approval for
the authorization of such additional shares or take action to obtain such
regulatory approval (such period, as it may be extended, the
"Substitution Period"). To the extent that the Company determines that
some action need be taken pursuant to the first and/or second sentences
of this Section 11(a)(iv), the Company (x) shall provide, subject to
Section 7(e) of this Agreement, that such action shall apply uniformly to
all outstanding Rights and (y) may suspend the exercisability of the
Rights until the expiration of the Substitution Period in order to seek
any authorization of additional shares, to take any action to obtain any
required regulatory approval and/or to decide the appropriate form of
distribution to be made pursuant to such first sentence and to determine
the value thereof. In the event of any such suspension, the Company
shall issue a public announcement stating that the exercisability of the
Rights has been temporarily suspended, as well as a public announcement
at such time as the suspension is no longer in effect. For purposes of
this Section 11(a)(iv), the value of the Common Shares shall be the
current per share market price (as determined pursuant to Section 11(d)
of this Agreement) of the Common Shares on the Section 11(a)(ii) Trigger
Date and the value of any "common stock equivalent" shall be deemed to
have the same value as the Common Shares on such date.
(b) In case the Company shall, at any time after the date
of this Agreement, fix a record date for the issuance of rights, options
or warrants to all holders of Common Shares or of any class or series of
Equivalent Shares entitling such holders (for a period expiring within
forty-five (45) calendar days after such record date) to subscribe for or
purchase Common Shares or Equivalent Shares or securities convertible
into Common Shares or Equivalent Shares at a price per share (or having a
conversion price per share, if a security convertible into Common Shares
or Equivalent Shares) less than the then current per share market price
of the Common Shares or Equivalent Shares (as defined in Section 11(d))
on such record date, then, in each such case, the Purchase Price to be in
effect after such record date shall be determined by multiplying the
Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the number of Common Shares and
Equivalent Shares (if any) outstanding on such record date, plus the
number of Common Shares or Equivalent Shares, as the case may be, which
the aggregate offering price of the total number of Common Shares or
Equivalent Shares, as the case may be, so to be offered (and/or the
aggregate initial conversion price of the convertible securities so to be
offered) would purchase at such current market price, and the denominator
of which shall be the number of Common Shares and Equivalent Shares (if
any) outstanding on such record date, plus the number of additional
Common Shares or Equivalent Shares, as the case may be, to be offered for
subscription or purchase (or into which the convertible securities so to
be offered are initially convertible). In case such subscription price
may be paid in a consideration part or all of which shall be in a form
other than cash, the value of such consideration shall be as determined
in good faith by the Board of Directors, whose determination shall be
described in a statement filed with the Rights Agent and shall be binding
on the Rights Agent and the holders of the Rights. Common Shares and
Equivalent Shares owned by or held for the account of the Company shall
not be deemed outstanding for the purpose of any such computation. Such
adjustment shall be made successively whenever such a record date is
fixed, and in the event that such rights, options or warrants are not so
issued, the Purchase Price shall be adjusted to be the Purchase Price
which would then be in effect if such record date had not been fixed.
(c) In case the Company shall, at any time after the date
of this Agreement, fix a record date for the making of a distribution to
all holders of the Common Shares or of any class or series of Equivalent
Shares (including any such distribution made in connection with a
consolidation or merger in which the Company is the continuing or
surviving corporation) of evidences of indebtedness or assets (other than
a regular quarterly cash dividend, if any, or a dividend payable in
Common Shares) or subscription rights, options or warrants (excluding
those referred to in Section 11(b)), then, in each such case, the
Purchase Price to be in effect after such record date shall be determined
by multiplying the Purchase Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the current
market price (as determined pursuant to Section 11(d) of this Agreement)
of a Common Share or an Equivalent Share on such record date, less the
fair market value (as determined in good faith by the Board of Directors,
whose determination shall be described in a statement filed with the
Rights Agent) of the portion of the cash, assets or evidences of
indebtedness so to be distributed or of such subscription rights or
warrants applicable to a Common Share or Equivalent Share, as the case
may be, and the denominator of which shall be such current market price
(as determined pursuant to Section 11(d) of this Agreement) of a Common
Share or Equivalent Share on such record date. Such adjustments shall be
made successively whenever such a record date is fixed, and in the event
that such distribution is not so made, the Purchase Price shall be
adjusted to be the Purchase Price which would have been in effect if such
record date had not been fixed.
(d) For the purpose of any computation hereunder, other
than computations made pursuant to Section 11(a)(iv) of this Agreement,
the "current per share market price" of any security (a "Security" for
the purpose of this Section 11(d)) on any date shall be deemed to be the
average of the daily closing prices per share of such Security for the
thirty (30) consecutive Trading Days (as such term is hereinafter
defined) immediately prior to such date, and for purposes of computations
made pursuant to Section 11(a)(iv) of this Agreement, the "current per
share market price" of any Security on any date shall be deemed to be the
average of the daily closing prices per share of such Security for the
ten (10) consecutive Trading Days immediately prior to such date;
provided, however, that in the event that the current per share market
price of the Security is determined during a period following the
announcement by the issuer of such Security of (i) a dividend or
distribution on such Security payable in shares of such Security or
securities convertible into such shares or (ii) any subdivision,
combination or reclassification of such Security, and prior to the
expiration of the requisite thirty (30) Trading Day or ten (10) Trading
Day period, after the ex-dividend date for such dividend or distribution,
or the record date for such subdivision, combination or reclassification,
then, and in each such case, the current per share market price shall be
appropriately adjusted to reflect the current market price per share
equivalent of such Security. The closing price for each day shall be the
last sale price, regular way, or, in case no such sale takes place on
such day, the average of the closing bid and asked prices, regular way,
in either case as reported in the principal consolidated transaction
reporting system with respect to securities listed or admitted to trading
on the New York Stock Exchange or, if the Security is not listed or
admitted to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on which
the Security is listed or admitted to trading or, if the Security is not
listed or admitted to trading on any national securities exchange, the
last sale price or, if such last sale price is not reported, the average
of the high bid and low asked prices in the over-the-counter market, as
reported by the National Association of Securities Dealers, Inc.
Automated Quotations System ("Nasdaq") or such other system then in use,
or, if on any such date the Security is not quoted by any such
organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the Security
selected by the Board of Directors. If on any such date no market maker
is making a market in the Common Shares, the fair value of such shares on
such date as determined in good faith by the Board of Directors shall be
used. The term "Trading Day" shall mean a day on which the principal
national securities exchange on which the Security is listed or admitted
to trading is open for the transaction of business or, if the Security is
not listed or admitted to trading on any national securities exchange, a
Business Day. If the Common Shares are not publicly held or so listed or
traded, "current per share market price" shall mean the fair value per
share as determined in good faith by the Board of Directors, whose
determination shall be described in a statement filed with the Rights
Agent and shall be conclusive for all purposes.
(e) Anything herein to the contrary notwithstanding, no
adjustment in the Purchase Price shall be required unless such adjustment
would require an increase or decrease of at least 1% in the Purchase
Price; provided, however, that any adjustments which by reason of this
Section 11(e) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under
this Section 11 shall be made to the nearest cent or to the nearest ten-
thousandth of a Common Share or other share or one hundred-thousandth of
a Preferred Share, as the case may be. Notwithstanding the first
sentence of this Section 11(e), any adjustment required by this Section
11 shall be made no later than the earlier of (i) three (3) years from
the date of the transaction which requires such adjustment or (ii) the
Expiration Date.
(f) If as a result of an adjustment made pursuant to
Sections 11(a) or 13(a) of this Agreement, the holder of any Right
thereafter exercised shall become entitled to receive any shares of
capital stock other than Preferred Shares, thereafter the number of such
other shares so receivable upon exercise of any Right and if required,
the Purchase Price thereof, shall be subject to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Shares contained in Sections 11(a),
(b), (c), (e), (h), (i), (j), (k), (1) and (m), and the provisions of
Sections 7, 9, 10, 13 and 14 with respect to the Preferred Shares shall
apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent
to any adjustment made to the Purchase Price hereunder shall evidence the
right to purchase, at the adjusted Purchase Price, the number of one-
thousandths of a Preferred Share purchasable from time to time hereunder
upon exercise of the Rights, all subject to further adjustment as
provided herein.
(h) Unless the Company shall have exercised its election as
provided in Section 11(i), upon each adjustment of the Purchase Price as
a result of the calculations made in Section 11(b), each Right
outstanding immediately prior to the making of such adjustment shall
thereafter evidence the right to purchase, at the adjusted Purchase
Price, that number of Preferred Shares (calculated to the nearest one
hundred-thousandth of a share) obtained by (i) multiplying (x) the number
of Preferred Shares covered by a Right immediately prior to this
adjustment, by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price, and (ii) dividing the product so
obtained by the Purchase Price in effect immediately after such
adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any
adjustment of the Purchase Price as a result of the calculations made in
Section 11(b) to adjust the number of Rights, in substitution for any
adjustment in the number of Preferred Shares purchasable upon the
exercise of a Right. Each of the Rights outstanding after such
adjustment of the number of Rights shall be exercisable for the number of
one-thousandths of a Preferred Share for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to
such adjustment of the number of Rights shall become that number of
Rights (calculated to the nearest ten-thousandth) obtained by dividing
the Purchase Price in effect immediately prior to adjustment of the
Purchase Price by the Purchase Price in effect immediately after
adjustment of the Purchase Price. The Company shall make a public
announcement of its election to adjust the number of Rights, indicating
the record date for the adjustment, and, if known at the time, the amount
of the adjustment to be made. This record date may be the date on which
the Purchase Price is adjusted or any day thereafter, but, if the Rights
Certificates have been issued, shall be at least ten (10) days later than
the date of the public announcement. If Rights Certificates have been
issued, upon each adjustment of the number of Rights pursuant to this
Section 11(i), the Company shall, as promptly as practicable, cause to be
distributed to holders of record of Rights Certificates on such record
date Rights Certificates evidencing, subject to Section 14 of this
Agreement, the additional Rights to which such holders shall be entitled
as a result of such adjustment, or, at the option of the Company, shall
cause to be distributed to such holders of record in substitution and
replacement for the Rights Certificates held by such holders prior to the
date of adjustment, and upon surrender thereof, if required by the
Company, new Rights Certificates evidencing all the Rights to which such
holders shall be entitled after such adjustment. Rights Certificates so
to be distributed shall be issued, executed and countersigned in the
manner provided for herein (and may bear, at the option of the Company,
the adjusted Purchase Price) and shall be registered in the names of the
holders of record of Rights Certificates on the record date specified in
the public announcement.
(j) Irrespective of any adjustment or change in the
Purchase Price or the number of Preferred Shares issuable upon the
exercise of the Rights, the Rights Certificates theretofore and
thereafter issued may continue to express the Purchase Price per one one-
thousandth of a Preferred Share and the number of one-thousandths of a
Preferred Share which were expressed in the initial Rights Certificates
issued hereunder.
(k) Before taking any action that would cause an adjustment
reducing the Purchase Price below the par or stated value, if any, of the
number of one-thousandths of a Preferred Share issuable upon exercise of
the Rights, the Company shall take any corporate action which may, in the
opinion of its counsel, be necessary in order that the Company may
validly and legally issue as fully paid and nonassessable shares such
number of one-thousandths of a Preferred Share at such adjusted Purchase
Price.
(1) In any case in which this Section 11 shall require that
an adjustment in the Purchase Price be made effective as of a record date
for a specified event, the Company may elect to defer until the
occurrence of such event the issuing to the holder of any Right exercised
after such record date of the number of one-thousandths of a Preferred
Share and other capital stock or securities of the Company, if any,
issuable upon such exercise over and above the number of one-thousandths
of a Preferred Share and other capital stock or securities of the
Company, if any, issuable upon such exercise on the basis of the Purchase
Price in effect prior to such adjustment; provided, however, that the
Company shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional
shares (fractional or otherwise) upon the occurrence of the event
requiring such adjustment.
(m) Anything in this Section 11 to the contrary
notwithstanding, prior to the Distribution Date, the Company shall be
entitled to make such reductions in the Purchase Price, in addition to
those adjustments expressly required by this Section 11, as and to the
extent that it in its sole discretion shall determine to be advisable in
order that any (i) consolidation or subdivision of the Preferred or
Common Shares, (ii) issuance wholly for cash of any Preferred or Common
Shares at less than the current market price, (iii) issuance wholly for
cash of Preferred or Common Shares or securities which by their terms are
convertible into or exchangeable for Preferred or Common Shares, (iv)
stock dividends or (v) issuance of rights, options or warrants referred
to in this Section 11, hereafter made by the Company to holders of its
Preferred or Common Shares shall not be taxable to such stockholders.
(n) The Company covenants and agrees that it shall not, at
any time after the Distribution Date, effect or permit to occur any
Triggering Event or Section 13 Event, if (i) at the time or immediately
after such Triggering Event or Section 13 Event there are any rights,
warrants or other instruments or securities outstanding or agreements in
effect which would substantially diminish or otherwise eliminate the
benefits intended to be afforded by the Rights or (ii) prior to,
simultaneously with or immediately after such Section 13 Event, the
stockholders of the Person who constitutes, or would constitute, the
"Principal Party" for purposes of Section 13(b) of this Agreement shall
have received a distribution of Rights previously owned by such Person or
any of its Affiliates and Associates.
(o) The Company covenants and agrees that, after the
Distribution Date, it will not, except as permitted by Sections 23, 24 or
27 of this Agreement, take (or permit to be taken) any action if at the
time such action is taken it is reasonably foreseeable that such action
will diminish substantially or otherwise eliminate the benefits intended
to be afforded by the Rights.
(p) Anything in this Agreement to the contrary
notwithstanding, in the event the Company shall at any time after the
date of this Agreement (A) declare a dividend on the Preferred Shares
payable in Preferred Shares, (B) subdivide the outstanding Preferred
Shares, (C) combine the outstanding Preferred Shares (by reverse stock
split or otherwise) into a smaller number of Preferred Shares, or (D)
issue any shares of its capital stock in a reclassification of the
Preferred Shares (including any such reclassification in connection with
a consolidation or merger in which the Company is the continuing or
surviving corporation), then, in each such event, except as otherwise
provided in this Section 11 and Section 7(e) of this Agreement: (1) each
of the Rights outstanding at the time of the record date for such
dividend or the effective date of such subdivision, combination or
reclassification shall be proportionately adjusted to that number of
Rights (calculated to the nearest one ten-thousandth (1/10,000) of a
Right) equal to a fraction (the "Exchange Fraction"), the numerator of
which shall be the total number of Preferred Shares or shares of capital
stock issued in such reclassification of the Preferred Shares outstanding
immediately following such time and the denominator of which shall be the
total number of Preferred Shares outstanding immediately prior to such
time, and the number of Rights that shall thereafter be issued with
respect to each Common Share or share of other capital stock that shall
be issued in a reclassification of the Common Shares prior to the
Distribution Date shall be equal to the total number of outstanding
Rights immediately after such event (as adjusted pursuant to this clause
(1)) divided by the total number of outstanding Common Shares or shares
of such other capital stock immediately after such event (subject to
further adjustment pursuant to the provisions of this Agreement); (2) the
Purchase Price in effect at the time of the record date for such dividend
or of the effective date of such subdivision, combination or
reclassification shall be adjusted so that the Purchase Price thereafter
shall equal the result obtained by dividing the Purchase Price in effect
immediately prior to such time by the Exchange Fraction; provided,
however, that in no event shall the consideration to be paid upon the
exercise of one Right be less than the aggregate par value of the shares
of capital stock of the Company issuable upon exercise of such Right; and
(3) the number of one-thousandths of a Preferred Share or share of such
other capital stock issuable upon the exercise of each Right shall remain
unchanged immediately after such event, but, in the event of a
reclassification, the kind of shares issuable upon the exercise of each
Right immediately after such reclassification shall be adjusted to be the
kind of shares of such other capital stock issued in such
reclassification, rather than Preferred Shares.
Section 12. Certificate of Adjusted Purchase Price or Number of
Shares. Whenever an adjustment is made as provided in Sections 11 and 13
of this Agreement, the Company shall promptly (a) prepare a certificate
setting forth such adjustment and a brief statement of the facts
accounting for such adjustment, (b) file with the Rights Agent and with
each transfer agent for the Preferred Shares a copy of such certificate
and (c) mail a brief summary thereof to each holder of a Rights
Certificate in accordance with Section 26 of this Agreement.
Notwithstanding the foregoing sentence, the failure of the Company to
make such certification or give such notice shall not affect the validity
of such adjustment or the force or effect of the requirement for such
adjustment. The Rights Agent shall be fully protected in relying on any
such certificate and on any adjustment contained therein and shall not be
deemed to have knowledge of such adjustment unless and until it shall
have received such certificate.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power.
(a) In the event that, following the Shares Acquisition
Date, directly or indirectly:
(i) the Company shall consolidate with, or merge with
and into, any other Person (other than a Subsidiary of the Company in a
transaction the principal purpose of which is to change the state of
incorporation of the Company or that complies with Section 11(o) of this
Agreement);
(ii) any Person (other than a Subsidiary of the
Company in a transaction that complies with Section 11(o) of this
Agreement) shall consolidate with the Company, or merge with and into the
Company and the Company shall be the continuing or surviving corporation
of such consolidation or merger; or
(iii) the Company shall sell or otherwise transfer (or
one or more of its Subsidiaries shall sell or otherwise transfer), in one
or more transactions, assets or earning power aggregating 50% or more of
the assets or earning power of the Company and its Subsidiaries (taken as
a whole) to any other Person or Persons (other than the Company or one or
more of its wholly owned Subsidiaries in one or more transactions, each
of which complies with Section 11(o) of this Agreement),
then, and in each such case, proper provision
shall be made so that
(A) each holder of a Right (except as otherwise
provided herein) shall thereafter have the right to receive, upon the
exercise thereof in accordance with the terms of this Agreement, such
number of validly authorized and issued, fully paid and nonassessable
Common Shares of the Principal Party (as hereinafter defined), free of
any liens, encumbrances, rights of first refusal or other adverse claims,
as shall be equal to the result obtained by (1) multiplying the then
current Purchase Price by the number of one-thousandths of a Preferred
Share for which a Right was exercisable immediately prior to the first
occurrence of a Section 13 Event (or, if a Triggering Event has occurred
prior to the first occurrence of a Section 13 Event, multiplying the
number of such one-thousandths of a Preferred Share for which a Right was
exercisable immediately prior to the first occurrence of a Triggering
Event by the Purchase Price in effect immediately prior to such first
occurrence) and (2) dividing that product (which, following the first
occurrence of a Section 13 Event, shall be referred to as the "Total
Exercise Price" for each Right and for all purposes of this Agreement) by
50% of the current per share market price (determined pursuant to Section
11(d) of this Agreement) of the Common Shares of such Principal Party on
the date of consummation of such Section 13 Event;
(B) such Principal Party shall thereafter be
liable for, and shall assume, by virtue of such Section 13 Event, all the
obligations and duties of the Company pursuant to this Agreement;
(C) the term "Company" shall thereafter be
deemed to refer to such Principal Party, it being specifically intended
that the provisions of Section 11 of this Agreement shall apply only to
such Principal Party following the first occurrence of a Section 13
Event;
(D) such Principal Party shall take such steps
(including, but not limited to, the reservation of a sufficient number of
its Common Shares) in connection with the consummation of any such
transaction as may be necessary to assure that the provisions of this
Agreement shall thereafter be applicable, as nearly as reasonably may be,
in relation to its Common Shares thereafter deliverable upon the exercise
of the Rights.
(b) "Principal Party" shall mean, in the case of any
transaction described in clause (i), (ii) or (iii) of Section 13(a), the
Person referred to therein or such Person's successor, including, if
applicable, the Company, if it is the surviving corporation), provided,
however, that in any such case, (i) if such Person is a direct or
indirect Subsidiary of another Person, "Principal Party" shall refer to
such other Person and (ii) in case such Person is a Subsidiary, directly
or indirectly, of more than one Person, "Principal Party" shall refer to
whichever of such Persons is the issuer of the Common Shares having the
greatest aggregate value, and provided, further, that for purposes of
transactions described in clause (iii) of this Section 13(b), "Principal
Party" shall refer to that Person receiving the greatest portion of the
assets or earning power transferred pursuant to such transaction or
transactions.
(c) If, for any reason, the Rights cannot be exercised for
Common Shares of such Principal Party as provided in Section 13(a), then
each holder of Rights shall have the right to exchange its Rights for
cash from such Principal Party in an amount equal to the number of Common
Shares that it would otherwise be entitled to purchase times 50% of the
current per share market price, as determined pursuant to Section 11(d)
of this Agreement, of such Common Shares of such Principal Party. If,
for any reason, the foregoing formulation cannot be applied to determine
the cash amount into which the Rights are exchangeable, then the Board of
Directors, based upon the advice of one or more nationally recognized
investment banking firms, and based upon the total value of the Company,
shall determine such amount reasonably and with good faith to the holders
of Rights. Any such determination shall be final and binding on the
Rights Agent.
(d) Notwithstanding anything in this Agreement to the
contrary, Section 13 shall not be applicable to a transaction described
in clauses (i) and (ii) of Section 13(a) if: (i) such transaction is
consummated with a Person or Persons who acquired Common Shares pursuant
to a Permitted Offer (or a wholly-owned Subsidiary of any such Person or
Persons); (ii) the price per share of Common Shares offered in such
transaction is not less than the price per share of Common Shares paid to
all holders of Common Shares whose shares were purchased pursuant to such
Permitted Offer; and (iii) the form of consideration being offered to the
remaining holders of Common Shares pursuant to such transaction is the
same form as the form of consideration paid pursuant to such Permitted
Offer. Upon consummation of any such transaction contemplated by this
Section 13(d), all Rights hereunder shall expire.
(e) The Company shall not consummate any Section 13 Event
unless the Principal Party shall have a sufficient number of authorized
Common Shares that have not been issued or reserved for issuance to
permit the exercise in full of the Rights in accordance with this Section
13 and unless prior thereto the Company and such issuer shall have
executed and delivered to the Rights Agent a supplemental agreement
confirming that such Principal Party shall, upon consummation of such
Section 13 Event, assume this Agreement in accordance with Sections 13(a)
and (b) of this Agreement, that all rights of first refusal or preemptive
rights in respect of the issuance of Common Shares of such Principal
Party upon exercise of outstanding Rights have been waived, that there
are no rights, warrants, instruments or securities outstanding or any
agreements or arrangements which, as a result of the consummation of such
transaction, would eliminate or substantially diminish the benefits
intended to be afforded by the Rights and that such transaction shall not
result in a default by such Principal Party under this Agreement, and
further providing that, as soon as practicable after the date of such
Section 13 Event, such Principal Party will:
(i) prepare and file a registration statement under
the Securities Act with respect to the Rights and the securities
purchasable upon exercise of the Rights on an appropriate form, use its
best efforts to cause such registration statement to become effective as
soon as practicable after such filing and use its best efforts to cause
such registration statement to remain effective (with a prospectus at all
times meeting the requirements of the Securities Act) until the
Expiration Date, and similarly comply with applicable state securities
laws;
(ii) use its best efforts to list (or continue the
listing of) the Rights and the securities purchasable upon exercise of
the Rights on a national securities exchange or to meet the eligibility
requirements for quotation on Nasdaq; and
(iii) deliver to holders of the Rights historical
financial statements for such Principal Party which comply in all
respects with the requirements for registration on Form 10 (or any
successor form) under the Exchange Act.
In the event that at any time after the occurrence of a
Triggering Event some or all of the Rights shall not have been exercised
at the time of a transaction described in this Section 13, the Rights
which have not theretofore been exercised shall thereafter be exercisable
in the manner described in Section 13(a) (without taking into account any
prior adjustment required by Section 11(a)(ii)).
(f) The provisions of this Section 13 shall similarly apply
to successive mergers or consolidations or sales or other transfers.
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractions of
Rights or to distribute Rights Certificates that evidence fractional
Rights. In lieu of such fractional Rights, there shall be paid to the
registered holders of the Rights Certificates with regard to which such
fractional Rights would otherwise be issuable, an amount in cash equal to
the same fraction of the current market value of a whole Right. For the
purposes of this Section 14(a), the current market value of a whole Right
shall be the closing price of the Rights for the Trading Day immediately
prior to the date on which such fractional Rights would have been
otherwise issuable, as determined pursuant to the second sentence of
Section 11(d) of this Agreement.
(b) The Company shall not be required to issue fractions of
Preferred Shares (other than fractions that are integral multiples of one
one-thousandth of a Preferred Share) upon exercise of the Rights or to
distribute certificates which evidence fractional Preferred Shares (other
than fractions that are integral multiples of one one-thousandth of a
Preferred Share). In lieu of fractional Preferred Shares that are not
integral multiples of one one-thousandth of a Preferred Share, the
Company shall pay to the registered holders of Rights Certificates at the
time such Rights are exercised as herein provided an amount in cash equal
to the same fraction of the current market value of a Common Share. For
purposes of this Section 14(b), the current market value of a Common
Share shall be the closing price of a Common Share (as determined
pursuant to the second sentence of Section 11(d) of this Agreement) for
the Trading Day immediately prior to the date of such exercise.
(c) The holder of a Right by the acceptance of the Right
expressly waives his or her right to receive any fractional Rights or any
fractional shares upon exercise of a Right.
Section 15. Rights of Action. All rights of action in respect of
this Agreement, excepting the rights of action given to the Rights Agent
under Section 18 of this Agreement, are vested in the respective
registered holders of the Rights Certificates (and, prior to the
Distribution Date, the registered holders of the Common Shares); and any
registered holder of any Rights Certificate (or, prior to the
Distribution Date, of the Common Shares), without the consent of the
Rights Agent or of the holder of any other Rights Certificate (or, prior
to the Distribution Date, of the Common Shares), may, in his or her own
behalf and for his or her own benefit, enforce, and may institute and
maintain any suit, action or proceeding against the Company to enforce,
or otherwise act in respect of, his or her right to exercise the Rights
evidenced by such Rights Certificate in the manner provided in such
Rights Certificate and in this Agreement. Without limiting the foregoing
or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy
at law for any breach of this Agreement and will be entitled to specific
performance of the obligations under, and injunctive relief against
actual or threatened violations of, the obligations of any Person subject
to this Agreement.
Section 16. Agreement of Rights Holders. Every holder of a Right,
by accepting the same, consents and agrees with the Company and the
Rights Agent and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Rights Certificates
are transferable only on the registry books of the Rights Agent if
surrendered at the office or offices of the Rights Agent designated for
such purposes, duly endorsed or accompanied by a proper instrument of
transfer and with the appropriate forms and certificates fully executed;
and
(c) subject to Sections 6(a) and 7(f) of this Agreement,
the Company and the Rights Agent may deem and treat the person in whose
name the Rights Certificate (or, prior to the Distribution Date, the
associated Common Shares certificate) is registered as the absolute owner
thereof and of the Rights evidenced thereby (notwithstanding any
notations of ownership or writing on the Rights Certificates or the
associated Common Shares certificate made by anyone other than the
Company or the Rights Agent) for all purposes whatsoever, and neither the
Company nor the Rights Agent shall be affected by any notice to the
contrary.
Section 17. Rights Certificate Holder Not Deemed a Stockholder. No
holder, as such, of any Rights Certificate shall be entitled to vote,
receive dividends or be deemed for any purpose the holder of the
Preferred Shares or any other securities of the Company which may at any
time be issuable on the exercise of the Rights represented thereby, nor
shall anything contained herein or in any Rights Certificate be construed
to confer upon the holder of any Rights Certificate, as such, any of the
rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action,
or to receive notice of meetings or other actions affecting stockholders
(except as provided in Section 25 of this Agreement), or to receive
dividends or subscription rights, or otherwise, until the Right or Rights
evidenced by such Rights Certificate shall have been exercised in
accordance with the provisions of this Agreement.
Section 18. Concerning the Rights Agent.
(a) The Company agrees to pay to the Rights Agent
reasonable compensation for all services rendered by it hereunder and,
from time to time, on demand of the Rights Agent, its reasonable expenses
and counsel fees and other disbursements incurred in the administration
and execution of this Agreement and the exercise and performance of its
duties hereunder. The Company also agrees to indemnify the Rights Agent
for, and to hold it harmless against, any loss, liability or expense,
incurred without negligence, bad faith or willful misconduct on the part
of the Rights Agent, for anything done or omitted by the Rights Agent in
connection with the acceptance and administration of this Agreement,
including the costs and expenses of defending against any claim of
liability in the premises.
(b) The Rights Agent shall be protected and shall incur no
liability for, or in respect of any action taken, suffered or omitted by
it in connection with, its administration of this Agreement in reliance
upon any Rights Certificate or certificate for the Common Shares or for
other securities of the Company, instrument of assignment or transfer,
power of attorney, endorsement, affidavit, letter, notice, direction,
consent, certificate, statement or other paper or document believed by it
to be genuine and to be signed, executed and, where necessary, verified
or acknowledged, by the proper Person or Persons, or otherwise upon the
advice of counsel as set forth in Section 20 of this Agreement.
Section 19. Merger or Consolidation or Change of Name of Rights
Agent.
(a) Any corporation into which the Rights Agent or any
successor Rights Agent may be merged or with which it may be
consolidated, or any corporation resulting from any merger or
consolidation to which the Rights Agent or any successor Rights Agent
shall be a party, or any corporation succeeding to the shareholder
services business of the Rights Agent or any successor Rights Agent,
shall be the successor to the Rights Agent under this Agreement without
the execution or filing of any paper or any further act on the part of
any of the parties to this Agreement; provided, however, that such
corporation would be eligible for appointment as a successor Rights Agent
under the provisions of Section 21 of this Agreement. In case at the
time such successor Rights Agent shall succeed to the agency created by
this Agreement, any of the Rights Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may
adopt the countersignature of the predecessor Rights Agent and deliver
such Rights Certificates so countersigned; and in case at that time any
of the Rights Certificates shall not have been countersigned, any
successor Rights Agent may countersign such Rights Certificates either in
the name of the predecessor Rights Agent or in the name of the successor
Rights Agent; and in all such cases such Rights Certificates shall have
the full force provided in the Rights Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall
be changed and at such time any of the Rights Certificates shall have
been countersigned but not delivered, the Rights Agent may adopt the
countersignature under its prior name and deliver Rights Certificates so
countersigned; and in case at that time any of the Rights Certificates
shall not have been countersigned, the Rights Agent may countersign such
Rights Certificates either in its prior name or in its changed name; and
in all such cases such Rights Certificates shall have the full force
provided in the Rights Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes
the duties and obligations imposed by this Agreement upon the following
terms and conditions, by all of which the Company and the holders of
Rights Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who
may be legal counsel for the Company), and the opinion or advice of such
counsel shall be full and complete authorization and protection to the
Rights Agent as to any action taken or omitted by it in good faith and in
accordance with such opinion or advice.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any
fact or matter (including, without limitation, the identity of any
Acquiring Person and the determination of "current per share market
price") be proved or established by the Company prior to taking or
suffering any action hereunder, such fact or matter (unless other
evidence in respect thereof be herein specifically prescribed) may be
deemed to be conclusively proved and established by a certificate signed
by any one of the Chairman of the Board, the Chief Executive Officer, the
President, any Vice President, the Chief Financial Officer, the Secretary
or any Assistant Secretary of the Company and delivered to the Rights
Agent; and such certificate shall be full authorization to the Rights
Agent for any action taken or suffered in good faith by it under the
provisions of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the
Company and any other Person only for its own negligence, bad faith or
willful misconduct.
(d) The Rights Agent shall not be liable for or by reason
of any of the statements of fact or recitals contained in this Agreement
or in the Rights Certificates (except its countersignature thereof) or be
required to verify the same, but all such statements and recitals are and
shall be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility
in respect of the validity of this Agreement or the execution and
delivery of this Agreement (except the due execution of this Agreement by
the Rights Agent) or in respect of the validity or execution of any
Rights Certificate (except its countersignature thereof); nor shall it be
responsible for any breach by the Company of any covenant or condition
contained in this Agreement or in any Rights Certificate; nor shall it be
responsible for any change in the exercisability of the Rights or any
adjustment in the terms of the Rights (including the manner, method or
amount thereof) provided for in Sections 3, 11, 13, 23 or 24, or the
ascertaining of the existence of facts that would require any such change
or adjustment (except with respect to the exercise of Rights evidenced by
Rights Certificates after receipt by the Rights Agent of a certificate
furnished pursuant to Section 12 describing such change or adjustment);
nor shall it by any act hereunder be deemed to make any representation or
warranty as to the authorization or reservation of any Preferred Shares
to be issued pursuant to this Agreement or any Rights Certificate or as
to whether any Preferred Shares will, when issued, be validly authorized
and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged
and delivered all such further and other acts, instruments and assurances
as may reasonably be required by the Rights Agent for the carrying out or
performing by the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties
hereunder from any one of the Chairman of the Board, the Chief Executive
Officer, the President, any Vice President, the Chief Financial Officer,
the Secretary or any Assistant Secretary of the Company, and to apply to
such officers for advice or instructions in connection with its duties,
and it shall not be liable for any action taken or suffered by it in good
faith in accordance with instructions of any such officer or for any
delay in acting while waiting for those instructions. Any application by
the Rights Agent for written instructions from the Company may, at the
option of the Rights Agent, set forth in writing any action proposed to
be taken or omitted by the Rights Agent under this Rights Agreement and
the date on and/or after which such action shall be taken or such
omission shall be effective. The Rights Agent shall not be liable for
any action taken by, or omission of, the Rights Agent in accordance with
a proposal included in any such application on or after the date
specified in such application (which date shall not be less than five (5)
Business Days after the date any officer of the Company actually receives
such application, unless any such officer shall have consented in writing
to an earlier date) unless, prior to taking any such action (or the
effective date in the case of an omission), the Rights Agent shall have
received written instructions in response to such application specifying
the action to be taken or omitted.
(h) The Rights Agent and any stockholder, director, officer
or employee of the Rights Agent may buy, sell or deal in any of the
Rights or other securities of the Company or become pecuniarily
interested in any transaction in which the Company may be interested, or
contract with or lend money to the Company or otherwise act as fully and
freely as though it were not Rights Agent under this Agreement. Nothing
herein shall preclude the Rights Agent from acting in any other capacity
for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder either
itself or by or through its attorneys or agents, and the Rights Agent
shall not be answerable or accountable for any act, default, neglect or
misconduct of any such attorneys or agents or for any loss to the Company
resulting from any such act, default, neglect or misconduct, provided
reasonable care was exercised in the selection and continued employment
thereof.
(j) No provision of this Agreement shall require the Rights
Agent to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder or in the
exercise of its rights if there shall be reasonable grounds for believing
that repayment of such funds or adequate indemnification against such
risk or liability is not reasonably assured to it.
(k) If, with respect to any Rights Certificate surrendered
to the Rights Agent for exercise or transfer, the certificate attached to
the form of assignment or form of election to purchase, as the case may
be, has either not been completed or indicates an affirmative response to
clause 1 and/or 2 thereof, the Rights Agent shall not take any further
action with respect to such requested exercise or transfer without first
consulting with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under
this Agreement upon thirty (30) days' notice in writing mailed to the
Company and to each transfer agent of the Preferred Shares and the Common
Shares by registered or certified mail, and to the holders of the Rights
Certificates by first-class mail. The Company may remove the Rights
Agent or any successor Rights Agent upon thirty (30) days' notice in
writing, mailed to the Rights Agent or successor Rights Agent, as the
case may be, and to each transfer agent of the Preferred Shares and the
Common Shares by registered or certified mail, and to the holders of the
Rights Certificates by first-class mail. If the Rights Agent shall
resign or be removed or shall otherwise become incapable of acting, the
Company shall appoint a successor to the Rights Agent. If the Company
shall fail to make such appointment within a period of thirty (30) days
after giving notice of such removal or after it has been notified in
writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the holder of a Rights Certificate (who
shall, with such notice, submit his or her Rights Certificate for
inspection by the Company), then the registered holder of any Rights
Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether
appointed by the Company or by such a court, shall either (a) be a
corporation organized and doing business under the laws of the United
States or of any state of the United States, in good standing, which is
authorized under such laws to exercise corporate trust or stockholder
services powers and is subject to supervision or examination by federal
or state authority and which has at the time of its appointment as Rights
Agent a combined capital and surplus of at least $50 million or (b) be an
affiliate of such a corporation. After appointment, the successor Rights
Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent
without further act or deed; but the predecessor Rights Agent shall
deliver and transfer to the successor Rights Agent any property at the
time held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Not later than the
effective date of any such appointment, the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer
agent of the Preferred Shares and the Common Shares, and mail a notice
thereof in writing to the registered holders of the Rights Certificates.
Failure to give any notice provided for in this Section 21, however, or
any defect therein, shall not affect the legality or validity of the
resignation or removal of the Rights Agent or the appointment of the
successor Rights Agent, as the case may be.
Section 22. Issuance of New Rights Certificates. Notwithstanding
any of the provisions of this Agreement or of the Rights to the contrary,
the Company may, at its option, issue new Rights Certificates evidencing
Rights in such form as may be approved by its Board of Directors to
reflect any adjustment or change in the Purchase Price and the number or
kind or class of shares or other securities or property purchasable under
the Rights Certificates made in accordance with the provisions of this
Agreement. In addition, in connection with the issuance or sale of
Common Shares following the Distribution Date and prior to the redemption
or expiration of the Rights, the Company (a) shall, with respect to
Common Shares so issued or sold pursuant to the exercise of stock options
or under any employee plan or arrangement or upon the exercise,
conversion or exchange of any convertible subordinated debentures of the
Company outstanding at the date hereof or upon the exercise, conversion
or exchange of securities hereinafter issued by the Company and (b) may,
in any other case, if deemed necessary or appropriate by the Board of
Directors, issue Rights Certificates representing the appropriate number
of Rights in connection with such issuance or sale; provided, however,
that (i) no such Rights Certificate shall be issued and this sentence
shall be null and void ab initio if, and to the extent that, such
issuance or this sentence would create a significant risk of or result in
material adverse tax consequences to the Company or the Person to whom
such Rights Certificate would be issued or would create a significant
risk of or result in such options' or employee plans' or arrangements'
failing to qualify for otherwise available special tax treatment and (ii)
no such Rights Certificate shall be issued if, and to the extent that,
appropriate adjustment shall otherwise have been made in lieu of the
issuance thereof.
Section 23. Redemption.
(a) The Company may, at its option and with the approval of
the Board of Directors, at any time prior to the Close of Business on the
earlier of (i) the tenth day following the Shares Acquisition Date or
such later date as may be determined by action of a majority of the Board
of Directors and publicly announced by the Company or (ii) the Final
Expiration Date, redeem all but not less than all the then outstanding
Rights at a redemption price of $.01 per Right, appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring
after the date of this Agreement (such redemption price being herein
referred to as the "Redemption Price") and the Company may, at its
option, pay the Redemption Price either in Common Shares (based on the
current per share market price thereof (as determined pursuant to Section
11(d) of this Agreement) at the time of redemption) or cash. Such
redemption by the Company may be made effective at such time, on such
basis and with such conditions as the Board of Directors in its sole
discretion may establish.
(b) Immediately upon the action of the Board of Directors
ordering the redemption of the Rights, evidence of which shall have been
filed with the Rights Agent, and without any further action and without
any notice, the right to exercise the Rights will terminate and the only
right thereafter of the holders of Rights shall be to receive the
Redemption Price. Within ten (10) days after the action of the Board of
Directors ordering the redemption of the Rights, the Company shall give
notice of such redemption to the Rights Agent and the holders of the then
outstanding Rights by mailing such notice to all such holders at their
last addresses as they appear upon the registry books of the Rights Agent
or, prior to the Distribution Date, on the registry books of the transfer
agent for the Common Shares. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives
the notice. Each such notice of redemption will state the method by
which the payment of the Redemption Price will be made. Neither the
Company nor any of its Affiliates or Associates may redeem, acquire or
purchase for value any Rights at any time in any manner other than that
specifically set forth in this Section 23 or in Section 24 of this
Agreement, and other than in connection with the purchase of Common
Shares prior to the Distribution Date.
Section 24. Exchange.
(a) Subject to applicable laws, rules and regulations, and
subject to subsection (c) below, the Company may, at its option, by
majority vote of the Board of Directors, at any time after the occurrence
of a Triggering Event, exchange all or part of the then outstanding and
exercisable Rights (which shall not include Rights that have become void
pursuant to the provisions of Section 7(e) of this Agreement) for Common
Shares at an exchange ratio of one Common Share per Right, appropriately
adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date of this Agreement (such exchange
ratio being hereinafter referred to as the "Ratio of Exchange").
Notwithstanding the foregoing, the Board of Directors shall not be
empowered to effect such exchange at any time after any Person (other
than the Company, any Subsidiary of the Company, any employee benefit
plan of the Company or any such Subsidiary, or any entity holding Common
Shares for or pursuant to the terms of any such plan), together with all
Affiliates and Associates of such Person, becomes the Beneficial Owner of
50% or more of the Common Shares then outstanding.
(b) Immediately upon the action of the Board of Directors
ordering the exchange of any Rights pursuant to subsection (a) of this
Section 24 and without any further action and without any notice, the
right to exercise such Rights shall terminate and the only right
thereafter of a holder of such Rights shall be to receive that number of
Common Shares equal to the number of such Rights held by such holder
multiplied by the Ratio of Exchange. The Company shall give public notice
of any such exchange; provided, however, that the failure to give, or any
defect in, such notice shall not affect the validity of such exchange.
The Company shall mail a notice of any such exchange to all of the
holders of such Rights at their last addresses as they appear upon the
registry books of the Rights Agent. Any notice which is mailed in the
manner herein provided shall be deemed given, whether or not the holder
receives the notice. Each such notice of exchange will state the method
by which the exchange of the Common Shares for Rights will be effected
and, in the event of any partial exchange, the number of Rights which
will be exchanged. Any partial exchange shall be effected pro rata based
on the number of Rights (other than Rights which have become void
pursuant to the provisions of Section 7(e) of this Agreement) held by
each holder of Rights.
(c) In the event that there shall not be sufficient Common
Shares issued but not outstanding or authorized but unissued to permit
any exchange of Rights as contemplated in accordance with Section 24(a),
the Company shall either take such action as may be necessary to
authorize additional Common Shares for issuance upon exchange of the
Rights or alternatively, at the option of a majority of the Board of
Directors, with respect to each Right (i) pay cash in an amount equal to
the Current Value (as hereinafter defined), in lieu of issuing Common
Shares in exchange therefor, or (ii) issue debt or equity securities or a
combination thereof, having a value equal to the Current Value, in lieu
of issuing common Shares in exchange for each such Right, where the value
of such securities shall be determined by a nationally recognized
investment banking firm selected by the Board of Directors by majority
vote of the Board of Directors, or (iii) deliver any combination of cash,
property, Common Shares and/or other securities having a value equal to
the Current Value in exchange for each Right. For purposes of this
Section 24(c) only, the Current Value shall mean the product of the
current per share market price of Common Shares (determined pursuant to
Section 11(d) on the date of the occurrence of the event described above
in subparagraph (a)) multiplied by the number of Common Shares for which
the Right otherwise would be exchangeable if there were sufficient shares
available. To the extent that the Company determines that some action
need be taken pursuant to clauses (i), (ii) or (iii) of this Section
24(c), the Board of Directors may temporarily suspend the exercisability
of the Rights for a period of up to sixty (60) days following the date on
which the event described in Section 24(a) shall have occurred, in order
to seek any authorization of additional Common Shares and/or to decide
the appropriate form of distribution to be made pursuant to the above
provision and to determine the value thereof. In the event of any such
suspension, the Company shall issue a public announcement stating that
the exercisability of the Rights has been temporarily suspended.
(d) The Company shall not be required to issue fractions of
Common Shares or to distribute certificates that evidence fractional
Common Shares. In lieu of such fractional Common Shares, there shall be
paid to the registered holders of the Rights Certificates with regard to
which such fractional Common Shares would otherwise be issuable, an
amount in cash equal to the same fraction of the current per share market
value of a whole Common Share (as determined pursuant to the second
sentence of Section 11(d) of this Agreement).
(e) The Company may, at its option, by majority vote of the
Board of Directors, at any time before any Person has become an Acquiring
Person, exchange all or part of the then outstanding Rights for rights of
substantially equivalent value, as determined reasonably and with good
faith by the Board of Directors, based upon the advice of one or more
nationally recognized investment banking firms.
(f) Immediately upon the action of the Board of Directors
ordering the exchange of any Rights pursuant to subsection (e) of this
Section 24 and without any further action and without any notice, the
right to exercise such Rights shall terminate and the only right
thereafter of a holder of such Rights shall be to receive that number of
rights in exchange therefor as has been determined by the Board of
Directors in accordance with subsection (e) above. The Company shall
give public notice of any such exchange; provided, however, that the
failure to give, or any defect in, such notice shall not affect the
validity of such exchange. The Company shall mail a notice of any such
exchange to all of the holders of such Rights at their last addresses as
they appear upon the registry books of the transfer agent for the Common
Shares of the Company. Any notice which is mailed in the manner herein
provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of exchange will state the method by which the
exchange of the Rights will be effected.
Section 25. Notice of Certain Events.
(a) In case the Company shall propose to effect or permit
to occur any Section 13 Event, the Company shall give notice thereof to
each holder of Rights in accordance with Section 26 of this Agreement at
least twenty (20) days prior to occurrence of such Section 13 Event.
(b) In case any Triggering Event or Section 13 Event shall
occur, then, in any such case, the Company shall as soon as practicable
thereafter give to each holder of a Rights Certificate, in accordance
with Section 26 of this Agreement, a notice of the occurrence of such
event, which shall specify the event and the consequences of the event to
holders of Rights under Sections 11(a)(ii) and 13 of this Agreement.
Section 26. Notices. Notices or demands authorized by this
Agreement to be given or made by the Rights Agent or by the holder of any
Rights Certificate to or on the Company shall be sufficiently given or
made if sent by first-class mail, postage prepaid, addressed (until
another address is filed in writing with the Rights Agent) as follows:
Preview Travel, Inc.
747 Front Street
San Francisco, CA 94111
Attention: President
Subject to the provisions of Section 21 hereof, any notice or demand
authorized by this Agreement to be given or made by the Company or by the
holder of any Rights Certificate to or on the Rights Agent shall be
sufficiently given or made if sent by first-class mail, postage prepaid
addressed (until another address is filed in writing with the Company) as
follows:
U.S. Stock Transfer Corporation
1745 Gardena Avenue
Glendale, CA 91204
Attn: Mark Cano
Notices or demands authorized by this Agreement to be given or made by
the Company or the Rights Agent to or on the holder of any Rights
Certificate shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed to such holder at the address of such
holder as shown on the registry books of the Company.
Section 27. Supplements and Amendments. Prior to the Distribution
Date, the Company may supplement or amend this Agreement in any respect
without the approval of any holders of Rights and the Rights Agent shall,
if the Company so directs, execute such supplement or amendment. From
and after the Distribution Date, the Company and the Rights Agent may
from time to time supplement or amend this Agreement without the approval
of any holders of Rights in order to (i) cure any ambiguity, (ii) correct
or supplement any provision contained herein which may be defective or
inconsistent with any other provisions herein, (iii) shorten or lengthen
any time period hereunder or (iv) change or supplement the provisions
hereunder in any manner that the Company may deem necessary or desirable
and that shall not adversely affect the interests of the holders of
Rights (other than an Acquiring Person or an Affiliate or Associate of an
Acquiring Person); provided, this Agreement may not be supplemented or
amended to lengthen, pursuant to clause (iii) of this sentence, (A) a
time period relating to when the Rights may be redeemed at such time as
the Rights are not then redeemable or (B) any other time period unless
such lengthening is for the purpose of protecting, enhancing or
clarifying the rights of, and/or the benefits to, the holders of Rights.
Upon the delivery of a certificate from an appropriate officer of the
Company that states that the proposed supplement or amendment is in
compliance with the terms of this Section 27, the Rights Agent shall
execute such supplement or amendment. Prior to the Distribution Date,
the interests of the holders of Rights shall be deemed coincident with
the interests of the holders of Common Shares.
Section 28. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
Section 29. Determinations and Actions by the Board of Directors,
etc. For all purposes of this Agreement, any calculation of the number
of Common Shares outstanding at any particular time, including for
purposes of determining the particular percentage of such outstanding
Common Shares of which any Person is the Beneficial Owner, shall be made
in accordance with the last sentence of Rule 13d-3(d)(1)(i) of the
General Rules and Regulations under the Exchange Act. The Board of
Directors shall have the exclusive power and authority to administer this
Agreement and to exercise all rights and powers specifically granted to
the Board of Directors, or the Company, or as may be necessary or
advisable in the administration of this Agreement, including, without
limitation, the right and power to (i) interpret the provisions of this
Agreement and (ii) make all determinations deemed necessary or advisable
for the administration of this Agreement (including a determination to
redeem or not redeem the Rights or to amend the Agreement). All such
actions, calculations, interpretations and determinations (including, for
purposes of clause (y) below, all omissions with respect to the
foregoing) which are done or made by the Board of Directors in good
faith, shall (x) be final, conclusive and binding on the Company, the
Rights Agent, the holders of the Rights Certificates and all other
parties and (y) not subject the Board of Directors to any liability to
the holders of the Rights.
Section 30. Benefits of this Agreement.
Nothing in this Agreement shall be construed to give to any Person
other than the Company, the Rights Agent and the registered holders of
the Rights Certificates (and, prior to the Distribution Date, the Common
Shares) any legal or equitable right, remedy or claim under this
Agreement; but this Agreement shall be for the sole and exclusive benefit
of the Company, the Rights Agent and the registered holders of the Rights
Certificates (and, prior to the Distribution Date, the Common Shares).
Section 31. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent
jurisdiction or other authority to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated; provided, however, that
notwithstanding anything in this Agreement to the contrary, if any such
term, provision, covenant or restriction is held by such court or
authority to be invalid, void or unenforceable and the Board of Directors
determines in its good faith judgment that severing the invalid language
from this Agreement would adversely affect the purpose or effect of this
Agreement, the right of redemption set forth in Section 23 of this
Agreement shall be reinstated and shall not expire until the close of
business on the tenth day following the date of such determination by the
Board of Directors.
Section 32. Governing Law. This Agreement and each Right and each
Rights Certificate issued hereunder shall be deemed to be a contract made
under the laws of the State of Delaware and for all purposes shall be
governed by and construed in accordance with the laws of such State
applicable to contracts to be made and performed entirely within such
State.
Section 33. Counterparts. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all
purposes be deemed to be an original, and all such counterparts shall
together constitute but one and the same instrument.
Section 34. Descriptive Headings. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and
shall not control or affect the meaning or construction of any of the
provisions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Preferred
Shares Rights Agreement to be duly executed as of the day and year first
above written.
PREVIEW TRAVEL, INC.
By: /s/ Kenneth Pelowski
Name: Kenneth Pelowski
Title: Executive Vice President and
Chief Financial Officer
U.S. STOCK TRANSFER CORPORATION
By: /s/ Mark Cano
Name: Mark Cano
Title: Assistant Vice President
EXHIBIT A
CERTIFICATE OF DESIGNATION OF RIGHTS, PREFERENCES
AND PRIVILEGES OF
SERIES A PARTICIPATING PREFERRED STOCK
OF
PREVIEW TRAVEL, INC.
Pursuant to Section 151 of the General Corporation Law of the State of
Delaware
I, Kenneth Pelowski, the Executive Vice President and Chief
Financial Officer of Preview Travel, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware, in
accordance with the provisions of Section 103 thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of
Directors by the Certificate of Incorporation of the said Corporation,
the said Board of Directors on October 28, 1998 adopted the following
resolution creating a series of shares of Preferred Stock designated as
Series A Participating Preferred Stock:
"RESOLVED, that pursuant to the authority vested in the Board of
Directors of the corporation by the Certificate of Incorporation, the
Board of Directors does hereby provide for the issue of a Series of
Preferred Stock, $0.001 par value, of the Corporation, to be designated
"Series A Participating Preferred Stock", initially consisting of one
hundred thousand (100,000) shares and to the extent that the
designations, powers, preferences and relative and other special rights
and the qualifications, limitations and restrictions of the Series A
Participating Preferred Stock are not stated and expressed in the
Certificate of Incorporation, does hereby fix and herein state and
express such designations, powers, preferences and relative and other
special rights and the qualifications, limitations and restrictions
thereof, as follows (all terms used herein which are defined in the
Certificate of Incorporation shall be deemed to have the meanings
provided therein):
Section 1. Designation and Amount. The shares of such series
shall be designated as "Series A Participating Preferred Stock", par
value $0.001 per share, and the number of shares constituting such series
shall be one hundred thousand (100,000).
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior right of the holders
of any shares of any series of Preferred Stock ranking prior and superior
to the shares of Series A Participating Preferred Stock with respect to
dividends, the holders of shares of Series A Participating Preferred
Stock shall be entitled to receive when, as and if declared by the Board
of Directors out of funds legally available for the purpose, quarterly
dividends payable in cash on the last day of March, June, September and
December in each year (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first Quarterly
Dividend Payment Date after the first issuance of a share or fraction of
a share of Series A Participating Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to, subject to the provision for
adjustment hereinafter set forth, 1,000 times the aggregate per share
amount of all cash dividends, and 1,000 times the aggregate per share
amount (payable in kind) of all non-cash dividends or other distributions
other than a dividend payable in shares of Common Stock or a subdivision
of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock of the Corporation (the "Common
Stock") since the immediately preceding Quarterly Dividend Payment Date,
or, with respect to the first Quarterly Dividend Payment Date, since the
first issuance of any share or fraction of a share of Series A
Participating Preferred Stock. In the event the Corporation shall at any
time after October 28, 1998 (the "Rights Declaration Date") (i) declare
any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, or (iii) combine the outstanding
Common Stock into a smaller number of shares, then in each such case the
amount to which holders of shares of Series A Participating Preferred
Stock were entitled immediately prior to such event under the preceding
sentence shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number
of shares of Common Stock that were outstanding immediately prior to such
event.
(B) The Corporation shall declare a dividend or distri-
bution on the Series A Participating Preferred Stock as provided in
paragraph (A) above immediately after it declares a dividend or
distribution on the Common Stock (other than a dividend payable in shares
of Common Stock).
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Participating Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date of issue of such
shares of Series A Participating Preferred Stock, unless the date of
issue of such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares shall begin
to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record
date for the determination of holders of shares of Series A Participating
Preferred Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends
shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest.
Dividends paid on the shares of Series A Participating Preferred Stock in
an amount less than the total amount of such dividends at the time
accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The
Board of Directors may fix a record date for the determination of holders
of shares of Series A Participating Preferred Stock entitled to receive
payment of a dividend or distribution declared thereon, which record date
shall be no more than 30 days prior to the date fixed for the payment
thereof.
Section 3. Voting Rights. The holders of shares of Series A
Participating Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Participating Preferred Stock shall entitle
the holder thereof to 1,000 votes on all matters submitted to a vote of
the stockholders of the Corporation. In the event the Corporation shall
at any time after the Rights Declaration Date (i) declare any dividend on
Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock
into a smaller number of shares, then in each such case the number of
votes per share to which holders of shares of Series A Participating
Preferred Stock were entitled immediately prior to such event shall be
adjusted by multiplying such number by a fraction, the numerator of which
is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the
holders of shares of Series A Participating Preferred Stock and the
holders of shares of Common Stock shall vote together as one class on all
matters submitted to a vote of stockholders of the Corporation.
(C) Except as required by law, holders of Series A
Participating Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are
entitled to vote with holders of Common Stock as set forth herein) for
taking any corporate action.
Section 4. Certain Restrictions.
(A) The Corporation shall not declare any dividend on, make
any distribution on, or redeem or purchase or otherwise acquire for
consideration any shares of Common Stock after the first issuance of a
share or fraction of a share of Series A Participating Preferred Stock
unless concurrently therewith it shall declare a dividend on the Series A
Participating Preferred Stock as required by Section 2 hereof.
(B) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Participating Preferred Stock as
provided in Section 2 are in arrears, thereafter and until all accrued
and unpaid dividends and distributions, whether or not declared, on
shares of Series A Participating Preferred Stock outstanding shall have
been paid in full, the Corporation shall not:
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for
consideration any shares of stock ranking junior (either as to dividends
or upon liquidation, dissolution or winding up) to the Series A
Participating Preferred Stock;
(ii) declare or pay dividends on, make any other
distributions on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with Series A
Participating Preferred Stock, except dividends paid ratably on the
Series A Participating Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the total amounts to
which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series
A Participating Preferred Stock, provided that the Corporation may at any
time redeem, purchase or otherwise acquire shares of any such parity
stock in exchange for shares of any stock of the Corporation ranking
junior (either as to dividends or upon dissolution, liquidation or
winding up) to the Series A Participating Preferred Stock;
(iv) purchase or otherwise acquire for consideration
any shares of Series A Participating Preferred Stock, or any shares of
stock ranking on a parity with the Series A Participating Preferred
Stock, except in accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all holders of
such shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other relative
rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among
the respective series or classes.
(C) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares
of stock of the Corporation unless the Corporation could, under paragraph
(A) of this Section 4, purchase or otherwise acquire such shares at such
time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A
Participating Preferred Stock purchased or otherwise acquired by the
Corporation in any manner whatsoever shall be retired and canceled
promptly after the acquisition thereof. All such shares shall upon their
cancellation become authorized but unissued shares of Preferred Stock and
may be reissued as part of a new series of Preferred Stock to be created
by resolution or resolutions of the Board of Directors, subject to the
conditions and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation (voluntary or otherwise),
dissolution or winding up of the Corporation, no distribution shall be
made to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Participating Preferred Stock unless, prior thereto, the holders of
shares of Series A Participating Preferred Stock shall have received an
amount equal to accrued and unpaid dividends and distributions thereon,
whether or not declared, to the date of such payment, plus an amount
equal to the greater of (1) $1,000 per share, provided that in the event
the Corporation does not have sufficient assets, after payment of its
liabilities and distribution to holders of Preferred Stock ranking prior
to the Series A Participating Preferred Stock, available to permit
payment in full of the $1,000 per share amount, the amount required to be
paid under this Section 6(A)(1) shall, subject to Section 6(B) hereof,
equal the value of the amount of available assets divided by the number
of outstanding shares of Series A Participating Preferred Stock or (2)
subject to the provisions for adjustment hereinafter set forth, 1,000
times the aggregate per share amount to be distributed to the holders of
Common Stock (the greater of (1) or (2), the "Series A Liquidation
Preference"). In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Common Stock payable
in shares of Common Stock, (ii) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a smaller number of
shares, then in each such case the amount to which holders of shares of
Series A Participating Preferred Stock were entitled immediately prior to
such event under clause (2) of the preceding sentence shall be adjusted
by multiplying such amount by a fraction, the numerator of which is the
number of shares of Common Stock that were outstanding immediately after
such event and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
(B) In the event, however, that there are not sufficient
assets available to permit payment in full of the Series A Liquidation
Preference and the liquidation preferences of all other series of
Preferred Stock, if any, which rank on a parity with the Series A
Participating Preferred Stock, then such remaining assets shall be
distributed ratably to the holders of such parity shares in proportion to
their respective liquidation preferences.
Section 7. Consolidation, Merger, etc. In case the Corporation
shall enter into any consolidation, merger, combination or other
transaction in which the shares of Common Stock are exchanged for or
changed into other stock or securities, cash and/or any other property,
then in any such case the shares of Series A Participating Preferred
Stock shall at the same time be similarly exchanged or changed in an
amount per share (subject to the provision for adjustment hereinafter set
forth) equal to 1,000 times the aggregate amount of stock, securities,
cash and/or any other property (payable in kind), as the case may be,
into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Common Stock payable
in shares of Common Stock, (ii) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a smaller number of
shares, then in each such case the amount set forth in the preceding
sentence with respect to the exchange or change of shares of Series A
Participating Preferred Stock shall be adjusted by multiplying such
amount by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
Section 8. No Redemption. The shares of Series A Participating
Preferred Stock shall not be redeemable.
Section 9. Ranking. The Series A Participating Preferred Stock
shall rank junior to all other series of the Corporation's Preferred
Stock as to the payment of dividends and the distribution of assets,
unless the terms of any such series shall provide otherwise.
Section 10. Amendment. The Certificate of Incorporation of the
Corporation shall not be further amended in any manner which would
materially alter or change the powers, preference or special rights of
the Series A Participating Preferred Stock so as to affect them adversely
without the affirmative vote of the holders of a majority or more of the
outstanding shares of Series A Participating Preferred Stock, voting
separately as a class.
Section 11. Fractional Shares. Series A Participating Preferred
Stock may be issued in fractions of a share which shall entitle the
holder, in proportion to such holder's fractional shares, to exercise
voting rights, receive dividends, participate in distributions and to
have the benefit of all other rights of holders of Series A Participating
Preferred Stock."
IN WITNESS WHEREOF, we have executed and subscribed this
Certificate and do affirm the foregoing as true under the penalties of
perjury this 29th day of October, 1998.
/s/ Kenneth Pelowski
Kenneth Pelowski, Executive Vice
President and
Chief Financial Officer
EXHIBIT B
FORM OF RIGHTS CERTIFICATE
Certificate No. R-____________
Rights
NOT EXERCISABLE AFTER OCTOBER 28, 2008 OR EARLIER IF
TERMINATED BY THE COMPANY. THE RIGHTS ARE SUBJECT TO
REDEMPTION, AT THE OPTION OF THE COMPANY, AT $.01 PER RIGHT
ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER
CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN
ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN
ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY
BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS RIGHTS
CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO
WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR
ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED
IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS
CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME
NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e)
OF SUCH RIGHTS AGREEMENT.*]
RIGHTS CERTIFICATE
This certifies that ________________________, or registered
assigns, is the registered owner of the number of Rights set forth above,
each of which entitles the owner thereof, subject to the terms,
provisions and conditions of the Preferred Shares Rights Agreement, dated
as of October 29, 1998 (the "Rights Agreement"), between Preview Travel,
Inc., a Delaware corporation (the "Company"), and U.S. Stock Transfer
Corporation (the "Rights Agent"), to purchase from the Company at any
time after the Distribution Date (as such term is defined in the Rights
Agreement) and prior to 5:00 P.M., San Francisco, California time, on
October 28, 2008, at the office of the Rights Agent designated for such
purpose, or at the office of its successor as Rights Agent, one one-
thousandth (1/1,000) of a fully paid non-assessable share of Series A
Participating Preferred Stock (the "Preferred Shares"), of the Company,
at a purchase price of $100.00 per one-thousandth of a Preferred Share
(the "Purchase Price"), upon presentation and surrender of this Rights
Certificate with the Form of Election to Purchase and related Certificate
duly executed. The number of Rights evidenced by this Rights Certificate
(and the number of one-thousandths of a Preferred Share which may be
purchased upon exercise hereof) set forth above, are the number and
Purchase Price as of _____________, ____, based on the Preferred Shares
as constituted at such date. As provided in the Rights Agreement, the
Purchase Price and the number and kind of Preferred Shares or other
securities which may be purchased upon the exercise of the Rights
evidenced by this Rights Certificate are subject to modification and
adjustment upon the happening of certain events.
This Rights Certificate is subject to all of the terms, provisions
and conditions of the Rights Agreement, which terms, provisions and
conditions are hereby incorporated herein by reference and made a part
hereof and to which Rights Agreement reference is hereby made for a full
description of the rights, limitations of rights, obligations, duties and
immunities hereunder of the Rights Agent, the Company and the holders of
the Rights Certificates, which limitations of rights include the
temporary suspension of the exercisability of such Rights under the
specific circumstances set forth in the Rights Agreement. Copies of the
Rights Agreement are on file at the principal executive offices of the
Company and the above-mentioned office of the Rights Agent.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Rights Certificate (i) may be redeemed by the Company,
at its option, at a redemption price of $.01 per Right or (ii) may be
exchanged by the Company in whole or in part for Common Shares,
substantially equivalent rights or other consideration as determined by
the Company.
This Rights Certificate, with or without other Rights Certificates,
upon surrender at the office of the Rights Agent designated for such
purpose, may be exchanged for another Rights Certificate or Rights
Certificates of like tenor and date evidencing Rights entitling the
holder to purchase a like aggregate amount of securities as the Rights
evidenced by the Rights Certificate or Rights Certificates surrendered
shall have entitled such holder to purchase. If this Rights Certificate
shall be exercised in part, the holder shall be entitled to receive upon
surrender hereof another Rights Certificate or Rights Certificates for
the number of whole Rights not exercised.
No fractional portion less than integral multiples of one one-
thousandth of a Preferred Share will be issued upon the exercise of any
Right or Rights evidenced hereby but in lieu thereof a cash payment will
be made, as provided in the Rights Agreement.
No holder of this Rights Certificate, as such, shall be entitled to
vote or receive dividends or be deemed for any purpose the holder of the
Preferred Shares or of any other securities of the Company which may at
any time be issuable on the exercise hereof, nor shall anything contained
in the Rights Agreement or herein be construed to confer upon the holder
hereof, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted
to stockholders at any meeting thereof, or to give or withhold consent to
any corporate action, or to receive notice of meetings or other actions
affecting stockholders (except as provided in the Rights Agreement), or
to receive dividends or subscription rights, or otherwise, until the
Right or Rights evidenced by this Rights Certificate shall have been
exercised as provided in the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the
Company and its corporate seal. Dated as of _______________ , 19__.
ATTEST: PREVIEW TRAVEL, INC.
By:
Secretary
President
Countersigned:
U.S. Stock Transfer Corporation
as Rights Agent
By:
Authorized Signature
FORM OF REVERSE SIDE OF RIGHTS CERTIFICATE
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to
transfer the Rights Certificate)
FOR VALUE RECEIVED hereby
sells, assigns and transfers unto
(Please print name and address of transferee)
this Rights Certificate, together with all right, title and
interest therein, and does hereby irrevocably constitute and appoint
Attorney, to transfer the Rights Certificate on
the books of the within-named Company, with full power of substitution.
Dated: , 19__
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an
office or correspondent in the United States or any other member of a
medallion signature guarantee program approved by the Securities Transfer
Association.
CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes that:
(1) this Rights Certificate [ ] is [ ] is not being sold,
assigned and transferred by or on behalf of a Person who is or was an
Acquiring Person, or an Affiliate or Associate of any such Person (as
such terms are defined in the Rights Agreement);
(2) after due inquiry and to the best knowledge of the
undersigned, it [ ] did
[ ] did not acquire the Rights evidenced by this Rights Certificate from
any Person who is, was or subsequently became an Acquiring Person or an
Affiliate or Associate of any such Person.
Dated: ,
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an
office or correspondent in the United States or any other member of a
medallion signature guarantee program approved by the Securities Transfer
Association.
Form of Reverse Side of Rights Certificate -- continued
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise the Rights Certificate)
To:
The undersigned hereby irrevocably elects to exercise
Rights represented by this Rights Certificate to
purchase the number of one-thousandths of a Preferred Share issuable upon
the exercise of such Rights and requests that certificates for such
number of one-thousandths of a Preferred Share be issued in the name of:
Please insert social security or other identifying number
(Please print name and address)
If such number of Rights shall not be all the Rights evidenced by this
Rights Certificate, a new Rights Certificate for the balance shall be
registered in the name of and delivered to:
Please insert social security or other identifying number
(Please print name and address)
Dated: ,
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an
office or correspondent in the United States or any other member of a
medallion signature guarantee program approved by the Securities Transfer
Association.
CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Rights Certificate [ ] are
[ ] are not being exercised by or on behalf of a Person who is or was an
Acquiring Person or an Affiliate or Associate of any such Person (as such
terms are defined in the Rights Agreement);
(2) after due inquiry and to the best knowledge of the
undersigned, it [ ] did
[ ] did not acquire the Rights evidenced by this Rights Certificate from
any Person who is, was or subsequently became an Acquiring Person or an
Affiliate or Associate of any such Person.
Dated: ,
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an
office or correspondent in the United States or any other member of a
medallion signature guarantee program approved by the Securities Transfer
Association.
Form of Reverse Side of Rights Certificate -- continued
NOTICE
The signature in the foregoing Forms of Assignment and Election
must conform to the name as written upon the face of this Rights
Certificate in every particular, without alteration or enlargement or any
change whatsoever.
EXHIBIT C
PREVIEW TRAVEL, INC.
STOCKHOLDER RIGHTS PLAN
Summary of Rights
Distribution and
Transfer of
Rights; Rights
Certificate:
The Board of Directors has declared a dividend of one
Right for each share of Common Stock of Preview Travel,
Inc. (the "Company") outstanding. Prior to the
Distribution Date referred to below, the Rights will be
evidenced by and trade with the certificates for the
Common Stock. After the Distribution Date, the Company
will mail Rights certificates to the Company's
stockholders and the Rights will become transferable
apart from the Common Stock.
Distribution Date:
Rights will separate from the Common Stock and become
exercisable following the tenth day (or such later date
as may be determined by a majority the Company's Board
of Directors) after a person or group (a) acquires
beneficial ownership of 20% or more of the Company's
Common Stock, or (b) announces a tender or exchange
offer, the consummation of which would result in
ownership by a person or group of 20% or more of the
Company's Common Stock (the "Distribution Date").
Preferred Stock
Purchasable Upon
Exercise of
Rights:
After the Distribution Date, each Right will entitle
the holder to purchase, for $100.00, a fraction of a
share of the Company's Preferred Stock with economic
terms similar to that of one share of the Company's
Common Stock.
Flip-In:
If an acquiror (an "Acquiring Person") obtains 20% or
more of the Company's Common Stock (other than pursuant
to a tender offer deemed fair by the Board of Directors
(a "Permitted Offer"), then each Right (other than
Rights owned by an Acquiring Person or its affiliates)
will entitle the holder thereof to purchase, for the
exercise price, a number of shares of the Company's
Common Stock having a then current market value of
twice the exercise price.
Flip-Over:
If, after the Shares Acquisition Date (defined below),
(a) the Company merges into another entity, (b) an
acquiring entity merges into the Company or (c) the
Company sells more than 50% of the Company's assets or
earning power, then each Right (other than Rights owned
by an Acquiring Person or its affiliates) will entitle
the holder thereof to purchase, for the exercise price,
a number of shares of Common Stock of the person
engaging in the transaction having a then current
market value of twice the exercise price (unless the
transaction satisfies certain conditions and is
consummated with a person who acquired shares pursuant
to a Permitted Offer, in which case the Rights will
expire).
Exchange
Provision:
At any time after an event triggering the flip-in or
flip-over rights and prior to the acquisition by the
Acquiring Person of 50% or more of the outstanding
Common Stock, the Board of Directors of the Company may
exchange the Rights (other than Rights owned by the
Acquiring Person or its affiliates), in whole or in
part, at an exchange ratio of one share of Common Stock
per Right (subject to adjustment).
Redemption of
the Rights:
Rights will be redeemable at the Company's option for
$0.01 per Right at any time on or prior to the tenth
day (or such later date as may be determined by a
majority of the Board of Directors) after public
announcement that a person has acquired beneficial
ownership of 20% or more of the Company's Common Stock
(the "Shares Acquisition Date").
Expiration of
the Rights:
The Rights expire on the earliest of (a) October
28, 2008, (b) exchange or redemption of the Rights as
described above or (c) consummation of a merger or
consolidation or sale of assets resulting in expiration
of the Rights as described above.
Amendment of Terms
of Rights:
The terms of the Rights and the Rights Agreement may be
amended in any respect without the consent of the
Rights holders on or prior to the Distribution Date;
thereafter, the terms of the Rights and the Rights
Agreement may be amended without the consent of the
Rights holders in order to cure any ambiguities or to
make changes which do not adversely affect the
interests of Rights holders (other than the Acquiring
Person).
Voting Rights:
Rights will not have any voting rights.
Anti-Dilution
Provisions:
Rights will have the benefit of certain customary anti-
dilution provisions.
Taxes:
The Rights distribution should not be taxable for
federal income tax purposes. However, following an
event which renders the Rights exercisable or upon
redemption of the Rights, stockholders may recognize
taxable income.
The foregoing is a summary of certain principal terms of the Stockholder
Rights Plan only and is qualified in its entirety by reference to the
detailed terms of the Rights Agreement dated as of October 29, 1998,
between the Company and the Rights Agent.
* The portion of the legend in bracket shall be inserted only if
applicable and shall replace the preceding sentence.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM BALANCE SHEET AT JUNE 30, 1998 AND STATEMENT
OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 27,130
<SECURITIES> 41,843
<RECEIVABLES> 3,099
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 74,807
<PP&E> 5,409
<DEPRECIATION> 0
<TOTAL-ASSETS> 82,242
<CURRENT-LIABILITIES> 5,624
<BONDS> 0
0
0
<COMMON> 14
<OTHER-SE> 74,553
<TOTAL-LIABILITY-AND-EQUITY> 82,242
<SALES> 14,435
<TOTAL-REVENUES> 14,435
<CGS> 8,175
<TOTAL-COSTS> 8,175
<OTHER-EXPENSES> 22,478
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (14,396)
<INCOME-TAX> 36
<INCOME-CONTINUING> (14,432)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,432)
<EPS-PRIMARY> ($1.15)
<EPS-DILUTED> ($1.15)
</TABLE>
