<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ON MARCH 16, 1999.
REGISTRATION NO. 333-_____
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Lowestfare.com, Inc.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7389 88-0407016
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CODE CLASSIFICATION NUMBER) IDENTIFICATION NUMBER)
</TABLE>
980 KELLY JOHNSON DRIVE
LAS VEGAS, NEVADA 89119
(702) 260-3600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
KENNETH G. SWANTON
CHIEF EXECUTIVE OFFICER
980 KELLY JOHNSON DRIVE
LAS VEGAS, NEVADA 89119
(702) 260-3600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
MARC WEITZEN, ESQ. LUCI STALLER ALTMAN, ESQ.
GORDON ALTMAN BUTOWSKY MATTHEW B. SWARTZ, ESQ.
WEITZEN SHALOV & WEIN BROBECK, PHLEGER & HARRISON LLP
114 WEST 47TH STREET 1633 BROADWAY, 47TH FLOOR
NEW YORK, NEW YORK 10036 NEW YORK, NEW YORK 10019
(212) 626-0800 (212) 581-1600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box./ /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration for the same offering./ /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering./ /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering./ /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box./ /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE (1)(2) REGISTRATION FEE
--------------------------- ------------------------------- ----------------
<S> <C> <C>
Common Stock, $.01 par value............................. $138,000,000 $38,364
========================================================= ================================= ==================================
</TABLE>
(1) Includes shares which the Underwriters have the option to purchase from
the Company solely to cover over-allotments, if any.
(2) Estimated pursuant to Rule 457(o) of the Securities Act of 1933, as
amended, solely for the purpose of calculating the amount of the
registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH __, 1999
LOWESTFARE.COM, INC. [LOGO]
[___________] SHARES
COMMON STOCK
Lowestfare.com, Inc. is offering _____ shares of its common stock. This
is Lowestfare.com's initial public offering. We have applied for approval for
quotation on the Nasdaq National Market under the symbol "FARE" for the shares
we are offering. We anticipate that the initial public offering price will be
between $____ and $____ per share.
INVESTING IN THE COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public Offering Price..................................... $ $
Underwriting Discounts and Commissions ................... $ $
Proceeds to Lowestfare.com................................ $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS
HAVE NOT APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Lowestfare.com has granted the underwriters a 30-day option to purchase
up to an additional shares of common stock to cover over-allotments.
BancBoston Robertson Stephens Inc. expects to deliver the shares of common stock
to purchasers on , 1999.
BANCBOSTON ROBERTSON STEPHENS BEAR, STEARNS & CO. INC.
The date of this prospectus is , 1999
<PAGE> 3
[Inside front-cover page]
[PICTURE OF THE LOWESTFARE.COM HOME PAGE AND DESCRIPTION OF WEB SITE FEATURES ]
<PAGE> 4
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS.
WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM
THAT CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS
TO BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK. UNLESS OTHERWISE INDICATED, ALL
REFERENCES IN THIS PROSPECTUS TO "LOWESTFARE.COM," "OUR COMPANY," THE "COMPANY,"
"WE," "US" AND "OUR" REFER TO LOWESTFARE.COM, INC., TOGETHER WITH ITS
CONSOLIDATED SUBSIDIARIES.
UNTIL , 1999, ALL DEALERS THAT BUY, SELL OR TRADE OUR
COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION
TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary................................................................................. 4
Risk Factors....................................................................................... 7
Forward-Looking Statements......................................................................... 23
Summary of Organizational Restructuring............................................................ 24
Use of Proceeds.................................................................................... 25
Dividend Policy.................................................................................... 25
Capitalization..................................................................................... 26
Dilution........................................................................................... 27
Selected Combined Financial Data................................................................... 28
Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 29
Business........................................................................................... 39
Management......................................................................................... 54
Certain Transactions............................................................................... 62
Principal Stockholders............................................................................. 64
Description of Capital Stock....................................................................... 65
Shares Eligible for Future Sale.................................................................... 67
Underwriting....................................................................................... 69
Legal Matters...................................................................................... 71
Experts ........................................................................................... 71
Where You Can Find Additional Information.......................................................... 71
Index to Financial Statements...................................................................... F-1
</TABLE>
Lowestfare.com and the Lowestfare.com logo are trademarks of our company
for which a trademark application is pending. This prospectus also contains the
trademarks, tradenames and service marks of other companies which are the
property of their respective owners.
Our principal executive offices are located at 980 Kelly Johnson Drive,
Las Vegas, Nevada 89119 and our telephone number is (702) 260-3600. Our Web site
address is www.Lowestfare.com. THE INFORMATION ON OUR WEB SITE IS NOT
INCORPORATED BY REFERENCE INTO THIS PROSPECTUS AND SHOULD NOT BE CONSIDERED A
PART OF THIS PROSPECTUS.
3
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this
prospectus. This summary may not contain all the information that may be
important to you. You should read the entire prospectus, including the Financial
Statements and related Notes, before making an investment decision. Unless
otherwise indicated, all information in this prospectus assumes: (1) the
acquisitions in connection with the organizational restructuring to occur prior
to the closing of this offering of Global Discount Travel Services LLC and
Global Travel Marketing Services, Inc. by Lowestfare.com, Inc.; (2) the filing
of our Amended and Restated Certificate of Incorporation which, among other
things, will authorize 5,000,000 shares of undesignated preferred stock; and (3)
that the underwriters do not elect to exercise their over-allotment option. See
"Underwriting."
LOWESTFARE.COM, INC.
Lowestfare.com is a leading full-service provider of discount travel
products and services to the leisure and small business traveler. We offer our
customers a reliable source for discounted travel products and services through
our agreements with selected travel providers such as America West Airlines,
Northwest Airlines, Trans World Airlines (the "Contracting Airline"), Virgin
Atlantic Airways, Hertz Rent-a-Car, Stratosphere Hotel and Casino and Carnival
Cruise Lines. In addition, we offer our customers the ability to make
reservations on over 400 airlines, at more than 39,000 hotels and with most
major car rental companies, cruise lines and tour package operators. Our travel
product and service offerings are available to our customers through: (1) our
Web site (www.Lowestfare.com), (2) our toll-free telephone reservation and
customer service center (1-888-777-2222) and (3) our affiliations with more than
800 travel agencies which are authorized to sell discount airline tickets on the
Contracting Airline. Our user-friendly Web site enables our customers to quickly
and easily search for information regarding their travel needs, securely book
trips, access a variety of helpful travel-related content and receive customer
support 24 hours a day, 7 days a week. We have established strategic marketing
relationships with Yahoo!, Tripod, Looksmart, MiningCo, theglobe.com and
Frommers to increase our access to Internet customers and build brand awareness.
We commenced our operations in August 1995 and launched our original Web site in
October 1996. However, we first sought to capitalize on the growing popularity
and potential of the Internet in June 1998 with the launch of our redesigned Web
site. This redesigned Web site features a broad array of travel product
offerings, an attractive user interface, an easy-to-use interactive booking
engine and other travel-related content. Since our inception through February
28, 1999, we have conducted over 2 million travel-related transactions for our
customers. Our total gross bookings have grown from $116.9 million in 1996 to
$232.7 million in 1998, while our Internet gross bookings, our fastest growing
segment, have grown from $12,000 in 1996 to $13.2 million in 1998.
The Internet has experienced tremendous growth in usage in recent years
and this growth is expected to continue. The Internet has emerged as an
attractive medium for consumer use, enabling users to gather a broad array of
comparative purchasing data, to shop in a more convenient manner and to interact
with sellers in new ways. According to Forrester Research, online leisure travel
bookings are expected to grow from approximately $3 billion in 1998 to over $29
billion in 2003. Consumers are attracted by the convenience of purchasing travel
products and services via the Internet and seek online travel sites that are
easy-to-use, have compelling travel offerings and provide a high level of
consistent service both online and over the telephone. Travel consumers are
increasingly seeking a reliable online source of discounted travel products and
services which are free of significant restrictions and are also accessible
through traditional means such as a travel agent or a toll-free number.
We provide access to our travel product and service offerings through:
- our Web site (www.Lowestfare.com);
4
<PAGE> 6
- our toll-free telephone reservation and customer service center
(1-888-777-2222), which has approximately 300 specially trained
service representatives and is available 24 hours a day, 7 days a
week; and
- our affiliations with more than 800 travel agencies which are
authorized to sell discount airline tickets on the Contracting
Airline.
We are committed to providing our customers with the highest level of
service. This commitment is evidenced by an ongoing customer survey conducted by
Lowestfare.com, in which approximately 98% of all respondents as of January 1999
indicated that they would feel comfortable recommending Lowestfare.com to
others.
Our agreement with the Contracting Airline enables us to consistently
offer significantly discounted airline tickets to our customers through
September 2003 without severe restrictions such as blackout periods, long
advance or last minute purchase requirements and without the loss of frequent
flyer benefits. In addition, we provide our customers with discounted air travel
on several other airlines, as well as discounts for car rentals, hotels, cruises
and tour packages.
Customers accessing our Web site are provided with a variety of choices
to meet their travel needs, including travel reservation information,
destination content from Frommers and weather and mapping information. We
provide easy-to-use navigational tools which quickly guide customers through our
Web site. In addition to extensive online help, our Web site customers have
access to e-mail and toll-free telephone support around-the-clock to assist them
with their travel needs before, during and after their purchase and while
traveling.
Our objective is to be the leading full-service provider of discount
travel products and services to the leisure and small business traveler. In
order to continue to deliver compelling value to our customers, we intend to
implement the following strategies:
- raise consumer awareness of the Lowestfare.com brand name and our
Web site primarily by significantly expanding our advertising
efforts;
- continue to broaden our discount travel product and service
offerings by establishing discount relationships with additional
airlines, hotels, car rental companies, cruise lines and tour
package operators;
- maintain and establish additional strategic marketing relationships
with leading Internet sites to help increase our brand recognition
and expand our customer base;
- pursue opportunities to generate additional sources of revenues,
such as banner advertising; and
- continue to invest in technology to enhance our service and
customer satisfaction.
Lowestfare.com, Inc. was incorporated in August 1998 under the laws of
the State of Delaware. Global Discount Travel Services LLC was organized in July
1995 under the laws of the State of Nevada. Global Travel Marketing Services,
Inc. was incorporated in June 1995 under the laws of the State of Nevada.
Immediately prior to the closing of this offering, we will effect an
organizational restructuring whereby Global Discount Travel and its marketing
affiliate, Global Travel Marketing, will become wholly-owned subsidiaries of
Lowestfare.com.
5
<PAGE> 7
THE OFFERING
Common stock offered by Lowestfare.com................ __________ shares
Common stock to be outstanding after this offering.... __________ shares
Use of proceeds....................................... For expansion of our
sales and marketing
capabilities, brand
name promotion,
investments in our
technology
infrastructure and
general corporate
purposes, including
working capital.
Proposed Nasdaq National Market symbol............... FARE
The total shares to be outstanding after this offering do not include
outstanding options at February 28, 1999 to purchase a total of approximately
2,208,263 shares of common stock at a weighted average exercise price of $5.07
per share and an additional 1,291,737 shares reserved for future grants under
our 1999 Stock Option Plan.
SUMMARY COMBINED FINANCIAL DATA
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------
1995(1) 1996 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ............................................... $ 13,782 $ 116,917 $ 200,711 $ 224,422
Gross profit ........................................... 3,323 29,943 52,290 59,348
Net income (loss) ...................................... (1,054) (1,069) 8,004 13,721
PRO FORMA STATEMENT OF OPERATIONS DATA(2):
Net income ............................................. 13,721
Pro forma income tax expense ........................... 4,665
------------
Pro forma net income ................................... $ 9,056
============
Pro forma net income per common share(3)
Basic ................................................ $ 0.32
Diluted .............................................. [ ]
Weighted average shares used in per share calculation(3)
Basic ................................................ 28,600,000
Diluted .............................................. [ ]
SUPPLEMENTAL FINANCIAL DATA (UNAUDITED):
Gross bookings(4) ...................................... $ 13,782 $ 116,917 $ 201,016 $ 232,714
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------
BALANCE SHEET DATA: ACTUAL AS ADJUSTED(6)
-------- ---------------
<S> <C> <C>
Cash and cash equivalents(5)................................................ $11,427
Working capital............................................................. 16,386
Total assets................................................................ 47,828
Long-term liabilities....................................................... 162
Stockholders'/members' equity............................................... 19,702
</TABLE>
- ---------------------
(1) Reflects the results of operations from July 13, 1995 (date of inception).
(2) Represents pro forma information for Lowestfare.com, Inc. as if the
organizational restructuring had taken place on January 1, 1998. Net income
and related per share amounts reflect adjustments for federal income taxes
as if Global Discount Travel had been taxed as a C corporation rather than
a limited liability company.
(3) Please refer to note 4 to the Lowestfare.com, Inc. financial statements for
the calculation of income per share, including an explanation of the number
of shares used in computing the amount of basic and diluted income per
share.
(4) Represents the aggregate retail value charged by Lowestfare.com for travel
products and services sold. This presentation of gross bookings does not
affect Lowestfare.com's operating results. Management believes that gross
bookings provide a more consistent comparison between historical periods
than do revenues. Gross bookings are not required to be disclosed by
generally accepted accounting principles, GAAP, and should not be
considered in isolation or as a substitute for other information prepared
in accordance with GAAP.
(5) Does not include restricted cash of $29.9 million at December 31, 1998.
Please refer to note 1 to the Global Discount Travel Services LLC and
Global Travel Marketing Services, Inc. combined financial statements for
the description of restricted cash.
(6) As adjusted to give effect to the issuance and sale of the common stock
offered hereby at an assumed initial public offering price of $____ per
share, and the application of the estimated net proceeds as set forth under
"Use of Proceeds."
6
<PAGE> 8
RISK FACTORS
Any investment in our common stock involves a high degree of risk. You
should carefully consider the risks described below, together with the other
information contained in this prospectus before making an investment decision.
The risks and uncertainties described below are not the only ones faced by our
company. Additional risks and uncertainties not presently known to us or that we
currently deem immaterial may also impair our business operations. If any of the
following risks actually occur, our business, financial condition or results of
operations could be materially and adversely affected. In such case, the trading
price of our common stock could decline, and you may lose all or part of your
investment.
This prospectus contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including the risk factors described below and elsewhere in this prospectus. We
undertake no obligation to update publicly any forward-looking statements for
any reason, even if new information becomes available or other events occur in
the future.
WE HAVE A LIMITED OPERATING HISTORY AND A LIMITED INTERNET OPERATING HISTORY
We initiated our operations in August 1995 and began our Internet
operations in October 1996. As a result, we have only a limited operating
history on which you can base an evaluation of our business and prospects. An
investor in our common stock must consider the risks, uncertainties, 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. Some of these risks include:
- reliance on travel suppliers, particularly the Contracting Airline;
- need to expand the number and variety of our discount travel product
and service offerings;
- ability to maintain our current and enter into additional strategic
marketing relationships;
- extent to which the Internet is used for the purchase of discount
travel products and services;
- ability to adapt and respond to competition;
- need to maintain and expand our brand recognition;
- need to continue to develop and design our technology;
- ability to recruit, retain and motivate qualified personnel and
dependence upon key officers and personnel;
- need to anticipate and adapt to the changing market for online
services;
- need to manage changing operations; and
- perceived security of our services, technology and infrastructure.
We also depend on the growing use of the Internet for commerce and
communications and on general economic conditions. The number of Internet users
may not continue to grow and/or use of the Internet may not become more
widespread. We may not be successful in addressing these risks and uncertainties
or in executing our business strategy and the failure to do so would materially
and adversely affect our business, results of operations and financial
condition. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
7
<PAGE> 9
WE DEPEND HEAVILY UPON OUR CONTRACT WITH THE CONTRACTING AIRLINE
Our business depends heavily on our ticket program agreement with the
Contracting Airline. Sales of tickets purchased from the Contracting Airline
pursuant to the agreement accounted for approximately 96.9% of our revenues in
1998, approximately 98.8% of our revenues in 1997 and approximately 99.3% of our
revenues in 1996. The agreement, which was entered into in June 1995, prior to
our formation, gives us the right to purchase tickets from the Contracting
Airline at a significant discount from the applicable published fare, for all
seats and fare classes. This discount applies to all flights operated by the
Contracting Airline (other than travel originating or terminating in St. Louis,
Missouri). We are permitted to resell these tickets to the public, subject to
certain limitations contained in the agreement. The ticket program agreement
terminates in September 2003, we have no right to renew this agreement and we do
not anticipate renewing this agreement.
The discount pricing provided to us by the ticket program agreement has
enabled us to increase our revenues and achieve profitability. We cannot be sure
that once this agreement terminates we will be able to sustain profitability or
maintain our revenues. Our long-term viability depends upon our ability to
obtain significant discount travel arrangements with travel suppliers in
addition to the Contracting Airline, and thereby reduce our dependence on this
agreement. We may not be able to obtain significant discount travel arrangements
with additional travel suppliers on a timely basis or at all. Also, additional
discount travel arrangements, if obtained, may not provide as significant a
discount as the discount provided to us under the ticket program agreement. In
this case, we will not achieve the same level of profitability and may not be
profitable at all. In addition, we may not be able to compete successfully with
our competitors.
The value of the ticket program agreement to our company is largely
dependent upon the business, results of operations and financial condition of
the Contracting Airline. The public filings made by the Contracting Airline
disclose that the Contracting Airline was reorganized under Chapter 11 of the
United States Bankruptcy Code in 1993 and in 1995. The net loss applicable to
common shares of the Contracting Airline was $321.5 million in 1996, $127.0
million in 1997 and $58.9 million for the nine-month period ended September 30,
1998. As of September 30, 1998, the Contracting Airline had $2,729.4 million in
total assets, $634.3 million in long-term debt (less current maturities) and
$170.2 million in obligations under capital leases (less current obligations).
The value of this agreement to our company would be reduced if the Contracting
Airline experienced any of the following:
- any decline in its business, results of operations or financial
condition;
- any decline in its reputation or market presence;
- the curtailment, realignment or reduction of its current route
structure;
- any work stoppage or strike by any of its unions; or
- fleet changes which result in reduced seat availability.
Any of these events would harm our business, and our results of operations and
financial condition would be materially and adversely effected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview" and "Business--Travel Supplier Agreements."
LITIGATION BY THE CONTRACTING AIRLINE CONCERNING CERTAIN TICKET SALES UNDER THE
TICKET PROGRAM AGREEMENT
After we entered into the ticket program agreement in 1995, the
Contracting Airline began to dispute our right, among other things, to sell
certain types of tickets to leisure travelers.
8
<PAGE> 10
In March 1996, the Contracting Airline commenced litigation against us,
Carl C. Icahn, Karabu Corp. and certain other entities affiliated with Mr. Icahn
in the Circuit Court of St. Louis County, Missouri, seeking a declaration that
we had breached the ticket program agreement by selling certain types of tickets
to leisure travelers. The Contracting Airline also asserted additional claims
for breach of contract, tortious interference with prospective and existing
business relations and unjust enrichment. The Contracting Airline also sought
approximately $300 million in liquidated, compensatory and punitive damages,
costs and attorneys' fees. In December 1997, a non-jury trial commenced before
the Missouri State Court. In May 1998, the Court denied the Contracting
Airline's petition and found that our sales to leisure travelers did not breach
the ticket program agreement.
We moved along with Mr. Icahn and his related entities to amend or
modify the Court's ruling to include a declaratory judgment that we are
permitted to sell tickets to any person for any purpose, which could include use
by the purchaser's family members or friends. The Contracting Airline opposed
this motion and requested that the Court clarify the ruling to limit its scope,
specifically that the leisure traveler purchasing a ticket must use the ticket
(with certain enumerated exceptions) and may not purchase a ticket for any other
person, including friends or family members. The Court denied both motions on
June 25, 1998. The Contracting Airline has appealed the denial of its motion for
clarification and the Court's original ruling.
The Contracting Airline filed its appeal brief on February 26, 1999,
which contains its arguments for overturning the Court's ruling. We plan to
vigorously defend against the Contracting Airline's arguments on appeal, but
there can be no assurance that we will succeed on all or part of the Contracting
Airline's appeal. If the Contracting Airline succeeds on appeal and all or part
of the lower court's decision in our favor is reversed or modified, we may lose
our right to purchase certain types of tickets under the ticket program
agreement and may be required to pay damages to the Contracting Airline, which
could be substantial. Loss of our right to purchase tickets under the ticket
program agreement would materially and adversely affect our business, results of
operations and financial condition. Even if we are successful on the appeal, our
defense will be expensive, time-consuming, and could distract management. This
could hurt our business. See "Business--Legal Proceedings--Litigation with the
Contracting Airline."
OUR QUARTERLY RESULTS OF OPERATIONS MAY FLUCTUATE AND OUR FUTURE REVENUES AND
PROFITABILITY ARE UNCERTAIN
Our revenues, gross margins and operating results have fluctuated
significantly in the past and are expected to continue to fluctuate
significantly in the future due to a variety of factors. These factors, many of
which are outside of our control include, among others:
- changes in our ability to sell tickets under the ticket program
agreement or any other reduction in the value of the ticket program
agreement;
- our ability to retain existing customers, attract new customers and
maintain customer satisfaction;
- the termination of the ticket program agreement in September 2003;
- seasonal fluctuations in consumer spending patterns and Internet
usage;
- our ability to negotiate discount travel arrangements with travel
suppliers other than the Contracting Airline;
- the amount and timing of costs relating to potential expansion of
our business;
- changes in pricing by airlines and other travel suppliers;
9
<PAGE> 11
- the announcement or introduction of new Internet sites, services and
products by our competitors or increased competition;
- the level of use of commercial Internet services and consumer
acceptance of our Internet products and services;
- the mix of our products and services sold during a quarter;
- the success of our brand building and marketing campaign;
- the timing of releases of new and enhanced technology or other
third-party software products;
- changes in our personnel;
- our success in assimilating the operations and personnel of any
acquired business; and
- general economic conditions and economic conditions specific to the
travel industry and online commerce.
Any change in one or more of these factors could materially and adversely affect
our results of operations in future periods.
Our gross margins may be impacted by a number of different factors,
including: (a) the mix of revenues derived from our Web site, our toll-free
telephone reservation and customer service center and our affiliated travel
agencies, (b) the mix of commission revenues derived from the sale of cruises,
tour packages, car rentals and hotel bookings, (c) the mix of travel products
and services sold, (d) the mix of airline ticket commissions (which vary from
airline to airline) and (e) the amount of override commissions and the margins
we derive from our consolidator and wholesale contracts with certain airlines,
including the Contracting Airline.
We currently intend to substantially increase our operating expenses
to:
- develop and offer new and expanded travel products and services;
- expand our sales and marketing capabilities and brand name
promotion;
- expand our customer service operations; and
- enhance our technology and transaction-processing systems.
To the extent these expenses precede or are not subsequently followed by
increased revenues, our quarterly revenues, gross margins and results of
operations will fluctuate and net profits, if any, in a given quarter may be
less than expected.
As a result of these fluctuations, our annual or quarterly results of
operations may be below the expectations of securities analysts and investors.
In this event, the price of our common stock could decline. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Results of Operations."
OUR BUSINESS DEPENDS ON THE TRAVEL INDUSTRY
The future success of our business is dependent on the travel industry.
We currently earn all of our revenue from the travel industry, especially
airline tickets for leisure travel. The travel industry, particularly
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airline tickets for leisure travel, is highly sensitive to personal
discretionary spending levels and changes in economic conditions. Consumer
demand 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, terrorism, fuel price escalation,
travel-related accidents, unusual weather patterns, airline or other
travel-related strikes and other adverse occurrences. These events would likely
result in decreased travel and our business, results of operations and financial
condition would be materially and adversely affected.
OUR BUSINESS IS SUBJECT TO SEASONAL FLUCTUATIONS
Our business is seasonal due to fluctuations in our customers' travel
patterns and general Internet usage. In the past, we have experienced an
increase in travel bookings during the first and second calendar quarters and a
decrease during the third and fourth quarters and we expect that this trend will
continue in the future. We expect that Internet usage may decline during the
summer. In addition, seasonal trends affect the inventory made available to us
by third-party suppliers. Airlines, for example, typically experience higher
demand for tickets through traditional distribution channels for travel during
Thanksgiving and the year-end holiday period. As a result, during these periods,
airlines may have less need to sell discount tickets and packages through our
company. Seasonality in the travel industry and variability in Internet usage
will likely cause quarterly fluctuations in our results of operations and our
financial performance could be materially and adversely affected.
WE RELY ON TRAVEL SUPPLIERS
We depend on airlines and other travel suppliers in order to offer our
customers a broad selection of travel products and services. We currently have
discount travel agreements with only the Contracting Airline and four other
airlines. Our agreements with these four airlines generally:
- do not require the airlines to deal exclusively with us;
- do not require the airlines to provide any specific quantity of
tickets;
- are effective for only a one year period; and
- can be terminated upon thirty days' notice.
Our other travel suppliers may be unable to or choose not to make their
inventory of services and products available to us, or may terminate any
discount arrangements that we have obtained. This could significantly decrease
the amount or breadth of our inventory of available travel offerings and our
business, results of operations and financial condition may be materially and
adversely affected.
In addition, a portion of our revenues is dependent on the commissions
paid by travel suppliers for bookings made through our travel service. In recent
years, airlines have significantly reduced their typical commission rate
structure several times, including a reduction of the commission rate payable
for Internet reservations. Travel suppliers may further reduce their commission
rates or eliminate such commissions entirely, which could materially and
adversely effect our business, results of operations and financial condition.
Further, due to our dependence on the airline industry, we could be
adversely affected by changes in the industry, including the grounding of
popular aircraft models or fleet changes made by particular airlines. We would
have no control over these changes. For example, in 1998 the Contracting Airline
discontinued use of its largest airplane, the Boeing 747. As a result, there was
a reduction in the number of seats available for sale to us by the Contracting
Airline. Consequently, we experienced a decrease in our sales of such seats. Any
similar decision made in the future by the Contracting Airline or any other
airline could cause our revenue to decrease and our business, results of
operations and financial condition could be materially and
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adversely affected. Further, we would be adversely affected by the bankruptcy,
insolvency, or other adverse change in the business or financial condition of
one or more airlines whose tickets we sell. We could also be adversely affected
by the acquisition of one of our current discount travel suppliers by a travel
supplier with whom we do not have a relationship. See "Business--Travel Supplier
Agreements."
THERE IS SIGNIFICANT COMPETITION IN THE TRAVEL INDUSTRY, INCLUDING THE ONLINE
TRAVEL INDUSTRY
The market for travel products and services is extremely competitive.
We compete primarily with: (a) traditional travel agencies such as American
Express Travel Related Services, Carlson Wagonlit Travel and Uniglobe Travel,
(b) individual airlines, hotels, car rental companies, cruise lines and tour
package operators and other travel suppliers, (c) online travel reservation
services such as Biztravel.com, Cheap Tickets, Expedia which is operated by
Microsoft, Internet Travel Network, Preview Travel, Priceline.com, The Trip.com
and Travelocity which is operated by The SABRE Group and (d) consolidators and
wholesalers of airline tickets and other travel products.
Most travel suppliers sell their services through travel agencies and
directly to customers, mainly by telephone. Also, most major airlines and hotels
offer travel products and services directly to consumers through their own Web
sites, and some include travel products and services of other travel suppliers.
This reduces the need to pay commissions to third parties, such as our company.
We are unable to anticipate which other companies are likely to offer
competitive services in the future. There can be no assurance that our Web site,
toll-free telephone reservation and customer service center and affiliated
travel agency operations will compete successfully with any current or future
competitors.
Some of our current and potential competitors have competitive
advantages due to various factors, which include, among others:
- greater brand recognition;
- longer operating histories;
- larger customer bases;
- significantly greater financial, marketing and other resources;
- strategic or commercial relationships with larger, more established
and well-financed companies; and
- ability to secure discount product and services from travel
suppliers on more favorable terms.
In addition, we may face competitive pressure due to the expansion of
current and the creation of new technologies. Increased competition could reduce
our operating margins and profitability, result in loss of market share and
diminish our brand recognition, which would materially and adversely affect our
business, results of operations and financial condition. See
"Business--Competition."
WE MAY NOT BE ABLE TO EFFECTIVELY MANAGE OUR POTENTIAL GROWTH
We have rapidly and significantly expanded our operations and
anticipate further significant expansion will be required to realize our growth
strategy. We have also recently added a number of key managerial and technical
employees and we expect to add additional key officers and personnel in the
future. This expansion has placed, and is expected to continue to place,
significant demands on our management, operational and financial resources. To
manage our future growth, we will need to recruit, retain and motivate highly
skilled officers and personnel and improve existing systems and/or implement new
systems for:
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- transaction processing;
- operational and financial management; and
- training, integrating and managing our growing employee base.
Our operations are headquartered in Las Vegas, Nevada, where the market for
employees is highly competitive. Our inability to attract employees could
materially harm our business, results of operations and financial condition.
Our current and planned personnel, systems, procedures and controls may
be inadequate to support our planned growth. If we cannot manage our growth
effectively, our business could be harmed. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
WE DEPEND ON CONSUMER ACCEPTANCE OF THE LOWESTFARE.COM BRAND
We believe that a favorable consumer perception and enhanced
recognition of the Lowestfare.com brand are critical to our future success.
Accordingly, we will continue to promote the Lowestfare.com brand which will
depend largely on: (a) our ability to consistently provide discount airline
tickets on desirable routes, (b) our success in providing a high quality online
experience supported by excellent customer service, (c) the breadth and success
of our advertising and promotional efforts and (d) our financial commitment to
creating and maintaining strong brand loyalty among customers. If we: (a) lose
current discount arrangements or fail to obtain additional discount
arrangements, (b) are unable to provide high-quality online services or customer
support, (c) fail to promote and enhance our brand or (d) substantially increase
advertising expenses in an attempt to promote and enhance our brand and these
expenses do not result in sufficient increases in revenues, our business,
results of operations and financial condition could be materially and adversely
affected.
WE DEPEND ON KEY OFFICERS AND PERSONNEL FOR OUR FUTURE SUCCESS AND CERTAIN OF
OUR OFFICERS ARE NEW TO OUR COMPANY
We rely on our key management personnel and believe that our future
success will depend upon our ability to recruit, retain and motivate highly
skilled officers and personnel. Our business could be harmed if any of our
officers or key employees leaves our company.
Several members of our senior management group have recently been
hired, including Kenneth G. Swanton, our Chief Executive Officer, and Denise
Barton, our Chief Financial Officer, each of whom was hired in 1999. These
individuals are in the process of integrating with the existing management team.
Our future success depends upon the ability of these individuals to work
effectively with the existing management team and successfully manage the growth
of our company. See "Management."
Although none of our employees is represented by a labor union, it is
common for employees in the hospitality industry in Las Vegas to belong to a
union. We cannot be certain that our employees will not join or form a labor
union or that our company, for certain purposes, will not be required to become
a union signatory.
THERE ARE RISKS ASSOCIATED WITH OFFERING NEW PRODUCTS AND SERVICES
We plan to introduce new and expanded products and services. For
example, we began offering hotel and car rental reservations in June 1998. We
may not be able to offer these products and services in a cost-effective or
timely manner and our efforts may not be successful. Further, any new product or
service that is not favorably received by customers could damage our reputation
or brand name. Expansion of our products and services could also require
significant additional expenses and may strain our management, financial and
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operational resources. Our inability to generate revenues from expanded products
or services sufficient to offset their development or marketing costs could hurt
our business.
WE RELY ON STRATEGIC MARKETING RELATIONSHIPS
We have entered into agreements with Yahoo!, Tripod, Looksmart,
MiningCo, theglobe.com and Frommers in order to increase our access to online
customers, build brand recognition and expand our online presence. We are
obligated to make payments totaling approximately $21.9 million under these
agreements through the period ending September 2001. Our failure to make any of
the required payments or to renew any of these agreements may hurt our business.
In addition, we cannot be certain that we will be able to renew these contracts
as they come due or that such renewal will be available on favorable terms and
conditions. Further, we intend to seek to enter into additional strategic
marketing agreements which would result in additional payment obligations.
Our significant investment in relationships with Yahoo!, Tripod,
Looksmart, MiningCo, theglobe.com and Frommers is based on the continued
positive market presence, reputation and anticipated growth of these companies,
as well as the commitment by each of them to deliver specified numbers of page
views or impressions. Any decline in the market presence, business or reputation
of these companies, or the failure of these companies to perform under the
agreements, will reduce the value of these strategic agreements to us and our
business, results of operations and financial condition could be materially and
adversely affected. Any termination of any or all of our agreements with these
companies could hurt our business.
We currently have no other strategic marketing arrangements with any
Internet portals, communities, other service providers or commercial online
services and accordingly, we must rely on search engines, consumer marketing,
directories and other navigational tools to direct traffic to our Web site. If
we are unable to maintain our strategic marketing relationships, unable to
develop additional relationships with portals, communities and other Internet
sites on acceptable commercial terms or if our competitors are better able to
secure such relationships, our business, results of operations and financial
condition could be materially and adversely affected. See "Business--Strategic
Marketing Relationships."
WE RELY ON THIRD-PARTY SYSTEMS
We rely on certain third-party computer systems and third-party service
providers, including: (a) the travel industry's global distribution systems to
make airline ticket, hotel room and car rental reservations, (b) computer
systems to print our airline tickets and (c) Exodus Communications which hosts
our online system's infrastructure, internet and database servers.
We use an internally developed system for our Web site and
substantially all aspects of transaction processing. We currently rely on The
SABRE Group for our general reservations system, including customer profiling,
making reservations and credit card verification and confirmations. Currently,
the majority of our computing transactions are processed through the SABRE
system. If we or SABRE elect not to renew the existing relationship, we would be
forced to convert to another provider. This conversion would require a
substantial commitment of time and resources, which would hurt our business.
Any interruption in these third-party services or a deterioration in
their performance could seriously disrupt our business. If our arrangements with
any of these third parties are terminated, we may not find an alternative source
of systems support on a timely basis or on commercially reasonable terms, which
could materially harm our business. See "Business--Technology."
OUR FUTURE SUCCESS DEPENDS ON CONTINUED GROWTH IN USE AND IMPROVEMENT OF THE
INTERNET
Our business strategy depends on the continued expansion and widespread
acceptance of the Internet as a medium for commerce by consumers. Online
commerce is a new market and there has been dramatic
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growth in the use of the Internet as a means of accessing information and
effecting commercial transactions. The pace of this growth may slow considerably
or may not continue. Demand for and consumer acceptance of new Internet services
and products are extremely uncertain. In order for our strategy to be
successful, a sufficiently broad base of consumers must adopt and use the
Internet and commercial online services as a means of conducting business. In
particular, convincing consumers to purchase travel services online may be
difficult because consumers have traditionally relied on human interaction with
travel agents for advice and recommendations on destinations and accommodations
as well as bookings.
There has been significant growth in the number of users and the amount
of traffic on the Internet over the past few years, and this growth is expected
to continue. Our success depends upon the development and maintenance of the
Internet's infrastructure to cope with this increased traffic. The improvement
of the Internet in response to increased demands will require a reliable
communications network with the necessary speed, data capacity and security,
coupled with the timely development of complementary products, such as
high-speed modems, for providing reliable Internet access and services.
The Internet has already experienced certain outages and delays as a
result of software and hardware failures and could face outages and delays in
the future. We risk losses in orders and sales from the failure of any
subsystem, component or software as well as from a power or telecommunication
failure. Outages are likely to affect the level of Internet usage and the
processing of transactions on our Web site. It is unlikely that the level of
orders lost in those circumstances could be made up by increased phone orders.
In addition, the Internet could lose its viability due to delays in the
development or adoption of new standards to handle increased levels of traffic
or due to increased government regulation. The adoption of new standards or
government regulation may require us to incur substantial compliance costs. Any
of these events could hurt our business.
THE INTERNET INVOLVES RAPID TECHNOLOGICAL CHANGE
The market in which we compete is characterized by: (a) rapidly
changing technology, (b) changing consumer demands, (c) frequent introductions
of new and/or enhanced products and services and (d) evolving industry standards
and practices. Our future success will depend upon our ability to adapt quickly
to changing technologies and industry standards, to continually improve the
performance, features and reliability of our service in response to competitive
service and product offerings and changing consumer demands. In addition, we may
be required to incur substantial costs to modify or adapt our services or
infrastructure in response to technological changes such as new Internet,
networking or telecommunications technologies.
PROBLEMS RELATED TO YEAR 2000 ISSUES COULD AFFECT OUR BUSINESS
The risks posed by Year 2000 issues could adversely affect our business
in a number of significant ways. Our information technology systems could be
substantially impaired or cease to operate due to Year 2000 problems.
Additionally, we rely on information technology supplied by third parties, and
our participating travel suppliers are also heavily dependent on information
technology systems and on their own third-party vendors' systems. Year 2000
problems experienced by us or any of such third parties could materially and
adversely affect our business. Additionally, the Internet could face serious
disruptions arising from Year 2000 problems.
We cannot guarantee that our own systems will be Year 2000 compliant in
a timely manner, that any of our participating travel suppliers or Web site
vendors will be Year 2000 compliant in a timely manner, or that there will not
be significant interoperability problems among information technology systems.
We also cannot guarantee that consumers will be able to visit our Web site
without serious disruptions arising from Year 2000 problems, or that disruptions
in other industries and market segments will not adversely affect our business.
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Finally, Year 2000 issues may impact other entities with which we do
business, including, for example, those responsible for maintaining telephone
and Internet communications. Accordingly, we cannot predict the effect of Year
2000 problems on such entities. If these other entities fail to take preventive
or corrective actions in a timely manner, Year 2000 issues could hurt our
business. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Impact of Year 2000."
ONLINE COMMERCE AND DATABASES INVOLVE SECURITY RISKS
The secure transmission of confidential information over the Internet
is essential in maintaining consumer and supplier confidence in our Web site
service. We currently require customers to purchase our Web site product
offerings with their credit card (either online or through our toll-free
telephone reservation and customer service center). We rely on licensed
encryption and authentication technology to effect secure transmission of
confidential information, including credit card numbers. It is possible that
advances in computer capabilities, new discoveries or other developments could
result in a compromise or breach of the technology used by us to protect
customer transaction data.
We incur substantial expense to protect against and remedy security
breaches and their consequences. A party that is able to circumvent our security
systems could steal proprietary information or cause interruptions in our
operations. Security breaches also could damage our reputation and expose us to
a risk of loss or litigation and possible liability. We cannot guarantee that
our security measures will prevent security breaches.
We also face risks associated with security breaches affecting third
parties conducting business over the Internet. Consumers generally are concerned
with security and privacy on the Internet. Any publicized security problems
could inhibit the growth of the Internet as a means of effecting commercial
transactions and, thus the growth and usage of our Web site services. This could
hurt our business.
THERE IS A RISK OF SYSTEM FAILURE AND OUR SYSTEMS ARE NOT COMPLETELY REDUNDANT
We depend upon the efficient and uninterrupted operation of our
computer and communications hardware systems to receive and fulfill orders
through our toll-free telephone reservation and customer service center and our
Web site. Our call-in center and post-transaction processing hardware and
software systems are located at a single facility in Las Vegas, Nevada. Our Web
site is hosted at Exodus Communications which operates redundant Web site
facilities in Santa Clara, California and Jersey City, New Jersey. These systems
and operations are vulnerable to damage or interruption from fire, flood, power
loss, telecommunications failure, break-ins, earthquake and similar events.
Even though we back-up data on a regular basis, we do not have a formal
disaster recovery plan. Also, despite our adoption of network security measures,
our servers are vulnerable to computer viruses, physical or electronic break-ins
and similar disruptions. These types of events could lead to interruptions,
delays, loss of data or the inability to accept and confirm customer
reservations and our business, results of operations and financial condition
could be materially and adversely affected.
THERE ARE RISKS OF CAPACITY CONSTRAINTS AND SYSTEM DEVELOPMENT RISKS
Our revenues depend on the number of customers who use our Web site and
toll-free telephone reservation and customer service center, and who purchase
tickets through our affiliated travel agencies. Accordingly, the satisfactory
performance, reliability and availability of our Web site, our toll-free
telephone reservation and customer service center and our affiliated travel
agencies, transaction-processing systems and network infrastructure are critical
to our results of operations, as well as our ability to attract and retain
customers and maintain adequate customer service levels. Any system
interruptions that result in the unavailability of our Web site or reduced
performance of the reservation system would impair our ability to
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provide our products and services and this could materially and adversely affect
our business, results of operations and financial condition.
We use both externally and internally developed automated systems for
our Web site and substantially all aspects of transaction processing, including
customer profiling, making reservations, credit card verification and
confirmations. We have experienced periodic system interruptions, which we
believe will continue to occur from time to time. We have experienced and expect
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. If we
experience a substantial increase in our Web traffic or in reservations beyond
expected levels, we may need to expand and upgrade our technology,
transaction-processing systems and network infrastructure. If we fail to expand
and upgrade in a timely manner, our business could be hurt. We believe that our
contemplated systems enhancements will be sufficient to handle increases in
expected demand, but we may not be able to:
- project accurately the rate or timing of such increases;
- upgrade our systems and infrastructure to accommodate future traffic
levels;
- integrate successfully any newly developed or purchased technology
with our existing systems; or
- upgrade and expand our systems in a timely or efficient manner.
Our inability to do so could hurt our business.
THERE ARE UNCERTAINTIES REGARDING TAXES
Potential Federal Air Transportation Tax Liability. Currently, a
federal air transportation tax is imposed upon the amount paid for airline
transportation and generally is collected by the airlines selling the tickets.
The tax is based upon a percent of the cost of transportation, which was 10% for
periods prior to October 1, 1997, except for certain periods in which the tax
had expired, 9% for periods beginning after September 30, 1997 and before
October 1, 1998, 8% for periods beginning after September 30, 1998 and before
October 1, 1999 and 7.5% thereafter. Pursuant to our arrangements with certain
airlines, we purchase airline tickets and then resell them to customers at a
higher price. It is not clear how this federal tax should be calculated when
these ticket sales are made by our company. We have been calculating this tax
based on the price charged to us by the airline for a ticket, rather than the
price paid to us by the customer. There is a significant risk that current law
requires computation of the tax based on the price paid by the customer to our
company.
If it is ultimately determined that our method of calculating the tax
is incorrect, we believe that we would potentially owe approximately $8.2
million in additional taxes through the period ending December 31, 1998. We have
accrued this amount which includes interest in our combined balance sheet as of
December 31, 1998 and on an ongoing basis. The potential liability for
additional tax plus interest has been and will continue to be taken into account
in calculating our earnings. In the event that it is ultimately determined that
additional tax is due, there is a possibility that the Internal Revenue Service
may assert that penalties should be imposed. Our balance sheet accruals and
earnings calculations do not include any potential penalties. In the event it is
determined that we must ultimately pay significant amounts of tax, interest or
penalties, such payment could adversely affect our cash flow and may harm our
results of operations.
State Taxes. We file tax returns in certain states based on applicable
statutory requirements. In addition, we do not collect sales or other similar
taxes with respect to transactions conducted through our Web site. However, one
or more states could seek to impose additional income tax obligations or sales
tax collection obligations on out-of-state companies, such as ours, which engage
in or facilitate online commerce.
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A number of proposals have been made at state and local levels that could impose
these taxes on the sale of products and services through the Internet or the
income derived from such sales. These proposals, if adopted, could substantially
impair the growth of online commerce. This could materially and adversely affect
our business, results of operations and financial condition.
Legislation limiting the ability of the states to impose taxes on
Internet-based transactions recently has been enacted by the United States
Congress. However, this legislation, known as the Internet Tax Freedom Act,
imposes only a three-year moratorium (commencing October 1, 1998 and ending on
October 21, 2001) on state and local taxes on (a) online commerce where such
taxes are discriminatory and (b) Internet access unless such taxes were
generally imposed and actually enforced prior to October 1, 1998. Currently, we
do not pay any such taxes. It is possible that the tax moratorium could fail to
be renewed prior to October 21, 2001. Failure to renew this legislation would
allow various states to impose taxes on online commerce. The imposition of such
taxes could materially and adversely affect our results of operations.
WE MAY BE LIABLE FOR INTERNET CONTENT
Since we publish and distribute content on our Web site, we may be
potentially liable for defamation, negligence, copyright, patent or trademark
infringement and other claims based on the nature and content of the materials
that we publish or distribute. These claims have been brought, and sometimes
successfully pressed, against online services. In addition, we do not screen the
content generated by our users on our Web site bulletin board. We could be
exposed to liability with respect to such content. Our general liability
insurance may not cover claims of these types or may not be adequate to
indemnify us for all liability that may be imposed. In this event, our
reputation, business, results of operations and financial condition could be
materially and adversely affected.
PROTECTION OF OUR INTELLECTUAL PROPERTY IS UNCERTAIN AND THERE ARE RISKS
REGARDING THIRD-PARTY LICENSES
We regard our domain name, trademarks, copyright, service marks, and
similar intellectual property as critical to our success. We rely on a
combination of laws and contractual restrictions, including trademark and
copyright law, trade secret protection and confidentiality and/or license
agreements with our employees, customers, partners and others to establish and
protect our proprietary rights. Despite our precautions, it may be possible for
a third party to copy or otherwise obtain and use our intellectual property
without authorization. In addition, there can be no assurance that others will
not independently develop substantially equivalent intellectual property. We
have filed a request with the U.S. Patent and Trademark Office to register the
"Lowestfare.com" mark. However, effective trademark, service mark, and copyright
protection may not be available. Also, such protection may not be available or
sought by us in every country in which our products and services are made
available online. Our failure to protect our intellectual property could
materially harm our business.
In the future, litigation may be necessary to enforce our intellectual
property and contractual rights, or determine the validity and scope of the
proprietary rights of others. Such litigation, regardless of the outcome, could
result in substantial costs and diversion of management and technical resources,
either of which could materially harm our business.
We also rely on certain third-party licensed technology for our
computer systems and content for our Web site. These third-party licenses may
not continue to be, and those which we may seek to obtain in the future may not
be, available to us on commercially reasonable terms or at all. The loss or
inability to obtain any of these licenses could result in delays in Web site
development or services until equivalent content, if available, is identified,
licensed and integrated. Any such delays in site development or services could
materially harm our business.
We may from time to time be subject to legal proceedings and claims in
the ordinary course of our business, including claims of alleged infringement of
the trademarks and other intellectual property rights of
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third parties by our company. These claims, even if not meritorious, could be
time-consuming, result in costly litigation and diversion of management and
technical resources or cause delays in Web site development or the introduction
of new services, which could materially harm our business.
WE ARE SUBJECT TO GOVERNMENTAL REGULATION AND LEGAL UNCERTAINTIES
Our products, services and business practices are subject to regulation
by federal and state governments and we expect this will continue to be
regulated in the future.
Travel Services. We are subject to various federal and state laws
regulating the offer and/or sale of travel services. For example, we are subject
to United States Department of Transportation regulations prohibiting unfair and
deceptive practices and Airline Reporting Corporation regulations which require
us to provide them with a weekly report, and a record of, every airline ticket
sold since the previous report. We are also required to register as a seller of
travel pursuant to the Seller of Travel Act enacted in certain states, comply
with certain disclosure requirements and participate in restitution funds.
Department of Transportation regulations concerning the display and
presentation of information that are currently applicable to airline booking
services such as SABRE could be extended to our company in the future, as well
as other laws and regulations aimed at protecting consumers accessing online
travel services or otherwise.
Consumer Protection and Related Laws. All of our services are subject
to federal and state consumer protection laws and regulations prohibiting unfair
and deceptive trade practices. We are also subject to related "plain language"
statutes in place in many jurisdictions, which require the use of simple,
easy-to-read, terms and conditions in contracts with consumers. These consumer
protection laws could result in substantial compliance costs and interfere with
the conduct of our business.
Although there are very few laws and regulations directly applicable to
the protection of consumers with respect to online commerce, it is possible that
legislation will be enacted in this area and could cover such topics as
permissible online content and user privacy (including the collection, use,
retention and transmission of personal information provided by an online user).
Furthermore, the growth and demand for online commerce could result in more
stringent consumer protection laws that impose additional compliance burdens on
online companies, which could harm our business.
Potential Telecommunications Regulation. Several telecommunications
carriers have asked the Federal Communications Commission, FCC, to regulate
telecommunications over the Internet. Because the increasing use of the Internet
has burdened the existing telecommunications infrastructure, local telephone
carriers have asked the FCC to regulate Internet service providers and impose
access fees on those providers. If the FCC grants these requests, the costs of
communicating on the Internet could increase substantially, which could slow the
growth of adoption and usage of the Internet. Any actions taken by the FCC could
harm our business.
Business Qualification Laws. It is possible that some states may claim
that we are required to qualify to do business as a foreign corporation in their
state because our service is available over the Internet in all states, and
because we sell to numerous consumers resident in most states. We are qualified
to do business in a limited number of states, and our failure to qualify as a
foreign corporation in a jurisdiction where we are required to do so could
subject us to taxes and penalties for the failure to so qualify.
PRESERVATION OF OUR DOMAIN NAME IS SUBJECT TO INTERNET REGULATION
We currently hold the Internet domain name "www.Lowestfare.com," as
well as various other related names. Domain names generally are regulated by
Internet regulatory bodies. The regulation of domain names in the United States
and in foreign countries is subject to change. Regulatory bodies could establish
additional
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top-level domains, appoint additional domain name registrars or modify the
requirements for holding domain names. As a result, we may not acquire or
maintain the "www.Lowestfare.com" domain name in all of the countries in which
we conduct business.
The relationship between regulations governing domain names and laws
protecting trademarks and similar proprietary rights is still evolving.
Therefore, we may be unable to prevent third parties from acquiring domain names
that infringe or otherwise decrease the value of our trademarks and other
proprietary rights.
WE ARE CONTROLLED BY OUR PRINCIPAL STOCKHOLDER
Carl C. Icahn, our principal stockholder, possesses and will possess
after the offering significant influence over our company which will enable him
to, among other things, elect a majority of our board of directors and approve
significant corporate transactions. Upon completion of the offering, Mr. Icahn,
through his affiliates, will beneficially own an aggregate of approximately ___%
of the outstanding common stock. This common stock ownership may also have the
effect of delaying or preventing a change in control of Lowestfare.com, impeding
a merger, consolidation, takeover or other business combination involving
Lowestfare.com or discourage a potential acquiror from making a tender offer or
otherwise attempting to obtain control of Lowestfare.com. These factors could
cause the market price of our common stock to decline. See "Principal
Stockholders."
WE MAY NEED TO RAISE CAPITAL IN THE FUTURE
We believe that the net proceeds of the offering, together with our
existing cash, cash equivalents and anticipated cash flows, will be sufficient
to meet our anticipated cash needs for working capital, capital expenditures and
increased advertising expenses through at least 2000. However, we may need to
raise additional capital in the future in order to fund additional strategic
arrangements, develop new or enhanced services and technological improvements,
respond to competitive pressures or to acquire complementary businesses. If we
raise funds through the issuance of equity or convertible debt securities, the
percent ownership of the stockholders of Lowestfare.com will be diluted. Also,
these securities may have rights, preferences or privileges senior to those of
the rights of the common stock.
We currently do not have any commitments for additional financing. We
cannot be certain the additional financing will be available when and to the
extent required or that, to the extent available, it will be available on
favorable terms and conditions. If adequate funds are not available on
acceptable terms, we may not be able to fund our expansion, develop new or
enhanced services, respond to competitive pressures or take advantage of
unanticipated acquisition opportunities. This inability could materially and
adversely effect our business, results of operations and financial condition.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
THERE ARE RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS
In the future, we may broaden the scope and content of our business
through the acquisition of existing complementary businesses. For instance, we
may consider the acquisition of companies providing similar services in
international markets or in other sectors of the travel industry. Although we
are not currently contemplating any such acquisitions, future acquisitions would
expose us to increased risks. These include risks associated with:
- the integration of new operations, sites and personnel;
- the diversion of resources from our existing business;
- the inability to generate revenues sufficient to offset associated
acquisition costs;
20
<PAGE> 22
- the maintenance of uniform standards, controls, procedures and
policies; and
- the impairment of relationships with employees and customers as a
result of integration of new businesses.
Acquisitions may also result in additional expenses associated with
amortization of acquired intangible assets or potential businesses. We may not
be successful in overcoming these risks or any other problems encountered in
connection with such acquisitions, and our inability to manage these risks could
materially and adversely affect our business, results of operations and
financial condition.
THERE IS NO PRIOR PUBLIC MARKET FOR OUR COMMON STOCK AND MARKET VOLATILITY MAY
IMPACT OUR COMMON STOCK PRICE
Prior to this offering, there has been no public market for our common
stock. We cannot predict the extent to which investor interest in our company
will lead to the development of an active trading market or how liquid that
market may become. The initial public offering price for the shares will be
determined by negotiations between us and the underwriters and may not be
indicative of the market price for the common stock that will prevail in the
trading market. The market price of the common stock may decline below the
initial public offering price. The stock market has experienced extreme price
and volume fluctuations. The market prices of the securities of Internet-related
companies have been especially volatile. In the past, securities class action
litigation has often been instituted against a company following periods of
volatility in the market price of such company's securities. If instituted
against us, regardless of the outcome, such litigation could result in
substantial costs and diversion of our management's attention and resources and
have a material adverse effect on our business, financial condition and results
of operations. See "Underwriting."
MANAGEMENT HAS BROAD DISCRETION OVER USE OF PROCEEDS
We plan to use the proceeds from this offering for investments in our
online capabilities, including expanding our sales and marketing capabilities
and brand name promotion, investment in our technology infrastructure, and
general corporate purposes. Therefore, we will have discretion as to how we will
spend the proceeds, which could be in ways with which our stockholders may not
agree. We cannot predict that the proceeds will be invested to yield a favorable
return. See "Use of Proceeds."
THE RIGHTS OF SHAREHOLDERS MAY BE ADVERSELY AFFECTED BY CERTAIN CHARTER
PROVISIONS
The board of directors has the authority to issue up to 5,000,000
shares of preferred stock and to determine the price and terms, including, among
others, preferences and voting rights, of those shares without stockholder
approval. 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 Lowestfare.com
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 our common stock. We have no present plans to
issue shares of preferred stock. Further, certain provisions of our charter
documents may have the effect of delaying or preventing changes in control or
management of our company, which could have an adverse effect on the market
price of our common stock. See "Description of Capital Stock."
FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD ADVERSELY AFFECT OUR
COMMON STOCK PRICE
The market price of our common stock could decline as a result of sales
of a large number of shares of our common stock in the market after this
offering, or the perception that such sales could occur. These sales might also
make it more difficult for us to sell equity securities in the future at a time
and at a price that we deem appropriate. After this offering, we will have
outstanding ________ shares of common stock. Of these
21
<PAGE> 23
shares, the ________ shares being offered hereby are freely tradeable. This
leaves ________ shares eligible for sale in the public market as follows:
APPROXIMATE
NUMBER OF SHARES DESCRIPTION
--------------- -----------
[ ] After the date of this prospectus
[ ] After 180 days from the date of this prospectus
(subject, in some cases, to volume limitations)
[ ] At various times after 180 days from the date of this
prospectus
Our directors and officers and all of our current stockholders have
agreed that they will not sell, directly or indirectly, any common stock without
the prior written consent of BancBoston Robertson Stephens Inc. for a period of
180 days from the date of this prospectus.
Certain stockholders, representing approximately ________ shares of
common stock, have the right, subject to conditions, to include their shares in
certain registration statements relating to our securities. By exercising their
registration rights and causing a large number of shares to be registered and
sold in the public market, these holders may cause the price of the common stock
to fall. In addition, any demand to include such shares in our registration
statements could have an adverse effect on our ability to raise needed capital.
See "Principal Stockholders," "Description of Capital Stock--Registration
Rights," "Shares Eligible for Future Sale" and "Underwriting."
INVESTORS IN THIS OFFERING WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price is expected to be substantially
higher than the book value per share of the outstanding common stock. Investors
purchasing shares of common stock in this offering at an assumed offering price
of $______ will therefore incur immediate substantial dilution in the amount of
$______ per share. In addition, investors purchasing shares of common stock in
the offering will incur additional dilution to the extent outstanding options
are exercised. See "Dilution."
FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, levels of
activity, performance or achievements to be materially different from any future
results, levels of activity, performance, or achievements expressed or implied
by such forward-looking statements. Such factors include, among other things,
those listed under "Risk Factors" and elsewhere in this prospectus.
In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "could," "expects," "plans,"
"intends," "anticipates," "believes," "estimates," "predicts," "potential," or
"continue" or the negative of such terms and other comparable terminology.
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Moreover, neither we nor anyone
else assumes responsibility for the accuracy and completeness of such
statements. We are under no duty to update any of the forward-looking statements
after the date of this prospectus.
22
<PAGE> 24
SUMMARY OF ORGANIZATIONAL RESTRUCTURING
Prior to the closing of this offering, we will effect an organizational
restructuring whereby Global Discount Travel Services LLC and its marketing
affiliate, Global Travel Marketing Services, Inc., will become wholly-owned
subsidiaries of Lowestfare.com., Inc. Set forth below is a summary of this
restructuring:
- Prior to the closing of this offering, all of the outstanding member
interests in Global Discount Travel and all of the outstanding common
stock of Global Travel Marketing will be contributed by Vauxhall LLC,
an entity wholly-owned by Mr. Icahn, to Lowestfare.com, Inc. in
exchange for 28,599,900 shares of common stock of Lowestfare.com,
Inc. As a result, Global Discount Travel and Global Travel Marketing
will become wholly-owned subsidiaries of Lowestfare.com, Inc.
The historical cost basis in the net assets of Global Discount Travel
and Global Travel Marketing will not change as a result of this restructuring
and no goodwill or other intangible assets will be recorded.
The following charts illustrate the equity ownership, before and after
the restructuring, of each entity that is a party to the restructuring, without
giving effect to this offering:
[Before & After Organizational Restructuring Flow Charts]
23
<PAGE> 25
USE OF PROCEEDS
The net proceeds we will receive from the sale of the __________ shares
of common stock offered by us are estimated to be $__________, or $__________ if
the underwriters' over-allotment option is exercised in full, after deducting
the estimated underwriting discounts and commissions and offering expenses
payable by us and assuming a public offering price of $_____ per share.
We intend to use the net proceeds of the offering for expansion of our
sales and marketing capabilities, brand name promotion, investments in our
technology infrastructure and general corporate purposes, including working
capital. In addition, we may use a portion of the net proceeds from this
offering to license and acquire content for our Web site, to establish
additional distribution channels, or to acquire or invest in complementary
businesses, products, services or technologies. As of the date of this
prospectus, we cannot specify with certainty the particular uses for the net
proceeds to be received upon completion of this offering. Accordingly, our
management will have broad discretion in the application of the net proceeds.
Pending such uses, we intend to invest such funds in investment grade,
interest-bearing obligations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
DIVIDEND POLICY
We have not declared or paid any cash dividends on our common stock and
do not intend to pay any cash dividends on the common stock in the foreseeable
future. We currently intend to retain future earnings, if any, to fund the
development and growth of our business. Future dividends, if any, will be
determined by our board of directors.
24
<PAGE> 26
CAPITALIZATION
The following table sets forth our capitalization as of December 31,
1998 on an actual combined basis for Global Discount Travel and Global Travel
Marketing and the pro forma capitalization of Lowestfare.com on an as adjusted
basis to reflect the sale of the shares of common stock offered hereby and the
application of the estimated net proceeds therefrom.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------
Actual As Adjusted
------------- -----------
(DOLLARS IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Preferred stock, $.01 par value: 5,000,000 shares authorized; no shares
issued and outstanding .................................................. $ --
Common stock, $.01 par value: 2,500 shares authorized, issued and
outstanding, actual 75,000,000 shares authorized; and
issued and outstanding, as adjusted (1) ................................. 1
Additional paid-in capital ................................................. 100
Retained earnings .......................................................... 19,601
Total stockholders'/members' equity and capitalization .................. $19,702
======= ===========
</TABLE>
(1) The total shares to be outstanding after this offering do not include
outstanding options as of February 28, 1999 to purchase a total of
approximately 2,208,263 shares of common stock at a weighted average
exercise price of $5.07 per share and an additional 1,291,737 shares
reserved for future grants under our 1999 Stock Option Plan.
25
<PAGE> 27
DILUTION
The pro forma net tangible book value of Lowestfare.com, Inc., giving
effect to the organizational restructuring, as of December 31, 1998 was $
million, or $ per share of common stock. The pro forma net tangible book
value per share represents the amount of Lowestfare.com, Inc.'s pro forma total
tangible assets reduced by the amount of Lowestfare.com, Inc.'s pro forma total
liabilities, divided by the pro forma number of shares of common stock
outstanding. After giving effect to our sale of shares of common stock
in this offering (at an assumed initial public offering price of $ per
share) and after deducting the estimated underwriting discounts and commissions
and estimated offering expenses payable by Lowestfare.com, Inc. and the
application of the net proceeds therefrom, Lowestfare.com, Inc.'s pro forma net
tangible book value as adjusted at December 31, 1998 would have been
approximately $ million, or $ per share. This represents an immediate
increase in pro forma net tangible book value of $ per share to
Lowestfare.com, Inc.'s existing shareholders and an immediate dilution of
$ per share to new investors purchasing shares of common stock in this
offering.
As of the date of this prospectus, stock options outstanding for
2,208,263 shares of common stock are outstanding at a weighted average exercise
price of $5.07 per share. To the extent that any outstanding options are
exercised, new investors may experience further dilution. The following table
does not give effect to the issuance of these shares. See "Management--1999
Stock Option Plan" and "--Employment Contracts."
The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................................... $
Pro forma net tangible book value per share at December 31, 1998.................. $
Increase attributable to new investors............................................
---------
Pro forma net tangible book value per share after the offering....................... -----------
Dilution per share to new investors ................................................. $
===========
</TABLE>
The following table sets forth on a pro forma basis, as of December 31,
1998, the number of shares of common stock issued, the total consideration
received by or assigned to us and the average price per share received by or
assigned to us by existing shareholders and by investors purchasing shares of
common stock offered hereby, before deducting estimated underwriting discounts
and commissions and estimated offering expenses of this offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE
----------------------- ------------------- --------------
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)....... % $ % $
New investors(2)............... % % $
------------ --------- --------- --------- ------------
Total....................... % $ %
============ ========= ========= =========
</TABLE>
- ----------------------
(1) Includes 28,599,900 shares of common stock issued for the acquisitions of
Global Discount Travel and Global Travel Marketing by Lowestfare.com, Inc.
in connection with the organizational restructuring which will occur
immediately prior to this offering.
(2) If the underwriters' over-allotment option is exercised in full, the number
of shares of common stock held by existing stockholders will be reduced to
% of the total number of shares of common stock to be outstanding
after this offering, and will increase the number of shares of common stock
held by the new investors to shares, or % of the total
number of shares of common stock to be outstanding immediately after this
offering. See "Principal Stockholders."
26
<PAGE> 28
SELECTED COMBINED FINANCIAL DATA
The following selected combined financial data should be read in
conjunction with, "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Combined Financial Statements, related Notes and
other financial information included elsewhere in this prospectus. The statement
of operations data for the years ended December 31, 1996, 1997 and 1998, and the
balance sheet data at December 31, 1997 and 1998 are derived from the Combined
Financial Statements included elsewhere in this prospectus which have been
audited by KPMG LLP, independent auditors, as set forth in their report therein.
The statement of operations for the period ended December 31, 1995 and the
balance sheet data at December 31, 1995 and 1996 are derived from audited
financial statements not included herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1995(1) 1996 1997 1998
------------- ------------ ---------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ................................. $ 13,782 $ 116,917 $ 200,711 $ 224,422
Cost of revenues ......................... 10,459 86,974 148,421 165,074
------------ ------------ ------------ ------------
Gross profit .......................... 3,323 29,943 52,290 59,348
Operating expenses:
Commissions ........................... 1,423 11,658 20,022 17,997
Salaries, wages and benefits .......... 1,081 9,146 10,605 11,774
Selling, general and administrative ... 1,937 11,371 17,134 18,062
------------ ------------ ------------ ------------
Total operating expenses: .......... 4,441 32,175 47,761 47,833
------------ ------------ ------------ ------------
Operating income (loss) ............... (1,118) (2,232) 4,529 11,515
Other income, net ........................ 64 1,163 3,475 2,206
------------ ------------ ------------ ------------
Net income (loss) ..................... $ (1,054) $ (1,069) $ 8,004 $ 13,721
============ ============ ============ ============
PRO FORMA STATEMENT OF OPERATIONS DATA(2):
Net income ............................... $ 13,721
Pro forma income tax expense ............. 4,665
------------
Pro forma net income ..................... $ 9,056
============
Pro forma net income per share(3):
Basic ................................. $ 0.32
Diluted ............................... [ ]
Weighted average shares outstanding(3):
Basic ................................. 28,600,000
Diluted ............................... [ ]
SUPPLEMENTAL FINANCIAL DATA (UNAUDITED):
Gross bookings(4) ...................... $ 13,782 $ 116,917 $ 201,016 $ 232,714
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------
1995 1996 1997 1998
------ ------ ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents(5) .......... $ 789 $ 10,119 $ 12,919 $ 11,427
Current assets ........................ 12,536 28,992 39,821 43,990
Total assets .......................... 12,919 33,233 45,424 47,828
Current liabilities ................... 13,872 34,867 39,173 27,964
Stockholders'/members' equity (deficit) (953) (2,023) 5,981 19,702
</TABLE>
- --------
(1) Reflects the results of operations from July 13, 1995 (date of inception).
(2) Represents pro forma information for Lowestfare.com, Inc. as if the
organizational restructuring had taken place on January 1, 1998. Net
income and related per share amounts reflect adjustments for federal
income taxes as if Lowestfare.com had been taxed as a C corporation rather
than a limited liability company.
(3) Please refer to note 4 to the Lowestfare.com, Inc. financial statements
for the calculation of income per share, including an explanation of the
number of shares used in computing the amount of basic and diluted income
per share.
(4) Represents the aggregate retail value charged by Lowestfare.com for travel
products and services sold. This presentation of gross bookings does not
affect Lowestfare.com's operating results. Management believes that gross
bookings provide a more consistent comparison between historical periods
than do revenues. Gross bookings are not required to be disclosed by
generally accepted accounting principles, GAAP, and should not be
considered in isolation or as a substitute for other information prepared
in accordance with GAAP.
(5) Does not include restricted cash of $10.8 million, $15.7 million, $24.4
million and $29.9 million at December 31, 1995, 1996, 1997 and 1998,
respectively. Please refer to note 1 to the Global Discount Travel
Services LLC and Global Travel Marketing Services, Inc.
combined financial statement for the description of restricted cash.
27
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements that
involve risks and uncertainties. Such forward-looking statements include, among
others, words such as "anticipates," "expects," "intends," "plans," "believe,"
"seeks," "estimates," and similar expressions. Our actual results could differ
materially from those discussed in the forward-looking statements as a result of
certain factors, including those set forth under "Risk Factors" and elsewhere in
this prospectus. The following discussion and analysis should be read in
conjunction with "Selected Combined Financial Data," and our Combined Financial
Statements and Notes thereto, appearing elsewhere in this prospectus.
OVERVIEW
Lowestfare.com, Inc., through its wholly-owned subsidiary Global
Discount Travel Services LLC, is a leading full-service provider of discount
travel products and services for the leisure and small business traveler. Since
our inception through February 28, 1999, we have completed more than 2 million
travel-related transactions on behalf of our customers.
The ticket program agreement, dated June 14, 1995, between the
Contracting Airline and Karabu Corp., an entity controlled by Mr. Icahn, enables
us to purchase tickets from the Contracting Airline at significant
pre-determined discounts through September 2003. Global Discount Travel was
organized as a limited liability company on July 13, 1995. In August 1995,
Global Discount Travel was joined as a party to the ticket program agreement in
order to facilitate the sale of tickets purchased from the Contracting Airline.
The discount provided by the ticket program agreement is off of the lowest
published base fare on all available seats, in all fare classes, on all flights
operated by the Contracting Airline, other than travel originating or
terminating in St. Louis, Missouri. We pass on to our customers a significant
portion of this discount. Revenues derived from this agreement were $217.5
million, or 96.9%, of total revenue in 1998. The high ticket volume generated by
this agreement has facilitated the establishment of discount air travel programs
with America West Airlines, China Southern Airlines, Northwest Airlines and
Virgin Atlantic Airways.
Initially, we operated as a travel company offering a limited number of
travel products and services to the consumer mainly through our toll-free
telephone reservation and customer service center and our affiliations with
travel agencies. Since inception we have developed relationships with more than
800 travel agencies which are authorized to sell our discount tickets on the
Contracting Airline. To date, all revenues generated by the travel agencies have
been derived from the sale of airline tickets on the Contracting Airline.
In October 1996, in response to the online demand for discount travel
products and services, we established a one page Web site (www.Lowestfare.com)
as a means of booking tickets solely with the Contracting Airline. However, we
first sought to capitalize on the growing popularity and potential of the
Internet in June 1998, with the launch of our redesigned Web site. This
redesigned Web site features a broad array of travel product offerings, an
attractive user interface, an easy-to-use interactive booking engine and other
travel-related content. Beginning September 1998, we began to pursue strategic
marketing arrangements with Internet portals, communities and other sites, and
to date, have established agreements with Yahoo!, Tripod, Looksmart, MiningCo,
theglobe.com, and Frommers.
Our revenues are derived from the following segments:
- Internet
- call-in
- agency
In 1998, Internet revenues, call-in revenues and agency revenues were
$8.6 million, $64.0 million and $151.8 million, which represented 3.8%, 28.5%
and 67.7% of total revenues. Internet revenues are expected
28
<PAGE> 30
to represent a significantly increasing portion of revenues in future periods.
Revenues are predominantly derived from the sale of airline tickets, although
hotel reservations, car rentals, cruises and other travel products are also
sold. Our gross bookings represent the aggregate retail value charged by
Lowestfare.com for travel products and services purchased by our customers.
Gross bookings are not required by GAAP and should not be considered in
isolation or as a substitute for other information prepared in accordance with
GAAP. Gross bookings are used by management for various measurement and
forecasting purposes including, among others, budget preparation, success of
marketing efforts and trend analysis. The difference between our gross bookings
and revenues as reported in our statement of operations is due to the manner in
which our revenues are recognized. We act as the credit card merchant of record
for the majority of our revenues. The retail value of the travel product charged
by our company is recorded as revenues where we act as the merchant of record
and is recorded at the time of ticketing. Our remaining revenues, where we are
not the merchant of record, are recognized at the commission amount upon receipt
of such commissions. We are the credit card merchant of record for transactions
with the Contracting Airline, as well as certain other suppliers. As the
merchant of record, we assume responsibility for collection of the credit card
charges from our customers. In the future, we expect sales for which we are the
merchant of record to account for a decreasing portion of our revenues.
Our cost of revenues consists of the amount paid to the travel supplier
to acquire the travel products for the transactions where we are the merchant of
record. Our cost of revenues are minimal for transactions where we are not the
merchant of record. Our revenues and gross margins are dependent on a variety of
factors including, among others, the mix of travel services sold, changes in
pricing by airlines and other travel suppliers, the mix of Internet revenues,
call-in revenues and agency revenues, general economic conditions and economic
conditions specific to the travel industry and online commerce. Our operating
expenses include advertising, employee compensation, commissions, credit card
fees, occupancy cost, ticket fulfillment costs and other corporate expenses. A
key component of our strategy is to significantly increase our advertising
efforts through campaigns conducted online and through traditional media in
order to expand our brand awareness. Operating expenses are expected to increase
significantly as a result.
Historically, Global Discount Travel has operated as a limited liability
company and has not been subject to federal or state income taxes. Global Travel
Marketing has operated as a C corporation and has been subject to federal income
taxes, however these amounts have been minimal. From and after the closing of
this offering, Lowestfare.com will operate as a C corporation and will be
subject to federal and applicable state income taxes.
Lowestfare.com was incorporated in August 1998 under the laws of the
State of Delaware. Global Discount Travel was organized in July 1995 under the
laws of the State of Nevada. Global Travel Marketing was incorporated in June
1995 under the laws of the State of Nevada. Immediately prior to the closing of
this offering, we will effect an organizational restructuring whereby Global
Discount Travel and its marketing affiliate, Global Travel Marketing, will
become wholly-owned subsidiaries of Lowestfare.com. Accordingly, the financial
statements of Global Discount Travel and Global Travel Marketing are presented
on a combined basis for all relevant periods. The financial statements of
Lowestfare.com are also presented, which contain only the initial transactions
related to its incorporation. In addition, Lowestfare.com has presented pro
forma information within its financial statements giving effect to the
organizational restructuring.
RESULTS OF OPERATIONS
The following discussion of our results of operations for the years
ended December 31, 1996, 1997 and 1998 is based upon data derived from the
statements of operations data contained in our audited Combined Financial
Statements appearing elsewhere in this prospectus. The following table sets
forth this data as a percent of total revenues:
29
<PAGE> 31
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Revenues ............................... 100.0% 100.0% 100.0%
Cost of revenues ....................... 74.4% 73.9% 73.6%
------ ------ ------
Gross profit ...................... 25.6% 26.1% 26.4%
Operating expenses:
Commissions ....................... 10.0% 10.0% 8.0%
Salaries, wages and benefits ...... 7.8% 5.3% 5.2%
Selling, general and administrative 9.7% 8.5% 8.1%
------ ------ ------
Total operating expenses ....... 27.5% 23.8% 21.3%
------ ------ ------
Operating income (loss) ........... (1.9)% 2.3% 5.1%
Other income (expense):
Interest income ................... 1.0% 1.8% 1.2%
Interest expense .................. 0.0% (0.1)% (0.2)%
------ ------ ------
Total other income (expense) ... 1.0% 1.7% 1.0%
------ ------ ------
Net income (loss) ................. (0.9)% 4.0% 6.1%
====== ====== ======
Pro forma information:
Net income (loss), as presented ... 6.1%
Pro forma income taxes ............ 2.1%
------
Pro forma net income (loss) ... 4.0%
======
</TABLE>
30
<PAGE> 32
COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1997
Revenues. Revenues increased $23.7 million or 11.8% to $224.4 million in
1998 from $200.7 million in 1997 primarily due to an increase in our customer
base as a result of additional advertising expenditures. Internet revenues
increased $6.9 million or 414.4% to $8.6 million in 1998 from $1.7 million in
1997 as a result of the launch of our redesigned Web site in June 1998. Call-in
revenues increased $17.2 million or 36.7% to $64.0 million in 1998 from $46.8
million in 1997 due to increased awareness of our product and service offerings
resulting from our increased advertising efforts. Agency revenues decreased
$401,000 or 0.3% to $151.8 million in 1998 from $152.2 million in 1997 as a
result of our strategic decision to restructure the discount and commission
structure paid to travel agencies.
Cost of revenues. Cost of revenues includes the cost of airline tickets
where we are the merchant of record including associated taxes, fuel surcharges
and flight interruption costs and the cost of other travel products. Cost of
revenues increased $16.7 million or 11.2% to $165.1 million in 1998 from $148.4
million in 1997 as a result of increased transaction volume. Cost of revenues as
a percent of total revenues decreased 0.3% to 73.6% in 1998 from 73.9% in 1997.
Cost of Internet revenues as a percent of Internet revenues increased to 73.8%
in 1998 from 71.7% in 1997. Cost of call-in revenues as a percent of call-in
revenues increased to 73.1% in 1998 from 72.0% in 1997. Cost of agency revenues
as a percent of agency revenues decreased to 73.7% in 1998 from 74.6% in 1997.
Commissions. Commissions expense consist of amounts paid to our
affiliated travel agencies pursuant to agency specific contracts based on ticket
sales volume. Commissions decreased $2.0 million or 10.1% to $18.0 million in
1998 from $20.0 million in 1997, as a result of a reduction in our commission
and discount rate structure. Commissions as a percent of total revenues
decreased to 8.0% in 1998 from 10.0% in 1997 as a result of reduced commissions
paid to travel agencies and a decrease in agency revenues as of percent of our
total revenues.
Salaries, wages and benefits. Salaries, wages and benefits consist of
payroll and related benefits for our operations, administration, sales and
marketing and technology personnel. Salaries, wages and benefits increased $1.2
million or 11.0% to $11.8 million in 1998 from $10.6 million in 1997 as a result
of increased staffing at our toll-free telephone reservation and customer
service center and our Internet help desk. As a percent of total revenues,
salaries, wages and benefits decreased to 5.2% in 1998 from 5.3% in 1997 due to
increased productivity resulting from the automation of our ticket fulfillment
and quality control processes.
Selling, general and administrative expenses. Selling, general and
administrative expenses include merchant fees, Internet advertising
expenditures, traditional advertising expenditures, telephone charges,
third-party reservation costs, maintenance fees and content acquisition costs
and other general corporate expenses. Selling, general and administrative
expenses increased $1.0 million or 5.4%, to $18.1 million in 1998 from $17.1
million in 1997. The increase was primarily a result of Internet advertising
costs, offset by reductions in legal expenses, traditional advertising costs and
other expenses. As a percent of total revenues, selling, general and
administrative expenses decreased to 8.0% in 1998 from 8.5% in 1997 as a result
of increased revenue growth and economies of scale.
Net interest income. Net interest income decreased $969,000 or 27.0% to
$2.7 million in 1998 from $3.6 million in 1997 as a result of a decrease in
average cash balances.
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996
Revenues. Revenues increased $83.8 million or 71.7% to $200.7 million
in 1997 from $116.9 million in 1996 primarily as a result of increased brand
awareness from our increased advertising and continued development of our
affiliations with travel agencies. Internet revenues increased $1.7 million to
$1.7 million in 1997 from $12,000 in 1996 as a result of the launch of our
initial one page Web site in October 1996 and increased brand awareness. Call-in
revenues increased $20.0 million or 74.8% to $46.8 million in 1997 from
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$26.8 million in 1996 due to our increased advertising expenditures. Agency
revenues increased $62.1 million or 68.9% to $152.2 million in 1997 from $90.1
million in 1996 as a result of our continued development of our affiliations
with travel agencies.
Cost of revenues. Cost of revenues increased $61.4 million or 70.6% to
$148.4 million in 1997 from $87.0 million in 1996 as a result of increased
transaction volume. Cost of revenues as a percent of total revenues decreased
0.5% to 73.9% in 1997 from 74.4% in 1996. Cost of Internet revenues as a percent
of Internet revenues decreased to 71.7% in 1997 from 75.0% in 1996. Cost of
call-in revenues as a percent of call-in revenues decreased to 72.0% in 1997
from 74.4% in 1996. Cost of agency revenues as a percent of agency revenues
increased to 74.6% in 1997 from 74.4% in 1996.
Commissions. Commissions expense increased $8.3 million or 71.7% to $20.0
million in 1997 from $11.7 million in 1996, as a result of increased revenues.
Commissions as a percent of total revenues remained constant at 10.0%
Salaries, wages and benefits. Salaries, wages and benefits increased $1.5
million or 16.0% to $10.6 million in 1997 from $9.1 million in 1996. This
increase was as a result of increased staffing at our toll-free telephone
reservation and customer service center, offset by staff reductions as a result
of the automation of the ticket fulfillment process. As a percent of total
revenues, salaries, wages and benefits decreased to 5.3% in 1997 from 7.8% in
1996 as a result of the automation of our ticket fulfillment and quality control
processes.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $5.7 million or 50.7% to $17.1 million in 1997
from $11.4 million in 1996. This was primarily a result of increased credit card
merchant fees, third-party reservation expenses and advertising costs and the
expansion of our toll-free telephone reservation and customer service center. As
a percent of total revenues, selling, general and administrative expenses
decreased to 8.5% in 1997 from 9.7% in 1996 as a result of increased revenue
growth and economies of scale.
Net interest income. Net interest income increased $2.4 million or 203.7%
to $3.6 million in 1997 from $1.2 million in 1996 as a result of higher average
cash balances.
QUARTERLY FINANCIAL INFORMATION AND SEASONALITY
Our business is seasonal due to fluctuations in our customers' travel
patterns and general Internet usage. In the past, we have experienced an
increase in travel bookings during the first and second calendar quarters and a
decrease during the third and fourth quarters and we expect that this trend will
continue in the future. We expect that Internet usage may decline during the
summer. In addition, seasonal trends affect the inventory made available to us
by third-party suppliers. Airlines, for example, typically experience higher
demand for tickets through traditional distribution channels for travel during
Thanksgiving and the year-end holiday period. As a result, during these periods,
airlines may have less need to sell discount tickets and packages through our
company. Seasonality in the travel industry and variability in Internet usage
will likely cause quarterly fluctuations in our results of operations and our
financial performance.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly statement of
operations data for each of the eight quarters ended December 31, 1998, as well
as such data expressed as a percent of our total revenues for the periods
indicated. This data has been derived from unaudited quarterly financial
statements that, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of such information when read in conjunction with our annual
audited Financial Statements and Notes thereto. Our results of operations are
not necessarily indicative of the results to be expected in any future period.
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<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1997 1997 1997 1997 1998
------ ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues ................................ $ 45,748 $ 58,641 $ 52,596 $ 43,726 $ 64,651
Cost of revenues ........................ 33,552 43,225 38,722 32,922 47,762
-------- -------- -------- -------- --------
Gross profit ................... 12,196 15,416 13,874 10,804 16,889
Operating expenses:
Commissions ....................... 4,947 6,011 5,272 3,792 5,585
Salaries, wages and benefits ...... 2,267 2,519 2,842 2,977 2,950
Selling, general and administrative 4,130 4,678 3,987 4,339 3,758
-------- -------- -------- -------- --------
Total operating expenses ........ 11,344 13,208 12,101 11,108 12,293
-------- -------- -------- -------- --------
Operating income (loss) ............. 852 2,208 1,773 (304) 4,596
Other income (expense)
Interest income ................... 500 1,000 1,278 824 610
Interest expense .................. (14) (19) (36) (58) (77)
-------- -------- -------- -------- --------
Total other income (expense) .... 486 981 1,242 766 533
-------- -------- -------- -------- --------
Net income .............................. $ 1,338 $ 3,189 $ 3,015 $ 462 $ 5,129
======== ======== ======== ======== ========
Gross bookings .......................... $ 45,771 $ 58,661 $ 52,625 $ 43,959 $ 65,037
======== ======== ======== ======== ========
PERCENT OF TOTAL REVENUES
---------------------------------------------------------------------
Revenue ................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues ........................ 73.3% 73.7% 73.6% 75.3% 73.8%
-------- -------- -------- -------- --------
Gross profit .................... 26.7% 26.3% 26.4% 24.7% 26.2%
Operating expenses:
Commissions ....................... 10.8% 10.3% 10.0% 8.7% 8.6%
Salaries, wages and benefits ...... 5.0% 4.3% 5.4% 6.8% 4.6%
Selling, general and administrative 9.0% 7.9% 7.6% 9.8% 5.8%
-------- -------- -------- -------- --------
Total operating expenses ........ 24.8% 22.5% 23.0% 25.3% 19.0%
-------- -------- -------- -------- --------
Operating income (loss) ........... 1.9% 3.8% 3.4% (0.6)% 7.2%
Other income (expense)
Interest income ................. 1.1% 1.7% 2.4% 1.9% 0.9%
Interest expense ................ -- -- (0.1)% (0.1)% (0.1)%
-------- -------- -------- -------- --------
Total other income (expense) .. 1.1% 1.7% 2.3% 1.8% 0.8%
-------- -------- -------- -------- --------
Net income .............................. 3.0% 5.5% 5.7% 1.2% 8.0%
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------
JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998
------ ------ -----
<S> <C> <C> <C>
Revenues ................................ $ 70,164 $ 45,961 $ 43,646
Cost of revenues ........................ 51,489 33,411 32,412
-------- -------- --------
Gross profit ................... 18,675 12,550 11,234
Operating expenses:
Commissions ....................... 5,563 3,327 3,522
Salaries, wages and benefits ...... 3,002 2,987 2,835
Selling, general and administrative 4,506 4,512 5,286
-------- -------- --------
Total operating expenses ........ 13,071 10,826 11,643
-------- -------- --------
Operating income (loss) ............. 5,604 1,724 (409)
Other income (expense)
Interest income ................... 742 703 578
Interest expense .................. (90) (118) (142)
-------- -------- --------
Total other income (expense) .... 652 585 436
-------- -------- --------
Net income .............................. $ 6,256 $ 2,309 $ 27
======== ======== ========
Gross bookings .......................... $ 71,607 $ 48,814 $ 47,256
======== ======== ========
PERCENT OF TOTAL REVENUE
----------------------------------------
Revenue ................................. 100.0% 100.0% 100.0%
Cost of revenues ........................ 73.4% 72.7% 74.3%
-------- -------- --------
Gross profit .................... 26.6% 27.3% 25.7%
Operating expenses:
Commissions ....................... 7.9% 7.2% 8.1%
Salaries, wages and benefits ...... 4.3% 6.5% 6.5%
Selling, general and administrative 6.4% 9.9% 12.1%
-------- -------- --------
Total operating expenses ........ 18.6% 23.6% 26.7%
-------- -------- --------
Operating income (loss) ........... 8.0% 3.7% (1.0)%
Other income (expense)
Interest income ................. 1.1% 1.5% 1.3%
Interest expense ................ (0.1)% (0.3)% (0.3)%
-------- -------- --------
Total other income (expense) .. 1.0% 1.2% 1.0%
-------- -------- --------
Net income .............................. 9.0% 4.9% 0.0%
======== ======== ========
</TABLE>
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<PAGE> 35
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1998, we had cash and cash equivalents of $11.4
million, restricted cash of $29.9 million, capital lease obligations of $162,000
and no other long term debt. In order to execute our growth strategy, we have
entered into certain strategic marketing agreements which require financial
commitments of approximately $22.3 million through the period ending September
2001.
Cash used in operating activities for 1998 of $1.1 million was a result
of net income of $13.7 million, offset by repayment of amounts due to affiliates
of $11.6 million and an increase in restricted cash of $5.5 million. Restricted
cash consists of amounts held by our merchant bank as security for collection of
credit card payments for which we are the merchant of record. Approximately 50%
of the funds are released upon utilization of the airline ticket by the customer
and the remaining amount is released upon completion of the customer's travel
itinerary. Cash provided by operating activities in 1997 of $3.8 million was
primarily a result of net income of $8.0 million, increases in accrued expenses
of $5.8 million, offset by an increase in restricted cash of $8.7 million. Cash
provided by operating activities for 1996 of $10.3 million was primarily a
result of an increase in amounts payable for tickets of $11.9 million, offset by
an increase in restricted cash and accounts receivable aggregating $7.0 million.
Deposits increased as a result of a $2.0 million requirement by a credit card
issuer in order to allow customers to utilize this method of payment.
Cash used in investing activities consisted of acquisitions of property
and equipment of $338,000 in 1998, $933,000 in 1997 and $1.2 million 1996. The
1996 acquisition was offset by the sale of equipment in the amount of $223,000.
Management estimates capital expenditures in 1999 in the amount of $3.4 million.
Cash used in financing activities consisted of payments on capital lease
obligations of $99,000 in 1998, $109,000 in 1997 and $35,000 in 1996.
No adjustment has been made to give effect to Global Discount Travel's
earned and undistributed taxable limited liability company earnings through the
limited liability company termination date, which would be distributed as part
of the limited liability company distribution. On March 10, 1999, Global
Discount Travel distributed approximately $7.2 million and intends to distribute
$1.2 million prior to the organizational restructuring, to its members for
payment of their income tax liability for the year ended December 31, 1998 and
for the two months ended February 28, 1999.
We believe that the net proceeds of the offering, together with our
existing cash and cash equivalents and anticipated cash flows, will be
sufficient to meet our anticipated cash needs for working capital, capital
expenditures and increased advertising expenses through at least 2000.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, Reporting Comprehensive Income. SFAS No. 130 requires companies to classify
items of other comprehensive income by their nature in a financial statement and
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position, and is effective for financial statements
issued for fiscal years beginning after December 15, 1997. SFAS No. 130 is not
expected to have a material impact on the combined financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, Disclosure About Segments of an Enterprises and Related Information. SFAS
No. 131 established additional standards for segment reporting in the financial
statements and is effective for fiscal years beginning after December 15, 1997.
We operate in three distinct segments: Internet, call-in and agency. Management
reviews financial data for all three segments and evaluates the results of each
segment separately. SFAS No. 131 has been implemented by us effective with the
December 31, 1998 combined financial statements.
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The Accounting Standards Executive Committee of the American Institute
of Certified Public Accountants issued Statement of Position No. 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use. The provisions of SOP 98-1 are effective for fiscal years beginning after
December 15, 1998 and require that certain direct costs associated with such
development are capitalized and amortized and all remaining costs must be
expensed when incurred. Management is currently evaluating the impact of SOP No.
98-1.
IMPACT OF YEAR 2000
Many currently installed computer systems and software products are
coded to accept or recognize only two-digit entries in the date field code.
These systems may recognize a date using "00" as the year 1900 rather than the
year 2000. As a result, computer systems and/or software used by many companies
and governmental agencies may need to be upgraded to comply with Year 2000
requirements or risk system failure or miscalculations causing disruptions of
normal business activities.
State of Readiness
We are taking steps to address potential Year 2000 problems. We have
established a Year 2000 readiness plan and formed a project team from our
technology and operations departments which is responsible for implementing the
plan. The Year 2000 readiness plan will be implemented in five phases:
- identifying the systems and products affected;
- assessment of repair or replacement requirements;
- repair or replacement;
- implementation and testing; and
- creation of contingency plans in the event of Year 2000 failures.
The scope of our compliance program includes:
- information technology systems (computer hardware and software);
- non-information technology systems; and
- significant third-party vendors who, among other things, provide
airline ticketing information, facilitate the booking process and
retain customer history records.
Information Systems
Our critical information systems include:
- Reservation database systems. Reservation database systems involve
computer programs and products responsible for airline, cruise, car and hotel
reservations and other transactional systems. SABRE is our primary global
distribution system. Other global distribution systems used for ticketing
airline reservations are Apollo, Worldspan and Amadeus.
The project team has completed all phases of the readiness plan for the
SABRE global distribution system. SABRE has informed us that their host
mainframe computer system is Year 2000 compliant. In addition, we have completed
all changes required by SABRE to be Year 2000 compliant.
The assessment of the database reservation systems provided by Apollo,
Worldspan and Amadeus is currently in the repair and replacement phase. We
anticipate that all phases will be completed by September 1999.
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- Web server transaction systems. The Web server transaction systems
include our Web site and travel booking engine applications. The project team is
currently in the repair and replacement phase. We anticipate all phases will be
completed by September 1999.
- Post-transaction processing systems. The post transaction processing
systems include credit card processing, automated ticketing, quality control,
payroll and accounting. The project team has completed all phases of the
readiness plan for these post-transaction processing systems with the exception
of automated ticketing. The project team is currently in the assessment of
repair or replacement requirements phase with respect to the automated ticketing
system and anticipates that all phases will be completed by September 1999.
Payroll services and payroll software is provided to us by Automated Data
Processing. Automated Data Processing has informed us that the payroll software
is Year 2000 compliant.
- PC Local Area Network system. PC Local Area Network system is the main
computer system for our toll-free telephone reservation and customer service
center and post-transaction processing systems. The project team has completed
all phases of the readiness plan regarding this system.
Non-Information Systems
Non-information systems include the facility's two telecommunication
systems. The project team has completed all phases of the readiness plan
regarding non-information systems.
Third-Party Vendors
We have identified all vendors of material hardware and software
components of our information and non-information technology systems, and have
contacted our principal vendors of hardware, software and data, and are in the
process of working with these vendors to assure that we are prepared for the
Year 2000. However, failure by third parties to provide fixes, upgrades or
modifications in the products we use could disrupt our operations.
Costs to Address Year 2000 Issues
To date, we have not incurred any material costs in implementing our
Year 2000 readiness plan. Most of our expenses have related to, and are expected
to continue to relate to, the operating costs associated with time spent by the
project team in the evaluation process and Year 2000 compliance matters
generally. The additional cost necessary to make the remaining systems Year 2000
compliant will be expensed as incurred. Although we do not anticipate that these
expenses will be material, these expenses, if higher than anticipated, could
materially and adversely affect our business, results of operations and
financial condition.
Risks Associated with Year 2000 Compliance
Notwithstanding our readiness plan, there can be no assurance that we
will not discover Year 2000 problems that will require substantial revisions or
replacements. In addition, there can be no assurance that, despite assurances,
our third-party suppliers and vendors will be Year 2000 compliant. Moreover, our
failure to adequately address Year 2000 issues could result in claims of
mismanagement, misrepresentation or breach of contract and related litigation,
which could materially and adversely affect our business, results of operations
and financial condition.
In addition, there can be no assurance that governmental agencies,
utility companies, Internet access companies and others outside of our control
will be Year 2000 compliant. The failure of these entities to be Year 2000
compliant could result in systematic failure beyond our control, including, for
example, prolonged Internet, telecommunications or electrical failure, any of
which could materially and adversely affect our business, results of operations
and financial condition. For example, the Year 2000 readiness of the Federal
Aviation Administration could have a significant impact on air travel on or
about January 1, 2000 and for an
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<PAGE> 38
uncertain period of time thereafter. Air travel could be impacted by both
travelers' safety fears and by actual disruption caused by the lack of Year 2000
readiness. Further, fear by travelers of disruption could result in reduced
reservations for year-end flights and possibly less leisure travel generally at
year-end. In addition, if such fears develop, airlines may lower prices
generally or engage in fare wars to attract customers. If airlines did engage in
such behavior, our business could be hurt.
Contingency Plan
We are in the process of formulating our contingency plans. Our
inability to correct a material Year 2000 problem, if one develops, could result
in an interruption in, or a failure of, certain of our normal business
activities or operations. In addition, a significant Year 2000 problem
concerning our Web site or our toll-free telephone reservation and customer
service center could cause our customers to seek alternative providers of
discount travel. Any material Year 2000 problem could require us to incur
significant unanticipated expenses to remedy and could divert our management's
time and attention, either of which could materially and adversely affect our
business, results of operations and financial condition.
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<PAGE> 39
BUSINESS
OVERVIEW
Lowestfare.com is a leading full-service provider of discount travel
products and services to the leisure and small business traveler. We offer our
customers a reliable source for discounted travel products and services through
our agreements with selected travel providers such as America West Airlines,
Northwest Airlines, the Contracting Airline, Virgin Atlantic Airways, Hertz
Rent-a-Car, Stratosphere Hotel and Casino and Carnival Cruise Lines. In
addition, we offer our customers the ability to make reservations on over 400
airlines, at more than 39,000 hotels and with most major car rental companies,
cruise lines and tour package operators. Our travel product and service
offerings are available to our customers through: (1) our Web site
(www.Lowestfare.com), (2) our toll-free telephone reservation and customer
service center (1-888-777-2222) and (3) our affiliations with more than 800
travel agencies which are authorized to sell discount airline tickets on the
Contracting Airline. Our user-friendly Web site enables our customers to quickly
and easily search for information regarding their travel needs, securely book
trips, access a variety of helpful travel-related content and receive customer
support 24 hours a day, 7 days a week. We have established strategic marketing
relationships with Yahoo!, Tripod, Looksmart, MiningCo, theglobe.com and
Frommers to increase our access to Internet customers and build brand awareness.
We commenced our operations in August 1995 and launched our original Web site in
October 1996. However, we first sought to capitalize on the growing popularity
and potential of the Internet in June 1998 with the launch of our redesigned Web
site. This redesigned Web site features a broad array of travel product
offerings, an attractive user interface, an easy-to-use interactive booking
engine and other travel-related content. Since our inception through February
28, 1999, we have conducted over 2 million travel-related transactions for our
customers. Our total gross bookings have grown from $116.9 million in 1996 to
$232.7 million in 1998, while our Internet gross bookings, our fastest growing
segment, have grown from $12,000 in 1996 to $13.2 million in 1998.
INDUSTRY BACKGROUND
Rapid Growth of the Internet Usage and Electronic Commerce
The Internet has experienced tremendous growth in recent years and this
growth is expected to continue. International Data Corporation estimates that
the number of Internet users in the U.S. will grow from approximately 51.6
million in 1998 to approximately 135.9 million in 2002. The Internet has emerged
as an attractive medium for consumer use, enabling users to electronically
gather a broad array of comparative purchasing data, to shop in a more
convenient manner and to interact with sellers in new ways. The Internet's ease
of use, ease of access (24 hours a day, 7 days a week), global reach and
extensive content creates a powerful tool for consumers to compare and contrast
product and vendor offerings. International Data Corporation estimates that U.S.
Internet commerce revenue will increase from approximately $26.5 billion in 1998
to approximately $268.8 billion in 2002. This growth is expected to be driven
by, among other factors: (1) the growing number and decreasing cost of personal
computers in homes and offices, (2) technological innovations providing easier,
faster and cheaper access to the Internet and (3) the rapidly expanding
availability of online content and commerce offerings. The Internet provides
sellers of goods and services with the opportunity to reach a global audience,
to target communication to specific audiences, to dynamically change pricing and
to operate with reduced infrastructure and overhead costs and greater economies
of scale. As the number of online content and commerce providers expands, strong
brand recognition becomes a critical element for success in the Internet
marketplace. Brand development is especially important for online retailers due
to the need to establish trust and loyalty among consumers in the absence of
face-to-face interaction.
Travel Industry
The U.S. travel industry is large and growing. Consumers in the United
States spent $126 billion on travel through travel agencies in 1997, up from
$101 billion in 1995, according to the Travel Weekly 1998 U.S. Travel Agency
Survey. Airline travel (including leisure and business travel) represents the
largest
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segment by dollar volume of the travel industry and constituted $70.5 billion,
or 56% of total travel dollar volume booked through travel agencies in 1997, as
stated in the survey. Historically, airlines, cruise lines, tour operators and,
to a lesser extent, hotels and rental car agencies have relied on internal sales
departments and travel agencies as their primary distribution channels. The
traditional travel agency channel is highly fragmented, with few nationally
recognized brands. According to the Airline Reporting Company, there are over
23,000 travel agencies operating in more than 33,000 locations in the United
States. Beginning in 1995, most major U.S. airlines began to place caps on
per-ticket commissions payable to travel agencies. Since then, these airlines
have reduced their typical commission rate structure several times. We believe
that the reduced commission rates paid to traditional travel agencies may cause
these agencies to charge service fees to their customers, shift their focus to
higher margin non-air travel services or reduce their level of customer service
in an effort to lower costs and remain profitable.
Customers traditionally have relied on travel agents to access and
interpret the large amounts of rapidly changing and complex information relating
to travel products. In many cases, the ability of customers to obtain the most
favorable schedules and fares has been subject to the skill and experience of
individual travel agents. However, consumers are increasingly seeking
alternative means to access complete travel information and the ability to make
informed autonomous travel-related purchases.
Growth in Internet Travel Services
The traditional travel industry is one in which the consumer is faced
with a multiplicity of choices relating to schedules, prices and reservation
availability. This market complexity makes the Internet a particularly well
suited medium for the consumer to use to conduct real-time research and make
informed buying decisions. According to Forrester Research, online leisure
travel bookings are expected to grow from $3 billion in 1998 to over $29 billion
in 2003. The purchase of travel products requires easy access to a vast amount
of data regarding pricing, scheduling and availability and other travel
information. This data changes frequently and consumers are increasingly seeking
more convenient access to this information and the ability to comparison shop
for travel products. Additionally, the existing travel agency infrastructure is
highly fragmented and is under economic pressure which may require travel
agencies to reduce their service and institute or increase their service fees.
Consequently, consumers have thus far been receptive to initial offerings of
travel services on the Internet and online travel bookings have become one of
the largest categories of electronic commerce. Consumers have been attracted by
the convenience of purchasing travel products and services via the Internet and
to date have sought online travel sites that are easy-to-use and that have
compelling travel-related content.
Demand for Consistent Source of Discounted Prices
As the online travel market has developed, consumers have begun to seek
ways to differentiate among travel Web sites. Online travel consumers are
looking for a single source of consistent discounted travel offerings, while
still receiving the high level of convenience and service that they demand.
Online travel consumers are increasingly seeking:
- a reliable source of discounts off published prices on travel
products and services which are free of significant restrictions and
advance or last minute purchase requirements;
- an easy-to-use Web site that provides intuitive and rapid access to
an entire range of travel products and services, including, among
others, airline tickets, hotel reservations, car rentals, cruises and
tour packages;
- the option to access discount travel products and services by
traditional means, such as through a toll-free number or a travel
agent, should their needs or desires require a non-electronic
channel; and
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<PAGE> 41
- a superior level of customer service and order fulfillment (before,
during and after their purchase and while traveling), which includes
around-the-clock access to trained customer assistance personnel both
online and by telephone.
THE LOWESTFARE.COM SOLUTION
Lowestfare.com is a leading full-service provider of discount travel
products and services to the leisure and small business traveler. We offer
discounts every day off of the published rates of several leading travel
providers in addition to access to reservations on over 400 airlines, at more
than 39,000 hotels and with most major car rental companies, cruise lines and
tour package operators. Our travel product and service offerings are available
to our customers through: (1) our Web site (www.Lowestfare.com), (2) our
toll-free telephone reservation and customer service center and (3) our
affiliations with more than 800 travel agencies which are authorized to sell
discount tickets on the Contracting Airline. Our user-friendly Web site enables
our customers to quickly and easily search for information regarding their
travel needs, securely book trips, access a variety of helpful travel-related
content and receive customer support 24 hours a day, 7 days a week.
Lowestfare.com has become a recognized, reliable source of discount travel
products and services. Since our inception in August 1995 through February 28,
1999, we have conducted over 2 million travel-related transactions for our
customers. Internet gross bookings, our fastest growing segment, has grown from
$12,000 in 1996 to over $13.2 million in 1998.
The Lowestfare.com solution includes the following elements:
Reliable Access to Discounted Fares. We are able to purchase airline
tickets from the Contracting Airline at significant pre-determined discounts
through September 2003. See "Risk Factors--We depend heavily upon our contract
with the Contracting Airline." This discount is off the lowest published rates
on all available seats, in all fare classes, on all flights operated by the
Contracting Airline, other than travel originating or terminating in St. Louis,
Missouri ("Covered Flights"). This arrangement enables us to offer our
customers:
- consistent, reliable discount airfares which have ranged between 17%
and 30% off of the lowest published rate offered by the Contracting
Airline on all Covered Flights; and
- tickets without additional restrictions such as blackout periods,
long advance or last minute purchase requirements, severe limitations
on exchangeability or refundability, or loss of frequent flyer
benefits.
In addition, we provide our customers with discounts on several other
airlines, as well as with car rentals, hotels, cruises and tour packages through
our agreements with selected travel providers such as America West Airlines,
Northwest Airlines, Virgin Atlantic Airways, Hertz Rent-a-Car, Stratosphere
Hotel and Casino and Carnival Cruise Lines. Through our arrangements with the
Contracting Airline and a variety of other travel suppliers, we believe that we
are well-positioned to address the demands of the traveling public for a
consistent source of discount travel products and services and to build
significant brand recognition and customer loyalty. We also believe that our
pricing structure will promote travel agency loyalty by providing them with
access to significant travel discounts for their clients, as well as more
favorable commissions compared to those typically offered by travel suppliers.
One Source for All Travel Needs. We offer a broad range of travel
products and services creating a "one-stop shopping" environment. We offer our
customers the ability to make reservations on over 400 airlines, at more than
39,000 hotels and with most major car rental companies, cruise lines and tour
package operators. Our Web site offers customers weather and mapping information
and Frommers travel destination content which contains comprehensive guides for
a wide variety of popular cities, including reviews and recommendations for
restaurants and hotels and research information on sights and attractions.
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Multiple Ways to Access Lowestfare.com. In order to most effectively
service our customers, access to our travel product and service offerings are
available through three distribution channels:
- our Web site (www.Lowestfare.com);
- our toll-free telephone reservation and customer service center
(1-888-777-2222), which has approximately 300 specially trained
service representatives and is available 24 hours a day, 7 days a
week; and
- our affiliations with more than 800 travel agencies which are
authorized to sell discount airline tickets on the Contracting
Airline.
Excellent Customer Service. We have invested in technology, personnel and
training to enhance our in-house customer service operations, which we believe
is essential to establishing and maintaining long-term relationships with our
customers. In an ongoing customer survey conducted by Lowestfare.com,
approximately 98% of all respondents as of January 1999 have indicated that they
would feel comfortable recommending Lowestfare.com to others. In addition to
extensive online help, our customers have access to e-mail support and toll-free
telephone support 24 hours a day, 7 days a week to help them with any problems
or itinerary changes before, during or after their purchase and while traveling.
User-Friendly Technology. Through our Web site, customers can easily
access the wide selection of Lowestfare.com online travel products and services
in order to shop for and book airline tickets, car rentals, hotels, cruises and
tour packages. Visitors to our Web site are guided by an easy-to-use interactive
booking engine and are provided travel options such as departure and destination
cities, airline preference, class of service and hotel and car selection. Our
booking engine processes this data and displays to users the lowest fare options
based upon the selected search criteria. A key feature of our online service is
the ability for customers to independently shop and compare many combinations of
prices and schedules. This enables customers to maximize the value of their
travel dollar.
STRATEGY
Our objective is to be the leading full-service provider of discount
travel products and services to the leisure and small business traveler. In
order to continue to deliver compelling value to our customers, we intend to
implement the following strategies:
Expand Brand Awareness and Internet Presence. We intend to expand our
position as a leading provider of discount travel products and services by
raising consumer awareness of the Lowestfare.com brand name and our Web site,
www.Lowestfare.com. The online market is one in which brand recognition is
critical to attracting high quality vendors and generating a high level of
customer traffic. We are currently in the process of redesigning our Web site
and enhancing our technological capabilities in order to create a faster, more
enjoyable experience for our Web site customers. Furthermore, we intend to
significantly expand our advertising efforts by aggressively marketing
Lowestfare.com and our Web site through campaigns conducted online and through
traditional media. We will seek to expand our customer base and build strong
customer loyalty by continuing to offer our discounted travel products and
services and focusing on providing the highest level of customer service.
Continue to Broaden Discount Travel Offerings. We intend to capitalize on
our arrangement with the Contracting Airline, our brand awareness and our record
of customer service satisfaction to attract and establish discount arrangements
with additional travel suppliers and enhance our discounted travel offerings to
include a broader selection of airlines, hotels, car rentals, cruises and tour
packages. We believe that continuing to develop a wide-range of discount travel
offerings is instrumental to retaining and attracting customers. We have
capitalized on our existing relationship with the Contracting Airline to grow
our business in an aggressive manner over a short period of time. Our gross
bookings have grown from $13.8 million in
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1995 to $232.7 million in 1998. This increase in gross bookings has facilitated
the establishment of discount air travel programs with America West, China
Southern Airlines, Northwest Airlines and Virgin Atlantic Airways. We also have
discount car rental arrangements with Hertz Rent-a-Car and Dollar Rent-a-Car,
discount hotel arrangements with the Excalibur Hotel & Casino, Hawaiiana Hotel,
Luxor Hotel and Casino, Stratosphere Hotel and Casino and discount cruise
programs with Carnival Cruise Lines, Holland America Cruise Lines and Royal
Caribbean Cruise Lines. As we continue to build our brand identity and expand
our business, we intend to use our competitive position to negotiate additional
discounted arrangements with travel providers, including those that will permit
us to benefit from the higher margins traditionally associated with sales of
vacation packages.
Leverage and Expand Strategic Marketing Relationships. We intend to
continue to establish strategic marketing relationships with various Internet
portals, search engines, content providers, communities and other Web sites to
capitalize on their brand recognition and large customer base. To date, we have
established strategic marketing relationships with several Internet industry
leaders including, among others, Yahoo!, Tripod, Looksmart, MiningCo, and
theglobe.com, as well as Frommers travel site. In addition, we are seeking to
establish relationships with membership organizations, credit unions, colleges
and universities and similar associations through which we could market
discounted travel products and services to distinct target audiences.
Pursue Opportunities for Incremental Revenue. We will pursue
opportunities to generate additional sources of revenue as we continue to build
brand loyalty and expand traffic to our Web site. For example, we currently plan
to sell space for banner advertisements on our Web site by the third quarter of
1999. We use a variety of technologies that allow us to collect and examine
information regarding customers who have utilized our services, whether at our
Web site or otherwise. We believe that opportunities exist to utilize such data
in ways that will generate additional revenues, including direct mailing
programs and targeted travel promotion programs.
Enhance Leadership in Technology and Infrastructure. We intend to
continue to develop, acquire and implement technology-driven enhancements to our
Web site and back-office systems in order to continue to improve our service and
enhance customer service and satisfaction. We have developed with Automated
Travel Systems Inc., a software development firm, highly scalable automated
systems that enable us to perform efficient and cost effective, quality control,
ticketing fulfillment and other back-office tasks previously conducted through
human labor. We are currently co-developing an advanced software technology that
is designed to provide our customers and employees with more rapid and easier
access to pricing and itinerary information, thereby reducing both the time
necessary to obtain information and our cost of processing a reservation. This
advanced technology is designed to provide customers with a broader selection of
pricing and scheduling information, thus enabling them to make more informed
travel decisions. We also use industry-standard hardware and software that
enable rapid deployment of additional capacity to satisfy increased customer
demand. We believe that our continued leadership in technology and
infrastructure will provide our customers with a better travel purchase
experience and lead to greater customer satisfaction and loyalty.
PRODUCTS AND SERVICES
We are a leading full-service provider of discount travel products and
services to the leisure and small business traveler. We offer discounts every
day off of the published rates of many leading travel providers in addition to
the ability to make reservations 24 hours a day, 7 days a week on over 400
airlines, at more than 39,000 hotels and with most major car rental companies,
cruise lines and tour package operators.
In order to most effectively service our customers, access to our travel
product and service offerings is available through three distribution channels:
- our Web site (www.Lowestfare.com);
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- our toll-free telephone reservation and customer service center
(1-888-777-2222), which has approximately 300 specially trained
service representatives and is available 24 hours a day, 7 days a
week; and
- our affiliations with more than 800 travel agencies which are
authorized to sell discount airline tickets on the Contracting
Airline.
In addition to extensive online help, our customers have access to
e-mail support and toll-free telephone support to help them with any itinerary
changes, cancellations, problems, and other miscellaneous service requests
before, during or after their purchases and while traveling.
Sources of Customer Access Channels
- Web Site. Users currently accessing our Web site have the following
choices:
-- Quick Rez. Provides quick and easy access to travel reservations to
destinations around the world on over 400 airlines, at more than
39,000 hotels and with most major car rental companies, including
discount offerings to a variety of destinations through selected
airlines, hotel operators and car rental companies;
-- Hot Deals. Provides customers with timely selected city fare
information on the latest travel bargains by highlighting daily
listings of discounted airfares, cruises and tour packages;
-- Vacations. Offers complete vacation packages (airline, hotel and car
rental), and specialty tours, with an emphasis on providing value to
customers;
-- Cruises. Offers customers discounted cruises through selected
leading cruise line operators;
-- Getaways. Offers special discounted vacation packages; and
-- Travel Talk. Provides, among other things, an opportunity for users
to communicate with one another and exchange travel experiences,
tips and ideas using our message boards.
Using our "travel tools" users accessing our Web site currently have the
following choices, among others:
-- Destination Guides. Provides comprehensive destination guides for a
wide variety of popular cities, with content from Frommers. Users
can quickly access reviews and recommendations for the following
categories: hotels and restaurants, shopping, things to see and
night life.
-- Maps. Enables users to quickly and easily generate destination maps
and detailed driving directions using content from MapQuest.
-- Weather. Offers quick access to information about current weather,
weather forecasts and other related information using content from
Journal Square Interactive.
- Toll-Free Telephone Reservation and Customer Service Center. We operate
a state-of-the-art toll-free telephone reservation and customer service center
(1-888-777-2222) located at our headquarters in Las Vegas and are affiliated
with a satellite center located in Miami, Florida which provides our customers
with after-hours support. Customers are able to speak with our specially trained
service representatives to receive travel information, book travel reservations
and receive answers to their travel questions. Collectively, these call-in
centers are staffed with approximately 300 specially trained service
representatives. Our in-house
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service representatives are required to complete our comprehensive four week
training program and are monitored periodically to ensure that our customers
continue to receive the highest level of service.
- Travel Agencies. Through our agency sales force, we have established
affiliations with more than 800 travel agencies. These relationships enable us
to address the travel needs of the significant portion of the population who
currently do not utilize online commerce or toll-free numbers for their travel
purchases. In addition, many of these relationships are with small travel
agencies who typically maintain a loyal customer base. Under our agreements with
travel agencies, they agree to solicit individuals, corporations or associations
to purchase tickets for travel on the Contracting Airline from Lowestfare.com.
Typically, these travel agencies receive commissions on our discounted base
fares (net of all taxes, fees or other charges) of up to 20%. We believe that
our commission structure is highly favorable to travel agencies as compared to
the commission structure traditionally offered by most major U.S. airlines.
Typically, most major U.S. airlines pay an 8% commission, up to a maximum of $25
for one way, $50 for round trip tickets in domestic markets, and $50 and $100,
respectively, in international markets.
We have created a special Web site with a distinct Internet address for
use by our affiliated travel agencies. Travel agencies are permitted to utilize
this Web site for booking airline tickets on the Contracting Airline via the
Internet. We believe that access to this Web site will enable medium- to
small-sized agencies and those without automated travel reservation systems,
such as corporations, to benefit from the economies and convenience of online
commerce. Furthermore, travel agencies utilizing this Web site are not limited
by the maximum $10 commission paid by most major U.S. airlines for tickets sold
over the Internet.
RESERVATION PROCESSING
All travel purchases utilize our technologically enhanced automated
back-office processing systems located at our Las Vegas headquarters. Once the
flight information, customer profile and other relevant information have been
entered into our system, our automated quality control system conducts over 300
checks to ensure that all booking requirements have been met. Once the booking
passes quality control, our automated credit card authorization system validates
and charges the customer's credit card. Next, our automated ticketing engine
generates either a paper ticket or an electronic ticket, based on the customer's
preference. The entire automated quality control check, credit card
authorization and ticket process is typically completed in approximately three
minutes. If an electronic ticket is generated, the customer picks up the
boarding pass at the airport upon departure (with proper identification). If a
paper ticket is generated, we send the ticket out by UPS overnight delivery to
ensure prompt delivery and receipt of the ticket.
STRATEGIC MARKETING RELATIONSHIPS
We pursue strategic marketing relationships to increase our access to
online customers, build brand recognition and expand our online presence. We
have established strategic marketing relationships with various online search
engines, content providers, communities and other Web sites which require
financial commitments of approximately $22.3 million through the period ending
September 2001 under these relationships. To date, we have entered into the
following agreements, among others, for distribution and brand enhancement:
- Yahoo!. Yahoo! is a global Internet media company that offers a branded
network of comprehensive information, communication and shopping
services to millions of users daily. The Yahoo! directory is the single
largest navigational guide in terms of traffic, advertising, household
and business user reach, and is one of the most recognized brands
associated with the Internet. According to Media Metrix, the Yahoo!
sites had approximately 29.5 million unique visitors in January 1999.
In November 1998, we entered into an agreement with Yahoo! pursuant to
which we received a certain number of banner impressions during
December 1998. In January 1999, we entered into a subsequent six month
agreement to purchase additional banner impressions across
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Yahoo!'s branded network of sites, including Yahoo! Travel and various
travel-related content areas of the Yahoo! directory.
- Tripod.com. Tripod, a subsidiary of Lycos, is a leading online
community site which offers its users content, personal publishing
tools and home page building opportunities. According to Media Metrix,
its Web site had approximately 12.5 million unique visitors in January
1999. In October 1998, we entered into an agreement to be the exclusive
sponsor of the "Travel Zone and Pod" on Tripod's Web site. In addition,
we will receive a certain number of impressions through travel- related
advertising and non-targeted advertising such as banners appearing on
the home page and membership page of their Web site. The one year
agreement may be renewed for an additional one year term with the
consent of both parties and subject to certain conditions.
- looksmart.com. Looksmart is a category-based Web directory with
approximately one million Web sites indexed into 30,000 categories.
According to Media Metrix, its Web site had approximately 4.9 million
unique visitors in January 1999. In September 1998, we entered into an
agreement with Looksmart to be the exclusive Internet-based airline
ticket booking agency that advertises within the "Quick-Click Box" in
the "Travel and Vacations" category on their Web Site. The agreement
also provides for the placement of banner advertisements on their Web
site and a minimum number of impressions through travel-related
advertising and non-targeted advertising through a home page button and
links. We may terminate the three year agreement at the end of the
second year upon sixty days prior written notice. The agreement
provides for automatic renewal for an additional three year term,
except in the event of certain circumstances.
- MiningCo.com. MiningCo is a leading Internet news, information and
entertainment service. Their service is a network of over 600 Web
sites, each of which focuses on a specific topic and is managed by a
knowledgeable human guide. According to Media Metrix, its Web site had
approximately 4.6 million unique visitors in January 1999. In September
1998, we entered into an agreement with MiningCo which entitles us to
receive a certain number of advertising impressions on their Web site.
MiningCo has agreed not to contract with certain of our competitors for
advertising in their "Sponsorship Logo" location during the term of the
agreement, and for a minimum of one year, not to contract with certain
of our competitors for advertising in the "Marketplace Links" section
on travel pages on MiningCo's Web site. We have sponsored a live travel
chat with a MiningCo Guide and we have sponsored a sweepstakes offering
on MiningCo's Web site. The two year agreement may be renewed for an
additional one year term upon the agreement of both parties. After
October 1, 1999, we may terminate the agreement upon sixty days' prior
written notice.
- theglobe.com. theglobe.com is a leading online community site that
provides users with various free services, such as home page building,
discussion forums, chat, e-mail and a marketplace. According to Media
Metrix, its Web site had approximately 2.2 million unique visitors in
January 1999. In September 1998, we entered into a three year agreement
with theglobe.com pursuant to which we are the exclusive provider of
travel-related services and travel content on their Web site, including
weather, mapping, destination information and voice response e-mail,
through a co- branded site sponsored by Lowestfare.com. Users of
theglobe.com's Web site are linked to the co- branded site by
contextual links, buttons and select pages of their Web site, including
theglobe.com's "Travel" theme page, home page, and user registration
page. We are also the sponsor of theglobe.com's quarterly registration
sweepstakes that provides new members the chance to receive travel
rewards. We are currently developing an affiliate program with
theglobe.com whereby if a user of theglobe.com adds a linkable
Lowestfare.com badge to their personal home page, the affiliate will
receive incremental discounts or product savings for all ticket
purchases that are generated from the affiliate's site.
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- Frommers.com. Frommers, a division of Macmillan Digital
Publishing USA, is a travel site featuring Arthur Frommers
BudgetTravel. In October 1998, we entered into an agreement
with Frommers which allows us to be the official reservation
booking provider for their Web site. Users are linked to our
Web site from Frommers' Web site by either a fixed
Lowestfare.com button featuring our logo or by the "Booking
Travel--Reservations" button on Frommers' Web site to a site
co-sponsored by Frommers and Lowestfare.com. We are guaranteed
to receive a minimum number of banner impressions per month on
Frommers' Web site under the agreement. We are also the
sponsor of four "Hot Spot of the Month" promotions -- a
feature promotion on Frommers' Web site highlighting a
different vacation destination each month, related content and
the opportunity to win a vacation package to the Hot Spot of
the Month. As a sponsor, we are required to provide one
vacation package to be given away for each month of
sponsorship and in return we receive, among other things, a
minimum number of impressions on Frommers' Web site and
newsletter promotions. The one year agreement may be renewed
for two additional years with the consent of both parties.
Under a separate two year agreement with Macmillan Digital
Publishing, we obtain destination content for our "Destination
Guides" feature on our Web site.
TRAVEL SUPPLIER AGREEMENTS
Contracting Airline
On June 14, 1995, the Contracting Airline and Karabu Corp., an entity
controlled by Carl C. Icahn, entered into a ticket program agreement, pursuant
to which Karabu Corp. may purchase tickets for passenger travel on the
Contracting Airline at significant pre-determined discounts from published fares
through September 2003. By agreement dated August 14, 1995, Global Discount
Travel, our wholly-owned operating subsidiary, was joined as a party to the
ticket program agreement.
Pursuant to the ticket program agreement, Global Discount Travel may
purchase an unlimited number of system tickets. System tickets are tickets for
all applicable classes of service and may be purchased by Global Discount Travel
from the Contracting Airline at a discount from the Contracting Airline's
published fare. In addition to system tickets, Global Discount Travel may also
purchase domestic consolidator tickets, which are tickets issued at bulk fare
rates subject to the terms set forth in the ticket program agreement, are
limited to certain origin/destination city markets and do not permit the holder
to modify or refund a purchased ticket. Our purchase of domestic consolidator
tickets is subject to a cap of $70 million per year based on the full retail
price of the tickets.
The ticket program agreement excludes tickets for travel which
originates or terminates in St. Louis, Missouri. Tickets are subject to the
Contracting Airline's normal seat assignment and boarding pass rules and
regulations, are non-assignable to any other carrier and are non-endorsable. No
commissions are paid to us by the Contracting Airline for tickets sold under the
ticket program agreement. See "Risk Factors--We depend heavily upon our contract
with the Contracting Airline;--Litigation by the Contracting Airline concerning
certain ticket sales under the ticket program agreement."
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Other Travel Suppliers
In addition to our contract with the Contracting Airline, we have
entered into relationships with the following travel suppliers which enable us
to purchase their travel products at favorable rates:
<TABLE>
<S> <C> <C>
Airlines Hotels Cruise Lines
America West Airlines Excalibur Hotel & Casino Carnival Cruise Lines
China Southern Airlines Hawaiiana Hotel Holland America Cruise Lines*
Northwest Airlines Luxor Hotel & Casino Royal Caribbean Cruise Lines*
Virgin Atlantic Airways Stratosphere Hotel & Casino
WinAir Airlines
Car Rentals Tour Package Operators
Dollar Rent-a-Car* Virgin Vacations*
Hertz Rent-a-Car
</TABLE>
- ---------
* We do not have a written agreement with this travel supplier.
Travel Services
We have entered into a one year agreement with Hotel Reservations
Network, a discount hotel booking service, pursuant to which our Web site
customers have the ability to book reservations at over 700 hotels in 27 major
cities. In addition, we offer favorable rates for travel insurance through our
one year agreement with Travel Guard Insurance.
MARKETING AND SALES
Marketing. We utilize a variety of marketing programs in conjunction
with Global Travel Marketing Services, Inc., our wholly-owned marketing
subsidiary, to increase brand awareness and promote the Lowestfare.com brand
name. These programs include, among others, investing in online advertising and
entering into selected strategic marketing relationships to drive traffic to our
Web site and toll-free telephone reservation and customer service center. We
currently place advertisements on selected highly trafficked sites, such as
Yahoo!, Tripod, Looksmart, MiningCo and theglobe.com. We also currently
advertise in more than 40 daily newspapers in twenty major markets throughout
North America, including The New York Times, The Los Angeles Times, The Boston
Globe and The Washington Post. To enhance and reinforce our newspaper
advertisements, we utilize from time to time other types of media such as
magazines, outdoor advertising, billboards, radio, rail/commuter displays,
posters and urban wallscapes in selected major metropolitan areas. We also, from
time to time, sponsor sweepstakes that offer travel-related prizes. We intend to
use a significant portion of the proceeds from this offering to enhance our
marketing capabilities and promote our brand name. See "Use of Proceeds."
Agency Affiliations. Through Global Travel Marketing, we have two
groups of sales personnel who service travel agencies, corporations and
associations. Our regional sales directors are permanent employees handling a
specific geographical territory, earning a salary in addition to commissions on
the ticket sales that they generate. Our independent solicitors typically enter
into an independent solicitation agreement with us, effective for a one year
period, and are also responsible for specific geographical territories. The
independent solicitors are compensated solely through commissions they earn on
their ticket sales. We have established affiliations with more than 800 travel
agencies and approximately 650 corporations and associations. These
relationships enable us to address the travel needs of the significant portion
of the population who currently do not utilize the Internet for their travel
purchases. Our relationships with travel agencies, corporations and associations
are supported by a specially trained staff of service representatives. These
representatives provide rapid answers to any questions or problems and assist
with exchanges and refunds of tickets.
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TECHNOLOGY
Our seamless back-end transaction processing system, which utilizes
technology licensed from Automated Travel Systems, automates customer orders
generated by our Web site, toll-free reservation and customer service center and
through our affiliated travel agencies. The back-end system interacts with
third-party vendor travel systems and processes orders in an efficient manner
with limited human intervention. The back-end system is scalable to meet the
growth demands of future high-demand processing. Our systems also have the
capability to interact with third-party systems such as SABRE. In addition, our
systems support e-mail communications with customers to facilitate confirmations
of orders, to provide customer support and to obtain customer feedback. Our
customers can contact Web site customer support representatives 24 hours a day,
7 days a week.
Our Web site utilizes a combination of technologies developed by Sun
Microsystems, Oracle, Netscape and Microsoft, among others. We focus our
development efforts on creating and enhancing software that further creates
efficiencies in our operations. In addition to being scalable, our Web site
architecture is redundant. Our Internet site is load balanced between two
mirrored facilities hosted by Exodus Communications to maximize speed
efficiencies. We are currently co-developing an advanced software technology
that is designed to provide to our customers and employees more rapid and easier
access to pricing and itinerary information, thereby reducing both the time
necessary to obtain information and our cost of processing a reservation. This
advanced technology would also provide users with a broader selection of pricing
and scheduling information, thus enabling them to make more informed travel
decisions. Our advanced hardware and software strategies have enabled us to
enhance productivity and streamline our operations.
Our relationship with SABRE enables us to access SABRE's global
distribution system to obtain information regarding air and ground
transportation, lodging and other travel-related products and services, book
reservations and issue tickets. The SABRE global distribution system provides
travel reservation information on over 400 airlines, at more than 39,000 hotels
and with most major rental car agencies. In December 1998, we extended our
relationship with SABRE for an additional five year term. We also have the right
to redisplay data from SABRE's global distribution system on our Web site and to
use their booking engine application and system to book reservations via the
Internet. An adjustable transaction fee is paid to SABRE for each transmission
to the SABRE system. SABRE also provides us with programming services and
technical support in connection with their Internet booking system.
COMPETITION
The market for travel products and services is extremely competitive.
We compete primarily with: (a) traditional travel agencies such as American
Express Travel Related Services, Carlson Wagonlit Travel and Uniglobe Travel,
(b) individual airlines, hotels, car rental companies, cruise lines and tour
package operators and other travel service providers, (c) online travel
reservation services such as Biztravel.com, Cheap Tickets, Expedia which is
operated by Microsoft, Internet Travel Network, Preview Travel, Priceline.com,
The Trip.com and Travelocity which is operated by The SABRE Group and (d)
consolidators and wholesalers of airline tickets and other travel products.
In addition to the traditional travel agency channel, most travel
suppliers also sell their products and services directly to customers,
predominantly by telephone. As the market for online travel services grows, we
believe that the number of companies involved in the online travel products and
services industry will increase and travel suppliers, traditional travel
agencies and travel industry information providers will increase their efforts
to develop services that compete with our online services. Many airlines and
hotels 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 our company. We are unable to anticipate
which other companies are likely to offer competitive services in the future.
There can be no assurance that our online operations will compete successfully
with any current or future competitors.
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Many of the our current and potential competitors have greater brand
recognition, longer operating histories, larger customer bases and significantly
greater financial, marketing and other resources than us and may enter into
strategic or commercial relationships with larger, more established and
well-financed companies. Certain of our 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 our
company. In addition, new technologies and the continued enhancement of existing
technologies may increase competitive pressures on our company. Increased
competition may result in reduced operating margins, loss of market share and
brand recognition. There can be no assurance that we will be able to compete
successfully against current and future competitors or address increased
competitive pressures, which may cause our business, results of operations and
financial condition to be materially and adversely affected. See "Risks
Factors--There is significant competition in the travel industry, including the
on-line travel industry."
INTELLECTUAL PROPERTY
We regard our domain name, copyrights, service marks, trademarks, and
similar intellectual property as critical to our success. We rely on a
combination of trademark and copyright law, trade secret protection and
confidentiality and/or license agreements with our employees, customers,
partners and others to protect our proprietary rights. Despite these
precautions, it may be possible for a third party to copy or otherwise obtain
and use our intellectual property without authorization. In addition, there can
be no assurance that others will not independently develop substantially
equivalent intellectual property. There can be no assurance that the precautions
we take will prevent infringement or misappropriation our technology. We pursue
the registration of certain of our key trademarks and service marks in the
United States. Effective trademark, service mark and copyright protection may
not be available or sought by us in every country in which our products and
services are made available online. We have filed a request with the U.S. Patent
and Trademark Office to register the "Lowestfare.com" mark. However, it is
uncertain whether this request will be granted. Our failure to protect our
intellectual property in a meaningful manner could materially harm our business.
In addition, litigation may be necessary in the future to enforce our
intellectual property rights, to protect our trade secrets or determine the
validity and scope of the proprietary rights of others. Such litigation,
regardless of outcome, could result in substantial costs and diversion of
management and technical resources, either of which could materially harm our
business.
We also rely on certain third-party licensed technology for our
computer systems and content for our Web site. These third-party licenses may
not continue to be, and those which we may seek to obtain in the future may not
be, available to us on commercially reasonable terms or at all. The loss or
inability to obtain any of these licenses could result in delays in Web site
development or services until equivalent content, if available, is identified,
licensed and integrated. Any such delays in site development or services could
materially harm our business.
From time to time we may be subject to legal proceedings and claims in
the ordinary course of our business, including claims of alleged infringement of
the trademarks and other intellectual property rights of third parties by our
company. These claims, even if not meritorious, could be time-consuming, result
in costly litigation and diversion of management and technical resources or
cause delays in Web site development or the introduction of new services, which
could materially harm our business. See "Risk Factors--Protection of our
intellectual property is uncertain and there are risks regarding third party
licenses."
GOVERNMENT REGULATION
Certain segments of the travel industry are heavily regulated by the
federal and state governments, and accordingly, certain services offered by us
are affected by such regulations. For example, we are subject to United States
Department of Transportation regulations prohibiting unfair and deceptive
practices and Airline Reporting Corporation regulation, which requires us to
provide them with a weekly report, and a record of, every ticket sold since the
previous report. In addition, Department of Transportation regulations
concerning
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<PAGE> 51
the display and presentation of information that are currently applicable to
airline booking services such as SABRE could be extended to us in the future, as
well as other laws and regulations aimed at protecting consumers accessing
online travel services or otherwise. We are required to register as a seller of
travel pursuant to the Seller of Travel Act enacted in certain states, comply
with certain disclosure requirements and participate in restitution funds. We
are registered as a seller of travel in the following states: California,
Florida, Hawaii, Iowa, Ohio, Oregon and Washington.
All of our services are subject to federal and state consumer
protection laws and regulations prohibiting unfair and deceptive trade
practices. We are also subject to related "plain language" statutes in place in
many jurisdictions, which require the use of simple, easy-to- read, terms and
conditions in contracts with consumers. Such consumer protection laws could
result in substantial compliance costs and interfere with the conduct of our
business.
Although there are very few laws and regulations directly applicable to
the protections of consumers with respect to Internet commerce, it is possible
that legislation will be enacted in this area and could cover such topics as
permissible online content and user privacy (including the collection, use,
retention and transmission of personal information provided by an online user).
Furthermore, the growth and demand for online commerce could result in more
stringent consumer protection laws that impose additional compliance burdens on
online companies. See "Risk Factors--We are subject to governmental regulation
and legal uncertainties."
EMPLOYEES
As of March 1, 1999, we had 377 employees, of which 299 were full-time
and 78 were part-time. Of the total, 228 full-time and 78 part-time were
employed in operations, 38 in administration, 24 in sales and marketing and 9 in
technology. We have never had a work stoppage, and none of our employees is
represented by a labor union. We consider our employee relations to be good. We
believe that our ability to achieve our financial and operating objectives
depends in large part upon our continued ability to recruit, retain and motivate
highly qualified employees, and upon the continued service of our senior
management and key sales and technical personnel. Competition for qualified
personnel in our industry and geographic location in the Las Vegas area is
intense. See "Risk Factors--We depend on key officers and personnel for our
future success and certain of our officers are new to our company."
FACILITIES
Our operations are headquartered in Las Vegas, Nevada, where we lease
an aggregate of approximately 35,000 square feet of space. Our lease for such
space expires on September 30, 2000. We anticipate that we will require
additional space within the next 12 months and are currently negotiating to
lease such space, but there can be no assurance that such additional space will
be available on commercially reasonable terms, if at all.
LEGAL PROCEEDINGS
Set forth below is a description of the material litigation pending
against our company. In addition to the matter set forth below, we are, and may
from time to time be, a party to litigation and claims arising in the ordinary
course of business.
Litigation with the Contracting Airline.
On March 20, 1996, the Contracting Airline filed a petition in the
Circuit Court for St. Louis County, Missouri, commencing a lawsuit against Carl
C. Icahn, Karabu, Global Discount Travel and certain other entities affiliated
with Icahn (collectively, the "Icahn Entities"). The Petition alleged that the
Icahn Entities are violating the ticket program agreement and otherwise
tortiously interfering with the Contracting Airline's
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<PAGE> 52
business expectancy and contractual relationships, by, among other things,
marketing and selling system tickets purchased under the ticket program
agreement to leisure travelers. System tickets are tickets for all applicable
classes of tickets and may be purchased by Global Discount Travel from the
Contracting Airline at a discount from the Contracting Airline's published fare.
The petition sought a declaratory judgment finding that the Icahn Entities have
violated the ticket program agreement, and also sought approximately $300
million in liquidated, compensatory and punitive damages, in addition to the
Contracting Airline's costs and attorney's fees. The Icahn Entities responded
with counterclaims alleging that the Contracting Airline had damaged Global
Discount by interfering with its sales of system tickets.
In December 1997, a non-jury trial commenced. The trial was completed
in January 1998. On May 7, 1998 the Court denied the petition and dismissed the
Icahn Entities' counterclaims. No damage was assessed in respect of either the
Contracting Airline's or the Icahn Entities' petitions. The Court found that the
ticket program agreement was clear on its face and that Global Discount Travel's
sales of system tickets to leisure travelers did not breach the ticket program
agreement. The Court found that, in any event, neither the Contracting Airline
nor Global Discount Travel had proven any damages.
The Icahn Entities moved to amend or modify the Court's ruling to
include a declaratory judgment that the Icahn Entities are permitted to sell
tickets to any person for any purpose, which could include use by the
purchaser's family members or friends. The Contracting Airline opposed this
motion and requested that the Court clarify the ruling to limit its scope,
specifically that the leisure traveler purchasing a ticket must use the ticket
(with certain enumerated exceptions) and may not purchase a ticket for any other
person, including friends or family members. The Court denied both motions on
June 25, 1998. The Contracting Airline has appealed the denial of its motion for
clarification and the Court's original ruling.
The Contracting Airline filed its appeal brief on February 26, 1999,
which contains its arguments for overturning the Court's ruling. We plan to
vigorously defend against the Contracting Airline's arguments on appeal, but
there can be no assurance that we will succeed on all or part of the Contracting
Airline's appeal. If the Contracting Airline succeeds on appeal and all or part
of the lower court's decision in our favor is reversed or modified, we may lose
our right to purchase certain types of tickets under the ticket program
agreement and may be required to pay damages to the Contracting Airline, which
could be substantial. Loss of our right to purchase tickets under the ticket
program agreement would materially and adversely affect our business, results of
operations and financial condition. Even if we are successful on the appeal, our
defense will be expensive, time consuming, and could distract management. This
could hurt our business. See "Risk Factors--Litigation by the Contracting
Airline concerning certain ticket sales under the ticket program agreement."
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<PAGE> 53
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding
Lowestfare.com's directors and executive officers as of February 28, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---- --- -----------
<S> <C> <C>
Carl C. Icahn................. 63 Chairman of the Board and Director
Gail Golden................... 49 Vice Chairman, President and Director
Russell D. Glass.............. 36 Vice Chairman and Director
Kenneth G. Swanton............ 54 Chief Executive Officer and Director
Denise Barton................. 41 Chief Financial Officer
Terry L. O'Neal............... 38 Chief Operating Officer
Vincent L. Martinelli......... 57 Vice President of Advertising and Marketing
Gregory A. Monton............. 35 Vice President of Information Technology
Douglas H. Lanner............. 47 Controller
Steven S. Lay................. 54 Vice President of Strategic Planning
</TABLE>
Carl C. Icahn has served as Chairman of the Board and Director of
Lowestfare.com since August 1998. Mr. Icahn has served as a Director of Global
Travel Marketing, Inc., Lowestfare.com's wholly-owned marketing subsidiary,
since June 1995. Mr. Icahn has served as Chairman of the Board and a Director of
Starfire Holding Corporation (formerly Icahn Holding Corporation), a
privately-held holding company, and Chairman of the Board and a Director of
various of Starfire's subsidiaries, including ACF Industries, Incorporated, a
privately-held railroad freight and tank car leasing, sales and manufacturing
company, since 1984 and ACF Industries Holdings Corp., a privately-held holding
company for ACF, since August 1993. He has also been Chairman of the Board and
President of Icahn & Co., Inc., a registered broker-dealer and a member of the
National Association of Securities Dealers, since 1968. Since November 1990, Mr.
Icahn has been Chairman of the Board of American Property Investors, Inc., the
general partner of American Real Estate Partners, L.P., a public limited
partnership that invests in real estate. In 1979, Mr. Icahn acquired control and
presently serves as Chairman of the Board of Bayswater Realty & Capital Corp., a
real estate investment and development company. Mr. Icahn has been a Director of
Cadus Pharmaceutical Corporation, a public company involved in genetic
pharmaceutical research, since July 1993 and was Co-Chairman of the Board from
May 1995 to May 1996. Mr. Icahn has been the Chairman of the Board and a
Director of Stratosphere Corp., a public company which operates a hotel and
casino in Las Vegas, Nevada, since October 1998. He has also served as a
Director of Automated Travel Systems, Inc., a software development firm, since
January 1999. Mr. Icahn also has substantial equity interests in and controls
various entities which invest in publicly traded securities. Mr. Icahn holds a
B.A. degree in Philosophy from Princeton University.
Gail Golden has served as Vice Chairman, President and Director of
Lowestfare.com since August 1998 and Vice Chairman and President of Global
Discount Travel Services LLC, Lowestfare.com's wholly-owned operating
subsidiary, since February 1999. From August 1995 to January 1999, Ms. Golden
served as the Chief Executive Officer of Global Discount Travel. Ms. Golden has
served as Chief Executive Officer and President of Global Travel Marketing since
June 1995. Ms. Golden has served as Vice President of Administration of Icahn
Associates Corp., a privately owned holding company, since May 1985. Since 1978,
Ms. Golden has served in various capacities at Icahn & Co., Inc., a registered
broker-dealer and a member of the National Association of Securities Dealers,
including Director of Public and Investor Relations and Director of Human
Resources. Ms. Golden also serves in various executive capacities for
privately-owned entities controlled by Mr. Icahn. Ms. Golden currently serves as
a Director of Automated Travel Systems, Inc., a software development firm.
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<PAGE> 54
Russell D. Glass has served as Vice Chairman and Director of
Lowestfare.com since August 1998 and Vice Chairman of Global Discount Travel
since May 1998. Mr. Glass has served as President and Chief Investment Officer
of Icahn Associates Corp., a diversified investment company, since April 1998.
Previously, Mr. Glass had been a Partner in Relational Investors LLC, from 1996
to 1998, and in Premier Partners Inc., from 1988 to 1996, firms engaged in
investment research and management. Mr. Glass currently serves as a Director of
Automated Travel Systems, Inc., a software development firm; Cadus
Pharmaceutical Corporation, a genetic pharmaceutical research company; National
Energy Group, Inc., an oil & gas exploration and production company; and the
A.G. Spanos Corporation, a national real estate developer and owner of the NFL
San Diego Chargers Football Club. Mr. Glass earned a B.A. degree in Economics
from Princeton University and an M.B.A. from the Stanford University Graduate
School of Business.
Kenneth G. Swanton has served as Chief Executive Officer of
Lowestfare.com and of Global Discount Travel since February 1999. Previously,
Mr. Swanton served as Vice Chairman and Director, from March 1998 to September
1998, and President and Chief Executive Officer, from September 1996 to March
1998, of Internet Travel Network, an Internet travel technology developer and
marketer of Web-based travel planning software applications. Prior to joining
Internet Travel Network, from July 1982 to September 1996, Mr. Swanton held
various senior executive positions at Carlson Companies, Inc., a global travel,
hospitality and marketing business. Mr. Swanton holds a B.Sc. degree in
Mathematics and Physics from the University of Waterloo.
Denise Barton has served as Chief Financial Officer of Lowestfare.com
and of Global Discount Travel since February 1999. From January 1990 to February
1999, Ms. Barton was employed by KPMG LLP, most recently as Audit Senior
Manager. From January 1987 to January 1990, Ms. Barton held the position of
Audit Senior at Conway, Stuart & Woodbury. Ms. Barton, a Certified Public
Accountant, holds a B.S. degree in Accounting from Southern Utah University.
Terry L. O'Neal has served as Chief Operating Officer of Lowestfare.com
since August 1998 and of Global Discount Travel since July 1998. From July 1995
to July 1998, Mr. O'Neal served as Senior Vice President of Global Discount
Travel. From January 1993 to July 1995, Mr. O'Neal served as Director of
Operations at McDonnell Douglas Travel Company. From April 1980 to July 1992,
Mr. O'Neal held the position of supervisor in the Walt Disney Travel Company.
Mr. O'Neal currently serves as a Director of Automated Travel Systems, Inc., a
software development firm. Mr. O'Neal obtained Multi-Subject California State
Teaching Credentials from the State of California and attended the University of
California at Los Angeles.
Vincent L. Martinelli has served as Vice President of Advertising and
Marketing of Lowestfare.com since August 1998 and of Global Discount Travel
since October 1995. From September 1986 to October 1995, Mr. Martinelli was
employed by Trans World Airlines, Inc., most recently as Vice President of
Domestic Pricing. Prior to joining Trans World Airlines, Mr. Martinelli held
various positions in financial and economic planning/analysis within the airline
industry. Mr. Martinelli holds a B.S. degree in Business Administration from
Bryant College.
Gregory A. Monton has served as Vice President of Information
Technology of Lowestfare.com since August 1998 and of Global Discount Travel
since May 1998. From August 1995 to May 1998, Mr. Monton served as Manager of
Information Technology of Global Discount Travel. From May 1992 to August 1995,
Mr. Monton served as Manager of Information Systems at McDonnell Douglas Travel
Company. From November 1990 to May 1992, Mr. Monton served as a Regional Manager
of Information Systems for Hyatt Hotels Corporation. Mr. Monton holds a B.S.
degree in Computer Information Systems from DeVry Institute of Technology.
Douglas H. Lanner has served as Controller of Lowestfare.com since
August 1998 and of Global Discount Travel since September 1995. From August 1994
to September 1995, Mr. Lanner served as Director of Sales and Refund Accounting
of Continental Airlines, Inc. From January 1994 to August 1994, Mr. Lanner
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<PAGE> 55
was a consultant in the travel industry. From January 1992 to January 1994, Mr.
Lanner served as Chief Financial Officer of McDonnell Douglas Travel Company.
Mr. Lanner, a Certified Public Accountant and Certified Management Accountant,
holds a B.S. degree in Accounting from the University of Minnesota.
Steven S. Lay has served as Vice President of Strategic Planning of
Lowestfare.com since August 1998 and of Global Discount Travel since July 1998.
From February 1995 to July 1998, Mr. Lay served as Director of Corporate Sales
of Global Discount Travel. From September 1991 to February 1995, Mr. Lay was
employed by Hughes Aircraft, most recently as Director of Marketing. Mr. Lay
founded California Air Shuttle, a commuter airline, in March 1985 and served as
its President and Chief Financial Officer until September 1991.
Mr. Lay holds a B.S. degree in Business Administration from Baker University.
Within 90 days following this offering, we expect to nominate and elect
two independent directors.
DIRECTOR COMPENSATION
Directors who are also employees of Lowestfare.com receive no
compensation for serving on the board of directors. Lowestfare.com directors who
are not employees of Lowestfare.com will be reimbursed for all travel and other
expenses incurred in connection with attending board of directors and committee
meetings. Non-employee directors are also eligible to receive stock option
grants under the 1999 Stock Option Plan.
COMMITTEE OF THE BOARD OF DIRECTORS
The board of directors intends to establish an audit committee within
90 days following this offering composed of at least two directors. The audit
committee will review our financial statements and accounting practices, makes
recommendations to the board of directors regarding the selection of independent
auditors and review the results and scope of the audit and other services
provided by our independent auditors.
The board of directors intends to establish a compensation committee
comprised of independent directors that will make determinations regarding the
compensation of executive officers of our company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No executive officer of Lowestfare.com serves as a member of the board
of directors or compensation committee of any other company that has one or more
executive officers serving on Lowestfare.com's compensation committee.
EXECUTIVE COMPENSATION
The following table sets forth all compensation earned during the
fiscal year ended December 31, 1998 by our Chief Executive Officer and our other
four most highly compensated executive officers whose total annual salary and
bonus (excluding unusual and nonrecurring items) exceeded $100,000 in 1998 (the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
------------------------------------------ ------------
SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION(1) SALARY BONUS COMPENSATION OPTIONS (#)
- ------------------------------ -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Gail Golden .................................. -- $362,566 -- 788,665
Vice Chairman and President
</TABLE>
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<PAGE> 56
<TABLE>
<S> <C> <C> <C> <C>
Russell D. Glass ............................. -- -- -- 157,733
Vice Chairman
Terry L. O'Neal .............................. $156,289 20,895 -- 157,733
Chief Operating Officer
Vincent L. Martinelli ........................ 150,000 -- -- 78,867
Vice President of Advertising and Marketing
Gregory A. Monton ............................ 114,181 16,000 -- 157,733
Vice President of Information Technology
Douglas H. Lanner ............................ 105,355 20,895 11,164 39,433
Controller
</TABLE>
- --------------------
(1) In February 1999, Mr. Swanton was appointed Chief Executive Officer.
Currently Mr. Swanton is compensated at an annual salary of $250,000.
In February 1999, Ms. Barton was appointed Chief Financial Officer.
Currently Ms. Barton is compensated at an annual salary of $150,000. In
February 1999, Mr. Swanton and Ms. Barton were granted options to
purchase 591,499 and 78,867 shares of common stock, respectively. See
"Business--Employment Contracts."
Option Grants in Last Fiscal Year
The following table contains information concerning stock option grants
made to the executive officers named in the Summary Compensation Table appearing
above during the fiscal year ended December 31, 1998. We have never granted any
stock appreciation rights.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS (1) OPTION TERM (3)
------------------------------------------------------- --------------------------
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE EXERCISE
OPTIONS IN FISCAL PRICE (PER EXPIRATION
NAME GRANTED YEAR (2) SHARE) DATE 5% 10%
- ---- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gail Golden ........... 788,665 51.3% $5.07 ____ __, 2004 $1,105,135 $2,442,058
Russell D. Glass ...... 157,733 10.3 5.07 ____ __, 2004 221,027 488,412
Terry L. O'Neal ....... 157,733 10.3 5.07 ____ __, 2004 221,027 488,412
Vincent L. Martinelli . 78,867 5.0 5.07 ____ __, 2004 110,514 244,207
Gregory A. Monton ..... 157,733 10.3 5.07 ____ __, 2004 221,027 488,412
Douglas H. Lanner ..... 39,433 2.5 5.07 ____ __, 2004 55,256 122,102
Steven S. Lay ......... 157,733 10.3 5.07 ____ __, 2004 221,027 488,412
</TABLE>
- ---------------
(1) Each option represents the right to purchase one share of common stock.
The options shown in this column were all granted pursuant to our 1999
Stock Option Plan. The options shown in this table become exercisable at a
rate of 12.5% semi-annually over four years from the date of grant, except
for Ms. Golden's options which vest at a rate of 16.7% semi-annually over
a three year period. The options were granted to Mr. Martinelli on January
1, 1998 and to Ms. Golden and Messrs. Glass, Lanner, Lay, Monton and
O'Neal on May 26, 1998.
(2) We granted options to purchase 1,537,897 shares of common stock to
employees during 1998.
(3) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. The 5% and
10% assumed annual rates of compounded stock price appreciation are
mandated by the rules of the Securities and Exchange Commission and do not
represent an estimate or projection of our future common stock prices.
These amounts represent certain assumed rates of appreciation in the value
of our common stock from the fair market value on the date of grant.
Actual gains, if any, on stock option exercises are dependent on the
future performance of the common stock and overall stock market
conditions. The amounts reflected in the table may not necessarily be
achieved.
Fiscal Year-End Option Values
The following table sets forth information with respect to unexercised
options held by the executive officers as of December 31, 1998. No options were
exercised by the executive officers during fiscal 1998.
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<PAGE> 57
AGGREGATE STOCK OPTION EXERCISES IN FISCAL 1998
AND FISCAL YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
DECEMBER 31, 1998 AT DECEMBER 31, 1998(1)
------------------------------ ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Gail Golden -- 788,665 --
Russell D. Glass -- 157,733 --
Terry L. O'Neal -- 157,733 --
Vincent L. Martinelli -- 78,867 --
Gregory A. Monton -- 157,733 --
Douglas H. Lanner -- 39,433 --
Steven S. Lay -- 157,733 --
</TABLE>
- ---------------
(1) There was no public trading market for the common stock as of December 31,
1998. Accordingly, these values have been calculated on the basis of the
assumed initial public offering price of $ per share, less the applicable
exercise price per share, multiplied by the number of shares underlying
such options.
1999 STOCK OPTION PLAN
Lowestfare.com's 1999 Stock Option Plan was adopted by the board of
directors on March 13, 1999, and approved by our stockholders on March 13, 1999.
Under the stock option plan 3.5 million shares of our common stock are reserved
for issuance. However, no individual may be granted options for more than one
million shares in any calendar year.
With respect to options granted to directors or officers, the stock
option plan is administered by the board of directors or a committee designated
by the board of directors. To the extent applicable, the composition of any such
committee is intended to permit options granted under the stock option plan to
be exempt from Section 16(b) of the Exchange Act and to qualify as
performance-based compensation under the Internal Revenue Code. With respect to
options granted to other participants, the stock option plan is administered by
the board of directors or a committee designated by the board of directors. In
each case, the respective plan administrator shall determine the provisions,
terms and conditions of each option, including, but not limited to, the option
vesting schedule, forfeiture provisions, form of payment (cash, shares of common
stock, or other consideration) upon settlement of the option, and whether any
performance criteria has been satisfied.
The exercise price of options granted under the stock option plan must
be at least equal to the fair market value of the common stock on the date of
grant, unless otherwise provided by the plan administrator, and the term of the
option must not exceed ten years. With respect to any employee who owns stock
possessing more than 10% of the voting power of all classes of the Company's
outstanding capital stock, the exercise price of any incentive stock option must
equal at least 110% of the fair market value of the common stock on the grant
date and the term of the option must not exceed five years. The consideration to
be paid for the shares of common stock upon exercise or purchase of an option
under the stock option plan will be determined by the plan administrator and may
include cash, check, promissory note, shares of common stock, or the assignment
of part of the proceeds from the sale of shares acquired upon exercise or
purchase of the option.
The board of directors may amend or modify the stock option plan at any
time, subject to any required stockholder approval. The stock option plan will
terminate March 13, 2009 unless terminated earlier by the board of directors.
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<PAGE> 58
EMPLOYMENT CONTRACTS
We conduct our business through Global Discount Travel Services LLC.
Each of the following employment agreements were entered into by Global Discount
Travel Services LLC and the named executive officer.
Kenneth G. Swanton. In January 1999, we entered into an employment
agreement with Mr. Swanton, whereby Mr. Swanton is entitled to receive an
initial annual base salary of $250,000, subject to annual adjustment. The
agreement provides for incentive compensation of 3% of the annual base salary
for every million dollars of net income before taxes, excluding interest income,
starting with fiscal year 1999 and ending on the date of this offering but such
incentive compensation is capped at $250,000. In the event that we terminate Mr.
Swanton's employment without cause, he shall receive six months of base salary
with health benefits as total severance. In February 1999, Mr. Swanton was
granted an option to purchase a specified percentage interest of Global Discount
Travel for an aggregate exercise price of $3,000,000, subject to certain vesting
periods. Pursuant to its terms, upon the effectiveness of this offering, the
option will be assumed by Lowestfare.com and automatically converted into an
option to purchase 591,499 shares of common stock at an exercise price of $5.07.
Beginning with employment, these options vest in equal monthly installments over
three years. Vested options may be exercised starting on the first anniversary
of this offering and ending five years after this offering. In the event Mr.
Swanton resigns or is terminated for cause before the first anniversary date of
this offering, all vested and unvested options are forfeited. If Mr. Swanton
resigns at any time after the first anniversary date of this offering, all
unvested stock options and vested stock options not yet exercised will expire at
the time of resignation. If Mr. Swanton is terminated for cause after the first
anniversary date of this offering, unvested options shall expire and vested
options not yet exercised will expire three months after employment is
terminated. If Mr. Swanton is terminated without cause or dies, vested options
will be exercisable for 12 months after termination without cause or death, and
all unvested options will expire on the date of termination without cause or
death. If we sell our company or there is a change of control, Mr. Swanton will
receive accelerated vesting for 50% of any unvested options. The remaining 50%
of the unvested options will continue to vest in accordance with the terms of
the agreement, assuming continued employment with the successor company.
Denise Barton. In January 1999, we entered into an amended and restated
employment agreement with Ms. Barton, whereby Ms. Barton is entitled to receive
an annual base salary of $150,000. The agreement provides for incentive
compensation of 3% of the annual base salary for every million dollars of net
income before taxes, excluding interest income, starting with fiscal year 1999
but such incentive compensation is capped at $150,000. The agreement also
provides that if we (i) cease operations, (ii) are sold or are involved in a
"going private" transaction (unless Ms. Barton is offered a comparable position
by the buyer of the business) or (iii) terminate Ms. Barton's employment without
cause, she will continue to receive any unpaid quarterly incentive payments due
based on what was previously earned in the prior calendar year and her annual
base salary through February 28, 2001. In February 1999, Ms. Barton was granted
an option to purchase a specified percentage interest of Global Discount Travel
for an aggregate exercise price of $400,000, subject to certain vesting periods.
Pursuant to its terms, upon the effectiveness of this offering, the option will
be assumed by Lowestfare.com and automatically converted into an option to
purchase 78,867 shares of common stock at an exercise price of $5.07.
Terry L. O'Neal. We entered into an amended and restated employment
agreement dated as of May 1998 with Mr. O'Neal, whereby Mr. O'Neal is entitled
to receive an annual base salary of $175,000. The agreement provides for
incentive compensation of 3% of the annual base salary for every million dollars
of net income before taxes, excluding interest income, starting with fiscal year
1998 but such incentive compensation is capped at $175,000. In May 1998, Mr.
O'Neal was granted an option to purchase a specified percentage interest of
Global Discount Travel for an aggregate exercise price of $800,000, subject to
certain vesting periods. Pursuant to its terms, upon the effectiveness of this
offering, the option will be assumed by Lowestfare.com and automatically
converted into an option to purchase 157,733 shares of common stock at an
exercise price of $5.07.
Gregory A. Monton. We entered into an amended and restated employment
agreement dated as of May 1998 with Mr. Monton, whereby Mr. Monton is entitled
to receive an annual base salary of $125,000. The agreement provides for
incentive compensation of 3% of the annual base salary for every million dollars
of net income before taxes, excluding interest income, starting with fiscal year
1998 but such incentive compensation is capped at $125,000. In May 1998, Mr.
Monton was granted an option to purchase a specified percentage interest of
Global Discount Travel for an aggregate exercise price of $800,000, subject to
certain vesting periods. Pursuant to its terms, upon the effectiveness of this
offering, the option will be assumed by Lowestfare.com and automatically
converted into an option to purchase 157,733 shares of common stock at an
exercise price of $5.07.
Douglas Lanner. We entered into an amended and restated employment
agreement dated as of May 1998 with Mr. Lanner, whereby Mr. Lanner is entitled
to receive an annual base salary of $110,000. In May 1998, Mr. Lanner was
granted an option to purchase a specified percentage interest of Global
Discount Travel for an aggregate exercise price of $200,000, subject to certain
vesting periods. Pursuant to its terms, upon the effectiveness of this
offering, the option will be assumed by Lowestfare.com and automatically
converted into an option to purchase 39,433 shares of common stock at an
exercise price of $5.07.
Steven S. Lay. We entered into an amended and restated employment
agreement dated as of May 1998 with Mr. Lay, whereby Mr. Lay is entitled to
receive an annual base salary of $120,000. The agreement provides for incentive
compensation of 3% of the annual base salary for every million dollars of net
income
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<PAGE> 59
before taxes, excluding interest income, starting with fiscal year 1998 but
such incentive compensation is capped at $120,000. In May 1998, Mr. Lay was
granted an option to purchase a specified percentage interest of Global
Discount Travel for an aggregate exercise price of $800,000, subject to certain
vesting periods. Pursuant to its terms, upon the effectiveness of this
offering, the option will be assumed by Lowestfare.com and automatically
converted into an option to purchase 157,733 shares of common stock at an
exercise price of $5.07.
Vincent L. Martinelli. We entered into an amended and restated
employment agreement dated as of January 1998 with Mr. Martinelli, whereby Mr.
Martinelli is entitled to receive an annual base salary of $150,000. In January
1998, Mr. Martinelli was granted an option to purchase a specified percentage
interest of Global Discount Travel for an aggregate exercise price of $400,000,
subject to certain vesting periods. Pursuant to its terms, upon the
effectiveness of this offering, the option will be assumed by Lowestfare.com and
automatically converted into an option to purchase 78,867 shares of common stock
at an exercise price of $5.07.
Beginning with this offering, the options granted to each of Ms.
Barton, Mr. O'Neal, Mr. Monton, Mr. Lanner, Mr. Lay and Mr. Martinelli shall
vest in equal semi-annual installments over four years, except for the initial
semi-annual installment for Ms. Barton which will vest on the date of this
offering. Vested options may be exercised starting on the six month anniversary
of this offering and ending five years after this offering. In the event the
option holder resigns or is terminated for cause before the first anniversary
date of this offering, all vested and unvested options are forfeited. If the
option holder resigns or is terminated for cause at any time after the first
anniversary date of this offering, the option holder is not entitled to any
unvested stock options, but vested options will expire three months after the
date of resignation or termination, as the case may be. If the option holder is
terminated without cause, the option holder will receive accelerated vesting for
any unvested options and vested options will be exercisable for 12 months after
termination. If the option holder dies, vested options will be exercisable for
12 months after death, and all unvested options will expire on the date of
death. If we sell our company or become a private company, the option holder
will receive accelerated vesting for any vested options.
The employment agreements of each of Messrs. O'Neal, Lay and Monton
provide that if we (i) cease operations, (ii) are sold or are involved in a
"going private" transaction (unless the employee is offered a comparable
position by the buyer of the business) or (iii) terminate his employment without
cause, the employee will continue to receive any unpaid quarterly incentive
payments due based on what was previously earned in the prior calendar year and
their annual base salary through April 30, 2001.
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<PAGE> 60
CERTAIN TRANSACTIONS
KARABU CORP.
On June 14, 1995, the Contracting Airline and Karabu Corp., an entity
controlled by Carl C. Icahn, entered into the ticket program agreement, pursuant
to which Karabu Corp. may purchase tickets for passenger travel on the
Contracting Airline at discounts from published fares for a period of
ninety-nine months. By agreement dated, August 14, 1995, Global Discount Travel
Services LLC, our wholly-owned operating subsidiary, was joined as a party to
the ticket program agreement. See "Business--Lowestfare.com Solution" and "Risk
Factors--We depend heavily upon our contract with the Contracting Airline."
Pursuant to this agreement Global Discount Travel paid Karabu Corp. who
in turn paid the Contracting Airline for tickets purchased. These amounts were
approximately $148.4 million in 1998, $134.1 million in 1997 and $62.8 million
in 1996. In addition, Karabu paid approximately $124,000 in start-up expenses
during 1995 which was repaid in 1996.
GLOBAL TRAVEL MARKETING SERVICES, INC.
On June 21, 1995, Global Discount Travel entered into an independent
marketing agreement with Global Travel Marketing Services, Inc., an entity
controlled by Mr. Icahn. Global Travel Marketing solicits, markets and promotes
the sale of Contracting Airline tickets to travel agents on behalf of
Lowestfare.com. Global Discount Travel pays Global Travel Marketing a marketing
fee. Global Discount Travel paid Global Travel Marketing $6.3 million in 1998,
$7.1 million in 1997 and $5.8 million in 1996. Periodically, Global Discount
Travel has made working capital advances to Global Travel Marketing. As of
December 31, 1998, Global Travel Marketing owes Global Discount Travel $368,000.
Pursuant to the organizational restructuring, Global Travel Marketing
will become a wholly-owned subsidiary of Lowestfare.com prior to the closing of
this offering. See "Summary of Organizational Restructuring."
ACF INDUSTRIES, INCORPORATED
ACF Industries, Incorporated, an entity controlled by Mr. Icahn, made
expenditures on our behalf from inception through 1998 for operating expenses
including legal, medical, relocation, travel, utilities and miscellaneous
expenses. These amounts were $2.7 million in 1998, $2.4 million in 1997 and $1.9
million in 1996 and have been repaid except for $92,000 as of December 31, 1998.
Global Discount Travel loaned approximately $13.7 million to ACF for working
capital purposes. This amount did not bear interest and was repaid during 1996.
ASTUTE DISCOUNT TRAVELERS' CLUB, LLC
The Astute Discount Travelers' Club, LLC, an entity controlled by Mr.
Icahn markets airline tickets, cruises and tours to its members. Astute members
receive an additional 5% discount off our airline ticket prices. Astute
discontinued operations as of March 31, 1998. We will continue to honor the
Astute membership discount until October 31, 1999.
We provide reservation, ticketing, fulfillment and accounting services
to Astute. Global Discount Travel collected all revenues and paid all expenses
on behalf of Astute. The net income or loss from their operations was recorded
as an intercompany receivable or payable. As of December 31, 1998, Astute owed
us $79,000.
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<PAGE> 61
AUTOMATED TRAVEL SYSTEMS, INC.
On January 19, 1999, Global Partner, Inc., an entity controlled by Mr.
Icahn, entered into a series of agreements with Automated Travel Systems, Inc.,
through which it acquired preferred stock and warrants issued by Automated
Travel Systems and Global Discount Travel licensed for fees and royalties
certain software products proprietary to Automated Travel Systems. The preferred
stock and warrants entitled Global Partner to acquire approximately 65% of the
common stock of Automated Travel Systems. The preferred stock also entitles
Global Partner to elect a majority of the members of the board of directors of
Automated Travel Systems. As a result, 3 of our directors, Russell D. Glass,
Gail Golden and Carl C. Icahn and one of our officers, Terry L. O'Neal, serve as
directors of Automated Travel Systems. On January 14, 1999, Global Discount
Travel loaned Global Partner approximately $4.3 million at the prime rate, as
calculated from time to time, plus one-half of one percent per year to fund the
transaction. This loan was repaid on March 10, 1999.
STRATOSPHERE GAMING CORP.
In November 1998, we entered into a wholesale contract agreement with
Stratosphere Gaming Corp., an entity controlled by Mr. Icahn, pursuant to which
we offer discount vacation packages at the Stratosphere Hotel in Las Vegas.
ICAHN ASSOCIATES CORP.
Icahn Associates Corp., an entity controlled by Mr. Icahn, maintains
offices located at 767 Fifth Avenue, 47th Floor, New York, New York 10153.
Global Travel Marketing subleases an aggregate of approximately 855 square feet
of space from Icahn Associates with a monthly rent of $5,825. The term of the
sublease is concurrent with the term of the Icahn Associates lease which expires
in May 2004.
ORGANIZATIONAL RESTRUCTURING
Prior to the closing of this offering, we will effect an organizational
restructuring whereby Global Discount Travel and Global Travel Marketing will
become wholly-owned subsidiaries of Lowestfare.com, Inc. Set forth below is a
summary of this restructuring:
- Prior to the closing of this offering, all of the outstanding
member interests in Global Discount Travel and all of the
outstanding common stock of Global Travel Marketing will be
contributed by Vauxhall LLC, an entity wholly-owned by Mr. Icahn,
to Lowestfare.com, Inc. in exchange for 28,599,900 shares of common
stock of Lowestfare.com. As a result, Global Discount Travel and
Global Travel Marketing will become wholly-owned subsidiaries of
Lowestfare.com, Inc.
The historical cost basis in the net assets of Global Discount Travel and Global
Travel Marketing will not change as a result of this restructuring and no
goodwill or other intangible assets will be recorded. See "Summary of
Organizational Restructuring."
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to us with
respect to beneficial ownership of our common stock as of February 28, 1999 by:
- each stockholder known by Lowestfare.com to be the beneficial
owner of more than 5% of our common stock;
- each director of Lowestfare.com;
- the Named Executive Officers; and
- all executive officers and directors as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING (1) OWNED AFTER OFFERING(1)(2)
----------------------------- ----------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ------------------------ ------ ------- ------ -------
<S> <C> <C> <C> <C>
Carl C. Icahn (3) ....................................... 28,600,000 99.8% 28,600,000 [ ]
Gail Golden ............................................. -- * -- *
Russell D. Glass ........................................ -- * -- *
Kenneth G. Swanton(4) ................................... 49,292 * [ ] *
Denise Barton(5) ........................................ 9,858 * [ ] *
Terry L. O'Neal ......................................... -- * -- *
Vincent L. Martinelli ................................... -- * -- *
Gregory A. Monton ....................................... -- * -- *
Douglas H. Lanner ....................................... -- * -- *
Steven S. Lay ........................................... -- * -- *
All officers and directors as a group (10 persons) (6) .. 28,659,150 100.0% [ ] [_____%]
</TABLE>
- ---------------------
* Less than 1% of Lowestfare.com's outstanding common stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting stock or
investment power with respect to securities. Shares of common stock options
or warrants that are currently exercisable or exercisable within 60 days of
February 28, 1999 are deemed to be outstanding and to be beneficially owned
by the person holding such options for the purpose of computing the
percentage ownership of such person but are not treated as outstanding for
the purpose of computing the percentage ownership of any other person.
(2) Assumes the underwriters' over-allotment option to purchase ________ shares
of common stock is not exercised.
(3) Includes 28,600,000 shares of common stock held by Vauxhall LLC, a Nevada
limited liability company, which is indirectly wholly-owned by Mr. Icahn.
The address for Mr. Icahn is c/o Icahn Associates Corp., 767 Fifth Avenue,
47th Floor, New York, New York 10153.
(4) Represents options held by Mr. Swanton to purchase 49,292 shares of common
stock.
(5) Represents options held by Ms. Barton to purchase 9,858 shares of common
stock.
(6) Includes the shares described in footnotes (3) - (5).
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<PAGE> 63
DESCRIPTION OF CAPITAL STOCK
We are authorized to issue 75,000,000 shares of common stock, par value
$.01 per share and 5,000,000 shares of preferred stock, par value $.01 per
share. As of February 28, 1999, there were 100 shares outstanding and held of
record by one stockholder. There will be ______ shares outstanding upon
consummation of this offering (_____ shares if the over-allotment option is
exercised in full). There are currently no shares of preferred stock
outstanding.
COMMON STOCK
The holders of outstanding shares of common stock are entitled to share
ratably on a share-for-share basis with respect to any dividends when, as and if
declared by the board of directors out of legally available funds. We currently
intend to retain all future earnings, if any, for the development and growth of
the business, and, therefore, do not anticipate paying any cash dividends on our
common stock in the foreseeable future. See "Dividend Policy." Each holder of
common stock is entitled to one vote for each share held of record. The common
stock is not entitled to conversion or preemptive rights and is not subject to
redemption. Upon liquidation, dissolution or winding up of our company, the
holders of common stock are entitled to share ratably in our net assets legally
available for distribution to our stockholders. All outstanding shares of common
stock are, and the shares of common stock offered hereby will upon issuance be,
fully paid and non-assessable.
PREFERRED STOCK
The board of directors has the authority, subject to any limitations
stated in our Certificate of Incorporation, without further shareholder
approval, to issue from time to time shares of preferred stock in one or more
classes or series. Each such series of preferred stock shall have such number of
shares, designations, preferences, voting powers, qualifications and special or
relative rights or privileges as shall be determined by the board of directors,
which may include, among others, dividend rights, voting rights, redemption and
sinking fund provisions, liquidation preferences and conversion rights. The
shares of any class or series of preferred stock need not be identical. We have
no present plans to issue any shares of preferred stock.
The purpose of authorizing the board of directors to issue preferred
stock and determine its rights and preferences is to eliminate delays associated
with a shareholder vote on specific issuances. The issuance of preferred stock,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could adversely affect the voting power of holders
of common stock and could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from acquiring, a
majority of our outstanding voting stock.
OPTIONS
As of February 28, 1999, options to purchase a total of 2,208,263
shares of common stock were outstanding, all of which are subject to lock-up
agreements entered into with the underwriters. Up to 3,500,000 shares of common
stock have been reserved for issuance under the 1999 Stock Option Plan. See
"Management--1999 Stock Option Plan" and "--Summary of Compensation."
REGISTRATION RIGHTS
Pursuant to the Registration Rights Agreement dated as of December 31,
1998 between Vauxhall LLC and Lowestfare.com, Vauxhall LLC has certain
registration rights with respect to an aggregate of 28,600,000 shares of common
stock. Under the Registration Rights Agreement, Vauxhall LLC may demand, on two
occasions, that we file a registration statement under the Securities Act
covering all or a portion of its registrable securities. In addition, Vauxhall
LLC has certain "piggyback" registration rights. If we propose to register any
of the common stock under the Securities Act of 1933, as amended for our own
account (other
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<PAGE> 64
than pursuant to this offering or in connection with the registration of
securities issuable (a) under an employee benefits plan or (b) in a business
combination), Vauxhall LLC may require us to include all or a portion of their
registrable securities in such registration; provided, however, that the
managing underwriter, if any, of any such offering has certain rights to limit
the number of registrable securities proposed to be included in such
registration. All registration expenses incurred in connection with the above
registrations will be borne by our company.
INAPPLICABILITY OF SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Section 203 of the Delaware General Corporation Law generally restricts
a corporation from entering into certain business combinations with an
interested stockholder (defined as any person or entity that is the beneficial
owner of at least 15% of a corporation's voting stock) or its affiliates for a
period of three years after the date of the transaction in which the person
became an interested stockholder unless (a) the transaction is approved by the
board of directors of the corporation prior to such business combination, (b)
the interested stockholder acquires 85% of the corporation's voting stock in the
same transaction in which it exceeds 15% or (c) the business combination is
approved by the board of directors and by a vote of two-thirds of the
outstanding voting stock not owned by the interested stockholder. Delaware law
also provides that a corporation may elect not to be governed by Section 203. We
have elected not to be governed by Section 203.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Delaware law authorizes a corporation's board of directors to grant
indemnity to directors and officers under certain circumstances for liabilities
(including reimbursement for expenses incurred) arising under the Securities Act
of 1933.
As permitted by Delaware law, our Certificate of Incorporation provides
that a director shall not be personally liable to us or our stockholders for
monetary damages for breach of fiduciary duty as a director, except for: (a) any
breach of the director's duty of loyalty to us or our stockholders, (b) acts or
omissions not in good faith or which involve intentional misconduct or knowing
violations of law, (c) liability under the Delaware corporation law (relating to
certain unlawful dividends, stock repurchases or stock redemptions) or (d) any
transaction from which the director derived any improper personal benefit. The
effect of this provision in the Certificate of Incorporation is to eliminate our
rights and the rights of our stockholders (through stockholders' derivative
suits on our behalf) to recover monetary damages against a director for breach
of the fiduciary duty of care as a director (including breaches resulting from
negligent or grossly negligent behavior) except in certain limited situations.
This provision does not limit or eliminate our rights or the rights of any
stockholder to seek non-monetary relief such as an injunction or rescission in
the event of a breach of a director's duty of care. These provisions will not
alter the liability of directors under federal securities laws.
Our Certificate of Incorporation and By-Laws provide that we shall
indemnify each director and officer and such of our employees and agents as the
board of directors shall determine from time to time to the fullest extent
provided by Delaware law. The By-Laws also provide that any officer, director or
employee whose written claim for indemnification is not paid by us within 90
days may sue us. Under the By-Laws it is a defense to any such suit that the
officer, director or employee has not met the standards of conduct that make it
permissible under Delaware law for our company to indemnify the officer,
director or employee for the amount claimed. The burden of proving that the
claim sought is not allowed under Delaware law shall be on our company.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling our
company pursuant to the foregoing provisions, we have been informed that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act of 1933 and is
therefore unenforceable.
Prior to the closing of this offering, we intend to obtain directors
and officers liability insurance.
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<PAGE> 65
TRANSFER AGENT
____________________ is the transfer agent and registrar for the common
stock.
LISTING
We intend to apply for quotation of our common stock on the Nasdaq
National Market under the trading symbol "FARE".
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. Future sales of substantial numbers of shares in the public market may
adversely affect the then prevailing market prices of our common stock.
Certain of the shares of common stock presently outstanding are
"restricted securities" as that term is defined in rule 144 under the Securities
Act of 1933, as amended, and any sales thereof must be in compliance with such
rule, pursuant to registration under the Securities Act of 1933 or pursuant to
an exemption therefrom. Generally, under rule 144, each person holding
restricted securities for a period of two years may, every three months, sell in
ordinary brokerage transactions or to market makers an amount of shares equal to
no more than the greater of 1% of our then outstanding common stock or the
average weekly trading volume for the four weeks prior to the proposed sale.
This limitation on the amount of shares which may be sold under rule 144 does
not apply to restricted securities sold for the account of a person who is not
or has not been an affiliate of Lowestfare.com during the three months prior to
the sale and who has beneficially owned the restricted securities for at least
three years.
All officers and directors, and all other stockholders and holders of
options to purchase our common stock have agreed not to sell or otherwise
transfer any shares of common stock or any of our other securities for a period
of 180 days after the date of this prospectus without the prior written consent
of BancBoston Robertson Stephens Inc. In addition, BancBoston Robertson Stephens
Inc. may, in their sole discretion, and at any time without notice, release all
or any portion of the securities subject to lock-up agreements.
In general, under rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted shares for at
least one year (including the holding period of any prior owner except an
Affiliate) would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of: (a) one percent of the number of
shares of common stock then outstanding (which will equal approximately
_____________ shares immediately after this offering) or (b) the average weekly
trading volume of the common stock on the Nasdaq National Market during the four
calendar weeks preceding the filing of a notice on form 144 with respect to such
sale. Sales under rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about our company. Under rule 144(k), a person who is not deemed to have been
our affiliate at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years
(including the holding period of any prior owner except an affiliate), is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of rule 144; therefore,
unless otherwise restricted and subject to the lock-up agreements, "144(k)
shares" may be sold immediately upon the completion of the offering. In general,
under Rule 701 of the Securities Act of 1933 as currently in effect, any
employee, consultant or advisor of Lowestfare.com who purchases shares from us
pursuant to rule 701 in connection with a compensatory stock or option plan or
other written agreement is eligible to resell such shares, unless contractually
restricted, 90 days after the effective date of the offering in reliance on rule
144, but without compliance with certain restrictions, including the holding
period, contained in rule 144.
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We are unable to estimate the number of shares that will be sold under
rule 144, as this will depend on the market price for our common stock, the
personal circumstances of the sellers and other factors. Prior to this offering,
there has been no public market for our common stock, and there can be no
assurance that a significant public market for our common stock, will develop or
be sustained after the offering. Any future sale of substantial amounts of
common stock in the open market may adversely affect the market price of the
common stock offered hereby.
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<PAGE> 67
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc. and Bear, Stearns & Co. Inc., have severally
agreed with us, subject to the terms and conditions set forth in the
underwriting agreement, to purchase from us the number of shares of common stock
set forth opposite their names below. The underwriters are committed to purchase
and pay for all such shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------- ---------
<S> <C>
BancBoston Robertson Stephens Inc...........
Bear, Stearns & Co. Inc.....................
---------
Total....................................
=========
</TABLE>
We have been advised by the representatives that the underwriters
propose to offer the shares of common stock to the public at the initial public
offering price set forth on the cover pages of this prospectus and to certain
dealers at such prices less a concession not in excess of $________ per share,
of which $________ may be reallowed to other dealers. After the initial public
offering, the public offering price, concession and reallowance to dealers may
be reduced by the representatives. No such reduction shall change the amount of
proceeds to be received by us as set forth on the cover page of this prospectus.
The common stock is offered by the underwriters as stated herein, subject to
receipt and acceptance by them and subject to their right to reject any order in
whole or in part.
The underwriters do not intend to confirm sales to any accounts over
which they exercise discretionary authority.
Over-Allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to ________ additional shares of common stock at the same price per
share as we will receive for the ________ shares that the underwriters have
agreed to purchase. To the extent that the underwriters exercise this option,
each of the underwriters will have a firm commitment to purchase approximately
the same percentage of such additional shares that the number of shares of
common stock to be purchased by it shown in the above table represents as a
percentage of the _______ shares offered hereby. If purchased, such additional
shares will be sold by the underwriters on the same terms as those on which the
_______ shares are being sold. We will be obligated, pursuant to the option, to
sell shares to the extent the option is exercised. The underwriters may exercise
such option only to cover over-allotments made in connection with the sale of
the shares of common stock offered hereby. If such option is exercised in full,
the total public offering price, underwriting discounts and commissions and
proceeds to us will be $________, $_________ and $________, respectively.
Indemnity. The underwriting agreement contains covenants of indemnity
among the underwriters and us against certain civil liabilities, including
liabilities under the Securities Act and liabilities arising form breaches of
representations and warranties contained in the underwriting agreement.
Lock-Up Agreements. Each of our executive officers, directors,
shareholders of record and optionholders has agreed with the representatives,
for a period of 180 days after the date of this prospectus, subject to certain
exceptions, not to offer to sell, contract to sell, or otherwise sell, dispose
of, loan, pledge or grant any rights with respect to any shares of common stock,
any options or warrants to purchase any shares of common stock, or any
securities convertible into or exchangeable for shares of common stock owned as
of the date of this prospectus or, with certain exceptions, thereafter acquired
directly by such holders or with respect to which they have or hereafter acquire
the power of disposition, without the prior written consent of BancBoston
Robertson Stephens Inc. However, BancBoston Robertson Stephens Inc. may, in its
sole
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discretion and at any time without notice, release all or any portion of the
securities subject to the lock-up agreements. There are no agreements between
the representatives and any of our shareholders providing consent by the
representatives to the sale of shares prior to the expiration of the period of
180 days after this prospectus.
Future Sales. In addition, we have agreed that during the period of 180
days after this prospectus, we will not, subject to certain exceptions, without
the prior written consent of BancBoston Robertson Stephens Inc.:
- consent to the disposition of any shares held by shareholders prior
to the expiration of the period of 180 days after this prospectus;
or
- issue, sell, contract to sell or otherwise dispose of, any shares
of common stock, any options or warrants to purchase any shares of
common stock or any securities convertible into, exercisable for or
exchangeable for shares of common stock, other than (1) the sale of
shares in this offering, (2) the issuance of common stock upon the
exercise or conversion of outstanding options and (3) our issuance
of incentive awards under the 1999 Stock Option Plan. See "Shares
Eligible for Future Sale."
Listing. We have filed an application to have the common stock approved
for quotation on the Nasdaq National Market under the symbol "FARE."
No Prior Public Market. Prior to this offering, there has been no
public market for our common stock. Consequently, the initial public offering
price for the common stock offered hereby will be determined through
negotiations between us and the representatives. Among the factors to be
considered in such negotiations are prevailing market conditions, certain of our
financial information, market valuations of other companies that we and the
representatives believe to be comparable to us, estimates of our business
potential, the present state of our development and other factors deemed
relevant.
Stabilization. The representatives have advised us that, pursuant to
regulation M under the Securities Act of 1933, certain persons participating in
this offering may engage in transactions, including stabilizing bids, syndicate
covering transactions or the imposition of penalty bids, that may have the
effect of stabilizing or maintaining the market price of the common stock at a
level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of the common stock on behalf of
the underwriters for the purpose of fixing or maintaining the price of the
common stock. A "syndicate covering transaction" is the bid for or the purchase
of the common stock on behalf of the underwriters to reduce a short position
incurred by the underwriters in connection with this offering. A "penalty bid"
is an arrangement permitting the representatives to reclaim the selling
concession otherwise accruing to an underwriter or syndicate member in
connection with this offering if the common stock originally sold by such
underwriter or syndicate member is purchased by the representatives in a
syndicate covering transaction and has therefore not been effectively placed by
such underwriter or syndicate member. The representatives have advised us that
such transactions may be effected on the Nasdaq National Market or otherwise
and, if commenced, may be discontinued at any time.
Directed Share Program. At our request, the underwriters have reserved
up to shares of common stock to be issued by us and offered hereby for sale, at
the initial public offering price, to directors, officers, employees, business
associates and related persons of Lowestfare.com. The number of shares of common
stock available for sale to the general public will be reduced to the extent
such individuals purchase such reserved shares. Any reserved shares which are
not so purchased will be offered by the underwriters to the general public on
the same basis as the other shares offered hereby.
67
<PAGE> 69
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be
passed upon for Lowestfare.com by Gordon Altman Butowsky Weitzen Shalov & Wein,
New York, New York. Certain legal matters relating to the offering will be
passed upon for the underwriters by Brobeck, Phleger & Harrison LLP, New York,
New York.
EXPERTS
The combined financial statements of Global Discount Travel Services
LLC and Global Travel Marketing Services, Inc. as of December 31, 1997 and 1998
and for each of the years in three year period ended December 31, 1998 and the
financial statements of Lowestfare.com, Inc. as of and for the period ended
December 31, 1998 have been included herein and in the Registration Statement in
reliance upon the reports of KPMG LLP, independent certified public accountants,
appearing elsewhere herein and in the Registration Statement, and upon the
authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 under the Securities Act of 1933, as amended,
with respect to the shares of common stock offered hereby. This prospectus does
not contain all of the information set forth in the Registration Statement and
in the exhibits and schedules thereto, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to Lowestfare.com and the common stock offered hereby,
reference is made to the Registration Statement and the exhibits and schedules
thereto. Statements contained in this prospectus regarding the contents of any
contract or other document to which reference is made are not necessarily
complete, and, in each instance where a copy of such contract or other document
has been filed as an exhibit to the Registration Statement, reference is made to
the copy so filed, each such statement being qualified in all respects by such
reference. Copies of such materials may be examined without charge at, or
obtained upon payment of prescribed fees from, the Public Reference Section of
the Commission at Room 1024 Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices located at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and at 7 World Trade Center, 13th
Floor, New York, New York 10048. In addition, the Commission maintains an
Internet site at http://www.sec.gov that contains reports, proxy and
registration statements and other information regarding registrants, including
Lowestfare.com, that file electronically with the Commission. For further
information pertaining to Lowestfare.com and the common stock offered by this
prospectus, reference is hereby made to the Registration Statement. Reports,
proxy statements and other information concerning Lowestfare.com may also be
inspected at the offices of the National Association of Securities Dealers, Inc.
at 1735 K Street, N.W., Washington, D.C. 20006.
----------
We intend to furnish our stockholders with annual reports containing
financial statements audited by our independent public accounting firm and
quarterly reports for the first three quarters of each fiscal year containing
unaudited financial information.
68
<PAGE> 70
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
LOWESTFARE.COM, INC.
Report of Independent
Auditors..................................................................................................F-2
Balance Sheet as of December 31, 1998..........................................................................F-3
Statement of Cash Flows for the period from August 15, 1998 (inception) to December 31, 1998...................F-4
Notes to Financial Statements..................................................................................F-5
GLOBAL DISCOUNT TRAVEL SERVICES LLC AND GLOBAL TRAVEL
MARKETING SERVICES, INC.
Report of Independent Auditors................................................................................F-10
Combined Balance Sheets as of December 31, 1997 and 1998......................................................F-11
Combined Statements of Operations for the years ended December 31, 1996, 1997 and 1998........................F-12
Combined Statements of Stockholder's/Member's Equity for the years ended December 31, 1996, 1997 and 1998.....F-13
Combined Statements of Cash Flows for the years ended December 31, 1996, 1997 and 1998........................F-14
Notes to Combined Financial Statements........................................................................F-15
</TABLE>
F-1
<PAGE> 71
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Lowestfare.com, Inc.:
We have audited the accompanying financial statements of Lowestfare.com, Inc.,
as listed in the accompanying index. The financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lowestfare.com, Inc. as of
December 31, 1998, and its cash flows for the period from August 15, 1998
(inception) through December 31, 1998, in conformity with generally accepted
accounting principles.
KPMG LLP
Las Vegas, Nevada
February 19, 1999, except for Note 2,
which is as of March 13, 1999
F-2
<PAGE> 72
LOWESTFARE.COM, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
ASSETS 1998
------------
<S> <C>
Current assets - cash............................................................... $ 1,000
=======
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value. Authorized 5,000,000 shares,
no shares issued and outstanding................................................ $ --
Common stock, $.01 par value. Authorized 75,000,000 shares,
issued and outstanding 100 shares............................................... 1
Additional paid-in capital.......................................................... 999
Subsequent events (note 2)
-------
$ 1,000
=======
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 73
LOWESTFARE.COM, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 15,
1998
(INCEPTION)
TO DECEMBER
31, 1998
--------------
<S> <C>
Cash flows from investing activities - proceeds from issuance of common stock............................ $ 1,000
--------
Net increase in cash and cash at end of period................................................ $ 1,000
========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 74
LOWESTFARE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
PERIOD FROM AUGUST 15, 1998 (INCEPTION)
TO DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
On August 15, 1998, Lowestfare.com, Inc. (the "Company") was incorporated
in Delaware for the purpose of holding investments in Global Discount
Travel Services LLC ("Global Discount Travel") and Global Travel
Marketing Services, Inc. ("Global Travel Marketing"). As of December 31,
1998, the Company had not commenced operations. Immediately prior to the
closing of an initial public offering of its common stock, the Company
will effect an organizational restructuring whereby Global Discount
Travel and Global Travel Marketing will become wholly-owned subsidiaries
of the Company. All three entities are under common control and
management (see note 4).
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, Reporting Comprehensive Income. SFAS No. 130 requires companies to
classify items of other comprehensive income by their nature in a
financial statement and display the accumulated balance of other
comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial
position, and is effective for financial statements issued for fiscal
years beginning after December 15, 1997. Comprehensive income of the
Company approximates net income; accordingly, SFAS No. 130 did not have a
material impact on the financial statements.
The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants ("AICPA") issued Statement of Position
("SOP") No. 98-1, Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use. The provisions of SOP 98-1 are effective
for fiscal years beginning after December 15, 1998 and require that
certain direct costs associated with such development are capitalized and
amortized and all remaining costs must be expensed when incurred.
Management is currently evaluating the impact of SOP No. 98-1.
2. SUBSEQUENT EVENTS
On March 13, 1999, the board of directors authorized the filing of a
registration statement for an initial public offering of the Company's
common stock. In connection with the initial public offering, the board
of directors intends to approve an amendment to the Company's Certificate
of Incorporation increasing the number of shares of common stock
authorized to 75,000,000, $.01 par value.
In March 1999, the Company established the Lowestfare.com, Inc. 1999
Stock Option Plan (the Plan). The Company has reserved 3,500,000 shares
of common stock for stock options to be granted under the Plan.
Immediately prior to the closing of the initial public offering, the
Company will issue 2,208,263 options to purchase the Company's common
stock with an exercise price of $5.07 per share. The options will be
issued to replace existing options issued to key employees of Global
Discount Travel under similar terms and prices, pursuant to the
organizational restructuring (see note 4). Accordingly, no compensation
expense will be recorded as a result of the issuance of the options under
the Plan. Compensation expense related to options to purchase 670,366
shares of common stock issued in February 1999 at a discount from the
fair market value at the date of the grant (calculated pursuant to
Accounting Principles Board Opinion No. 25) will be recorded in the
financial statements of Global Discount Travel ratably over three- and
four-year vesting period of the options. Options to purchase 1,537,897
shares of common stock issued to key employees of Global Discount Travel
in May 1998 and to a key employee of Global Travel Marketing in January
1998 had an exercise price which approximated the fair market value at
the time of grant. Future options to be issued under the Plan will be
granted with exercise prices greater than or equal to the fair market
value of the common stock on the date of grant.
F-5
<PAGE> 75
LOWESTFARE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
PERIOD FROM AUGUST 15, 1998 (INCEPTION)
TO DECEMBER 31, 1998
3. PREFERRED STOCK
The Company has authorized 5,000,000 shares of preferred stock, $.01 par
value. The board of directors has the authority to issue shares of
preferred stock in one or more classes or series. Each share of preferred
stock shall have certain rights and privileges as determined by the board
of directors. As of December 31, 1998, no shares of preferred stock had
been issued.
4. PRO FORMA INFORMATION (UNAUDITED)
Immediately prior to the closing of an initial public offering, the
Company will effect an organizational restructuring whereby Global
Discount Travel and Global Travel Marketing (predecessor companies) will
become wholly owned subsidiaries of the Company. Immediately prior to the
closing of this offering, all of the outstanding member interests in
Global Discount Travel and 100% of the common stock of Global Travel
Marketing will be contributed by Vauxhall LLC ("Vauxhall"), an entity
wholly owned by Mr. Carl C. Icahn, to the Company in exchange for
28,599,900 shares of common stock. As a result, Global Discount Travel
and Global Travel Marketing will become wholly owned subsidiaries of the
Company.
The transaction will be accounted for as a reorganization of entities
under common control and ownership. Carl C. Icahn, or entities 100% owned
by him, owns 100% of the outstanding common stock of Lowestfare.com, Inc.
and Global Travel Marketing and has a 100% member's interest in Global
Discount Travel. The predecessor historical cost basis in the net assets
of Global Discount Travel and Global Travel Marketing will not change as
a result of this restructuring and no goodwill or other intangible assets
will be recorded.
The following pro forma statement of operations for the year ended
December 31, 1998 represents the results of operations as if the
aforementioned organizational restructuring had occurred on January 1,
1998. Pro forma net income represents the results of operations adjusted
to reflect a pro forma provision for income taxes on historical net
income, which gives effect to the acquisition of Global Discount Travel
and Global Travel Marketing by Lowestfare.com, Inc. The following pro
forma balance sheet at December 31, 1998 represents the financial
position as if the restructuring had occurred on December 31, 1998.
Pro forma income per share has been computed pursuant to the provision of
Statement of Financial Accounting Standards Statement No. 128, Earnings
Per Share (SFAS No. 128). Under SFAS No. 128, the Company must present
Basic and Diluted earnings per share on the face of the statement of
operations. Basic earnings per share includes only the weighted average
shares outstanding during each of the periods. Pro forma basic income per
share reflects the issuance of shares for the acquisition of Global
Discount Travel and Global Travel Marketing by the Company and are
considered to be outstanding for all of 1998. Diluted income per share
also includes the dilutive effect of all options
F-6
<PAGE> 76
LOWESTFARE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
PERIOD FROM AUGUST 15, 1998 (INCEPTION)
TO DECEMBER 31, 1998
4. PRO FORMA INFORMATION (UNAUDITED) - (CONTINUED)
to purchase the Company's common stock. Options granted within one year
prior to the initial filing of a registration statement relating to an
initial public offering are treated as outstanding for all periods
presented when their impact is antidilutive. The following is a
reconciliation of the numerator and denominator for the basic and diluted
income per share:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998
---------------
<S> <C>
Pro forma net income used in basic and diluted income
per share.................................................. $ 9,056,000
Shares of common stock and common stock equivalents:
Basic:
Shares issued in the initial capitalization............ 100
Shares issued for acquisition of Global Discount Travel 28,599,900
and Global Travel Marketing............................
---------------
28,600,000
Diluted:
Dilutive effect of stock options.......................
---------------
===============
Income per share:
Basic.................................................... $ 0.32
===============
Diluted.................................................. $
===============
</TABLE>
No adjustment has been made to give effect to the Global Discount
Travel's earned and undistributed taxable LLC earnings through the LLC
termination date, which would be distributed as part of the LLC
distribution. On March 10, 1999, Global Discount Travel distributed
approximately $7,200,000 and, prior to the organizational restructuring,
intends to distribute approximately $1,200,000 to its members for payment
of the member's income tax liability for the year ended December 31, 1998
and for the two months ended February 28, 1999, respectively.
Effective with the consummation of the initial public offering and the
aforementioned organizational restructuring, Global Discount Travel and
Global Travel Marketing will become wholly-owned subsidiaries of
Lowestfare.com, Inc., and accordingly, the Company will record net
deferred tax assets of $4,200,000 related to the cumulative differences
between the basis of certain assets and liabilities for financial
reporting and income tax purposes. This amount will be recorded as income
tax benefit in the period in which the restructuring takes place.
F-7
<PAGE> 77
LOWESTFARE.COM, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS DECEMBER 31,
1998
-----------------
<S> <C>
Current assets:
Cash and cash equivalents............................................................................. $ 11,428,000
Restricted cash....................................................................................... 29,916,000
Accounts receivable, net.............................................................................. 1,746,000
Prepaid expenses and other current assets............................................................. 901,000
-----------------
Total current assets........................................................................... 43,991,000
Property and equipment, net............................................................................... 1,748,000
Deposits.................................................................................................. 2,011,000
Due from affiliates....................................................................................... 79,000
-----------------
Total assets................................................................................... $ 47,829,000
=================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Amounts payable for tickets purchased................................................................. $ 11,269,000
Due to affiliates..................................................................................... 92,000
Accrued tax........................................................................................... 8,211,000
Accrued ticket reimbursement.......................................................................... 4,322,000
Accrued expenses...................................................................................... 3,962,000
Current portion of capital lease obligations.......................................................... 108,000
-----------------
Total current liabilities...................................................................... 27,964,000
Long-term liabilities:
Long-term portion of capital lease obligations........................................................ 162,000
-----------------
Total liabilities.............................................................................. 28,126,000
-----------------
Stockholder's equity:
Preferred stock, $0.01 par value. Authorized 5,000,000 shares, no shares issued and outstanding...... --
Common stock, $0.01 par value. Authorized 75,000,000 shares, 28,600,000 shares issued and outstanding
286,000
Additional paid-in capital............................................................................ (184,000)
Retained earnings..................................................................................... 19,601,000
-----------------
Total stockholder's equity..................................................................... 19,703,000
-----------------
Total liabilities and stockholder's equity..................................................... $ 47,829,000
=================
</TABLE>
F-8
<PAGE> 78
LOWESTFARE.COM, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998
----------------
<S> <C>
Revenues.................................................................................................. $ 224,422,000
Cost of revenues.......................................................................................... 165,074,000
----------------
Gross profit................................................................................... 59,348,000
----------------
Operating expenses:
Commissions........................................................................................... 17,997,000
Salaries, wages and benefits.......................................................................... 11,774,000
Selling, general and administrative................................................................... 18,062,000
----------------
Total operating expenses....................................................................... 47,833,000
----------------
Operating income............................................................................... 11,515,000
----------------
Other income (expense):
Interest income....................................................................................... 2,633,000
Interest expense...................................................................................... (427,000)
----------------
Total other income (expense)................................................................... 2,206,000
----------------
Income before income taxes..................................................................... 13,721,000
Pro forma income taxes.................................................................................... 4,665,000
----------------
Pro forma net income........................................................................... $ 9,056,000
================
Pro forma net income per share:
Basic................................................................................................. $ 0.32
================
Diluted............................................................................................... $
================
Weighted average shares of common stock outstanding:
Basic............................................................................................... 28,600,000
================
Diluted.............................................................................................
================
</TABLE>
F-9
<PAGE> 79
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Global Discount Travel Services LLC and
Global Travel Marketing Services, Inc.:
We have audited the accompanying combined financial statements of Global
Discount Travel Services LLC and Global Travel Marketing Services, Inc. as
listed in the accompanying index. The combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Global
Discount Travel Services LLC and Global Travel Marketing Services, Inc. as of
December 31, 1997 and 1998, and the results of their combined operations and
their combined cash flows for each of the years in the three-year period ended
December 31, 1998, in conformity with generally accepted accounting principles.
KPMG LLP
Las Vegas, Nevada
February 19, 1999, except for the
tenth paragraph of Note 1, and
the first paragraph of Note 8,
which are as of March 10, 1999
F-10
<PAGE> 80
GLOBAL DISCOUNT TRAVEL SERVICES LLC
AND GLOBAL TRAVEL MARKETING SERVICES, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
ASSETS 1997 1998
--------------- ---------------
Current assets:
<S> <C> <C>
Cash and cash equivalents............................................................. $ 12,919,000 $ 11,427,000
Restricted cash....................................................................... 24,445,000 29,916,000
Accounts receivable, net.............................................................. 2,249,000 1,746,000
Prepaid expenses and other current assets............................................. 208,000 901,000
--------------- ---------------
Total current assets........................................................... 39,821,000 43,990,000
Property and equipment, net (note 2)...................................................... 1,972,000 1,748,000
Deposits.................................................................................. 2,210,000 2,011,000
Due from affiliates (note 4).............................................................. 1,421,000 79,000
--------------- ---------------
Total assets................................................................... $ 45,424,000 $ 47,828,000
=============== ===============
LIABILITIES AND STOCKHOLDER'S/MEMBER'S EQUITY
Current liabilities:
Amounts payable for tickets purchased................................................. $ 16,694,000 $ 11,269,000
Due to affiliates and related parties (note 4)........................................ 11,718,000 92,000
Accrued tax........................................................................... 3,786,000 8,211,000
Accrued ticket reimbursement.......................................................... 2,402,000 4,322,000
Accrued expenses...................................................................... 4,474,000 3,962,000
Current portion of capital lease obligations (note 3)................................. 99,000 108,000
--------------- ---------------
Total current liabilities...................................................... 39,173,000 27,964,000
Long-term liabilities:
Long-term portion of capital lease obligations (notes 3 and 5)........................ 270,000 162,000
--------------- ---------------
Total liabilities.............................................................. 39,443,000 28,126,000
--------------- ---------------
Commitments, contingencies and subsequent events (notes 5 and 8)
Stockholder's/member's equity:
Common stock, $0.01 par value. Authorized, issued and outstanding
2,500 shares........................................................................ 1,000 1,000
Contributed capital................................................................... 100,000 100,000
Retained earnings..................................................................... 5,880,000 19,601,000
--------------- ---------------
Total stockholder's/member's equity............................................ 5,981,000 19,702,000
--------------- ---------------
Total liabilities and stockholder's/member's equity............................ $ 45,424,000 $ 47,828,000
=============== ===============
</TABLE>
See accompanying notes to combined financial statements.
F-11
<PAGE> 81
GLOBAL DISCOUNT TRAVEL SERVICES LLC
AND GLOBAL TRAVEL MARKETING SERVICES, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1996 1997 1998
---------------- ----------------- -----------------
<S> <C> <C> <C>
Revenues......................................................... $ 116,917,000 $ 200,711,000 $ 224,422,000
Cost of revenues................................................. 86,974,000 148,421,000 165,074,000
---------------- ----------------- -----------------
Gross profit............................................. 29,943,000 52,290,000 59,348,000
---------------- ----------------- -----------------
Operating expenses:
Commissions.................................................. 11,658,000 20,022,000 17,997,000
Salaries, wages and benefits................................. 9,146,000 10,605,000 11,774,000
Selling, general and administrative.......................... 11,371,000 17,134,000 18,062,000
---------------- ----------------- -----------------
Total operating expenses................................. 32,175,000 47,761,000 47,833,000
---------------- ----------------- -----------------
Operating income (loss).................................. (2,232,000) 4,529,000 11,515,000
---------------- ----------------- -----------------
Other income (expense):
Interest income.............................................. 1,186,000 3,602,000 2,633,000
Interest expense............................................. (23,000) (127,000) (427,000)
---------------- ----------------- -----------------
Total other income (expense)............................. 1,163,000 3,475,000 2,206,000
---------------- ----------------- -----------------
Net income (loss)........................................ $ (1,069,000) $ 8,004,000 $ 13,721,000
================ ================= =================
SUPPLEMENTAL INFORMATION (UNAUDITED) (NOTE 1):
Gross bookings............................................. $ 116,917,000 $ 201,016,000 $ 232,714,000
================ ================= =================
</TABLE>
See accompanying notes to combined financial statements.
F-12
<PAGE> 82
GLOBAL DISCOUNT TRAVEL SERVICES LLC
AND GLOBAL TRAVEL MARKETING SERVICES, INC.
COMBINED STATEMENTS OF STOCKHOLDER'S/MEMBER'S EQUITY
<TABLE>
<CAPTION>
TOTAL
STOCKHOLDER'S/
COMMON CONTRIBUTED RETAINED MEMBER'S
STOCK CAPITAL EARNINGS EQUITY
---------- ------------ --------------- ----------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995............................. $ 1,000 $ 100,000 $ (1,055,000) $ (954,000)
Net loss............................................. -- -- (1,069,000) (1,069,000)
---------- ------------ --------------- ----------------
Balance at December 31, 1996............................. 1,000 100,000 (2,124,000) (2,023,000)
Net income........................................... -- -- 8,004,000 8,004,000
---------- ------------ --------------- ----------------
Balance at December 31, 1997............................. 1,000 100,000 5,880,000 5,981,000
Net income........................................... -- -- 13,721,000 13,721,000
---------- ------------ --------------- ----------------
Balance at December 31, 1998............................. $ 1,000 $ 100,000 $ 19,601,000 $ 19,702,000
========== ============ =============== ================
</TABLE>
See accompanying notes to combined financial statements.
F-13
<PAGE> 83
GLOBAL DISCOUNT TRAVEL SERVICES LLC
AND GLOBAL TRAVEL MARKETING SERVICES, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1996 1997 1998
--------------- --------------- ---------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................................................ $ (1,069,000) $ 8,004,000 $ 13,721,000
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization................................ 277,000 555,000 562,000
Changes in operating assets and liabilities:
Restricted cash............................................ (4,946,000) (8,728,000) (5,471,000)
Accounts receivable........................................ (2,056,000) 728,000 503,000
Prepaid expenses and other current assets.................. (124,000) (29,000) (693,000)
Deposits................................................... (2,210,000) -- 199,000
Due from affiliates........................................ (437,000) (984,000) 1,342,000
Amount payable for tickets purchased....................... 11,931,000 (3,337,000) (5,425,000)
Due to affiliates.......................................... 5,303,000 1,812,000 (11,626,000)
Accounts payable........................................... (244,000) -- --
Accrued tax................................................ 800,000 2,986,000 4,425,000
Accrued ticket reimbursement............................... 247,000 1,231,000 1,920,000
Accrued expenses........................................... 2,868,000 1,604,000 (512,000)
--------------- --------------- ---------------
Net cash provided by (used in) operating activities.... 10,340,000 3,842,000 (1,055,000)
--------------- --------------- ---------------
INVESTING ACTIVITIES:
Acquisition of property and equipment............................ (1,198,000) (933,000) (338,000)
Proceeds from sale of equipment.................................. 223,000 -- --
--------------- --------------- ---------------
Net cash used in investing activities.................. (975,000) (933,000) (338,000)
--------------- --------------- ---------------
Net cash flows used in financing activities - payments on capital
lease obligations................................................ (35,000) (109,000) (99,000)
--------------- --------------- ---------------
Net increase (decrease) in cash and cash equivalents... 9,330,000 2,800,000 (1,492,000)
Cash and cash equivalents, beginning of year......................... 789,000 10,119,000 12,919,000
--------------- --------------- ---------------
Cash and cash equivalents, end of year............................... $ 10,119,000 $ 12,919,000 $ 11,427,000
=============== =============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Amount paid for interest......................................... $ 17,000 $ 46,000 $ 26,000
=============== =============== ===============
Property and equipment purchased with capital lease.............. $ 514,000 $ -- $ --
=============== =============== ===============
</TABLE>
See accompanying notes to combined financial statements.
F-14
<PAGE> 84
GLOBAL DISCOUNT TRAVEL SERVICES LLC
AND GLOBAL TRAVEL MARKETING SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
The accompanying combined financial statements include the accounts of
Global Discount Travel Services LLC ("Global Discount Travel") and Global
Travel Marketing Services, Inc. ("Global Travel Marketing") (collectively
the "Company"). Both entities are owned and controlled by common
ownership. Global Discount Travel is a Nevada Limited Liability Company
and provides discount travel products and services to the leisure and
small business traveler. The travel product offerings are available
through the Company's (1) Web site (www.Lowestfare.com), (2) toll-free
telephone reservation and customer service center and (3) affiliations
with travel agencies which are authorized to sell discount airline
tickets on Trans World Airlines, Inc. (the "Contracting Airline). Global
Travel Marketing, a Nevada Corporation organized as a C Corporation,
provides marketing and advertising services on behalf of Global Discount
Travel. On June 14, 1995, the Contracting Airline and Karabu Corp.
("Karabu") entered into an agreement whereby Karabu may purchase tickets
for passenger travel on the Contracting Airline at discounts from
published fares through September 2003. By agreement dated August 14,
1995, Global Discount Travel was joined as a party to this ticket program
agreement as if an original signatory.
In August 1998, a new company, Lowestfare.com, Inc., a Delaware Corp.,
was formed and to date has had no operations. Lowestfare.com, Inc. is
owned and controlled by the same group as the Company. Immediately prior
to the closing of an initial public offering of Lowestfare.com, Inc.'s
common stock, the Company will effect an organizational restructuring
whereby Global Discount Travel and Global Travel Marketing will become
wholly owned subsidiaries of Lowestfare.com, Inc. Accordingly, the
combined financial statements of Global Discount Travel and Global Travel
Marketing for the years presented herein are predecessor operations to
the comparable entity which will exist on a post-offering basis.
CASH EQUIVALENTS
Cash equivalents include highly liquid investments purchased with an
original maturity date of three months or less.
RESTRICTED CASH
Restricted cash consists of amounts held by the Company's merchant bank
as security for the collection of credit card payments from the customer
for which we are the merchant of record. Approximately 50 percent of the
funds is released on the day of customer travel, and the remaining amount
is released upon completion of the itinerary.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated over their
estimated useful lives of 5 years. Expenditures for maintenance and
repairs are expensed when incurred. Property and equipment held under
capital leases are stated at the present value of minimum lease payments.
Amortization of property and equipment held under capital leases and
leasehold improvements is computed on a straight-line basis over the
shorter of the lease terms or estimated useful lives of the assets.
REVENUE RECOGNITION
Revenues from sales of airline tickets, including the associated taxes
and other travel products and services for which the Company is the
credit card merchant of record, are recorded at the aggregate retail
value upon booking. Revenues earned from sales of travel products and
services, in which the travel provider is the credit card merchant of
record, are recognized upon receipt and are recorded at the commission
amount.
F-15
<PAGE> 85
GLOBAL DISCOUNT TRAVEL SERVICES LLC
AND GLOBAL TRAVEL MARKETING SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the combined financial
statements and the reported amounts of revenues and expenses during the
reporting periods to prepare these combined financial statements in
conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform to the
current year presentation.
INCOME TAXES
Global Discount Travel is taxed as a limited liability company under the
Internal Revenue Code provisions. According to these provisions, Global
Discount Travel does not pay income tax on its income. Instead, the
member of Global Discount Travel is liable for income tax on the taxable
income as it affects the member's income tax returns. Accordingly, a
provision for historical income taxes has not been included in the
accompanying combined financial statements. Global Travel Marketing is a
Nevada C Corporation. Global Travel Marketing is a wholly owned
subsidiary of Icahn Associates Corp., a related party, and receives an
income tax allocation for its share of consolidated income tax expense.
The income tax expense of Global Travel Marketing is not material to the
combined financial statements. Deferred tax assets for Global Travel
Marketing are immaterial to the combined financial statements.
No adjustment has been made to give effect to the Global Discount
Travel's earned and undistributed taxable LLC earnings through the LLC
termination date, which would be distributed as part of the LLC
distribution. On March 10, 1999, Global Discount Travel distributed
approximately $7,200,000 and, prior to the organizational restructuring,
intends to distribute approximately $1,200,000 to its members for payment
of their income tax liability for the year ended December 31, 1998 and
for the two months ended February 28, 1999, respectively.
START-UP COSTS
Start-up costs are expensed as incurred.
ADVERTISING EXPENSES
The Company expenses advertising as incurred. Advertising expense
aggregated $2,323,000, $4,149,000 and $3,514,000 for the years ended
December 31, 1996, 1997 and 1998, respectively.
STOCK COMPENSATION
The Company has adopted Statement of Financial Accounting Standards
Statement No. 123, Accounting for Stock-Based Compensation (SFAS No.
123), and has elected to measure compensation cost under Accounting
Principles Board Opinion No. 25 and comply with the pro forma disclosure
requirements of SFAS No. 123.
F-16
<PAGE> 86
GLOBAL DISCOUNT TRAVEL SERVICES LLC
AND GLOBAL TRAVEL MARKETING SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
SUPPLEMENTAL INFORMATION (UNAUDITED)
Gross bookings represent the aggregate retail value of travel products
and services sold. Gross bookings are not required to be disclosed by
generally accepted accounting principles ("GAAP") and should not be
considered in isolation or as a substitute for other information prepared
in accordance with GAAP. Management believes that gross bookings provide
a more consistent comparison between historical periods than revenues. In
addition, management believes that gross bookings are meaningful because
such information is a useful measure of market acceptance and the results
of the Company's operations.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, Reporting Comprehensive Income. SFAS No. 130 requires companies to
classify items of other comprehensive income by their nature in a
financial statement and display the accumulated balance of other
comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial
position, and is effective for financial statements issued for fiscal
years beginning after December 15, 1997. Comprehensive income of the
Company approximates net income; accordingly, SFAS No. 130 did not have a
material impact on the combined financial statements.
The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants ("AICPA") issued Statement of Position
("SOP") No. 98-1, Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use. The provisions of SOP 98-1 are effective
for fiscal years beginning after December 15, 1998 and require that
certain direct costs associated with such development are capitalized and
amortized and all remaining costs must be expensed when incurred.
Management is currently evaluating the impact of SOP No. 98-1.
LONG-LIVED ASSETS
The Company accounts for long-lived assets at amortized cost. As part of
an ongoing review of the valuation and amortization of long-lived assets,
management assesses the carrying value of such assets if facts and
circumstances suggest that such assets may be impaired. If this review
indicates that the assets will not be recoverable, as determined by a
nondiscounted cash flow analysis over the remaining amortization period,
the carrying value of the assets would be reduced to its estimated fair
market value, based on discounted cash flows.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1997 1998
-------------- --------------
<S> <C> <C>
Computer hardware and software......................... $ 755,000 $ 963,000
Furniture and office equipment......................... 1,067,000 1,137,000
Leasehold improvements................................. 872,000 938,000
-------------- --------------
2,694,000 3,038,000
Less accumulated depreciation and amortization......... 722,000 1,290,000
-------------- --------------
$ 1,972,000 $ 1,748,000
============== ==============
</TABLE>
F-17
<PAGE> 87
GLOBAL DISCOUNT TRAVEL SERVICES LLC
AND GLOBAL TRAVEL MARKETING SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
3. CAPITAL AND OPERATING LEASES
The Company is obligated under capital leases for certain equipment
expiring in 2001. The gross amount of office equipment and related
amortization recorded under capital leases is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1998
------------ -----------
<S> <C> <C>
Office equipment............................................ $ 593,000 $ 593,000
Less accumulated depreciation............................... 168,000 270,000
------------ -----------
$ 425,000 $ 323,000
============ ===========
</TABLE>
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) and future
minimum capital lease payments as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------------ --------------
<S> <C> <C>
Years ending December 31:
1999........................................................ $ 125,000 $ 553,000
2000........................................................ 125,000 420,000
2001........................................................ 73,000 22,000
2002........................................................ -- 22,000
------------ --------------
Net minimum lease payments................................ 323,000 $ 1,017,000
==============
Less amounts representing interest................................ 53,000
------------
Present value of net minimum capital lease payments....... 270,000
Less current portion of obligations under capital leases 108,000
------------
Obligations under capital leases excluding current portion $ 162,000
============
</TABLE>
The Company leases its office facilities under an operating lease, which
expires in September 2000. Rent expense for the years ended December 31,
1996, 1997 and 1998 was $333,000, $413,000 and $475,000, respectively.
The carrying amount of capital leases approximates fair value at December
31, 1998.
4. RELATED PARTY TRANSACTIONS
Global Travel Marketing has contracted with Global Discount Travel to
solicit sales of Global Discount Travel tickets through travel agencies
and coordinate Global Discount Travel's advertising and marketing
programs. Fees paid to Global Travel Marketing are based on the actual
costs incurred plus a 1% fee. All amounts were eliminated in combination.
Karabu held a note receivable from the Contracting Airline which was
repaid by Global Discount Travel in October 1997 through the application
of payments due under the Ticket Program Agreement. On June 14, 1995, the
Contracting Airline and Karabu entered into an agreement whereby Karabu
may purchase tickets for passenger travel on the Contracting Airline at
discounts from published fares through September 2003. By agreement dated
August 14, 1995, Global Discount Travel was joined as a party to this
ticket program agreement as if an original signatory. Karabu and Global
Discount Travel share common ownership. As of December 31, 1997 and 1998,
due to affiliates and related parties include amounts payable to Karabu
in the amounts of $9,000,000, and $-0-, respectively.
F-18
<PAGE> 88
GLOBAL DISCOUNT TRAVEL SERVICES LLC
AND GLOBAL TRAVEL MARKETING SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
4. RELATED PARTY TRANSACTIONS - (CONTINUED)
Astute Discount Travelers' Club, LLC ("Astute") purchases airline tickets
from Global Discount Travel at a discounted cost and sells them to Travel
Club members. Astute and Global Discount Travel share common ownership.
As of December 31, 1997 and 1998, Global Discount Travel has included
$2,470,000 and $-0-, respectively, in amounts due to affiliates and
related parties for the purchase of these tickets. As of December 31,
1997 and 1998, Astute owed Global Discount Travel $1,421,000 and $79,000,
respectively, for repayment of operating expenses. As of March 31, 1998,
Astute has been discontinued.
ACF Industries, a shareholder of a majority owner of Global Discount
Travel, processes payments on behalf of Global Discount Travel for
insurance coverage and legal services rendered by external third party
legal counsel. As of December 31, 1997 and 1998, Global Discount Travel
included in amounts due to affiliates and related parties $248,000 and
$92,000, respectively, which represents amounts due to ACF Industries for
the reimbursement of legal expenses paid on behalf of the Company. As of
December 31, 1997, the Company had repaid in full all amounts loaned
since inception through December 31, 1997.
5. COMMITMENTS AND CONTINGENCIES
LITIGATION
On March 20, 1996, the Contracting Airline filed a petition (the
"Petition") in the Circuit Court for St. Louis County, Missouri,
commencing a lawsuit against Carl C. Icahn, Karabu, Global Discount
Travel and certain other entities affiliated with Icahn (collectively,
the "Icahn Entities"). The Petition alleged that the Icahn entities are
violating a ticket program agreement and otherwise tortiously interfering
with the Contracting Airline's business expectancy and contractual
relationships, by, among other things, marketing and selling tickets
("System Tickets") purchased under the ticket program agreement to
leisure travelers. System Tickets are tickets for all applicable classes
of tickets and may be purchased by Global Discount Travel from the
Contracting Airline at a discount from the Contracting Airline's
published fare. The Petition sought a declaratory judgment finding that
the Icahn Entities have violated the ticket program agreement, and also
sought approximately $300 million in liquidated, compensatory and
punitive damages, in addition to the Contracting Airline's costs and
attorney's fees. The Icahn Entities responded with counterclaims alleging
that the Contracting Airline had damaged Global Discount Travel by
interfering with its sales of System Tickets.
In December of 1997, a non-jury trial commenced. The trial was completed
in January 1998. On May 7, 1998, the Court denied the Petition and
dismissed the Icahn Entities' counterclaims. No damage was assessed in
respect of either the Contracting Airline's or the Icahn Entities'
petitions. The Court found that the ticket program agreement was clear on
its face and that Global Discount Travel's sales of system tickets to
leisure travelers did not breach the ticket program agreement. The Court
found that, in any event, neither the Contracting Airline nor Global
Discount Travel had proven any damages.
The Icahn Entities moved to amend or modify the Court's ruling to include
a declaratory judgment that the Icahn Entities are permitted to sell
tickets to any person for any purpose, which could include use by the
purchaser's family members or friends. The Contracting Airline opposed
this motion and requested that the Court clarify the ruling to limit its
scope, specifically that the leisure traveler purchasing a ticket must
use the ticket and may not purchase a ticket for any other person,
including friends or family members. The court denied both motions on
June 25, 1998. The Contracting Airline has appealed the denial of its
motion for clarification and the Court's original ruling.
F-19
<PAGE> 89
GLOBAL DISCOUNT TRAVEL SERVICES LLC
AND GLOBAL TRAVEL MARKETING SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
5. COMMITMENTS AND CONTINGENCIES - (CONTINUED)
The Contracting Airline filed its appeal brief on February 26, 1999,
which contains its arguments for overturning the court's ruling. The
Company plans to vigorously defend against the Contracting Airline's
arguments on appeal, but there can be no assurance that Global Discount
Travel will succeed on all or part of the Contracting Airline's appeal.
If the Contracting Airline succeeds on appeal and all or part of the
lower court's decision in Global Discount Travel's favor is reversed or
modified, Global Discount Travel may lose its right to purchase certain
types of tickets under the ticket program agreement and may be required
to pay damages to the Contracting Airline, which could be substantial. If
Global Discount Travel loses its right to purchase tickets under the
ticket program agreement, such a result would materially and adversely
affect the business, results of operations and financial condition.
The Company is also involved in other legal and administrative
proceedings and claims of various types. While any litigation contains an
element of uncertainty, management believes that the outcome of each
proceeding or claim which is pending or known to be threatened (including
the action described above), or all of them combined, will not have a
material adverse effect on the Company's financial position or results of
operations.
ADVERTISING CONTRACTS
The Company has entered into several advertising contracts on various
Internet web sites, which contracts run through September 2001. The
agreements provide for monthly or quarterly payments, and are summarized
as follows:
<TABLE>
<S> <C>
Years ending December 31:
1999............................................. $ 10,446,000
2000............................................. 6,872,000
2001............................................. 4,988,000
-------------
$ 22,306,000
=============
</TABLE>
6. SEGMENT DATA
The Company has adopted Financial Accounting Standards Board Statement
No. 131, Disclosures About Segments of an Enterprise and Related
Information (SFAS No. 131). SFAS No. 131 establishes standards for the
way public business enterprises are to report selected information about
operating segments. The determination of an entity's operating segments
is based upon a management approach, which is based on the way management
organizes the segments within the enterprise for making operating
decisions and assessing performance.
The Company operates in three distinct operating segments, organized by
distribution channel, (1) sales through its Web site (www.Lowestfare.com)
(Internet), (2) direct sales through its toll-free telephone reservation
and customer service center (Call-in), and (3) sales through its
affiliations with more than 800 travel agencies (Agency). All of the
Company's segments offer discount travel products and services for the
leisure and small business traveler.
F-20
<PAGE> 90
GLOBAL DISCOUNT TRAVEL SERVICES LLC
AND GLOBAL TRAVEL MARKETING SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
6. SEGMENT DATA - (CONTINUED)
Summary information about the Company's segments is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------------------------
INTERNET CALL-IN AGENCY
--------------- ---------------- ----------------
<S> <C> <C> <C>
Revenues...................................... $ 12,000 $ 26,778,000 $ 90,127,000
Cost of revenues.............................. 9,000 19,924,000 67,041,000
--------------- ---------------- ----------------
Gross profit....................... 3,000 6,854,000 23,086,000
Operating expenses............................ 2,000 6,996,000 25,177,000
--------------- ---------------- ----------------
Operating income (loss)............ $ 1,000 $ (142,000) $ (2,091,000)
=============== ================ ================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------------------------------
INTERNET CALL-IN AGENCY
--------------- ---------------- ----------------
<S> <C> <C> <C>
Revenues...................................... $1,669,000 $ 46,802,000 $ 152,240,000
Cost of revenues.............................. 1,196,000 33,716,000 113,509,000
--------------- ---------------- ----------------
Gross profit....................... 473,000 13,086,000 38,731,000
Operating expenses............................ 202,000 13,196,000 34,363,000
--------------- ---------------- ----------------
Operating income (loss)................. $ 271,000 $ (110,000) $ 4,368,000
=============== ================ ================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------------------------
INTERNET CALL-IN AGENCY
--------------- ---------------- ----------------
<S> <C> <C> <C>
Revenues...................................... $ 8,585,000 $63,997,000 $ 151,840,000
Cost of revenues.............................. 6,340,000 46,766,000 111,968,000
--------------- ---------------- ----------------
Gross profit....................... 2,245,000 17,231,000 39,872,000
Operating expenses............................ 4,554,000 14,861,000 28,418,000
--------------- ---------------- ----------------
Operating income (loss)............ $(2,309,000) $ 2,370,000 $ 11,454,000
=============== ================ ================
</TABLE>
The Company has made certain allocations of centrally incurred indirect
expenses based upon management's estimates of the time spent on
activities performed in each segment. Direct expenses were recorded in
each segment whenever possible. Management does not review any balance
sheet data at the operating segment level; therefore, no such segment
data has been provided. There are no significant transactions between the
Company's segments and no significant reconciling items are required for
agreeing the operating segment data to the combined financial statements
data. In addition, depreciation and amortization of property and
equipment is immaterial to the Company's combined financial statements,
and accordingly, segment data related to such has not been presented.
Management does not allocate, and accordingly does not review, costs and
expenses below operating income (loss); therefore nonoperating items such
as interest are not presented.
All of the Company's revenues are derived in the United States. All of
the Company's assets are domiciled in the United States.
F-21
<PAGE> 91
GLOBAL DISCOUNT TRAVEL SERVICES LLC
AND GLOBAL TRAVEL MARKETING SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
7. STOCK OPTIONS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation
(SFAS No. 123), in October 1995. SFAS No. 123 defines a fair value method
of accounting for an employee stock option or similar instrument and
encourages all entities to adopt that method of accounting for all of
their employee stock compensation plans. However, it allows an entity to
continue to measure the compensation cost for these plans using the
intrinsic value based method of accounting prescribed by Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees
(APB NO. 25). Entities electing to remain with the accounting in APB No.
25 must make pro forma disclosures of net earnings and earnings per
share, as if the fair value based method of accounting defined in SFAS
No. 123 had been applied.
In May 1998, Global Discount Travel issued 1,537,897 options to purchase
its common stock to certain key employees and to a key employee of Global
Travel Marketing in January 1998. The Company accounted for these options
pursuant to APB No. 25. The exercise price of the options granted
approximated the fair market value of the stock on the date of grant;
therefore, no compensation expense pursuant to APB No. 25 was recorded
during 1998. Had the Company's compensation cost for its stock options
been determined pursuant to SFAS No. 123, the Company's net earnings for
the year ended December 31, 1998 would have been reduced to $9,299,000.
The fair value of the option grants are estimated under SFAS No. 123 on
the date of grant using the Black-Scholes option-pricing model with the
weighted average assumptions used for all stock options granted during
1998 as follows: dividend yield 0%, expected volatility 20%, risk-free
interest rate of 6.5% and expected life of 3 years.
As of December 31, 1998, 1,537,897 options to purchase common stock are
outstanding at an exercise price of $5.07 per share. The options vest
over three and four year periods. No options were exercisable at December
31, 1998.
In February 1999, Global Discount Travel granted 670,366 options to
purchase its common stock at an exercise price of $5.07 per share.
Pursuant to APB No. 25, the Company will record compensation expense
ratably over the three and four year vesting periods of the options.
Immediately prior to the closing of an initial public offering of
Lowestfare.com, Inc., the Company will effect an organizational
restructuring whereby Global Discount Travel and Global Travel Marketing
will become wholly owned subsidiaries of Lowestfare.com, Inc. As a result
all outstanding stock options granted to date will be canceled and
exchanged for options to purchase common stock of Lowestfare.com, Inc.
under similar terms and exercise prices.
8. SUBSEQUENT EVENTS
On January 19, 1999, Global Discount Travel made a loan to Global
Partner, Inc., an entity controlled by Carl C. Icahn and a member of
Global Discount Travel, for $4,300,000 at the prime rate, plus one-half
percent per year. This loan was repaid on March 10, 1999.
Immediately prior to the closing of the initial public offering, the
Company will effect an organizational restructuring whereby Global
Discount Travel and Global Travel Marketing will become wholly owned
subsidiaries of Lowestfare.com, Inc. Immediately prior to the closing of
the initial public offering, all of the outstanding member interests in
Global Discount Travel and 100% of the common stock of Global Travel
Marketing will be contributed by Vauxhall LLC ("Vauxhall"), an entity
wholly owned by Mr. Carl C. Icahn, to Lowestfare.com, Inc. in exchange
for 28,599,900 shares of common stock.
F-22
<PAGE> 92
GLOBAL DISCOUNT TRAVEL SERVICES LLC
AND GLOBAL TRAVEL MARKETING SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
8. SUBSEQUENT EVENTS - (CONTINUED)
The transaction will be accounted for as a reorganization of entities
under common control and ownership. Carl C. Icahn, or entities 100% owned
by him, owns 100% of the outstanding common stock of Global Travel
Marketing and Lowestfare.com, Inc. and has a 100% member's interest in
Global Discount Travel. The basis in the assets of Global Discount Travel
and Global Travel Marketing will not change as a result of this
restructuring and no goodwill or other intangible assets will be
recorded. Accordingly, the historical cost of the assets on a combined
basis for Global Discount Travel and Global Travel Marketing prior to the
restructuring will be the same as that for Lowestfare.com, Inc. on a
consolidated basis.
F-23
<PAGE> 93
[inside back-cover page]
[PICTURES OF LOWESTFARE.COM
EMPLOYEES AND FACILITIES]
<PAGE> 94
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. Other Expenses of Issuance and Distribution.
Estimated expenses (other than underwriting discounts and commissions)
payable in connection with the sale of Lowestfare.com's common stock offered
hereby are as follows:
<TABLE>
<S> <C>
SEC Registration Fee...................................... $ 38,364
NASD Filing Fee........................................... 14,200
Nasdaq National Marketing Listing Fee..................... *
Blue Sky Qualification Fees and Expenses.................. *
Printing and Engraving.................................... *
Legal Fees and Expenses................................... *
Accounting Fees and Expenses.............................. *
Directors' and Officers' liability insurance.............. *
Transfer Agent's Fees and Expenses........................ *
Miscellaneous............................................. *
---------
Total.................................................. $ *
=========
</TABLE>
- -----------------------------------
* To be filed by amendment.
ITEM 14. Indemnification of Directors and Officers.
Section 102(b)(7) of the Delaware General Corporation Law permits a
provision in the Certificate of Incorporation of each corporation organized
thereunder, such as Lowestfare.com, eliminating or limiting, with certain
exceptions, the personal liability of a director of the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
Our Certificate of Incorporation eliminates the personal liability of its
directors for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
Lowestfare.com or its stockholders; (ii) for acts of omissions not in good faith
or that involve intentional misconduct or a knowing violation of law; (iii)
under section 174 of the Delaware law (regarding payments of dividends, stock
purchases or redemptions which are unlawful); or (iv) for any transaction from
which the director derived an improper personal benefit.
Section 145 of the Delaware law contains detailed provisions on
indemnification of directors and officers against expenses, judgments, fines and
amounts paid in settlement, actually and reasonably incurred in connection with
legal proceedings. Lowestfare.com's Certificate of Incorporation requires
Lowestfare.com to indemnify its directors and officers to the fullest extent
permitted by Section 145 of the Delaware law. As permitted by the Delaware law,
Lowestfare.com's By-Laws provide that (i) Lowestfare.com is permitted to
indemnify its other employees and agents to the extent that it indemnifies its
officers and directors, unless otherwise required by law, its Certificate of
Incorporation, its By-Laws or agreements; and (ii) Lowestfare.com is required to
advance expenses, as incurred, to its directors and officers in connection with
a legal proceeding to the fullest extent permitted by the Delaware law, subject
to certain very limited exceptions. The By-Laws also provide that any officer,
director or employee whose written claim for indemnification is not paid by us
within 90 days may sue us. Under the By-Laws it is a defense to any such suit
that the officer, director or employee has not met the standards of conduct that
make it permissible under Delaware law for our company to indemnify the officer,
director or employee for the amount claimed. The burden of proving that the
claim sought is not allowed under Delaware law shall be on our company.
II-1
<PAGE> 95
Under Lowestfare.com's By-Laws, Lowestfare.com is authorized to, and
has purchased, insurance covering Lowestfare.com's directors and officers
against liability asserted against them in their capacity as such. Reference is
made to the Underwriting Agreement contained in Exhibit 1.1 hereto, the
underwriters are obligated, under certain circumstances, to indemnify officers
and directors of Lowestfare.com against certain liabilities, including
liabilities under the Securities Act of 1933.
ITEM 15. Recent Sales of Unregistered Securities.
The following sets forth all securities of Lowestfare.com, Inc. sold by
Lowestfare.com, Inc. within the past three years which were not registered under
the Securities Act of 1933:
Common Stock. Immediately prior to the closing of the offering:
- all of the outstanding member interests in Global Discount
Travel and all of the outstanding common stock of Global
Travel Marketing will be contributed by Vauxhall LLC, an
entity wholly-owned by Mr. Icahn, to Lowestfare.com, Inc. in
exchange for 28,599,900 shares of common stock of
Lowestfare.com, Inc.
Options. The Registrant from time to time has granted stock options to
employees. The following table sets forth certain information regarding such
grants during the past fiscal year:
In May 1998, Global Discount Travel issued an aggregate of 1,537,897
options to purchase common stock of Global Discount Travel to Ms. Golden and
Messrs. Glass, O'Neal, Martinelli, Monton, Lanner and Lay.
The above securities were offered and sold by the Registrant in
reliance upon exemptions from registration pursuant to either (i) Section 4(a)
of the Securities Act of 1933, as transactions not involving any public
offering, or (ii) Rule 701 under Section 3(b) of the Securities Act, as
transactions pursuant to compensatory benefit plans and contracts relating to
compensation as provided under such Rule 701. No underwriters were involved in
connection with the sales of securities referred to in this Item 15.
II-2
<PAGE> 96
ITEM 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
EXHIBITS Description
1.1* Form of Underwriting Agreement.
2.1* Transfer Agreement, dated March 15, 1999, between Vauxhall LLC and
Lowestfare.com, Inc.
3.1 Certificate of Incorporation.
3.2* Form of First Amended and Restated Certificate of Incorporation to be
in effect upon the closing of this offering.
3.3 By-Laws.
4.1* Specimen Stock Certificate.
4.2* Registration Rights Agreement.
5.1* Form of Opinion of Gordon Altman Butowsky Weitzen Shalov & Wein
10.1* Lowestfare.com 1999 Stock Option Plan.
10.2 Sublease Agreement, dated April 1, 1996, between Lockheed Engineering &
Sciences Company and Global Discount Travel Services LLC.
10.3 First Amendment to Sublease Agreement, dated February 2, 1998, between
Lockheed Martin Corporation and Global Discount Travel Services LLC.
10.4 License Agreement, dated February 1, 1997 between Icahn Associates
Corp. and Global Travel Marketing Services, Inc.
10.5* Amended and Restated Employment Agreement, dated as of January 8, 1999,
between Kenneth G. Swanton and Global Discount Travel Services LLC.
10.6* Amended and Restated Employment Agreement, dated as of January 20,
1999, between Denise Barton and Global Discount Travel Services LLC.
10.7* Amended and Restated Employment Agreement, dated as of May 26, 1998,
between Terry L. O'Neal and Global Discount Travel Services LLC.
10.8* Amended and Restated Employment Agreement, dated as of May 26, 1998,
between Gregory A. Monton and Global Discount Travel Services LLC.
10.9* Amended and Restated Employment Agreement, dated as of May 26, 1998,
between Steven S. Lay and Global Discount Travel Services LLC.
II-3
<PAGE> 97
EXHIBITS Description
10.10* Amended and Restated Employment Agreement, dated as of January 1, 1998,
between Vincent L. Martinelli and Global Travel Marketing Services,
Inc.
10.11* Option Agreement dated as of May 26, 1998, between Gail Golden and
Global Discount Travel Services LLC.
10.12* Option Agreement dated as of May 26, 1998, between Russell D. Glass and
Global Discount Travel Services LLC.
10.13 SABRE Subscriber Agreement, dated December 18, 1998, between The SABRE
Group, Inc. and Global Discount Travel Services LLC.
10.14* Software Development Agreement, dated January 19, 1999 between
Automated Travel Systems, Inc. and Global Discount Travel Services LLC.
10.15* Booking Database License Agreement, dated January 19, 1999 between
Automated Travel Systems, Inc. and Global Discount Travel Services LLC.
10.16+ E-Commerce Agreement, dated September 14, 1998, between The Mining
Company and Global Discount Travel Services LLC.
10.17+ Travel Services Alliance Agreement, dated September 15, 1998, between
theglobe.com, inc. and Global Discount Travel Services LLC.
10.18+ Website Advertising and Promotion Agreement, dated September 25, 1998,
between Looksmart, Ltd. and Global Discount Travel Services LLC.
10.19+ Interactive Advertising Agreement, dated October 15, 1998, among Global
Discount Travel Services LLC, Frommers.com, and 2Can Media, Inc.
10.20+ Lycos Network Advertising Contract, dated October 28, 1998, between
Lycos, Inc. and Global Discount Travel Services LLC.
10.21+ Terms and Conditions, Advertising Insertion Order, dated January 15,
1999, between Yahoo! Inc. and Global Discount Travel Services LLC.
10.22 Karabu Ticket Program Agreement, dated June 14, 1995, between Trans
World Airlines, Inc. and Karabu Corp.
10.23 Joinder Agreement, dated August 14, 1995 between Karabu Corp. and
Global Discount Travel Services LLC.
21.1 Subsidiaries of Lowestfare.com, Inc.
23.1 Consent of KPMG LLP.
23.2 Consent of KPMG LLP.
II-4
<PAGE> 98
EXHIBITS Description
23.3* Consent of Gordon Altman Butowsky Weitzen Shalov & Wein (included in
the opinion filed herewith as Exhibit 5.1).
24.1 Power of Attorney (included on signature page).
27.1 Financial Data Schedule.
27.2 Financial Data Schedule.
27.3 Financial Data Schedule.
27.4 Financial Data Schedule.
* To be filed by amendment.
+ Portions have been omitted pursuant to a confidential treatment
request.
(b) Financial Statement Schedules:
The following financial statement schedules are filed as part of this
Registration Statement:
Schedule II - Valuations and Qualifying Accounts
ITEM 17. Undertakings.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933 (the "Securities Act"), the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon Rule
430A and contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the provisions described under Item 15 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against policy as expressed in the Securities Act
and will be governed by the final adjudication of such issue.
(4) To provide to the underwriter at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in such
names as required by the underwriter to permit prompt delivery to each
purchaser.
II-5
<PAGE> 99
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on March 16, 1999.
LOWESTFARE.COM, INC.
By: /s/ Kenneth G. Swanton
--------------------------
Name: Kenneth G. Swanton
Title: Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Russell D. Glass, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
or all amendments (including post-effective amendments) to this registration
statement (or any other registration statement for the same offering that is to
be effective upon filing pursuant to Rule 462(b) under the Securities Act of
1933, as amended), and to file the same, with all exhibits thereto, and all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent or his substitute may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Carl C. Icahn Chairman of the Board March 16, 1999
- ---------------------------------- and Director
Carl C. Icahn
/s/ Gail Golden President, Vice Chairman and March 16, 1999
- ---------------------------------- Director
Gail Golden
/s/ Russell D. Glass Vice Chairman and Director March 16, 1999
- ----------------------------------
Russell D. Glass
/s/ Kenneth G. Swanton Chief Executive Officer and March 16, 1999
- ---------------------------------- Director
Kenneth G. Swanton (Principal Executive Officer)
/s/ Denise Barton Chief Financial Officer March 16, 1999
- ------------------------------------ (Principal Financial and
Denise Barton Accounting Officer)
</TABLE>
II-6
<PAGE> 100
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Numbered
EXHIBITS Description Page
<S> <C> <C>
1.1* Form of Underwriting Agreement.
2.1* Transfer Agreement, dated March 15, 1999, between
Vauxhall LLC and Lowestfare.com, Inc.
3.1 Certificate of Incorporation.
3.2* Form of First Amended and Restated Certificate of
Incorporation to be in effect upon the closing of this offering.
3.3 By-Laws.
4.1* Specimen Stock Certificate.
4.2* Registration Rights Agreement.
5.1* Form of Opinion of Gordon Altman Butowsky Weitzen
Shalov & Wein
10.1* Lowestfare.com 1999 Stock Option Plan
10.2 Sublease Agreement, dated April 1, 1996, between Lockheed
Engineering & Sciences Company and Global Discount
Travel Services LLC.
10.3 First Amendment to Sublease Agreement, dated February 2,
1998, between Lockheed Martin Corporation and Global
Discount Travel Services LLC.
10.4 License Agreement, dated February 1, 1997 between Icahn
Associates Corp. and Global Travel Marketing Services, Inc.
10.5* Amended and Restated Employment Agreement, dated as of
January 8, 1999, between Kenneth G. Swanton and Global
Discount Travel Services LLC.
10.6* Amended and Restated Employment Agreement, dated as of
January 20, 1999, between Denise Barton and Global
Discount Travel Services LLC.
10.7* Amended and Restated Employment Agreement, dated as of
May 26, 1999, between Terry L. O'Neal and Global
Discount Travel Services LLC.
10.8* Amended and Restated Employment Agreement, dated as of
May 2, 1996, between Gregory A. Monton and Global
Discount Travel Services LLC.
10.9* Amended and Restated Employment Agreement, dated as of
May 26, 1998, between Steven S. Lay and Global Discount
Travel Services LLC.
</TABLE>
E-1
<PAGE> 101
<TABLE>
<CAPTION>
Sequentially
Numbered
EXHIBITS Description Page
<S> <C> <C>
10.10* Amended and Restated Employment Agreement, dated as of
January 1, 1998 between Vincent L. Martinelli and Global
Travel Marketing Services, Inc.
10.11* Option Agreement dated as of May 26, 1998, between Gail Golden
and Global Discount Travel Services LLC.
10.12* Option Agreement dated as of May 26, 1998, between Russell D.
Glass and Global Discount Travel Services LLC.
10.13 SABRE Subscriber Agreement, dated December 18, 1998,
between The SABRE Group, Inc. and Global Discount
Travel Services LLC.
10.14* Software Development Agreement, dated January 19, 1999
between Automated Travel Systems, Inc. and Global
Discount Travel Services LLC.
10.15* Booking Database License Agreement, dated January 19,
1999 between Automated Travel Systems, Inc. and Global
Discount Travel Services LLC.
10.16+ E-Commerce Agreement, dated September 14, 1998, between
The Mining Company and Global Discount Travel Services
LLC.
10.17+ Travel Services Alliance Agreement, dated September 15,
1998, between theglobe.com, inc. and Global Discount
Travel Services LLC.
10.18+ Website Advertising and Promotion Agreement, dated
September 25, 1998, between Looksmart, Ltd. and Global
Discount Travel Services LLC.
10.19+ Interactive Advertising Agreement, dated October 15, 1998,
among Global Discount Travel Services LLC,
Frommers.com, and 2Can Media, Inc.
10.20+ Lycos Network Advertising Contract, dated October 28,
1998, between Lycos, Inc. and Global Discount Travel
Services LLC.
10.21+ Terms and Conditions, Advertising Insertion Order, dated
January 15, 1999, between Yahoo! Inc. and Global Discount
Travel Services LLC.
10.22 Karabu Ticket Program Agreement, dated June 14, 1995,
between Trans World Airlines, Inc. and Karabu Corp.
10.23 Joinder Agreement, dated August 14, 1995 between Karabu
Corp. and Global Discount Travel Services LLC.
21.1 Subsidiaries of Lowestfare.com, Inc.
</TABLE>
E-2
<PAGE> 102
<TABLE>
<CAPTION>
Sequentially
Numbered
EXHIBITS Description Page
<S> <C> <C>
23.1 Consent of KPMG LLP.
23.2 Consent of KPMG LLP.
23.3* Consent of Gordon Altman Butowsky Weitzen Shalov & Wein
(included in the opinion filed herewith as Exhibit 5.1).
24.1 Power of Attorney (included on signature page).
27.1 Financial Data Schedule.
27.2 Financial Data Schedule.
27.3 Financial Data Schedule.
27.4 Financial Data Schedule.
</TABLE>
* To be filed by amendment.
+ Portions have been omitted pursuant to a confidential treatment request.
E-3
<PAGE> 1
Exhibit 3.1
State of Delaware
Secretary of State
Division of Corporations
Filed 09:00 AM 08/27/1998
981337037 - 2935928
CERTIFICATE OF INCORPORATION
OF
LOWESTFARE.COM, INC.
-----------------------------------
FIRST. The name of this corporation shall be:
LOWESTFARE.COM, INC.
SECOND. Its registered office in the State of Delaware is to be located at
1013 Centre Road, in the City of Wilmington, County of New Castle and its
registered agent at such address is CORPORATION SERVICE COMPANY.
THIRD. The purpose or purposes of the corporation shall be:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH. The total number of shares of stock which this corporation is
authorized to issue is:
Three Thousand (3,000) shares with a par value of One Cent ($.01) per share,
amounting to Thirty Dollars ($30.00).
FIFTH: The name and address of the incorporator is as follows:
Kerry Spittel
Corporation Service Company
1013 Centre Road
Wilmington, DE 19805
SIXTH. The Board of Directors shall have the power to adopt, amend or
repeal the by-laws.
<PAGE> 2
SEVENTH. No director shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director shall
be liable to the extent provided by applicable law, (i) for breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derived an
improper personal benefit. No amendment to or repeal of this Article Seventh
shall apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment.
EIGHTH. The corporation shall, to the fullest extent permitted by Section
145 of the Delaware General Corporation Law, as the same may be amended and
supplemented, indemnify any and all persons whom it shall have power to
indemnify under said Section from and against any and all of the expenses,
liabilities or other matters referred to or covered by said Section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any By-Law, agreement,
vote of stockholders or disinterested directors, or otherwise, both as to action
in his official capacity and as to action in another capacity while holding
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
NINTH. The corporation elects not to be governed by the Takeover Statute
(S203).
IN WITNESS WHEREOF, the undersigned, being the incorporator hereinbefore
named, has executed, signed and acknowledged this certificate of incorporation
this 27th day of August, A.D., 1998.
----------------------------
Kerry Spittel
Incorporator
2
<PAGE> 1
Exhibit 3.3
BYLAWS
OF
LOWESTFARE.COM, INC.
a Delaware corporation
<PAGE> 2
BYLAWS
OF
LOWESTFARE.COM, INC.
ARTICLE I
Offices
Section 1.1 Registered Office.
The registered office of the corporation in the State of Delaware shall
be in the City of Wilmington, County of New Castle.
Section 1.2 Other Offices.
The corporation may also have offices at such other places, both within
and without the State of Delaware as the Board of Directors may from time to
time determine or the business of the corporation may require.
ARTICLE II
Stockholders' Meetings
Section 2.1 Place of Meetings.
Meetings of the stockholders of the corporation shall be held at such
place, either within or without the State of Delaware, as may be designated from
time to time by the Board of Directors, or, if not so designated, then at the
office of the corporation required to be maintained pursuant to Section 1.2 of
Article I hereof.
Section 2.2 Annual Meetings.
The annual meetings of the stockholders of the corporation, commencing
with the year 1999, for the purpose of election of directors and for such other
business as may lawfully come before it, shall be held on such date and at such
time within one hundred fifty (150) days following the close of each fiscal year
as may be designated from time to time by the Board of Directors, or, if not so
designated, then, unless the Chairman of the Board or the President designates
some other date, the annual meeting for that year shall be held on the first (1)
Thursday in the fifth month following the close of the fiscal year.
Section 2.3 Special Meetings.
Special meetings of the stockholders of the corporation may be called,
for any purpose or purposes, by the Chairman of the Board or the President or by
the Board of Directors at any time.
<PAGE> 3
Upon written request of any stockholder or stockholders holding in the aggregate
one-fourth (25%) of the voting power of all stockholders delivered in person or
sent by registered mail to the Chairman of the Board, President or Secretary of
the Corporation. Upon receipt of such call or written request, the Secretary
shall call a special meeting of stockholders to be held at such time and place
as the Secretary may fix.
Section 2.4 Notice of Meetings.
(a) Except as otherwise provided by law or the Certificate of
Incorporation, written notice of each meeting of stockholders, specifying the
place, date and hour, purpose or purposes and authority for the call of the
meeting, shall be given not less than ten (10) nor more than sixty (60) days
before the date of the meeting to each stockholder entitled to vote thereat.
(b) If at any meeting action is proposed to be taken which, if taken,
would entitle stockholders fulfilling the requirements of Section 262(d) of the
Delaware General Corporation Law to an appraisal of the fair value of their
shares, the notice of such meeting shall contain a statement of that purpose and
to that effect and shall be accompanied by a copy of that statutory section.
(c) When a meeting is adjourned to another time or place, 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.
(d) Notice of the time, place and purpose of any meeting of
stockholders may be waived in writing, either before or after such meeting, and
to the extent permitted by law, will be waived by any stockholder by his
attendance thereat, in person or by proxy. Any stockholder so waiving notice of
such meeting shall be bound by the proceedings of any such meeting in all
respects as if due notice thereof had been given.
(e) Unless and until voted, every proxy shall be revocable at the
pleasure of the person who executed it or of his legal representatives or
assigns, except in those cases where an irrevocable proxy permitted by statute
has been given.
Section 2.5 Quorum and Voting.
(a) At all meetings of stockholders, except where otherwise
provided by law, the Certificate of Incorporation, or these Bylaws, the
presence, in person or by proxy duly authorized, of the holders of a majority of
the outstanding shares of stock entitled to vote shall constitute a quorum for
the transaction of business and the concurring vote of the holders of a majority
of the shares of such stock constituting a quorum shall be valid and binding
upon the corporation. Shares, the voting of which at said meeting have been
enjoined, or which for any reason cannot be lawfully voted at such meeting,
shall not be counted to determine a quorum at said meeting. In the absence of a
quorum, any meeting of stockholders may be adjourned, from time to time, by vote
of the holders of a majority of the shares represented thereat, but no other
business shall be transacted at such meeting. At such adjourned meeting at which
a quorum is present or represented any business
<PAGE> 4
may be transacted which might have been transacted at the original meeting. The
stockholders present at a duly called or convened meeting, at which a quorum is
present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum.
(b) Where a separate vote by a class or classes is required, a
majority of the outstanding shares of such class or classes, present in person
or represented by proxy, shall constitute a quorum entitled to take action with
respect to that vote on that matter and the affirmative vote of the majority of
shares of such class or classes present in person or represented by proxy at the
meeting shall be the act of such class.
Section 2.6 Voting Rights.
(a) Except as otherwise provided by law, only persons in whose
names shares entitled to vote stand on the stock records of the corporation on
the record date for determining the stockholders entitled to vote at said
meeting shall be entitled to vote at such meeting. A personal representative,
guardian or trustee may vote the stock of the corporation held by him, in person
or by proxy, at any meeting of the corporation, whether or not such stock shall
have been transferred to his name on the books of the corporation. In case the
stock shall not have been so transferred to his name on the books of the
corporation, he shall satisfy the Secretary that he is the executor,
administrator, guardian or trustee holding such stock in such capacity, and to
this end, the Secretary may require him to file with the corporation a certified
copy of his letters as such executor, administrator or guardian of his
appointment or authority as trustee before he is permitted to vote in the manner
described heretofore.
(b) Every person entitled to vote or execute consents shall
have the right to do so either in person or by an agent or agents authorized by
a written proxy executed by such person or his duly authorized agent, which
proxy shall be filed with the Secretary of the corporation at or before the
meeting at which it is to be used. Said proxy so appointed need not be a
stockholder. No proxy shall be voted on after eleven (11) months from its date
unless the proxy provides for a longer period.
(c) Without limiting the manner in which a stockholder may
authorize another person or persons to act for him as proxy pursuant to
subsection (b) of this section, the following shall constitute a valid means by
which a stockholder may grant such authority:
(1) A stockholder may execute a writing authorizing
another person or persons to act for him as proxy. Execution may be accomplished
by the stockholder or his authorized officer, director, employee or agent
signing such writing or causing his or her signature to be affixed to such
writing by any reasonable means including, but not limited to, by facsimile
signature.
(2) A stockholder may authorize another person or
persons to act for him as proxy by transmitting or authorizing the transmission
of a telegram, cablegram, or other means of electronic transmission to the
person who will be the holder of the proxy or to a proxy solicitation firm,
proxy support service organization or like agent duly authorized by the person
who will be the
<PAGE> 5
holder of the proxy to receive such transmission, provided that any such
telegram, cablegram or other means of electronic transmission must either set
forth or be submitted with information from which it can be determined that the
telegram, cablegram or other electronic transmission was authorized by the
stockholder. If it is determined that such telegrams, cablegrams or other
electronic transmissions are valid, the inspectors or, if there are no
inspectors, such other persons making that determination shall specify the
information upon which they relied.
(d) Any copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission created pursuant to subsection (c)
of this Section may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used, provided that such copy, facsimile telecommunication
or other reproduction shall be a complete reproduction of the entire original
writing or transmission.
Section 2.7 Auditor.
(a) The stockholders may at any annual meeting, or at any
special meeting called for that purpose, appoint some person, firm or
corporation engaged in the business of auditing to act as the auditor of the
corporation.
(b) No director or officer shall be eligible to serve as
auditor of the corporation.
(c) The auditor shall, at least once in each fiscal year and
more often if required by the stockholders, examine the books and papers of the
corporation and compare the statements of the Chief Financial Officer with the
books and vouchers of the corporation, and otherwise make a complete audit of
the books of the corporation, and thereafter make appropriate reports to
stockholders.
Section 2.8 List of Stockholders.
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at said meeting, arranged in
alphabetical order, showing the address of and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held and which
place shall be specified in the notice of the meeting, or, if not specified, at
the place where said meeting is to be held, and the list shall be produced and
kept at the time and place of meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
Section 2.9 Action Without Meeting.
Unless otherwise provided in the Certificate of Incorporation, any
action required by statute to be taken at any annual or special meeting of
stockholders of the corporation, or any action which may be taken at any annual
stockholders, and of all meetings of the Board of Directors and any Committee
without a meeting, without prior notice and without a vote, if a consent or
consents in
<PAGE> 6
writing, setting forth the action so taken, are signed by a majority of the
holders of outstanding stock who would have been entitled to vote upon the
action if such meeting were held. To be effective, a written consent must be
delivered to the corporation by delivery to its registered office in Delaware,
its principal place of business, or an officer or agent of the corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to a corporation's registered office shall be by hand or
by certified or registered mail, return receipt requested. Every written consent
shall bear the date of signature of each stockholder who signs the consent and
no written consent shall be effective to take the corporate action referred to
therein unless, within sixty (60) days of the earliest dated consent delivered
in the manner required by this Section to the corporation or such other date as
the Board of Directors shall have determined, written consents signed by a
sufficient number of holders to take action are delivered to the corporation in
accordance with this Section.
ARTICLE III
Directors
Section 3.1 Number and Term of Office.
The number of directors which shall constitute the whole of the Board
of Directors shall be fixed from time to time by the Board of Directors. With
the exception of the first Board of Directors, which shall be elected by the
incorporators, and except as provided in the Certificate of Incorporation and in
Section 3.3 of this Article III, the directors shall be elected by a plurality
vote of the shares represented in person or by proxy, at the stockholders annual
meeting in each year and entitled to vote on the election of directors. Except
as provided in the Certificate of Incorporation, elected directors shall hold
office until the next annual meeting and until their successors shall be duly
elected and qualified. Directors need not be stockholders. If, for any cause,
the Board of Directors shall not have been elected at an annual meeting, they
may be elected as soon thereafter as convenient at a special meeting of the
stockholders called for that purpose in the manner provided in these Bylaws.
Section 3.2 Powers.
The powers of the corporation shall be exercised, its business
conducted and its property controlled by or under the direction of the Board of
Directors.
Section 3.3 Vacancies.
Vacancies and newly created directorships resulting from any increase
in the authorized number of directors may be filled by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director, and each director so elected shall hold office for the unexpired
portion of the term of the director whose place shall be vacant, and until his
successor shall have been duly elected and qualified. A vacancy in the Board of
Directors shall be deemed to exist under this Section in the case of the death,
removal or resignation of any director, or if the stockholders fail at any
meeting of stockholders at which directors are to be elected (including any
meeting referred to in Section 3.4 below) to elect the number of directors then
constituting the whole
<PAGE> 7
Board.
Section 3.4 Resignations and Removals.
(a) Any director may resign at any time by delivering his
written resignation to the Secretary, such resignation to specify whether it
will be effective at a particular time, upon receipt by the Secretary or at the
pleasure of the Board of Directors. If no such specification is made it shall be
deemed effective at the pleasure of the Board of Directors. When one or more
directors shall resign from the Board, 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 for the unexpired portion of the term of the director
whose place shall be vacated and until his successor shall have been duly
elected and qualified.
(b) Unless otherwise restricted by statue, by the
Corporation's Certificate of Incorporation, as amended or restated, or by these
Bylaws, the stockholders may at any special meeting the notice of which shall
state that it is called for that purpose, remove, with or without cause, any
director.
Section 3.5 Meetings.
(a) The annual meeting of the Board of Directors shall be held
immediately after the annual stockholders' meeting and at the place where such
meeting is held or at the place announced by the Chairman at such meeting. No
notice of an annual meeting of the Board of Directors shall be necessary and
such meeting shall be held for the purpose of electing officers and transacting
such other business as may lawfully come before it.
(b) Except as hereinafter otherwise provided, regular meetings
of the Board of Directors shall be held in such places and at such times as the
Board of Directors may from time to time by vote determine and when any such
meeting or meetings shall be so determined, no further notice thereof shall be
required.
(c) Special meetings of the Board of Directors may be held at
any time and place within or without the State of Delaware whenever called by
the Chairman of the Board, the President, Chief Operating Officer, any
Vice-President or by any two directors. Notice of a special meeting shall be
given 24 hours prior to the holding of such special meeting.
(d) Notice of any meeting may be waived in writing at any time
before or after the meeting and will be waived by any director by attendance
thereat.
Section 3.6 Quorum and Voting.
(a) A quorum of the Board of Directors shall consist of a
majority of the number of directors fixed from time to time in accordance with
Section 3.1 of Article III of these Bylaws, but not less than one; provided,
however, at any meeting whether a quorum be present or otherwise,
<PAGE> 8
the presiding officer or a majority of the directors present may adjourn from
time to time until the time fixed for the next regular meeting of the Board of
Directors or when a quorum shall be present, without notice other than by
announcement at the meeting.
(b) At each meeting of the Board at which a quorum is present
all questions and business shall be determined by a vote of a majority of the
directors present, unless a different vote be required by law, the Certificate
of Incorporation, or these Bylaws.
(c) Any member of the Board of Directors, or of any committee
thereof, may participate in a meeting by means of conference telephone or
similar communication equipment by means of which all persons participating in
the meeting can hear each other, and participation in a meeting by such means
shall constitute presence in person at such meeting.
(d) The transactions of any meeting of the Board of Directors,
or any committee thereof, however called or noticed, or wherever held, shall be
as valid as though had at a meeting duly held after regular call and notice, if
all of the directors shall be present or shall waive notice of such meeting by a
writing filed with the records of the Board of Directors, or after any such
meeting shall express consent to the holding of the meeting and all actions
taken thereat by a writing on or filed with the records of the Board of
Directors. Non-receipt of any notice shall not invalidate any business done at
any meeting at which a quorum is present. All such waivers, consents or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
Section 3.7 Action Without 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 of such committee, as the case may be, consent
thereto in writing, and such writing or writings are filed with the minutes of
proceedings of the Board or committee.
Section 3.8 Fees and Compensation.
Directors and members of committees may receive such compensation, if
any, for their services, and such reimbursement for expenses, as may be fixed or
determined by resolution of the Board of Directors.
Section 3.9 Committees.
(a) Committees: The Board of Directors may, by resolution
passed by a majority of the whole Board, from time to time appoint such
committees as may be permitted by law. Such committees appointed by the Board of
Directors shall have such powers and perform such duties as may be prescribed by
the resolution or resolutions creating such committee, but in no event shall any
such committee have the powers to declare and pay dividends, fill vacancies in
the Board of Directors or exercise those powers reserved to the Board of
Directors by statute or otherwise. The Board of Directors may also appoint a
general manager for the corporation and define his duties.
<PAGE> 9
(b) Term: Except as provided for in the Certificate of
Incorporation, the members of all committees of the Board of Directors shall
serve a term coexistent with that of the Board of Directors which shall have
appointed such committee. The Board, subject to the provisions of subsections
(a) of this Section 3.9, may at any time increase or decrease the number of
members of a committee or terminate the existence of a committee; provided, that
no committee shall consist of less than one member. The membership of a
committee member shall terminate on the date of his death or voluntary
resignation, but the Board may at any time for any reason remove any individual
committee member and the Board may fill any committee vacancy created by death,
resignation, removal or increase in the number of members of the committee. The
Board of Directors 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, and, in addition, in the absence or disqualification of any
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they 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.
(c) Meetings: Unless the Board of Directors shall otherwise
provide, regular meetings of any committee appointed pursuant to this Section
3.9 shall be held at such times and places as are determined by the Board of
Directors, or by any such committee, and when notice thereof has been given to
each member of such committee, no further notice of such regular meetings need
be given thereafter; special meetings of any committee may be held at the
principal office of the corporation required to be maintained pursuant to
Section 1.2 of Article I hereof; or at any place which has been designated from
time to time by resolution of such committee or by written consent of all
members thereof, and may be called by any director who is a member of such
committee, upon written notice to the members of such committee of the time and
place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time after the meeting and will be
waived by any director by attendance thereat. A majority of the authorized
number of members of any such committee shall constitute a quorum for the
transaction of business, and the act of a majority of those present at any
meeting at which a quorum is present shall be the act of such committee.
ARTICLE IV
Officers
Section 4.1 Officers Designated.
The officers of the corporation may be a Chief Executive Officer,
President, Chief Operating Officer, one or more Vice-Presidents, a Secretary,
and a Chief Financial Officer. The Board of Directors or the President may also
appoint a Chairman of the Board, assistant secretaries, assistant treasurers,
and such other officers and agents with such powers and duties as it or he shall
deem necessary. The Chairman of the Board shall not be deemed an officer of the
corporation unless expressly and specifically designated by the Board of
Directors. The Chairman of the Board shall perform such duties and have such
powers as expressly designated by the Board of Directors. The order of the
seniority of the Vice- Presidents shall be in the order of their nomination,
unless
<PAGE> 10
otherwise determined by the Board of Directors. The Board of Directors may
assign such additional titles to one or more of the officers as they shall deem
appropriate. Any one person may hold any number of offices of the corporation at
any one time unless specifically prohibited therefrom by law. The salaries and
other compensation of the officers of the corporation shall be fixed by or in
the manner designated by the Board of Directors.
Section 4.2 Tenure and Duties of Officers.
(a) General: All officers shall hold office at the pleasure of
the Board of Directors and until their successors shall have been duly elected
and qualified, unless sooner removed. Any officer elected or appointed by the
Board of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors. Nothing in these Bylaws shall be construed as
creating any kind of contractual right to employment with the corporation.
(b) Duties of the Chief Executive Officer: The chief executive
officer of the corporation and, when present, shall preside at all meetings of
the stockholders and the Board of Directors. The Chief Executive Officer shall
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time.
(c) Duties of President: The President shall be the chief
executive officer of the corporation in the absence of the Chief Executive
Officer and shall preside at all meetings of the stockholders and at all
meetings of the Board of Directors, unless the Chairman of the Board of
Directors and Chief Executive Officer has been appointed and is present. The
President shall perform such other duties and have such other powers as the
Board of Directors shall designate from time to time.
(d) Duties of Chief Operating Officer: The Chief Operating
Officer shall assume and perform the duties of the President in the absence or
disability of the President or whenever the office of the President is vacant.
The Chief Operating Officer shall perform such other duties and have such other
powers as the Board of Directors shall designate from time to time.
(e) Duties of Vice-Presidents: The Vice-Presidents, in the
order of their seniority, may assume and perform the duties of the Chief
Operating Officer in the absence or disability of the Chief Operating Officer or
whenever the office of the Chief Operating Officer is vacant. The Vice-President
shall perform such other duties and have such other powers as the Board of
Directors or the President shall designate from time to time.
(f) Duties of Secretary: The Secretary shall attend all
meetings of the stockholders and of the Board of Directors and any committee
thereof, and shall record all acts and proceedings thereof in the minute book of
the corporation. The Secretary shall give notice, in conformity with these
Bylaws, of all meetings of the stockholders, and of all meetings of the Board of
Directors and any Committee thereof requiring notice. The Secretary shall
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The
<PAGE> 11
President may direct any Assistant Secretary to assume and perform the duties of
the Secretary in the absence or disability of the Secretary, and each Assistant
Secretary shall perform such other duties and have such other powers as the
Board of Directors or the President shall designate from time to time.
(g) Duties of Chief Financial Officer: The Chief Financial
Officer shall keep or cause to be kept the books of account of the corporation
in a thorough and proper manner, and shall render statements of the financial
affairs of the corporation in such form and as often as required by the Board of
Directors or the President. The Chief Financial Officer, subject to the order of
the Board of Directors, shall have the custody of all funds and securities of
the corporation. The Chief Financial Officer shall perform all other duties
commonly incident to his office and shall perform such other duties and have
such other powers as the Board of Directors or the President shall designate
from time to time. The President may direct any Assistant Treasurer to assume
and perform the duties of the Chief Financial Officer in the absence or
disability of the Chief Financial Officer, and each Assistant Treasurer shall
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time.
ARTICLE V
Execution of Corporate Instruments, and Voting
of Securities Owned by the Corporation
Section 5.1 Execution of Corporate Instruments.
(a) The Board of Directors may, in its discretion, determine
the method and designate the signatory officer or officers, or other person or
persons, to execute any corporate instrument or document, or to sign the
corporate name without limitation, except where otherwise provided by law, and
such execution or signature shall be binding upon the corporation.
(b) Unless otherwise specifically determined by the Board of
Directors or otherwise required by law, formal contracts of the corporation,
promissory notes, deeds of trust, mortgages and other evidences of indebtedness
of the corporation, and other corporate instruments or documents requiring the
corporate seal, and certificates of shares of stock owned by the corporation,
shall be executed, signed or endorsed by the Chairman of the Board (if there be
such an officer appointed) or by the President; such documents may also be
executed by any Vice-President or the Chief Financial Officer. All other
instruments and documents requiring the corporate signature, but not requiring
the corporate seal, may be executed as aforesaid or in such other manner as may
be directed by the Board of Directors.
(c) All checks and drafts drawn on banks or other depositaries
on funds to the credit of the corporation, or in special accounts of the
corporation, shall be signed by such person or persons as the Board of Directors
shall authorize so to do.
(d) The Board of Directors may provide for the execution of
checks or dividend warrants by the printed, lithographed or engraved facsimile
signature or signatures of the person or persons authorized to sign checks or
dividend warrants.
<PAGE> 12
Section 5.2 Voting of Securities Owned by Corporation.
All stock and other securities of other corporations owned or held by
the corporation for itself, or for other parties in any capacity, shall be
voted, and all proxies with respect thereto shall be executed, by the person
authorized so to do by resolution of the Board of Directors or, in the absence
of such authorization, by the Chairman of the Board (if there be such an officer
appointed), or by the President, or by any Vice-President.
ARTICLE VI
Shares of Stock
Section 6.1 Form and Execution of Certificates.
Certificates for the shares of stock of the corporation shall be in
such form as is consistent with the Certificate of Incorporation and applicable
law. Every holder of stock in the corporation shall be entitled to have a
certificate signed by, or in the name of the corporation by, the Chairman of the
Board (if there be such an officer appointed), or by the President, Chief
Operating Officer or any Vice-President and by the Chief Financial Officer or
Assistant Treasurer or the Secretary or Assistant Secretary, certifying the
number of shares owned by him in the corporation. 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 shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued with the same effect as if
he were such officer, transfer agent, or registrar at the date of issue. If the
corporation shall be authorized to issue more than one class of stock or more
than one series of any class, the powers, designations, preferences and
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 which the corporation shall issue to represent such
class or series of stock, provided that, except as otherwise provided in Section
202 of the Delaware General Corporation Law, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which 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, designations, preferences and 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.
Section 6.2 Lost Certificates.
The Board of Directors may direct a new certificate or certificates to
be issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate of stock to be
lost or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost or destroyed
certificate or certificates, or his legal representative, to indemnify the
corporation in such manner as it shall require and/or to give the corporation a
surety bond in such form and
<PAGE> 13
amount as it may direct as indemnity against any claim that may be made against
the corporation with respect to the certificate alleged to have been lost or
destroyed.
Section 6.3 Transfers.
Transfers of record of shares of stock of the corporation shall be made
only upon its books by the holders thereof, in person or by attorney duly
authorized, and upon the surrender of a certificate or certificates for a like
number of shares, properly endorsed. The right of any stockholder to transfer
any share of stock shall be subject to those provisions of the Certificate of
Incorporation governing transfers.
Section 6.4 Transfer Agent.
Notwithstanding any of the provisions of these Bylaws, the Board of
Directors may appoint a transfer agent and a registrar of transfers and may
require all certificates of shares to bear the signature of such transfer agent
and of such registrar of transfers.
Section 6.5 Fixing Record Dates.
(a) 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, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and which record date shall
not be more than ten (10) days before the date of such meeting. If no record
date is fixed by the Board of Directors, 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 date on which the meeting is held. A determination of stockholders
of record entitled 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.
(b) In order that the corporation may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors, and which date shall not be more than ten (10) days
after the date upon which the resolution fixing the record date is adopted by
the Board of Directors. If no record date has been fixed by the Board of
Directors, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the Board
of Directors is required by the Delaware General Corporation Law, shall be the
first date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the corporation by delivery to its
registered office in Delaware, its principal place of business, or an officer or
agent of the corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to a corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. If no record date has been fixed by the Board of Directors
and prior action by the Board of Directors is required by law, the record date
for
<PAGE> 14
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
Board of Directors adopts the resolution taking such prior action.
(c) In order that the corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders 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 a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than thirty (30)
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
(d) By resolution, the Board of Directors may at any time
close the books for the transfer of stock for a period not exceeding thirty (30)
days.
Section 6.6 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, and shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
ARTICLE VII
Other Securities of the Corporation
All bonds, debentures and other corporate securities of the
corporation, other than stock certificates, may be signed by the Chairman of the
Board (if there be such an officer appointed), or the President or any
Vice-President or such other person as may be authorized by the Board of
Directors and the corporate seal impressed thereon or a facsimile of such seal
imprinted thereon and attested by the signature of the Secretary or an Assistant
Secretary, or the Chief Financial Officer or an Assistant Treasurer; provided,
however, that where any such bond, debenture or other corporate security shall
be authenticated by the manual signature of a trustee under an indenture
pursuant to which such bond, debenture or other corporate security shall be
issued, the signature of the persons signing and attesting the corporate seal on
such bond, debenture or other corporate security may be the imprinted facsimile
of the signatures of such persons. Interest coupons appertaining to any such
bond, debenture or other corporate security, authenticated by a trustee as
aforesaid, shall be signed by the Chief Financial Officer or an Assistant
Treasurer of the corporation, or such other person as may be authorized by the
Board of Directors, or bear imprinted thereon the facsimile signature of such
person. In case any officer who ceases to be an officer shall have signed or
attested any bond, debenture or other corporate security, or whose facsimile
signature shall appear thereon or before the bond, debenture or other corporate
security so signed or attested shall have been delivered, such bond, debenture
or other corporate security nevertheless may be adopted by the
<PAGE> 15
corporation and issued and delivered as though the person who signed the same or
whose facsimile signature shall have been used thereon had not ceased to be such
officer of the corporation.
ARTICLE VIII
Corporate Seal
The corporate seal shall consist of a die bearing the name of the
corporation and the state and date of its incorporation. Said seal may be used
by causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
ARTICLE IX
Indemnification of Officers, Directors, Employees and Agents
Section 9.1 Right to Indemnification.
To the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended or interpreted (but, in the
case of any such amendment or interpretation, only to the extent that such
amendment or interpretation permits the corporation to provide broader
indemnification rights than were permitted prior thereto), the corporation shall
indemnify and hold harmless each director or officer who was or is a party or is
threatened to be made a party to or is involved (as a party, witness, or
otherwise), in any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative
(hereinafter a "Proceeding"), by reason of the fact that he, or a person of whom
he is the legal representative, is or was a director or officer of the
corporation or is or was serving at the request of the corporation as a director
or officer of another corporation or of a partnership, joint venture, trust, or
other enterprise, including service with respect to employee benefit plans,
whether the basis of the Proceeding is alleged action in an official capacity as
a director or officer, or in any other capacity while serving as a director or
officer, shall be indemnified and held harmless by the corporation against all
expenses, liability, and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties, and amounts paid or to be paid in settlement,
and any interest, assessments, or other charges imposed thereon, and any
federal, state, local, or foreign taxes imposed on any director as a result of
the actual or deemed receipt of any payments under this Article) reasonably
incurred or suffered by such person in connection with investigating, defending,
being a witness in, or participating in (including on appeal), or preparing for
any of the foregoing in, any Proceeding (hereinafter "Expenses"); provided,
however, that except as to actions to enforce indemnification rights pursuant to
Section 9.3 of this Article, the corporation shall indemnify any director or
officer seeking indemnification in connection with a Proceeding (or part
thereof) initiated by such person only if the Proceeding (or part thereof) was
authorized by the Board of Directors of the corporation. The right to
indemnification conferred in this Article shall be a contract right.
The Corporation shall have the authority by contract or by resolution
of the Board of Directors to indemnify and hold harmless to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended or interpreted (but, in the case of any such amendment or
interpretation, only to the extent that such amendment or interpretation
<PAGE> 16
permits the corporation to provide broader indemnification rights than were
permitted prior thereto), each agent or employee who was or is a party or is
threatened to be made a party to or is involved (as a party, witness, or
otherwise), in any threatened, pending, or completed Proceeding, by reason of
the fact that he, or a person of whom he is the legal representative, is or was
an agent or employee of the corporation or is or was serving at the request of
the corporation as an agent or employee of another corporation or of a
partnership, joint venture, trust, or other enterprise, including service with
respect to employee benefit plans, whether the basis of the Proceeding is
alleged action in an official capacity as an agent or employee, or in any other
capacity while serving as an agent or employee, may be indemnified and held
harmless by the corporation against all Expenses; provided, however, that except
as to actions to enforce indemnification rights pursuant to Section 9.3 of this
Article, the corporation shall indemnify any agent or employee seeking
indemnification in connection with a Proceeding (or part thereof) initiated by
such person only if the Proceeding (or part thereof) was authorized by the Board
of Directors of the corporation. The right to indemnification conferred in this
Article shall be a contract right.
Section 9.2 Authority to Advance Expenses.
Expenses actually incurred by an officer or director (acting in his
capacity as such) in defending a Proceeding shall be paid by the corporation in
advance of the final disposition of such Proceeding, provided, however, that if
required by the Delaware General Corporation Law, as amended, such Expenses
shall be advanced only upon delivery to the corporation of an undertaking by or
on behalf of such director or officer to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
corporation as authorized in this Article or otherwise. Expenses incurred by
other Agents of the corporation (or by the directors or officers not acting in
their capacity as such, including service with respect to employee benefit
plans) may be advanced upon such terms and conditions as the Board of Directors
deems appropriate. Any obligation to reimburse the corporation for Expense
advances shall be unsecured and no interest shall be charged thereon.
Section 9.3 Right of Claimant to Bring Suit.
If a claim under Section 9.1 or 9.2 of this Article is not paid in full
by the corporation within 90 days after a written claim has been received by the
corporation, the claimant may at any time thereafter bring suit against the
corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense
(including attorneys' fees) of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending a Proceeding in advance of its final disposition where the
required undertaking has been tendered to the corporation) that the claimant has
not met the standards of conduct that make it permissible under the Delaware
General Corporation Law for the corporation to indemnify the claimant for the
amount claimed. The burden of proving such a defense shall be on the
corporation. Neither the failure of the corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper under the circumstances because he has met the applicable
standard of conduct set forth in the Delaware General Corporation Law, nor an
actual determination by the corporation (including
<PAGE> 17
its Board of Directors, independent legal counsel, or its stockholders) that the
claimant had not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that claimant has not met the applicable
standard of conduct.
Section 9.4 Provisions Nonexclusive.
The rights conferred on any person by this Article shall not be
exclusive of any other rights that such person may have or hereafter acquire
under any statute, provision of the Certificate of Incorporation, agreement,
vote of stockholders 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 any provision of the Certificate, agreement, or vote
of the stockholders or disinterested directors is inconsistent with these
Bylaws, the provision, agreement, or vote shall take precedence.
Section 9.5 Authority to Insure.
The corporation may purchase and maintain insurance to protect itself
and any Agent against any Expense, whether or not the corporation would have the
power to indemnify the Agent against such Expense under applicable law or the
provisions of this Article.
Section 9.6 Survival of Rights.
The rights provided by this Article shall continue as to a person who
has ceased to be an Agent and shall inure to the benefit of the heirs,
executors, and administrators of such a person.
Section 9.7 Settlement of Claims.
The corporation shall not be liable to indemnify any Agent under this
Article (a) for any amounts paid in settlement of any action or claim effected
without the corporation's written consent; or (b) for any judicial award if the
corporation was not given a reasonable and timely opportunity, at its expense,
to participate in the defense of such action.
Section 9.8 Effect of Amendment.
Any amendment, repeal, or modification of this Article shall not
adversely affect any right or protection of any Agent existing at the time of
such amendment, repeal, or modification.
Section 9.9 Subrogation.
In the event of payment under this Article, the corporation shall be
subrogated to the extent of such payment to all of the rights of recovery of the
Agent, who shall execute all papers required and shall do everything that may be
necessary to secure such rights, including the execution of such documents
necessary to enable the corporation effectively to bring suit to enforce such
rights.
Section 9.10 No Duplication of Payments.
<PAGE> 18
The corporation shall not be liable under this Article to make any
payment in connection with any claim made against the Agent to the extent the
Agent has otherwise actually received payment (under any insurance policy,
agreement, vote, or otherwise) of the amounts otherwise indemnifiable hereunder.
ARTICLE X
Notices
Whenever, under any provisions of these Bylaws, notice is required to
be given to any stockholder, the same shall be given in any of the following
ways: in writing, (i) timely and duly deposited in the United States Mail,
postage prepaid, and addressed to his last known post office address as shown by
the stock record of the corporation or its transfer agent, (ii) left with the
stockholder personally, (iii) left at the residence or usual place of business
of the stockholder, or (iv) published in any newspaper of general circulation in
the county in which the principal office of the corporation is located, such
notice to be published not less than two (2) times, on successive days, the
first publication thereof to be not less than three (3) days nor more than ten
(10) days prior to the day assigned for the meeting. Any notice required to be
given to any director may be given by any method hereinabove stated, or by
telegram or other means of electronic transmission, except that such notice
other than one which is delivered personally, shall be sent to such address or
(in the case of facsimile telecommunication) facsimile telephone number as such
director shall have filed in writing with the Secretary of the corporation, or,
in the absence of such filing, to the last known post office address of such
director. If no address of a stockholder or director be known, such notice may
be sent to the office of the corporation required to be maintained pursuant to
Section 1.2 of Article I hereof. An affidavit of mailing, executed by a duly
authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, director
or directors, to whom any such notice or notices was or were given, and the time
and method of giving the same, shall be conclusive evidence of the statements
therein contained. All notices given by mail, as above provided, shall be deemed
to have been given as at the time of mailing and all notices given by telegram
or other means of electronic transmission shall be deemed to have been given as
at the sending time recorded by the telegraph company or other electronic
transmission equipment operator transmitting the same. It shall not be necessary
that the same method of giving be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
The period or limitation of time within which any stockholder may exercise any
option or right, or enjoy any privilege or benefit, or be required to act, or
within which any director may exercise any power or right, or enjoy any
privilege, pursuant to any notice sent him in the manner above provided, shall
not be affected or extended in any manner by the failure of such a stockholder
or such director to receive such notice. Whenever any notice is required to be
given under the provisions of the statutes or of the Certificate of
Incorporation, or of these Bylaws, a waiver thereof in writing signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. Whenever notice is required
to be given, under any provision of law or of the Certificate of Incorporation
or Bylaws of the corporation, to any person with whom communication is unlawful,
the giving of such notice to such person shall not be required and there shall
be no duty to apply to any governmental authority or agency for a license
<PAGE> 19
or permit to give such notice to such person. Any action or meeting which shall
be taken or held without notice to any such person with whom communication is
unlawful shall have the same force and effect as if such notice had been duly
given. In the event that the action taken by the corporation is such as to
require the filing of a certificate under any provision of the Delaware General
Corporation Law, the certificate shall state, if such is the fact and if notice
is required, that notice was given to all persons entitled to receive notice
except such persons with whom communication is unlawful.
ARTICLE XI
Fiscal Year
The fiscal year of the corporation shall be such as may from time to
time be established by the Board of Directors.
ARTICLE XII
Amendments
These Bylaws may be repealed, altered or amended or new Bylaws adopted
by written consent of stockholders in the manner authorized by Section 2.11 of
Article II, or at any meeting of the stockholders, either annual or special, by
the affirmative vote of a majority of the stock entitled to vote at such
meeting, unless a larger vote is required by these Bylaws or the Certificate of
Incorporation. The Board of Directors shall also have the authority to repeal,
alter or amend these Bylaws or adopt new Bylaws (including, without limitation,
the amendment of any Bylaws setting forth the number of directors who shall
constitute the whole Board of Directors) by unanimous written consent or at any
annual, regular, or special meeting by the affirmative vote of a majority of the
whole number of directors, subject to the power of the stockholders to change or
repeal such Bylaws and provided that the Board of Directors shall not make or
alter any Bylaws fixing the qualifications, classifications, or term of office
of directors.
<PAGE> 1
Exhibit 10.2
SUBLEASE AGREEMENT
Agreement of Sublease ("Sublease"), dated as of the 1st day of
April, 1996 by and between Lockheed Engineering & Sciences Company, a Texas
corporation, having an office at 2625 Bay Area Boulevard, Houston, Texas 77058
(the "Sublessor") and Global Discount Travel Services LLC, a Nevada limited
liability company, having an office at 4052 South Industrial Road, Las Vegas,
Nevada 89103 (the "Sublessee").
W I T N E S S E T H
WHEREAS, by Agreement of Lease dated June 19, 1991, ("Underlying
Lease"), between Howard Hughes Properties, Limited Partnership, as landlord
("Underlying Landlord"), and Sublessor, as tenant, Underlying Landlord demised
to Sublessor certain premises consisting of approximately 53,760 square feet of
a two story office space (which premises are referred to herein and in the
Underlying Lease as the "Premises") in the building located at the Southwest
Corner of Sunset Road and Paradise, Las Vegas, Nevada, commonly known as 980
Kelly Johnson Drive (the "Building"), and
WHEREAS, Sublessor desires to sublease to Sublessee (i) the entire
second floor of the Premises, which consist of approximately 26,480 rentable
square feet on the second floor of the Building and (ii) a computer room
("Computer Room") situated on the first floor of the Building consisting of
approximately 855 square feet together with access rights and use of lobby,
stairs, elevator (if any), corridors and other areas of the Premises necessary
to the ingress, egress and maintenance of the Sublet Premises (the "Sublet
Premises"), and Sublessee desires to sublet the Sublet Premises from Sublessor
on the terms, covenants and conditions contained herein.
NOW, THEREFORE, in consideration of the rental payments to be made
hereunder by the Sublessee to the Sublessor and the mutual terms, covenants and
conditions hereinafter set forth, the Sublessor does hereby sublet to the
Sublessee and the Sublessee does hereby take and hire from the Sublessor, the
Sublet Premises on the terms and conditions as more particularly set forth
herein.
<PAGE> 2
1. Underlying Lease
(a) This Sublease shall be expressly subject and subordinate
to all the terms, covenants and conditions contained in the Underlying Lease,
and to all matters to which the Underlying Lease is subject and subordinate. A
true and complete copy of the Underlying Lease is annexed hereto as Exhibit A.
(b) The Sublessee covenants and agrees (i) not to do or suffer
or permit anything to be done or fail to do anything which would violate the
terms of the Underlying Lease or result in a default under the Underlying Lease
(beyond the expiration of applicable grace, notice and/or cure periods) or cause
the Underlying Lease to be terminated, (ii) to perform and observe as to the
Sublet Premises all of the terms, covenants and conditions on the part of the
Tenant under the Underlying Lease to be observed and performed except the
payment of Fixed Rent and Additional Rent under the Underlying Lease and except
those other provisions of the Underlying Lease made inapplicable by the express
provisions of this Sublease or the Excluded Provisions (as hereinafter defined).
Except for the Excluded Provisions, all of the terms, covenants and conditions
of the Underlying Lease are incorporated herein with the same force and effect
as if herein set forth in full. The rights and obligations contained in the
Underlying Lease are hereby imposed upon the Sublessor and the Sublessee during
the term of this Sublease, "Sublessor" being substituted for "Landlord" and
"Sublessee" being substituted for "Tenant" and the "Sublet Premises" for the
"Premises".
(c) In all instances where Sublessor's consent is required
hereunder, Sublessor agrees that Sublessor's consent shall not be unreasonably
withheld or delayed. If any request for consent or approval of Underlying
Landlord is made by Sublessee, Sublessor shall promptly cooperate with Sublessee
in obtaining the appropriate consent and furnish the appropriate parties all
materials received from Sublessee, together with such notices, instructions and
materials as may be required to be furnished by Sublessor.
(d) Sublessee shall be entitled to the services, maintenance,
repairs and access which the Under lying Landlord is obligated to furnish or
supply to, or for
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<PAGE> 3
the benefit of, the Sublet Premises pursuant to the terms of the Underlying
Lease. Sublessee agrees to pay for all utilities used in the Sublet Premises
other than those utilities and services which are provided without charge under
the Underlying Lease. Sublessor hereby represents and warrants and Sublessee
hereby acknowledges that the Building has been submetered to measure electricity
usage independently for the first and second floors of the Building. From and
after the Commencement Date Sublessee shall pay the electricity charges shown on
such meter with respect to the Sublet Premises only. Sublessee acknowledges that
there is one meter which measures electrical consumption on the first floor of
the Building. With respect to the Computer Room, Sublessee shall pay a share of
the electricity charges shown on such meter equal to 3% (i.e.: 855/ expense,
install submeters on the first floor of the Building to measure electrical
consumption, including, but not limited, a separate meter serving the Computer
Room exclusively, and in such event, Sublessee shall pay, without any surcharge,
the normal and customary rates with respect to such electrical consumption as
shown on the Computer Room meter. Sublessor shall be under no duty to perform
any of the covenants, agreements or requirements of the Underlying Landlord and
Sublessor shall not be liable to Sublessee because of any failure or delay on
the part of the Underlying Landlord in furnishing such services or making such
repairs unless such failure or delay results from Sublessor being in default
under the Underlying Lease (other than a default under the Underlying Lease
caused by a default by Sublessee hereunder or Sublessor's negligent or wilful
misconduct).
(e) The Sublessor shall perform and observe the covenants and
agreements on the part of the Sublessor, as Tenant under the Underlying Lease,
to be observed and performed and the Sublessor covenants and agrees not to do
anything or fail to do anything which would result in a default under or cause
the Underlying Lease to be terminated; provided however, the Sublessor does not
assume any obligation to perform the terms, covenants and conditions contained
in the Underlying Lease on the part of the Underlying Landlord to be performed.
The Sublessee shall accept performance by the Underlying Landlord under the
Underlying Lease of any of the obligations of the Sublessor under this Sublease.
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<PAGE> 4
(f) The Sublessee shall not be allowed any abatement or
diminution of rent under this Sublease because of the Underlying Landlords'
failure to perform any of its obligations under the Underlying Lease.
Notwithstanding the foregoing, in the event that the Sublessor actually receives
an abatement or diminution of rent from the Underlying Landlord with respect to
the Premises, some or all of which is properly allocated to the Sublet Premises,
the Sublessee shall be entitled to the portion of such abatement or diminution
which is properly allocable to the Sublet Premises.
(g) The Sublessor shall enforce the obligations of the
Underlying Landlord pertaining to the Sublet Premises. In the event the
Sublessor initiates any action or proceeding to compel the performance of
Landlord under the Underlying Lease, to the extent that such enforcement action
benefits both the Sublessor as Tenant under the Underlying Lease, and the
Sublessee hereunder, the Sublessee shall pay an amount equal to a fair and
equitable share of such costs and expenses which, in the case of any matter
affecting the Sublet Premises and the balance of the Premises in substantially
an equivalent manner shall be the Sublessee's Proportionate Share (as
hereinafter defined) of such expenses. All costs and expenses of the Sublessor
under this Section which are to be reimbursed by the Sublessee shall be
Additional Rent hereunder and shall be paid by the Sublessee with the next
ensuing Fixed Rent payment. If the Sublessor fails to enforce such obligations,
after request by the Sublessee, the Sublessor shall assign to the Sublessee all
of the Sublessor's right, title and interest in any such claim and the
enforcement thereof and after such assignment, the Sublessee shall be entitled
to enforce such claim in its own name or in the name of the Sublessor.
(h) The Sublessor reserves the right at any time during the
term of this Sublease to amend the Under lying Lease to provide for a reduction
of fixed rent and/or additional rent and to obtain other financial concessions
from the Underlying Landlord, its successors or legal representatives provided
that the Sublessor shall not enter into any amendment of the Underlying Lease
which shall amend any other terms of the Underlying Lease which shall be
applicable to or govern the Premises as the same pertains to the Sublet Premises
and the entrances, exits and corridors leading to and from the Sublet Premises
and to the duties of the Sublessor or the Underlying Landlord with respect
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<PAGE> 5
thereto and with respect to the services, equipment and facilities provided
thereto. If, as and when the Sublessor enters into any such amendment of the
Underlying Lease with the Underlying Landlord, the term "Underlying Lease" as
defined herein shall be deemed to include any such amendment from and after the
effective date of such amendment subject, however to the provisions of this
Section 1(h) of this Sublease.
2. Term
Provided that the consent (as more particularly described in Section
13 herein), required from the Underlying Landlord has been received, the term of
this Sublease shall commence on March 23, 1996, or in the event the Underlying
Landlord's consent has not been received by April 12, 1996, then, on the first
business day following the date on which the consent by the Underlying Landlord
is received by the Sublessee (the "Commencement Date"), but in no event later
than April 26, 1996, and shall end at 5:00 P.M. eastern standard time on
September 29, 2000 (the "Expiration Date"), if not sooner terminated pursuant to
the terms of this Sublease or the Underlying Lease.
3. Fixed Rent
(a) Sublessee shall pay to Sublessor at its office (or at such
other place as Sublessor may designate in a notice to Sublessee) in lawful money
of the United States which shall be legal tender in payment of all debts and
dues, public and private, at the time of payment by check, without prior demand
therefor and without any offset or deduction whatsoever, except as specifically
provided for herein from the date hereof through and including September 29,
2000 (subject to CPI Adjustment as provided for herein), an annual rental equal
to FOUR HUNDRED TWELVE THOUSAND NINE HUNDRED FIFTEEN DOLLARS and 20/100
($412,916.20) ("Fixed Rent") per annum payable in equal monthly installments of
THIRTY FOUR THOUSAND FOUR HUNDRED NINE DOLLARS and 60/100 ($34,409.60);
(b) On the date of execution hereof, Sublessee has paid rent
in advance in the amount of $34,409.60 representing one month's payment of Fixed
Rent receipt of which by Sublessor, subject to collection, is hereby
acknowledged. If the Commencement Date is not on the first day of the calendar
month, then the amount of Fixed Rent due to Sublessor on the first day of the
month
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<PAGE> 6
following the month in which the Commencement Date occurs, shall be an amount
equal to the product of (i) $34,409.60, multiplied by (ii) a fraction, the
numerator of which is the number of days from and including the Commencement
Date to and including the last day of the calendar month in which the
Commencement Date occurs and the denominator of which shall be equal to the
actual number of days in the calendar month in which the Commencement Date
occurs. Thereafter, each monthly installment of Fixed Rent shall be paid in
advance on or before the first day of each and every calendar month during the
term. With the exception of the first month of the sublease term, the Fixed Rent
for any month of the term of this Sublease which does not begin or end on the
first or last day of the calendar month shall be prorated on a daily basis in
accordance with the Fixed Rent due for such calendar month. The Sublessee's
obligation to make such payment shall survive the expiration or sooner
termination of this Sublease.
(c) Commencing on the first day of the month preceding the
first anniversary of the Commencement Date and continuing with each anniversary
date thereafter, the Fixed Rent (without taking into account any previous CPI
Adjustment) shall be increased in proportion to the increase, if any, in the
Index (as defined in the Underlying Lease) which has occurred between the month
which is three (3) months prior to the first month of this Sublease term
(January, 1996) and the month which is three months prior to each such
Adjustment Month. For purposes of this Sublease, an Adjustment Month(s) shall
mean each April, commencing with April 1, 1997 ("CPI Adjustment").
(d) All other costs, expenses and charges which are the
obligation of the Sublessee hereunder or which the Sublessee under the
Underlying Lease assumes or agrees to pay, shall be deemed additional rent
("Additional Rent").
4. Additional Rent
(a) Sublessor represents that its Tenant's Share, as Tenant
under the Underlying Lease, as defined in Article 1 of the Underlying Lease is
100%. Commencing April 1, 1997 and continuing with each ensuing calendar year
thereafter, Sublessee shall pay Additional Rent within ten (10) business days
after demand, which Additional Rent shall be equal 51.6% ("Sublessee's
Proportionate Share") of the amount, if any, by which the Operating Costs (as
such term is defined in the Underlying Lease) in each such calendar
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<PAGE> 7
year subject to proration with respect to the last year of the Sublease term if
less than a full calendar year, exceed the Operating Costs paid or charged to
the Sublessor as tenant under the Underlying Lease for the calendar year 1996.
Sublessor shall, upon Sublessee's request, request of Underlying Landlord the
supporting data required to verify the charges for Additional Rent sought to be
passed on to Sublessee as occupant of the Sublet Premises pursuant to the
Underlying Lease and shall disclose to Sublessee all information or findings
pertaining to the duty of Sublessor or Sublessee to pay such charges as
Additional Rent, including such matters with respect to such items of Additional
Rent as may have been called to Sublessor's attention by Sublessee. If Sublessor
shall not otherwise be contesting such charges, the cost and expense of
obtaining such supporting data, if any, shall be paid by Sublessee, as
Additional Rent.
(b) If Sublessor receives any refund or credit under the
Underlying Lease relating to any payment made by the Sublessee for Additional
Rent pursuant to this Article, Sublessee shall be entitled to receive from
Sublessor the entire amount of such refund or credit (less sums, if any,
expended by Sublessor in connection with ob taining such refund or credit) to
the extent relating to any payment made by Sublessee to Sublessor for Additional
Rent promptly following receipt by Sublessor.
(c) Sublessor shall cause to be provided to the Building,
including the Sublet Premises, services consisting of maintenance, repairs,
cleaning of the Building (other than the Sublet Premises), cellular service,
pest control, sanitation and waste removal ("Sublessor's Services") which shall
be paid for by Sublessor and Sublessee as herein provided. Sublessee's expense
base based on Sublessee's Proportionate Share is $0.17 per square foot
("Sublessee's Expense Base"). Commencing on the first anniversary of the
Commencement Date and continuing with each anniversary date thereafter, if the
cost of Sublessor's Services shall be greater than Sublessee's Expense Base,
Sublessee shall pay to Sublessor, as additional rent for such year, an amount
equal to the Sublessee's Percentage of the excess of the cost of Sublessor's
Services for such year over the Sublessee's Expense Base ("Sublessee's Expense
Payment"). Sublessor shall submit to Sublessee, prior to, or within 30 days
following the commencement of each year of the Sublease Term, an expense
statement certified by the Sublessor, setting forth the costs and expenses of
the
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<PAGE> 8
Sublessor's Services for the preceding year and the payment, if any due to
Sublessor from Sublessee for such year. In the event there is a decrease in the
cost of Sublessor's Services, Sublessee's Expense Payments shall be adjusted to
reflect the decrease.
5. Use
Sublessee shall use and occupy the Sublet Premises for executive and
general offices, including, without intention to limit the generality of the
foregoing in any respect, Sublessee shall have the right to operate in the
Sublet Premises 24 hours a day, 365 days a year, its wholesale and retail travel
related sales and services business, distribution of airline tickets and travel
related documents, and to install and incorporate into the Sublet Premises,
throughout the term of this Sublease (a) computers and related equipment, (b)
telephone system and data bank, (c) word processing, mailing and related
equipment and (d) photocopying facilities and related services and equipment.
The Sublet Premises shall not be used for retail sale to walk-in customers or
clients.
6. Representations
(a) The Sublessee represents and warrants that it has
inspected the Sublet Premises and is familiar with the condition thereof.
Sublessee agrees that it enters into this Sublease without any representation or
warranties by Sublessor, its agents, representatives, employees, servants,
brokers or any other person as to the present or future condition of the
Building or the Sublet Premises or the appurtenances thereto except as herein
contained. Sublessee agrees that Sublessee accepts the Sublet Premises "as-is"
in its condition as of the date hereof and except for delivery of Sublessor's
Tenant Improvement Payment (as hereafter defined), Sublessor shall not be
obligated to furnish any work, materials or services or rent concessions in
order to ready the Sublet Premises for Sublessee's occupancy. Contemporaneously
with the execution and delivery of this Sublease, Sublessor shall deliver a
check made payable to Sublessee in the amount of $30,000 to be applied by
Sublessee to any improvements Sublessee may elect to undertake in the Sublet
Premises ("Sublessor's Tenant Improvement Payment").
(b) The Sublessor hereby represents and warrants that (i) the
Underlying Lease is in full force and
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<PAGE> 9
effect; (ii) Exhibit A contains a true, complete and correct copy of the
Underlying Lease and that there have been no amendments or modifications
thereto; (iii) the Underlying Landlord is not in default under the Underlying
Lease; (iv) the Sublessor, as Tenant, is not in default under the Underlying
Lease; (v) the Sublessor's interest under the Underlying Lease has not been
encumbered by any prior transfer, assignment or encumbrance; (vi) the Sublessor
has full and lawful authority to sublease the Sublet Premises pursuant to the
terms and conditions set forth herein, subject only to the Underlying Landlord's
consent thereto; (vii) the Sublet premises are in compliance with all applicable
laws and building codes; and (vii) Sublessor's option to terminate the
Underlying Lease as provided for in Section 3.05 of the Underlying Lease is of
no force and effect and the Sublessor, as tenant under the Underlying Lease has
no right to terminate the Underlying Lease prior to the Expiration Date.
(c) Each party shall, at any time and from time to time, upon
not less than ten (10) days prior written notice from the requesting party,
execute, acknowledge and deliver to the requesting party, a statement in writing
(i) certifying that this Sublease is unmodified and in full force and effect
(or, if modified, stating the nature of the modification and certifying that
this Sublease, as so modified, is in full force and effect) and the dates to
which the Fixed Rent and any Additional Rent and other charges are paid in
advance, and (ii) acknowledging that there are no defaults on the part of the
Sublessor or Sublessee, as the case may be, or specifying such defaults if any
are claimed.
7. Insurance
Sublessee covenants and agrees to provide at its sole cost and
expense on or before the Commencement Date, and to keep in force during the
Sublease Term, a Commercial General Liability insurance policy naming the
Sublessor and the Underlying Landlord as named insured parties, which policy
shall include, but not be limited to, contractual liability insurance, property
damage and personal injury coverage protecting Sublessee, Sublessor and the
Underlying Landlord against any liability whatsoever, occasioned by any
occurrence on or about the Sublet Premises or any appurtenances thereto. Such
policy shall be written by and delivered, all companies as provided for in
Article 4.05(c) of the Underlying Lease. As of the date of this Sublease,
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<PAGE> 10
Sublessor requires that limits of liability under the policy be not less than
$1,000,000.00 and such amount may be subject to periodic increases as provided
for in Article 4.05(b) of the Underlying Lease. Such policy shall also have the
indemnity clause referred to in Article 5.05 of the Underlying Lease and Section
16 hereof typed on the policy evidencing that the "hold harmless" clause has
been insured. Sublessee's failure to provide and keep in force the
aforementioned insurance shall be regarded as a default hereunder entitling
Sublessor to exercise any and all of the remedies provided for in the Sublease
(and in the Underlying Lease, as incorporated by reference into this Sublease)
in the event of Sublessee's default.
8. Broker
Sublessor and Sublessee each covenant, warrant and represent to the
other that there was no broker, finder, consultant or like agent except CB
Commercial Real Estate Group, Inc. ("CB Commercial") instrumental in
consummating this Sublease and that no conversations or negotiations were held
with any broker, finder, consultant or like agent other than CB Commercial
concerning the leasing of the Sublet Premises. Each party agrees to hold the
other harmless against any claims for brokerage commissions arising out of any
conversations or negotiations had by such party with any broker, finder,
consultant or like agent except CB Commercial. Sublessor has agreed to pay any
and all brokerage commissions to CB Commercial pursuant to a separate agreement.
The representations, warranties and covenants contained in this Article shall
survive the expiration or earlier termination of this Sublease.
9. Assignment and Subletting
Subject to the rights of the Underlying Landlord under Article 9 of
the Underlying Lease to consent to a proposed assignment or sublet, (a)
Sublessee shall not assign this Sublease or sublet or permit the use of all or
any portion of the Sublet Premises without obtaining the prior written consent
of the Sublessor, which consent Sublessor agrees will not be unreasonably
withheld or delayed; provided, however, that Sublessee shall be permitted, upon
prior written notice to the Sublessor and the Underlying Landlord but without
either the Sublessor's or the Underlying Landlord's consent, to assign this
Sublease, sublet all or any portion of the Sublet Premises or provide the use of
all or any portion of the Sublet
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<PAGE> 11
Premises, to one or more Affiliates of Sublessee or to an entity into or with
which Sublessee shall be merged or consolidated or an entity to which all or
substantially all of the assets of Sublessee shall be transferred. For purposes
of this Sublease, the term "Affiliate" is defined as any entity or person
directly or indirectly controlling, controlled by or under common control with
Sublessee. The term "control" is defined as ownership of 50% or more of all of
the issued and outstanding stock of any corporation or the equivalent ownership
interest in any non corporate entity.
10. Quiet Enjoyment
Sublessor covenants and agrees to perform all of its obligations as
Tenant pursuant to the Underlying Lease so that this Sublease shall at all times
during the term continue in full force and effect and that Sublessee's occupancy
of the Sublet Premises will not be interfered with or disturbed. Sublessee, upon
paying the rent and all other charges as herein provided shall quietly have and
enjoy the Sublet Premises during the term of this Sublease without hinderance or
molestation by anyone claiming by, through, or under Sublessor.
11. Default
(a) In the event Sublessee shall default in the performance of
any of the terms, covenants and condi tions on its part to be performed under
this Sublease, or in the event that Sublessee shall default in performance of
any of the terms, covenants and conditions on the Tenant's part to be performed
under the Underlying Lease which are the obligations of Sublessee to perform
under this Sublease and which are not cured prior to the expiration of the time
for curing thereof thereunder, Sublessor shall have the same rights and remedies
with respect to the such default as are given to the Underlying Landlord under
the Underlying Lease with respect to a default by Tenant under the Underlying
Lease, all with the same force and effect as though the provisions of the
Underlying Lease with respect to defaults were and the rights and remedies of
the Underlying Landlord thereunder in the event thereof were set forth at length
in this Sublease. Sublessor shall notify Sublessee promptly of any notices of
default relating to the Sublet Premises which may be received by Sublessor from
Underlying Landlord.
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<PAGE> 12
(b) If Sublessee shall default in the performance of any of
the Sublessee's obligations hereunder or under any the provisions of the
Underlying Lease which are the obligations of the Sublessee to perform under
this Sublease beyond any applicable grace periods after notice, Sublessor,
without thereby waiving such default, may, at Sublessor's option, perform the
same for the account and at the sole cost and expense of Sublessee, without
notice in the event of an emergency, and after ten (10) day prior written notice
in any other event unless Sublessee notifies Sublessor in writing of its intent
to perform within said 10 day period after receipt of said notice. If Sublessor
makes any expenditures or incurs any obligations for the payment of money,
including without limitation, reasonable counsel fees in instituting,
prosecuting or defending any action or proceeding, by reason of any default of
Sublessee hereunder, such sums paid or obligations incurred, shall be deemed to
be Additional Rent and shall be payable by Sublessee to Sublessor upon demand.
12. Notices
(a) Any notice to be given under this Sublease shall be in
writing and shall be sent by certified mail, return receipt requested, or by
Federal Express or similar overnight courier service addressed as follows:
If to Sublessor:
Lockheed Engineering & Sciences Company
2625 Bay Area Boulevard
Houston, Texas 77058
Attention: Charles J. Dickey
with a copy each to:
Lockheed Environmental Systems &
Technologies Company
Two Allen Center
1200 Smith Street, Suite 800
Houston, Texas
Attention: Dennis Patton
and
Lockheed Environmental Systems &
Technologies Company
980 Kelly Johnson Drive
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<PAGE> 13
Las Vegas,Nevada 89119
Attention: John R. Baker
If to Sublessee:
Global Discount Travel Services LLC
4052 S. Industrial Road
Las Vegas, Nevada 89103
with a copy to:
Global Discount Travel Services LLC
c/o Icahn Associates
114 West 47th Street
New York, New York 10036
Attention: Robert J. Mitchell
Each party shall have the right to designate by notice in writing to the other
party any other address to which such party's notice is to be sent. Any notice
shall be deemed given (i) when received, (ii) three (3) business days after
mailing, or (iii) one (1) business day after delivery to Federal Express or
similar overnight courier, whichever occurs first.
13. Consent
(a) This Sublease is subject to and conditioned upon Sublessor
securing (i) the consent of the Underlying Landlord and the Underlying
Landlord's lender to this subletting to the extent required under the Underlying
Lease, (ii) the consent of the Underlying Landlord to the use of the
Supplemental Parking and the Parking License (as hereinafter defined) as
provided for in the Parking License, (iii) the execution and delivery to
Sublessee of the non-disturbance agreement by the Underlying Landlord
substantially in the same form of the agreement attached hereto as Exhibit C
("Non-Disturbance Agreement") and (iv) the execution and delivery by the
Underlying Landlord of an estoppel certificate in the form attached hereto as
Exhibit D of the Underlying Landlord called for herein.
(b) Sublessor agrees that upon the signing of this Sublease it
will proceed with diligence to obtain (i) the consent of the Underlying Landlord
to this Sublease and to furnish the Sublessee a fully executed copy of such
consent, which consent shall be unconditional; (ii) the execution by the
Underlying Landlord of the Non-Disturbance
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<PAGE> 14
Agreement and the delivery of a fully executed Non- Disturbance Agreement to
Sublessee and (iii) an estoppel certificate from the Underlying Landlord
pertaining to the Underlying Lease in the form called for under 13(a) of this
Sublease. In the event the Sublessor is unable to secure such consent to this
Sublease, such estoppel certificate or said Non-Disturbance Agreement, as the
case may be, within 15 days from the date hereof, either party shall thereafter
have the right, exercisable by notice to the other party given at any time
before such parties have been notified that the consent, the Non-Disturbance
Agreement and the estoppel certificate have been obtained, to cancel this
Sublease unless such condition is promptly waived by the other party. If this
Sublease is so canceled, this Sublease shall be null and void, Sublessor shall
promptly return to Sublessee the initial installment of Fixed Rent paid upon
execution of this Sublease, and thereafter, neither party shall have any claim
against the other except as provided for in Section 8 hereof. Either party may
waive any provision of this Sublease which is for such parties exclusive benefit
in connection with the procurement of such consent, and Sublessee may waive the
requirement for the Non-Disturbance Agreement, the approval of the Parking
License and the estoppel certificate in the forms required hereunder.
14. Entire Agreement
This Sublease contains the entire agreement between the parties with
respect to the matter hereof and supersedes all prior understandings, if any,
with respect thereto, This Sublease may not be modified, changed or
supplemented, nor may any obligations hereunder be deemed waived, except by
written instrument signed by the party to be charged or by its agent duly
authorized in writing or as otherwise expressly permitted.
15. Excluded and Modified Provisions
It is expressly understood and agreed by and between the Sublessor
and the Sublessee that notwithstanding the obligations of the Sublessor to the
Underlying Landlord under the Underlying Lease, the Underlying Lease provisions
listed on Exhibit B attached hereto and incorporated by reference herein are
either expressly excluded from and not incorporated by reference into this
Sublease or modified to the extent reflected on Exhibit B ("Excluded
Provisions").
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<PAGE> 15
16. Indemnity Provision
(a) Sublessee covenants that it will, and does hereby agree
to, indemnify and hold Sublessor, its officers, directors, shareholders, agents,
successors and assigns, harmless from and against any and all actions, claims,
demands, damages, liabilities, and expenses (including, without limitation,
attorneys' fees and disbursements and costs of enforcing this indemnity) paid or
incurred by Sublessor on account of any default under the Underlying Lease
caused by the Sublessee (whether through its own acts or omissions, or the act
or omission of its agents, servants, employees or invitees) as a result of any
failure of the Sublessee to perform and observe as to the Sublet Premises any of
the terms, covenants and conditions on the part of the Sublessee under this
Sublease to be performed and observed except for any default by the Sublessor
under this Sublease or the Underlying Lease.
(b) Sublessor covenants that it will, and does hereby agree
to, indemnify and hold Sublessee, its officers, directors, shareholders, agents,
successors and assigns, harmless from and against any and all actions, claims,
demands, damages, liabilities and expenses (including, without limitation
reasonable attorneys' fees and disbursements and costs of enforcing this
indemnity) incurred or sustained by Sublessee on account of any default by
Sublessor, its agents, servants, employees or invitees, under this Sublease or
the Underlying Lease in performing or observing any of the covenants and
agreements on the part of the Sublessor as Tenant under the Underlying Lease to
be performed or observed, except for any default by the Sublessor under the
Underlying Lease or this Sublease resulting from a default by the Sublessee
under this Sublease.
17. Non-Disturbance and Attornment
(a) In the event of termination, re-entry or dispossess by
Underlying Landlord under the Underlying Lease prior to the expiration of the
Sublease term, Sublessee may in its sole discretion, attorn to the Underlying
Landlord under the Underlying Lease for the then remaining term of this Sublease
upon and subject to the then executory provisions of this Sublease. Upon such
attornment by Sublessee to the Underlying Landlord and upon Underlying Landlord
accepting such attornment, this Sublease shall continue in full force and effect
as if it were a direct
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<PAGE> 16
lease between the Sublessee and the Underlying Landlord and all of the terms,
covenants and conditions of this Sublease shall be applicable after such
attornment except that the Underlying Landlord under the Underlying Lease shall
not (i) be liable for any previous acts or omissions of the Sublessor under this
Sublease, (ii) be subject to any offset, not expressly provided in this Sublease
which theretofore accrued to Sublessee against Sublessor, or (iii) be bound by
any previous modification of this Sublease made without the Underlying
Landlord's written consent or by any previous prepayment of more than one
month's Fixed Rent or of payments of Additional Rent due in accordance with the
provisions of this Sublease.
(b) Sublessor and Sublessee hereby agree that this Sublease is
conditioned upon Sublessor delivering the Non-Disturbance Agreement to Sublessee
between Sublessee and the Underlying Landlord, which agreement provides that in
the event of a termination of the Underlying Lease during the term of this
Sublease and election by the Sublessee to remain in possession of the Sublet
Premise, the Underlying Landlord shall at Sublessee's request, accept attornment
by Sublessee under this Sublease for the balance of the term hereof, but upon
and subject to all of the terms and provisions of the Underlying Lease to the
extent not otherwise provided for in the Non-Disturbance Agreement, and this
Sublease, in such event shall be and be deemed to have been amended so as to
have incorporated all of the terms and provisions of the Underlying Lease as if
set forth herein at length, and such terms and provisions shall, to the extent
not otherwise provided for in the Non-Disturbance Agreement supersede the terms
and provisions of the Sublease; provided, however, that the Sublessee will be
under no obligation to cure any default or rectify any condition under the
Underlying Lease which gave rise to a default under the Underlying Lease, nor be
bound by any amendment to any Underlying Lease hereafter made not consented to
by Sublessee, but nothing herein contained shall excuse performance by Sublessee
of its obligation as tenant under this Sublease as the same shall be and be
deemed to have been amended from and after the effective date of such attornment
and acceptance of attornment. Sublessee shall execute and deliver to Underlying
Landlord any and all amendments to this Sublease as may be necessary to
effectuate or confirm the foregoing provisions of this Section.
-16-
<PAGE> 17
18. Access
Notwithstanding anything contained in this Sublease or in the
Underlying Lease to the contrary, Sublessor or Sublessor's agents shall have no
right, except upon prior reasonable notice and at reasonable times, to enter
upon the Sublet Premises except in the case of emergency, or when circumstances
otherwise warrant, and further provided that such entry shall not unreasonably
disrupt the conduct of Sublessee's business.
19. Waiver of Sublessor's Lien
Sublessee has informed Sublessor that one or more companies (each, a
"Leasehold Mortgagee"), has extended or may in the future extend credit to
Sublessee, whether by way of a personal property lease or secured in part by
Sublessee's interest in any personal property, inventory, equipment or trade
fixture to be installed or located at the Sublet Premises (the "Pledged Personal
Property"). Sublessor agrees that any Pledged Personal Property will remain
personal property at all times even if affixed to or installed upon the Sublet
Premises, and waives any right, title or interest in such Pledged Personal
Property, including, without limitation, Sublessor's statutory lien, if any, for
rent. Sublessor agrees that Leasehold Mortgagee may enter the Sublet Premises
and remove the Pledged Personal Property at any time upon providing Sublessor
reasonable notice, without further consent from the Sublessor, in the event of a
default under that Pledged Personal Property lease or the secured obligation,
whether or not the Sublease is terminated, provided that Leasehold Mortgagee
agrees to reimburse Sublessor for the cost of repair of the physical damage to
the Sublet Premises caused by such removal (but not for any reduction in the
value of the Sublet Premises caused by the absence of the personal property so
removed). Sublessor agrees that the Sublessee's interest in this Sublease may be
pledged to the Leasehold Mortgagee provided the Leasehold Mortgagee shall be
bound by all other terms, provisions and conditions contained in this Sublease
should the Leasehold Mortgagee acquire Sublessee's interest in this Sublease.
20. Alterations
(1) Sublessee shall have the right, at its own cost and
expense to make all alterations, decorations, additions or improvements as may
be required for the conduct
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<PAGE> 18
of Sublessee's business in the Sublet Premises, except that Sublessee shall be
required to obtain the consent of the Sublessor to alterations, additions or
improvements in the Sublet Premises (which consent the Sublessor agrees will not
be unreasonably withheld or delayed), provided that the Sublessor shall not
withhold its consent to the following alterations to be performed by the
Sublessee to the Sublet Premises:
a) Relocation of partitions and doors;
b) Relocation and/or installation of additional electrical and
telephone outlets;
c) carpet, paint and wallcovering;
d) installation of signs on the entrance to the Sublet
Premises and outside the Building in accordance with Section 22 of this
Sublease; and
e) construction of "break room" consisting of a sink,
dishwasher, microwave oven and vending machines
provided Sublessee shall obtain the consent of the Underlying Landlord if such
consent is required pursuant to the terms of the Underlying Lease. Sublessee
shall comply in the performance of such work with all laws, ordinances, rules
and regulations of all governmental authorities having jurisdiction over the
Sublet Premises.
(2) Sublessor represents and warrants to Sublessee that
Sublessor is not under any duty, as a Tenant under the Underlying Lease, to make
alterations to the Premises in order to restore the Premises to the condition
into which the Premises are to be put to comply with the requirement of the
Underlying Lease relating to Sublessor's surrender of the Premises at the
expiration of the term of the Underlying Lease.
(3) All articles of personal property and all business and
trade fixtures, machinery, equipment, furniture and movable partitions owned by
the Sublessee or installed by the Sublessee at its expense in the Sublet
Premises shall be and remain the property of the Sublessee and may be removed by
the Sublessee at any time during the term of this Sublease provided that
Sublessee shall repair any damage caused by said removal and shall deliver the
Sublet Premises to Sublessor broom clean and in
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<PAGE> 19
substantially the same condition as upon commencement of the term hereof,
reasonable wear and tear excepted, except however, Sublessee shall not be
required to remove any alteration, including any structural alteration it may
have been allowed to make pursuant to the terms of the Underlying Lease, or with
the consent of the Underlying Landlord (unless required by the terms of such
consent).
21. Parking
(a) Notwithstanding anything contained in the Underlying Lease
to the contrary, Sublessor covenants and agrees to provide Sublessee with 200
parking spaces at the Premises (as such term is defined in the Underlying Lease)
("Sublessee's Parking") which shall be provided as follows: (i) 140 parking
spaces shall be provided to Sublessee from the parking spaces allocated to
Sublessor under the Underlying Lease (referred to in the Underlying Lease as the
Common Parking Area), and (ii) 60 parking spaces located at 975 Grier Drive, Las
Vegas, Nevada ("Supplemental Parking") shall be provided to Sublessee from the
parking spaces allocated to Sublessor pursuant to a lease dated November 17,
1990 between the Sublessor, as tenant, and the Underlying Landlord, as landlord,
for the premises located at 975 Grier Drive, Las Vegas, Nevada (the "Additional
Lockheed Lease"). The expiration date of the Additional Lockheed Lease is
December 31, 2000.
(b) Sublessor hereby grants to Sublessee an exclusive license
to utilize the Supplemental Parking (the "Parking License"). The Parking
License, including, but not limited to the continuation thereof as set forth
further within this subsection (b), is a material part of the rights granted by
Sublessor to Sublessee hereunder. The Sublessor and Sublessee hereby agree that
the Parking License shall continue in full force and effect notwithstanding the
termination of the Underlying Lease so long as the Sublessee shall remain in
possession of the Sublet Premises whether as a subtenant or a direct tenant of
the Underlying Landlord or any successor-in-interest to the Underlying Landlord
until the expiration of the Sublease term. Sublessor hereby covenants and agrees
that the Additional Lockheed Lease will remain in full force and effect
throughout the Sublease Term.
(c) Sublessee hereby agrees to provide all its employees with
parking stickers which shall identify the name of the Sublessee and shall
further provide Sublessor
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<PAGE> 20
and Underlying Landlord with a quarterly listing of the license plate numbers
for all employee vehicles utilizing the Sublessee's Parking. In the event there
are visitors or service companies visiting the Sublet Premises for or on behalf
of the Sublessee, Sublessee agrees to provide each such visitor with a parking
pass to be inserted in the inside front window of the vehicle indicating the
vehicle as a visitor to the Sublet Premises.
(d) Sublessee hereby covenants and agrees that Sublessee,
including, but not limited to any of Sublessee's employees, visitors, vendors or
other service companies servicing the Sublet Premises, shall not occupy any more
than 200 parking spaces at any one time and that it shall be a default under
this Sublease if Sublessee shall utilize more than the 200 spaces allocated to
Sublessee at any one time (a "Parking Default"). In the event of a Parking
Default, Sublessor shall provide immediate telephonic notice to Sublessee's
Representative (as hereinafter defined) at the Sublet Premises and thereafter
written notice to Sublessee within 3 days of the Parking Default specifying the
nature of the default, including, but not limited to, the time and date upon
which the Parking Default occurred (a "Parking Default Notice"). Sublessee's
Representative shall be two (2) or more individuals designated by Sublessee,
notice of which shall be provided to Sublessor and Underlying Landlord. At the
inception of the Sublease Term, the Sublessee's Representatives shall be Terry
O'Neil and Frank McPherson.
(e) Following or contemporaneously with the first Parking
Default Notice, a copy of which notice shall be delivered to Sublessee by the
Sublessor, the Underlying Landlord may retain a parking attendant to monitor the
parking at the Premises and Sublessee acknowledges that the Underlying Landlord
may require that the Sublessor pay for a parking attendant retained by the
Underlying Landlord to monitor the parking at the Premises and the Supplemental
Parking. Upon written notice of the Underlying Landlord to Sublessor of its
election to retain a parking attendant, a copy of which notice shall be provided
to Sublessee, Sublessee shall, pay to Sublessor, as additional rent such sums as
required to be paid by the Underlying Landlord for the reasonable costs and
expenses of such parking attendant.
(f) In the event Sublessee shall have received three (3) or
more Parking Default Notices within any 12 month period during the Sublease
Term, and provided
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<PAGE> 21
that Sublessor has received a written notice from Underlying Landlord requesting
that Sublessor terminate the Sublease as a result of three Parking Default
Notices to Sublessee within the preceding 12 month period, Sublessor shall
provide written notice to Sublessee of Underlying Landlord's notice, which
notice shall include a copy of Underlying Landlord's notice, and such Parking
Default shall be considered and be deemed to be an Event of Default under this
Sublease without any opportunity on the part of the Sublessee to cure, and
concurrently with such notice, this Sublease shall terminate, and Sublessor
shall be entitled to exercise all rights and remedies against Sublessee as
provided for in this Sublease.
22. Signage
Subject to the rights of the Underlying Landlord as contained in
Article 5.04 of the Underlying Lease, Sublessee shall have the right to install
a sign on the front door of the Sublet Premises and Sublessor shall provide a
directional sign in the parking lot of the Building consistent with those signs
already located in the parking lot indicating the location of the Sublet
Premises similar to Sublessor's existing signs and in accordance with the
Requirements of the Airline Reporting Corporation .
23. Guaranty of Sublease
The Obligation of Sublessee under this Sublease shall be guaranteed
by Highcrest Investors Corporation (the "Guaranty"). A copy of the form of
Guaranty is attached hereto as Exhibit E.
24. Miscellaneous
(a) This Sublease shall be governed by, interpreted under, and
construed and enforced in accordance with the laws of the State of Nevada
applicable to agreements made and to be performed wholly within the State of
Nevada.
(b) The terms, covenants and conditions contained in this
Sublease shall bind and inure to the benefit of the Sublessee and Sublessor and
their respective successors and assigns.
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<PAGE> 22
(c) Each right and remedy of the Sublessor provided for in
this Sublease shall be cumulative and shall be in addition to every other right
and remedy provided for in this Sublease or now or hereafter existing at law or
in equity by statute or otherwise.
SUBLESSOR
LOCKHEED ENGINEERING &
SCIENCES COMPANY
By:___________________________
SUBLESSEE
GLOBAL DISCOUNT TRAVEL
SERVICES LLC
By: Highcrest Investors Corp.
By:___________________________
Robert J. Mitchell
Assistant Secretary
-22-
<PAGE> 1
Exhibit 10.3
FIRST AMENDMENT TO SUBLEASE AGREEMENT
This first amendment ("Amendment"), made as of this 2nd day of February,
1998, by and between Global Discount Travel Services, LLC, a Nevada limited
liability company, located at 980 Kelly Johnson Drive, Las Vegas, Nevada 89119
("GDTS"), and Lockheed Martin Corporation, located at 12999 Deer Creek Canyon
Road, Littleton, Colorado 80127 ("Lockheed Martin"), amends that certain
Sublease Agreement by and between such parties, effective as of April 1, 1996
(the "Agreement"). All capitalized terms used herein and not otherwise defined
shall have the meanings ascribed thereto in the Agreement. The Agreement is
hereby amended as follows:
1. As set forth more specifically in the attached Exhibit A, the leased
premises and square footage (the "Premises") shall be increased commencing on
February 1, 1998 and shall include:
<TABLE>
<CAPTION>
Area Rentable Square Feet
---- --------------------
<S> <C>
Area 1 4,011
Area 2 2,127
Area 4 1,330
-----
Total Rentable Square Feet 7,468
</TABLE>
Area 2 shall include the patio premises, and the entrance lobby shall be
designated as a common area for use by both Lockheed Martin and Global as
depicted on Exhibit B attached hereto.
2. The Service Monthly Rental Rate for the Premises per rentable square
foot shall be $1.40, excluding electrical usage or janitorial services. The new
total monthly rent shall be $44,296.81 effective Februay 15, 1998..
3. Lockheed shall deliver the Premises "as-is". GDTS shall be responsible
for all tenant retrofit at its sole cost.
4. This Amendment is contingent upon receiving Lanlord's (Howard Hughes
Properties) written consent and all conditions contained therein.
All provisions of this Amendment shall be construed in accordance with the
provisions of the Agreement. All provisions of the Agreement not affected by the
Amendment shall remain in full force and effect as set forth therein.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have cause this Amendment to be
executed as of the date hereinabove first written.
LOCKHEED ENGINEERING & SCIENCE COMPANY GLOBAL DISCOUNT TRAVEL SERVICES, LLC
by LMC Properties, Inc., Attorney in Fact
Under Irrovocable Power of Attorney
dated June 5, 1996
- ---------------------------------------- ------------------------------------
P. L. Diebert Terry O'Neal
Manager, Real Estate
<PAGE> 1
Exhibit 10.4
LICENSE AGREEMENT
LICENSE AGREEMENT, dated as of February 1, 1997, between ICAHN
ASSOCIATES CORP. ("Licensor"), having an address at 767 Fifth Avenue, New York,
New York 10153, and GLOBAL TRAVEL MARKETING SERVICES INC. ("Licensee"), having
an address at 767 Fifth Avenue, New York, New York 10153.
The parties agree with each other as follows:
1. The Master Lease and the Subleased Premises
(a) Licensor is the tenant under the Sublease dated July 31,
1996 ("Master Lease") between KPMG Peat Marwick LLP, as landlord, and Icahn
Associates Corp., as tenant. KPMG Peat Marwick LLP is referred to herein as
"Landlord". The Master Lease is incorporated into this Agreement as if set forth
herein in its entirety.
(b) The Master Lease relates to a portion of the 47th floor
(the "Subleased Premises") of the building known as 767 Fifth Avenue, New York,
New York (the "Building"). The Subleased Premises are more specifically
described in the Master Lease.
(c) Except as specifically set forth below, Licensee, with
respect to the Licensed Premises (as hereinafter defined), the Common Facilities
(as hereinafter defined) and all other portions of the Building used by
Licensee, shall be bound by and comply with all of the covenants and obligations
of the Tenant under the Master Lease. The terms "Landlord" and "Tenant" under
the Master Lease shall mean the Licensor and Licensee, respectively. All
references in the Master Lease to the term "Commencement Date" shall, for
purposes hereof, be deemed to refer to the Commencement Date as defined herein.
All references in the Master Lease to the "Subleased Premises" shall, for
purposes hereof, be deemed to be references to the Licensed Premises and the
Common Facilities, except as specifically set forth below.
2. Licensed Premises, Common Facilities, Access Areas
(a) Licensor hereby grants to Licensee (i) a nonexclusive
license to use the portion of the Subleased Premises consisting of approximately
3,696.63 rentable square feet, including secretarial areas and storage areas,
which the parties agree comprises 17.5% of the Subleased Premises (the "Licensed
Premises") as
<PAGE> 2
designated on Exhibit A, attached hereto and made a part hereof, (ii) a
nonexclusive license to use the "Common Facilities" as more fully described in
Section 4 of this Agreement, and (iii) a nonexclusive easement for access to and
from the Common Areas and the Licensed Premises over the adjacent corridors
within the Subleased Premises. Licensor and Licensee agree that the license
hereby granted to Licensee shall not be revoked at will, and may only be
canceled in accordance with its terms or pursuant to an express agreement of the
parties.
(b) During the term of this Agreement, Licensee, its employees
and invitees, shall have (i) a nonexclusive license to use the "Common
Facilities" and (ii) as granted to Licensor in the Master Lease, the
non-exclusive right to use in common with others the lobbies, elevators
(including freight elevators), lavatories and other public portions of the
Building and the common bathrooms on the 47th floor of the Building. Licensor
reserves the right for itself and in common with its legal representatives,
successors and assigns, subtenants (if any), other licensees (if any) and their
respective partners, officers, directors, employees, agents and invitees to use
the Common Facilities in common with Licensee. The "Common Facilities" shall be
the areas designated from time to time by Licensor as (i) the reception area,
(ii) the coat closet, and (iii) the copier room/pantry, and the furnishings and
equipment located in such areas (whether owned by Licensee or Licensor or any
subtenant or other licensee of Licensor). Licensor reserves the right to change,
alter, eliminate, restrict or remove the Common Facilities and Licensor's
personal property located therein (if any), from time to time; provided,
however, that no such change, alteration, elimination, restriction or removal of
the Common Facilities shall materially adversely affect Licensee's access to the
Licensed Premises or materially diminish Licensee's ability to use the Licensed
Premises, and to the extent that any Common Facilities shall be eliminated,
restricted or removed, the Rent hereunder shall be equitably adjusted.
(c) Licensee, its partners, employees and invitees, legal
representatives and successors and permitted assignees, shall have a
nonexclusive easement to use the "Access Areas" during the term of this
Agreement. Licensor reserves the right for itself and in common with legal
representatives, successors and assigns, subtenants (if any), other licensees
(if any) and their respective partners, officers, directors, employees, agents
and invitees to use the Access Areas in common with Licensee. The "Access Areas"
shall be the corridors and other areas of the Subleased Premises adjacent to the
rooms comprising the Licensed Premises and the Common Facilities. Licensor
reserves the right to change, alter, eliminate, restrict or remove the Access
Areas and the personal property located therein; provided, however, that no such
change, alteration, elimination, restriction or removal of the Access Areas
shall materially adversely affect Licensee's access to the Licensed Premises or
materially diminish Licensee's ability to use the Licensed Premises, and to the
extent
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<PAGE> 3
that any Access Areas shall be eliminated, restricted or removed, the Rent
hereunder shall be equitably adjusted.
(d) From time to time and upon not less than sixty (60) days
notice to Licensee, Licensor may recapture one or more portions of the Licensed
Premises (each, a "Recaptured Portion"). If Licensor shall exercise its right of
recapture, (i) Licensee shall vacate the Recaptured Portion by the date
specified in Licensor's notice and the Recaptured Portion shall thereafter be
excluded from the Licensed Premises and all Rent (as hereinafter defined)
payable hereunder shall be equitably adjusted; provided, however, that if the
portion of the Licensed Premises which remains shall be insufficient for
Licensee's operations at the Licensed Premises, then Licensee may elect to
vacate the entire Licensed Premises and the Licensed Premises so vacated shall
be deemed to be the Recaptured Portion hereunder, (ii) the portion of the
Construction Payment (as hereinafter defined) made by Licensee to Licensor
hereunder which is equitably attributable to the Recaptured Portion shall be
adjusted so that Licensee shall have paid with respect to the Recaptured Portion
for only the number of days (the "Use Period") from the Commencement Date
through the later of (x) the date Licensee shall have vacated the Recaptured
Portion and (y) the date specified in Licensor's notice, and Licensor shall
promptly thereafter remit to Licensee the portion of the Construction Payment
previously paid by Licensee to Licensor which is equitably attributable to the
Recaptured Portion for the period from the day after the last day of Licensee's
Use Period through the end of the term of this Agreement, and (iii) if the
Recaptured Portion shall result in Licensee moving its entire operation from the
Licensed Premises, Licensor shall reimburse Licensee for Licensee's actual,
reasonable moving costs.
(e) From time to time and upon not less than sixty (60) days
notice to Licensor, Licensee may surrender one or more portions of the Licensed
Premises (each, a "Surrendered Portion"). If Licensee shall exercise its right
of surrender, (i) Licensee shall vacate the Surrendered Portion by the date
specified in Licensee's notice and the Surrendered Portion shall thereafter be
excluded from the Licensed Premises and all Rent (as hereinafter defined)
payable hereunder shall be equitably adjusted, and (ii) the portion of the
Construction Payment (as hereinafter defined) made by Licensee to Licensor
hereunder which is equitably attributable to the Surrendered Portion shall be
adjusted so that Licensee shall have paid with respect to the Surrendered
Portion for only the number of days (the "Use Period") from the Commencement
Date through the later of (x) the date Licensee shall have vacated the
Surrendered Portion and (y) the date specified in Licensee's notice, and
Licensor shall promptly thereafter remit to Licensee the portion of the
Construction Payment previously paid by Licensee to Licensor which is equitably
attributable to the Surrendered Portion for the period from the day after the
last day of Licensee's Use Period through the end of the term of this Agreement.
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<PAGE> 4
(f) If as a result of Licensor's default beyond applicable
notice and/or cure periods, if any, under the Master Lease, Licensee shall
surrender the Licensed Premises or be evicted from the Licensed Premises, the
Licensed Premises as so vacated or surrendered shall be deemed to be the
Recaptured Portion for purposes of Section 2(d) above, as if Licensor shall have
elected to recapture the Licensed Premises, and, in addition to any other rights
under this Agreement, at law or in equity, Licensor shall promptly remit to
Licensee the Construction Payment calculated with respect thereto as set forth
in Section 2(d) above and Licensor shall reimburse Licensee for Licensee's
actual, reasonable moving costs.
3. Use of Premises
(a) The Licensed Premises shall be used as and for executive
and general offices in connection with Licensee's conduct of Licensee's business
and for no other purpose.
(b) On the Commencement Date (as hereinafter defined) Licensee
agrees to take possession of the Licensed Premises in its then current
condition, "as is". No furniture or furnishings will be provided by Licensor,
except for general office furniture, counters and cabinets as presently exists
or as Licensor, it its sole discretion, shall elect to provide at the
Commencement Date.
4. Use of Facilities
(a) Licensee shall not change, alter, modify or eliminate any
cable, jack or connection panel without the prior written consent of Licensor.
Subject to the provisions of Section 6, Licensee shall at Licensee's own cost
and expense, supply its own telephone equipment and telephone handsets and
arrange for telephone service with the telephone company serving the Subleased
Premises. Licensee shall pay directly to the telephone company all charges
incurred for its use of such telephone service. Notwithstanding the foregoing,
Licensor may, but shall not be obligated to provide, telephone equipment and/or
telephone services, the cost of which shall be allocated as provided for in
Section 6.
(b) Licensor may, but shall not be obligated to provide,
clerical, receptionist, secretarial or other personnel services to Licensee, the
cost of which shall be allocated as provided for in Section 6.
(c) Promptly after the execution and delivery of this
Agreement, Licensee shall remit to Licensor the sum of $699,019 (the
"Construction Payment") representing the costs (net of the "Allowance" as
defined on the Master Lease) to construct, decorate and furnish the Subleased
Premises.
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<PAGE> 5
5. Term
(a) The term of this Agreement shall commence on the
"Commencement Date" and shall end on the "Expiration Date", unless earlier
terminated as hereinafter set forth. The "Commencement Date" of the term shall
be the earlier of (i) the date Licensee first occupies the Licensed Premises, or
(ii) March 1, 1997. The "Expiration Date" of the term shall be May 22, 2004, or
such earlier date upon which the term may expire or be terminated in accordance
with the terms hereof or upon which date the term of the Master Lease shall
expire or be terminated in accordance with the terms of the Master Lease.
(b) If in accordance with and subject to Paragraph 1(a) of the
Sublease Licensor shall be able to and shall elect to renew the term of the
Sublease, then and in such event Licensor shall give notice thereof to Licensee
and Licensee may renew the term of this Licensee Agreement on such terms and
conditions as Licensor and Licensee shall mutually agree, and each party agrees
to promptly thereafter enter into good faith negotiations to establish the terms
of the renewal. If this License Agreement shall have been previously terminated,
or if Licensor and Licensee shall not agree to the terms of the renewal within
sixty (60) days after the date of Licensor's notice, then Licensee's option to
renew shall be null and void and of no further force or effect.
6. Rent
(a) "Rent" shall include "Minimum Rent" and "Additional Rent".
Rent shall be payable to Licensor at c/o Icahn & Co., Inc., One Wall Street
Court, New York, New York 10005 (or at such other address as Licensor shall
specify by notice to Licensee) without notice, demand or set off, except as
expressly provided in this Agreement.
(b) "Minimum Rent" shall be payable at the annual rate of
$213,474.32 and shall be payable in equal monthly installments of $17,789.53 in
advance on the first day of each and every month commencing on September 15,
1997. Minimum Rent for September 1997 shall be due on September 15, 1997 and
shall be prorated for such partial month. The Minimum Rent includes a charge of
$2.75 per rentable square foot of the Licensed Premised (subject to increase in
accordance with Article 15 of the Overlease (the "Electric Energy Sum")) as the
value of electricity furnished to the Licensed Premises.
(c) Licensor's proportionate share, as tenant under the Master
Lease (defined in the Master Lease as "Tenant's Pro Rata Share") is equal to
32.7133%
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<PAGE> 6
of Landlord's additional rent. Licensee shall pay, as additional rent
("Additional Rent") within 5 days after demand, (i) Licensee's Proportionate
Share (as hereinafter defined) of Tenant's Pro Rata Share for all items of
"Additional Rent" (as defined in the Master Lease) which are payable by Licensor
pursuant to the Master Lease, (ii) Licensee's Proportionate Share of "Tenant
Surcharges" (as defined in the Master Lease), provided, however, that (A)
Licensee shall pay 100% of Tenant Surcharges incurred at the request of Licensee
solely for Licensee's benefit, (B) Licensee shall pay Licensee's ratable share
of Tenant Surcharges incurred at the request of Licensee or consented to by
Licensee which benefit Licensee and/or the Licensed Premises together with other
occupants of the Subleased Premises, and/or other portions of the Subleased
Premises, and (C) Licensee shall not be required to pay any portion of Tenant
Surcharges which do not benefit Licensee or any portion of the Licensed
Premises, Common Facilities or Access Areas, unless expressly requested by
Licensee and (iii) Licensee's Proportionate Share of expenses with regard to
services as indicated in Section 4 hereof, if any, incurred at the request of
Licensee or consented to by Licensee, provided by Licensor for the benefit of
Licensor, Licensee, and other licensees or subtenants at the Subleased Premises,
provided, however, that Licensee shall pay 100% of costs incurred by Licensor
for services provided to Licensee at Licensee's request. "Licensee's
Proportionate Share" is 17.5%.
(d) If the Commencement Date or the Expiration Date shall be
other than the first day of a month, Rent shall be apportioned accordingly.
(e) If Licensor shall receive a refund from Landlord which
includes any amounts for which Licensee shall have paid Additional Rent or
Tenant's Surcharges to Licensor, Licensor shall retain out of such refund its
actual out-of-pocket costs and expenses payable to independent third parties, if
any, of obtaining such refund including but not limited to reasonable attorneys'
fees and disbursements, and shall then pay to Licensee promptly after receipt of
such refund from Landlord the portion of the remainder of such refund which is
equitably attributable to amounts paid by Licensor as Additional Rent or
Tenant's Surcharges hereunder.
7. Events of Default
The provisions of Paragraph 4 of the Master Lease specifically
apply as between Licensor and Licensee. In addition, any act or omission of
Licensee, its employees, agents or invitees, which causes Licensor, as tenant
under the Master Lease, to fail to have performed or observed the terms of the
Master Lease shall be an Event of Default under this Agreement. The occurrence
of an Event of Default shall permit Licensor to exercise any and all of the
rights granted to "Landlord" upon the occurrence of an Event of Default under
the Master Lease, including but not limited to
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<PAGE> 7
the rights and remedies afforded under the Overlease (as defined in the Master
Lease) as and to the extent incorporated by reference into the Master Lease.
8. Signs
Subject to the requirements of the Master Lease, including
approval of the Landlord thereunder, and subject to Licensor's prior written
consent and approval, which consent shall not be unreasonably withheld or
delayed, Licensee shall be entitled to one directory listing and listing in the
elevator directories, if available, and at Licensee's request, Licensor shall
request that the Landlord list Licensee's name on the building directory and on
the elevator directories, if any, of elevators servicing the Subleased Premises.
All charges, if any, for Licensee's signs and directory listings shall be at
Licensee's sole cost and expense, including, without limitation, all charges of
Landlord therefor.
9. Alterations
Licensee shall make no alterations, additions, installations,
improvements, decorations or changes of any nature to the Licensed Premises, the
Common Facilities or to the Access Areas, without in each and every instance
receiving Licensor's prior written approval, which, except as set forth in the
next sentence, may be withheld in Licensor's sole discretion. Licensor's
approval with respect to decorative changes in the Licensed Premises which do
not require construction type alterations shall not be unreasonably withheld or
delayed.
10. Surrender of Premises
Prior to the Expiration Date (or any earlier termination
date), Licensee shall, at Licensee's sole cost and expense, (a) surrender the
Licensed Premises (other than any portion occupied by Licensor) in its original
condition as on the Commencement Date, subject to ordinary wear and tear and
such changes as shall be approved by Licensor hereunder, and subject to damage
by condemnation, fire or other casualty and (b) remove all of Licensee's signs
and restore any damage caused thereby. The provisions of the preceding sentence
shall survive the expiration or termination of this Agreement.
11. Insurance and Indemnity
(a) Licensee shall carry, in favor of Licensor, Landlord, the
Over landlord (as defined in the Master Lease), the ground lessor and all
mortgagees, insurance of the same types and in the same amounts as required to
be carried by Licensor as tenant under the Master Lease. In addition, Licensee
shall maintain
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<PAGE> 8
workers' compensation and employee disability insurance as required by law. All
insurance required to be carried by Licensee shall comply with the provisions of
the Master Lease, and shall provide that such insurance shall not be canceled or
materially amended without at least 30 days prior written notice to Licensor and
all named insureds.
(b) Licensee shall indemnify and hold Licensor harmless from
and against all claims, loss, damage and liability (including attorneys' fees
and disbursements incurred in defending against any such claims, loss, damage
or liability or in enforcing the provisions of this indemnity) arising from (i)
the negligent or intentional acts or omissions of Licensee, its contractors,
agents, employees, licensees and invitees, (ii) the use or occupancy by
Licensee, its partners, employees, licensees, invitees, agents or contractors of
(1) the Licensed Premises, (2) the Common Facilities, (3) the Access Areas, (4)
any portion of Licensor's premises at the Building to which Licensee, its
partners, employees, licensees, invitees, agents or contractors are afforded
access, and (5) the common areas of the Building and (iii) the failure of
Licensee to vacate the Licensed Premises on the Expiration Date or at such
earlier time as shall be required hereunder.
(c) Licensor shall indemnify and hold Licensee and its
partners harmless from and against all claims, loss, damage and liability
(including attorneys' fees and disbursements incurred in defending against any
such claims, loss, damage or liability or in enforcing the provisions of this
indemnity) arising from (i) the negligent or intentional acts or omissions of
Licensor, its contractors, agents, employees and invitees, and (ii) the use or
occupancy by Licensor, its partners, employees, invitees, agents or contractors
(but not use or occupancy by licensees, subtenants or other occupants of the
Subleased Premises, or their respective partners, employees, licensees,
invitees, agents or contractors) of (1) the Licensed Premises, (2) the Common
Facilities, (3) the Access Areas, (4) any portion of Licensor's premises at the
Building to which Licensor, its partners, employees, licensees, invitees, agents
or contractors are afforded access, and (5) the common areas of the Building.
12. Master Lease Provisions
(a) The following terms of the Master Lease shall not apply to
the relationship between Licensor and Licensee:
Paragraphs 1, 2(a), 2(b), 2(c), 5, 7, 8, 13, 14, 17, 18(b),
21, 24, 25, Exhibits A, B, C;
(b) The following terms of the Master Lease, shall apply only
to the extent specified and/or modified below:
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<PAGE> 9
(i) Paragraph 2(d), 2(e), 2(f), 2(g), 2(h) and 2(i)
shall be constructed together with and as modified by Section 6 of this
Agreement;
(ii) Paragraph 9 shall be construed so that the term
"Tenant" under the Overlease shall mean Licensee hereunder, and the term
"Landlord" in the Overlease shall mean "Overlandlord" with respect to any
reference in which the Master Lease retains the reference to Overlandlord;
(iii) the reference in the last sentence of Paragraph
9(c) to "21,123" shall be deemed to apply to the Subleased Premises;
(iv) Paragraph 10(a) shall be applicable to this
Agreement only to the extent that Licensee shall be entitled to receive
Licensee's Proportionate Share of the amounts actually received by Licensor from
Landlord, if, as and when received, if any, and such amounts shall be in lieu of
any payment by Licensor to Licensee under Section 2(d) or 2 (e) of this
Agreement;
(v) Paragraph 10(g) shall be construed so that the
term "Overlease" shall refer to the Master Lease, and the term "Sublease" shall
refer to this Agreement;
(vi) Paragraph 17 shall be construed so that the term
"Overlease" shall refer to the Master Lease; and
(vii) the first sentence of Paragraph 26 shall not apply
to this Agreement.
(c) Licensor shall not be required to furnish any services to
the Licensed Premises in excess of the services supplied by Landlord, unless
specifically set forth to the contrary in this Agreement. Rent payable under
this Agreement shall not abate as a result of the failure of Landlord to furnish
any service or perform any covenant under the Master Lease. Licensee shall be
entitled to its proportionate share of any rent abatement afforded to the
Licensor under the Master Lease.
(d) Licensee may peaceably and quietly have, hold and enjoy
the premises hereby licensed, subject, nonetheless, to the terms and conditions
of this Agreement.
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<PAGE> 10
(e) This Agreement is subject and subordinate to the Master
Lease as it may be amended from time to time and to the matters to which the
Master Lease, as so amended, is or shall be subordinate.
13. Notices
All notices to be given hereunder by either party shall be
written and sent by registered or certified mail, return receipt requested,
postage prepaid or by an express mail delivery service, or by personal delivery
addressed to the party intended to be notified at the address set forth below:
Licensor: Icahn Associates Corp.
c/o Icahn & Co., Inc.
One Wall Street Court
Suite 980
New York, NY 10005
Attention.: Richard Buonato
Licensee: Global Travel Marketing Services, Inc.
767 Fifth Avenue
New York, New York 10153
Either party may, at any time, or from time to time, notify
the other in writing of a substitute address for that above set forth, and
thereafter notices shall be directed to such substitute address. Notice given as
aforesaid shall be sufficient service thereof and shall be deemed given as of
the date received, as evidenced by the return receipt of the registered or
certified mail, the express mail or the delivery service delivery receipt, as
the case may be.
14. Brokers
Each party represents and warrants to the other that the party
did not deal with any broker in connection with this Agreement and agrees to
indemnify, defend and save harmless the other party from claims for brokerage
commissions resulting from a breach of the foregoing representation.
15. Assignment and Subletting
Licensee shall not assign, transfer, pledge, mortgage,
hypothecate or otherwise transfer or encumber its interest in this Agreement or
sublet or otherwise permit to be occupied by others all or any portion of the
Licensed Premises, the Common Facilities or the Access Areas. Licensee shall not
allow any
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<PAGE> 11
person or entity to use or occupy the Licensed Premises, the Common Facilities
or the Access Areas in violation of the Master Lease.
16. Miscellaneous
(a) It is mutually agreed by and between Licensor and Licensee
that the respective parties hereto shall and they hereby do waive trial by jury
in any action, proceeding or counterclaim brought by either of the parties
hereto against the other on any matter whatsoever arising out of or in any way
connected to this Agreement.
(b) Except as provided in Section 9 hereof, whenever
Licensor's consent shall be required hereunder, Licensor's consent shall not be
unreasonably withheld or delayed. With respect to any provision herein which
provides that Licensor's consent shall not be unreasonably withheld or delayed,
Licensor's consent shall not be deemed to have been unreasonably withheld or
delayed if Landlord's consent shall be required and shall not have been
obtained.
(c) This Agreement contains the complete agreement between
Licensor and Licensee with respect to the premises and may not be modified
except in a writing signed by Licensor and Licensee.
To signify their agreement to the foregoing the parties have
executed this Agreement as of the date first above written.
Licensor:
ICAHN ASSOCIATES CORP.
By:
-------------------------------------
Edward E. Mattner, President
Licensee:
GLOBAL TRAVEL MARKETING
SERVICES INC.
By:
-------------------------------------
Richard T. Buonato, Treasurer
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<PAGE> 1
Exhibit 10.13
SABRE SUBSCRIBER AGREEMENT - (UNITED STATES)
This SABRE* Subscriber Agreement (the "Agreement") is entered into by and
between SABRE Travel Information Network, a division of The SABRE Group, Inc.
("TSG") and the undersigned ("Customer"), as of the date executed by TSG below
("Effective Date") regarding the provision of products and services set forth
herein to Customer's locations within the United States and its territories.
1. LEASE TERM
1.1 Lease. For the term specified in Article 1.2 below, TSG shall lease to
Customer the System, as defined herein.
1.2 Term. The lease term of the System shall commence on the date of
installation and shall continue for ____ months ("Initial Term"). Any additional
System installed subsequent to the date of execution of this Agreement by TSG
shall be subject to the same terms and conditions as this Agreement and shall
have a term of ____ months commencing on the date of installation ("Additional
Term").
2. DEFINITIONS.
The following terms shall have the following meanings in this Agreement:
2.1 Agreement means this SABRE Subscriber Agreement, and all Amendments,
Schedules and Supplements made a part hereof.
2.2 Charges has the meaning given in Article 3.2.
2.3 Communication Protocol means the rules or standards on how data transmission
takes place across computer networks.
2.4 Confidential Information means this Agreement, any and all applicable rights
to patents, copyrights, trademarks and trade secrets, proprietary and
confidential information of TSG or Customer, their affiliates, subsidiaries,
successors or assigns concerning their past, present or future research,
development, business activities or affairs, finances, properties, methods of
operation, processes and systems, agreements (including without limitation
private fare or special discount agreements) related to the business of TSG or
Customer.
2.5 Information Provider means any party, other than Customer, which provides
information for inclusion in the SABRE System, including, without limitation,
Reed Elsevier Inc., the publisher of the Official Airline Guide.
2.6 Instructions means any and all manuals, operating procedures, manufacturer's
recommendations, rules, and instructions delivered or made available to Customer
by TSG either in hard-copy or via the SABRE System, and which must be complied
with by Customer. Such Instructions may be unilaterally revised or amended by
TSG at any time.
2.7 Internet means the global computer network commonly referred to as the
"Internet".
2.8 Internet Connection means any connection between the Internet and the SABRE
System or System for the purpose of allowing clients of Customer to make direct
reservations for the products and services offered in the SABRE System.
2.9 ISP means any third party computer network which connects Customer or its
employees to the SABRE System or the System via the Internet. ISPs and ISP
supplied equipment such as datalines or browser software are not included in the
definitions of the SABRE System or the System.
2.10 Non-SABRE Traffic means data other than that passing to and from the SABRE
System which is transmitted and received by Customer using the System.
2.11 Non-Standard System means any hardware, software, communication access
devices or firmware not acquired from TSG, including any such Non-Standard
System acquired from an ISP.
- ----------
* SABRE is a registered trademark of a subsidiary of The SABRE Group, Inc.
<PAGE> 2
2.12 PNR means a passenger name record created in the SABRE System.
2.13 Participant means any air carrier (including scheduled, charter, domestic
and international airlines) car rental company, surface transportation carrier,
hotel or lodging provider, railroad, steamship company, cruise or tour operator
or other vendor of travel related products, information or services which has an
agreement with TSG for the display of information regarding its products or
services in the SABRE System.
2.14 Prohibited Segment means a Travel Service Segment for which no
corresponding space has been reserved within the transporting carrier's internal
reservation system.
2.15 SABRE Booking means an airline, hotel, tour, rental car or cruise Segment
that obligates a Participant to pay a booking fee to TSG and that is created in
or processed through the SABRE System by Customer during any one calendar month
or that is secured to Customer's location, less cancellations made prior to the
Segment Activity Date. SABRE Bookings are credited in the latter of (i) the
calendar month in which the Segment Activity Date occurs or (ii) the calendar
month in which the Segment is actually processed by the SABRE System for billing
to the Participant. SABRE Bookings may include additional product or service
Segments in the future at TSG's sole discretion.
2.16 SABRE Component means all memory, disk storage space, ports and any other
element of the Standard Equipment.
2.17 SABRE Licensee means a person or entity licensed to market the SABRE System
in a designated area of the world.
2.18 SABRE Subscriber means a person or entity, other than an airline, which
utilizes the SABRE System to make reservations. The term "SABRE Subscriber"
shall include any person or entity making reservations through any version of
the SABRE System or through a SABRE Licensee.
2.19 SABRE System means TSG's global distribution system (commonly referred to
as a computerized reservation system) which collects, stores, processes,
displays and distributes information through computer terminals concerning air
and ground transportation, lodging and other travel related products and
services offered by travel suppliers and which enables SABRE Subscribers to (i)
reserve or otherwise confirm the use of, or make inquiries or obtain information
in relation to, such products and services and/or (ii) issue tickets for the
acquisition or use of such products and services.
2.20 [deleted text in executed original.]
2.21 Segment means (a) for airline bookings, each separate flight segment
reservation identified by a separate flight number in a PNR, multiplied by the
number of passengers booked in such PNR for such flight segment; (b) for hotel
bookings, each separate reservation that is processed through the SABRE System
with an action status code of HK, KK or KL regardless of the number of rooms,
suites or other accommodations or the number of persons or the duration of the
stay; (c) for car rental bookings, each separate reservation that is processed
through the SABRE System with an action status code of HK, KK or KL regardless
of the number of vehicles or persons or the duration of the rental; and (d) for
cruise and tour bookings, each separate reservation that is created in or
processed through the SABRE System and confirmed by the Participant, regardless
of the number of cabins or travelers or the duration of the cruise or tour. The
term Segment does not include Prohibited Segments.
2.22 Segment Activity Date means the first date listed in a PNR for the relevant
Segment.
2.23 Site means Customer's location at which the System is to be installed.
2.24 Standard Equipment means the items of hardware and communication access
devices, including, without limitation, communication data lines and networks,
file servers, gateways, CSU/DSU devices, and ticket and hard copy printers
leased to Customer by TSG in accordance with this Agreement and identified on
Amendment No. 1 to this Agreement.
2.25 Supplement means a document reflecting any changes to the System, and/or
Charges or discounts related thereto, all as agreed to by the parties. A
Supplement will be provided by TSG upon request of Customer.
2.26 System means the Standard Equipment, SABRE Component, System Software
and/or Internet Connection.
<PAGE> 3
2.27 System Software means that software delivered by TSG to Customer.
2.28 Transaction means a grouping of characters transmitted to the SABRE System
whether such transmission is made in the SABRE System manually or automated,
including transmissions made through an Internet Connection. Each transmission
to the SABRE System from Customer constitutes one Transaction. No input message
may exceed three hundred (300) characters in length.
2.29 Transaction Limit has the meaning given in Article 10.3.
2.30 Transaction Ratio has the meaning given in Article 3.3.
2.31 Travel Service Segment means a SABRE Booking entered in the SABRE System
with an action status code of GK, GL, BK, BL, HN, YK, HK*, or HL*.
3. CHARGES AND PAYMENTS
3.1 [deleted in executed original.]
3.2 Charges. All amounts payable to TSG ("Charges") shall be due and payable in
United States dollars within sixty (60) days of the date of TSG's invoice,
without setoff or counterclaim.
3.3 Additional Charges. Customer agrees to pay to TSG additional Charges at
TSG's then prevailing rate or as otherwise set forth herein for services and
materials including without limitation the following: (a) the installation or
removal of Standard Equipment; (b) Standard Equipment relocation within the
Site; (c) each Site disconnect or relocation to different premises; (d)
modifications, upgrades, enhancements or additions of Standard Equipment and/or
System Software; (e) any applicable fees for non-compliance with any payment
terms; (f) installation of peripheral devices requested by Customer, (g)
processing Transactions which exceed the level of [CONFIDENTIAL TREATMENT
REQUESTED] Transactions per SABRE Booking ("Transaction Ratio") shall be charged
to Customer at the rate of [CONFIDENTIAL TREATMENT REQUESTED] for each
Transaction in excess of [CONFIDENTIAL TREATMENT REQUESTED] per SABRE Booking,
(h) materials for use with the Standard Equipment, including, but not limited
to, ticket stock for use with thermal ticket printers, and (i) connecting the
System to other TSG approved networks or systems. The Transaction Ratio is
subject to change by TSG upon thirty (30) days advance notice to Customer. If
the Transaction Ratio decreases, TSG and Customer agree to discuss the impact of
such decrease on Customer's business and determine what changes, if any, can be
made to this Agreement.
3.4 [deleted in executed original.]
3.5 Increases. The Charges for data lines or other communication access devices
shall be subject to increase, at any time and without limitation, to cover any
increase in the actual cost imposed upon TSG by the telecommunications vendor.
3.6 Modifications. TSG's completion of any modification to the System or
Customer's payment of any revised Charges related thereto, whichever occurs
first, constitutes acceptance and ratification of the modifications to the
System and the revised Charges and/or discounts related thereto.
3.7 Interest. Charges not paid within sixty (60) days after they become due
shall accrue interest at the rate of one and one-half percent (1.5%) per month
or the highest rate permitted by the governing law indicated in Article 15.1,
whichever is less.
3.8 Taxes. Customer shall pay any taxes, or assessments including any interest
or penalty thereon levied as a result of this Agreement, excluding taxes
measured by the net income of TSG. Customer shall indemnify and hold harmless
TSG from all costs, fines and expenses (including reasonable legal costs)
incurred by TSG resulting from Customer's failure to pay taxes as provided in
this Article.
<PAGE> 4
4. INSTALLATION AND DELIVERY
4.1 Delivery. TSG shall arrange for delivery of the System F.O.B. the Site, on
the estimated installation date.
4.2 Installation. Subject to Article 4.3, TSG shall install, or cause to be
installed, the System at the Site. Customer shall allow installation of the
System at the Site. Customer's failure to do so or to give adequate assurance
that it will do so on the estimated installation date, will constitute an Event
of Default pursuant to Article 14.1.2.
4.3 Customer's Obligations Prior to Installation. Customer, at its expense,
shall be responsible for preparing, on or before the estimated installation
date, the Site for the System in accordance with the Instructions. If
installation of the System is prevented or delayed because of Customer's failure
to prepare the Site, TSG shall use reasonable efforts to install the System upon
Customer's compliance with this Article and upon payment of all reasonable
expenses incurred by TSG resulting from Customer's failure to prepare the Site.
4.4 Relocation and Possession. Customer shall at all times keep the System in
its sole possession and control at the Site. Customer shall not move any part of
the System from the Site without first obtaining the written consent of TSG.
Such consent will not be unreasonably withheld.
4.5 Communication Access. Except when Customer utilizes an ISP to access the
SABRE System, TSG or its designated third party shall install the necessary
communication access device to connect the System to the SABRE System and other
approved systems or networks. All such devices are either owned by TSG or such
third-party, are subject to this Agreement, and shall be returned to TSG or the
third-party as TSG directs upon termination of the Agreement.
4.6 Non-Standard System.
4.6.1 Subject to Customer's compliance with all other terms and conditions
of this Agreement, TSG agrees to allow Customer to connect or use
Non-Standard System with the System without TSG's prior written consent,
except to the extent that such Non-Standard System consists of
communications data lines, emulator boards, gateways, routers, ticket
printers or other devices connecting directly to the System or SABRE
System ("Reserved Equipment"). TSG consent for Reserved Equipment shall be
conditioned upon TSG certification and approval prior to its use with the
System. Such consent may be withheld in order to preserve the integrity of
the SABRE System and the System.
4.6.2 Customer shall represent and warrant to TSG that the Non-Standard
System and its connection to the System conforms in all respects to TSG's
Non-Standard System standards and specifications, a copy of which Customer
may request from TSG, and will not be altered or modified without prior
notice to TSG.
4.6.3 Customer shall remove all Non-Standard System placed on or within
the Standard Equipment prior to TSG's removing such Standard Equipment
from Customer's Site. TSG disclaims, and Customer hereby waives and
indemnifies, any responsibility or liability on the part of TSG, under any
theory whatsoever, for any Non-Standard System that Customer has failed to
remove from the Standard Equipment prior to TSG's removing such Standard
Equipment from Customer's Site.
4.6.4 Customer shall not use Non-Standard System in conjunction with the
System for any function not specifically outlined in this Agreement and
any use or attempted use for any other function shall constitute an Event
of Default under Article 14.1.2.
4.6.5 Customer shall also ensure that TSG has access to Customer's Site on
request for conducting on-site inspections, testing or to oversee
installation of the Non-Standard System. Customer is responsible for
ensuring that any Standard Equipment at Customer's Site is connected to
the System for the purposes of performing testing and diagnostics on such
Standard Equipment by TSG's designated agent. If TSG and Customer
reasonably determine that the Non-Standard System is causing, or
contributing to, a problem with the System, the SABRE System or another
SABRE Subscriber's access to or operation of the SABRE System, then TSG
has the right to restrict access to the SABRE System upon notice to
Customer as provided for in this Agreement and TSG shall have no liability
to Customer for such restriction of access.
4.6.6 Customer agrees that its continued right to maintain the connection
between the Non-Standard System and the System and/or the SABRE System and
to use the Non-Standard System in
<PAGE> 5
connection with the Standard Equipment shall be dependent upon Customer's
full cooperation with requests by TSG to repair, alter, modify, or where
necessary, de-install the Non-Standard System if TSG and Customer
reasonably determine that the Non-Standard System, or a component thereof,
is impairing the System, the SABRE System or another SABRE Subscriber's
access to or operation of the SABRE System.
4.6.7 Customer shall pay TSG a mutually agreed upon rate for all employee
resources expended by TSG in connection with on-site inspection and/or
testing of the Non-Standard System after installation, service calls and
any travel and incidental expenses incurred by TSG's personnel or vendors
for the conduct of such monitoring, inspecting, testing or service calls;
provided, however, that after the initial installation of the Non-Standard
System, TSG will make such on-site inspections or test only TSG and
customer reasonably believe that the Non-Standard System is impairing the
System, the SABRE System or another SABRE Subscriber's access to or
operation of the SABRE System.
4.6.8 Customer agrees that TSG has first and complete access to the SABRE
Component. If, as a result of Customer's use of Non-Standard System, an
upgrade of the SABRE Component is required, Customer shall comply with the
applicable provisions of this Agreement.
4.6.9 TSG reserves the right to modify the SABRE System or the System,
even if such modification requires changes in Customer's Non-Standard
System. TSG will notify Customer in advance of such changes. Any expenses
incurred in modifying Customer's Non-Standard System to conform to the
SABRE System or System modifications shall be the sole responsibility of
Customer.
4.7 Acceptance of System. Upon establishment of a successful connection with the
SABRE System and any other TSG approved systems or networks, Customer shall be
deemed to have accepted the System. Any use of the System, additional System
and/or Non-Standard System further constitutes acceptance of this Agreement by
Customer.
5. REPAIRS AND MAINTENANCE
5.1 Repairs and Maintenance. Upon prompt notification from Customer, TSG or its
designated agent shall promptly repair and maintain or replace the Standard
Equipment provided that the Standard Equipment has been subject to reasonable
operation. Customer shall not make any modifications nor attempt to perform
repairs or maintenance of any kind to the System.
5.2 Limitation. TSG is not responsible for repairs and maintenance of any
Non-Standard System or other hardware, software or communication access devices
at Customer's Site or at the locations of other TSG approved systems or networks
beyond the point at which they are connected to the System and/or the SABRE
System.
5.3 Notification. Customer shall promptly inform TSG of any breakdown of the
Standard Equipment by contacting SABRE Customer Services. Customer shall
maintain a record of all occasions upon which repair or maintenance service is
performed and make such records available to TSG upon request.
5.4 Charges. Repair or maintenance services on Standard Equipment during normal
business hours (9:00 a.m. to 9:00 p.m. local time, Monday through Friday,
excluding legal holidays) are included in the Charges, provided that the
Customer has not been negligent and the Standard Equipment has been subject to
reasonable operation; otherwise, Customer will be charged a service fee in
accordance with TSG's or its independent contractor's then prevailing rates.
5.5 Non-Standard System. All maintenance of the Non-Standard System shall be the
sole responsibility of the Customer. SABRE Customer Services will address calls
from Customer regarding a malfunction of the Non-Standard System if TSG
determines that the malfunction is not attributable to the Non-Standard System.
Customer shall pay TSG's then prevailing maintenance charges for any maintenance
calls for the SABRE System or the System if TSG reasonably determines that the
problems were caused by or attributable to the Non-Standard System.
<PAGE> 6
6. TITLE AND OWNERSHIP OF SYSTEM.
The System leased hereunder shall remain the property of TSG. Customer shall not
in any other manner dispose of the System or any part thereof or suffer any lien
or legal process to be incurred or levied on the System.
7. INSURANCE
7.1 General. Customer shall take all necessary precautions to protect the System
installed at Customer's Site.
7.2 At its own cost, Customer shall procure and maintain insurance, from an
insurer and on terms and conditions acceptable to TSG, insuring the System
against all risk of loss or damage, including, without limitation, the risk of
fire, theft and any other such risks as are customarily insured in a standard
all risk policy. Such insurance shall also provide the following:
7.2.1 Full replacement value coverage for the Standard Equipment, which
value shall be provided by TSG to Customer as of the Effective Date.
7.2.2 An endorsement naming TSG as a co-insured and as a loss payee to the
extent of its interest in the Standard Equipment; and
7.2.3 An endorsement requiring the insurer to give TSG at least thirty
(30) days prior written notice of any intended cancellation, non-renewal,
material change in coverage or, within thirty (30) days of the event,
written notice of any default in the payment of a premium.
7.3 Risk of loss for and damage to the System shall pass to the Customer upon
delivery of the System to the Site.
7.4 TSG may request at any time proof of such insurance and/or other form of
surety from Customer. The failure of Customer to produce such proof or surety
within thirty (30) days of the request by TSG will be considered an Event of
Default as defined in Article 14.1.2 herein.
8. TITLE AND OWNERSHIP OF CONFIDENTIAL INFORMATION
8.1 Each party's Confidential Information shall remain that party's exclusive
property.
8.2 Each party shall maintain the confidentiality of the other party's
Confidential Information at all times during and after the term of this
Agreement. Neither party shall use, sell, sublicense, transfer, publish,
disclose, display, or otherwise make available to others, except as authorized
in this Agreement or as required by law, the Confidential Information of the
other party or any other material relating to the Confidential Information of
the other party nor shall either party permit its officers, employees, agents,
contractors or subcontractors to divulge the other party's Confidential
Information without that party's prior written consent. The parties agree that
their obligations of confidentiality shall be subject to compliance with all
applicable securities laws and regulations.
8.3 Customer shall use the data, other than Non-SABRE Traffic, transmitted under
this Agreement ("Data") solely for the benefit of itself and its customers in
connection with rendering the following services: (i) air carrier, hotel, car
and rail reservations, including schedule quotations; (ii) customer accounting
and record keeping activities; or (iii) the sale of or reservations for other
miscellaneous products or services offered in the SABRE System. Customer shall
not publish, disclose or otherwise make available to any third party any
compilation of Data obtained from the SABRE System. However, Customer may use
specific Data for the benefit of its customers in connection with any
reservation or schedule quotation production of a hard copy travel itinerary,
invoice, statement or ticket.
8.4 Nothing in this Agreement shall be interpreted to limit in any way TSG's
right to use, market, sell or publish any booking related data subject only to
any applicable laws or regulations.
9. SYSTEM SOFTWARE LICENSE
9.1 Ownership of System Software. Customer acknowledges that TSG or the original
manufacturer of the System Software, as applicable, owns or has licensed from
the owner, copyrights in the respective System Software and that ownership and
title are retained by the manufacturer or its licensor. All applicable rights to
patents, copyrights, trademarks, and trade secrets inherent in the System
Software and pertinent thereto are and shall remain TSG's or the original
manufacturer's sole and exclusive property.
<PAGE> 7
Any copy of such System Software must incorporate any copyright, trade secret,
or trademark notices or legends appearing in the original version delivered to
Customer.
9.2 Grant of License. Subject to the provisions of this Agreement and for the
term specified in Article 1.2, either TSG or the original manufacturer grants to
Customer a non-transferable, non-exclusive limited license to use the System
Software subject to the following restrictions: (a) Customer shall use the
System Software solely in connection with its use of the SABRE System, (b) the
System Software shall be used and installed solely at the Site and solely used
on the Standard Equipment or Non-Standard System authorized under Article 4.6,
(c) the System Software shall be used solely for internal purposes and only in
the ordinary course of business, (d) Customer shall not compile, reverse
compile, decompile, disassemble, reverse assemble or reverse engineer the System
Software or any portion thereof, (e) the System Software shall not be copied or
reprinted in whole or in part except (i) a reasonable number of copies of each
program may be made in machine readable form for reasonable archival or backup
purposes or (ii) when TSG has granted permission to do so, (f) Customer shall
not lease, sell, license, sublicense or otherwise transfer the System Software
to any other party, and (g) the terms of this Agreement shall govern the System
Software license unless modified by a license which may be associated with a
particular software product, wherein the license associated with that particular
software product shall govern.
9.3 Modification Rights. Customer shall not modify the System Software or merge
such software into other programs or create derivative works based on such
software. Additionally, Customer shall not delete or cause to be deleted the
System Software from the Standard Equipment. Notwithstanding anything to the
contrary contained herein, noncompliance with this provision shall constitute an
Event of Default under this Agreement and this Agreement shall immediately
terminate and Customer shall be obligated to pay TSG damages as specified in
Article 14.2 hereof.
9.4 Upgrades and Modifications. All tangible objects containing or relating to
the System Software are the sole and exclusive property of TSG or the
manufacturer. In the event TSG modifies the System Software, it may deliver such
modified System Software to Customer at its then current charge, if any, and
Customer shall promptly return to TSG any and all tangible objects relating to
all previous versions of the System Software as provided in Article 15.7.
Customer shall be solely responsible for protecting all software not obtained
from TSG hereunder and the data related thereto in the event of a software
upgrade. Customer, in order to receive an upgraded or updated program, shall
comply with any and all terms, conditions and Instructions requested by TSG.
9.5 Operating Program.
9.5.1 Customer acknowledges that the System Software may incorporate, in
part, copyrighted materials pertinent to the Operating Program a as
identified on on attachment ("Operating Program"). Customer agrees that
such copyrighted portions shall be subject to the Operating Program
copyright and license.
9.5.2 If Customer requires additional Operating Programs, Customer shall
notify TSG and TSG will provide Customer with additional copies to support
additional video agent sets pursuant to this Agreement.
9.5.3 Customer will look only to TSG and not to the manufacturer for any
support, maintenance, assistance and upgrades and the like with respect to
the Operating Program and the manufacturer shall have no liability to
Customer in relation to the Operating Program.
9.5.4 No action, regardless of form, arising out of the license of the
Operating Program may be brought more than two years after the cause of
action has arisen.
9.5.5 Customer shall physically retain a copy of the Conditions of Use for
SABRE Users (Attachment I) with each applicable video agent set or
dedicated fileserver/processor eligible to use such Operating Program.
10. OPERATION OF THE SABRE SYSTEM AND THE SYSTEM
10.1 Operation of System.
10.1.1 The SABRE System and the System shall be operated by Customer
solely for the purposes and functions expressly permitted by this
Agreement and in strict accordance with the Instructions. Customer shall
not in any way utilize the System for the direct or indirect purpose of
<PAGE> 8
bypassing or circumventing the SABRE System in communicating in any way
with Participants. Any violation of this provision will be deemed an Event
of Default under Article 14.1.2.
10.1.2 Customer may use the System to transmit and receive Non-SABRE
Traffic only from those systems or networks approved in writing by TSG.
Customer acknowledges that in cases of communications capacity limits
being reached, data transmission through the System with the SABRE System
will be given priority over any Non-SABRE Traffic.
10.1.3 Customer shall access the SABRE System only through the System, an
ISP or another system or device authorized in writing by TSG.
10.1.4 Customer shall take all precautions necessary to prevent
unauthorized operation or misuse of the SABRE System or the System,
including without limitation, speculative booking, shell bookings,
reservation of space in anticipation of demand, or improper record or
access. In the event of misuse of the SABRE System or the System, TSG
reserves the right, in addition to all rights under the Agreement, to
immediately terminate the Agreement.
10.1.5 Customer shall not enter any Prohibited Segments into the SABRE
System. Prohibited Segments so entered shall not be calculated in
determining productivity levels under the Agreement. All Travel Service
Segments shall be removed from the SABRE System should corresponding space
be canceled direct via telephone with the transporting carrier.
10.2 Non-Exclusivity. This Agreement is not exclusive and nothing in the
Agreement is intended to preclude or prohibit Customer from using any other
computerized reservation system. The parties agree that Customer's expected use
of the System is the Fixed Monthly Discount Booking Level as set forth in
Amendment No. 1 to this Agreement.
10.3 Transaction Volume. Notwithstanding the provisions of Article 3.3(g), TSG
shall have the right, upon thirty (30) days notice to Customer to limit Customer
to generating no more than [CONFIDENTIAL TREATMENT REQUESTED] Transactions per
SABRE Booking ("Transaction Limit"). The Transaction Limit may be changed by TSG
upon thirty (30) days advance notice to Customer.
10.4 Training. TSG will make available introductory SABRE System training during
the installation process. For purposes of this Article, the installation process
is defined as anytime between contract signing by both Customer and TSG through
two months after installation is complete.
10.4.1 TSG agrees to provide, at its expense, six training classes, for
one or more students, annually at Customer's Site or at a TSG training
facility. Course topic and agenda will determine location.
10.4.2 The training described in Article 10.4 shall be performed at
Customer's Site or at a location designated by TSG.
10.4.3 Except as otherwise provided herein, Customer is responsible for
all training of all its employees in the proper use of the SABRE System.
10.4.4 In addition to the training described in Article 10.4, TSG may
offer to Customer supplemental training programs on a local level at TSG's
then prevailing rate and method of delivery. Such training may consist of,
but not be limited to, workshops, seminars, self-paced instruction and
individual consultations.
10.4.5 Customer and its trainees agree to comply with all training
procedures and rules established by TSG, and TSG reserves the right to
remove any Customer trainee from the training program if such trainee
fails to comply with such procedures and rules.
10.4.6 TSG may, at its discretion, monitor or test Customer's employee's
training levels. If TSG determines the training level of any one or more
of Customer's employees to be insufficient, then Customer will institute
such additional training at its own expense (including, if necessary,
additional training by TSG at TSG's then prevailing charges) as may be
necessary to bring Customer's employees to the level of training required
by TSG.
11. WARRANTY, AND LIMITATION OF WARRANTY, LIABILITY AND REMEDY
11.1 SABRE Warranty. TSG agrees to use reasonable efforts to maintain the
availability of the SABRE System, but shall have no liability for interruptions
in the operation of the SABRE System except as specifically provided herein.
Subject to the terms hereof, in the event that the SABRE System is not
<PAGE> 9
operable ninety-five percent (95%) of the total normal business hours each
month, excluding periods for maintenance of Standard Equipment or other
scheduled down time ("Normal Time"), TSG will reduce the monthly Charges (on a
pro-rata basis according to the percentage of Normal Time during which the SABRE
System was not operable at least ninety-nine percent (99%) of the Normal Time.
For purposes of this article, normal business hours shall be 9:00 a.m. to 9:00
p.m., local time, Monday through Sunday. The SABRE System shall be deemed
inoperable if Customer is unable, after calling SABRE Customer Service to make
any SABRE Bookings as a result of a failure attributable to the SABRE System. To
request a reduction under this Article, Customer shall submit a written record
to TSG and request an adjustment in the monthly charges. Customer's written
records must be submitted in a timely manner and include, at a minimum, the date
and time of the outage, the time the outage was reported to SABRE Customer
Service, the time the SABRE System was restored (within normal business hours as
defined above) and the type of outage.
11.2 Limited Warranty of the System. In the event of a material malfunction or
defect in an unaltered component of the System that substantially affects
performance of the System that is reported by Customer to TSG and that can be
reproduced by TSG, TSG will use reasonable efforts to correct such malfunction
or defect without additional charge to Customer. THE FOREGOING SHALL BE
CUSTOMER'S SOLE AND EXCLUSIVE REMEDY FOR ANY MALFUNCTION OR DEFECT IN THE
SYSTEM. IF SUCH MALFUNCTION OR DEFECT MATERIALLY IMPAIRS CUSTOMER'S USE OF THE
SYSTEM AND CANNOT BE CURED AS PROVIDED IN THIS SECTION, THEN CUSTOMER'S
ALTERNATE SOLE AND EXCLUSIVE REMEDY SHALL BE TO TERMINATE THIS AGREEMENT WITHOUT
FURTHER LIABILITY TO TSG FOR DAMAGES HEREUNDER.
11.3 Exclusion Of Other Warranties. EXCEPT AS SPECIFICALLY PROVIDED IN THIS
ARTICLE, THE USE OF THE SABRE SYSTEM, THE DATA DERIVED FROM THE SABRE SYSTEM,
THE SYSTEM AND/OR ANY COMPONENTS THEREOF ARE PROVIDED TO CUSTOMER BY TSG, ANY
INFORMATION PROVIDER OR THE OWNER OF ANY ELEMENT OF THE SYSTEM (AS THE CASE MAY
BE) "AS IS AND WITH ALL FAULTS". ALL OTHER WARRANTIES ARE HEREBY DISCLAIMED
INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF ACCURACY, COMPLETENESS AND
NON-INFRINGEMENT OF THE DATA DERIVED FROM THE SABRE SYSTEM, ANY IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY IMPLIED
WARRANTIES ARISING OUT OF COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE OF
TRADE.
11.4 Limitation of Liability.
11.4.1 NEITHER TSG NOR ANY INFORMATION PROVIDER NOR ANY OWNER OF ANY
ELEMENT OF THE SYSTEM OR THE SABRE SYSTEM SHALL BE LIABLE TO CUSTOMER OR
ANY THIRD PARTY FOR ANY INJURY, LOSS, CLAIM OR DAMAGE CAUSED IN WHOLE OR
IN PART BY THE NEGLIGENCE OF TSG OR ANY INFORMATION PROVIDER OR BY ANY
OWNER OF ANY ELEMENT OF THE SYSTEM OR BY EVENTS BEYOND THE CONTROL OF TSG
OR OF ANY OF THOSE OTHER PERSONS, EXCEPT FOR THE GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF TSG.
11.4.2 IF A PASSENGER USES A CONFIRMED TICKET FOR AIR TRANSPORTATION
ISSUED PURSUANT TO A RESERVATION MADE BY CUSTOMER BY MEANS OF THE SABRE
SYSTEM AND IS REFUSED CARRIAGE BECAUSE OF AN OVERSALE OF SEATS OR THE LACK
OF RECORD OF SUCH RESERVATION, THE SOLE REMEDY OF CUSTOMER SHALL BE AS SET
FORTH IN THE TARIFF OF THE REFUSING CARRIER OR APPLICABLE TERMS AND
CONDITIONS OF THE CARRIER'S CONTRACT OF CARRIAGE.
11.4.3 TO THE EXTENT THAT TSG HAS ANY LIABILITY UNDER THIS AGREEMENT OR
UNDER ANY THEORY OF LIABILITY, TSG'S CUMULATIVE LIABILITY FOR DAMAGES TO
CUSTOMER HEREUNDER SHALL BE LIMITED TO THE LESSER OF (1) CUSTOMER'S DIRECT
DAMAGES OR (2) TWO MILLION DOLLARS ($2,000,000).
11.4.4 NEITHER TSG NOR ANY INFORMATION PROVIDER NOR ANY OWNER OF ANY
ELEMENT OF THE SYSTEM SHALL BE LIABLE TO CUSTOMER UNDER ANY THEORY OF
LIABILITY OR ANY FORM OF ACTION, INCLUDING NEGLIGENCE FOR ANY INCIDENTAL,
SPECIAL, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES UNDER ANY
CIRCUMSTANCES, INCLUDING BUT NOT LIMITED TO LOST PROFITS, REVENUE OR
SAVINGS, OR THE LOSS OF USE OF ANY DATA, EVEN IF THAT PERSON THAT WOULD
HAVE BEEN
<PAGE> 10
LIABLE IN THE ABSENCE OF THIS SECTION HAD BEEN ADVISED OF, KNEW, OR SHOULD
HAVE KNOWN, OF THE POSSIBILITY THEREOF.
11.5 NON-SABRE TRAFFIC. CUSTOMER ACKNOWLEDGES THAT IT IS SOLELY LIABLE FOR THE
CONTENT, ACCURACY, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE,
NON-INFRINGEMENT OF ANY INTELLECTUAL PROPERTY RIGHTS OR OTHER THIRD PARTY
RIGHTS, OF THE NON-SABRE TRAFFIC. CUSTOMER WARRANTS THAT THE TRANSMISSION AND
RECEIPT OF NON-SABRE TRAFFIC BY CUSTOMER IS NOT IN CONTRAVENTION OF ANY LAWS,
RULES OR REGULATIONS. FURTHER, CUSTOMER HEREBY WARRANTS THAT IT HAS ENTERED INTO
SUCH SEPARATE AGREEMENTS AS IT DEEMS NECESSARY OR APPROPRIATE WITH THE SYSTEMS
OR NETWORK PROVIDERS FOR THE TRANSMISSION AND RECEIPT BY CUSTOMER OF THE
NON-SABRE TRAFFIC AND, IN PARTICULAR, CUSTOMER WARRANTS THAT IT SHALL BE SOLELY
LIABLE TO THESE PROVIDERS FOR ANY MALFUNCTION OR OTHER ADVERSE IMPACT
EXPERIENCED BY SAID PROVIDERS AS A RESULT OF THE TRANSMISSION AND RECEIPT BY
CUSTOMER OF THE NON-SABRE TRAFFIC.
12. INDEMNIFICATION
12.1 Customer and TSG ("Indemnitor") hereby agree to indemnify and hold each
other, their affiliates, subsidiaries, successors and assigns and their
officers, directors, agents and employees ("Indemnitees") harmless from and
against third-party liabilities, including, but not limited to, attorneys' fees,
and other expenses incident thereto, ("Claims") which may be threatened against,
or recoverable from the Indemnitees by reason of any injuries to or death of
persons or loss of, damage to, or destruction of property to the extent arising
out of or in connection with any act, or omission of the Indemnitor. Indemnitor
may not settle any Claim without obtaining the prior consent of the Indemnitees;
unless, however, the settlement provides full exculpation of the Indemnitees.
12.2 Customer will indemnify TSG for any Claims, including debit memos issued by
Participants, arising from Customer's misuse of the SABRE System including,
without limitation, making fraudulent bookings and/or failing to honor
Participant ticketing and fare rules.
13. ASSIGNMENT
13.1 Assignment Or Sublease By Customer. Customer shall not sublease, transfer
or assign this Agreement or any portion thereof, or any right or obligation
hereunder, unless customer has obtained the prior written consent of TSG, which
consent shall not be unreasonably withheld, except, however, Customer may assign
this Agreement to its successors, affiliates or subsidiaries now existing or
hereafter organized. Any attempted assignment in violation of this Article shall
be void.
13.2 Assignment by TSG. TSG shall have the right to sell, transfer, assign or
delegate its interests, rights and/or obligations, without the prior consent of
Customer, and, provided that such transferee or assignee assumes all of TSG's
obligations, TSG shall be released of all obligations after the effective date
of such sale, transfer, delegation or assignment. TSG shall provide notice to
Customer of any such sale, transfer, delegation or assignment. Customer shall
have the option to terminate the Agreement upon TSG's assignment of the
Agreement. Within 30 days of receipt of TSG's notice of assignment, Customer
shall provide written notice to TSG of Customer's intent to terminate the
Agreement pursuant to this paragraph.
14. TERMINATION AND DEFAULT
14.1 Default By Customer. The occurrence of any one or more of the following
events shall constitute a non-exclusive event of default (the "Event of
Default") pursuant to the terms of this Agreement.
14.1.1 Customer fails to pay any amount within 60 days of the due date;
14.1.2 Any representation by Customer is discovered to be materially
misleading or inaccurate, or Customer fails to perform any material
covenant, agreement, obligation, term or condition contained herein;
14.1.3 Customer terminates or cancels this Agreement or any portion
thereof, except as expressly permitted in this Agreement;
<PAGE> 11
14.1.4 Customer ceases to do business as a going concern, makes an
assignment for the benefit of creditors, admits in writing its inability
to pay debts as they become due, acquiesces in the appointment of a
trustee, receiver or liquidator for it or any substantial part of its
assets or properties, or executes an agreement to sell all or
substantially all of its assets without obtaining the consent for
assignment of this Agreement under Article 13.1.
14.1.5 Customer fails to secure and maintain Airlines Reporting
Corporation ("ARC") accreditation for ticketing of reservations;
14.1.6 Events of Default described in 14.1.1, 14.1.2, 14.1.4 and 14.1.5
shall not be cause for termination if Customer cures such failure within
thirty (30) days after date of written notice from TSG. If Customer cures
its failure as provided in this provision, said failure shall not be
considered to be an Event of Default for the purposes of Article 14.2.
14.2 TSG's Rights Upon Termination. Upon the occurrence of an Event of Default
and subject to Article 14.1.6, TSG shall have the right to any one or more of
the following remedies; (i) terminate this Agreement and Customer's access to
the SABRE System, the System and any other approved systems or networks; (ii)
except as limited by this Agreement, seek all legal and equitable remedies to
which it is entitled, and (iii) retake immediate possession of the System. If
Customer's Event of Default results in termination, Customer agrees to pay to
TSG actual damages suffered by TSG as a result of such Event of Default. The
Customer and its affiliates, representatives, officers, directors and advisors
shall not be liable to TSG under any theory of liability.
14.3 Termination By Customer. In the event that TSG breaches any material term
of this Agreement, which breach continues for a period of thirty (30) days after
TSG receives from Customer written notice which sets forth the specific breach
and Customer's intent to terminate the Agreement if such breach is not cured,
then Customer may immediately terminate the Agreement upon separate written
notice to TSG. Customer may not otherwise cancel, terminate, modify, repudiate,
excuse or substitute this Agreement without TSG's prior written consent, which
TSG may withhold in its absolute discretion.
15. MISCELLANEOUS
15.1 Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE
OF TEXAS AND THE UNITED STATES OF AMERICA. CUSTOMER HEREBY SUBMITS AND CONSENTS
TO THE NON-EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF TEXAS AND THE COURTS OF THE STATE OF TEXAS IN ANY DISPUTE
ARISING OUT OF THIS AGREEMENT.
15.2 Binding Effect. Except as otherwise provided, this Agreement shall inure to
the benefit of and bind the successors and assigns of the parties hereto.
15.3 Deletion of Equipment. During the term of the Agreement, Customer may
delete up to ten percent (10%) of the installed productive video agent set
terminal addresses and printers, contingent upon the following: (a) Customer
provides documentation of a substantial decrease in the number of SABRE
Bookings, which decrease is the result of the loss of its commercial accounts
and/or customer base; (b) Customer notifies TSG, in writing, of the description
and location of the equipment to be deleted (the "Deleted Equipment"); (c)
Customer pays to TSG the then current de-installation charges for the Deleted
Equipment plus any outstanding Charges for such Deleted Equipment up through the
Stop Billing Date which TSG will specify to Customer; and (d) Customer will
forfeit all right and equity, if any, in the Deleted Equipment removed from
Customer's location.
15.3.1 If Customer complies with the requirements identified in 15.3
above, TSG shall de-install the Deleted Equipment and disconnect it from
the System.
15.3.2 TSG shall defer all Charges related to the Deleted Equipment
("Deferred Charges") from the Stop Billing Date to the termination date of
this Agreement on the following conditions: (a) the Additional Term and
all other terms and conditions of this Agreement that would have applied
to the Deleted Equipment, shall apply to any Standard Equipment added to
the System after the Stop Billing Date, up to an amount equal in number
and type to the Deleted Equipment or such lesser amount
<PAGE> 12
agreed to by TSG ("Re-installed Equipment"); and (b) Customer shall pay
TSG all applicable Charges for the Re-installed Equipment, including
installation, lease, maintenance and use Charges, at TSG's then current
rates.
15.3.3 The Deferred Charges shall be deemed waived by TSG at the end of
the Initial Term of the Agreement or any renewal thereof if Customer has
not breached this Agreement. Interest shall accrue on the Deferred Charges
at the maximum rate allowed by applicable law from the date of the
deferral until payment. In addition to all other rights under Article
14.2, TSG shall be entitled to immediate payment of the Deferred Charges
plus interest upon default by Customer.
15.4 Entire Agreement. This Agreement and the Instructions constitute the entire
agreement of the parties as to the matters set forth herein and shall supersede
any previous understandings, agreements, representations, statements,
negotiations and undertakings, whether written or oral, between the parties
relating to the matters set forth herein. Any amendment to this Agreement must
be in writing and signed by the authorized representatives of both parties.
15.5 Force Majeure. TSG and Customer shall be relieved of their obligations
hereunder in the event and to the extent and only so long as that performance is
delayed or prevented by any cause reasonably beyond their control, including,
but not limited to, acts of God, public enemies, war, civil disorder, fire,
flood, explosion, labor disputes or strikes, or any acts or orders of any
governmental authority, inability to obtain supplies and materials (including
without limitation computer hardware) or any delay or deficiency caused by the
electrical or telephone line suppliers or other third parties.
15.6 Notices. Unless otherwise stated, notices given or required under this
Agreement must be in writing and shall be deemed delivered upon deposit through
the United States Mail, to TSG at P. O. Box 619615, MD 3558, Dallas/Fort Worth,
Texas, 75261-9615 (to be sent to the attention of SABRE Travel Information
Network, Financial Services) or to the Customer at the following address: 980
Kelly Johnson Drive, Las Vegas, NV 89119
15.7 Return of System. Upon the termination of this Agreement for any reason,
Customer, at its sole cost and expense, shall return the System and all
Confidential Information as requested by TSG, in good repair, condition and
working order, less normal and ordinary wear and tear, by delivering it to a
common carrier selected and designated by TSG, F.O.B. the destination designated
by TSG in writing.
15.8 SABRE System Modification. TSG retains the right to modify the SABRE
System, at its discretion at any time during the term of this Agreement.
However, such modifications will not materially impair Customer's ability to
access and use the SABRE System in the manner expressly permitted in this
Agreement.
15.9 Severability. Any provision of this Agreement which may be determined by a
court or other competent governmental authority to be prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability, without invalidating
the remaining provisions thereof, unless said prohibition or unenforceability
materially alters the rights or obligations of either party.
15.10 Subsequent Acts of Government. In the event that there is any change in
any statute, rule, regulation or order governing the operation of computerized
reservations systems, or air transportation generally or the SABRE System, which
in any way materially impairs the benefits of this Agreement to TSG, then the
parties hereto will commence consultation in order to determine what, if any,
changes to this Agreement are necessary or appropriate, including, but not
limited to, early termination of this Agreement. If the parties hereto are
unable to agree upon changes in the Agreement in response to such new statute,
rule, order or regulation within thirty (30) days after commencement of such
consultation, this Agreement may be canceled by TSG upon giving Customer ninety
(90) days prior written notice of such cancellation. If TSG elects to terminate
the Agreement pursuant to this Article, except for Customer's obligation to pay
any and all Charges incurred through the date of termination, each party shall
be relieved of any future obligations under this Agreement as of the effective
date of cancellation. Each party shall bear its own costs and expenses incurred
as a result of said termination. Customer does not have the right to terminate
the Agreement under this provision.
15.11 Surviving Sections. If the term of the Agreement expires or is terminated
for any reason before Customer has paid to TSG all of the sums currently due,
the Agreement shall survive such expiration or termination to the extent
necessary to protect TSG's rights until all sums currently due and owing to TSG
have been paid. Notwithstanding anything to the contrary referenced herein,
Articles 6, 8, 11 and 12 shall survive the termination of this Agreement.
<PAGE> 13
15.12 Waiver. A failure or delay of either party to require strict performance
to enforce a provision of this Agreement or a previous waiver or forbearance by
either party shall in no way be construed as a waiver or continuing waiver of
any provision of this Agreement.
15.13 Acknowledgment. Customer hereby acknowledges that TSG has offered Customer
a SABRE Subscriber Agreement with a three (3) year term with reasonable terms
and conditions.
16. INTERNET CONNECTIONS
16.1 Limited License. Customer may establish an Internet Connection using TSG's
products or a third party application. Customer is hereby given a limited
license to utilize data transmitted from the SABRE System for purposes of
developing, operating and maintaining a reservation booking site solely for the
use of its customers and according to the other limitations contained in this
Agreement, including, without limitation, Article 8.3. All uses of the SABRE
System through an Internet Connection will be considered uses by Customer under
this Agreement. Customer may not utilize any data transmitted from the SABRE
System for purposes of developing, operating or maintaining a reservation
booking site or any other redisplay of SABRE System data for any third party
including any un-affiliated travel agencies.
16.2 Termination. The limited license granted in Article 16.1 may be terminated
by TSG for any reason upon five (5) days written notice to Customer. Upon such
termination Customer must immediately remove the Internet Connection and cease
utilizing data transmitted under the Agreement for purposes of developing,
operating or maintaining a reservation booking site.
16.3 Branding. Customer agrees to adhere to the branding standards and
requirements as communicated by TSG which may be modified from time to time upon
thirty (30) days advance notice to Customer.
16.4 Charges. Customer will pay a Charge for each PNR created through an
Internet Connection at TSG's then current rate.
17. TSG RESERVES THE RIGHT TO CHANGE SABRE GUARANTEE PROGRAM RULES, REGULATIONS,
AND SPECIAL OFFERS WITHOUT NOTICE, AND TO END SABRE GUARANTEE PROGRAMS WITHOUT
NOTICE
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth below.
ALL SIGNATURES MUST BE IN BLACK INK
GLOBAL DISCOUNT TRAVEL SERVICES
By:
------------------------------------
(Signature)
Name:
----------------------------------
(Print Name)
Title:
---------------------------------
Date:
----------------------------------
Agency Name:
---------------------------
Pseudo City Code:
----------------------
THE SABRE GROUP, INC.
By:
------------------------------------
(Signature)
Name:
----------------------------------
(Print Name)
Title:
---------------------------------
Date:
----------------------------------
<PAGE> 1
Exhibit 10.16
E-COMMERCE AGREEMENT
THIS AGREEMENT is made as of September 14, 1998 by and between The Mining
Company, a division of General Internet Inc. (d/b/a The Mining Company), a New
York corporation with offices at 220 East 42nd Street, 24th floor, New York, New
York 10017 ("GI"), and LowestFare.com, a division of Global Discount Travel
Services, LLC, a limited liability company with offices at 980 Kelly Johnson
Drive, Las Vegas, Nevada 89119 ("LF").
RECITALS
WHEREAS, GI owns and operates a network of websites with its homepage at
the URL "www.miningco.com" (the "Service");
WHEREAS, LF owns and operates a website with the URL "www.lowestfare.com,"
which offers low-cost travel arrangements;
WHEREAS, LF desires to purchase certain advertising impressions on the
Service.
WHEREAS, GI desires to sell advertising impressions to LF and to grant to
LF exclusivity (as later defined), all on the terms and conditions set forth in
the Agreement.
NOW, THEREFORE, in consideration of the promises and agreements set forth
herein, the parties, each intending to be legally bound hereby, do promise and
agree as follows:
1. Advertising Impressions.
1.1 During the Initial Term (as hereinafter defined), GI shall
provide to LF [CONFIDENTIAL TREATMENT REQUESTED] advertising impressions
utilizing a combination of the following advertising units on the Service: (1)
Marketplace Links; (2) Sponsorship Logos; (3) 120x60 advertising banners; (4)
120x60 Keyword Targeted advertising banners (to the extent such banners become
available and are sold as advertising units on the Service); and (5) any other
existing advertising unit or new advertising unit created by GI during the Term.
When and to the extent that Keyword Targeted advertising banners become
available and are sold as advertising units on the Service, GI agrees to use the
keywords listed in Attachment A to this Agreement to provide such Keyword
Targeted advertising banners to LF. For purposes of this Agreement, a "Keyword
Targeted advertising banner" means an advertising banner which is activated in
response to use of a keyword in a search request on a site on the Service and
appears on the initial results page for the search. Attachment B to this
Agreement shows the current layout (as of the date of this Agreement) of the
homepage of each GuideSite on the Service and indicates the form and placement
of the "Marketplace " links, "Sponsorship Logos" and advertising banners which
will be provided to LF as advertising units pursuant to this paragraph 1.1.
Notwithstanding the foregoing, LF acknowledges and agrees that GI reserves the
right to redesign the Service at any time (a "Redesign"), including, but not
limited to, the page layout depicted in Attachment B and the presentation of
advertising units and
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<PAGE> 2
advertisers throughout the Service, with the goals of improving the user
experience and advertising effectiveness, and that the placement of LF's
advertising units on the Service shall remain in an equivalent or improved
position ("Redesign Restrictions"). Notwithstanding GI's right to Redesign the
Service, LF's Marketplace Link will during the full Term be the first link
listed of the Marketplace links in the Service's Travel sites.
1.2 GI shall have the right in its discretion to select the type,
location and frequency of the advertising units used to deliver the advertising
impressions purchased by LF; provided, that GI shall use commercially reasonable
efforts to distribute the advertising units in a manner which will maximize the
potential to deliver qualified visitors to the LF site; and provided, further,
that GI agrees to limit each user's frequency exposure to LF advertising units
(excluding Sponsorship Logo and Marketplace links) to not more than two (2)
times per user visit to any site on the Service.
2. Exclusivity.
2.1 During the Term as defined in paragraph 5, GI shall not display
in any of the Service's Travel sites the name or logo of any Competitor of LF in
(i) the Sponsorship Logo location during the Term, and (ii) in the Marketplace
Links Section for a minimum period of the first twelve months of the Term.
Notwithstanding the foregoing, LF acknowledges and agrees that if the Service
undergoes a Redesign, the form and placement of LF's areas of exclusivity may
change subject to the Redesign Restrictions in Paragraph 1.1.. For purposes of
this Agreement, a "Competitor of LF" shall mean all companies that provide a
full range of travel services and travel reservations (i.e. reservations for
airlines and charter flights, hotels, car rentals, cruises and vacation
packages), including, but not limited to Expedia, Internet Travel Network (ITN),
Preview Travel, Travelocity, Carson-Wagonlits, Omega Travel, Cheap Tickets, Biz
Travel, and The Trip. Notwithstanding the foregoing, the American Express
Corporation and its subsidiaries are excluded from the definition of Competitor
of LF.
2.2 Notwithstanding the foregoing, users of the Service who arrive
at the Service through certain distribution channels may be provided with
Marketplace and Sponsorship Logos of the third party distributor instead of LF.
In these specific situations, these areas are not controlled by GI. No
impressions will be counted by GI in favor of LF for these activities if LF is
not served by GI to these Marketplace Links and Sponsorship Logo positions.
2.3 In the event that GI has agreed or expects to agree with a
Competitor of LF to add Marketplace links in its Travel sites, GI agrees to give
LF notice of the initial planned listing description ("Competitor Description").
LF will have five (5) business days to notify GI if it wants to change LF's then
current Marketplace Link to the Competitor Description or any other appropriate
link wording. After the earlier of such five day period or the date of LF's
response, (i) if LF does not change its link to the Competitor Description, then
GI may place the Competitor of LF's link in Marketplace links in the Travel
Sites using the Competitor Description, or (ii) if LF elects to use the
Competitor Description, then GI may use any alternate description for such
Competitor of LF links.
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<PAGE> 3
3. Content. During the Term, GI shall actively encourage the Travel site
guides on the Service to feature LF's relevant, selected "best buy" promotions
in the Spotlight editorial section of each Travel site and to include LF in
links from the appropriate NetLinks editorial sections.
4. Trademark License. LF hereby grants to GI for the Term a non-exclusive
license to use the LF trademark, trade name and logo set forth on Attachment C
in and on the Service in connection with the advertising created hereunder.
5. Term. This Agreement and the provisions hereof, except as otherwise
provided herein, shall be in full force and effect for the period commencing on
October 1, 1998 and ending on September 30, 2000 (the "Initial Term"), subject
to earlier termination in accordance with paragraph 13 below. LF shall have the
right to extend the Term of this Agreement for a period of one (1) year from
October 1, 2000 to September 30, 2001 (the "Extended Term") upon written notice
to GI not less than sixty (60) days prior to the termination of the Initial
Term; provided, that on or before the date of commencement of the Extended Term
LF and GI shall have negotiated and agreed upon the compensation payable to GI
during the Extended Term, which compensation on a CPM (cost per thousand) basis
shall not increase more than [CONFIDENTIAL TREATMENT REQUESTED] over the
[CONFIDENTIAL TREATMENT REQUESTED] CPM payable in the Initial Term. The Initial
Term and the Extended Term, if any, shall be referred to herein collectively as
the "Term."
6. Compensation.
6.1 In consideration for the advertising impressions and the
exclusivity provided by GI hereunder, LF agrees to pay to GI the aggregate
amount of [CONFIDENTIAL TREATMENT REQUESTED] (the "Fee"), payable in twenty-four
(24) monthly installments of [CONFIDENTIAL TREATMENT REQUESTED] each. Each such
installment shall be payable on the first business day of each month during the
Initial Term, beginning October 1, 1998. In lieu of monthly payments, LF may
elect to make quarterly payments of [CONFIDENTIAL TREATMENT REQUESTED] each on
the first business day of each calendar quarter during the Initial Term. GI and
LF acknowledge and agree that the intent of this Agreement is that GI shall
deliver [CONFIDENTIAL TREATMENT REQUESTED] advertising impressions to LF over
the two-year Initial Term (unless sooner terminated in accordance with the terms
hereof). Accordingly, GI agrees that if GI delivers in excess of [CONFIDENTIAL
TREATMENT REQUESTED] advertising impressions to LF during such period, LF shall
have no obligation to make any payment of compensation other than payment of the
Fee to GI.
6.2 If GI exercises its right to make the Travel site Marketplace
Links non-exclusive per paragraph 2.(ii), the Fees payable for the remainder of
the term shall be reduced by [CONFIDENTIAL TREATMENT REQUESTED].
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<PAGE> 4
7. Reporting. Within ten (10) business days after the end of each month
during the Term, GI shall provide to LF a report prepared by GI setting forth
the number of LF's advertising impressions for the previous month.
8. Audit. LF shall have the right, upon at least five (5) business days
prior written notice and no more than once per calendar year, to utilize an
industry recognized third-party auditing firm to inspect GI's books and records
which specifically report the advertising impressions provided by GI under this
Agreement, including the reports prepared by the ad server reporting system
licensed by GI (the "Reporting Service"), during regular business hours at GI's
principal business office. LF agrees to maintain the confidentiality of any
confidential or proprietary information which may be made available to LF during
such inspection in accordance with the provisions of paragraph 10 hereof. If the
audit establishes a deficiency of greater than 5% between the amount of
advertising impressions reported by GI pursuant to paragraph 7 and the amount
actually reported by the Reporting Service, GI will provide LF with the number
of advertising impressions equal to the amount of the deficiency and will
reimburse LF for its reasonable and actual, out-of-pocket third party costs and
expenses of the audit. GI will be entitled to rely on the accuracy of the
statements and/or reports provided to the Company by the Reporting Service, and
LF shall have no right of objection to reports rendered to LF under this
agreement insofar as such reports are based on information provided to GI by the
Reporting Service.
9. Warranties and Representations.
9.1 GI warrants and represents that:
9.1.1 it has the right, power and authority to enter into this
Agreement and the execution, delivery and performance of this Agreement has been
duly authorized by all appropriate corporate action; and
9.1.2 this Agreement does not contravene any other agreement
to which GI is a party.
9.2 LF warrants and represents that:
9.2.1 it has full right, power and authority to enter this
Agreement and the execution, delivery and performance of this Agreement has been
duly authorized by all appropriate corporate action; and
9.2.2 this Agreement does not contravene any other Agreement
to which LF is a party.
10. Confidentiality. "Confidential Information" shall mean any information
disclosed by one party ("Disclosing Party") to the ("Receiving Party") in
connection with this Agreement which, if in written, graphic, machine-readable
or other tangible form is marked as "confidential" or "proprietary" or which, if
disclosed orally, is identified at the time of initial
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<PAGE> 5
disclosure as confidential. The Receiving Party agrees to keep confidential all
Confidential Information of the Disclosing Party and not to use such
Confidential Information or disclose such Confidential Information to any third
party without the prior express written permission of the Disclosing Party
unless required by law. Each party acknowledges that information gathered or
obtained by the other party with respect to such other party's own website(s),
including but not limited to user information and studies and viewership,
inventory and usage reports, shall be the proprietary information of the party
gathering or obtaining such information, and, except as otherwise specifically
set forth herein, such party shall have no rights in or to such information. The
parties agree that their obligations of confidentiality shall be subject to
compliance with all applicable securities laws and regulations.
11. Public Announcements. Following the execution of this Agreement, the
parties agree to prepare and issue a press release regarding the signing of this
Agreement and the transactions contemplated hereby, it being understood that
both parties must approve the content and timing of the press release; and
provided, unless mutually agreed, neither party shall make any other
announcement or disclosure (whether or not in response to an inquiry) of the
existence of this Agreement or the subject matter, terms or conditions hereof.
12. Notice and Payment.
12.1 Any notice required to be given pursuant to this Agreement
shall be in writing and delivered personally to the designated party at the
above-stated address or mailed by certified or registered mail, return receipt
requested or delivered by a recognized national overnight courier service.
Copies of all notices given to GI shall be sent to Frankfurt, Garbus, Klein &
Selz, P.C., 488 Madison Avenue, 9th Floor, New York, NY 10022, Attention: Gavin
D. McElroy, Esq. Copies of all notices given to LF shall be sent to Gordon
Altman Butowsky Weitzen Shalov & Wien, 114 West 47th Street, New York, NY 10036
Attention: Marc Weitzen, Esq.
12.2 Either party may change the address to which notice or payment
is to be sent by written notice to the other in accordance with the provisions
of this Paragraph 12.
13. Termination. The parties shall have the following termination rights:
13.1 LF shall have the right, at any time after October 1, 1999, to
terminate this Agreement by giving GI not less than sixty (60) days prior
written notice of termination.
14. Indemnity.
14.1 LF agrees to indemnify and hold GI harmless from all
liabilities, third party claims, causes of action, judgments, damages, losses
and expenses (including reasonable attorneys' fees) arising out of or resulting
from (i) any breach by LF of any representation, warranty, and/or covenant made
by LF herein, (ii) GI's use of the LF trademark, trade name and logo and (iii)
the content of any and all LF advertising.
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<PAGE> 6
14.2 GI agrees to indemnify and hold LF harmless from all
liabilities, third party claims, causes of action, judgments, damages, losses
and expenses (including reasonable attorneys' fees) arising out of or resulting
from (i) any breach by GI of any representation, warranty, and/or covenant made
by GI herein and (ii) the content of the Service (other than any LF
advertising).
15. Jurisdiction and Disputes.
15.1 This Agreement shall be governed in accordance with the laws of
the State of New York applicable to contracts made and to be performed fully
therein without giving effect to the conflicts of laws principles thereof.
15.2 All disputes under this Agreement shall be resolved exclusively
by the state or federal courts located in the County of New York, State of New
York. Each party hereby consents to the jurisdiction of such courts, agrees to
accept service of process by mail, and waives any jurisdictional or venue
defenses otherwise available to it.
16. Assignment; Binding Effect. Either party may assign this Agreement to
a subsidiary or affiliated company existing now or hereafter organized; provided
that the party assigning this Agreement shall remain primarily liable to the
other party with respect to all obligations of such assigning party hereunder.
Except as specifically set forth in the preceding sentence, this Agreement may
not be assigned by either party, and any assignment in violation of this
paragraph shall be null and void. The provisions of the Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
successors and permitted assigns.
17. Waiver. No waiver by either party of any default shall be deemed as a
waiver of prior or subsequent default of the same or other provision of this
Agreement.
18. Severability. If any term, clause or provision hereof is held invalid
or unenforceable by a court of competent jurisdiction, such invalidity shall not
affect the validity or operation of any other term, clause or provision and such
invalid term, clause or provision shall be deemed to be severed from the
Agreement.
19. No Joint Venture. Nothing contained herein shall constitute this
arrangement to be an employment relationship, a joint venture or a partnership
between the parties, it being acknowledged that the parties are independent
contractors.
20. Integration. This Agreement constitutes the entire understanding of
the parties with respect to the subject matter hereof, and revokes and
supersedes all prior agreements, oral and written, between the parties with
respect to the subject matter hereof. It shall not be modified or amended except
in a writing signed by the parties hereto and specifically referring to this
Agreement. This Agreement shall take precedence over any other documents which
may be in conflict with said Agreement.
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<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
LOWESTFARE.COM, a division of GENERAL INTERNET INC.
GLOBAL DISCOUNT TRAVEL
SERVICES, LLC
By: By:
------------------------------- -------------------------------------
Title: Title:
---------------------------- ----------------------------------
Dated: Dated:
---------------------------- ----------------------------------
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<PAGE> 1
Exhibit 10.17
TRAVEL SERVICES ALLIANCE AGREEMENT
THIS TRAVEL SERVICES ALLIANCE AGREEMENT (the "Agreement") is made as of
this 15th day of September, 1998 (the "Effective Date") between THEGLOBE.COM,
INC., a New York corporation with its principal place of business at 31 West
21st Street, New York, NY 10010 ("theglobe.com"), and LOWESTFARE.COM, a division
of Global Discount Travel Services, LLC, a Nevada limited liability company with
its principal place of business at 980 Kelly Johnson Drive, Las Vegas, NV 89119
("Lowestfare").
RECITALS
WHEREAS, Lowestfare wishes to act as theglobe.com's exclusive provider of
travel-related content, and to place certain advertisements on website locations
owned or controlled by theglobe.com;
WHEREAS, theglobe.com wishes to enter into such an exclusive relationship,
and to accept such advertising, subject to the terms of this Agreement.
NOW THEREFORE, theglobe.com and Lowestfare, for good and valuable
consideration the receipt and sufficiency of which are hereby acknowledged,
hereby agree as follows:
AGREEMENT
1. DEFINITIONS.
Capitalized terms used in this Agreement shall have the following meanings:
"Co-Branded Site" shall have the meaning assigned to it in Subsection 3.2
("Co-Branded Site").
"Confidential Information" shall have the meaning assigned to it in SECTION 9
("CONFIDENTIALITY").
"Disclosing Party" shall have the meaning assigned to it in SECTION 9
("CONFIDENTIALITY").
"Editorial Content" shall mean travel-related editorial content and related
materials provided by Lowestfare hereunder.
"End User" means a person who visits theglobe.com Site, or who links from
theglobe.com Site to the Co-Branded Site, or both.
"Fee" shall have the meaning assigned to it in Subsection 6.1 ("Fees").
<PAGE> 2
"Indemnified Party" shall have the meaning assigned to it in SECTION 15
("INDEMNITY").
"Indemnifying Party" shall have the meaning assigned to it in SECTION 15
("INDEMNITY").
"Lowestfare Content" shall mean all materials delivered by Lowestfare to
theglobe.com for display on theglobe.com Site, including without limitation the
Lowestfare Marks, the Editorial Content, "buttons", "banners", and other
materials described in EXHIBIT A ("LOWESTFARE CONTENT").
"Lowestfare Marks" shall mean the trademarks, logos and other product and
service identifiers of Lowestfare described in EXHIBIT B ("MARKS"), and as may
be modified from time to time during the Term upon the agreement of the parties.
"Monthly Sweepstakes" shall have the meaning assigned to it in Subsection 3.3
("Monthly Sweepstakes").
"Phase" shall mean the periods of time and the corresponding work assigned to
such periods as described in EXHIBIT C ("PHASES"). For purposes of this
Agreement, there shall be three (3) Phases, designated as "Phase I", "Phase II"
and "Phase III".
"Quarterly Sweepstakes" shall have the meaning assigned to it in Subsection
2.1(b) ("Quarterly Sweepstakes").
"Receiving Party" shall have the meaning assigned to it in SECTION 9
("CONFIDENTIALITY").
"Registered User" shall mean an End User who has registered at theglobe.com
Site.
"Registration Page" shall mean the web page so designated by theglobe.com at
theglobe.com Site.
"Template" shall have the meaning assigned to it in Subsection 8.2 ("Template").
"Term" shall have the meaning assigned to it in SECTION 12 ("TERM AND
TERMINATION").
"theglobe.com Site" shall mean shall mean http://www.theglobe.com, or such other
site so designated by theglobe.com.
"theglobe.com Marks" shall mean the domain name and theglobe.com's trademarks,
service marks, logos and other company and product identifiers provided by
theglobe.com to Lowestfare under this Agreement, and as may be added to, deleted
from or modified from time to time by theglobe.com.
<PAGE> 3
"Travel Services Company" shall have the meaning assigned to it in Subsection
3.1 ("Exclusive Travel Services Relationship").
"User Information" shall have the meaning assigned to it in SECTION 11 ("USER
INFORMATION AND REGISTRATION DATA").
2. PHASE I SERVICES.
The parties shall provide Phase I Services as provided herein and as provided in
EXHIBIT C ("PHASES"):
2.1 Registration and Email.
(a) "Opt In" Registration. During the period of the Term before the
commencement of the activities described in Subsection 2.1(b) ("Quarterly
Sweepstakes"), theglobe.com shall place a "check box", including the name of
Lowestfare and the terms of the associated offer, on the Registration Page, by
means of which End Users may be automatically registered with Lowestfare also.
(b) Quarterly Sweepstakes. Lowestfare shall provide to theglobe.com
no less frequently than one (1) time each calendar quarter commencing with the
Effective Date, a prize for distribution by theglobe.com to winners of
theglobe.com's quarterly registration sweepstakes. The rules and operation of
such quarterly registration sweepstakes ("Quarterly Sweepstakes") shall be
determined solely by theglobe.com, in reasonable consultation with the original
provider of the prize. Lowestfare shall not be held liable by theglobe.com or
any third party for the administration, operation or legality of the Quarterly
Sweepstakes. theglobe.com intends that new Registered Users will be
automatically entered into such Quarterly Sweepstakes, and that such Registered
Users who do not wish to participate in such Quarterly Sweepstakes will be
offered the opportunity not to participate by checking an "opt out" box on the
Registration Page.
2.2 E-mail Promotion. At least one (1) time each calendar quarter during
the Term, commencing with the Effective Date, theglobe.com will direct an e-mail
campaign to all Registered Users. Such e-mail campaign shall, at a minimum,
reasonably promote the Co-Branded Site, and may, at theglobe.com's discretion,
include additional material regarding theglobe.com and its goods and services.
2.3 Framing. theglobe in its sole discretion may frame all or any part of
the Lowestfare website (currently, "http//www.lowestfare.com"), or the
Co-Branded Site, and any revenue theglobe derives from banner sales shall be
solely theglobe's.
3. PHASE II SERVICES.
The parties shall provide Phase II Services as provided herein and as provided
in EXHIBIT C ("PHASES"):
<PAGE> 4
3.1 Exclusive Travel Services Relationship. theglobe.com shall not, during
the Term, enter into any agreements with any of the companies ("Travel Services
Companies") described in EXHIBIT F ("TRAVEL SERVICES COMPANIES") whereby such
Travel Services Companies shall provide travel-related content substantially
similar to that listed in EXHIBIT A ("LOWESTFARE CONTENT") to theglobe.com and
receive placement of the trademarks, logos, or other company or product
identifiers on theglobe.com Site. Notwithstanding the foregoing: (a)
theglobe.com shall not be restricted in any manner from accepting banner ads or
banner-like ads from any party; and (b) the foregoing restriction shall not
apply to Registered User web pages (including any "theglobe.com Stores" located
at such web pages) hosted by theglobe.com.
3.2 Co-Branded Site. Lowestfare shall, according to the schedule contained
in EXHIBIT C ("PHASES"), develop and operate a web page (the "Co-Branded Site"),
to be located at one (1) or more server computers owned or controlled by
Lowestfare, which shall include content provided by Lowestfare and shall reflect
the user interface of the Template as licensed by theglobe.com pursuant to
SECTION 8 ("LICENSES AND STANDARDS"). The design, layout, and "look & feel" of
the Co-Branded Site shall be mutually agreed to by the parties.
3.3 Placement.
(a) Linking to Co-Branded Site. theglobe.com shall link by
contextual links, "buttons", or similar identifiers determined by theglobe.com,
from theglobe.com Site to the Co-Branded Site. The specific pages at
theglobe.com Site from which such links may be made shall be determined by and
agreed to by both parties, but may include the following pages as may exist as
of the Effective Date, or as may be created or modified by theglobe.com during
the Term:
(i) theglobe.com homepage
(ii) What's New Area
(iii) Business & Finance Theme Area
(iv) Metro Theme Area
(v) Romance Theme Area
(vi) Life/College Theme Areas
(vii) Assorted (News, Sports, etc.)
(viii) NavBar
(ix) Myglobe.com
(x) Travel
<PAGE> 5
(b) Impressions. theglobe.com shall deliver at least: (i)
[CONFIDENTIAL TREATMENT REQUESTED] End User page impressions of Lowestfare
Content at theglobe.com Site during the first year of the Term in locations at
theglobe.com Site to be mutually agreed upon by both parties; (ii) [CONFIDENTIAL
TREATMENT REQUESTED] End User page impressions of Lowestfare Content at
theglobe.com Site during the second year of the Term in locations at
theglobe.com Site to be mutually agreed upon by both parties; and (iii)
[CONFIDENTIAL TREATMENT REQUESTED] End User page impressions of Lowestfare
Content at theglobe.com Site during the third year of the Term in locations at
theglobe.com Site to be mutually agreed upon by both parties. Such page
impressions shall include, without limitation, all impressions given at
theglobe.com Site for all Lowestfare banner ads and contextual button
impressions. It is the parties' shared expectation that the foregoing page
impressions shall be provided in the quantities and from the locations at
theglobe.com Site described in EXHIBIT D ("Locations"); provided, however, that
the parties understand and agree that such expectation does not represent any
binding obligation on either party. theglobe.com will work with Lowestfare to
identify the most effective mix of banner ads, contextual links, and "buttons"
to be used on different pages of theglobe.com Site, including but not limited to
new sections of theglobe.com Site as they are launched. The number of the
foregoing page impressions shall be measured monthly, and any overages or
shortfalls from the pro rated monthly quantity (i.e., [CONFIDENTIAL TREATMENT
REQUESTED] impressions per month during the first year of the Term), shall be
rolled forward into the overall total in subsequent months on an ongoing basis
until the end of the Term.
3.4 Online Promotion. theglobe.com shall promote the relationship between
the parties with advertisements in accordance with EXHIBIT D ("LOCATIONS"), with
online advertising solutions companies determined by theglobe.com such as
DoubleClick Inc. and 24/7 Media Inc.
4. PHASE III SERVICES.
The parties shall provide Phase III Services as provided herein and as provided
in EXHIBIT C ("PHASES"):
4.1 Affiliate Program. At the discretion of Lowestfare, theglobe.com shall
promote an affiliate program, to be determined solely by theglobe.com, to be
located on the "Making Money" page at theglobe.com Site, or such other location
as determined by theglobe.com, to allow Registered Users who have personal home
pages located at theglobe.com Site to place on such home pages certain
Lowestfare Content with links to the Co-Branded Site.
4.2 Offline Promotion. The globe shall promote the relationship between
the parties with advertisements in print media as determined by theglobe.com.
5. CONTENT AND LIABILITY.
<PAGE> 6
5.1 Lowestfare Content. In addition to all other obligations of Lowestfare
with respect to the Phases, Lowestfare shall also from time to time during the
Term promptly deliver to theglobe.com the Lowestfare Content described in
EXHIBIT C ("PHASES"), and shall continue to provide such Lowestfare Content
during the Term of the Agreement in accordance therewith. Such Lowestfare
Content shall be provided in file transfer protocol ("ftp") format, at least one
(1) time each week.
5.2 Liability. As between theglobe.com and Lowestfare, Lowestfare is
solely responsible for any legal liability arising out of or relating to
Lowestfare Content or the Co-Branded Site. The Lowestfare Content and the
Co-Branded Site: (a) shall not infringe any third party's copyright, patent,
trademark, trade secret or other proprietary rights or rights of publicity or
privacy; (b) shall not violate any law, statute, ordinance or regulation
(including without limitation the laws and regulations governing export control,
unfair competition, anti-discrimination or false advertising); (c) shall not be
defamatory, trade libelous, unlawfully threatening or unlawfully harassing; (d)
shall not be obscene, pornographic or indecent or contain child pornography; and
(e) shall not contain any viruses, Trojan horses, worms, time bombs, cancelbots
or other computer programming routines that are intended to damage,
detrimentally interfere with, surreptitiously intercept or expropriate any
system, data or personal information.
6. PAYMENT.
6.1 Fees. During the Term, Lowestfare shall pay to theglobe.com the
following fees: (a) During the first year of the Term, Lowestfare shall pay to
theglobe.com a fee ("Fee") of [CONFIDENTIAL TREATMENT REQUESTED] in twelve (12)
monthly payments of [CONFIDENTIAL TREATMENT REQUESTED] each, the first two (2)
of such Fee payments (totaling [CONFIDENTIAL TREATMENT REQUESTED] to be made on
the Effective Date, and each subsequent payment [CONFIDENTIAL TREATMENT
REQUESTED]) to be made thirty (30) days after the immediately prior payment. (b)
During the second year of the Term, Lowestfare shall pay to theglobe.com a fee
of [CONFIDENTIAL TREATMENT REQUESTED] in twelve (12) equal monthly payments, the
first of such payments to be made on the one-year anniversary of the Effective
Date. (c) During the third year of the Term, Lowestfare shall pay to
theglobe.com a fee of [CONFIDENTIAL TREATMENT REQUESTED] in twelve equal monthly
payments, the first of such payments to be made on the two-year anniversary of
the Effective Date.
6.2 Taxes. All fees and payments stated herein exclude, and Lowestfare
shall pay, any sales, use, property, license, value added, withholding, excise
or similar tax, federal, state or local, related to such payments or the
parties' performance of their obligations or exercise of their rights under this
Agreement and any related duties, tariffs, imposts and similar charges,
exclusive of taxes based on theglobe.com's net income.
7. SUPPORT.
<PAGE> 7
At its sole expense, Lowestfare shall be responsible for, and shall provide, all
customer and technical support for End Users relating to the Co-Branded Site.
theglobe.com may redirect any End User inquiries regarding the travel component
of the Co-Branded Site to Lowestfare.
8. LICENSES AND STANDARDS.
8.1 Content. Lowestfare hereby grants to theglobe.com a non-exclusive,
non-transferable worldwide, royalty-free license (without the right to grant
sublicenses) to use, download, or distribute publicly perform, publicly display
and digitally perform the Lowestfare Content on or in conjunction with
theglobe.com Site, and theglobe.com's performance under this Agreement.
8.2 Template. theglobe.com hereby grants to Lowestfare a non-exclusive,
non-transferable, worldwide royalty-free license (without the right to grant
sublicenses) to install the object code version of the software ("Template")
described in EXHIBIT E ("Template") solely at the Co-Branded Site, and solely to
use and to permit End Users to use the Template pursuant to the use of such
Co-Branded Site. The Template shall at all times remain the sole and exclusive
property of theglobe.com, subject only to the licenses expressly granted herein.
Lowestfare understands and agrees that theglobe.com may, from time to time and
in theglobe.com's discretion, provide modified, updated, correct or enhanced
versions of the Template to Lowestfare, and Lowestfare shall replace the prior
version with such new version within a reasonable amount of time. In the event
the Template is modified, updated, corrected or enhanced within six months from
the Effective Date, theglobe shall reimburse Lowestfare for any costs incurred
in implementing such Template.
8.3 Trademarks. Lowestfare hereby grants to theglobe.com a non-exclusive,
nonsublicenseable license to use the Lowestfare Marks in links to and
advertisements and promotions for theglobe.com Site. theglobe.com hereby grants
to Lowestfare a non-exclusive, nonsublicenseable license to use theglobe.com
Marks on the Co-Branded Site.
8.4 Restrictions. Each party, as a trademark owner hereunder, may
terminate the foregoing trademark license if, in its sole discretion, the
licensee's use of the marks does not conform to the such party's standards;
alternatively, the owner may specify that certain pages of the licensee's
website may not contain the licensed marks; provided, however, the objecting
party must state in writing the basis for the objection and provide the other
party with a reasonable opportunity to cure such offending action. Title to and
ownership of the owner's marks shall remain with the owner. The licensee shall
use the marks exactly in the form provided and in conformance with any trademark
usage policies. The licensee shall not form any combination marks with the
owner's marks. The licensee shall not take any action inconsistent with
ownership of the marks and any benefits accruing from use of such trademarks
shall automatically vest in the owner.
9. CONFIDENTIALITY.
<PAGE> 8
9.1 Confidential Information. Each party (the "Disclosing Party") may from
time to time during the Term of this Agreement disclose to the other party (the
"Receiving Party") certain non-public information regarding the Disclosing
Party's business, including technical, marketing, financial, personnel,
planning, and other information ("Confidential Information"). The Disclosing
Party shall mark all such Confidential Information in tangible form with the
legend `confidential', `proprietary', or with similar legend. With respect to
Confidential Information disclosed orally, the Disclosing Party shall describe
such Confidential Information as such at the time of disclosure, and shall
confirm such Confidential Information as such in writing within thirty (30) days
after the date of oral disclosure. Regardless of whether so marked, however, any
non-public information regarding the Template, including the Template itself,
shall be deemed to be the Confidential Information of theglobe.com.
9.2 Protection of Confidential Information. Except as expressly permitted
by this Agreement, the Receiving Party shall not disclose the Confidential
Information of the Disclosing Party using the same degree of care which the
Receiving Party ordinarily uses with respect to its own proprietary information,
but in no event with less than reasonable care. The Receiving Party shall not
use the Confidential Information of the Disclosing Party for any purpose not
expressly permitted by this Agreement, and shall limit the disclosure of the
Confidential Information of the Disclosing Party to the employees or agents of
the Receiving Party who have a need to know such Confidential Information for
purposes of this Agreement, and with respect to agents who are recipients of the
Confidential Information of the Disclosing Party, who are bound in writing by
confidentiality terms no less restrictive than those contained herein. The
Receiving Party shall provide copies of such written agreements to the
Disclosing Party upon request; provided, however, that such agreement copies
shall themselves be deemed the Confidential Information of the Receiving Party.
9.3 Exceptions. Notwithstanding anything herein to the contrary,
Confidential Information shall not be deemed to include any information which:
(a) was already lawfully known to the Receiving Party at the time of disclosure
by the Disclosing Party as reflected in the written records of the Receiving
Party; (b) was or has been disclosed by the Disclosing Party to a third party
without obligation of confidence; (c) was or becomes lawfully known to the
general public without breach of this Agreement; (d) is independently developed
by the Receiving Party without access to, or use of, the Confidential
Information; (e) is approved in writing by the Disclosing Party for disclosure
by the Receiving Party; (f) is required to be disclosed in order for the
Receiving Party to enforce its rights under this Agreement; or (g) is required
to be disclosed by law or by the order or a court or similar judicial or
administrative body, including as part of any filing with the Securities and
Exchange Commission; provided, however, that the Receiving Party shall notify
the Disclosing Party of such requirement immediately and in writing, and shall
cooperate reasonably with the Disclosing Party, at the Disclosing Party's
expense, in the obtaining of a protective or similar order with respect thereto.
<PAGE> 9
9.4 Return of Confidential Information. The Receiving Party shall return
to the Disclosing Party, destroy or erase all Confidential Information of the
Disclosing Party in tangible form: (a) upon the written request of the
Disclosing Party (except for Software or Modified Software contained in such
Confidential Information); or (b) upon the expiration or termination of this
Agreement, whichever comes first, and in both cases, the Receiving Party shall
certify promptly and in writing that it has done so.
10. USER INFORMATION AND REGISTRATION DATA.
10.1 User Information. Any information or data collected from or about End
Users (including without limitation voluntarily-disclosed information, any
information Lowestfare collects regarding End Users from their access or use of
the Co-Branded Site (including without limitation all statistical, demographic
and psychographic information about such End Users) and any reports about
traffic (collectively, "User Information")) shall be owned exclusively by
theglobe.com. However, during the Term of this Agreement, theglobe.com hereby
grants to Lowestfare a nonexclusive, nontransferable, nonsublicenseable license
to use User Information only as required to exercise its rights and carry out
its obligations hereunder. Lowestfare acknowledges that the User Information
constitutes extremely valuable trade secrets of theglobe.com. Lowestfare shall
not use the User Information for any purpose other than as expressly granted
under this Agreement nor disclose the User Information to any third party.
Without limiting the foregoing, under no circumstances may Lowestfare send
unsolicited emails to any End Users, nor may Lowestfare permit or authorize any
third parties to do so. Lowestfare shall use at least industry-standard methods
to protect the security of User Information. This Subsection 10.1 ("User
Information") shall not apply to End Users who (a) have registered as
Lowestfare.com users, including pursuant to Subsection 2.1(a) ("'Opt In'
Registration") and Subsection 2.1(b) ("Quarterly Sweepstakes"); or (b) are or
become customers of Lowestfare.com or Global Discount Travel Services, or its
respective subsidiaries, now existing or hereafter organized.
10.2 Registration Data. As part of the User Information, theglobe.com
shall provide to Lowestfare the email addresses and names of Registered Users.
11. DISCLAIMER OF WARRANTIES.
EACH PARTY PROVIDES ALL MATERIALS AND SERVICES TO THE OTHER PARTY "AS IS." EACH
PARTY DISCLAIMS ALL WARRANTIES AND CONDITIONS, EXPRESS, IMPLIED OR STATUTORY,
INCLUDING WITHOUT LIMITATION THE IMPLIED WARRANTIES OF TITLE, NON-INFRINGEMENT,
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. Each party acknowledges
that it has not entered into this Agreement in reliance upon any warranty or
representation except those specifically set forth herein.
12. TERM AND TERMINATION.
<PAGE> 10
12.1 Term. The term of this Agreement ("Term") shall continue for a period
of three (3) years following the Effective Date.
12.2 Termination for Cause. Notwithstanding the foregoing, this Agreement
may be terminated by either party upon notice for the material breach of this
Agreement by the other party which breach has remained uncured for a period of
thirty (30) days from the date of written notice thereof.
12.3 Effect of Expiration or Termination. Upon the expiration or
termination of this Agreement, all licenses granted hereunder shall immediately
terminate, and each party shall promptly remove all references to the other
party's trademarks from any site that caches, indexes or links to such party's
site.
13. SURVIVAL.
Upon the expiration or termination of this Agreement, SECTION 1 ("DEFINITIONS"),
Subsection 5.2 ("Liability"), SECTION 9 ("CONFIDENTIALITY"), SECTION 11
("DISCLAIMER OF WARRANTIES"), Subsection 12.4 ("Effect of Expiration or
Termination"), SECTION 13 ("SURVIVAL"), SECTION 14 ("LIMITATION OF LIABILITY"),
SECTION 15 ("INDEMNITY") and SECTION 16 ("GENERAL PROVISIONS") shall survive and
continue to bind the parties.
14. LIMITATION ON LIABILITY.
EXCEPT IN THE EVENT OF A BREACH OF SECTION 8 ("LICENSES AND STANDARDS") OR
SECTION 9 ("CONFIDENTIALITY"), NEITHER PARTY SHALL BE LIABLE FOR SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGES OR LOST PROFITS (HOWEVER ARISING, INCLUDING
NEGLIGENCE) ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT. EXCEPT IN THE
EVENT OF A BREACH OF SECTION 8 ("LICENSES AND STANDARDS") OR SECTION 9
("CONFIDENTIALITY"), A FAILURE TO PAY FEES OWED, OR AN INDEMNITY CLAIM, IN NO
EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY IN AN AMOUNT GREATER THAN
THE AMOUNTS ACTUALLY PAID BY LOWESTFARE TO THEGLOBE HEREUNDER.
15. INDEMNITY.
Each party (the "Indemnifying Party") shall indemnify the other party (the
"Indemnified Party") against any and all claims, losses, damages costs and
expenses, including reasonable attorneys' fees, which the Indemnified Party may
incur as a result of claims in any form by third parties arising from: (a) the
Indemnifying Party's acts, omissions or misrepresentations to the extent that
the Indemnified Party is deemed a principal of the Indemnifying Party, (b) the
violation of any third party proprietary right by the Indemnifying Party's
domain name, software or any content provided by the Indemnifying Party
(including without limitation the Lowestfare Content) for use on the
<PAGE> 11
Indemnified Party's servers, or (c) breach of Subsection 16.5 ("Compliance with
Laws"). In addition, Lowestfare shall indemnify theglobe.com against any and all
claims, losses, damages, costs and expenses, including reasonable attorneys'
fees, which theglobe.com may incur as a result of claims in any form by third
parties arising from; the content on the Co-Branded Site. The foregoing
obligations are conditioned on the Indemnified Party's giving the Indemnifying
Party notice of the relevant claim, cooperating with the Indemnifying Party, at
the Indemnifying Party's expense, in the defense of such claim, and giving the
Indemnifying Party the right to control the defense and settlement of any such
claim, except that the Indemnifying Party shall not enter into any settlement
that affects the Indemnified Party's rights or interest without the Indemnified
Party's prior written approval. The Indemnified Party shall have the right to
participate in the defense at its expense.
16. GENERAL PROVISIONS.
16.1 Governing Law. This Agreement will be governed and construed in
accordance with the laws of the State of New York without giving effect to
conflict of laws principles. Both parties consent to jurisdiction in New York
and further agree that any cause of action arising under this Agreement shall be
brought in a court in New York, New York. The parties exclude the application of
The United Nations Convention on Contracts for the International Sale of Goods
from this Agreement.
16.2 Severability; Headings. If any provision herein is held to be invalid
or unenforceable for any reason, the remaining provisions will continue in full
force without being impaired or invalidated in any way. Headings are for
reference purposes only and in no way define, limit, construe or describe the
scope or extent of such section.
16.3 Force Majeure. If performance hereunder is prevented, restricted or
interfered with by any act or condition whatsoever beyond the reasonable control
of a party, the party so affected, upon giving prompt notice to the other party,
shall be excused from such performance to the extent of such prevention,
restriction or interference. Each party acknowledges that the operation of the
other party's website and services may be interfered with by numerous factors
outside of a party's control, and theglobe.com does not guarantee continuous or
uninterrupted display of Lowestfare Content.
16.4 Independent Contractors. The parties are independent contractors, and
no agency, partnership, joint venture, employee-employer or
franchisor-franchisee relationship is intended or created by this Agreement.
Neither party shall make any warranties or representations on behalf of the
other party.
16.5 Compliance with Laws. At its own expense, each party shall comply
with all applicable laws, regulations, rules, ordinances and orders regarding
the marketing, promotion and performance of its obligations hereunder, including
without limitation the operation of the Co-Branded Site and its other activities
related to this Agreement.
<PAGE> 12
16.6 Notice. Any notices hereunder shall be given to the appropriate party
at the address specified above or at such other address as the party shall
specify in writing. Notice shall be deemed given: upon personal delivery; if
sent by fax, upon confirmation of receipt; or if sent by certified or registered
mail, postage prepaid, five (5) days after the date of mailing.
16.7 Entire Agreement; Waiver. This Agreement sets forth the entire
understanding and agreement of the parties, and supersedes any and all oral or
written agreements or understandings between the parties, as to the subject
matter of this Agreement, including the Travel Services Alliance Agreement
between theglobe.com and lowestfare.com dated as of September 9, 1998..It may be
changed only by a writing signed by theglobe.com and Lowestfare. The waiver of a
breach of any provision of this Agreement will not operate or be interpreted as
a waiver of any other or subsequent breach.
16.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which shall
be taken together and deemed to be one instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
LOWESTFARE.COM, A DIVISION OF THEGLOBE.COM, INC.
GLOBAL DISCOUNT TRAVEL SERVICES LLC
By: By:
--------------------------------- -------------------------------------
Title: Title:
------------------------------ ----------------------------------
Date: Date:
------------------------------- -----------------------------------
<PAGE> 1
Exhibit 10.18
WEBSITE ADVERTISING AND PROMOTION AGREEMENT
- --------------------------------------------------------------------------------
This Agreement dated as of September 25, 1998 ("Effective Date"), is
entered into by and between LookSmart, Ltd., a Delaware corporation
("LookSmart") with offices at 487 Bryant Street, San Francisco, CA 94107, and
Lowestfare.com, a division of the Global Discount Travel Services, LLC
("Lowestfare"), located at 980 Kelly Johnson Drive, Las Vegas, Nevada 89119.
1. BACKGROUND
1.1 LookSmart operates a search, information and directory service on the
internet accessible through several web pages located at www.looksmart.com
("LookSmart Site"). Lowestfare operates a website located at www.Lowestfare.com
that provides airline and travel related services to internet users ("Lowestfare
Site").
1.2 Lowestfare desires, among other things, to promote Lowestfare Site on
the LookSmart Site and to establish links from the LookSmart Site to the
Lowestfare Site on the terms and conditions set forth in this Agreement.
2. DEFINITIONS
2.1 "Advertising Allocation Ratio" means the percentage of Impressions
Lowestfare will receive through Targeted Impressions and through Non-Targeted
Impressions, which percentages shall be fixed during the Initial Term of this
Agreement at [CONFIDENTIAL TREATMENT REQUESTED] and [CONFIDENTIAL TREATMENT
REQUESTED] respectively.
2.2 "Lowestfare Content" means any graphics, logos, text or other material
(i) provided by Lowestfare to LookSmart in HTML and/or GIF files, or in another
format as may be designated from time to time by LookSmart, or (ii) created by
LookSmart on behalf of Lowestfare, for placement in certain advertising spaces,
including but not limited to banners, buttons, badges, Quick-Click Boxes, Crown
Boxes or links, on web pages within the LookSmart Site.
2.3 "Co-Branded Site" means the website developed by LookSmart for
Lowestfare pursuant to Section 6 below.
2.4 "Crown Box" means the advertising space on the top left portion of
certain web pages within the LookSmart Site as described in Exhibit C.
2.5 "Impression" means every instance that either (i) a webpage that
contains any Lowest Fare Content that is served to a user, or (ii) the
Lowestfare Site or the Co-Branded Site is served to a user as a result of such
user clicking through a link on the LookSmart Site.
<PAGE> 2
2.6 "Inventory" means banner advertising space, badges, Crown Boxes,
Quick-Click Boxes, buttons, links and any other space on a webpage in the
LookSmart Site that LookSmart has allocated to advertising.
2.7 "LookSmart Directory" means the directory created and maintained by
LookSmart and accessible through www.looksmart.com that classifies certain
internet web sites through thirteen primary categories, including but not
limited to Travel and Vacations, Automotive, Sports and Recreation, and
thousands of subcategories.
2.8 "LookSmart Postcard" means as described on Exhibit E.
2.9 "LookSmart Search Engine" means the functionality incorporated into
the LookSmart Site that allows users to conduct key word searches of the
internet or the LookSmart Site.
2.10 "Non-Targeted Impressions" means all of the Impressions generated by
the advertising and marketing services provided by LookSmart pursuant to Section
4 and Section 5 (as applicable) below.
2.11 "Quick-Click Box" means the advertising space on the right side of
certain web pages within the LookSmart Site as set forth in Exhibit B.
2.12 "Targeted Impressions" means all of the Impressions generated by the
advertising and marketing services provided by LookSmart pursuant to Section 3
and Section 5 (as applicable) below.
3. TARGETED ADVERTISING
3.1 Travel Related Advertising.
(a) Quick-Click Sponsor: Lowestfare shall be the exclusive
internet based airline ticket booking agency that advertises via the Quick-Click
Box on web pages within the Travel and Vacations category in the LookSmart
Directory. Lowestfare Content will appear in a Quick-Click Box on every page
served within such Travel and Vacations category. For the purposes of this
Agreement, "exclusive" means that (i) LookSmart shall not sell any Quick-Click
Box advertising space in the Travel and Vacations category to any other internet
based company whose primary business is to allow internet users to compare and
purchase online air travel from several carriers; and (ii) LookSmart shall not
accept advertising for the following sites: Expedia.com, Travelocity,
TheTrip.com, Biztravel, Preview Travel, Internet Travel Network (ITN), Best
Fares, and Las Vegas Reservations Service (LVRS).
(b) Keyword Advertising: LookSmart shall place Lowestfare
Content in banner advertising spaces on certain web pages in the LookSmart Site
that are served as a result of a search using the LookSmart Search Engine where
the search terms entered by the user include certain travel related keywords as
set forth in Exhibit A ("Travel Keywords"). The location of such banner ads on
web pages, the frequency and timing of the delivery of such banner ads, and the
particular pages on which such Lowestfare Content will be served shall be
determined in accordance with the schedule set forth at Exhibit E.
-2-
<PAGE> 3
3.2 Context Based Advertising.
(a) Targeted User Advertising. LookSmart shall place Lowestfare
Content in banner advertising spaces on certain web pages in the LookSmart Site
that are accessed by internet users with the criteria set forth in Exhibit A
(the "User Criteria"). The location of such banner ads on web pages, the
frequency and timing of the delivery of such banner ads, and the particular
pages on which such Lowestfare Content will be served shall be determined in
accordance with the schedule set forth at Exhibit E.
(b) Designated Category Advertising. LookSmart shall place
Lowestfare Content in banner advertising spaces on certain web pages displayed
by the LookSmart Site when such webpages are accessed through the "Shopping and
Services", "Business and Finance", and "Sports and Recreation" categories in the
LookSmart Directory (the "Designated Categories"). The location of such banner
ads on web pages, the frequency and timing of the delivery of such banner ads,
and the particular pages on which such Lowestfare Content will be served shall
be determined by LookSmart at its sole discretion.
(c) Lowestfare Review. Three months following the Effective Date,
Lowestfare shall have the right to review the performance of the Context Based
Advertising described in Section 3.2(a) and (b) above. In the event that such
Context Based Advertising generated less than [CONFIDENTIAL TREATMENT REQUESTED]
Impressions during such three month period, then LookSmart and Lowestfare shall
negotiate in good faith to modify the User Criteria and the Designated
Categories to increase the number of Impressions generated by such Context Based
Advertising (the "Revised Plan"), and shall implement such Revised Plan for an
additional three month period. In the event that the Revised Plan does not
increase the number of Impressions delivered via the Context Based Advertising
within such three month period, then Lowest Fare shall have the right to
immediately cancel such Context Based Advertising.
4. NON-TARGETED ADVERTISING.
4.1 HomePage Button. LookSmart shall place Lowestfare Content in a button
linked to the Lowestfare Site on the home page of the LookSmart Site that is
currently located at www.looksmart.com. The size and location of such button
shall be determined in accordance with the schedule set forth at Exhibit E.
4.2 Links. LookSmart shall create a hypertext link from the LookSmart
Postcard to the Co-Branded Site.
4.3 Crown Box. LookSmart shall place Lowestfare Content in a Crown Box on
certain pages within the LookSmart Site. The (i) size, design, appearance and
other specifications of such Crown Box, the (ii) the frequency of delivery of
such Crown Box ads, and (iii) the particular pages on which Lowestfare Content
will be served in Crown Box ads shall be determined in accordance with the
schedule set forth at Exhibit E.
5. FUTURE ADVERTISING OPPORTUNITIES
-3-
<PAGE> 4
5.1 Travel Inventory. In the event that Inventory becomes available on any
webpages in the LookSmart Site that are dedicated to travel, including but not
limited to Inventory in the Travel and Vacations category of the LookSmart
Directory, LookSmart shall offer such Inventory to Lowestfare at its then
current terms and rates. If Lowestfare elects to purchase such Inventory, then
Lowestfare shall also purchase additional Non-Targeted Impressions in order to
maintain the Advertising Allocation Ratio.
5.2 E-Mail. In the event that LookSmart introduces any new e-mail based
service or product, LookSmart shall use reasonable efforts to promote the
Lowestfare Site at least once per month on such service or product.
5.3 Bargain Fares Link. LookSmart's editorial board agrees to review the
Lowestfare Site, and at its sole discretion, can include a review of the
Lowestfare Site within the Travel and Vacations category which will be linked to
the Lowestfare Site.
6. CO-BRANDED SITE
LookSmart will develop a web page that will have the same design, layout,
appearance and "look and feel" of the LookSmart Site, but will incorporate
Lowestfare Content and additional material as determined by the parties (the
"Co-Branded Site"). The Co-Branded Site will be linked directly to the
Lowestfare Site. LookSmart shall be responsible for maintaining the Co-Branded
Site and for selling the advertising space on such Co-Branded Site.
7. LICENSE
Lowestfare hereby grants to LookSmart during the term of this Agreement a
nonexclusive, royalty-free, worldwide license to use, reproduce, distribute,
perform and display, in whole or in part, the Lowestfare Content to fulfill the
intention of this Agreement. Notwithstanding the above, Lowestfare shall retain
all right, title and interest in and to the Lowestfare Content it provides to
LookSmart hereunder.
8. IMPRESSION GUARANTEES
8.1 General. LookSmart guarantees that Lowestfare shall receive a certain
number of minimum Impressions a year during each year of this Agreement as set
forth below. During the Initial Term, the Impressions will be delivered pursuant
to the Advertising Allocation Ratio.
8.2 Year 1 Impressions. LookSmart guarantees that during the first twelve
months following the Effective Date (the "First Year"), Lowestfare shall receive
at least an aggregate [CONFIDENTIAL TREATMENT REQUESTED] Impressions.
(a) Targeted Impressions. LookSmart guarantees that during the First
Year, Lowestfare shall receive at least [CONFIDENTIAL TREATMENT REQUESTED]
Targeted Impressions ("Minimum Targeted Impressions"). Such Minimum Targeted
Impressions will be delivered according to the following allocation:
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<PAGE> 5
(i) LookSmart guarantees that Lowestfare shall receive at
least [CONFIDENTIAL TREATMENT REQUESTED] Impressions through the Click-Box
sponsorship advertisements described in Section 3.1 (a) above.
(ii) LookSmart guarantees that Lowestfare shall receive
[CONFIDENTIAL TREATMENT REQUESTED] Impressions through banner advertisements on
the result pages of Travel Keyword searches as described in Section 3.1 (b)
above.
(iii) LookSmart guarantees that Lowestfare shall receive
[CONFIDENTIAL TREATMENT REQUESTED] impressions through the Targeted User
Advertising described in Section 3.2 (a) above.
(iv) LookSmart guarantees that Lowestfare shall receive
[CONFIDENTIAL TREATMENT REQUESTED] impressions through the Designated Categories
Advertising described in Section 3.2 (b) above.
(b) Non-Targeted Impressions. LookSmart guarantees that during the
First Year, Lowestfare shall receive at least an aggregate [CONFIDENTIAL
TREATMENT REQUESTED] Non-Targeted Impressions.
8.3 Year 2 Impressions. LookSmart guarantees Lowestfare shall receive a
total of [CONFIDENTIAL TREATMENT REQUESTED] Targeted Impressions and
Non-Targeted Impressions during the second twelve month period of this
Agreement. The distribution of such Impressions between Targeted Impressions
Non-Targeted Impressions will be consistent with the Advertising Allocation
Ratio.
8.4 Year 3 Impressions. LookSmart guarantees Lowestfare shall receive a
total of [CONFIDENTIAL TREATMENT REQUESTED] Targeted Impressions and
Non-Targeted Impressions during the third twelve month period of this Agreement.
The distribution of such impressions between Targeted Impressions and
Non-Targeted Impressions will be consistent with the Advertising Allocation
Ratio.
8.5 Renewal Term. Lowestfare will have the option of modifying the
Advertising Allocation Ratio during any year during the Renewal Term; provided,
however, that in order for Lowestfare to retain its exclusive airline booking
advertiser status as set forth in Section 3.1(a), Lowestfare must purchase all
of the travel related inventory, as determined in good faith by LookSmart,
including but not limited to the Targeted Impressions described herein, at a
rate of [CONFIDENTIAL TREATMENT REQUESTED] CPM.
9. PAYMENT
9.1 General. Lowestfare shall pay LookSmart an annual fee according to the
terms and schedule set forth herein. Except as set forth below, Lowestfare shall
pay the annual fee for each year through four equal payments at the end of every
three month period during a given year ("Payment Period"). Payments shall be
made within thirty (30) days after the end of each such Payment Period.
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<PAGE> 6
9.2 Year 1 Annual Fee: In consideration for the services provided
hereunder, Lowestfare shall pay LookSmart [CONFIDENTIAL TREATMENT REQUESTED]
during the First Year. Lowestfare will pay LookSmart [CONFIDENTIAL TREATMENT
REQUESTED] upon the signing of the Agreement ("Initial Payment"). This Initial
Payment will be applied against the payment for the final Payment Period of the
First Year.
9.3 Year 2 Annual Fee: In consideration for the services provided
hereunder, Lowestfare shall pay LookSmart [CONFIDENTIAL TREATMENT REQUESTED]
during the second twelve month period of this Agreement.
9.4 Year 3 Annual Fee: In consideration for the services provided
hereunder, Lowestfare shall pay LookSmart [CONFIDENTIAL TREATMENT REQUESTED]
during the third twelve month period of this Agreement.
9.5 Payment Reductions. If at the end of any year during the Initial Term,
Lowestfare has not received the Targeted Impressions guaranteed by LookSmart
pursuant to Section 8.2(a) ("Guaranteed Impressions"), then (i) Lowestfare shall
only be responsible for paying LookSmart for the actual number of Targeted
Impressions it received during such Payment Period based on a CPM of
[CONFIDENTIAL TREATMENT REQUESTED], and (ii) Lowestfare will be able to deduct
from the Non-Targeted Impression Payment for such Payment Period (defined below)
a percentage equal to the percentage shortfall of the Targeted Impressions for
such Payment Period. The Non-Targeted Impression Payment for a Payment Period is
an amount equal to the product of (i) the estimated Non-Targeted Impressions for
such Payment Period, and (ii) a CPM of [CONFIDENTIAL TREATMENT REQUESTED]. For
example, if at the end of a Payment Period Lowestfare receives five percent (5%)
fewer Targeted Impressions than set forth in the Guaranteed Impressions for such
Payment Period, then Lowestfare will only have to pay LookSmart for the actual
number of Targeted Impressions received (based on a CPM of [CONFIDENTIAL
TREATMENT REQUESTED]), and regardless of the actual number of Non-Targeted
Impressions delivered, Lowestfare will also be able to deduct 5% from its
Non-Targeted Impression Payment for such Payment Period. The shortfall of
Guaranteed Impressions and the subsequent payment reductions shall in no way
relieve LookSmart's obligation to deliver the Non-Targeted Impressions
guaranteed in Section 4 above
10. ADDITIONAL OBLIGATIONS
Lowestfare shall be solely responsible for supplying and managing the Lowestfare
Site at its own expense and LookSmart shall not have any obligations whatsoever
with respect to the Lowestfare Site other than to create the hyperlinks thereto
as described herein. LookSmart shall not be required to provide any personal
information regarding specific users, including, without limitation, their names
and addresses or any other information the provision of which could violate any
privacy or other rights of users or third-parties. Lowestfare shall notify
LookSmart in advance of any changes in its URL(s). LookSmart retains the right,
in its sole discretion and upon notification to Lowestfare, to immediately cease
linking to the Lowestfare Site if in LookSmart's opinion, the Lowestfare Site
violates any applicable law or regulation, infringes upon any proprietary right
of any third-party, or is defamatory, obscene, offensive or excessively
controversial.
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<PAGE> 7
11. TERM/TERMINATION.
11.1 The initial term of this Agreement shall begin on the Effective Date
and shall continue for a period of three (3) years ("Initial Term") unless
otherwise terminated as set forth below.
11.2 Lowestfare shall have the right to terminate this Agreement after the
end of the second full year of the Initial Term by notifying LookSmart in
writing sixty (60) days prior to the end of the second year.
11.3 This Agreement shall automatically be extended for an additional
three year period ("Renewal Term"), except in the event of one of the following:
(a) the Agreement is otherwise terminated pursuant to this Section 11 or (b)
Carl Icahn has declined to purchase a minimum of [CONFIDENTIAL TREATMENT
REQUESTED] of LookSmart common stock offered to him (i) pursuant to a private
placement offering in the minimum aggregate amount of [CONFIDENTIAL TREATMENT
REQUESTED] of which Mr. Icahn shall have the right to purchase up to an
aggregate of [CONFIDENTIAL TREATMENT REQUESTED] of such LookSmart common stock
and (ii) on terms and conditions similar to the terms and conditions LookSmart
is selling such common stock to other potential investors at such time. In the
event that a private placement offering is not made during the Initial Term
which satisfies the aforementioned terms and conditions, the Agreement shall
automatically be extended for the Renewal Term.
11.4 Either Party may terminate this Agreement at any time in the event of
a material breach by any of the other Parties which remains uncured after thirty
(30) days' written notice thereof.
12. CONFIDENTIALITY.
12.1 Confidential Information. "Confidential Information" means (i) the
terms and conditions of this Agreement, and (ii) any and all other information
disclosed by one party to the other which is marked "confidential" or
"proprietary". Confidential Information does not include any information that
the non-disclosing party can demonstrate by written records was (a) already
known by, or in the possession of the non-disclosing party, (b) is required to
be disclosed by law, regulation, or court order (including compliance with
applicable securities laws and regulations), (c) thereafter rightly obtained by
the non-disclosing party from a source other than the disclosing party, or (d)
is or becomes publicly known through no wrongful act of the non-disclosing
party.
12.2 Obligations. Each party agrees that it shall take reasonable steps,
at least substantially equivalent to the steps as it takes to protect its own
Confidential Information, during the term of this Agreement, and for a period of
one (1) year following expiration or termination of this Agreement, to prevent
the duplication or disclosure of any such Confidential Information, other than
by or to its employees or agents who must have access to such information to
perform such party's obligations hereunder, who shall each treat such
information as provided herein, and as may be required by either of the parties
for public or private financing. Upon the termination or expiration of this
Agreement, (i) each party shall promptly return or certify as to the destruction
of all Confidential Information and other information, documents, manuals,
equipment and other materials belonging to the other party; and (ii) each party
shall immediately cease using all materials of the other party in any form. In
the event
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<PAGE> 8
of a partial termination, all terms and conditions of this Agreement shall
remain in full force and effect with respect to rights and obligations not
affected by the partial termination.
13. REPRESENTATIONS, WARRANTIES AND INDEMNIFICATION.
13.1 Lowestfare's Representations and Warranties. Lowestfare represents
and warrants that (i) Lowestfare has the right to grant the rights and licenses
granted herein; (ii) Lowestfare is the sole owner or licensee of the Lowestfare
Content; (iii) the Lowestfare Content does not infringe, violate or
misappropriate any trademark, patent, copyright, trade secret or any other
intellectual property right of any third party; (iv) the Lowestfare Content does
not contain any libelous material; (v) it has the right and authority to enter
into and perform all obligations under this Agreement; and (vi) it shall comply
with all applicable laws, statutes, ordinances, rules and regulations with
respect to the Lowestfare Site.
13.2 LookSmart's Representations and Warranties. LookSmart represents and
warrants that (i) it has the right and authority to enter into and perform all
obligations under this Agreement; and (ii) it shall comply with all applicable
laws, statutes, ordinances, rules and regulations with respect to the LookSmart
Site.
13.3 Indemnity. Each party will defend, indemnify, save and hold harmless
the other party, and their officers, directors, agents, and employees from any
and all third-party claims, demands, liabilities, courts costs and damages,
including reasonable attorney's fees ("Liabilities"), resulting from the
indemnifying party's breach of any of the representations and warranties set
forth in Section 13.1 or 13.2 above; provided, however, the non-indemnifying
party shall (i) promptly notify the indemnifying party in writing of an
indemnifiable claim, (ii) give the indemnifying party the opportunity to defend
or negotiate a settlement of any such claim at the indemnifying party's expense,
and (iii) fully cooperate with the indemnifying party, at the indemnifying
party's expense, in defending or settling such claim. The indemnifying party may
not settle any such claim without obtaining the prior consent of the
non-indemnifying party, unless any such settlement provides for full exculpation
of the non-indemnifying party. Each party reserves the right, to participate, at
its own expense, in the defense of any matter otherwise subject to
indemnification by the other party. Notwithstanding the above, neither party
shall be obligated to indemnify, defend, save and hold harmless the
non-indemnifying party to the extent Liabilities result from the gross
negligence or knowing and willful misconduct of the non-indemnifying party.
13.4 NO ADDITIONAL WARRANTIES. EXCEPT AS EXPRESSLY SET FORTH IN SECTION
13.1 AND 13.2 ABOVE, NEITHER PARTY MAKES, AND EACH PARTY HEREBY SPECIFICALLY
DISCLAIMS, ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING ANY
MATTER SUBJECT TO THIS AGREEMENT, INCLUDING ANY STATUTORY WARRANTY AGAINST
INFRINGEMENT, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR
COURSE OF PERFORMANCE.
14. LIMITATION OF LIABILITY.
EXCEPT FOR OBLIGATIONS PURSUANT TO SECTION 13 ABOVE, NEITHER PARTY SHALL
BE LIABLE TO THE OTHER PARTY FOR ANY DIRECT, INDIRECT, INCIDENTAL,
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<PAGE> 9
CONSEQUENTIAL, SPECIAL, OR EXEMPLARY DAMAGES OR ANY DAMAGES FOR LOST DATA,
BUSINESS INTERRUPTION, LOST PROFITS, LOST REVENUE OR LOST BUSINESS ARISING FROM
THIS AGREEMENT (EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES).
15. GENERAL PROVISIONS.
15.1 Amendment. No change, amendment or modification of any provisions of
this Agreement shall be valid unless agreed to in writing by both parties. This
Agreement sets forth the entire agreement and supersedes any and all prior
agreements, written or oral, of the parties with respect to the transactions set
forth herein.
15.2 Assignment. Lowestfare will not assign, delegate or otherwise
transfer this Agreement or any right hereunder, either in whole or part (whether
by express transfer, operation of law or otherwise) without the prior written
consent of LookSmart, except Lowestfare may transfer or assign this Agreement
without prior consent to any of its subsidiary or affiliate companies or
successor either now existing or hereafter organized. Any attempted or purported
assignment or other transfer not complying with the foregoing shall be null and
void. Subject to the foregoing, this Agreement will inure to the benefit of and
bind the successors and assigns of the parties hereto.
15.3 Severability. In the event that any provision of this Agreement
conflicts with the law under which this Agreement is to be construed, or if any
such provision is held invalid by a court with jurisdiction over the parties to
this Agreement, such provision shall be deemed to be restated to reflect as
nearly as possible the original intentions of the parties in accordance with
applicable law, and the remainder of this Agreement shall remain in full force
and effect.
15.4 Independent Contractors. The parties to this Agreement are
independent contractors. Neither party is an agent, representative, or partner
of the other party. No party shall have any right, power or authority to enter
into any agreement for, or on behalf of, or incur any obligation or liability
of, or to otherwise bind, the other party. This Agreement shall not be
interpreted or construed to create an association, agency, joint venture or
partnership between the parties or to impose any liability attributable to such
a relationship upon either party.
15.5 No Waiver. The failure of either party to insist upon or enforce
strict performance by the other party, of any provision of this Agreement, or to
exercise any right under this Agreement, shall not be construed as a waiver or
relinquishment of such party's right to enforce any such provision or right in
any other instance.
15.6 Notice. Any notice, approval, request, authorization, direction or
other communication under this Agreement shall be given in writing and shall be
deemed to have been delivered and given for all purposes (i) on the delivery
date if delivered by electronic mail; (ii) on the delivery date if delivered
personally to the party to whom the same is directed; (iii) one (1) business day
after deposit with a commercial overnight carrier with written verification of
receipt; or (iv) five (5) business days after the mailing date whether or not
actually received, if sent by U.S. mail, return receipt requested, postage and
charges prepaid, or any other means of rapid mail delivery for which a receipt
is available to the Contact at the address of the party to whom the same is
directed.
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<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
Effective Date.
LookSmart, Ltd. Lowestfare
Signatory: Signatory:
-------------------------- ------------------------------
Title: Title:
------------------------------ ----------------------------------
Date: Date:
------------------------------- -----------------------------------
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<PAGE> 1
Exhibit 10.19
Interactive Advertising Agreement
Lowestfare.com Frommers.com
Global Discount Travel Services, LLC Macmillan Digital Publishing USA
980 Kelly Johnson Drive 201 West 103rd Street
Las Vegas, NV 89119 Indianapolis, IN 46280
2Can Media, Inc.
20700 Ventura Blvd.
Woodland Hills, CA 91364
Sponsorship/Booking Engine Program:
Subject to the terms and conditions of this Agreement, Lowestfare.com, a
Division of Global Discount Travel ("Lowestfare.com") will become the official
integrated travel booking-engine of Frommers.com (the "MDP Website"), a division
of Macmillan Digital Publishing USA ("MDP"), and 2Can Media, Inc. ("2Can") shall
be responsible for all billing and provide services for the placement and
maintenance of all ads except MDP house ads. In addition, 2Can shall provide
certain MDP Website tracking reports to Lowestfare.com and the MDP Website. The
Effective Date of this agreement shall begin October 15, 1998.
1. MDP Obligations
a. MDP and Lowestfare.com shall work together to develop a customized,
co-branded booking engine (the "Co-branded Booking Engine") on the
MDP Website where users can book travel using the Lowestfare.com
proprietary travel booking engine (the "Engine"). MDP retains final
approval over the design of the co-branded booking engine bridge
pages; such consent shall not be unreasonably withheld.
b. The MDP Website shall display a minimum of [CONFIDENTIAL TREATMENT
REQUESTED] banner impressions per month on the MDP Website. These
impressions will be run of site and link directly to the Co-branded
Booking Engine or the Lowestfare.com website.
c. The MDP Website shall display a fixed Lowestfare.com branded button
on the MDP Website homepage, which shall appear above the fold and
links directly to the Co-branded Booking Engine. This placement will
exist for the term of this agreement.
d. The MDP Website shall display a fixed Lowestfare.com-branded button
on all U.S. and International destination pages on the MDP Website.
Such button shall link directly to the Co-branded Booking Engine.
This placement will exist for the term of this agreement.
e. MDP shall coordinate PR and publicity effort via joint press release
with Lowestfare.com highlighting the partnership set forth in this
Agreement. Such press release shall be written by MDP and MDP shall
obtain prior approval from Lowestfare.com.
f. The MDP Website shall include an exclusive sponsorship position in
four "Hot
<PAGE> 2
Spots of the Month" promotions. The specific months of the
sponsorship shall be chosen by Lowestfare.com from the MDP Website's
editorial calendar
(Exhibit B). Selections made after October 1 shall be subject to
availability. All sponsorship links will be to the Co-branded Booking
Engine. In addition each Hot Spot of the Month sponsorship will include
the following:
(i) MDP Website homepage promotional billboard (see example at
www.frommers.com) during each month of sponsorship/[CONFIDENTIAL
TREATMENT REQUESTED] impressions per sponsorship.
(ii) Eight (8) e-mail newsletter promotions per month of sponsorship (32
total/CONFIDENTIAL TREATMENT REQUESTED] impressions per sponsorship.
(iii) In-house banner campaign promoting Lowestfare.com's sponsorship of
the Hot Spot/[CONFIDENTIAL TREATMENT REQUESTED] impressions each
month of sponsorship.
(iv) Exclusive Hot Spot of the Month impressions reserved for sponsor
only/[CONFIDENTIAL TREATMENT REQUESTED] impressions each month of
sponsorship. Sponsor receives all impressions generated for each
month of sponsorship within the Hot Spot of the Month pages.
(v) Names collected via contest entry process given to Lowestfare.com
for database collection and marketing efforts for each month of
sponsorship.
(vi) 2Can Media will provide [CONFIDENTIAL TREATMENT REQUESTED] banner
impressions per each month of sponsorship on their network of
websites. A representative list of 2CAN Media Network sites is
attached in Exhibit E. Impressions will not be applied on the
following 2Can Media websites: Teen Magazine Online, Mass Music,
National Inquirer Online, PCGame, or Rick Dees.
g. MDP shall provide guaranteed impressions as set forth in Exhibit C.
2. Lowestfare.com Obligations
a. Lowestfare.com shall be responsible for hosting, upkeep and
fulfillment duties on all linked pages of the Engine and will use
its best efforts to provide commercially reasonable backup resources
to make those pages available to end users of the MDP Website 24
hours per day. These resources will include computer and networking
capacity that provide Web page response times for end users
substantially equivalent to Lowestfare.com booking engine response
times.
b. Users of the MDP Website who choose to call the Lowestfare.com
Internet Customer Service Center in Las Vegas, NV (USA) will be
handled with the same high level of customer service as is offered
to all other users of Lowestfare.com's Internet products.
c. Hotspot of the Month Sponsorship
(i) Lowestfare.com shall provide one vacation package per
one-month sponsorship. Each prize must include a minimum of
two round-trip airfare tickets to the highlighted destination
and accommodations for at least 5 nights to the highlighted
destination. Each Hot Spot of the Month prize shall have a
published value of at least $3,000 but must not exceed
$10,000.
<PAGE> 3
(ii) Choice of four Hot Spot of the Month sponsorships must be
chosen no later than October 1, 1998. The list of Hot Spot of
the Month destinations are outlined in Attachment B.
(iii) Names collected remain the property of MDP and may not be
shared with or sold to any company other than Lowestfare.com.
d. The package outlined above does not preclude MDP or the MDP Website
from accepting advertising from individual carriers, lodgers, rental
car agencies, tour providers, other travel providers or other online
travel sites. Notwithstanding the foregoing, no advertising shall
appear on the Co-branded Booking Engine with the exception of MDP
in-house/internal advertising.
e. Lowestfare.com will supply creatives to 2Can Media as described in
Exhibit A.
f. Lowestfare.com shall verify credit card information, process all
transactions originating on the MDP Website via the Engine, and
handle the fulfillment and post-transaction customer service, and
collect all applicable sales and other taxes for all orders received
from end users.
Lowestfare.com will provide MDP with monthly reports of number of visitors
to Lowestfare.com from the MDP Website as well as number of completed
bookings from these visitors. Reports should be delivered by the end of
the first week in the following month and should be e-mailed to Christy
Miller at [email protected].
3. 2Can Media Obligations
a. 2Can shall provide access and detailed tracking reports to
Lowestfare.com and MDP to evaluate effectiveness of the MDP
campaign. Reporting may include, but is not limited to the
following:
(i) Total delivered impressions by day/week/month by banner
(ii) Total "adclicks" delivered by day/week/month by banner
(iii) Cumulative "adclicks" for the campaign by banner
(iv) Total "impressions" and "adclicks"
(v) Total cumulative report for all banners
b. All monthly 2Can Media reports as described above should be
delivered to Steve Lay at [email protected], or as determined by
Lowestfare.com, and Christy Miller at [email protected] at the end of
each month for the length of this agreement.
4. Pricing and Payment
For and in consideration of the agreements contained herein, lowestfare.com
agrees to pay 2Can Media, as an agent for MDP, the following non-refundable
fees:
a. [CONFIDENTIAL TREATMENT REQUESTED] per month ([CONFIDENTIAL
TREATMENT REQUESTED] annual cost) for the Term of this Agreement.
b. Two months' pre-payment ([CONFIDENTIAL TREATMENT REQUESTED]) is due
upon execution of this Agreement.
c. All payments are due 30 days net from receipt of invoice.
<PAGE> 4
d. All payments under this Agreement shall be sent to:
2Can Media
20700 Ventura Blvd.
Woodland Hills, CA 91364
5. Term and Termination
a. The term of this Agreement shall be one (1) year from the Effective
Date (the "Term"). Thereafter, Lowestfare.com will be given first
right of refusal to renew this Agreement for additional one (1) year
terms, for a period of two (2) additional years (each such renewal
shall be considered a Term), subject to the consent of MDP and under
the following conditions:
b. A full review of the program as described in this Agreement will be
executed by both parties in June of each year to assess
effectiveness of campaign and next steps as mutually agreed upon by
both parties
c. MDP will honor the same discounted rate of [CONFIDENTIAL TREATMENT
REQUESTED]for Lowestfare.com relative to the present
agreement-pricing model against fair market value for the program at
the end of the first twelve months. Fair market value will be
derived from similar elements used in pricing the present agreement
(traffic estimates, promotional value, booking engine exclusivity,
etc.), and must reflect true market value as deemed appropriate by
both parties.
d. Either party may terminate this Agreement upon sixty (60) days prior
written notice to the other party, if the other party breaches any
material term of this Agreement, unless such breach is cured within
a thirty (30) day period.
e. The election of either party to terminate this Agreement pursuant to
Paragraphs 5.d. hereof shall not serve to waive, limit, bar or
otherwise extinguish any rights that party may have to pursue and
recover any damages that party may have suffered or incurred due to
the breach of any term or condition of this Agreement.
6. Warranty and Indemnification
a. Lowestfare.com warrants and represents that it has the right, power
and authority to enter into this Agreement; that Lowestfare.com's
execution and delivery of this Agreement will not violate any
material contractual or other obligation, that nothing in the
agreement, including the Engine, will infringe the copyright,
trademark, U.S. patent or any other right of any person or entity
and will not infringe any copyright or other personal or proprietary
right of any person or entity. Lowestfare.com further warrants and
represents to the best of their knowledge that the Engine is free of
any software virus, worm, virus macro, Trojan Horse, or other such
component designed to permit unauthorized access, to disable, erase,
or otherwise harm or maliciously alter software, hardware or data.
The Engine shall be Year 2000 Compliant. "Year 2000 Compliant" shall
mean that the Engine shall not experience any abnormality,
malfunction, or degradation in its operation simply as a result of
changing date values in connection with moving from the calendar
year 1999 to the calendar year 2000. Lowestfare.com shall indemnify
and hold MDP and its affiliates and their respective partners,
directors, officers, employees, agents, successors, assigns and
licensees harmless from and against any loss, liability, damage or
expense (including reasonable
<PAGE> 5
attorneys' fees and legal costs) arising out of a claim by a third
party and resulting from any breach or alleged breach of
Lowestfare.com representations and warranties contained in this
Agreement. Lowestfare.com shall have the sole right to control the
defense of any such claim and shall consult with MDP prior to
settlement thereof. MDP agrees to provide reasonable assistance to
Lowestfare.com at Lowestfare.com's expense, in the defense of same.
MDP shall have the right to approve any settlement which does not
provide a full and complete release of MDP liability in connection
with the settlement of such indemnified claim.
b. MDP represents and warrants to Lowestfare.com that it has the right,
power and authority to enter into this Agreement; that it is the
owner and copyright holder of www.frommers.com, that MDP's execution
and delivery of this Agreement will not violate any material
contractual or other obligation; that nothing in the Agreement as
provided to Lowestfare.com by MDP will be libelous, obscene, or
invade the right of privacy or violate or infringe the copyright,
trademark or any other right of, any person or entity; that
Lowestfare.com's exercise of its rights under this Agreement
pursuant to the terms of this Agreement will not violate or infringe
the copyright, U.S. trademark or any other right of any person or
entity. MDP shall indemnify and hold Lowestfare.com and its
affiliates and their respective partners, directors, officers,
employees, agents, successors, assigns and licensees harmless from
and against any loss liability, damage or expense (including
reasonable attorneys' fees and legal costs) arising out of a claim
by a third party and resulting from any breach or alleged breach of
MDP's representations and warranties contained in this Agreement.
MDP shall have the sole right to control the defense of any such
claim and shall consult with Lowestfare.com prior to settlement
thereof. Lowestfare.com agrees to provide reasonable assistance to
MDP at MDP's expense, in the defense of same. Lowestfare.com shall
have the right to approve any settlement which does not provide a
full and complete release of Lowestfare.com liability in connection
with the settlement of such indemnified claim.
c. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY
INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES, INCLUDING, WITHOUT
LIMITATION, DAMAGES FROM LOST PROFITS OR GOODWILL, WHETHER OR NOT
THAT PARTY HAS BEEN ADVISED OR IS AWARE OF THE POSSIBILITY OF SUCH
DAMAGE.
d. EXCEPT FOR THE WARRANTIES SET FORTH IN THIS PARAGRAPH, EACH PARTY
PROVIDES ALL MATERIALS AND SERVICES PERFORMED BY SUCH PARTY UNDER
THIS AGREEMENT "AS IS". MDP MAKES NO WARRANTIES WITH RESPECT TO THE
MDP WEBSITE OR THE CO-BRANDED BOOKING ENGINE, EXPRESS OR IMPLIED,
AND MDP EXPRESSLY DISCLAIMS ALL OTHER WARRANTIES, INCLUDING BUT NOT
LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR
A PARTICULAR PURPOSE. LOWESTFARE.COM MAKES NO WARRANTIES WITH
RESPECT TO THE LOWESTFARE.COM BOOKING ENGINE, EXPRESS OR IMPLIED,
AND LOWESTFARE.COM EXPRESSLY DISCLAIMS ALL OTHER WARRANTIES,
INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A
<PAGE> 6
PARTICULAR PURPOSE.
7. Ownership
Each party owns and shall retain all rights, title and interest in and to its
names, logos and service marks, proprietary features and proprietary technology,
trade secrets, patents, copyrights, trademarks, know-how and other proprietary
rights of any type under the laws of any governmental authority, domestic or
foreign, including rights in and to all applications and registrations relating
to any of the foregoing (the "Intellectual Property Rights"), or other rights of
each party, including any such rights in and to any information or works
contributed by such party to the Co-Branded Booking Engine shall at all times be
and remain the sole and exclusive property of such party. All present and future
rights in and title to the Engine are reserved to Lowestfare.com for its
exclusive use and MDP shall have no proprietary rights and shall acquire no
proprietary rights to the Engine by virtue of this Agreement. All present and
future rights in and title to the MDP Website (including the right to exploit
the MDP Website over any present or future technology) are reserved to MDP for
its exclusive use and Lowestfare.com shall have no proprietary rights and shall
acquire no proprietary rights to the MDP Website by virtue of this Agreement.
Except as specifically permitted herein, Lowestfare.com may not copy or make any
use of the MDP Website. Except as specifically permitted herein, neither party
shall use the trademarks, trade names, service marks, trade dress, logos or
titles of the other party, or the names of any individual participant in, or
contributor to, such party's intellectual property, or any variations or
derivatives thereof, for any purpose, without such party's prior written
approval.
8. Confidentiality
a. Confidential Information. Each party hereto (the "Disclosing Party")
will disclose to the other party ("Recipient") information in
connection with the performance of this Agreement. All information
disclosed by the Disclosing Party to the Recipient during the term
of this Agreement, including but not limited to technical and
business information relating to Disclosing Party's products,
research and development, production, costs, engineering processes,
profit or margin information, finances, customers, marketing, and
future business plans, shall be deemed "Confidential Information."
All Confidential Information shall remain the sole property of
Disclosing Party and Recipient shall have no rights to or in the
Confidential Information. Recipient agrees that it shall hold the
Confidential Information in strict confidence. Recipient further
agrees that it shall not make any disclosure of the Confidential
Information (including methods or concepts utilized in the
Confidential Information) to anyone without the express written
consent of Disclosing Party, except to employees, consultants or
agents to whom disclosure is necessary to the performance of this
Agreement and who shall be bound by the terms hereof, or to the
extent it is required to disclose such information in the context of
any administrative or judicial proceeding; provided that prior
written notice of such required disclosure and an opportunity to
oppose or limit disclosure is given to Disclosing Party.
b. Return of Information. After termination of this Agreement, upon
written request, Recipient shall return within ten (10) business
days all originals and copies thereof of any requested Confidential
Information disclosed by Disclosing Party which has been fixed in
any tangible means of expression.
<PAGE> 7
c. Exceptions. Nothwithstanding the other provisions of this Agreement,
nothing received by Recipient shall be considered to be Confidential
Information of the other, if: (i) it has been published or is
otherwise readily available to the public other than by a breach of
this Agreement; (ii) it has been rightfully received by Recipient
from a third party without confidentiality limitations; (iii) it was
known to Recipient prior to its first receipt by Recipient, as shown
by files existing at the time of initial disclosure, or. (iv) is
required to be disclosed by a court of competent jurisdiction, by
Federal, state or local laws or by Federal, state or local agencies
including as part of any filing with the Securities and Exchange
Commission.
d. No Disclosure of Terms of this Agreement. Each party agrees that,
without the prior written consent of the other party, it will not
disclose to any third party the material terms of this Agreement,
except as required by law or regulatory body. The existence of this
Agreement may be disclosed without prior written consent.
9. Miscellaneous
a. The relationship between MDP, Lowestfare.com and 2Can will be that
of independent contractors, and none of the parties nor any of their
respective officers, agents or employees will be held or construed
to be partners, joint ventures, fiduciaries, employees or agents of
the other.
b. This Agreement and its performance shall be governed by the laws of
the state of New York, without giving effect to any conflict of laws
provisions. The parties hereto consent and submit to the
jurisdiction of the state and federal courts in the state of New
York in all questions and controversies arising out of this
Agreement.
c. Except with respect to the performance of a party's payment
obligations under this Agreement (which shall be unconditional),
neither party shall be liable for delay or failure in its
performance hereunder to the extent that such failure or delay is
caused by any act of God, war natural disaster, strike, lockout,
labor dispute, work stoppage, fire, serious accident, act of
government or any other cause, whether similar or dissimilar, beyond
the reasonable control of that party.
d. Neither party may assign, convey, subcontract or delegate this
Agreement, or any of such party's rights, duties or obligations
hereunder, without the prior written consent of the other party;
provided however that either party may assign, delegate or
subcontract any or all of its rights, duties and obligations here
under to an affiliate or subsidiary or in the event of a major
internal corporate reorganization without the other party's consent.
e. All rights, remedies and obligations of the parties shall accrue and
apply solely to the parties and their successors and permitted
assigns and there is no intent to benefit any third parties.
f. This Agreement contains the entire agreement between the parties
relating to the subject matter hereof, supersedes any prior
understandings or agreements (whether oral or written) between the
parties regarding the subject matter, and may not be amended or
modified except in writing as mutually agreed by the parties.
g. The Exhibits to this Agreement are incorporated into this Agreement
and form a part hereof for all intents and purposes.
<PAGE> 8
h. No waiver of a breach of any provision of this Agreement by either
party shall constitute a waiver of any subsequent breach of the same
or any other provision hereof, and no waiver shall be effective
unless made in writing and signed by a duly authorized
representative of the waiving party.
i. This Agreement may be executed in separate counterparts, each of
which when so executed and delivered shall be an original, but all
such counterparts shall together constitute but one and the same
instrument. Execution may be effected by delivery of facsimiles of
signature pages (and the parties shall follow such delivery by
prompt delivery of originals of such pages).
<PAGE> 9
x _________________________________ x ______________________________________
Doug Bennett Gail Golden
President CEO
Macmillan Digital Publishing, USA Lowestfare.com, A Division
of Global Discount Travel Services,
L.L.C.
Date: _____________________________ Date: __________________________________
x__________________________________
Michael Beller
Vice President of Sponsorship and Syndication
2Can Media, Inc
Date: _____________________________
<PAGE> 1
Exhibit 10.20
[LOGO]
LYCOS(TM)
Your Personal Internet Guide
www.lycos.com
www.tripod.com
www.whowhere.com
Offices:
New York (212) 549-2100
San Francisco (415) 281-8721
Pittsburgh (412) 208-1000
Waltham (781) 370-2700
Williamstown (413) 458-2615
Chicago (773) 281-8390
Philadelphia (610) 701-5779
Los Angeles (310) 914-0195
Atlanta (404) 238-0534
New England (603) 924-4983
Mountainview (650) 938-4400
Dallas (214) 800-8767
Send all payments to:
Lycos, Inc.
P0 Box 6255
Boston, MA 02212-6255
LYCOS NETWORK ADVERTISING CONTRACT
Advertiser: Lowestfare.com
Address1:
Address2:
Agent/Agency Global Travel Marketing Services
Billing Contact Name: Terry O'Neal
Billing Address1: 980 Kelly Johnson Drive
Billing Address2: Las Vegas, NV 89119
Telephone Number: 702-260-3602
Fax Number: 702-260-3772
Technical Contact: Greg Monton
Telephone: 702-260-3603
eMail:
Reporting Contact: Steve Lay
Telephone: 714-249-4935
eMail:
Online Reporting:
User Name:
Password (8 chars):
Advertiser's URL:
<TABLE>
<CAPTION>
Date Discount
Target/ Keyword -------------- Gross Gross (if applicable) Net Net
Keyword Excl. Res ID Description Start End Impressions CPM Cost Cost CPM
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-- -- -- --
-- --
-- --
Per Attached Addendum 10/28/98 10/27/99 *** -- *** ***
Per Attached Addendum 10/28/99 10/27/00 *** -- *** ***
--
-- -- -- --
-- -- -- --
-- --
-- --
-- --
-- --
-- --
-- --
-- --
-- --
----------- -----------------------------------
*** -- -- ***
</TABLE>
<TABLE>
<S> <C> <C>
(For internal purposes only)
Advertising Contract Split Yes No Advertiser/Agent signature ___________________________________
Repeat/First time advertiser Repeat First Time DATE
Technical/Non Technical Tech Non Tech
Keyword/ Target/ Impr/ Comb Key Tgt Impr Combo Lycos account manager signature __________________________________
Domestic/ International client Dom Intern
Number of brands represented _______________________ Credit Card Number (AmEx, MC, Visa) _________________ Exp. Date______
</TABLE>
This advertising contract is subject to the attached Terms and Conditions.
***[CONFIDENTIAL TREATMENT REQUESTED]
<PAGE> 2
Terms and Conditions
1. General. A signed contract must be submitted to Tripod five days in
advance of initial publication date. By submitting advertising for
inclusion on the Tripod site, advertiser/agency agrees to be bound by the
terms of this contract. No conditions other than those set forth herein
shall be binding on Tripod unless specifically agreed to in writing by
Tripod. Tripod will not be bound by conditions printed or appearing on
order blanks or copy instructions submitted by or on behalf of the
advertiser/agency. This contract supersedes all terms and conditions on
Tripod rate cards.
2. Changes and Cancellations. All artwork must be received at least five days
in advance of publication date. Cancellations or copy changes will not be
accepted after the published closing date to the update to the Tripod
site. Changes to artwork must be received by Tripod at least three days in
advance of requested change date. Any change orders must be made in
writing and acknowledged by Tripod. Change orders cannot be submitted any
more frequently than once every fourteen days. The initial term of this
contract shall be one year from the date of this contract ("Initial
Term"). This contract may not be terminated by Tripod or advertiser/agency
during the Initial Term; provided, however, either party may terminate
this contract at any time in the event of a material breach by the other
party which remains uncured after thirty (30) days' written notice thereof
This contract shall automatically be extended for an additional one year
period pursuant to the terms stated herein ("Renewal Term"), except in the
event of one of the following: (a) the contract is terminated for material
breach, (b) the contract is terminated by mutual agreement of the parties,
or (c) the parties cannot mutually agree on the termination provisions to
be in effect during the Renewal Term. The parties will commence
negotiation of the mutual termination provisions in good faith no later
than forty-five (45) days prior to the end of the Initial Term. In the
event that the parties cannot reach a mutual agreement prior to the end of
the Initial Term, or as negotiations may be extended by the parties, this
contract shall terminate on the 60th day of the Renewal Term. In the event
that Tripod desires to exercise its right to terminate this contract
during the Renewal Term because Tripod has received, and wishes to accept
a written offer in good faith from another person or entity to purchase,
for a higher amount, any inventory purchased by Lowestfare under the
contract, prior to terminating the contract, Tripod will offer Lowestfare
(pursuant to a written notice which shall set forth in reasonable detail
the material terms of such offer, or provide a copy of the offer to
purchase) an opportunity to match or exceed the offered price. Lowestfare
must respond to any notice from Tripod regarding such additional offer
within three (3) business days of receipt by Lowestfare of such notice. If
Lowestfare fails to respond or responds in the negative, Lycos is under no
further obligation to Lowestfare with respect to such inventory.
3. Payment. Lowestfare will pay Tripod 1/3 of the first year's payment upon
the contract's signing, 1/3 on Feb. 1, 1999 and the remaining 1/3 on June
1, 1999. In the Renewal
<PAGE> 3
Term, the same schedule of payments will apply. If payment is not made
within 30 days of invoice date, Tripod at its option, may terminate the
contract. In addition, advertiser/agency shall be liable to Tripod for all
attorney's fees and other costs of collection. Interest will accrue on any
past due amounts at the rate of one and one-half (1 1/2%) percent per
month, but not in excess of the lawful maximum. Tripod shall have the
right to hold the advertiser and/or its agency or agent jointly and
severally liable for all amounts due.
4. Frequency and Discounts. If Tripod fails to provide the guaranteed number
of impressions, Tripod will make good on this contract by providing
advertiser with additional impressions within one hundred twenty (120)
days of the end of the Renewal Term, and if there is no Renewal Term, the
Initial Term (the "Cure Period"). In the event that Tripod fails to
deliver the guaranteed number of impressions during the Cure Period.
Tripod will refund a pro rata portion of the amount paid by
advertiser/agency under the contract. Tripod will not make good for
under-delivery due to delays caused by advertiser/agency.
5. Licenses and Indemnification. The advertiser/agency represents that the
advertiser is the owner or is licensed to use the entire contents and
subject matter contained in its advertising and collateral information,
including, without limitation: (a) the names and/or pictures of persons;
(b) any copyrighted material, trademarks and/or depictions of trademarked
goods or services; and (c) any testimonials or endorsements contained in
any advertisement submitted to Tripod. In consideration of Tripod
acceptance of such advertisements and information for publication, the
advertiser and agency will jointly and severally indemnify and hold Tripod
harmless against all loss, liability, damage and expense of any nature
(including attorney's fees) arising out of the copying, printing,
distributing, or publishing of advertiser's/agency's advertisements. If
advertiser possesses any preexisting copyright interests in the
advertisements, advertiser grants Tripod the right to use, reproduce, and
distribute the advertisements.
6. Key Words and Phrases. Each advertiser may be given a "first right" to its
exact company name and trademarks for keyword/phrase advertising. Tripod
may pre-empt an existing key work/phrase advertiser by submitting a
three-month advertising contract. The existing contract-holder for the key
word/phrase will be provided with a two-week notification of preemption
and will receive a pro-rated refund for any unfulfilled number of
guaranteed impressions. If two or more advertisers have the same name or
trademark, the allocation will be on a first-come basis and the existing
contract will take precedence.
7. Rejections. Tripod reserves the right, without liability (unless Lycos has
not acted in good faith), to reject, omit or exclude any advertisement or
to reject or terminate any links for any reason at any time, with or
without notice to the advertiser/agency, and whether or not such
advertisement or link was previously acknowledged, accepted, or published.
8. Limitation of Liability. Tripod shall not be liable for any errors in
content or omissions.
<PAGE> 4
Should an error appear in an advertisement, Tripod liability will be
limited to the cost of the advertisement (prorated for the publishing
completed). Tripod will not be liable for any delays in delivery and/or
non-delivery in the event of an act of God, action by any government
entity, transportation, strike, network difficulties, electronic
malfunction, etc. or any feasibility, reliability, or effectiveness
related to the Tripod site. Tripod does not represent or warrant that the
Tripod site will meet the objectives or needs of advertiser/agency or any
third party. In no event will Tripod be liable for any failure,
disruption, downtime, interruption, miscalculation, delay, inaccuracy, or
any other nonperformance related to the Tripod site.
UNDER NO CIRCUMSTANCES WILL TRIPOD BE LIABLE FOR ANY SPECIAL, INDIRECT,
INCIDENTAL OR CONSEOUENTIAL DAMAGES, INCLUDING, WITHOUT LIMITATION, FOR
LOST INCOME OR PROFITS, IN ANY WAY ARISING OUT OF OR RELATED TO THIS
AGREEMENT, EVEN IF TRIPOD HAS BEE ADVISED AS TO THE POSSIBILITY OF SUCH
DAMAGES.
9. Choice of Law and Forum. This contract shall be interpreted and construed
in accordance with the laws of the Commonwealth of Massachusetts, without
regard to its conflicts of laws provision, and with the same force and
effect as if fully executed and performed therein. Each party hereby
consents to the personal jurisdiction of the Commonwealth of
Massachusetts, acknowledges that venue is proper in any state or Federal
court in the Commonwealth of Massachusetts, agrees that any action related
to this Agreement must be brought in a state or Federal court in the
Commonwealth of Massachusetts, and waives any objection that may exist,
now or in the future, with respect to any of the foregoing.
10. Miscellaneous. This contract cannot be sold, assigned or transferred by
advertiser/agency to any party. However, Lowestfare has the right to
assign this contract to its successors, affiliates or subsidiaries now
existing or hereafter organized provided such party is not a direct
competitor of Lycos, Inc. If any portion of the contract is found
unenforceable for any reason, the remainder will remain in full force and
effect. No waiver by Tripod shall operate as a waiver of any other
provision or any subsequent default. This document represents the entire
agreement of the parties; Tripod will not be bound by the representations
of any agents, brokers, or other third parties. Any modifications must be
in writing and signed by an authorized representative of Tripod.
The undersigned is legally empowered with due corporate authority to enter into
this Contract and agrees to be bound by the Terms and Conditions of this
contract.
Advertiser or Agent Tripod, Inc.
______________________________________ ________________________________________
______________________________________ ________________________________________
Signature Signature
<PAGE> 5
______________________________________ ________________________________________
Date Date
<PAGE> 1
Exhibit 10.21
YAHOO! Advertising Insertion Order
http://www.yahoo.com
--------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Order # 28751 Sales Contract Ben Padnos
Phone 310-606-8160
Customer
Order Email [email protected]
Revision
Date 01/13/1999 Fax 310-606-6164
Advertiser LOWESTFARE.COM Agency
Campaign
Url Address
980 Kelly Johnson Drive
Address Las Vegas, NV 89119
Contact Gail Golden Contact
Phone (702) 260-3605 Fax (702) 750-5826 Phone Fax
Email [email protected] Email
Start Date 01/15/1999 End Date 06/30/1999 Contract Length 167 Days Bill to Advertiser
- ------------------------------------------------------------------------------------------------------------------------------------
Total Impressions Total Amount
[CONFIDENTIAL [CONFIDENTIAL
TREATMENT TREATMENT
Order Totals: REQUESTED] REQUESTED]
With option to renew with the same terms at the end of this Contract for another
six months (to December 31, 1999).
----------------------------------------
[CONFIDENTIAL
TREATMENT
Net Cost: REQUESTED]
----------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Terms Pending Credit Approval
Billing Monthly
</TABLE>
MATERIALS: Banners: Banner requirements are posted at
http://www.yahoo.com/docs/advertising.
DELIVERY: All Materials and any charges must be delivered at least 4 business
days in advance to the email address specified for your region at
http://www.yahoo.com/docs/advertising/submit.html. A Yahoo! Insertion Order
number and flight dates must be referenced in all correspondence. Yahoo! will
not issue any credit or make good due to late or incorrectly submitted banners
and/or late or incomplete information.
TERMS AND CONDITIONS: The Insertion Order is subject to the terms and conditions
("Standard Terms") attached hereto as Exhibit A of this Insertion Order, and
such Standard Terms are made a part of this Insertion Order by reference. The
signatory of this Insertion Order represents that he has read and agrees to such
Standard Terms.
This Insertion Order is valid for three (3) business days from the date of this
order. This agreement is non-cancelable.
<TABLE>
<S> <C> <C>
Authorized By:__________________________________________ Phone: ____________________ Date: 1/16/99
Production Contract: Gail Golden Phone: (702) 260-3605 Email: [email protected]
-------------------------- -------------------------- ------------------------
- ------------------------------------------------------- Yahoo! Inc.
Please return to Yahoo Sales Operations Dept. 3400 Central Expressway, Suite 201
- --------------------------------------------- Santa Clara, CA 95061
Fax # 405-530-5130
- ------------------
- -------------------------------------------------------
Thursday January 14 1999 3:14 PM
</TABLE>
<PAGE> 1
Exhibit 10.22
KARABU TICKET PROGRAM AGREEMENT
This KARABU TICKET PROGRAM AGREEMENT (the "Agreement") is being entered
into as of this 14 day of June, 1995 between TRANS WORLD AIRLINES, INC., a
Delaware corporation ("TWA"), and Karabu Corp., a Delaware corporation
("Karabu").
W I T N E S S E T H:
WHEREAS, TWA and Karabu have heretofore entered into that certain Loan
Agreement dated as of January 5, 1993, as amended, (the "Receivables Agreement")
and a related Security Agreement dated as of January 5, 1993 (the "Receivables
Security Agreement"); and
WHEREAS, TWA and Karabu have heretofore entered into that certain Note
Agreement dated as of January 5, 1993, as amended, (the "Asset Agreement"), and
TWA and State Street Bank & Trust Company of Connecticut, National Association
(in its individual capacity, "State Street"), as Security Trustee, have entered
into a related Security Agreement -- Trust Deed dated as of January 5, 1993 (the
"Asset Security Agreement"); and
WHEREAS, TWA and Karabu have heretofore amended and supplemented the
Receivables Agreement, the Receivables Security Agreement, the Asset Agreement
and the Asset Security Agreement (such documents as so amended and supplemented,
collectively, the "Loan Agreements") pursuant to that certain Omnibus Amendment
and Supplement to Agreements dated as of March 28, 1994; and
WHEREAS, the aggregate principal amounts of the loans outstanding and
unpaid under the Loan Agreements (the "Karabu Loans") as of the date of this
Agreement is $190 million plus accrued unpaid interest; and
WHEREAS, the Loan Agreements have been further amended and supplemented
pursuant to the terms of that certain Extension, Refinancing and Consent
Agreement of even date herewith by and between TWA and Karabu (the "Extension
and Consent Agreement") to provide for (i) the extension of the maturity of the
Karabu Loans and to reflect certain other agreements between TWA and Karabu and
(ii) consent, upon fulfillment of certain conditions, by the Icahn Entities to,
among other things, the exchange with TWA of the Old PBGC Notes for $244,344,987
principal amount of New PBGC Notes and $77,817,513 principal amount of Equity
Notes redeemable, subject to certain conditions, for 2,658,470 shares of common
stock of TWA in 1995, more or less, all substantially as provided in the
Registration Statement (the "PBGC Debt and Equity Exchange"); and
<PAGE> 2
WHEREAS, this Agreement is one of the transactions contemplated by the
Extension and Consent Agreement.
NOW, THEREFORE, for and in consideration of the mutual covenants
hereinafter set forth and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, TWA and Karabu hereby agree as
follows:
1. Defined Terms. As used in this Agreement, the following terms shall have the
meanings specified below:
"Agreement," "this Agreement," "herein" and words of similar import shall
mean this Ticket Program Agreement.
"ARC" shall mean the Airline Reporting Corporation or its functional
equivalent at any point in time.
"Asset Agreement" shall have the meaning given that term in the recitals
to this Agreement.
"Asset Security Agreement" shall have the meaning given that term in the
recitals to this Agreement.
"Bankruptcy Code" shall mean the United States Bankruptcy Code.
"Bankruptcy Event" shall mean the voluntary commencement by TWA of a case
or proceeding under the bankruptcy laws of the United States of America or the
commencement of a case or proceeding under such laws by any third party against
TWA which is not dismissed within sixty (60) days of the filing thereof;
provided, however, that "Bankruptcy Event" shall not be deemed to include the
filing by TWA of a petition for relief under Chapter 11 of the Bankruptcy Code
accompanied by the necessary consents to the Plan of Reorganization attached as
Appendix B to the Registration Statement.
"Bulk Fare Rate" shall mean an unpublished fare (meaning a price for a
ticket and the rules and restrictions relating to the purchase and use of such
ticket) established by TWA for Domestic Consolidator Fares and International
Consolidator Fares, for other fares negotiated with and at which air
transportation is sold to Consolidators (Domestic) and/or Consolidators
(International) other than Karabu and/or a Tour Operators/Wholesalers, which
must be ticketed pursuant to tickets showing the words "Bulk Fare" (or such
other designation as may be established from time to time by TWA) on the face of
the ticket and which are non-commissionable to the selling entity, net of all
applicable taxes, fees, passenger facility charges and other charges.
2
<PAGE> 3
"Commencement Date" shall mean the date of execution of this Agreement.
"Comparable Fare(s)" shall mean with respect to an inventory capacity
limited fare, another inventory capacity limited fare having substantially the
same advance purchase, ticketing time limits, minimum/maximum stay, rebooking,
reissue and refundability requirements, penalty and fee charges.
"Consolidator" shall mean an entity which is authorized by TWA to only
sell air transportation and which acts pursuant to a negotiated airfare
agreement with TWA permitting the sale of tickets at Bulk Fare Rates.
"Consolidator (Domestic)" shall mean a Consolidator offering tickets for
sale between points in the United States.
"Consolidator (International)" shall mean a Consolidator offering tickets
for sale from points in the United States to points outside of the United States
and from points outside of the United States to points in the United States.
"Consolidator Fare(s)" shall mean International Consolidator Fares and
Domestic Consolidator Fares and Domestic Consolidator Matching Fares for
International Consolidator Markets and Domestic Consolidator Markets and for
such other markets as applicable, respectively, for passenger travel on TWA net
of all applicable taxes, fees, passenger facility charges and other charges.
"Domestic Consolidator Fare(s)" shall mean from time-to-time Bulk Fare
Rates computed in accordance with Exhibit A hereto, net of all applicable taxes,
fees, passenger facility charges and other charges.
"Domestic Consolidator Market(s)" shall mean, from time-to-time, the U.S.
origin city and destination markets determined in accordance with Exhibit A
hereto.
"Domestic Consolidator Ticket(s)" shall mean Tickets issued at Domestic
Consolidator Fare(s) for travel on TWA in Domestic Consolidator Markets subject
to the rules, conditions and restrictions set out in this Agreement including
Exhibit A hereto.
"Domestic Consolidator Matching Fare(s)" shall mean Bulk Fare Rates equal
to the Bulk Fare Rates offered for sale to Consolidators (Domestic) in markets
other than Domestic Consolidator Markets, where the Bulk Fare Rate offered for
sale to such Consolidator (Domestic) is less than the System Fare which is a
Comparable Fare to such Bulk Fare Rate in the same market, such Bulk Fare Rate
being net of all applicable taxes, fees, passenger facility charges and other
charges.
3
<PAGE> 4
"Domestic Consolidator Matching Ticket" shall mean a Ticket issued at a
Domestic Consolidator Matching Fare.
"End User" shall mean the person who actually uses the Ticket for air
transportation or such person's employer or any entity of which such person is
an owner, partner, officer, director, consultant or agent.
"Equity Notes" shall mean the three non-recourse promissory notes due 2007
in $77,817,513 aggregate principal amount held or to be held by the settlement
trust on behalf of the PBGC and redeemable, subject to certain conditions, for
2,658,470 shares of common stock of TWA in 1995.
"Existing Documentation" shall have the meaning given that term in the
Extension and Consent Agreement.
"Extension and Consent Agreement" shall have the meaning given that term
in the recitals to this Agreement.
"Fifteen Month Period" shall mean the period commencing on the
Commencement Date and ending on the last day of the fifteenth full month after
the Commencement Date.
"Frequent Flyer Bonus Program" shall mean TWA's Frequent Flyer Bonus
Program or any similar program from time to time adopted by TWA.
"Icahn Entities" shall mean Mr. Carl Icahn and those entities, including
without limitation, Karabu and Pichin, affiliated with Mr. Carl Icahn.
"Affiliated with" means more than fifty percent (50%) owned, directly or
indirectly, by Mr. Carl Icahn or another entity more than fifty percent (50%)
owned by Mr. Carl Icahn.
"IATA" shall mean the International Air Transport Association or its
functional equivalent at any point in time.
"International Consolidator Fare(s)" shall mean Bulk Fare Rates
established from time-to-time by TWA in International Consolidator Markets for
passenger travel on TWA net of all applicable taxes, fees, passenger facility
charges and other charges.
"International Consolidator Market(s)" shall mean points served by TWA
with transportation from a point in the United States to a point outside of the
United States and from a point outside of the United States to a point in the
United States.
4
<PAGE> 5
"International Consolidator Matching Ticket(s)" shall mean Tickets at
International Consolidator Fare(s) which are equal to those Bulk Fare Rates, and
are offered under the same terms and conditions, as any other International
Consolidator Fare.
"Karabu" shall mean Karabu Corp., a Delaware corporation.
"Karabu Loans" shall have the meaning given that term in the recitals to
this Agreement.
"Loan Documents" shall have the meaning given that term in the recitals to
this Agreement.
"Monthly Sales Report" shall have the meaning given that term in Exhibit B
hereto.
"New PBGC Notes" shall mean the three non-recourse promissory notes due
2007 in $244,344,987 original aggregate principal amount held or to be held by
the settlement trust on behalf of the PBGC.
"Old PBGC Notes" shall mean the three non-recourse promissory notes due
2007 in $322,162,500 aggregate principal amount held by the settlement trust on
behalf of the PBGC.
"Pension Plans shall mean the defined benefit pension plans identified as
the Pilots' Plan, the Employees' Plan and the IFFA Plan in that certain
Settlement Agreement dated as of January 5, 1993 between TWA, the Official
Unsecured Creditors' Committee of Trans World Airlines, Inc., the International
Association of Machinists and Aerospace Workers, the Independent Federation of
Flight Attendants, the Air Line Pilots Association, International, the Transport
Workers Union of America, Carl C. Icahn, certain affiliates of Mr. Icahn and the
PBGC.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"PBGC Debt and Equity Exchange" shall have the meaning given that term in
the recitals to this Agreement.
"Pichin" shall mean Pichin Corp., a Delaware corporation.
"Purchase Price" shall mean the purchase price to Karabu of Tickets for
passenger travel on TWA sold to Karabu pursuant to the Ticket Programs.
"Published Fare(s)" shall mean the tariff or other fare established by TWA
for passenger travel on TWA, net of all applicable taxes, fees, passenger
facility charges and other charges.
"Receivables Agreement" shall have the meaning given to that term in the
recitals to this Agreement.
"Receivables Security Agreement" shall have the meaning given to that term
in the recitals to this Agreement.
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"Registration Statement" shall have the meaning given such term in the
Consent and Extension Agreement.
"Settlement Trust" shall mean the trust created pursuant to the Settlement
Trust Agreement dated as of January 5, 1993 between TWA, as grantor, and
American National Bank and Trust Company of Chicago, as trustee, as amended or
supplemented from time to time.
"System Fare(s)" shall mean Tickets whose Purchase Price by Karabu from
TWA shall be fifty-five (55%) of the Published Fares(s) net of all applicable
taxes, fees, passenger facility charges and other charges.
"System Ticket(s)" shall mean Tickets issued at a System Fare(s).
"Term" shall mean the period commencing on the Commencement Date and
ending on the last day of the ninety-ninth (99th) full month following the
Commencement Date.
"Ticket Programs" shall mean the System Ticket program, the Domestic
Consolidator Ticket program, the International Consolidator Matching Ticket
program and the Domestic Consolidator Matching Ticket program collectively.
"Ticket(s) shall mean a ticket or tickets issued under the Ticket
Programs, including but not limited to System Tickets, Domestic Consolidator
Tickets and International Consolidator Matching Tickets and Domestic
Consolidator Matching Tickets plated on TWA on standard industry or TWA ticket
stock or through any other electronic or "ticketless" method that TWA may from
time-to-time adopt for air transportation of passenger(s) on TWA excluding
tickets for air transportation originating or terminating in St. Louis,
Missouri.
"Tour Operator/Wholesaler" shall mean a Travel Agent or other person
authorized by TWA to sell inclusive tour packages in selected markets with air
transportation at a Bulk Fare Rate with an inclusive tour package consisting of
air/ground or air/sea components which are advertised using TWA's name and sold
at a single price which does not separately identify the Bulk Fare Rate.
"Tour Operator/Wholesaler Matching Fare" is defined in Section 3(g)
hereof.
"Travel Agent" shall mean any ARC/IATA travel agent or agency selling
airline tickets to the public but excludes any such travel agent which meets all
of the following conditions: (i) such travel agent is an Icahn Entity and (ii)
such travel agent is not Affiliated with any other
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<PAGE> 7
independent travel agent, group or consortium of travel agents other than other
Icahn entities or travel agent trade associations.
"TWA" shall mean Trans World Airlines, Inc., a Delaware corporation, its
successors and assigns.
"UATP Account" shall mean a Universal Air Travel Plan master account, and
any sub-accounts, established by TWA in favor of Karabu under the Ticket
Programs pursuant to which UATP credit cards will be issued by TWA upon request
by Karabu under the airline industry Universal Air Travel Plan to Icahn Entities
and End Users which may not be Travel Agents; such credit cards to be authorized
for use solely to purchase Tickets for air travel on TWA (and such credit card
shall so state).
"United States" shall mean the States of the United States, the District
of Columbia and the territories and possessions of the United States.
"Year" shall mean any period of 365/6 consecutive days.
References to month or monthly period shall mean calendar months.
2. Ticket Programs. Karabu shall be entitled to issue the following Tickets
under the terms and conditions set forth in this Agreement:
(a) Domestic Consolidator Tickets:
(i) with respect to Tickets sold during the Fifteen Month Period,
Karabu shall be entitled to purchase and TWA shall be obligated to sell up to a
maximum amount of $120 million of Domestic Consolidator Tickets, which $120
million will be computed based on the Published Fares used in computing the
Domestic Consolidator Fares at which Tickets are sold to Karabu or for Karabu's
account; and
(ii) with respect to Tickets sold during the period commencing with
the date which is the day following the last day of the Fifteen Month Period,
Karabu shall be entitled to purchase and TWA shall be obligated to sell up to a
maximum amount of $70 million of Domestic Consolidator Tickets per Year for
seven consecutive Years, which $70 million will be computed based on the
Published Fares used in computing the Domestic Consolidator Fares at which
Tickets are sold to Karabu or for Karabu's account; and
(b) Other Tickets - With respect to Tickets other than Domestic
Consolidator Tickets, during the Term Karabu shall be entitled to purchase and
TWA shall be obligated to sell System Tickets, Domestic Consolidator Matching
Tickets and International Consolidator Matching Tickets.
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<PAGE> 8
(c) In the event that the restructuring described in the Registration
Statement is not accomplished, Karabu and the other Icahn Entities agree to
consent to any future PBGC Debt and Equity Exchange proposed by TWA which is on
substantially similar and no less favorable terms to Karabu as the PBGC Debt and
Equity Exchange described in the Registration Statement.
3. Ticket Prices.
(a) Tickets sold to Karabu pursuant to the Ticket Programs contemplated by
this Agreement shall be priced at the Purchase Price, net to TWA, which shall
be: (i) the Domestic Consolidator Fare which shall be 40% of the applicable
Published Fare determined in accordance with this Agreement including Exhibit A
hereto; (ii) the System Fare which shall be fifty-five percent (55%) of the
Published Fare; or (iii) the International Consolidator Fare, and (iv) the
Domestic Consolidator Matching Fare.
The Purchase Price is exclusive of tax. All applicable taxes, fees, fuel,
passenger facility, terminal and security charges which are not included in the
Published Fares or in the International Consolidator Fare(s) or the Domestic
Consolidator Fare(s) or the Domestic Consolidator Matching Fare and which are
charged to persons paying such fares must be added to the total fare collected.
Karabu may not absorb any passenger facility or similar such surcharge otherwise
due from a passenger. The Published Fare for each Ticket sold at the Purchase
Price under this Agreement will be shown on the face of each Ticket unless the
Ticket is issued at a Consolidator Fare or at a Tour Operator/Wholesaler
Matching Fare in which case the fare code "Bulk Fare" or such similar term as
TWA may from time to time designate for use generally on tickets sold to
Consolidators (other than Karabu) and/or Tour Operators/Wholesalers will be
shown on the face of such tickets with the Bulk Fare Rate and the applicable
Published Fare shown on the auditor's coupon for each such Ticket.
Karabu shall be responsible for proper ticketing under the correct fare
code and under all such other terms as may be set forth in this Agreement,
including but not limited to Exhibits A and B hereto and under all other
applicable terms and conditions as may be required by TWA and which are required
by TWA on the sales of tickets generally and any failure to show the correct
fare code will not diminish the Purchase Price payable to TWA. In the event that
TWA itself issues any Tickets, Karabu shall not be responsible for ticketing
errors on such Tickets. Any Tickets that are refundable or reissuable only upon
payment of a fee or other penalty or charge, will be permitted to be refunded or
reissued without payment of any such fee, penalty or charge except that Domestic
Consolidator Matching Tickets are subject to the same refund, reissue and
penalty rules as are applicable to the tickets being offered by the Consolidator
(Domestic) whose fare is being matched. Except for Domestic Consolidator
Tickets, other Tickets which are totally non-refundable may be applied in full
to the purchase of other Tickets without fee, penalty or charge.
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<PAGE> 9
(b) During the terms of the Ticket Programs, Karabu will be entitled to
elect to purchase Tickets from TWA from time-to-time pursuant to such Ticket
Programs, at its option and subject to all applicable conditions with respect to
each Ticket at the Purchase Price which shall be:
(i) fifty-five percent (55%) of Published Fare(s), net to TWA, or
(ii) the International Consolidator Fare(s); or
(iii) the Domestic Consolidator Fare(s), or
(iv) the Domestic Consolidator Matching Fare(s), or
(v) Tour Operator/Wholesaler Marching Fare(s).
(c) With respect to transportation originating in the United States and
destined for a point outside of the United States, TWA will provide
International Consolidator Fare(s) to Karabu under the same price conditions as
TWA is then providing to any other Consolidator (International) operating in
International Consolidator Markets, exclusive of special promotional items or
services of de minimus value that may be provided to other Consolidators in
connection with specific, limited promotional activities. TWA will provide to
Karabu such information and at the same time as TWA provides in the normal
course to other Consolidators (International) operating in International
Consolidator Markets and upon Karabu's written request, TWA will provide to
Karabu a list of then applicable Bulk Fare Rates charged to Consolidators
(International) operating in TWA's International Consolidator Markets.
(d) With respect to transportation originating outside of the United
States and destined for a point in the United States, Karabu may at its option
sell Tickets at International Consolidator Fares for such passenger
transportation under the same conditions as TWA is then providing to any other
Consolidator (International) which is then selling tickets for transportation
originating at points outside of the United States in International Consolidator
Markets. Such Tickets at International Consolidator Fares for transportation
originating outside of the United States may only be sold by an Icahn Entity
which is an IATA approved agency and is otherwise operating in compliance with
the laws of the nation in which the transportation is sold and in which the
transportation originates and which otherwise complies with the sales reporting
procedures otherwise applicable to tickets sold by others outside of the United
States which currently includes but are not limited to bank settlement plans.
(e) TWA will provide Domestic Consolidator Fares to Karabu only in
accordance with the rules, terms and conditions which are set forth herein and
in Exhibits A and B which are attached hereto and made a part hereof
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<PAGE> 10
(f) In the event that TWA currently has or in the future enters into an
agreement with a Consolidator(s) (Domestic) for the sale of transportation in
the Domestic Consolidator Markets at Bulk Fare Rates which are equal to or less
than the Purchase Price to Karabu of a Comparable Fare, TWA, shall for such
period of time as such Bulk Fare Rate remains in effect, reduce the Purchase
Price to Karabu to an amount that is 10% lower than the Bulk Fare Rate provided
to the Consolidator(s) (Domestic) and Tickets issued at such lower rate shall be
Domestic Consolidator Tickets. For the purposes of this section, the Bulk Fare
Rate provided to the Consolidator (Domestic) is exclusive of special promotional
items or services of de minimus value such as luggage tags, drink chits, travel
bags or similar such items that may be provided to other Consolidators
(Domestic) in connection with specific, limited promotional activities.
(g) TWA agrees that it will provide to Karabu a written summary of any
agreement(s) which it now has or which it may in the future enter into with any:
(i) Consolidator(s) (Domestic) and/or, (ii) with any Tour
Operator(s)/Wholesaler(s) for the sale of inclusive tour packages for travel
within the United States. Such summaries shall set out the Bulk Fare Rates for
markets covered by any such agreement(s) including all applicable terms and
conditions applicable to the reservations, sale, ticketing and use of such Bulk
Fare Rates. Summaries of all such agreements currently in effect will be
provided to Karabu within ten (10) business days following the execution of this
Agreement. Summaries of any amendments to such existing agreements or of any new
agreements entered into during the Term of this Agreement, upon execution by
both parties to such amendments or agreements, shall be provided to Karabu
promptly but in any event no later than the earlier of within five (5) business
days of execution by both parties or within five (5) business days prior to the
effectiveness for use of the Bulk Fare Rates covered by such amendments or
agreements. If any Consolidator (Domestic) or Tour Operator/Wholesaler can
purchase tickets from TWA at a Bulk Fare Rate in a market which is less than the
System Fare in the same market which is a Comparable Fare to such Bulk Fare
Rate, then Karabu. shall have the right to buy Tickets at the Domestic
Consolidator Matching Fare in such market or at the Bulk Fare Rate provided to
the Tour Operator/Wholesaler in such market (under the same terms, conditions
and rules as may be applicable to such Bulk Fare Rate; the "Tour
Operator/Wholesaler Matching Fare") as the case may be. Karabu and TWA agree
that in view of the complexity and changing nature of fares in individual city
pair markets, which has the effect of changing the Purchase Price of fares in
such individual markets, it is not possible for TWA to determine with accuracy
on a continuing basis the differential between Bulk Fare Rates provided to such
Consolidator(s) (Domestic) and/or Tour Operator(s)/Wholesaler(s) in all markets
and System Fares which are Comparable Fares to such Bulk Fare Rates in the same
markets. The occurrence of any such differential(s) shall not at any time
constitute a violation of this Agreement including but not limited to the terms
set out in Section 12 hereunder.
(h) For the purposes of the foregoing clauses of this Section 3 concerning
Bulk Fare Rates offered by TWA to other Consolidators (Domestic) and Tour
Operator(s)/Wholesaler(s), in comparing the Purchase Price to Karabu with Bulk
Fare Rates charged to other
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<PAGE> 11
Consolidators (Domestic) and Tour Operator(s)/Wholesaler(s), the Bulk Fare Rates
charged to other Consolidators (Domestic) and Tour Operator(s)/Wholesaler(s)
shall be net of any commissions or the value (determined by TWA in good faith)
of other economic incentives paid or allowed to such other Consolidators
(Domestic) and Tour Operator(s)/Wholesaler(s), including advertising allowances.
4. No Commissions Payable. No commissions shall be payable by TWA for Tickets
sold pursuant to this Agreement.
5. Additional Ticket Restrictions. Tickets sold by TWA to Karabu pursuant to
this Agreement shall:
(i) not include Tickets whose origin or destination is St. Louis,
Missouri;
(ii) not include flights on other carriers operated under a code
share and/or block space arrangement;
(iii) be sold without any public advertisement or public promotion
referring directly or indirectly to TWA in any way (including without
limitation, any written advertisement through newspaper and/or facsimile
solicitations);
(iv) not during the Fifteen Month Period and during any subsequent
Year of the Ticket Program exceed the amount of Domestic Consolidator Tickets
permitted to be purchased by Karabu pursuant to Section 2(a)(i) or Section
2(a)(ii) hereunder, respectively (each such Fifteen Month Period and Yearly
limit being referred to as a "Period Cap") provided however that if the Period
Cap is exceeded, TWA shall notify Karabu in writing and with specific detail of
the amount of Domestic Consolidator Tickets sold in excess of the Period Cap and
unless Karabu shall in writing within ten (10) business days of its receipt of
such information identify errors in the calculation, Karabu shall promptly pay
to TWA the difference between the Purchase Price and the applicable Published
Fare for all Domestic Consolidator Tickets sold in excess of the Period Cap
which are not in dispute and thereafter shall promptly pay the same difference
in amounts for all Domestic Consolidator Tickets for which any additional proof
of sale within the applicable period is required. For the purposes of
determining the specific Domestic Consolidator Tickets which exceed the Period
Cap, all Domestic Consolidator Tickets sold after the date during the Fifteen
Month Period or during any subsequent Year on which the Period Cap was exceeded
will be treated as excess; and
(v) not in any one month period during the Term exceed more than 40%
of the Fifteen Month Period or Yearly total of Domestic Consolidator Tickets
permitted to be purchased by Karabu pursuant to Section 2(a)(i) or Section 2
(a)(ii) hereof respectively (a "Monthly Cap"), provided, however, that if the
Monthly Cap is exceeded, TWA shall notify Karabu in writing and with specific
detail of the amount of Domestic Consolidator Tickets sold in excess of the
Monthly Cap and unless Karabu shall in writing within ten (10) business days
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<PAGE> 12
of its receipt of such information identify errors in the calculation, Karabu
shall promptly pay to TWA the difference between the Purchase Price and the
applicable Published Fare for all Domestic Consolidator Tickets sold in excess
of the Monthly Cap which are not in dispute and thereafter shall promptly pay
the same difference in amounts for all Domestic Consolidator Tickets for which
any additional proof of sale within the applicable period is required. For the
purposes of determining the specific Domestic Consolidator Tickets which exceed
the Monthly Cap, all Domestic Consolidator Tickets sold after the date during
the month on which the Monthly Cap was exceeded will be treated as excess.
6. Applicability of Frequent Flier Program. The Frequent Flyer Bonus Program
will apply to Tickets sold pursuant to the Ticket Programs, subject to
applicable rules as provided for by the Frequent Flyer Bonus Program and further
provided that the Frequent Flyer Bonus Program will not apply to Domestic
Consolidator Matching Tickets, International Consolidator Matching Tickets and
Tickets sold at Tour Operator/Wholesaler Marching Fares if the tickets sold to
the Consolidator (Domestic), Consolidator (International) or the Tour
Operator/Wholesaler, as the case may be, at the fare being matched are not
eligible for the Frequent Flyer Bonus Program. As full compensation to TWA for
participation in the Frequent Flyer Program as provided herein and without
regard to the actual miles traveled, Karabu shall pay to TWA: (I) $428,571
during the Fifteen Month Period in four (4) equal installments on the six month,
nine month, twelve month and fifteen month anniversary of the Commencement Date,
and (ii) in each Year following the Fifteen Month Period, $250,000 in four (4)
equal quarterly installments on the three month, six month, nine month and
twelve month anniversary of the first day of such Year.
7. Other Ticket Restrictions. All Tickets sold pursuant to the Ticket Programs
shall be subject to TWA's normal seat assignment and boarding pass rules and
regulations. In addition, Tickets will be valid only on TWA flights, will be
non-assignable to any other carrier and non-endorsable and, to the extent
applicable under TWA's Published Fares, be non-refundable, except as may be
otherwise set forth herein. Except as expressly provided in Sections 2 and 3 and
Exhibit A hereof, the administration and use of Tickets will adhere to all
applicable fare rules. All Tickets will be plated on TWA on standard industry or
TWA ticket stock or through any other electronic or "ticketless" method that TWA
may from time-to-time adopt.
8. Distribution of Tickets. Tickets sold pursuant to the Ticket Program (other
than Tickets sold by Karabu at Consolidator Fares referred to in clauses (ii)
(iii) (iv), and (v) of Section 3(b) and Sections 3(f), (g) and (h) hereof shall
be marketed and sold by Karabu or its agents or a Travel Agent only to the End
User and not to any Travel Agent, Consolidator, or Tour Operator/Wholesaler.
There will be established by TWA one master UATP Account for the Icahn Entities
with multiple sub-card accounts (which may be sub-card accounts of the Master
Account) permitted subject to a one-time $15 administration charge per card
assessed for each sub-card account requested by Karabu. UATP or equivalent cards
may not be issued to any Travel Agent or to any other issuer of tickets which is
not an Icahn Entity or an End User but will
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be issued by TWA, upon application by Karabu and/or its agents, solely to Icahn
Entities and End Users. TWA will issue such card within five (5) business days
after receipt of the necessary documentation. All such UATP or equivalent cards
will bear on the card the following or substantially equivalent language: Valid
Only for travel on TWA and Non-Commissionable. Tickets may be issued at any ARC
or IATA Travel Agency (including, without limitation, a travel agency which is
owned by one or more Icahn Entities), or at any TWA ATO/CTO, or other approved
TWA ticketing outlet (including, without limitation, general sales agents,
provided that Karabu will reimburse TWA for any commissions paid by TWA to
general sales agents on account of Tickets issued to Karabu or for Karabu's
account) provided, however, that Tickets issued at Consolidator Fares and/or
Tour Operator/Wholesaler Marketing Fares may only be issued by Karabu or other
Icahn Entities. Standard Denied Boarding Compensation Rules will apply to all
Tickets sold pursuant to this Agreement as if sold by TWA at Published Fares.
9. TWA Flight Cancellations. TWA will re-protect on other airlines all persons
holding Tickets as if sold by TWA at Published Fares if due to weather
conditions or operational difficulties such person is denied boarding due to the
TWA flight being canceled on which such person holds a reservation, with TWA to
be promptly paid by Karabu an amount equaling TWA's cost based on Rule 240 or
any other similar such rule, term or condition as may be applicable, in excess
of actual Ticket cost. TWA will provide invoices and backup information as set
forth in Exhibit B hereto.
Procedures for billing, paying, provision of accounting records and
account information and adjusting amounts monthly between TWA and Karabu are set
forth in Exhibit B which is attached hereto and made a part hereof
10. Karabu or New PBGC Note Prepayments. Periodically, as provided in this
Section 10, the Purchase Price for Tickets purchased by Karabu or for Karabu's
account pursuant to this Agreement shall either (i) be retained by Karabu and
the amount so retained shall be credited as prepayments against the outstanding
balance of the Karabu Loans, (first to past due interest and then to principal,
pro rata based on the amount of past due interest on, or the outstanding
principal balances of, as the case may be, the notes evidencing the Karabu
Loans) or (ii) at Karabu's option, be paid over to the Settlement Trust by
Karabu, for TWA's account, as prepayments of the New PBGC Notes (and shall be
applied first to pay past due or deferred interest and then to prepay principal
(in inverse order of maturity), pro rata based on the amounts of past due or
deferred interest on, or the outstanding principal balances of, as the case may
be, the New PBGC Notes), provided, however, that so long as the Karabu Loans
have not been paid in full, during each of the Fifteen Month Period and each
subsequent Year of the Ticket Program, until at least the Minimum Prepayment
Amount (as hereinafter defined) has been retained by Karabu and credited as
prepayments of the Karabu Loans pursuant to clause (i) above, not more than 50%
of the aggregate Purchase Price of Tickets purchased by Karabu or for Karabu's
account during such Fifteen Month Period or Year, as the case may be, shall be
paid over to the Settlement Trust as provided in clause (ii) above. "Minimum
Prepayment Amount" means (x)
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$20 million for the Fifteen Month Period and (y) for each Year of the Ticket
Program following the Fifteen Month Period (the "Subject Year") the lesser of
(I) $20 Million or (II) the difference (but not less than 0) between (A) the
product of $20 Million times the number of Years after the Fifteen Month Period
plus one (1) to and including the subject Year and (B) the aggregate amount
retained by Karabu and credited as prepayments of the Karabu Loans pursuant to
clause (i) of the preceding sentence during the Fifteen Month Period and each
subsequent Year of the, Ticket Program to and including the Year immediately
preceding the Subject Year. Karabu shall be responsible for paying over directly
to the Settlement Trust such amount as Karabu elects to have applied against the
New PBGC Notes pursuant to clause (II) of the first sentence of this Section 10.
Karabu shall notify TWA in writing on or prior to the thirtieth (30) day after
Karabu receives from TWA the Monthly Sales Report described in Exhibit B hereto
the amount so paid over to the Settlement Trust on account of the sale of
Tickets included in such Monthly Sales Report and TWA shall credit the
outstanding balance of the Karabu Loans in an amount equal to the aggregate
Purchase Price of Tickets included in such Monthly Sales Report net of the
amounts so paid over by Karabu to the Settlement Trust as indicated in such
written notice to TWA; provided, however, if at any time Karabu shall reasonably
deem itself insecure with respect to the ability of TWA to continue to honor any
Tickets sold under the Ticket Program, Karabu shall notify TWA in writing and
thereafter (until such notice shall be rescinded), there shall not be credited
against the outstanding balance of principal and interest on the Karabu Loans
the lesser of 25% or the highest percentage holdback then being imposed by any
credit card processing center handling TWA's credit card Receivables, of the
amount of proceeds owing to TWA on account of Tickets sold under the Ticket
Program included in such Monthly Sales Report. Any amount not credited against
principal and interest on the Karabu Loans shall (A) accrue interest at the
interest rate applicable to the Karabu Loans (or if such Loans have been paid in
full, at the rate which would have been applicable to the Loans had they
continued to be outstanding), which interest shall be added to the proceeds due
TWA from Karabu in respect of the Ticket Program and (B) be credited, together
with such interest, against the Karabu Loans on such date as TWA receives from
Karabu the next succeeding notice of application of Ticket proceeds unless a
Bankruptcy Event shall occur, in which event the then uncredited amount shall
not be so credited until the then outstanding unused Tickets are actually
utilized for flights on TWA. Karabu shall rescind any such notice at the earlier
of (i) such time as a reasonable creditor would no longer deem itself insecure
with respect to the ability of TWA to continue to honor any Tickets sold under
the Ticket Program or (ii) 30 days after the end of the term of the Ticket
Program or the sale of the last Ticket salable thereunder. After payment in full
of the Karabu Loans, the Purchase Price will be paid over in cash to TWA or, at
Karabu's option, paid over to the Settlement Trust for TWA's account as
prepayments of the New PBGC Notes as provided in clause (ii) of the first
sentence of this Section 10. Payments to TWA or to the Settlement Trust pursuant
to the preceding sentence shall be made on or prior to the thirtieth (30) day
after Karabu receives Monthly Sales Reports covering Tickets sold after the
Karabu Loans are so paid; payments to TWA shall be accompanied by a written
notice of the amount, if any, paid over to the Settlement Trust for application
for TWA's account as a prepayment of the New PBGC Notes (first to overdue or
deferred and unpaid interest and then to principal).
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11. Nondiscrimination. (a) TWA, subject to normal operating conditions of the
computer reservations system which it is then using, will provide no less than
the same access to seat availability in all fare categories on the same basis to
Karabu as it provides to other Travel Agents with respect to all System Tickets
and Tickets sold at Domestic Consolidator Fares and, in the case of sales of all
other Tickets, to other Consolidators (International) and/or Consolidators
(Domestic) respectively. TWA will also comply with the non-discrimination
provisions of Exhibit A hereto; (b) If the Icahn Entities establish or acquire
an ARC or IATA approved travel agency, TWA will deal with any such travel agency
and will permit it to sell air transportation on TWA to and for the account of
such travel agency and its customers in the same manner and on the same basis as
TWA deals generally with other travel agencies (except in so far as any such
dealings would be inconsistent with the terms of this Agreement) and TWA will
not otherwise discriminate against such travel agency.
12. Violation of Terms of the Agreement. (a) (i) If Karabu or another Icahn
Entity (collectively, an "Icahn Entity"):
(aa) commits or engages in conduct constituting a breach of
this Agreement which causes or is reasonably likely to cause material damage to
TWA, or to deprive TWA of any material benefit intended to be provided under
this Agreement, or
(bb) engages in a series of related actions, inactions or
omissions which although individually are in breach of this Agreement, are not
material breaches of this Agreement, but which, when taken together, either
cause or are reasonably likely to cause, material damage to TWA or otherwise
deprives, or is reasonably likely to deprive TWA of any material benefit
contemplated or provided for in this Agreement, or
(cc) engages in a pattern of conduct (through actions,
inactions, or omissions) which individually are in breach of this Agreement and
which when viewed individually would not constitute material breaches of this
Agreement, but when viewed together, either cause or are reasonably likely to
cause material damage to TWA, or otherwise deprives, or is reasonably likely to
deprive TWA of any material benefit contemplated or provided for in this
Agreement; and
(ii) such conduct is not discontinued, such breach is not cured or
such breach does not otherwise cease to exist within five (5) business days of
the Icahn Entity's receipt of a written notice from TWA containing a reasonably
detailed description of the alleged conduct or breach (a "Default Notice");
provided, however, if such conduct is not capable of cure within five (5)
business days, this condition will be satisfied if such cure is commenced and
diligently pursued and satisfied within thirty (30) business days of the Icahn's
Entity's receipt of such Default Notice and further provided that for the
purposes of this Section, debit memos and/or discrepancy notices will, as
applicable, qualify as Default Notices; and
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(iii) TWA subsequently obtains a final, non-appealable judgment from
a court of competent jurisdiction that the Icahn Entity in fact breached this
Agreement and the breach causes or is reasonably likely to cause material damage
to TWA or to deprive TWA of any material benefit intended to be provided under
this Agreement; then, if within the time period after the Icahn's Entity's
receipt of a Default Notice, as referred to in clause (ii) above, the conduct
described in the Default Notice has been discontinued, or the breach described
in the Default Notice has been cured or otherwise ceased to exist, then Karabu
shall pay to TWA immediately on demand, as liquidated damages and not as a
penalty and without any requirement to satisfy subsection(a)(iii) above, an
amount equal to the difference between (x) the Published Fares of all Tickets
sold through the Icahn Entity to all persons pursuant to Section 3(b) hereof
during the time period during which the conduct described in the Default Notice
continued or the breach described in the Default Notice existed, as the case may
be, solely in TWA's market area or areas in which TWA experienced the damage or
deprivation of benefits as specified in the Default Notice and (y) the Purchase
Price of such Tickets.
For the purposes of this Section 12, violation by Karabu of clauses (iv)
or (v) of Section 5 of this Agreement shall not constitute a breach of the
Agreement.
TWA and Karabu acknowledge that certain breaches of this Agreement do not
readily lend themselves to a cure in that no action can be taken by the Icahn
Entity to place the parties in the same position that they were in immediately
prior to the occurrence of such breach. e.g. if an Icahn Entity were to place an
advertisement in violation of Section 5 hereof, the Icahn Entity could take no
action to alter the fact that the advertisement had been made public. In such
instance, TWA and Karabu agree that if the Icahn Entity discontinued the conduct
or the action which gave rise to the breach (e.g. the advertisement is
discontinued), or the breach ceases to exist for any other reason (e.g. the
advertisement was of limited duration and steps were taken, if necessary, to
discontinue it as soon as the Icahn Entity received written notice from TWA),
then Karabu shall be deemed to have cured the breach or the breach shall be
deemed cured, as the case may be, on the date that the conduct or action is so
discontinued or on the date that the breach otherwise ceases to exist provided
that to the extent necessary commercially reasonable steps were taken to cure
the breach upon receipt by the Icahn Entity of the Default Notice relating to
such breach. In such instance, TWA would be entitled to the liquidated damages
set forth in the preceding paragraph if the breach was so cured within the
period specified in clause (ii) above or the liquidated damages provided for in
the next succeeding paragraph of the breach was not so cured within the period
set forth in clause (ii) above.
Notwithstanding the foregoing, if the Icahn Entity shall have failed to
discontinue the conduct or to cure said breach as set forth in such clause (i)
within the time period specified in clause (ii) above, or continues in a pattern
of ten (10) or more such breaches in any thirty-day period (e.g. repeated
violations of the provisions of this Agreement regarding ticketing by an Icahn
Entity exclusive of selling Tickets in excess of the Period Cap and/or the
Monthly Cap as described in clauses (iv) and (v) of Section 5 hereof), then,
upon compliance by TWA with
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<PAGE> 17
clause (a) (iii) above, the Icahn Entity shall immediately pay to TWA, as
liquidated damages and not as a penalty, the sum of Ten Million Dollars
($10,000,000.00), provided, however, that after the Karabu Loans are paid in
full, if the breach by the Icahn Entities results from the failure to pay over
to the Settlement Trust the Purchase Price of Tickets as provided in the last
sentence of Section 10 hereof, the amount of liquidated damages shall be the
greater of Ten Million Dollars ($10,000,000) or the amount that the Icahn
Entities failed to so pay over.
If any third-party, other than another Icahn Entity, with which an Icahn
Entity has a business relationship involving the sale of Tickets by the Icahn
Entity pursuant to this Agreement engages in conduct which, if engaged by an
Icahn Entity, would be a breach of this Agreement, then upon receipt by the
Icahn Entity from TWA of written notice of such conduct containing a reasonable
description thereof, the Icahn Entity shall make commercially reasonable efforts
to cause such third party to cease the conduct causing or otherwise cure such
breach (and for the purposes of this sentence a breach shall be deemed cured as
described in the second preceding paragraph) and, if such breach caused, or is
reasonably likely to cause, material damage to TWA or to deprive TWA of any
material benefit protection intended to be provided under this Agreement and the
Icahn Entity is unable, using commercially reasonable efforts to cause the third
party to cure said breach or cause the same to be cured, upon written request
from TWA, the Icahn Entity will commence and diligently prosecute legal action
against such third party seeking damages for such breach and any recovery to the
Icahn Entity (or TWA, as the case may be) resulting therefrom shall be paid over
to TWA. In the event that the Icahn Entity fails to commence and diligently
prosecute such legal action, TWA may, at Karabu's expense, pursue such action.
No Icahn Entity shall have liability to TWA on account of or any obligation with
respect to any breaches of this Agreement caused by any such third-party except
to comply with this paragraph. TWA acknowledges that while Karabu has an
obligation to inform them of the restrictions set out in this Agreement, it will
not be possible for the Icahn Entities to monitor the activities of all Travel
Agents and end Users with whom the Icahn Entities have business relationships.
In the event that any such Travel Agent or End User engages in conduct not
authorized by the Icahn Entities which causes the Icahn Entities to be in breach
of this Agreement (for example, a Travel Agent uses a UATP account to sell
Tickets to persons other than the UATP cardholder or employees of the UATP
cardholder, or a UATP cardholder purchases Tickets for resale rather than for
use by such cardholder or its employees or a Travel Agent takes a commission on
its issuance or reissuance of a Ticket), such conduct shall be deemed "conduct
by such third-party which, if engaged in by the Icahn Entity would be a breach
of this Agreement" within the meaning of this paragraph, shall not constitute a
breach by the Icahn Entities, and the Icahn Entities sole obligations with
respect thereto shall be to comply with this paragraph.
The remedies for breach by an Icahn Entity set forth in this provision
shall be TWA's sole and exclusive remedies and in no event shall TWA be entitled
to terminate this Agreement or otherwise curtail the Ticket Program provided for
herein as a result thereof.
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<PAGE> 18
(b) (i) If TWA:
(aa) commits or engages in conduct constituting a breach of
this Agreement which causes or is reasonably likely to cause material damage to
Karabu or to deprive Karabu of any material benefit intended to be provided
under this Agreement (which by way of example only shall be deemed to include
deliberate, repeated instances in which TWA denies an Icahn Entity the ability
to make reservations in any specific fare category for a specific flight and
date when there in fact is seat availability for such flight at the time that
the request is made), or
(bb) engages in a series of related actions, inactions or
omissions which, although individually are in breach of this Agreement are not
material breaches of this Agreement, but which, when taken together, either
cause or are reasonably likely to cause, material damage to Karabu (or the other
Icahn Entities), to interfere, in any material respect, with Karabu's or any
other Icahn Entities' ability to market and sell Tickets as contemplated by this
Agreement, or to otherwise deprive, or be likely to deprive, Karabu, or the
other Icahn Entities of any material benefit contemplated or provided for in
this Agreement, and
(cc) engages in a pattern of conduct (through actions,
inactions, or omissions) which individually are in breach of this Agreement and
which when viewed individually would not constitute material breaches of this
Agreement, but when viewed together, either cause or are reasonably likely to
cause material damage to Karabu (or the other Icahn Entities), interfere, in any
material respect, with Karabu's or any other Icahn Entities' ability to market
and sell Tickets as contemplated by this Agreement, or otherwise deprives, or is
likely to deprive, Karabu or the other Icahn Entities any material benefit
contemplated or provided for in this Agreement, and
(ii) such conduct is not discontinued or such breach is not cured or
such breach does not otherwise cease to exist within five (5) business days of
TWA's receipt of a written notice from an Icahn Entity containing a reasonably
detailed, a description of the alleged conduct or breach (a "Default Notice");
provided, however, if such conduct is not capable of cure within five (5)
business days, this condition will be satisfied if such cure is commenced,
diligently pursued and satisfied within thirty (30) business days of TWA's
receipt of such Default Notice; and
(iii) an Icahn Entity subsequently obtains a final, non-appealable
judgment from a court of competent jurisdiction that TWA in fact breached this
Agreement and the breach had a material adverse effect on an Icahn Entity;
then, if the event(s) listed in clause (i) above occurs, and either at the time
TWA receives the Default Notice or within the period referred to in clause (ii)
above the conduct described in the Default Notice has been discontinued or the
breach described in the Default Notice has been cured, then TWA shall pay to
Karabu on demand, as liquidated damages and not as a penalty and
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<PAGE> 19
without any requirement to satisfy subsection 12(b)(iii) hereof, an amount equal
to twice the Published Fare of any Tickets for which reservations were sought
and which were denied.
For the purposes of this Section 12, an inadvertent delay in providing the
information called for in Section 3(g) and the fact that any differentials
mentioned in the last sentence of clause (g) of Section 3 of this Agreement
occurs or exists shall not constitute breaches of the Agreement.
Notwithstanding the foregoing, if TWA shall have failed to discontinue the
conduct or to cure said breach as set forth in such clause (i) within the time
period specified in clause (ii) above or continues in a pattern of ten (10) or
more such breaches in any thirty-day period (e.g. TWA's repeated denial of
reservations in specific fare categories for flights on which such fares were
available at the time that the request was made), then, upon compliance by
Karabu with clause b(iii) above, TWA shall immediately pay to the Icahn Entity,
as liquidated damages and not as a penalty, the sum of Ten Million Dollars
($10,000,000.00) and an Event of Default shall be deemed to have occurred under
the Loan Agreements with the same effect and giving Karabu the same rights as if
any other Event of Default specified in the Loan Agreements had occurred and is
continuing.
The remedies for breach by TWA set forth in this provision shall be the
Icahn Entity's sole and exclusive remedies except for the Icahn Entity's rights
under the Loan Agreement to take any action specified therein or permitted
thereby on account of the occurrence of an Event of Default if an Event of
Default is deemed to have occurred as provided in the immediately preceding
paragraph.
Notwithstanding the foregoing, TWA shall not be in breach of this
Agreement under any of the foregoing sections by reason of any of its usual
promotional sales or ticket programs including but not limited to Consolidator
(Domestic), Consolidator (International) and/or Tour Operator/Wholesaler ticket
agreements requiring the sale of air transportation in connection with an
air/ground and/or air /sea package, the sale of net fares in exchange for
advertising or promotion benefits without regard to the fare level or by virtue
of any agreement with any corporation, business or similar such entity providing
for a discount or rebate of fares for air transportation on TWA provided that no
such agreement prohibits the other party from dealing with Karabu or except
where otherwise prohibited in the Agreement (for example, Karabu cannot sell
Tickets to Travel Agents, Consolidators or Tour Operator(s)/Wholesaler(s)), from
purchasing Tickets from Karabu or otherwise affirmatively penalizes the other
party because of its dealing with Karabu.
Karabu agrees that TWA may market and sell tickets to any End User or to
any other person, firm or entity with which Karabu has an agreement for the sale
of Tickets hereunder.
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<PAGE> 20
TWA agrees that Karabu may market and sell Tickets to any person, firm or
entity with which TWA has an agreement for the sale of air transportation at a
discounted fare level provided that Karabu may not condition its agreement by
prohibiting such person, firm or entity from otherwise dealing directly with
TWA.
In each instance, the party in receipt of a Default Notice containing a
description of the alleged conduct or breach in violation of this Agreement,
will have a reasonable period of time to investigate and shall respond in
writing to the Default Notice with a disclosure of the relevant facts and a
complete explanation of the background to and reasons for the alleged conduct or
breach. Each party will keep and preserve records of matters arising under this
Agreement in the same fashion as business records are generally maintained. TWA
and Karabu agree that routine operating errors with respect to reservations and
ticketing will not be considered to constitute a breach of this Agreement.
TWA will designate to Karabu appropriate staff in its reservations and
revenue accounting departments to be available to respond to questions
concerning TWA's implementation and operations in respect of the Ticket
Programs. Designated reservations staff will be available on a 24 hour basis to
respond to inquiries from Karabu provided however Karabu must contact the
designated staff and not general reservations staff personnel.
Karabu shall designate to TWA personnel able to respond to questions
concerning Karabu's implementation and operation of the Ticket Program.
13. Access. Karabu shall, on a confidential basis, give TWA, upon TWA's prior
written request, reasonable access to Karabu's books, records, and officers and
employees and shall make such information available to TWA as TWA may reasonably
request as, may be necessary for TWA to monitor Karabu's sales of Tickets and
related operations under the Ticket Programs. All information supplied to TWA or
its representatives shall be kept confidential and shall not be disclosed by TWA
to any other person unless such disclosure is required in TWA's counsel's
opinion by operation of law. In the event in TWA's counsel's reasonable opinion
such disclosure is required, TWA shall endeavor to give Karabu at least ten (10)
days prior written notice thereof.
TWA shall, on a confidential basis, give Karabu, upon Karabu's prior
written request, reasonable access to TWA's contracts on a no-name basis with
Consolidators and Tour Operators/Wholesalers and TWA officers and employees
having responsibility for administering such contracts, as, may be necessary for
Karabu to monitor TWA's fares and conditions being provided to Consolidators.
All information supplied to Karabu or its representatives shall be kept
confidential and shall not be disclosed by Karabu to any other person unless
such disclosure is required in Karabu's counsel's opinion by operation of law.
In the event in Karabu's counsel's reasonable opinion such disclosure is
required, Karabu shall endeavor to give TWA at least ten (10) days prior written
notice thereof.
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<PAGE> 21
14. Carrier Fragmentation and Sale of Assets.
(a) If TWA sells, transfers or disposes, in any one transaction or related
series of transactions within a twelve (12) month period, routes which, net of
route acquisitions, produced thirty percent (30%) or more of TWA's revenues for
the twelve month period ending with the end of the most recently completed
fiscal quarter, TWA shall cause the transferee or transferees of such routes to
assume, on substantially equivalent terms and conditions, TWA's obligations with
respect to a percentage of the remaining Ticket Program(s) equivalent to the
percentage TWA's annual revenues produced by the routes which were so
transferred to such transferee or transferees.
(b) If TWA sells, transfers or disposes of all or substantially all of its
assets in any one transaction or related series of transactions, TWA shall cause
the transferee to assume, on substantially equivalent terms and conditions,
TWA's obligations under the remaining Ticket Program(s).
15. Bankruptcy.
(a) if a Bankruptcy Event (which shall include, for this purpose, the
filing by TWA of a petition for relief under Chapter 11 as described in the
proviso of the definition of Bankruptcy Event) occurs, TWA agrees not to seek to
reject this Agreement, pursuant to section 365(a) of the Bankruptcy Code, as an
executory contract, or to support any motion made by a third party seeking to
force a rejection of this Agreement as an executory contract or for any other
reason provided that Karabu honors at all times all of the terms and conditions
of and is not otherwise in breach of the Extension and Consent Agreement and
further provided that, if TWA is in compliance with this clause (a), Karabu
waives any and all claims that it might have against TWA with respect to any
such rejection except that Karabu may file a proof of claim relating to any
claim that it may have under this Agreement or that may arise as a result of a
rejection of this Agreement.
(b) TWA acknowledges and agrees that credits against the Karabu Loans and
payments made in respect of the PBGC Loans pursuant to Section 10 hereof shall
be deemed to be made in the ordinary course of the businesses of the respective
parties hereto, and, if a Bankruptcy Event occurs, TWA shall not seek (or
support any attempt by any third party to seek), pursuant to sections 547(b),
550(a) of the Bankruptcy Code, to avoid and recover either the amounts of such
credits or the funds retained by Karabu from Ticket sales which result in such
credits as preferential transfers provided that Karabu honors at all times all
of the terms and conditions of and is not otherwise in breach of the Extension
and Consent Agreement and further provided that, if TWA is in compliance with
this clause (b) Karabu waives any and all claims that it might have against TWA
with respect to any such preference claims except that Karabu may file a proof
of claim for any amounts or credits determined to be preferential transfers.
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(c) If a Bankruptcy Event (which shall include, for this purpose, the
filing by TWA of a petition for relief under Chapter 11 described in the proviso
of the definition of Bankruptcy Event) occurs, TWA agrees, at the request of
Karabu, to use its best efforts to obtain as soon as practicable an order of the
bankruptcy court approving the assumption of this Agreement under Section 365 of
the Bankruptcy Code and, if a motion is made seeking the rejection of this
Agreement, TWA shall at Karabu request either take all appropriate action to
object to and oppose such motion or make and diligently pursue a cross-motion
seeking an order of the bankruptcy court approving the assumption of this
Agreement under Section 365 of the Bankruptcy Code.
16. Indemnities. (a) Karabu agrees to indemnify and hold harmless TWA, its
officers, directors, shareholders, subsidiaries, affiliates and employees
(collectively, "TWA Indemnitees" and individually "TWA Indemnitee") from and
against any and all claims, actions or cause of action arising directly or
indirectly out Karabu's failure to act in accordance with the terms of
applicable foreign, federal, state or local law, rule, regulation or ordinance
concerning the marketing and sale of air transportation including any failure by
Karabu to collect and pay over to TWA in accordance with Exhibit B hereto any
and all percentage based transportation taxes, flat rate taxes, fees or
surcharges (including without limitation, passenger facility charges,
international departure taxes, APHIS and/or INS fees), together with any
penalties or interest in respect of any thereof (collectively, "Taxes") which
may be imposed on, incurred by or asserted against any TWA Indemnitee arising
out of or in connection with the sale of any Ticket by or on behalf of Karabu or
under the Ticket Program, including, without limitation, any reasonable legal
fees, expenses or costs incurred by any TWA Indemnitee in the investigation or
defense of any Taxes or claim of nonpayment of any Taxes by any governmental
authority.
(b) TWA agrees to indemnify and hold harmless Karabu, its officers,
directors, shareholders, subsidiaries, affiliates, employees, agents,
consultants and independent contractors (collectively, "Karabu Indemnitees" and
individually "Karabu Indemnitee") from and against any and all claims, actions
or causes of action arising out of TWA's failure to pay over to the appropriate
governmental authorities when due any Taxes received from Karabu, including,
without limitation, any reasonable legal fees, expenses or costs incurred by any
Karabu Indemnitee in the investigation or defense of any claims, fines or
penalties or claim of nonpayment of any thereof
(c) If the facts giving rise to any indemnification under clauses (a) or
(b) of this Section 16 shall involve an actual claim or demand by any third
party against a TWA Indemnitee or a Karabu Indemnitee (the "Indemnified Party"),
the party which may be liable for indemnification (the "Indemnifying Party")
shall be entitled to notice of and entitled (without prejudice to the right of
any Indemnified Party to participate at its expense through counsel of its own
choosing) to defend or prosecute such claim at its expense and through counsel
of its own choosing if it gives written notice of its intention to do so no
later than the time by which the interests of the Indemnified Party would be
materially prejudiced as a result of its failure to have
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received such notice; provided, however, that if the defendants in any action
shall include both an Indemnifying Party and an Indemnified Party and the
Indemnified Party shall have been advised by its counsel that the counsel
selected by the Indemnifying Party has a conflict of interest because of the
availability of different or additional defenses to the Indemnified Party, the
Indemnified Party shall have the right to select separate counsel to participate
in the defense of such action on its behalf, at the expense of the Indemnifying
Party. The failure to notify the Indemnifying Party of a third party claim or
demand shall not relieve them of any liability which they may have to any
Indemnified Party except to the extent that such failure materially prejudices
the Indemnifying Party's ability to defend such claim or action. The Indemnified
Party shall cooperate fully in the defense of any such claim or action and shall
make available to the Indemnifying Party pertinent information under its control
relating thereto, but shall be entitled to be reimbursed, as provided in this
clause (c), for all out-of-pocket costs and expenses payable to third parties
incurred by it in connection therewith. If any Indemnifying Party assumes the
defense of any such claim or action, the Indemnifying Party will hold the
Indemnified Party harmless from and against any and all damages arising out of
any settlement approved by such Indemnifying Party on any judgment in connection
with such claim or action. Payment by an Indemnifying Party to an Indemnified
Party shall be made within ten (10) days after demand, unless indemnification
arises on account of a third party claim or action in which event payment shall
be made within ten (10) days after final judgment, settlement or compromise, as
the case may be.
17. Choice of Law. THE PARTIES AGREE THAT THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK.
18. Benefit/Assignment. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and assigns;
provided, however, that no party may assign this Agreement without the prior
written consent of the other party except that, upon written notice to TWA, any
one or more Icahn Entities may, by executing and delivering a written agreement
in the form of Exhibit C hereto (a "Joiner Agreement"), join as a party to this
Agreement as if an original signatory hereto with the right to operate all or
any portion of the Ticket Programs (as Karabu and such Icahn Entities may
determine in their discretion), provided, that Karabu shall not be relieved of
any obligations related to the Ticket Programs which are not fully performed by
any such Icahn Entity or of any obligations under any other agreement with TWA.
The references herein to Karabu in the context of the rights and obligations of
the parties hereto and the operation of the Ticket Programs shall mean Karabu
and/or the Icahn Entities which execute and deliver Joinder Agreements.
19. Certain Net Worth Requirements. From and after such time as the Karabu Loans
have been paid in full, either (i) the aggregate book net worth (determined in
accordance with generally accepted accounting principles, "GAAP"), and the net
worth determined on the basis of the fair market value of assets less all
liabilities (including contingent liabilities but excluding
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liabilities relating to minimum funding or the making of termination payments to
or for the benefit of the Pension Plans or the PBGC or minimum funding or
termination liabilities relating to any other employee benefit plan maintained
by such Icahn Entities or trades or businesses under common control of such
Icahn Entities) of the Icahn Entities who shall then be bound to TWA under this
Agreement shall at all times during the term of this Agreement be $10 million or
more, or (ii) there will be provided to TWA a guaranty, in form and substance
reasonably satisfactory to TWA, of the obligations of the Icahn Entities under
this Agreement given by the Icahn Entities having at all times during the term
of this Agreement an aggregate net worth (computed as in clause (i) above ) of $
10 million or more.
20. Tax Ruling.
TWA and Karabu agree to execute the private letter ruling cooperation
letter in the form attached hereto as Exhibit D.
21. Miscellaneous.
The waiver by either party of a breach or violation of any term or
provision of this Agreement shall not operate as, or be construed to be, a
waiver of any subsequent breach of the same provision by any party or of the
breach of any other term or provision of this Agreement.
Each of the parties has agreed to the use of the particular language of
the provisions of this Agreement including all attached exhibits and schedules
and any questions of doubtful interpretation shall not be resolved by any rule
or interpretation against the draftsman but rather in accordance with the fair
meaning thereof, having due regard to the benefits and rights intended to be
conferred upon the parties hereto and the limitations and restrictions upon such
rights and benefits intended to be provided.
Any notice, demand or communication required, permitted, or desired to be
given hereunder shall be in writing and shall be deemed effectively given when
personally delivered, sent by facsimile transmission (receipt confirmed by
phone) or mailed by prepaid certified mail, return receipt requested, addressed
as follows:
TWA:
Trans World Airlines, Inc.
One City Centre
515 N. Sixth Street
St. Louis, Missouri 63101
Attention: Senior Vice President and General
Counsel
FAX: (314) 589-3267
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With a copy to:
Smith, Gambrell & Russell
Suite 3100 Promenade II
1230 Peachtree Street, N.E.
Atlanta, Georgia 30309-3592
Attention: Howard E. Turner
FAX: (404) 815-3509
Karabu:
Karabu Corp.
100 South Bedford Road
Mt. Kisco, New York 10549
Attention: Mr. Carl C. Icahn
FAX: (212) 635-5571
With a copy to:
Gordon Altman Butowsky Weitzen Shalov & Wein
114 West 47th Street, 20th Floor
New York, New York 10036
Attention: Marc Weitzen
FAX: 212-626-0799
or to such other address, and to the attention of such other person or officer
as any party may designate, with copies thereof to the respective counsel
thereof as notified by such party.
In addition, if TWA is notified by Karabu that another Icahn Entity or
Entities have executed Joinder Agreements, TWA shall send copies of all notices,
demands and communications required to be sent to Karabu pursuant to this
Agreement to such Icahn Entity or Entity at the address or addresses designated
for that purpose in the Joinder Agreement.
This Agreement supersedes all prior contracts, understandings and
agreements, whether written or oral, and constitutes the entire agreement of the
parties respecting the within subject matter and no party shall be entitled to
benefits other than those specified herein. As between or among the parties, no
oral statements or prior written material not specifically included herein shall
be of any force and effect; the parties specifically acknowledge that in
entering into and executing this Agreement, the parties rely solely upon the
representations and agreements contained in this Agreement and no others. No
terms, conditions, warranties, or representations, other than those contained
herein and no amendments or modifications hereto, shall be binding unless made
in writing and signed by the party to be charged.
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This Agreement may be executed in multiple originals or counterparts, each
and all of which shall be deemed an original and all of which together shall
constitute but one and the same instrument.
IN WITNESS WHEREOF, each of the parties have caused this Agreement to be
executed on its behalf by its duly authorized officers, as of the date
hereinabove first written.
TRANS WORLD AIRLINES, INC.
By:_____________________________________
Title:__________________________________
KARABU CORP.
By:_____________________________________
Title:__________________________________
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Exhibit 10.23
JOINDER AGREEMENT
Joinder Agreement, dated August 14, 1995, between Karabu Corp., a
Delaware corporation ("Karabu") and Global Discount Travel Services LLC, a
Nevada limited liability company ("New Party").
WHEREAS, Karabu is a party to that certain Karabu Ticket Program
Agreement, dated as of June 14, 1995 (the "Ticket Agreement") between Karabu and
Trans World Airlines, Inc. ("TWA"); and
WHEREAS, pursuant to Section 18 any one or more Icahn Entities (as
defined in the Agreement) may, by executing and delivering this Agreement, be
joined as a party to the Ticket Agreement as if an original signatory thereto;
and
WHEREAS, New Party is an Icahn Entity and desires to become a party
to the Ticket Agreement;
NOW THEREFORE, the parties hereto desiring to be legally bound,
hereby agree as follows:
1. New Party elects to be joined as a party to the Ticket Agreement
as if an original signatory thereto and shall be bound by all to the terms,
conditions and restrictions thereof.
2. New Party represents that it is an Icahn Entity as defined in the
Ticket Agreement.
3. Karabu shall remain liable for all of its obligations related to
the Ticket Programs described in the Ticket Agreement notwithstanding the joiner
of New Party as a party to the Ticket Agreement.
4. New Party's address for the purpose of receiving notices pursuant
to the Ticket Agreement is:
4052 South Industrial Road
Las Vegas, Nevada 89103
Attention: Mr. Terry O'Neal
with copies to:
Icahn Associates Corp.
<PAGE> 2
114 West 47th Street, 19th Floor
New York,New York 10036
Attention: Mr. Robert J. Mitchell
Gordon Altman Butowsky
Weitzen Shalov & Wein
114 West 47th Street, 21st Floor
New York,New York 10036
Attention: Douglas S. Rich, Esq.
5. This Agreement shall be governed by the laws of the State of New
York.
IN WITNESS WHEREOF, the parties hereto have caused the execution of
this Agreement on the day first above written.
KARABU CORP.
By:_____________________________________
Its: Assistant Secretary
Global Discount Travel
Services LLC
By: Karabu Corp., Member
By:_____________________________________
Its: Assistant Secretary
2
<PAGE> 1
Exhibit 21.1
Subsidiaries of Lowestfare.com, Inc.
Global Discount Travel Services LLC
Global Travel Marketing Services, Inc.
<PAGE> 1
Exhibit 23.1
Consent of Independent Auditors
The Board of Directors
Global Discount Travel Services LLC and
Global Travel Marketing Services, Inc.:
We consent to the use of our report dated February 19, 1999, except for the
tenth paragraph of Note 1, and the first paragraph of Note 8, which are as of
March 10, 1999, included herein and to the reference to our firm under the
heading "Experts" in the prospectus.
KPMG LLP
Las Vegas, Nevada
March 15, 1999
<PAGE> 1
Exhibit 23.2
Consent of Independent Auditors
The Board of Directors
Lowestfare.com, Inc.:
We consent to the use of our report dated February 19, 1999, except for Note 2,
which is as of March 13, 1999, included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG LLP
Las Vegas, Nevada
March 15, 1999
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
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S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 16, 1999.
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GLOBAL
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