<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 27, 1999.
REGISTRATION NO. 333-74514
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
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 4700 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:
<TABLE>
<S> <C>
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
</TABLE>
------------------------
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. [ ]
------------------------
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 APRIL 27, 1999
LOWESTFARE.COM LOGO
7,500,000 SHARES
COMMON STOCK
Lowestfare.com, Inc. is offering 7,500,000 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 $11.00 and $13.00 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 1,125,000 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]
[LOWESTFARE.COM LOGO]
RESERVATION CENTER
[PHOTOGRAPH OF RESERVATION CENTER]
Lowestfare.com has its corporate offices in a modern 35,000 sq. ft. facility
with over 400 employees.
Customer service representatives are standing by to help you with your travel
needs. 98% of our customers feel comfortable recommending Lowestfare.com to
others.
TRAVEL AGENCIES
[PHOTOGRAPH OF CORPORATE OFFICES]
Our affiliations with more than 800 travel agencies enable us to address the
specific air travel needs of those leisure and corporate clients who do not
utilize online commerce or toll-free numbers for their travel purchases.
OUR INTERNET SITE
[PICTURE OF THE LOWESTFARE.COM HOME PAGE SURROUNDED BY TEXT BOX DESCRIPTIONS]
[TEXT BELOW IS CONTAINED IN TEXT BOXES SURROUNDING THE ABOVE PICTURE]
AIRLINES
We provide reservations on over 400 airlines worldwide and find you last minute
specials, with substantial savings off the published fare.
HOTELS & CARS
We make reservations at more than 39,000 hotels, and offer selected discounts.
We also offer discounted car rental rates.
CRUISES AND VACATIONS
We have a wide variety of vacation packages and tours, and we offer discounts
off the published fare.
LOWESTFARE FINDER
Browse to your heart's content and book online. Check out our lowest available
fares and special discounts.
GUIDE/WEATHER/MAPS
We offer hotel & restaurant reviews, sightseeing, attractions and night life
information from Frommers with destination weather and maps to get you where you
want to go.
EVENTS & COOLEST PLACES ON EARTH
Find interesting facts about upcoming events and descriptions of the coolest
places around the world!
<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
Cautionary Notice Regarding 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................................. 30
Business.................................................... 40
Management.................................................. 52
Principal Stockholders...................................... 63
Description of Capital Stock................................ 64
Shares Eligible for Future Sale............................. 67
Underwriting................................................ 68
Legal Matters............................................... 70
Experts..................................................... 70
Where You Can Find Additional Information................... 70
Index to Financial Statements............................... F-1
</TABLE>
------------------------
Lowestfare.com and the Lowestfare.com logo are trademarks of our company
for which trademark applications are pending in the United States and the
European Community. 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 "Risk Factors" and 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 Lowestfare.com LLC (formerly known as 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 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 (TWA), Virgin Atlantic Airways, Hertz
Rent-a-Car, Dollar 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:
- 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;
- our affiliations with more than 800 travel agencies which are authorized
to promote the sale of discount airline tickets on TWA; and
- our Web site (www.Lowestfare.com).
Since our inception through March 31, 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 have grown from $12,000 in 1996 to $13.2 million, or 5.7% of
total gross bookings, in 1998. Total gross bookings for the quarter ended March
31, 1999 were $72.9 million, while our Internet gross bookings were $13.5
million or 18.5% of total gross bookings. Gross bookings represent the aggregate
retail value charged by Lowestfare.com for travel products and services
purchased by our customers.
Our agreement with TWA, which expires in September 2003, enables us to
consistently offer significantly discounted airline tickets to our customers
without severe restrictions such as blackout periods, long advance or last
minute purchase requirements and without the loss of frequent flyer benefits.
Sales of tickets purchased from TWA pursuant to the agreement accounted for
approximately 93.9% of our gross bookings in 1998 and 87.1% for the first
quarter of 1999. 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. We have established marketing relationships with
Yahoo!, Tripod, Looksmart, MiningCo, theglobe.com and Frommers to increase our
access to Internet customers and build brand awareness.
We are committed to our customers and strive to obtain the highest levels
of customer satisfaction. This commitment is evidenced by an ongoing customer
survey conducted by Lowestfare.com, in which approximately 98% of all
respondents as of March 1999 indicated that they would feel comfortable
recommending Lowestfare.com to others.
4
<PAGE> 6
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
achieve our objective, 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 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; 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. Lowestfare.com LLC, formerly known as Global Discount Travel
Services LLC, was organized in June 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 Lowestfare.com LLC and
its marketing affiliate, Global Travel Marketing, will become wholly-owned
subsidiaries of Lowestfare.com, Inc.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Lowestfare.com...... 7,500,000 shares
Common stock to be outstanding after this
offering.................................. 36,100,000 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
</TABLE>
The total shares to be outstanding after this offering do not include
outstanding options at March 31, 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.
5
<PAGE> 7
SUMMARY COMBINED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
The following table sets forth our summary financial data. This table does
not present all of our financial information. You should read this information
together with the combined financial statements and the notes to those
statements appearing elsewhere in this prospectus and the information under
"Selected Combined Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The pro forma information
reflects the organizational restructuring as if the 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 LLC had been taxed as
a C corporation rather than a limited liability company. The as adjusted
information gives effect to the issuance and sale of the common stock offered by
this prospectus at an assumed initial public offering price of $12.00 per share,
and the application of the estimated net proceeds as set forth under "Use of
Proceeds." Please see note 4 to the combined financial statements for the
calculation of pro forma net income per share, including an explanation of the
number of shares used in computing the amount of basic and diluted pro forma net
income per share. Gross bookings represents the aggregate retail value charged
by Lowestfare.com for travel products and services purchased by our customers.
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. Cash and cash equivalents do not include
restricted cash of $29.9 million at December 31, 1998 and $41.1 million at March
31, 1999. Please see note 1 to the Lowestfare.com LLC and Global Travel
Marketing Services, Inc. combined financial statement for the description of
restricted cash.
<TABLE>
<CAPTION>
PERIOD FROM
JULY 13, 1995
(INCEPTION) THREE MONTHS ENDED
THROUGH YEAR ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, --------------------------------- ---------------------
1995 1996 1997 1998 1998 1999
-------------- -------- -------- ----------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................... $13,782 $116,917 $200,711 $224,422 $64,651 $66,400
Gross profit................... 3,323 29,943 52,290 59,348 16,889 18,747
Net income (loss).............. (1,054) (1,069) 8,004 13,721 5,129 3,857
PRO FORMA STATEMENT OF OPERATIONS DATA (UNAUDITED):
Net income........................................................... 13,721 3,857
Pro forma income tax expense......................................... 4,665 1,311
----------- -----------
Pro forma net income................................................. $9,056 $2,546
=========== ===========
Pro forma net income per common share:
Basic............................................................ $0.32 $0.09
Diluted.......................................................... $0.30 $0.08
Weighted average shares used in per share calculation:
Basic............................................................ 28,600,000 28,600,000
Diluted.......................................................... 30,566,589 30,566,589
SUPPLEMENTAL FINANCIAL DATA (UNAUDITED):
Gross bookings................. $13,782 $116,917 $201,016 $232,714 $65,037 $72,864
======= ======== ======== =========== ======= ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
1998 MARCH 31, 1999
------------ ----------------------
ACTUAL ACTUAL AS ADJUSTED
------------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $11,427 $ 8,031 $ 90,031
Working capital............................................. 16,026 11,707 93,707
Total assets................................................ 47,828 59,916 141,916
Long-term debt, including current portion................... 270 245 245
Stockholders'/members' equity............................... 19,702 16,559 98,559
</TABLE>
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, results of operations or financial
condition 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.
RISKS RELATED TO OUR OPERATIONS
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 which we are likely to encounter as a result of our early stage
of development. In addition to the risks associated with our early stage of
development, we expect additional risks and challenges because we compete in the
new and rapidly evolving market for online travel products and services. Some of
the risks resulting from our status as an early stage company competing in this
market include:
- reliance on travel suppliers, particularly TWA;
- need to expand the number and variety of our discount travel product and
service offerings;
- ability to maintain our current and enter into additional marketing
relationships;
- ability to adapt and respond to competition;
- extent to which the Internet is used for the purchase of discount travel
products and services;
- 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."
WE DEPEND HEAVILY UPON OUR CONTRACT WITH TWA WHICH TERMINATES IN SEPTEMBER 2003
Our business depends heavily on our ticket program agreement with TWA.
Sales of tickets purchased from TWA pursuant to the agreement accounted for
approximately 95.6% of our revenues in the first quarter of 1999, approximately
97.4% of our revenues in 1998, approximately 98.7% 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
discount tickets from TWA, for all seats
7
<PAGE> 9
and fare classes. This discount applies to all flights operated by TWA (other
than travel originating or terminating in St. Louis, Missouri). We are not
permitted to resell tickets we purchase through the ticket program agreement to
all prospective buyers. Specifically, we are prohibited from selling these
tickets to consolidators, tour operators/wholesalers and non-affiliated travel
agencies. Our marketing of these tickets is also restricted. We may not promote
them with public advertisement or promotion referring directly or indirectly to
TWA. 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 value of the ticket program agreement to our company is largely
dependent upon the business, results of operations and financial condition of
TWA. The public filings made by TWA disclose that TWA was reorganized under
Chapter 11 of the United States Bankruptcy Code in 1993 and in 1995. The net
loss applicable to common shares of TWA was $321.5 million in 1996, $127.0
million in 1997 and $143.9 in million 1998. As of December 31, 1998, TWA had
$2,554.6 million in total assets, $572.4 million in long-term debt (less current
maturities) and $163.0 million in obligations under capital leases (less current
obligations).
To assist you in evaluating TWA's financial condition, we have set forth
below TWA's Selected Financial Data for the years ended December 31, 1996,
December 31, 1997 and December 31, 1998 as it appears in their Annual Report on
Form 10-K for the year ended December 31, 1998 filed with the Securities and
Exchange Commission by TWA on April 1, 1999. We did not participate in any way
in the creation, collection, analysis, recording, verification or depiction of
TWA's financial data.
TRANS WORLD AIRLINES, INC.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1996 1997 1998
-------------- -------------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues..................................... $3,554,407 $3,327,952 $3,259,147
Operating loss(1)...................................... (198,527) (29,260) (65,159)
Loss before income taxes and extraordinary items....... (274,577) (89,335) (107,169)
Provision for income taxes............................. 450 527 243
Loss before extraordinary items........................ (275,027) (89,862) (107,412)
Extraordinary items, net of income taxes (2)........... (9,788) (20,973) (13,069)
Net loss............................................... (284,815) (110,835) (120,481)
Ratio of earnings to combined fixed charges and
preferred stock dividends(3)......................... -- -- --
Per share amounts(4):
Loss before extraordinary items...................... $(6.60) $(1.98) $(2.14)
Net loss............................................. $(7.27) $(2.37) $(2.35)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents........................... $ 181,586 $ 237,765 $ 252,408
Current assets...................................... 625,745 632,957 605,414
Net working capital deficiency...................... (336,416) (303,988) (397,425)
Flight equipment, net............................... 472,495 626,382 514,298
Total property and equipment, net................... 614,207 741,765 620,030
Intangible assets, net.............................. 1,184,786 1,118,864 1,055,544
Total assets........................................ 2,681,939 2,773,848 2,554,623
</TABLE>
8
<PAGE> 10
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Current maturities of long-term debt and capital
leases............................................ 134,948 88,460 149,403
Long-term debt, less current maturities............. 608,485 736,540 572,372
Long-term obligations under capital leases, less
current maturities................................ 220,790 182,922 163,046
Shareholders' equity(5)............................. 238,105 268,284 185,322
</TABLE>
- ---------------
(1) Includes special charges of $42.6 million in 1998 and $85.9 million in 1996.
(2) The extraordinary items in 1998, 1997 and 1996 are the result of the early
extinguishment of certain debt.
(3) For purposes of determining the ratio of earnings to combined fixed charges
and preferred stock dividends; "earnings" consist of earnings before income
taxes, extraordinary items and fixed charges (excluding capitalized
interest); "fixed charges" consist of interest (including capitalized
interest) on all debt and that portion of rental expense management believes
to be representative of interest and "preferred stock dividends" consist of
preferred stock dividend requirements divided by the after-tax effective
rate. Earnings were not sufficient to cover combined fixed charges and
preferred stock dividends as follows: for the years ended December 31, 1998,
1997 and 1996, $152.7 million, $120.5 million, and $340.1 million,
respectively.
(4) No effect has been given to stock options, warrants, convertible preferred
stock or potential issuances of additional employee preferred stock, as the
impact would have been anti-dilutive; accordingly, basic and diluted per
share amounts are the same for all periods presented.
(5) No dividends were paid on TWA's outstanding common stock during the periods
presented above.
The value of the ticket program agreement to our company would be reduced
if TWA 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.
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 discount travel arrangements with travel suppliers in addition to TWA,
and thereby reduce our dependence on this agreement. We may not be able to
obtain 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, which in most instances is 45% off the applicable
published fare. In this case, we would 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. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview" and
"Business--Travel Products and Services."
9
<PAGE> 11
WE ARE ENGAGED IN LITIGATION BROUGHT BY TWA CONCERNING SYSTEM TICKET SALES UNDER
THE TICKET PROGRAM AGREEMENT
After we entered into the ticket program agreement in 1995, TWA began to
dispute our right to sell system tickets to leisure travelers. In March 1996,
TWA filed suit against us, Carl C. Icahn, Karabu Corp. and 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 system tickets to leisure travelers. System tickets are tickets for all
applicable classes of service which are purchased by us from TWA at a 45%
discount from TWA's published fare. Because the ticket program agreement
accounted for 97.4% of our revenues in 1998 and because almost all of these
sales were to leisure travelers, our business, results of operations and
financial condition would be materially and adversely affected if we do not
successfully defend this litigation.
TWA also asserted additional claims for breach of contract, tortious
interference with prospective and existing business relations and unjust
enrichment. TWA 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 TWA's petition and found that our sales to leisure travelers did
not breach the ticket program agreement.
Together with Mr. Icahn and his related entities we moved 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. TWA 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
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. TWA has appealed the denial of its motion for clarification and the
Court's original ruling.
TWA filed its appeal brief on February 26, 1999, which contains its
arguments for overturning the Court's ruling. We plan to vigorously defend
against TWA's arguments on appeal, but there can be no assurance that we will
succeed on all or part of TWA's appeal. If TWA 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 system tickets under the ticket program agreement and
may be required to pay damages to TWA, 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 TWA."
OUR QUARTERLY RESULTS OF OPERATIONS MAY FLUCTUATE
We cannot forecast our operating expenses based on our historical results
as a result of our limited operating history. Our revenues 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 TWA;
- the amount and timing of costs relating to potential expansion of our
business;
- changes in pricing by airlines, hotels, car rental agencies or other
travel suppliers;
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- 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 change in the mix of airline tickets, hotel and car reservations and
other travel related products and services sold during a quarter;
- the success of our campaign to build the "Lowestfare.com" brand;
- the continued availability of technology from third parties of online
commerce, travel and transaction processing software;
- loss of the services of any members of our management team or
exceptionally high turn-over among our specially trained service
representatives; 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.
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, and the other risks discussed in this
prospectus, you should not rely on period-to-period comparisons of our results
of operations as an indication of future performance. It is possible that in
some future periods our results of operations may be below the expectations of
securities analysts and investors. In this event, the market price of our common
stock is likely to fall. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Quarterly Results of Operations."
GROSS MARGINS ACHIEVED IN PRIOR PERIODS MAY NOT BE INDICATIVE OF FUTURE GROSS
MARGINS.
We achieved significant gross margins in 1998. Our limited operating
history makes prediction of future gross margins difficult. Accurate predictions
of future gross margins are also difficult because of the rapid changes and
intense competition in the travel industry. Accordingly, investors should not
rely on our past gross margins as a prediction of future gross margins.
Our gross margins may be impacted by a number of different factors,
including:
- the mix of revenues derived from our toll-free telephone reservation and
customer service center, our affiliated travel agencies and our Website;
- the mix of commission revenues derived from the sale of cruises, tour
packages, car rentals and hotel bookings;
- the mix of airline tickets, hotel and car reservations and other travel
related products and services sold;
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- the mix of airline ticket commissions, which vary from airline to
airline; and
- the amount of override commissions and the margins we derive from our
contracts with our airline providers, including TWA.
WE ARE CONTROLLED BY OUR PRINCIPAL STOCKHOLDER, CARL C. ICAHN
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 our board of directors and approve significant
corporate transactions, such as a merger, sale of assets or other business
combination involving Lowestfare.com. Upon completion of the offering, Mr.
Icahn, through his affiliates, will beneficially own an aggregate of
approximately 79.2% 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 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
travel agreements with only TWA and seven other airlines. Our agreements with
these seven 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
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 TWA 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 TWA. Consequently, we experienced a
decrease in our sales of such seats. Any similar decision made in the future by
TWA or any other airline could cause our revenue to decrease and our business,
results of operations and financial condition could be materially and 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 Products and
Services."
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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:
- automated 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 MAY BE UNSUCCESSFUL IN ESTABLISHING BRAND AWARENESS
We believe that a favorable consumer perception and enhanced recognition of
the Lowestfare.com brand are critical to our future success. If we fail to
promote and enhance our brand or our brand value is diluted, our business,
results of operations and financial condition could be materially and adversely
affected. In order to build our brand awareness we must succeed in our marketing
efforts, provide high quality services and increase traffic to our Web site. To
promote our brand, we will be required to substantially increase advertising
expenses in an attempt to promote and enhance our brand. If 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
Our future success depends, in part, on the continued service of our key
management personnel, particularly Gail Golden, our President, Kenneth G.
Swanton, our Chief Executive Officer, Terry L. O'Neal, our Chief Operating
Officer and Gregory A. Monton, our Vice President of Information Technology. Our
future success will also 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.
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 sure that our employees will not join or form a labor union
or that our company will not be required to become a union signatory.
SOME OF OUR KEY OFFICERS ARE NEW TO 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."
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WE MAY NOT BE SUCCESSFUL IN OFFERING NEW PRODUCTS AND SERVICES
We may not be able to offer new products and services in a cost-effective
or timely manner and our efforts may not be successful. We plan to introduce new
and expanded products and services. For example, we began offering hotel and car
rental reservations in June 1998. Further, any new airline, hotel, car rental or
other travel related product or service that is not favorably received by
customers could damage our reputation and cause our customers to refrain from
making travel purchases. Expansion of our products and services could also
require significant additional expenses and may strain our management, financial
and 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 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 $21.7 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 sure 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 marketing agreements which would
result in additional payment obligations. See "Business--Marketing
Relationships."
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 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.
In addition to our marketing relationships, 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 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--Marketing Relationships."
WE RELY ON THIRD-PARTY SYSTEMS
We rely on third-party computer systems and third-party service providers,
including:
- the travel industry's global distribution systems to make airline ticket,
hotel room and car rental reservations;
- computer systems to print our airline tickets; and
- Exodus Communications to host our online system's infrastructure,
Internet and database servers.
We use an internally developed system for our Web site and substantially
all aspects of our automated 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."
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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.
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."
WE ARE SUSCEPTIBLE TO PROBLEMS CAUSED BY SYSTEM FAILURES 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.
WE HAVE 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 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 and expect to continue to experience periodic
system interruptions which can cause delays in the processing of back office
functions and slow response times.
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The volume of visitors to our Web site has, at times, exceeded the capacity
available to serve them. For example, when there is sharply increased traffic
during "fare wars" or other promotions, we may experience:
- unanticipated system disruptions which may limit access to our Web site;
- slower response times;
- degradation in levels of customer service; and
- impaired quality and speed of reservations and confirmations.
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. Our
business could be hurt if we fail to:
- project accurately the rate or timing of such increases;
- upgrade our technology, transaction processing systems and network
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.
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 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 some of our airline
providers, including TWA, 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 $9.4 million
in additional taxes through the period ending March 31, 1999. We have accrued
this amount which includes interest in our combined balance sheet as of March
31, 1999 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 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. 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
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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, which could
substantially impair the growth of 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 intellectual property as critical to our success. Presently
our intellectual property includes our domain name, www.Lowestfare.com, and our
copyrights in original works of authorship created in connection with the
business and the Web site. In addition, we have filed a request with the U.S.
Patent and Trademark Office and Harmonization Office of the European Community
to register "Lowestfare.com" as a trademark. 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. However, available trademark and copyright protection may
not be sufficient to protect our intellectual property. Also, such protection
may not be available or sought by us in every country in which our products and
services are made available. 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. 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 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 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.
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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 some states, comply with
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 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.
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WE MAY NEED TO RAISE ADDITIONAL FUNDS 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 marketing
relationships, 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 sure 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."
WE MAY NOT BE SUCCESSFUL IN POTENTIAL ACQUISITIONS OF COMPLEMENTARY BUSINESSES
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. 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;
- 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. Further, the
acquisition of any business which operates internationally would subject us to
additional risks, including fluctuations in currency exchange rates, trade
barriers and changes in regulatory requirements. 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.
RISKS RELATED TO THE TRAVEL INDUSTRY AND THE INTERNET
OUR BUSINESS DEPENDS ON THE LEISURE TRAVEL BUSINESS
The future success of our business is dependent on the travel industry and
the leisure travel business in particular. We currently earn almost all of our
revenue from the travel industry and in 1998, 96.7% of our revenue was derived
from sales to leisure travelers. The travel industry, particularly sales of
airline tickets for leisure travel, is highly dependent upon personal
discretionary spending levels and economic conditions. Consumer demand tends to
decline during general economic downturns and recessions. The leisure travel
business 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 leisure and business travel and our business, results of
operations and financial condition would be materially and adversely affected.
19
<PAGE> 21
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:
- traditional travel agencies such as American Express Travel Related
Services, Carlson Wagonlit Travel and Uniglobe Travel;
- individual airlines, hotels, car rental companies, cruise lines and tour
package operators and other travel suppliers;
- 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
- 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 toll-free
telephone reservation and customer service center, affiliated travel agency and
Web site 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."
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.
20
<PAGE> 22
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 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 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:
- rapidly changing technology;
- changing consumer demands
- frequent introductions of new and/or enhanced products and services; and
- 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.
ONLINE COMMERCE AND DATABASES INVOLVE POTENTIAL SECURITY BREACHES
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. 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 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.
21
<PAGE> 23
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.
RISKS RELATED TO THE OFFERING
A PUBLIC MARKET FOR OUR COMMON STOCK MAY NOT DEVELOP 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."
OUR CHARTER AND BY-LAWS PROVISIONS COULD HAVE AN ADVERSE EFFECT ON THE MARKET
PRICE OF OUR COMMON STOCK
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, 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."
22
<PAGE> 24
FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD ADVERSELY AFFECT OUR
COMMON STOCK PRICE
Following the offering, we will have a large number of shares of common
stock outstanding and available for resale in the future. 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 following this offering, or the perception
that such sales could occur. These sales might make it more difficult for us to
sell equity securities in the future at a time and at a price that we deem
appropriate. 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 $12.00 will therefore incur immediate substantial dilution in the amount of
$9.27 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."
CAUTIONARY NOTICE REGARDING 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. We urge you
to carefully consider these factors.
In some cases, you can identify forward-looking statements by terminology
such as "may," "will," "should," "could," "expect," "plan," "intend,"
"anticipate," "believe," "estimate," "predict," "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 assure you that these expectations will be
achieved. We caution you that forward-looking statements are not a guarantee of
future results, levels of activity, performance or achievements. Moreover, we do
not nor does anyone else assume responsibility for the accuracy and completeness
of such statements. All forward-looking statements attributable to us are
expressly qualified in their entirety by the foregoing cautionary statement.
23
<PAGE> 25
SUMMARY OF ORGANIZATIONAL RESTRUCTURING
Prior to the closing of this offering, we will effect an organizational
restructuring whereby Lowestfare.com 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 Lowestfare.com LLC 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,
Lowestfare.com LLC and Global Travel Marketing will become wholly-owned
subsidiaries of Lowestfare.com, Inc. The aggregate value of the common
stock to be issued to Vauxhall LLC will be $343,198,800, assuming an
initial offering price of $12.00 per share.
The historical cost basis in the net assets of Lowestfare.com LLC 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, after giving
effect to this offering:
[CHARTS]
24
<PAGE> 26
USE OF PROCEEDS
The net proceeds we will receive from the sale of the 7,500,000 shares of
common stock offered by us are estimated to be $82,000,000, or $94,555,000 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 $12.00 per share.
We intend to use approximately $30,000,000 of the net proceeds of the
offering for expansion of our sales and marketing capabilities and brand name
promotion. 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. We have no present
understandings or agreements relating to any acquisitions. The balance of the
proceeds will be used for investments in our technology infrastructure and
general corporate purposes, including working capital, and to fund additional
advertising and brand name promotion. The amounts we actually spend for these
purposes will vary significantly and will depend upon a number of factors,
including our future revenue and cash generated by operations and the other
factors described under "Risk Factors." Other than as described above, 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. See "Risk Factors--Management
has broad discretion over use of 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.
25
<PAGE> 27
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999 on
an actual combined basis for Lowestfare.com LLC 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>
MARCH 31, 1999
-----------------------
AS
ACTUAL 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 36,100,000 issued and outstanding, as
adjusted.................................................. 1 361
Deferred compensation....................................... (3,439) (3,439)
Additional paid-in capital.................................. 3,539 85,179
Retained earnings........................................... 16,458 16,458
------- -------
Total stockholders'/members' equity and
capitalization.................................. $16,559 $98,559
======= =======
</TABLE>
The total shares to be outstanding after this offering do not include
outstanding options as of March 31, 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.
26
<PAGE> 28
DILUTION
The pro forma net tangible book value of Lowestfare.com, Inc., giving
effect to the organizational restructuring, as of March 31, 1999 was $16.6
million, or $0.58 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 7,500,000 shares of common stock
in this offering (at an assumed initial public offering price of $12.00 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 March 31, 1999 would have been approximately
$98.6 million, or $2.73 per share. This represents an immediate increase in pro
forma net tangible book value of $2.15 per share to Lowestfare.com, Inc.'s
existing shareholders and an immediate dilution of $9.27 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........... $12.00
Pro forma net tangible book value per share at March
31, 1999............................................. $0.58
Increase attributable to new investors................. 2.15
----
Pro forma net tangible book value per share after the
offering............................................... 2.73
----
Dilution per share to new investors....................... $9.27
------
------
</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.............. 28,600,000 79.2% $ 16,559,000 15.5% $ 0.58
New investors...................... 7,500,000 20.8 90,000,000 84.5 12.00
---------- ----- ------------ ----- ------
Total.................... 36,100,000 100.0% $106,359,000 100.0% $2.95
========== ===== ============ ===== ======
</TABLE>
The information presented with respect to existing stockholders includes
28,599,900 shares of common stock issued for the acquisitions of Lowestfare.com
LLC and Global Travel Marketing by Lowestfare.com, Inc. in connection with the
organizational restructuring which will occur immediately prior to this
offering.
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 76.8%
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 8,625,000 shares, or 23.2% of the total number of shares of common
stock to be outstanding immediately after this offering. See "Principal
Stockholders."
27
<PAGE> 29
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 accountants, as set forth in their report
therein. The statement of operations data for the period ended December 31, 1995
and the balance sheet data at December 31, 1995 and 1996 are derived from
combined audited financial statements not included herein. The selected combined
financial data presented below for the three months ended March 31, 1998 and
1999 and as of March 31, 1999, are derived from the unaudited combined financial
statements included elsewhere in this prospectus. The selected combined balance
sheet data as of March 31, 1998 are derived from the unaudited combined
financial statements not included herein. The pro forma information reflects the
organizational restructuring as if the 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 LLC had been taxed as a C corporation
rather than a limited liability company. Please see note 4 to the combined
financial statements for the calculation of pro forma net income per share,
including an explanation of the number of shares used in computing the amount of
basic and diluted pro forma net income per share. Gross bookings represents the
aggregate retail value charged by Lowestfare.com for travel products and
services purchased by our customers. 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. Cash and cash
equivalents do not include restricted cash of $10.8 million, $15.7 million,
$24.4 million, $29.9 million, $41.0 million and $41.1 million at December 31,
1995, 1996, 1997 and 1998, and March 31, 1998 and 1999, respectively. Please
refer to note 1 to the Lowestfare.com LLC and Global Travel Marketing Services,
Inc. combined financial statement for the description of restricted cash.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------- ----------------------
1995 1996 1997 1998 1998 1999
------- -------- -------- ----------- ------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................... $13,782 $116,917 $200,711 $224,422 $64,651 $66,400
Cost of revenues............................ 10,459 86,974 148,421 165,074 47,762 47,653
------- -------- -------- ----------- ------- -----------
Gross profit.............................. 3,323 29,943 52,290 59,348 16,889 18,747
Operating expenses:
Commissions............................... 1,423 11,658 20,022 17,997 5,585 4,481
Salaries, wages and benefits.............. 1,081 9,146 10,605 11,774 2,950 2,969
Selling, general and administrative....... 1,937 11,371 17,134 18,062 3,758 7,892
------- -------- -------- ----------- ------- -----------
Total operating expenses:............... 4,441 32,175 47,761 47,833 12,293 15,342
------- -------- -------- ----------- ------- -----------
Operating income (loss)................... (1,118) (2,232) 4,529 11,515 4,596 3,405
Other income, net........................... 64 1,163 3,475 2,206 533 452
------- -------- -------- ----------- ------- -----------
Net income (loss)......................... $(1,054) $(1,069) $8,004 $13,721 $5,129 $3,857
======= ======== ======== =========== ======= ===========
</TABLE>
28
<PAGE> 30
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
PRO FORMA STATEMENT OF OPERATIONS DATA (UNAUDITED):
Net income................................................................... $13,721 $3,857
Pro forma income tax expense................................................. 4,665 1,311
----------- -----------
Pro forma net income......................................................... $9,056 $2,546
=========== ===========
Pro forma net income per common share:
Basic...................................................................... $0.32 $0.09
Diluted.................................................................... $0.30 $0.08
Weighted average shares used in per share calculation:
Basic...................................................................... 28,600,000 28,600,000
Diluted.................................................................... 30,566,589 30,566,589
SUPPLEMENTAL FINANCIAL DATA (UNAUDITED):
Gross bookings............................ $13,782 $116,917 $201,016 $232,714 $65,037 $72,864
======= ======== ======== =========== ======= ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------------------------------- ----------------------
1995 1996 1997 1998 1998 1999
------- -------- -------- ----------- ------- -----------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................... $ 789 $10,119 $12,919 $11,427 $ 5,874 $ 8,031
Working capital (deficit)................... (1,336) (5,875) 648 16,026 7,226 11,707
Total assets................................ 12,919 33,233 45,424 47,828 56,237 59,916
Long-term debt, including current portion... -- -- 369 270 344 245
Stockholders'/members' equity
(deficiency).............................. (953) (2,023) 5,981 19,702 11,112 16,559
</TABLE>
29
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 Lowestfare.com
LLC, formerly known as Global Discount Travel Services LLC, is a full-service
provider of discount travel products and services for the leisure and small
business traveler. Since our inception through March 31, 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 TWA and Karabu
Corp., an entity controlled by Mr. Icahn, enables us to purchase tickets from
TWA at significant pre-determined discounts through September 2003. In August
1995, Lowestfare.com LLC was joined as a party to the ticket program agreement
in order to facilitate the sale of tickets purchased from TWA. The discount
provided by the ticket program agreement is off of the lowest published rates on
all available seats, in all fare classes, on all flights operated by TWA, 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 $63.5 million, or 95.6%, of total revenue in the first quarter of
1999 and $218.6 million, or 97.4%, of total revenue in 1998. Gross bookings
under this agreement as a percent of total gross bookings were 87.1% in the
first quarter of 1999 and 93.9% 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 promote our discount tickets on TWA.
To date, all revenues generated by the travel agencies have been derived from
the sale of airline tickets on TWA.
In October 1996, in response to the online demand for discount travel
products and services, we established a Web site (www.Lowestfare.com) as a means
of booking tickets solely with TWA. 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, a graphical user interface, an interactive
booking engine and other travel-related content. Beginning September 1998, we
began to pursue 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:
- call-in
- agency
- Internet
In the first quarter of 1999, call-in revenues, agency revenues and
Internet revenues, were $19.1 million, $39.0 million and $8.3 million which
represented 28.8%, 58.7% and 12.4% of total revenues. Internet revenues are
expected 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
30
<PAGE> 32
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
TWA, as well as 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 airline 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 marketing efforts through campaigns conducted
online and through traditional media in order to expand our brand awareness. We
currently have commitments of approximately $11.0 million for marketing and
branding expenditures during 1999 and intend to increase this amount
substantially. We also expect employee compensation costs to increase as we
expand our customer service and call-in center operation. Additionally, in the
first quarter of 1999, we spent approximately $1.3 million to enhance our
technology and transaction processing systems. Other operating expenses are also
expected to increase as a result of our anticipated growth.
Historically, Lowestfare.com LLC 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 Services LLC was organized in June 1995
under the laws of the State of Nevada and changed its name to Lowestfare.com LLC
in April 1999. 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 Lowestfare.com LLC and
its marketing affiliate, Global Travel Marketing, will become wholly-owned
subsidiaries of Lowestfare.com. Accordingly, the financial statements of
Lowestfare.com LLC 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 contained in our audited combined financial statements appearing
elsewhere in this prospectus. The results of operations for the three months
ended March 31, 1999 and 1998 were derived from the statements of operations
contained in our unaudited combined financial statements appearing elsewhere in
this prospectus. The following table sets forth this data as a percent of total
revenues:
31
<PAGE> 33
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- --------------
1996 1997 1998 1998 1999
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues........................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues................................... 74.4 73.9 73.6 73.9 71.8
----- ----- ----- ----- -----
Gross profit.................................. 25.6 26.1 26.4 26.1 28.2
Operating expenses:
Commissions................................... 10.0 10.0 8.0 8.6 6.7
Salaries, wages and benefits.................. 7.8 5.3 5.2 4.6 4.5
Selling, general and administrative........... 9.7 8.5 8.1 5.8 11.9
----- ----- ----- ----- -----
Total operating expenses................. 27.5 23.8 21.3 19.0 23.1
----- ----- ----- ----- -----
Operating income (loss)....................... (1.9) 2.3 5.1 7.1 5.1
Other income (expense):
Interest income............................... 1.0 1.8 1.2 0.9 0.9
Interest expense.............................. 0.0 (0.1) (0.2) (0.1) (0.2)
----- ----- ----- ----- -----
Total other income (expense)............. 1.0 1.7 1.0 0.8 0.7
----- ----- ----- ----- -----
Net income (loss)............................. (0.9)% 4.0% 6.1% 7.9% 5.8%
===== ===== ===== ===== =====
</TABLE>
<TABLE>
<S> <C> <C>
Pro forma information:
Net income as presented................................ 6.1% 5.8%
Pro forma income taxes................................. 2.1 2.0
--- ---
Pro forma net income................................. 4.0% 3.8%
=== ===
</TABLE>
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1999 AND 1998
Revenues. Revenues increased $1.7 million or 2.7% to $66.4 million for the
three months ended March 31, 1999 from $64.7 million for the three months ended
March 31, 1998 primarily due to additional advertising expenditures. Call-in
revenues increased $4.2 million or 28.0% to $19.1 million for the three months
ended March 31, 1999 from $14.9 million for the three months ended March 31,
1998 due to additional product and service offerings and our advertising
efforts. Agency revenues decreased $9.4 million or 19.4% to $39.0 million for
the three months ended March 31, 1999 from $48.4 million for the three months
ended March 31, 1998 as a result of our strategic decision to restructure the
discount and commission structure paid to travel agencies which was implemented
in the second half of 1998. Internet revenues increased $7.0 million or 544.8%
to $8.3 million for the three months ended March 31, 1999 from $1.3 million for
the three months ended March 31, 1998 as a result of our increased emphasis on
Internet sales and the related marketing and advertising expenditures that began
in the second half of 1998.
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 decreased $109,000 or 0.2% to $47.7 million for the three months ended
March 31, 1999 from $47.8 million for the three months ended March 31, 1998 as a
result of a shift in our product mix. Cost of revenues as a percent of total
revenues decreased 2.1% to 71.8% for the three months ended March 31, 1999 from
73.9% for the three months ended March 31, 1998. Cost of call-in revenues as a
percent of call-in revenues decreased to 70.3% for the three months ended March
31, 1999 from 72.4% for the three months ended March 31, 1998. Cost of agency
revenues as a percent of agency revenues decreased to 72.4% for the three months
ended March 31, 1999 from 74.4% for the three months ended March 31, 1998. Cost
of Internet revenues as a percent of Internet revenues decreased to 72.4% for
the three months ended March 31, 1999 from 72.9% for the three months ended
March 31, 1998.
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<PAGE> 34
Commissions. Commissions expense consists of amounts paid to our
affiliated travel agencies pursuant to agency specific contracts based on ticket
sales volume. Commissions decreased $1.1 million or 19.8% to $4.5 million for
the three months ended March 31, 1999 from $5.6 million for the three months
ended March 31, 1998 as a result of a reduction in our commissions and discount
rate structure. Commissions as a percent of total revenues decreased to 6.7% for
the three months ended March 31, 1999 from 8.6% for the three months ended March
31, 1998 as a result of reduced commissions paid to travel agencies and a
decrease in agency revenues as a 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
$19,000 or 0.6% to $3.0 million for the three months ended March 31, 1999 from
$3.0 million for the three months ended March 31, 1998 as a result of consistent
staffing levels. As a percent of total revenues, salaries, wages and benefits
decreased to 4.5% for the three months ended March 31, 1999 from 4.6% for the
three months ended March 31, 1998 as a result of increased productivity.
Selling, general and administrative expenses. Selling, general and
administrative expenses include merchant fees, Internet marketing 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 $4.1
million or 110.0%, to $7.9 million for the three months ended March 31, 1999
from $3.8 million for the three months ended March 31, 1998. The increase was
primarily a result of additional Internet marketing costs and traditional
advertising costs. As a percent of total revenues, selling, general and
administrative expenses increased to 11.9% for the three months ended March 31,
1999 from 5.8% for the three months ended March 31, 1998.
Net interest income. Net interest income decreased $81,000 or 15.2% to
$452,000 for the three months ended March 31, 1999 from $533,000 for the three
months ended March 31, 1998 as a result of increased interest expense.
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. 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 $400,000 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. 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.
Cost of revenues. 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 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. Cost of Internet revenues as a percent of Internet revenues
increased to 73.8% in 1998 from 71.7% in 1997.
Commissions. 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 a percent of our
total revenues.
Salaries, wages and benefits. 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.
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<PAGE> 35
Selling, general and administrative 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
marketing 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 8.1% 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
$2.6 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. Call-in revenues increased $20.0 million or
74.8% to $46.8 million in 1997 from $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. 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.
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 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. Cost of Internet revenues as a percent of Internet revenues
decreased to 71.7% in 1997 from 75.0% in 1996.
Commissions. Commissions expense increased $8.4 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
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<PAGE> 36
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 unaudited quarterly statement of operations
data for each of the nine quarters ended March 31, 1999, 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.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1997 1997 1997 1997 1998 1998 1998 1998 1999
--------- -------- --------- -------- --------- -------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................... $45,748 $58,641 $52,596 $43,726 $64,651 $70,164 $45,961 $43,646 $66,400
Cost of revenues........... 33,552 43,225 38,722 32,922 47,762 51,489 33,411 32,412 47,653
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit....... 12,196 15,416 13,874 10,804 16,889 18,675 12,550 11,234 18,747
Operating expenses:
Commissions............ 4,947 6,011 5,272 3,792 5,585 5,563 3,327 3,522 4,481
Salaries, wages and
benefits............. 2,267 2,519 2,842 2,977 2,950 3,002 2,987 2,835 2,969
Selling, general and
administrative....... 4,130 4,678 3,987 4,339 3,758 4,506 4,512 5,286 7,892
------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses......... 11,344 13,208 12,101 11,108 12,293 13,071 10,826 11,643 15,342
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income
(loss)............... 852 2,208 1,773 (304) 4,596 5,604 1,724 (409) 3,405
Other income (expense):
Interest income........ 500 1,000 1,278 824 610 742 703 578 607
Interest expense....... (14) (19) (36) (58) (77) (90) (118) (142) (155)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total other income
(expense)........ 486 981 1,242 766 533 652 585 436 452
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income................. $1,338 $3,189 $3,015 $462 $5,129 $6,256 $2,309 $27 $3,857
======= ======= ======= ======= ======= ======= ======= ======= =======
Gross bookings............. $45,771 $58,661 $52,625 $43,959 $65,037 $71,607 $48,814 $47,256 $72,864
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF TOTAL REVENUES
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue.................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues........... 73.3 73.7 73.6 75.3 73.9 73.4 72.7 74.3 71.8
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit....... 26.7 26.3 26.4 24.7 26.1 26.6 27.3 25.7 28.2
Operating expenses:
Commissions............ 10.8 10.3 10.0 8.7 8.6 7.9 7.2 8.1 6.7
Salaries, wages and
benefits............... 5.0 4.3 5.4 6.8 4.6 4.3 6.5 6.5 4.5
Selling, general and
administrative........... 9.0 7.9 7.6 9.8 5.8 6.4 9.9 12.1 11.9
------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses......... 24.8 22.5 23.0 25.3 19.0 18.6 23.6 26.7 23.1
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income
(loss)............... 1.9 3.8 3.4 (0.6) 7.1 8.0 3.7 (1.0) 5.1
Other income (expense):
Interest income........ 1.1 1.7 2.4 1.9 0.9 1.1 1.5 1.3 0.9
Interest expense....... -- -- (0.1) (0.1) (0.1) (0.1) (0.3) (0.3) (0.2)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total other income
(expense)........ 1.1 1.7 2.3 1.8 0.8 1.0 1.2 1.0 0.7
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income................. 3.0% 5.5% 5.7% 1.2% 7.9% 9.0% 4.9% 0.0% 5.8%
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, we had cash and cash equivalents of $8.0 million,
restricted cash of $41.1 million, working capital of $11.7 million, capital
lease obligations of $137,000 and no other long term debt. In order to execute
our growth strategy, we have entered into marketing agreements which require
financial commitments of approximately $22.7 million through the period ending
September 2001.
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<PAGE> 37
Cash provided by operating activities for the three months ended March 31,
1999 of $5.0 million was a result of net income of $3.9 million, an increase in
restricted cash of $11.2 million, offset by an increase in amounts payable for
tickets purchased of $11.3 million, an increase in accrued expenses of $4.0
million, offset by increases in accounts receivable of $2.2 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 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.
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 for the three months ended March 31, 1999
consisted of a $7.0 million distribution to the members of Lowestfare LLC for
income tax liability and capital expenditures of $1.3 million. 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 in 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 for the three months ended March 31, 1999
consisted of a $4.3 million loan to and repayment from an affiliate and payments
on capital lease obligations of $25,000. 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 Lowestfare.com LLC'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, Lowestfare.com LLC
distributed approximately $7.0 million and intends to distribute $1.3 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 three
months ended March 31, 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. If cash
generated from operations is not sufficient to meet Lowestfare.com's long-term
liquidity requirements, we may be required to obtain financing through bank
lines or through the sale of additional equity or debt securities. There is no
assurance that such financing will be available in amounts or on terms
acceptable to Lowestfare.com, if at all.
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: call-in, agency and Internet. Management
reviews financial
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<PAGE> 38
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.
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 specified 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.
MARKET, FOREIGN CURRENCY EXCHANGE RATE AND SUPPLIER RISKS
We currently have no floating rate indebtedness, hold no derivative
instruments and do not earn foreign-sourced income. Accordingly, changes in
interest rates do not generally have a direct effect on our financial position.
However, to the extent that changes in interest rates and currency exchange
rates affect general economic conditions, we would be affected by such changes.
All of our revenues are realized in dollars and almost all of our revenues are
from customers in the United States. Therefore, we do not believe we have any
significant direct foreign currency exchange risk and do not hedge against
foreign currency exchange rate changes. We currently derive almost all of our
revenues from TWA ticket sales pursuant to the ticket program agreement.
Therefore, the failure by TWA to perform under the ticket program agreement
would materially and adversely affect our business, results of operations and
financial condition.
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.
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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.
- 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 and they are Year 2000 compliant. 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 and it is Year 2000
compliant.
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 and they are Year 2000 compliant.
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 by telephone, and are in
the process of working with these vendors to assure that we are prepared for the
Year 2000. We maintain a log of the discussions and notations regarding progress
made. We have received documentation from 64% of the vendors, of which 67%
indicated they are Year 2000 compliant and 33% have a plan to be Year 2000
compliant. Of the remaining 36%, 29% have responded orally indicating they have
a plan in place to be Year 2000 compliant and 7% have not responded. 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 spent approximately $25,000 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. We expect to incur approximately $100,000 in expenses in 1999. 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
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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 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, some 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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BUSINESS
OVERVIEW
Lowestfare.com is a 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, TWA, Virgin Atlantic Airways, Hertz Rent-a-Car, Dollar
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:
- our toll-free telephone reservation and customer service center
(1-888-777-2222);
- our affiliations with more than 800 travel agencies which are authorized
to promote the sale of discount airline tickets on TWA; and
- our Web site (www.Lowestfare.com).
We have established marketing relationships with Yahoo!, Tripod, Looksmart,
MiningCo, theglobe.com and Frommers to increase our access to Internet customers
and build brand awareness. Since our inception through March 31, 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, or 5.7% of total gross bookings, in 1998.
Our total gross bookings for the first quarter of 1999 were $72.9 million of
which $13.5 million, or 18.5%, were Internet gross bookings.
INDUSTRY BACKGROUND
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 segment by dollar volume of the travel industry and constituted $71
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
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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 such as booking capabilities and destination information.
Demand for Consistent Source of Discounted Prices
As the travel market develops, consumers are seeking ways to differentiate
among travel service providers. 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. Travel consumers are increasingly
seeking:
- a reliable source of discounts off of published prices on travel products
and services which are free of significant restrictions and advance or
last minute purchase requirements;
- access to discount travel products and services by traditional means,
such as through a toll-free number or a travel agent;
- access to an easy-to-use Web site that provides intuitive and rapid
access to an entire range of discount travel products and services,
including, among others, airline tickets, hotel reservations, car
rentals, cruises and tour packages; and
- 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 by
telephone and online.
THE LOWESTFARE.COM SOLUTION
Lowestfare.com is a 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 by
telephone, through selected travel agencies and over the Internet.
Lowestfare.com has become a recognized, reliable source of discount travel
products and services.
The Lowestfare.com solution includes the following elements:
Reliable Access to Discounted Fares. We are able to purchase airline
tickets from TWA at significant pre-determined discounts through September 2003.
See "Risk Factors--We depend heavily upon our contract with TWA which terminates
in September 2003." This discount is off of the lowest published rates on all
available seats, in all fare classes, on all flights operated by TWA, other than
travel originating or terminating in St. Louis, Missouri. 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 TWA on all flights
covered under the agreement; 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, Dollar Rent-a-
Car, Stratosphere Hotel and Casino and Carnival Cruise Lines. Through our
arrangements with TWA 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
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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. In addition, 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.
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 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;
- our affiliations with more than 800 travel agencies which are authorized
to promote the sale of discount airline tickets on TWA; and
- our Web site (www.Lowestfare.com).
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 March 1999 have indicated that they
would feel comfortable recommending Lowestfare.com to others. In addition to
toll-free telephone support available 24 hours a day, 7 days a week, our
customers have access to e-mail support and extensive online support 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 reliable 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 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 TWA, our brand awareness and our record of customer service
satisfaction to attract discount arrangements with additional travel suppliers
to include a broader selection of airlines, hotels, car rentals,
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cruises and tour packages. As a result of our existing relationship with TWA,
our gross bookings have grown from $13.8 million in 1995 to $232.7 million in
1998. This increase in gross bookings has enhanced our ability to attract travel
suppliers and facilitated the establishment of discount air travel programs with
America West, China Southern Airlines, Northwest Airlines, Swissair 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 Marketing Relationships. We intend to continue to
establish 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 marketing
relationships with several Internet industry leaders including,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 Revenues. We will pursue
opportunities to generate additional sources of revenues as we continue to build
brand loyalty and expand traffic to our Web site. For example, we recently began
selling advertisement space for banner advertisement on the top of our Web site.
A banner advertisement is an advertisement on a Web page that links to an
advertiser's Web site. We use a variety of technologies that allow us to retain
in our files customer data collected in connection with the purchase of a
ticket. 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.
TRAVEL PRODUCTS AND SERVICES
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.
Sources of Customer Access Channels
- 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.
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Collectively, these call-in centers are staffed with approximately 300 specially
trained service representatives. Our in-house 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 TWA from Lowestfare.com. Typically, these
travel agencies receive commissions on our discounted base fares (net of all
taxes, fees or other charges) of between 10% and 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 TWA 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.
- Web Site. Users currently accessing our Web site have the following
choices:
-- Check Fares. 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;
-- Great 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;
-- Guide/Weather/Maps. Provides hotel and restaurant reviews, sight
seeing attractions, weather and mapping; and
-- World Events/Coolest place on earth today. Provides interesting
facts about upcoming events and information for destinations around
the world.
Travel Products
- Trans World Airlines. On June 14, 1995, TWA 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 TWA at
significant pre-determined discounts from published fares through September
2003. By agreement dated August 14, 1995, Lowestfare.com LLC, our wholly-owned
operating subsidiary, was joined as a party to the ticket program agreement.
Pursuant to the ticket program agreement, Lowestfare.com LLC may purchase
an unlimited number of system tickets. System tickets are tickets for all
applicable classes of service which are purchased by us from TWA at a 45%
discount from TWA's published fare. In addition to system tickets,
Lowestfare.com LLC may also purchase domestic consolidator tickets, which are
tickets issued at bulk fare rates and are limited to specified
origin/destination city markets and do not permit the holder to
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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 TWA'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 TWA for
tickets sold under the ticket program agreement. See "Risk Factors -- We depend
heavily upon our contract with TWA which terminates in September 2003; -- We are
engaged in litigation brought by TWA concerning system ticket sales under the
ticket program agreement."
- Other Travel Products. In addition to our contract with TWA, we have
entered into relationships with the following travel suppliers which enable us
to offer our customers discounts off of published prices:
<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*
Iberia Airlines Luxor Hotel & Casino Royal Caribbean Cruise Lines*
Northwest Airlines Stratosphere Hotel & Casino
Swissair
Virgin Atlantic Airways
WinAir Airlines Tour Package Operators
Virgin Vacations*
Car Rentals
Dollar Rent-a-Car
Hertz Rent-a-Car
</TABLE>
- ---------------
* We do not have a written agreement with this travel supplier.
Our agreements with these travel suppliers typically are effective for a
one-year period or less and may be terminated upon 30 days' notice, or less. The
travel suppliers are not required to deal exclusively with us and our sales of
their travel products are subject to availability. However, we are guaranteed
specified numbers of hotel rooms.
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 travel insurance through our one year agreement with Travel
Guard Insurance.
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, the ticket is distributed by UPS overnight delivery
to ensure prompt delivery and receipt of the ticket.
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MARKETING RELATIONSHIPS
We seek to increase our access to online customers, build brand recognition
and expand our online presence by entering into agreements with select online
search engines, content providers, communities and Web sites. These agreements
typically include one or more of the following benefits:
- we receive banner impressions, which is the display of a banner
advertisement on a user's computer screen; often the number of
impressions is described as a minimum number, which means that we are
guaranteed to receive no less than a particular number of impressions;
- we establish a co-branded site, which means we provide the travel booking
service for another site under the look and feel of that other site;
- we are the exclusive sponsor of specified categories or pages of a site,
which means that another competitor or even another advertiser cannot
appear on that specified category or page;
- we provide weather, mapping, destination information and voice response
e-mail to other sites; or
- we sponsor sweepstakes and vacation package promotions on other sites.
We refer to these agreements as marketing relationships. We have
established the following marketing relationships which require financial
commitments of approximately $21.7 million through the period ending September
2001:
- Yahoo!. Yahoo! is a global Internet media company that offers a branded
network of comprehensive information, communication and shopping
services. In November 1998, we entered into an agreement with Yahoo!
pursuant to which we received a fixed number of banner impressions during
December 1998. In January 1999, we entered into a subsequent six month
agreement to purchase additional banner impressions.
- Tripod.com. Tripod, a subsidiary of Lycos, is an online community site
which offers its users content, personal publishing tools and home page
building opportunities. In October 1998, we entered into an agreement to
be the exclusive sponsor of the "Travel Zone and Pod", which are special
interest areas on Tripod's Web site. In addition, we will receive a fixed
number of impressions. The one year agreement may be renewed for an
additional one year term with the consent of both parties and subject to
conditions.
- looksmart.com. Looksmart is a category-based Web directory with
approximately one million Web sites indexed into 30,000 categories. 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 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 specified circumstances.
- MiningCo.com. MiningCo is an Internet news, information and
entertainment service. In September 1998, we entered into an agreement
with MiningCo which entitles us to receive a fixed number of advertising
impressions on their Web site. MiningCo has agreed not to contract with
our major 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 our major competitors for advertising in the
"Marketplace Links" section on travel pages 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 an online community site that provides
users with various free services, such as home page building, discussion
forums, chat, e-mail and a marketplace. 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
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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.
- Frommers.com. Frommers, a division of Macmillan Digital Publishing USA,
is a travel site featuring Arthur Frommer's 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 through a
co-branded site. We are guaranteed to receive a minimum number of banner
impressions. 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.
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 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, The Chicago
Tribune, The Detroit Free Press 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.
TECHNOLOGY
Our seamless back-end transaction processing system, which utilizes
technology licensed from Automated Travel Systems, automates customer orders
generated by our toll-free reservation and customer service center, through our
affiliated travel agencies and our Web site. 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 can be easily expanded to
meet the growth demands of future high-demand processing by adding additional
computers or upgrading current computers. 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 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
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<PAGE> 49
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. A transmission occurs every time a person presses the enter key when
booking an itinerary. SABRE also provides us with programming services and
technical support in connection with their Internet booking system.
Our Web site utilizes a combination of technologies developed by Sun
Microsystems, Oracle, Netscape and Microsoft. 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.
COMPETITION
The market for travel products and services is extremely competitive. We
compete primarily with:
- traditional travel agencies such as American Express Travel Related
Services, Carlson Wagonlit Travel and Uniglobe Travel;
- individual airlines, hotels, car rental companies, cruise lines and tour
package operators and other travel suppliers;
- 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
- 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 grows for online travel services, 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.
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. Some 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 online travel industry."
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<PAGE> 50
INTELLECTUAL PROPERTY
We regard our intellectual property as critical to our success. Presently
our intellectual property includes our domain name, www.Lowestfare.com, and our
copyrights in original works of authorship create in connection with the
business and the Web site. In addition, we have filed a request with the U.S.
Patent and Trademark Office and Harmonization Office of the European Community
to register "Lowestfare.com" as a trademark. 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. However, available trademark and copyright protection may
not be sufficient to protect our intellectual property. Also, such protection
may not be available or sought by us in every country in which our products and
services are made available. 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. 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 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
Some segments of the travel industry are heavily regulated by the federal
and state governments, and accordingly, some 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 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 some states, comply with
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
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<PAGE> 51
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 April 20, 1999, we had 404 employees, of which 287 were full-time and
117 were part-time. Of the total, 204 full-time and 117 part-time were employed
in operations, 39 in administration, 27 in sales and marketing and 17 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;--Some of our key 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 TWA
On March 20, 1996, TWA filed a petition in the Circuit Court for St. Louis
County, Missouri, commencing a lawsuit against Carl C. Icahn, Karabu,
Lowestfare.com LLC (formerly known as Global Discount Travel Services LLC) and
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 TWA's 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
which are purchased by us from TWA at a 45% discount from TWA'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 TWA's
costs and attorney's fees. The Icahn Entities responded with counterclaims
alleging that TWA had damaged Lowestfare.com LLC 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 TWA's
or the Icahn Entities' petitions. The Court found that the ticket program
agreement was clear on its face and that Lowestfare.com LLC's sales of system
tickets to leisure travelers did not breach the ticket program agreement. The
Court found that, in any event, neither TWA nor Lowestfare.com LLC 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. TWA 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
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ticket (with 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. TWA has appealed the denial of its motion for clarification and
the Court's original ruling.
TWA filed its appeal brief on February 26, 1999, which contains its
arguments for overturning the Court's ruling. We plan to vigorously defend
against TWA's arguments on appeal, but there can be no assurance that we will
succeed on all or part of TWA's appeal. If TWA 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 system tickets under the ticket program agreement and
may be required to pay damages to TWA, 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 -- We are engaged in litigation brought by TWA
concerning system ticket sales under the ticket program agreement."
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth as of April 26, 1999, the name, age and
position within Lowestfare.com of each director, executive officer and other key
employees of Lowestfare.com:
<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
Michael S. Egan........................... 59 Director
Michael Levy.............................. 52 Director
Harold T. Shapiro......................... 63 Director
</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 Holding 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
Lowestfare.com 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 Lowestfare.com LLC. 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
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privately-owned entities controlled by Mr. Icahn. Ms. Golden currently serves as
a Director of Automated Travel Systems, Inc., a software development firm.
Russell D. Glass has served as Vice Chairman and Director of Lowestfare.com
since August 1998 and Vice Chairman of Lowestfare.com LLC 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; Delicious Brands, Inc., a marketer of
branded specialty food products; 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 and Director of
Lowestfare.com and of Lowestfare.com LLC 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 Lowestfare.com LLC 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 Lowestfare.com LLC since July 1998. From July 1995 to
July 1998, Mr. O'Neal served as Senior Vice President of Lowestfare.com LLC.
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 Lowestfare.com LLC 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 Lowestfare.com LLC since May 1998. From
August 1995 to May 1998, Mr. Monton served as Manager of Information Technology
of Lowestfare.com LLC. 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.
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Douglas H. Lanner has served as Controller of Lowestfare.com since August
1998 and of Lowestfare.com LLC 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 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 Lowestfare.com LLC since July 1998. From
February 1995 to July 1998, Mr. Lay served as Director of Corporate Sales of
Lowestfare.com LLC. From September 1991 to December 1994, Mr. Lay was employed
by Hughes Aircraft, most recently as Director of Marketing in the Hughes Avicom
Division. Mr. Lay founded California Air Shuttle, formerly QwestAir, a commuter
airline, in March 1985 and served as its President and Chief Financial Officer
until September 1991. Mr. Lay holds a B.A. degree in Business Administration
from Baker University.
Michael S. Egan has served as a Director of Lowestfare.com since April
1999. Mr. Egan has served as Chairman of the Board of theglobe.com, inc., an
online community site, since August 1997. Mr. Egan has been the controlling
investor of Dancing Bear Investments, a privately held investment company, since
1996. From 1986 to 1996, Mr. Egan was the majority owner and Chairman of Alamo
Rent-A-Car, Inc., now a subsidiary of AutoNation. Mr. Egan currently serves as
Chairman and Chief Executive Officer of Certified Vacations, a wholesale tour
operator. Mr. Egan is a Director of Florida Panthers Holdings, Inc. Mr. Egan
holds a B.A. degree in Hotel Administration from Cornell University.
Michael Levy has served as a Director of Lowestfare.com since April 1999.
Mr. Levy founded SportsLine USA, Inc., an Internet sports media company, and has
served as its President, Chief Executive Officer and Chairman of the Board since
February 1994. Mr. Levy has also served as a Director of iVillage, Inc., an
Internet women's media company, since August 1998. From 1979 through March 1993,
Mr. Levy served as President, Chief Executive Officer and as a Director of
Lexicon Corporation, a high technology company specializing in data
communications and signal processing technology. From January 1988 to June 1993,
Mr. Levy also served as Chairman of the Board and Chief Executive Officer of
Sports-Tech International, Inc., a company engaged in the development,
acquisition, integration and sale of computer software, equipment and
computer-aided video systems. Mr. Levy holds a B.S. degree in Electrical
Engineering from Georgia Institute of Technology.
Harold T. Shapiro has served as Director of Lowestfare.com since April
1999. Mr. Shapiro has served as President of Princeton University since January
1988. Mr. Shapiro currently holds a faculty appointment as a Professor of
Economics and Public Affairs at Princeton University. Mr. Shapiro currently
serves as Trustee and Chairman of the Board of the Alfred P. Sloan Foundation,
and as Trustee of the University of Pennsylvania Medical Center, the
Universities Research Association and the Educational Testing Service. Mr.
Shapiro currently serves as a Director of Dow Chemical Company. In 1996, Mr.
Shapiro was appointed by President Clinton to chair the National Bioethics
Advisory Commission. Mr. Shapiro holds a Bachelor of Commerce degree from McGill
University and a Masters and Ph.D. in Economics from Princeton University.
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 at the discretion of the board of directors. In April
1999, we granted options to purchase 35,000 shares of common stock to each of
Messrs. Egan and Levy at an exercise price of $11.00 per share. In April 1999,
we granted options to purchase 20,000 shares of common stock to Mr. Shapiro at
an
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<PAGE> 56
exercise price of $11.00 per share. Each of these options were granted pursuant
to the 1999 Stock Option Plan and vest one-third on the date of the initial
public offering and annually thereafter over a period of two years from the date
of grant.
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.
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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
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
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(2) 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."
(2) In May 1998, Mr. Lanner received compensation for relocation costs.
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
INDIVIDUAL GRANTS (1) REALIZABLE
--------------------------------------------------- VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE EXERCISE OPTION TERM (2)
OPTIONS IN FISCAL PRICE (PER EXPIRATION ---------------------
NAME GRANTED YEAR(3) SHARE)(4) DATE(5) 5% 10%
- ---- ---------- ---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Gail Golden................. 788,665 51.3% $5.07 May 26, 2004 $1,105,135 $2,442,058
Russell D. Glass............ 157,733 10.3 5.07 May 26, 2004 221,027 488,412
Terry L. O'Neal............. 157,733 10.3 5.07 May 26, 2004 221,027 488,412
Vincent L. Martinelli....... 78,867 5.0 5.07 May 26, 2004 110,514 244,207
Gregory A. Monton........... 157,733 10.3 5.07 May 26, 2004 221,027 488,412
Douglas H. Lanner........... 39,433 2.5 5.07 May 26, 2004 55,256 122,102
Steven S. Lay............... 157,733 10.3 5.07 May 26, 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 by Lowestfare.com LLC and will
be assumed by us under our 1999 Stock Option Plan in conjunction with the
organizational restructuring. The options shown in this table become
exercisable at a rate of 12.5% semi-annually over four years beginning six
months after this offering, except for Ms. Golden's options which vest at a
rate of 16.7% semi-annually over a three
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<PAGE> 58
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) 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 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.
(3) We granted options to purchase 1,537,897 shares of common stock to employees
during 1998.
(4) All options were granted at an exercise price equal to our estimate of fair
market value at date of grant. Fair market value was determined taking into
consideration a number of factors, including our financial condition,
projected operating results and the price of comparable publicly-traded
companies.
(5) All granted options expire five years from the closing date of this
offering. Exercise Expiration Date was determined based upon an assumed
closing date of May 26, 1999.
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.
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 -- 5,465,450
Russell D. Glass................... -- 157,733 -- 1,093,090
Terry L. O'Neal.................... -- 157,733 -- 1,093,090
Vincent L. Martinelli.............. -- 78,867 -- 546,545
Gregory A. Monton.................. -- 157,733 -- 1,093,090
Douglas H. Lanner.................. -- 39,433 -- 272,273
Steven S. Lay...................... -- 157,733 -- 1,093,090
</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 $12.00 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
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<PAGE> 59
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 number of shares subject to each
option, the exercise price, 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.
EMPLOYMENT CONTRACTS
We conduct our business through Lowestfare.com LLC. Each of the following
employment agreements were entered into by Lowestfare.com LLC and the named
executive officer except that Mr. Martinelli's agreement is through Global
Travel Marketing Services, Inc.
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 1.5% interest of Lowestfare.com LLC for an
aggregate exercise price of $3,000,000, subject to 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
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<PAGE> 60
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 (a) cease operations, (b) 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 (c) 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 0.2% interest of
Lowestfare.com LLC for an aggregate exercise price of $400,000, subject to
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 0.4% interest of Lowestfare.com LLC
for an aggregate exercise price of $800,000, subject to 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 0.4% interest of Lowestfare.com LLC
for an aggregate exercise price of $800,000, subject to 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 0.1% interest of Lowestfare.com LLC for an
aggregate exercise price of $200,000, subject to 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 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 0.4% interest of Lowestfare.com LLC for an
aggregate exercise price of $800,000, subject to 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 0.2% interest of Lowestfare.com
LLC for an aggregate exercise price of $400,000, subject to vesting periods.
Pursuant to its terms, upon the effectiveness of this offering, the option will
be assumed by Lowestfare.com and
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<PAGE> 61
automatically converted into an option to purchase 78,867 shares of common stock
at an exercise price of $5.07.
The options granted to each of Mr. O'Neal, Mr. Monton, Mr. Lanner, Mr. Lay
and Mr. Martinelli will vest in equal semi-annual installments over four years
beginning six months after this offering, and the options for Ms. Barton will
vest in equal installments every six months beginning on the date of this
offering and ending 48 months after 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 (a) cease operations, (b) 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 (c) 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> 62
CERTAIN TRANSACTIONS
KARABU CORP.
On June 14, 1995, TWA 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 TWA at discounts from published
fares through September 2003. By agreement dated August 14, 1995, Lowestfare.com
LLC, our wholly-owned operating subsidiary, was joined as a party to the ticket
program agreement. See "Business -- Travel Products and Services" and "Risk
Factors -- We depend heavily upon our contract with TWA which terminates in
September 2003."
Pursuant to this agreement Lowestfare.com LLC paid Karabu Corp. who in turn
paid TWA for tickets purchased. Karabu does not charge Lowestfare.com LLC any
fees or receive a mark-up from the sale of TWA tickets by Lowestfare.com LLC.
The amounts paid to Karabu were approximately $33.0 million in 1999, $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, Lowestfare.com LLC 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
TWA tickets to travel agents on behalf of Lowestfare.com. Lowestfare.com LLC
pays Global Travel Marketing a marketing fee. Lowestfare.com LLC paid Global
Travel Marketing $1.5 million in 1999, $6.3 million in 1998, $7.1 million in
1997 and $5.8 million in 1996. Periodically, Lowestfare.com LLC has made working
capital advances to Global Travel Marketing. As of March 31, 1999, Global Travel
Marketing owes Lowestfare.com LLC $204,000.
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 our inception through 1998 for operating
expenses including legal, medical, relocation, travel, utilities and
miscellaneous expenses. These amounts were $388,000 in 1999, $2.7 million in
1998, $2.4 million in 1997 and $1.9 million in 1996 and have been repaid except
for $71,000 as of March 31, 1999. Lowestfare.com LLC loaned approximately $8.0
million in May 1996 and $4.0 million in June 1996 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 prices charged for TWA tickets. 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. Lowestfare.com LLC 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 March 31, 1999, Astute owed us
$90,000.
AUTOMATED TRAVEL SYSTEMS, INC.
On January 19, 1999, Global Partner, Inc., an entity controlled by Mr.
Icahn, entered into an agreement with Automated Travel Systems, Inc., through
which it acquired preferred stock and warrants issued by Automated Travel
Systems. The preferred stock and warrants entitled Global Partner to acquire
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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,
Lowestfare.com LLC 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.
On January 19, 1999, we entered into a license agreement with Automated
Travel Systems pursuant to which we have the license to use a travel database
system developed by Automated Travel Systems. The five year agreement may be
terminated by either party for cause upon fourteen days' prior written notice.
Automated Travel Systems may terminate the agreement for default in payment upon
thirty days' prior written notice.
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. The
contract expires on December 28, 1999 and may be terminated by either party upon
thirty days' prior written notice.
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.
THEGLOBE.COM, INC.
In September 1998, we entered into a three year agreement with
theglobe.com, inc., an entity controlled by Michael S. Egan. Mr. Egan is a
director of Lowestfare.com. See "Business--Marketing Relationships."
ORGANIZATIONAL RESTRUCTURING
Prior to the closing of this offering, we will effect an organizational
restructuring whereby Lowestfare.com LLC 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 Lowestfare.com LLC 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,
Lowestfare.com LLC and Global Travel Marketing will become wholly-owned
subsidiaries of Lowestfare.com, Inc. The aggregate value of the common
stock to be issued to Vauxhall LLC will be $343,198,800, assuming an
initial public offering price of $12.00 per share.
The historical cost basis in the net assets of Lowestfare.com LLC 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 information known to us with respect to
beneficial ownership of our common stock as of April 26, 1999, and as adjusted
to reflect the sale of the shares of common stock offered by this prospectus,
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;
- each executive officer of Lowestfare.com; and
- all directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) OFFERING(1)(2)
---------------------- ---------------------
NAME OF BENEFICIAL OWNER(1) NUMBER PERCENT NUMBER PERCENT
--------------------------- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Carl C. Icahn(3).............................. 28,600,000 100.0% 28,600,000 79.2%
Vauxhall LLC(4)............................... 28,600,000 100.0% 28,600,000 79.2%
Gail Golden................................... -- * -- *
Russell D. Glass.............................. -- * -- *
Kenneth G. Swanton(5)......................... 82,152 * 82,152 *
Denise Barton(6).............................. 8,763 * 8,763 *
Terry L. O'Neal............................... -- * -- *
Vincent L. Martinelli......................... -- * -- *
Gregory A. Monton............................. -- * -- *
Douglas H. Lanner............................. -- * -- *
Steven S. Lay................................. -- * -- *
Michael S. Egan(7)............................ 11,667 * 11,667 *
Michael Levy(8)............................... 11,667 * 11,667 *
Harold T. Shapiro(9).......................... 6,667 * 6,667 *
All directors and officers as a group (13
persons)(10)................................ 28,720,916 100.0% 28,720,916 79.3%
</TABLE>
- ---------------
* Less than one percent.
(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
April 26, 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 1,125,000
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, NY 10153.
(4) The address for Vauxhall LLC is 980 Kelly Johnson Drive, Las Vegas, NV
89119.
(5) Represents options held by Mr. Swanton to purchase 82,152 shares of common
stock.
(6) Represents options held by Ms. Barton to purchase 8,763 shares of common
stock.
(7) Represents options held by Mr. Egan to purchase 11,667 shares of common
stock.
(8) Represents options held by Mr. Levy to purchase 11,667 shares of common
stock.
(9) Represents options held by Mr. Shapiro to purchase 6,667 shares of common
stock.
(10) Includes the shares described in footnotes (3) and (5) through (9).
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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 March 31, 1999, there were 100 shares outstanding and held of
record by one stockholder. There will be 36,100,000 shares outstanding upon
consummation of this offering (37,225,000 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 March 31, 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 March 15, 1999
between Vauxhall LLC and Lowestfare.com, Vauxhall LLC has 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 three 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 "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 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
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or a portion of their registrable securities in such registration; provided,
however, that the managing underwriter, if any, of any such offering has 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 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:
- the transaction is approved by the board of directors of the corporation
prior to such business combination;
- the interested stockholder acquires 85% of the corporation's voting stock
in the same transaction in which it exceeds 15%; or
- 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.
Our Certificate of Incorporation limits the liability of our directors to
us and our stockholders to the fullest extent permitted by Delaware law.
Specifically, our directors will not be personally liable to us or our
stockholders for monetary damages for breach of fiduciary duty as a director,
except for:
- any breach of the director's duty of loyalty to us or our stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or knowing violations of law;
- liability under Section 174 of the Delaware corporation law, which
relates to certain unlawful dividends, stock repurchases or stock
redemptions; or
- 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 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
65
<PAGE> 67
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.
We have obtained directors and officers liability insurance.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock will be American
Stock Transfer & Trust Company, New York, New York.
LISTING
We have applied for quotation of our common stock on the Nasdaq National
Market under the trading symbol "FARE".
66
<PAGE> 68
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.
All 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 Carl C. Icahn, 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 730 days after the date of this prospectus without the prior written consent
of BancBoston Robertson Stephens Inc.; provided, however, that Messrs. Levy,
Egan and Shapiro have agreed not to sell or otherwise transfer any shares of our
common stock or any 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 361,000
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 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 restrictions, including the holding period,
contained in Rule 144.
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.
67
<PAGE> 69
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 below opposite their respective names. The underwriters are committed
to purchase and pay for all shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------- ---------
<S> <C>
BancBoston Robertson Stephens Inc...........................
Bear, Stearns & Co. Inc.....................................
---------
Total............................................. 7,500,000
=========
</TABLE>
The representatives have advised us that the underwriters propose to offer
the shares of common stock to the public at the public offering price set forth
on the cover pages of this prospectus and to certain dealers at that price less
a concession of not in excess of $ per share, of which $ may be
reallowed to other dealers. After this 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 have advised us that they 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 1,125,000 additional shares of common stock at the public
offering price less the underwriting discount set forth on the cover page of
this prospectus. If the underwriters exercise their over-allotment option to
purchase any of the additional 1,125,000 shares of common stock, the
underwriters have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof as the number of shares to be
purchased by each of them bears to the total number of shares of common stock
offered in this offering. If purchased, these additional shares will be sold by
the underwriters on the same terms as those on which the shares offered hereby
are being sold. We will be obligated, pursuant to the over-allotment option, to
sell shares to the underwriters to the extent the over-allotment option is
exercised. The underwriters may exercise the over-allotment option only to cover
over-allotments made in connection with the sale of the shares of common stock
offered in this offering.
The following table summarizes the compensation to be paid to the
underwriters by Lowestfare.com:
<TABLE>
<CAPTION>
TOTAL
------------------------
WITHOUT WITH
PER OVER- OVER-
SHARE ALLOTMENT ALLOTMENT
----- ---------- ----------
<S> <C> <C> <C>
Underwriting Discounts and Commissions
payable by Lowestfare.com................................ $ $ $
</TABLE>
Lowestfare.com estimates expenses payable by us in connection with this
offering, other than the underwriting discounts and commissions referred to
above, will be approximately $1,700,000.
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 from breaches of
representations and warranties contained in the underwriting agreement.
Lock-Up Agreements. Each executive officer, stockholder and optionholder
has agreed, during the period of 730 days, and Messrs. Egan, Levy and Shapiro
have agreed, during the period
68
<PAGE> 70
of 180 days, after the effective date of this prospectus, subject to specified
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
or 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 thereafter acquired directly by those holders
or with respect to which they have the power of disposition, without the prior
written consent of BancBoston Robertson Stephens Inc. However, BancBoston
Robertson Stephens Inc. may, in its sole discretion and at any time or from time
to time without notice, release all or any portion of the securities subject to
the lock-up agreements. There are no existing agreements between the
representatives and any of our stockholders who have executed a lock-up
agreement providing consent to the sale of shares prior to the expiration of the
lock-up period.
Future Sales. In addition, we have agreed that during the applicable
lock-up periods we will not, without the prior written consent of BancBoston
Robertson Stephens Inc.:
- consent to the disposition of any shares held by stockholders prior to
the expiration of the applicable lock-up period; 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) our 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 options under
the 1999 Stock Option Plan provided that these options do not vest prior
to the expiration of the applicable lock-up period. 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 by this prospectus will be determined through
negotiations among the representatives and us. 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 shares of 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 purchase
of 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 the offering if the common stock originally sold by such
underwriter or syndicate member 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 five percent (5%) of the common stock to be issued by us and offered for sale
in this offering, at the initial public offering price, to directors, officers,
employees, business associates and persons otherwise connected to
Lowestfare.com. The number of shares of common stock available for sale to the
general public will be reduced to the extent these individuals purchase reserved
shares. Any reserved shares which are not purchased will be offered by the
underwriters to the general public on the same basis as the other shares offered
in this offering.
69
<PAGE> 71
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 Lowestfare.com LLC (formerly known as
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 filed as an exhibit 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.
70
<PAGE> 72
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 and March 31, 1999.... F-3
Statement of Cash Flows for the period from August 15, 1998
(inception) to December 31, 1998 and the three months
ended March 31, 1999...................................... F-4
Notes to Financial Statements............................... F-5
LOWESTFARE.COM, LLC (FORMERLY KNOWN AS GLOBAL DISCOUNT
TRAVEL SERVICES LLC) AND GLOBAL TRAVEL MARKETING SERVICES,
INC.
Report of Independent Auditors.............................. F-11
Combined Balance Sheets as of December 31, 1997 and 1998 and
the three months ended March 31, 1999..................... F-12
Combined Statements of Operations for the years ended
December 31, 1996, 1997 and 1998 and the three months
ended March 31, 1998 and 1999............................. F-13
Combined Statements of Stockholder's/Member's Equity for the
years ended December 31, 1996, 1997 and 1998 and the three
months ended March 31, 1999............................... F-14
Combined Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998 and the three months
ended March 31, 1998 and 1999............................. F-15
Notes to Combined Financial Statements...................... F-16
</TABLE>
F-1
<PAGE> 73
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 the first paragraph
of Note 2, which is as of March 13, 1999
F-2
<PAGE> 74
LOWESTFARE.COM, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets -- cash...................................... $1,000 $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 1
Additional paid-in capital.................................. 999 999
------ ------
$1,000 $1,000
====== ======
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 75
LOWESTFARE.COM, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM THREE
AUGUST 15, 1998 MONTHS
(INCEPTION) TO ENDED
DECEMBER 31, MARCH 31,
1998 1999
--------------- -----------
(UNAUDITED)
<S> <C> <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> 76
LOWESTFARE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
PERIOD FROM AUGUST 15, 1998 (INCEPTION) TO DECEMBER 31, 1998
AND THE THREE MONTHS ENDED MARCH 31, 1999
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 Lowestfare.com LLC
(formerly Global Discount Travel Services LLC) ("Lowestfare.com") and Global
Travel Marketing Services, Inc. ("Global Travel Marketing"). As of March 31,
1999, 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 Lowestfare.com 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. The Company had no
operations through March 31, 1999.
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. COMMON STOCK
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 Lowestfare.com 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 Lowestfare.com ratably
over the three and four year vesting period of the options. Options to purchase
1,537,897 shares of common stock issued to key employees of Lowestfare.com 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
F-5
<PAGE> 77
LOWESTFARE.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 Lowestfare.com 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 Lowestfare.com 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, Lowestfare.com 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 Lowestfare.com. The predecessor
historical cost basis in the net assets of Lowestfare.com 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 statements of operations for the year ended
December 31, 1998 and the three months ended March 31, 1999 represent the
results of operations as if the aforementioned organizational restructuring had
occurred on the first day of each of the respective periods. 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 Lowestfare.com and Global Travel Marketing by Lowestfare.com,
Inc. The following pro forma balance sheets at December 31, 1998 and March 31,
1999 represent the financial position as if the restructuring had occurred on
December 31, 1998 and March 31, 1999, respectively.
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 Lowestfare.com and Global Travel Marketing by the
Company and are considered to be outstanding for all of 1998 and the three
months ended March 31, 1999. Diluted income per share also includes the dilutive
effect of all options to purchase the Company's common stock and the number of
common shares issuable, at the estimated offering price, sufficient to cover the
amount of distributions to members estimated
F-6
<PAGE> 78
LOWESTFARE.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
through the LLC termination date. The following is a reconciliation of the
numerator and denominator for the basic and diluted income per share:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
1998 1999
------------ ------------------
<S> <C> <C>
Pro forma net income used in basic and diluted
income per share.................................. $9,056,000 $2,546,000
========== ==========
Shares of common stock and common stock equivalents:
Basic:
Shares issued in the initial capitalization.... 100 100
Shares issued for acquisition of Lowestfare.com
and Global Travel Marketing.................. 28,599,900 28,599,900
---------- ----------
28,600,000 28,600,000
Diluted:
Dilutive effect of stock options............... 1,274,922 1,274,922
Effect of common stock issuable sufficient to
cover distributions to members............... 691,667 691,667
---------- ----------
30,566,589 30,566,589
========== ==========
Income per share:
Basic............................................. $0.32 $0.09
========== ==========
Diluted........................................... $0.30 $0.08
========== ==========
</TABLE>
Effective with the consummation of the initial public offering and the
aforementioned organizational restructuring, Lowestfare.com 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 organizational
restructuring takes place.
F-7
<PAGE> 79
LOWESTFARE.COM, INC.
PRO FORMA CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, 1998 MARCH 31, 1999
--------------------------------------------- ---------------------------------------------
HISTORICAL PRO FORMA PRO FORMA HISTORICAL PRO FORMA PRO FORMA
COMBINED ADJUSTMENTS CONSOLIDATED COMBINED ADJUSTMENTS CONSOLIDATED
----------- ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............ $11,427,000 $(8,299,000)(1)(3) $ 3,128,000 $ 8,031,000 $(1,299,000)(1)(3) $ 6,732,000
Restricted cash.......... 29,916,000 -- 29,916,000 41,124,000 -- 41,124,000
Accounts receivable,
net.................... 1,746,000 -- 1,746,000 3,919,000 -- 3,919,000
Prepaid expenses and
other current assets... 901,000 -- 901,000 1,853,000 -- 1,853,000
----------- ----------- ----------- ----------- ----------- -----------
Total current assets... 43,990,000 (8,299,000) 35,691,000 54,927,000 (1,299,000) 53,628,000
Property and equipment,
net...................... 1,748,000 -- 1,748,000 2,888,000 -- 2,888,000
Deposits................... 2,011,000 -- 2,011,000 2,011,000 -- 2,011,000
Due from affiliates........ 79,000 -- 79,000 90,000 -- 90,000
----------- ----------- ----------- ----------- ----------- -----------
Total assets........... $47,828,000 $(8,299,000) $39,529,000 $59,916,000 $(1,299,000) $58,617,000
=========== =========== =========== =========== =========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Amounts payable for
tickets purchased...... $11,269,000 -- $11,269,000 $22,550,000 -- $22,550,000
Due to affiliates........ 92,000 -- 92,000 71,000 -- 71,000
Accrued tax.............. 8,211,000 -- 8,211,000 9,384,000 -- 9,384,000
Accrued ticket
reimbursement.......... 4,322,000 -- 4,322,000 4,800,000 -- 4,800,000
Accrued expenses......... 3,962,000 -- 3,962,000 6,307,000 -- 6,307,000
Current portion of
capital lease
obligations............ 108,000 -- 108,000 108,000 -- 108,000
----------- ----------- ----------- ----------- ----------- -----------
Total current
liabilities.......... 27,964,000 -- 27,964,000 43,220,000 -- 43,220,000
Long-term liabilities:
Long-term portion of
capital lease
obligations............ 162,000 -- 162,000 137,000 -- 137,000
----------- ----------- ----------- ----------- ----------- -----------
Total liabilities...... 28,126,000 -- 28,126,000 43,357,000 -- 43,357,000
----------- ----------- ----------- ----------- ----------- -----------
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............ 1,000 285,000(1)(2) 286,000 1,000 285,000(1)(2) 286,000
Contributed capital...... 100,000 (284,000)(1)(2) (184,000) 3,539,000 (284,000)(1)(2) 3,255,000
----------- -----------
Deferred compensation.... -- -- -- (3,439,000) -- (3,439,000)
----------- -----------
Retained earnings........ 19,601,000 (8,300,000)(3) 11,301,000 16,458,000 (1,300,000)(3) 15,158,000
----------- ----------- ----------- ----------- ----------- -----------
Total stockholder's
equity............... 19,702,000 (8,299,000) 11,403,000 16,559,000 (1,299,000) 15,260,000
----------- ----------- ----------- ----------- ----------- -----------
Total liabilities and
stockholder's
equity............... $47,828,000 $(8,299,000) $39,529,000 $59,916,000 $(1,299,000) $58,617,000
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 80
LOWESTFARE.COM, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1998 1999
------------ ------------
<S> <C> <C>
Revenues.................................................... $224,422,000 $66,400,000
Cost of revenues............................................ 165,074,000 47,653,000
------------ -----------
Gross profit........................................... 59,348,000 18,747,000
------------ -----------
Operating expenses:
Commissions............................................... 17,997,000 4,481,000
Salaries, wages and benefits.............................. 11,774,000 2,969,000
Selling, general and administrative....................... 18,062,000 7,892,000
------------ -----------
Total operating expenses............................... 47,833,000 15,342,000
------------ -----------
Operating income....................................... 11,515,000 3,405,000
------------ -----------
Other income (expense):
Interest income........................................... 2,633,000 607,000
Interest expense.......................................... (427,000) (155,000)
------------ -----------
Total other income (expense)........................... 2,206,000 452,000
------------ -----------
Income before income taxes............................. 13,721,000 3,857,000
Pro forma income taxes(4)................................... 4,665,000 1,311,000
------------ -----------
Pro forma net income................................... $ 9,056,000 $ 2,546,000
============ ===========
Pro forma net income per share(4):
Basic..................................................... $0.32 $0.09
============ ===========
Diluted(5)................................................ $0.30 $0.08
============ ===========
Weighted average shares of common stock outstanding(4):
Basic..................................................... 28,600,000 28,600,000
============ ===========
Diluted(5)................................................ 30,566,589 30,566,589
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE> 81
LOWESTFARE.COM, INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(1) Includes the $1,000 of cash and capital stock of Lowestfare.com, Inc.
as of December 31, 1998 and March 31, 1999. Lowestfare.com, Inc. had no
other assets and liabilities as of these dates.
(2) Reflects the conversion of equity accounts from the historical
structure of Lowestfare.com (a Nevada limited liability company) and
Global Travel Marketing Services, Inc. (a Nevada Corporation) on a
combined basis, to Lowestfare.com, Inc. (a Delaware Corporation) on a
consolidated basis. This transaction was accounted for as a
reorganization of entities under common control. Accordingly, there is
no net equity impact recorded in the accompanying pro forma financial
information.
(3) Reflects the adjustment for the earned and undistributed taxable LLC
earnings of Lowestfare.com through the LLC termination date, which
would be distributed as part of the LLC distribution. On March 10,
1999, Lowestfare.com distributed $7,000,000, and prior to the
organizational restructuring, intends to distribute an additional
$1,300,000 prior to the LLC termination.
(4) Reflects the consolidated results of operations as if the
organizational restructuring had occurred on the first day of each of
the respective periods, and reflects the pro forma provision for income
taxes on historical combined net income, using an estimated effective
tax rate of 34%.
(5) Reflects the inclusion of common stock issuable to sufficiently cover
the LLC distribution of Lowestfare.com through the LLC termination
date, at the proposed offering price.
F-10
<PAGE> 82
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Lowestfare.com LLC and
Global Travel Marketing Services, Inc.:
We have audited the accompanying combined financial statements of
Lowestfare.com LLC (formerly Global Discount Travel Services LLC)
("Lowestfare.com") 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
Lowestfare.com 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
eleventh paragraph of Note 1,
which is as of March 10, 1999
F-11
<PAGE> 83
LOWESTFARE.COM LLC
AND GLOBAL TRAVEL MARKETING SERVICES, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1997 1998 1999
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $12,919,000 $11,427,000 $ 8,031,000
Restricted cash................................... 24,445,000 29,916,000 41,124,000
Accounts receivable, net.......................... 2,249,000 1,746,000 3,919,000
Prepaid expenses and other current assets......... 208,000 901,000 1,853,000
----------- ----------- -----------
Total current assets........................... 39,821,000 43,990,000 54,927,000
Property and equipment, net (note 2)................ 1,972,000 1,748,000 2,888,000
Deposits............................................ 2,210,000 2,011,000 2,011,000
Due from affiliates (note 4)........................ 1,421,000 79,000 90,000
----------- ----------- -----------
Total assets................................... $45,424,000 $47,828,000 $59,916,000
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS'/MEMBERS' EQUITY
Current liabilities:
Amounts payable for tickets purchased............. $16,694,000 $11,269,000 $22,550,000
Due to affiliates and related parties (note 4).... 11,718,000 92,000 71,000
Accrued tax....................................... 3,786,000 8,211,000 9,384,000
Accrued ticket reimbursement...................... 2,402,000 4,322,000 4,800,000
Accrued expenses.................................. 4,474,000 3,962,000 6,307,000
Current portion of capital lease obligations (note
3)............................................. 99,000 108,000 108,000
----------- ----------- -----------
Total current liabilities...................... 39,173,000 27,964,000 43,220,000
Long-term liabilities:
Long-term portion of capital lease obligations
(notes 3 and 5)................................ 270,000 162,000 137,000
----------- ----------- -----------
Total liabilities.............................. 39,443,000 28,126,000 43,357,000
----------- ----------- -----------
Commitments, contingencies and subsequent events
(notes 5 and 8)
Stockholders'/members' equity:
Common stock, $0.01 par value. Authorized, issued
and outstanding 2,500 shares................... 1,000 1,000 1,000
Contributed capital............................... 100,000 100,000 3,539,000
Deferred compensation (note 7).................... -- -- (3,439,000)
Retained earnings................................. 5,880,000 19,601,000 16,458,000
----------- ----------- -----------
Total stockholders'/members' equity............ 5,981,000 19,702,000 16,559,000
----------- ----------- -----------
Total liabilities and stockholders'/members'
equity....................................... $45,424,000 $47,828,000 $59,916,000
=========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-12
<PAGE> 84
LOWESTFARE.COM LLC
AND GLOBAL TRAVEL MARKETING SERVICES, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
-------------------------------------------- ----------------------------
1996 1997 1998 1998 1999
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues............. $116,917,000 $200,711,000 $224,422,000 $64,651,000 $66,400,000
Cost of revenues..... 86,974,000 148,421,000 165,074,000 47,762,000 47,653,000
------------ ------------ ------------ ----------- -----------
Gross profit.... 29,943,000 52,290,000 59,348,000 16,889,000 18,747,000
------------ ------------ ------------ ----------- -----------
Operating expenses:
Commissions........ 11,658,000 20,022,000 17,997,000 5,585,000 4,481,000
Salaries, wages and
benefits........ 9,146,000 10,605,000 11,774,000 2,950,000 2,969,000
Selling, general
and
administrative... 11,371,000 17,134,000 18,062,000 3,758,000 7,892,000
------------ ------------ ------------ ----------- -----------
Total operating
expenses...... 32,175,000 47,761,000 47,833,000 12,293,000 15,342,000
------------ ------------ ------------ ----------- -----------
Operating income
(loss)........ (2,232,000) 4,529,000 11,515,000 4,596,000 3,405,000
------------ ------------ ------------ ----------- -----------
Other income
(expense):
Interest income.... 1,186,000 3,602,000 2,633,000 610,000 607,000
Interest expense... (23,000) (127,000) (427,000) (77,000) (155,000)
------------ ------------ ------------ ----------- -----------
Total other
income
(expense)..... 1,163,000 3,475,000 2,206,000 533,000 452,000
------------ ------------ ------------ ----------- -----------
Net income
(loss)........ $(1,069,000) $8,004,000 $13,721,000 $5,129,000 $3,857,000
============ ============ ============ =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-13
<PAGE> 85
LOWESTFARE.COM LLC
AND GLOBAL TRAVEL MARKETING SERVICES, INC.
COMBINED STATEMENTS OF STOCKHOLDERS'/MEMBERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
STOCKHOLDERS'/
COMMON CONTRIBUTED DEFERRED RETAINED MEMBERS'
STOCK CAPITAL COMPENSATION EARNINGS EQUITY
------ ----------- ------------ ----------- --------------
<S> <C> <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
Net income (unaudited).......... -- -- -- 3,857,000 3,857,000
Distribution to member
(Unaudited).................. -- -- -- (7,000,000) (7,000,000)
Deferred compensation
(Unaudited).................. -- 3,439,000 (3,439,000) -- --
------ ---------- ---------- ----------- -----------
Balance at December 31, 1999
(Unaudited)..................... $1,000 $3,539,000 (3,439,000) $16,458,000 $16,559,000
====== ========== ========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-14
<PAGE> 86
LOWESTFARE.COM LLC
AND GLOBAL TRAVEL MARKETING SERVICES, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------------------- ---------------------------
1996 1997 1998 1998 1999
----------- ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)..................... $(1,069,000) $ 8,004,000 $ 13,721,000 $ 5,131,000 $ 3,857,000
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization....... 277,000 555,000 562,000 144,000 197,000
Changes in operating assets and
liabilities:
Restricted cash................... (4,946,000) (8,728,000) (5,471,000) (16,520,000) (11,208,000)
Accounts receivable............... (2,056,000) 728,000 503,000 (1,527,000) (2,173,000)
Prepaid expenses and other current
assets.......................... (124,000) (29,000) (693,000) (1,290,000) (952,000)
Deposits.......................... (2,210,000) -- 199,000 (11,000) --
Due from affiliates............... (437,000) (984,000) 1,342,000 1,421,000 (11,000)
Amount payable for tickets
purchased....................... 11,931,000 (3,337,000) (5,425,000) 12,382,000 11,281,000
Due to affiliates................. 5,303,000 1,812,000 (11,626,000) (7,768,000) (21,000)
Accounts payable.................. (244,000) -- -- -- --
Accrued tax....................... 800,000 2,986,000 4,425,000 1,170,000 1,173,000
Accrued ticket reimbursement...... 247,000 1,231,000 1,920,000 88,000 478,000
Accrued expenses.................. 2,868,000 1,604,000 (512,000) (166,000) 2,345,000
----------- ------------ ------------ ------------ ------------
Net cash provided by (used in)
operating activities......... 10,340,000 3,842,000 (1,055,000) (6,946,000) 4,966,000
----------- ------------ ------------ ------------ ------------
INVESTING ACTIVITIES:
Acquisition of property and
equipment........................... (1,198,000) (933,000) (338,000) (75,000) (1,337,000)
Proceeds from sale of equipment....... 223,000 -- -- -- --
Distribution to member................ -- -- -- -- (7,000,000)
----------- ------------ ------------ ------------ ------------
Net cash used in investing
activities................... (975,000) (933,000) (338,000) (75,000) (8,337,000)
----------- ------------ ------------ ------------ ------------
FINANCING ACTIVITIES:
Payments on capital lease
obligations......................... (35,000) (109,000) (99,000) (24,000) (25,000)
Loan to affiliate..................... -- -- -- -- (4,300,000)
Repayment from affiliate.............. -- -- -- -- 4,300,000
----------- ------------ ------------ ------------ ------------
Net cash used in financing
activities................... (35,000) (109,000) (99,000) (24,000) (25,000)
----------- ------------ ------------ ------------ ------------
Net increase (decrease) in cash
and cash equivalents......... 9,330,000 2,800,000 (1,492,000) (7,045,000) (3,396,000)
Cash and cash equivalents, beginning
of year............................. 789,000 10,119,000 12,919,000 12,919,000 11,427,000
----------- ------------ ------------ ------------ ------------
Cash and cash equivalents, end of
year................................ $10,119,000 $12,919,000 $11,427,000 $5,874,000 $8,031,000
=========== ============ ============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Amount paid for interest.............. $17,000 $46,000 $26,000 $6,000 $5,000
=========== ============ ============ ============ ============
Property and equipment purchased with
capital lease....................... $514,000 -- -- -- --
=========== ============ ============ ============ ============
Deferred compensation................. -- -- -- -- $3,439,000
=========== ============ ============ ============ ============
</TABLE>
See accompanying notes to combined financial statements.
F-15
<PAGE> 87
LOWESTFARE.COM LLC
AND GLOBAL TRAVEL MARKETING SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
AND THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
The accompanying combined financial statements include the accounts of
Lowestfare.com LLC (formerly Global Discount Travel Services LLC)
("Lowestfare.com") and Global Travel Marketing Services, Inc. ("Global Travel
Marketing") (collectively the "Company"). Both entities are owned and controlled
by common ownership. Lowestfare.com 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)
toll-free telephone reservation and customer service center, (2) affiliations
with travel agencies which are authorized to promote the sale of discount
airline tickets on Trans World Airlines, Inc. (TWA) and (3) Web site
(www.Lowestfare.com). Global Travel Marketing, a Nevada Corporation organized as
a C Corporation, provides marketing and advertising services on behalf of
Lowestfare.com. On June 14, 1995, the TWA and Karabu Corp. ("Karabu") entered
into an agreement whereby Karabu may purchase tickets for passenger travel on
TWA at discounts from published fares through September 2003. By agreement dated
August 14, 1995, Lowestfare.com 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 Lowestfare.com and Global
Travel Marketing will become wholly owned subsidiaries of Lowestfare.com, Inc.
Accordingly, the combined financial statements of Lowestfare.com and Global
Travel Marketing for the years presented herein are predecessor operations to
the comparable entity which will exist on a post-offering basis.
INTERIM FINANCIAL STATEMENTS
The interim combined financial statements as of March 31, 1999 and the
three months ended March 31, 1998 and 1999 are unaudited. This information
reflects all adjustments, consisting of normal recurring adjustments, that in
the opinion of management, are necessary to present fairly the financial
position and results of operations of the Company for the periods indicated.
results of operations for the three months ended March 31, 1999 are not
necessarily indicative of the results of operations for the full year. This
information should be read in conjunction with the audited financial statements
as of December 31, 1997 and 1998 and for each of the years in the three-year
period ending December 31, 1998.
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.
F-16
<PAGE> 88
LOWESTFARE.COM LLC
AND GLOBAL TRAVEL MARKETING SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated over their
estimated useful lives of five 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, as well as related cost of sales,
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.
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
Lowestfare.com is taxed as a limited liability company under the Internal
Revenue Code provisions. According to these provisions, Lowestfare.com does not
pay income tax on its income. Instead, the member of Lowestfare.com 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 Lowestfare.com'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,
Lowestfare.com distributed approximately $7,000,000 and, prior to the
organizational restructuring, intends to distribute approximately $1,300,000 to
the member for payment of his income tax liability for the year ended December
31, 1998 and for the three months ended March 31, 1999, respectively.
START-UP COSTS
Start-up costs are expensed as incurred.
F-17
<PAGE> 89
LOWESTFARE.COM LLC
AND GLOBAL TRAVEL MARKETING SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
MARKETING EXPENSES
The Company expenses advertising as incurred. Marketing expense aggregated
$2,323,000, $4,149,000 and $3,514,000 for the years ended December 31, 1996,
1997 and 1998 and $626,000 and $4,870,000 for the three months ended March 31,
1998 and 1999, 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.
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.
F-18
<PAGE> 90
LOWESTFARE.COM LLC
AND GLOBAL TRAVEL MARKETING SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1997 1998 1999
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Computer hardware and software................. $ 755,000 $ 963,000 $2,260,000
Furniture and office equipment................. 1,067,000 1,137,000 1,176,000
Leasehold improvements......................... 872,000 938,000 938,000
---------- ---------- ----------
2,694,000 3,038,000 4,374,000
Less accumulated depreciation and
amortization................................. 722,000 1,290,000 1,486,000
---------- ---------- ----------
$1,972,000 $1,748,000 $2,888,000
========== ========== ==========
</TABLE>
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,
-------------------- MARCH 31,
1997 1998 1999
-------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Office equipment................................ $593,000 $593,000 $593,000
Less accumulated depreciation................... 168,000 270,000 316,000
-------- -------- --------
$425,000 $323,000 $277,000
======== ======== ========
</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 and the three months ended
F-19
<PAGE> 91
LOWESTFARE.COM LLC
AND GLOBAL TRAVEL MARKETING SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
March 31, 1998 and 1999 was $333,000, $413,000, $475,000, $118,000 and $192,000,
respectively. The carrying amount of capital leases approximates fair value at
March 31, 1999.
4. RELATED PARTY TRANSACTIONS
Global Travel Marketing has contracted with Lowestfare.com to solicit sales
of Lowestfare.com tickets through travel agencies and coordinate
Lowestfare.com'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 TWA which was repaid in October 1997
through the application of payments due under the Ticket Program Agreement. On
June 14, 1995, TWA and Karabu entered into an agreement whereby Karabu may
purchase tickets for passenger travel on TWA at discounts from published fares
through September 2003. By agreement dated August 14, 1995, Lowestfare.com was
joined as a party to this ticket program agreement as if an original signatory.
Karabu and Lowestfare.com share common ownership. As of December 31, 1997 and
1998 and March 31, 1999, due to affiliates and related parties include amounts
payable to Karabu in the amounts of $9,000,000, $-0-, and $-0-, respectively.
Astute Discount Travelers' Club, LLC ("Astute") purchases airline tickets
from Lowestfare.com at a discounted cost and sells them to Travel Club members.
Astute and Lowestfare.com share common ownership. As of December 31, 1997 and
1998 and March 31, 1999, Lowestfare.com has included $2,470,000, $-0- and $-0-,
respectively, in amounts due to affiliates and related parties for the purchase
of these tickets. As of December 31, 1997 and 1998 and March 31, 1999, Astute
owed Lowestfare.com $1,421,000, $79,000 and $90,000, respectively, for repayment
of operating expenses. As of March 31, 1998, Astute has been discontinued.
ACF Industries, a shareholder of a majority owner of Vauxhall LLC, the
majority owner of Lowestfare.com, processes payments on behalf of Lowestfare.com
for insurance coverage and legal services rendered by external third party legal
counsel. As of December 31, 1997 and 1998 and March 31, 1998, Lowestfare.com
included in amounts due to affiliates and related parties $248,000, $92,000 and
$71,000, 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.
On January 19, 1999, Lowestfare.com made a loan to Global Partner, Inc., an
entity controlled by Carl C. Icahn and a member of Lowestfare.com, for
$4,300,000 at the prime rate, plus one-half percent per year. This loan was
repaid on March 10, 1999.
5. COMMITMENTS AND CONTINGENCIES
LITIGATION
On March 20, 1996, TWA filed a petition (the "Petition") in the Circuit
Court for St. Louis County, Missouri, commencing a lawsuit against Carl C.
Icahn, Karabu, Lowestfare.com 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 TWA'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 which are purchased by
Lowestfare.com from TWA at a 45% discount from TWA'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 TWA's
costs and attorney's fees. The Icahn Entities
F-20
<PAGE> 92
LOWESTFARE.COM LLC
AND GLOBAL TRAVEL MARKETING SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
responded with counterclaims alleging that TWA had damaged Lowestfare.com 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 TWA's
or the Icahn Entities' petitions. The Court found that the ticket program
agreement was clear on its face and that Lowestfare.com's sales of system
tickets to leisure travelers did not breach the ticket program agreement. The
Court found that, in any event, neither TWA nor Lowestfare.com 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. TWA 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. TWA has appealed the denial of its motion for clarification and the
Court's original ruling.
TWA 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 TWA's arguments on appeal, but there can be no assurance that
Lowestfare.com will succeed on all or part of TWA's appeal. If TWA succeeds on
appeal and all or part of the lower court's decision in Lowestfare.com's favor
is reversed or modified, Lowestfare.com may lose its right to purchase certain
types of tickets under the ticket program agreement and may be required to pay
damages to TWA, which could be substantial. If Lowestfare.com loses its right to
purchase tickets under the ticket program agreement, such a result would
materially and adversely affect its 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.
MARKETING CONTRACTS
The Company has entered into several marketing 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>
<CAPTION>
YEARS ENDING DECEMBER 31:
<S> <C>
1999...................................................... $11,035,000
2000...................................................... 6,672,000
2001...................................................... 4,988,000
-----------
$22,695,000
===========
</TABLE>
F-21
<PAGE> 93
LOWESTFARE.COM LLC
AND GLOBAL TRAVEL MARKETING SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Summary information about the Company's segments is as follows:
<TABLE>
<CAPTION>
YEAR ENDED 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>
YEAR ENDED 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>
YEAR ENDED 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>
F-22
<PAGE> 94
LOWESTFARE.COM LLC
AND GLOBAL TRAVEL MARKETING SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
----------------------------------------
(UNAUDITED)
INTERNET CALL-IN AGENCY
---------- ----------- -----------
<S> <C> <C> <C>
Revenues..................................... $1,281,000 $14,949,000 $48,421,000
Cost of revenues............................. 934,000 10,826,000 36,002,000
---------- ----------- -----------
Gross profit............................... 347,000 4,123,000 12,419,000
Operating expenses........................... 263,000 3,352,000 8,678,000
---------- ----------- -----------
Operating income........................... $84,000 $771,00 $3,741,000
========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999
-----------------------------------------
(UNAUDITED)
INTERNET CALL-IN AGENCY
----------- ----------- -----------
<S> <C> <C> <C>
Revenues.................................... $8,260,000 $19,134,000 $39,006,000
Cost of revenues............................ 5,979,000 13,446,000 28,228,000
----------- ----------- -----------
Gross profit.............................. 2,281,000 5,688,000 10,778,000
Operating expenses.......................... 4,605,000 3,773,000 6,964,000
----------- ----------- -----------
Operating income (loss)................... $(2,324,000) $1,915,000 $3,814,000
=========== =========== ===========
</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 statement 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.
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, Lowestfare.com 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
F-23
<PAGE> 95
LOWESTFARE.COM LLC
AND GLOBAL TRAVEL MARKETING SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
determined pursuant to SFAS No. 123, the Company's net income 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 three 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, Lowestfare.com 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, aggregating $3,439,000, ratably over
the three and four year vesting periods of the options. None of the options
vested during the three months ended March 31, 1999. Accordingly, no
compensation expense was recorded during the three months ended March 31, 1999.
The amount of future compensation expense to be recognized has been recorded as
deferred compensation in the stockholders'/members' equity section in the
accompanying balance sheet at March 31, 1999. Immediately prior to the closing
of an initial public offering of Lowestfare.com, Inc., the Company will effect
an organizational restructuring whereby Lowestfare.com 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
Immediately prior to the closing of the initial public offering, the
Company will effect an organizational restructuring whereby Lowestfare.com 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 Lowestfare.com 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.
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 Lowestfare.com. The
basis in the assets of Lowestfare.com 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 Lowestfare.com and Global Travel Marketing prior to the
restructuring will be the same as that for Lowestfare.com, Inc. on a
consolidated basis.
F-24
<PAGE> 96
[INSIDE BACK-COVER PAGE]
Selected Marketing Relationships & Travel Providers
[Yahoo! logo]* [Hertz logo] [theglobe.com logo]
[China Southern Airlines logo] [Carnival logo] [Royal Caribbean International
logo]
[Stratosphere logo] [tripod logo]
[swissair logo]
[LookSmart logo] [Arthur Frommer's Budget Travel Online logo]
[America West Airlines logo] [Luxor logo]
[Dollar Rent A Car logo] [miningco.com logo]
[Lowestfare.com logo]
* Reproduced with permission of Yahoo! Inc. (C)1999 by Yahoo! Inc. Yahoo! and
the Yahoo! logo are trademarks of Yahoo! Inc.
<PAGE> 97
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............................................. 14,300
Nasdaq National Marketing Listing Fee....................... 95,000
Blue Sky Qualification Fees and Expenses.................... 10,000
Printing and Engraving...................................... 200,000
Legal Fees and Expenses..................................... 700,000
Accounting Fees and Expenses................................ 200,000
Directors' and Officers' liability insurance................ 325,000
Transfer Agent's Fees and Expenses.......................... 10,000
Miscellaneous............................................... 107,336
----------
Total........................................ $1,700,000
==========
</TABLE>
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 (a) for any breach of the director's duty of loyalty to
Lowestfare.com or its stockholders; (b) for acts of omissions not in good faith
or that involve intentional misconduct or a knowing violation of law; (c) under
section 174 of the Delaware law (regarding payments of dividends, stock
purchases or redemptions which are unlawful); or (d) 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 (a) 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 (b) 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.
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
II-1
<PAGE> 98
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, as amended.
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:
Common Stock. Immediately prior to the closing of the offering:
All of the outstanding member interests in Lowestfare.com LLC (formerly
known as Global Discount Travel Services LLC) 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. The aggregate value of the common
stock to be issued to Vauxhall LLC will be $343,198,800, assuming an initial
offering price of $12.00 per share.
Options. The Registrant from time to time has granted stock options to
employees. The following sets forth certain information regarding such grants
during the past fiscal year:
In January 1998, Vincent L. Martinelli was granted an option to purchase a
0.2% interest in Lowestfare.com LLC for an aggregate exercise price of $400,000.
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.
In May 1998, Terry O'Neal was granted an option to purchase a 0.4% interest
in Lowestfare.com LLC for an aggregate exercise price of $800,000. 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.
In May 1998, Gregory Monton was granted an option to purchase a 0.4%
interest in Lowestfare.com LLC for an aggregate exercise price of $800,000.
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.
In May 1998, Douglas Lanner was granted an option to purchase a 0.1%
interest in Lowestfare.com LLC for an aggregate exercise price of $200,000.
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.
In May 1998, Steven S. Lay was granted an option to purchase a 0.4%
interest in Lowestfare.com LLC for an aggregate exercise price of $800,000.
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.
In May 1998, Gail Golden was granted an option to purchase a 2.0% interest
in Lowestfare.com LLC for an aggregate exercise price of $4,000,000. 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 788,665
shares of common stock at an exercise price of $5.07.
In May 1998, Russell Glass was granted an option to purchase a 0.4%
interest in Lowestfare.com LLC for an aggregate exercise price of $800,000.
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.
In January 1999, Kenneth G. Swanton was granted an option to purchase a
1.5% interest in Lowestfare.com LLC for an aggregate exercise price of
$3,000,000. 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.
II-2
<PAGE> 99
In January 1999, Denise Barton was granted an option to purchase a 0.2%
interest in Lowestfare.com LLC for an aggregate exercise price of $400,000.
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.
In April 1999, Michael S. Egan was granted an option to purchase 35,000
shares of common stock at an exercise price of $11.00 per share.
In April 1999, Michael Levy was granted an option to purchase 35,000 shares
of common stock at an exercise price of $11.00 per share.
In April 1999, Harold T. Shapiro was granted an option to purchase 20,000
shares of common stock at an exercise price of $11.00 per share.
The issuances described in this Item 15 were deemed exempt from
registration pursuant to either (i) Section 4(2) of the Securities Act of 1933,
as transactions not involving any public offering or (ii) Rule 701 promulgated
under the Securities Act. No underwriters were involved in connection with the
sales of securities referred to in this Item 15.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- -------- -----------
<S> <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, 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.
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.
</TABLE>
II-3
<PAGE> 100
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- -------- -----------
<S> <C>
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.
10.24 Amended and Restated Employment Agreement dated May 26,
1998, between Douglas Lanner 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.
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>
- ---------------
* Previously filed.
** 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
II-4
<PAGE> 101
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> 102
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to the 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 April 27, 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 Amendment No. 1 to the registration statement has been signed by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
* Chairman of the Board and April 27, 1999
- --------------------------------------------------- Director
Carl C. Icahn
* President, Vice Chairman and April 27, 1999
- --------------------------------------------------- Director
Gail Golden
/s/ RUSSELL D. GLASS Vice Chairman and Director April 27, 1999
- ---------------------------------------------------
Russell D. Glass
/s/ KENNETH G. SWANTON Chief Executive Officer and April 27, 1999
- --------------------------------------------------- Director (Principal Executive
Kenneth G. Swanton Officer)
/s/ DENISE BARTON Chief Financial Officer April 27, 1999
- --------------------------------------------------- (Principal Financial and
Denise Barton Accounting Officer)
/s/ HAROLD T. SHAPIRO Director April 27, 1999
- ---------------------------------------------------
Harold T. Shapiro
Director April , 1999
- ---------------------------------------------------
Michael S. Egan
/s/ MICHAEL LEVY Director April 27, 1999
- ---------------------------------------------------
Michael Levy
*By: /s/ RUSSELL D. GLASS
---------------------------------------------
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 103
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, 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.
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.
</TABLE>
<PAGE> 104
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBITS DESCRIPTION PAGE
- -------- ----------- ------------
<S> <C> <C>
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.
10.24 Amended and Restated Employment Agreement dated May 26,
1998, between Douglas Lanner 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.
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>
- ---------------
* Previously filed.
** To be filed by amendment.
+ Portions have been omitted pursuant to a confidential treatment request.
<PAGE> 1
Exhibit 1.1
Underwriting Agreement
April ____, 1999
BancBoston Robertson Stephens Inc.
Bear, Stearns & Co. Inc.
as Representatives of the several Underwriters
c/o BancBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, CA 94104
Ladies and Gentlemen:
Introductory. Lowestfare.com, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell to the several underwriters named in
Schedule A (the "Underwriters") an aggregate of [___] shares (the "Firm Shares")
of its Common Stock, par value $.01 per share (the "Common Shares"). In
addition, the Company has granted to the Underwriters an option to purchase up
to an additional [___] Common Shares (the "Option Shares") as provided in
Section 2. The Firm Shares and, if and to the extent such option is exercised,
the Option Shares, are collectively called the "Shares." BancBoston Robertson
Stephens Inc. and Bear, Stearns & Co. Inc. have agreed to act as representatives
of the several Underwriters (in such capacity, the "Representatives") in
connection with the offering and sale of the Shares.
Simultaneously with the closing with respect to the purchase of the
Firm Shares by the several Underwriters, the Company will acquire all of the
membership interest in Global Discount Travel Services LLC ("Global Discount")
and all of the equity interest in Global Travel Marketing Services, Inc.
("Global Travel") (collectively, Global Discount and Global Travel shall be
referred to as the "Subsidiaries") (the "Organizational Restructuring"), the
consideration for which shall be shares of the Company's Common Stock as more
fully described in the Registration Statement (as hereinafter defined).
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (File No.
333-___), which contains a form of prospectus to be used in connection with the
public offering and sale of the Shares. Such registration statement, as amended,
including the financial statements, exhibits and schedules thereto, in the form
in which it was declared effective by the Commission under the Securities Act of
1933 and the rules and regulations promulgated thereunder (collectively, the
"Securities Act"), including any information deemed to be a part thereof at the
time of effectiveness pursuant to Rule 430A or Rule 434 under the Securities
Act, is called the "Registration Statement." Any registration statement filed by
the Company pursuant to Rule 462(b) under the Securities Act is called the "Rule
462(b) Registration Statement," and from and after the date and time of filing
of the Rule 462(b) Registration Statement the term "Registration Statement"
shall include the Rule 462(b) Registration Statement. Such prospectus, in the
form first used by the Underwriters to confirm sales of the Shares, is called
the "Prospectus;" provided, however, if the Company has, with the consent of
BancBoston
<PAGE> 2
Robertson Stephens Inc., elected to rely upon Rule 434 under the Securities Act,
the term "Prospectus" shall mean the Company's prospectus subject to completion
(each, a "preliminary prospectus") dated ___________ (such preliminary
prospectus is called the "Rule 434 preliminary prospectus"), together with the
applicable term sheet (the "Term Sheet") prepared and filed by the Company with
the Commission under Rules 434 and 424(b) under the Securities Act and all
references in this Agreement to the date of the Prospectus shall mean the date
of the Term Sheet. All references in this Agreement to the Registration
Statement, the Rule 462(b) Registration Statement, a preliminary prospectus, the
Prospectus or the Term Sheet, or any amendments or supplements to any of the
foregoing, shall include any copy thereof filed with the Commission pursuant to
its Electronic Data Gathering, Analysis and Retrieval System ("EDGAR").
The Company hereby confirms its agreements with the Underwriters as
follows:
Section 1. Representations and Warranties of the Company.
The Company hereby represents, warrants and covenants to each
Underwriter as follows:
(a) Compliance with Registration Requirements. The Registration
Statement and any Rule 462(b) Registration Statement have been declared
effective by the Commission under the Securities Act. The Company has complied
to the Commission's satisfaction with all requests of the Commission for
additional or supplemental information. No stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement is in effect and no proceedings for such purpose have been instituted
or are pending or, to the best knowledge of the Company, are contemplated or
threatened by the Commission.
Each preliminary prospectus and the Prospectus, when filed, complied
in all material respects with the Securities Act and, if filed by electronic
transmission pursuant to EDGAR (except as may be permitted by Regulation S-T
under the Securities Act), was identical to the copy thereof delivered to the
Underwriters for use in connection with the offer and sale of the Shares. Each
of the Registration Statement, any Rule 462(b) Registration Statement and any
post-effective amendment thereto, at the time it became effective and at all
subsequent times, complied and will comply in all material respects with the
Securities Act and did not and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. The Prospectus, as
amended or supplemented, as of its date and at all subsequent times, did not and
will not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The
representations and warranties set forth in the two immediately preceding
sentences do not apply to statements in or omissions from the Registration
Statement, any Rule 462(b) Registration Statement, or any post-effective
amendment thereto, or the Prospectus, or any amendments or supplements thereto,
made in reliance upon and in conformity with information relating to any
Underwriter furnished to the Company in writing by the Representatives expressly
for use therein. There are no contracts or other documents required to be
described in the Prospectus or to be filed as exhibits to the Registration
Statement which have not been described or filed as required.
2
<PAGE> 3
(b) Offering Materials Furnished to Underwriters. The Company has
delivered to each of the Representatives one complete conformed copy of the
Registration Statement and of each consent and certificate of experts filed as a
part thereof, and conformed copies of the Registration Statement (without
exhibits) and preliminary prospectuses and the Prospectus, as amended or
supplemented, in such quantities and at such places as the Representatives have
reasonably requested for each of the Underwriters.
(c) Distribution of Offering Material By the Company. The Company
has not distributed and will not distribute, prior to the later of the Second
Closing Date (as defined below) and the completion of the Underwriters'
distribution of the Shares, any offering material in connection with the
offering and sale of the Shares other than a preliminary prospectus, the
Prospectus or the Registration Statement.
(d) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding agreement of,
the Company, enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except as the
enforcement hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the rights and
remedies of creditors or by general equitable principles.
(e) Authorization of the Shares. The Shares to be purchased by the
Underwriters from the Company have been duly authorized for issuance and sale
pursuant to this Agreement and, when issued and delivered by the Company
pursuant to this Agreement, will be validly issued, fully paid and
nonassessable.
(f) No Applicable Registration or Other Similar Rights. There are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by this Agreement, except for such rights as have been
duly waived.
(g) No Material Adverse Change. Subsequent to the respective dates
as of which information is given in the Prospectus: (i) there has been no
material adverse change, or any development that could reasonably be expected to
result in a material adverse change, in the condition, financial or otherwise,
or in the earnings, business, operations or prospects, whether or not arising
from transactions in the ordinary course of business, of the Company and the
Subsidiaries, considered as one entity (any such change or effect, where the
context so requires, is called a "Material Adverse Change" or a "Material
Adverse Effect"); (ii) the Company and the Subsidiaries, considered as one
entity, have not incurred any material liability or obligation, indirect, direct
or contingent, not in the ordinary course of business nor entered into any
material transaction or agreement not in the ordinary course of business; and
(iii) there has been no dividend or distribution of any kind declared, paid or
made by the Company or the Subsidiaries, except for dividends paid to the
Company, on any class of capital stock or repurchase or redemption by the
Company or the Subsidiaries of any class of capital stock.
(h) Independent Accountants. KPMG LLP, who have expressed their
opinion with respect to the financial statements (which term as used in this
Agreement includes the related notes thereto) [and supporting schedules] filed
with the Commission as a part of the
3
<PAGE> 4
Registration Statement and included in the Prospectus, are independent public or
certified public accountants as required by the Securities Act.
(i) Preparation of the Financial Statements. The financial
statements filed with the Commission as a part of the Registration Statement and
included in the Prospectus present fairly the combined financial position of
Global Discount and Global Travel and the financial position of the Company as
of and at the dates indicated and the results of their operations and cash flows
for the periods specified. [The supporting schedules included in the
Registration Statement present fairly the information required to be stated
therein.] Such financial statements [and supporting schedules] have been
prepared in conformity with generally accepted accounting principles as applied
in the United States applied on a consistent basis throughout the periods
involved, except as may be expressly stated in the related notes thereto. No
other financial statements or supporting schedules are required to be included
in the Registration Statement. The financial data set forth in the Prospectus
under the captions "Prospectus Summary--Summary Combined Financial Data",
"Selected Combined Financial Data" and "Capitalization" fairly present the
information set forth therein on a basis consistent with that of the audited
financial statements contained in the Registration Statement.
(j) Company's Accounting System. The Company and the Subsidiaries
maintain a system of accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with management's
general or specific authorization; (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles as applied in the United States and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(k) Subsidiaries of the Company. The Company does not own or
control, directly or indirectly, any corporation, association or other entity
other than the Subsidiaries. The Subsidiaries do not own or control, directly or
indirectly, any corporation, association, or other entity.
(l) Incorporation and Good Standing of the Company and its
Subsidiaries. Each of the Company and the Subsidiaries has been duly organized
and is validly existing as a corporation or limited liability company as the
case may be, in good standing under the laws of the jurisdiction in which it is
organized with full corporate power and authority to own its properties and
conduct its business as described in the prospectus, and is duly qualified to do
business as a foreign corporation and is in good standing under the laws of each
jurisdiction which requires such qualification. The Company owns (i) all of
outstanding [membership interests] of Global Discount, and (ii) all of the
capital stock of Global Travel, free and clear of any pledges, liens, security
interests, encumbrances, claims, or equitable interests. The Subsidiaries do not
own any outstanding capital stock or ownership units, as the case may be, of any
other entity.
(m) Capitalization of the Subsidiaries. All the outstanding shares
of capital stock of each of the Subsidiaries have been duly and validly
authorized and issued and are fully paid
4
<PAGE> 5
and nonassessable, and, except as otherwise set forth in the Prospectus, all
outstanding shares of capital stock or membership interests, as the case may be,
of the Subsidiaries are owned directly by the Company, free and clear of any
pledges, liens security interests, encumbrances, claims, or equitable interests.
(n) No Prohibition on Subsidiaries from Paying Dividends or Making
Other Distributions. Neither Global Discount nor Global Travel is currently
prohibited, directly or indirectly, from paying any dividends to the Company,
from making any other distribution on such Subsidiary's capital stock, from
repaying to the Company any loans or advances to such Subsidiary from the
Company or from transferring any of such Subsidiary's property or assets to the
Company or any other subsidiary of the Company, except as described in or
contemplated by the Prospectus.
(o) Transfer Agreements. The Company has entered into the Transfer
Agreements (the "Transfer Agreements") set forth as Exhibits 2.1 through 2.3 to
the Registration Statement, pursuant to which the Company has acquired or will
acquire in separate merger and exchange transactions all of the capital stock
and membership interests of the Subsidiaries, each of the Transfer Agreements is
in full force and effect, has been duly and validly authorized, executed and
delivered by the parties thereto, and is valid and binding on the parties
thereto in accordance with its terms and neither the Company nor, to the
Company's knowledge, any other party thereto, is in default in any respect
thereunder. A complete and correct copy of each Transfer Agreement (including
Exhibits and Schedules) has been delivered to the Representatives and no changes
thereto will be made subsequent hereto and prior to the Closing Date; the
representations, warranties and covenants made in each Transfer Agreement by the
Company, and to the Company's knowledge, by each of the Subsidiaries and by each
stockholder [or member] of each of the Subsidiaries are true and correct in all
material respects, except for changes permitted or contemplated by, or waived
pursuant to, such Transfer Agreement; the performance of each Transfer Agreement
and the consummation of the transactions contemplated therein will not result in
a material breach or violation of any of the terms and provisions of, or
constitute a default under, (i) any bond, debenture, note or other evidence of
indebtedness, or under any lease, contract, indenture, mortgage, deed of trust,
loan agreement, joint venture or other agreement or instrument to which the
Company or the Subsidiaries is a party or by which the Company, the Subsidiaries
or their respective properties may be bound, (ii) the charter or bylaws or
Operating Agreement, as the case may be, of the Company or the Subsidiaries, or
(iii) any law, order, rule, regulation, writ, injunction, judgment or decree of
any court, government or governmental agency or body, domestic or foreign,
having jurisdiction over the Company, or the Subsidiaries or over their
respective properties; no consent, approval, authorization or order of or
qualification with any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or the Subsidiaries or
over their respective properties is required for the execution and delivery of
the Transfer Agreements and the consummation by the Company and the Subsidiaries
of the transactions therein contemplated, except such as may be required under
the Act or under state or other securities or Blue Sky laws, all of which
requirements have been satisfied in all material respects. All conditions
precedent to the obligations of the Company to consummate the Organizational
Restructuring have been satisfied or waived as of the date hereof.
5
<PAGE> 6
(p) Capitalization and Other Capital Stock Matters. The authorized,
issued and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" (other than for subsequent
issuances, if any, pursuant to employee benefit plans described in the
Prospectus or upon exercise of outstanding options or warrants described in the
Prospectus). The Common Shares (including the Shares) conform in all material
respects to the description thereof contained in the Prospectus. All of the
issued and outstanding Common Shares have been duly authorized and validly
issued, are fully paid and nonassessable and have been issued in compliance with
federal and state securities laws. None of the outstanding Common Shares were
issued in violation of any preemptive rights, rights of first refusal or other
similar rights to subscribe for or purchase securities of the Company. There are
no authorized or outstanding options, warrants, preemptive rights, rights of
first refusal or other rights to purchase, or equity or debt securities
convertible into or exchangeable or exercisable for, any capital stock of the
Company or the Subsidiaries, other than those accurately described in the
Prospectus. The description of the Company's stock option, stock bonus and other
stock plans or arrangements, and the options or other rights granted thereunder,
set forth in the Prospectus accurately and fairly presents the information
required to be shown with respect to such plans, arrangements, options and
rights. The shares of Common Stock to be issued in connection with the
Organizational Restructuring have been duly authorized and, upon completion of
the Organizational Restructuring as described in the Registration Statement and
Prospectus, will be validly issued, fully paid, and non-assessable when issued
as contemplated by the Transfer Agreements and shall not be subject to any
preemptive or similar rights.
(q) Stock Exchange Listing. The Shares have been approved for
inclusion on the Nasdaq National Market, subject only to official notice of
issuance.
(r) No Consents, Approvals or Authorizations Required. No consent,
approval, authorization, filing with or order of any court or governmental
agency or regulatory body is required in connection with the transactions
contemplated herein, or any agreement affecting the transactions described in
the "Summary of Organizational Restructuring" section of the Prospectus except
such as have been obtained or made under the Securities Act and such as may be
required (i) under the blue sky laws of any jurisdiction in connection with the
purchase and distribution of the Shares by the Underwriters in the manner
contemplated here and in the Prospectus, (ii) by the National Association of
Securities Dealers, LLC and (iii) by the federal and provincial laws of Canada.
(s) Non-Contravention of Existing Instruments Agreements. Neither
the issue and sale of the Shares nor the consummation of the Organizational
Restructuring or of any other of the transactions herein contemplated nor the
fulfillment of the terms hereof will conflict with, result in a breach or
violation or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or the Subsidiaries pursuant to, (i) the charter or
by-laws or operating agreement of the Company or the Subsidiaries, (ii) the
terms of any indenture, contract, lease, mortgage, deed of trust, note
agreement, loan agreement or other agreement, obligation, condition, covenant or
instrument to which the Company or the Subsidiaries is a party or bound or to
which its or their property is subject or (iii) any statute, law, rule,
regulation, judgment, order or decree applicable to the Company or the
Subsidiaries of any court, regulatory body, administrative agency, governmental
body, arbitrator or other authority having jurisdiction over the Company or the
Subsidiaries, or any of its or their properties.
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(t) No Defaults or Violations. Neither the Company nor the
Subsidiaries is in violation or default of (i) any provision of its charter or
by-laws or operating agreement, (ii) the terms of any indenture, contract,
lease, mortgage, deed of trust, note agreement, loan agreement or other
agreement, obligation, condition, covenant or instrument to which the Company or
any Subsidiary is a party or bound or to which its property is subject or (iii)
any statute, law, rule, regulation, judgment, order or decree of any court,
regulatory body, administrative agency, governmental body, arbitrator or other
authority having jurisdiction over the Company or the Subsidiaries or any of
their properties, as applicable, except any such violation or default which
would not, singly or in the aggregate, result in a Material Adverse Change
except as otherwise disclosed in the Prospectus.
(u) No Actions, Suits or Proceedings. Except as otherwise disclosed
in the Prospectus, no action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the Company
or the Subsidiaries or its or their property is pending or, to the best
knowledge of the Company, threatened that (i) could reasonably be expected to
have a Material Adverse Effect on the performance of this Agreement or the
consummation of any of the transactions contemplated hereby or (ii) could
reasonably be expected to result in a Material Adverse Effect.
(v) All Necessary Permits, Etc. The Company and the Subsidiaries
possess such valid and current certificates, authorizations or permits issued by
the appropriate state, federal or foreign regulatory agencies or bodies
necessary to conduct their respective businesses, and neither the Company nor
the Subsidiaries has received any notice of proceedings relating to the
revocation or modification of, or non-compliance with, any such certificate,
authorization or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, could result in a Material Adverse
Change.
(w) Title to Properties. The Company and the Subsidiaries have good
and marketable title to all the properties and assets reflected as owned in the
financial statements referred to in Section 1(i) above (or elsewhere in the
Prospectus), in each case free and clear of any security interests, mortgages,
liens, encumbrances, equities, claims and other defects, except such as do not
materially and adversely affect the value of such property and do not materially
interfere with the use made or proposed to be made of such property by the
Company or the Subsidiaries. The real property, improvements, equipment and
personal property held under lease by the Company or any subsidiary are held
under valid and enforceable leases, with such exceptions as are not material and
do not materially interfere with the use made or proposed to be made of such
real property, improvements, equipment or personal property by the Company or
the Subsidiaries.
(x) Tax Law Compliance. The Company and the Subsidiaries have filed
all necessary federal, state and foreign income and franchise tax returns and
have paid all taxes required to be paid by any of them and, if due and payable,
any related or similar assessment, fine or penalty levied against any of them.
The Company and the Subsidiaries have made adequate charges, accruals and
reserves in the applicable financial statements referred to in Section 1(i)
above in respect of all federal, state and foreign income, franchise, and other
taxes (including all excise tax liabilities with respect to airline ticket
sales) for all periods as to which the tax liability of the Company or the
Subsidiaries has not been finally determined. The
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<PAGE> 8
Company is not aware of any tax deficiency that has been or might be asserted or
threatened against the Company that could result in a Material Adverse Change.
(y) Intellectual Property Rights. Each of the Company and the
Subsidiaries owns or possesses adequate rights to use all patents, patent rights
or licenses, inventions, collaborative research agreements, domain names, trade
secrets, know-how, trademarks, service marks, trade names and copyrights which
are necessary to conduct its businesses as described in the Registration
Statement and Prospectus; the expiration of any patents, patent rights, domain
names, trade secrets, trademarks, service marks, trade names or copyrights would
not result in a Material Adverse Change that is not otherwise disclosed in the
Prospectus; neither the Company nor any Subsidiary has received any notice of,
and neither the Company nor any Subsidiary has any knowledge of, any
infringement of or conflict with asserted rights of the Company or the
Subsidiaries by others with respect to any patent, patent rights, inventions,
domain names, trade secrets, know-how, trademarks, service marks, trade names or
copyrights; and neither the Company nor any Subsidiary has received any notice
of, and neither the Company nor any Subsidiary has any knowledge of, any
infringement of or conflict with asserted rights of others with respect to any
patent, patent rights, inventions, domain names trade secrets, know-how,
trademarks, service marks, trade names or copyrights which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, might
have a Material Adverse Change. There is no claim being made against the Company
or any Subsidiary regarding patents, patent rights or licenses, inventions,
collaborative research, domain names trade secrets, know-how, trademarks,
service marks, trade names or copyrights. The Company and the Subsidiaries do
not in the conduct of their business as now or proposed to be conducted as
described in the Prospectus infringe or conflict with any right or patent of any
third party, or any discovery, invention, product or process which is the
subject of a patent application filed by any third party, known to the Company
or the Subsidiaries which such infringement or conflict is reasonably likely to
result in a Material Adverse Change.
(z) Year 2000 Preparedness. There are no issues related to the
Company's nor the Subsidiaries' preparedness for the Year 2000 that (i) are of a
character required to be described or referred to in the Registration Statement
or Prospectus by the Securities Act which have not been accurately described in
the Registration Statement or Prospectus or (ii) might reasonably be expected to
result in any Material Adverse Change or that might materially affect their
properties, assets or rights. All internal computer systems and each Constituent
Component (as defined below) of those systems and all computer-related products
and each Constituent Component (as defined below) of those products of the
Company and each of its subsidiaries fully comply with Year 2000 Qualification
Requirements. "Year 2000 Qualifications Requirements" means that the internal
computer systems and each Constituent Component (as defined below) of those
systems and all computer-related products and each Constituent Component (as
defined below) of those products of the Company and the Subsidiaries (i) have
been reviewed to confirm that they store, process (including sorting and
performing mathematical operations, calculations and computations), input and
output data containing date and information correctly regardless of whether the
date contains dates and times before, on or after January 1, 2000, (ii) have
been designated to ensure date and time entry recognition and calculations, and
date data interface values that reflect the century, (iii) accurately manage and
manipulate data involving dates and times, including single century formulas and
multi-century formulas, and will not cause an abnormal ending scenario within
the application or generate
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incorrect values or invalid results involving such dates, (iv) accurately
process any date rollover, and (v) accept and respond to two-digit year date
input in a manner that resolves any ambiguities as to the century. "Constituent
Component" means all software (including operating systems, programs, packages
and utilities), firmware, hardware, networking components, and peripherals
provided as part of the configuration. The Company has inquired of material
vendors as to their preparedness for the Year 2000 and has disclosed in the
Registration Statement or Prospectus any issues that might reasonably be
expected to result in any Material Adverse Change.
(aa) No Transfer Taxes or Other Fees. There are no transfer taxes or
other similar fees or charges under Federal law or the laws of any state, or any
political subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the issuance and sale by the Company
of the shares.
(bb) Company Not an "Investment Company." The Company has been
advised of the rules and requirements under the Investment Company Act of 1940,
as amended (the "Investment Company Act"). Neither the Company nor any of the
Subsidiaries is, and after receipt of payment for the Shares neither the Company
nor any Subsidiary will be, an "investment company" or an entity "controlled" by
an "investment company" within the meaning of the Investment Company Act and
will conduct their respective businesses in a manner so that it will not become
subject to the Investment Company Act.
(cc) Insurance. Each of the Company and the Subsidiaries are insured
by recognized, financially sound and reputable institutions with policies in
such amounts and with such deductibles and covering such risks as are generally
deemed adequate and customary for their businesses including, but not limited
to, policies covering real and personal property owned or leased by the Company
and the Subsidiaries, and their respective subsidiaries against theft, damage,
destruction, acts of vandalism and earthquakes, general liability and Directors
and Officers liability. The Company has no reason to believe that it or any
subsidiary will not be able (i) to renew its existing insurance coverage as and
when such policies expire or (ii) to obtain comparable coverage from similar
institutions as may be necessary or appropriate to conduct its business as now
conducted and at a cost that would not result in a Material Adverse Change.
Neither the Company nor the Subsidiaries has been denied any insurance coverage
which it has sought or for which it has applied. The Company has no reason to
believe that, upon the consummation of the Organizational Restructuring, it will
not be able to obtain insurance coverage similar to that possessed by the
Subsidiaries as of the date hereof from a reputable insurer or insurers at a
cost that would not materially and adversely affect the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and the Subsidiaries considered as one enterprise.
(dd) Labor Matters. To the best of the Company's knowledge, no labor
disturbance by the employees of the Company or the Subsidiaries exists or is
imminent; and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its principal suppliers, that might be
expected to result in a Material Adverse Change.
(ee) No Price Stabilization or Manipulation. Neither the Company nor
the Subsidiaries have taken, nor will the Company or the Subsidiaries take,
directly or indirectly, any
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action designed to or that might be reasonably expected to cause or result in
stabilization or manipulation of the price of the Common Stock to facilitate the
sale or resale of the Shares.
(ff) Lock-Up Agreements. Each officer and director of the Company
and each beneficial owner of one or more percent of the outstanding issued share
capital of the Company (including each person or entity receiving shares of
Common Stock in connection with the acquisition of the Subsidiaries) has agreed
to sign an agreement substantially in the form attached hereto as Exhibit A (the
"Lock-up Agreements"). The Company has provided to counsel for the Underwriters
a complete and accurate list of all securityholders of the Company and the
number and type of securities held by each securityholder. The Company has
provided to counsel for the Underwriters true, accurate and complete copies of
all of the Lock-up Agreements presently in effect or effected hereby. The
Company hereby represents and warrants that it will not release any of its
officers, directors or other stockholders from any Lock-up Agreements currently
existing or hereafter effected without the prior written consent of BancBoston
Robertson Stephens Inc.
(gg) Related Party Transactions. There are no business relationships
or related-party transactions involving the Company or the Subsidiaries, or any
other person required to be described in the Prospectus which have not been
described as required.
(hh) No Unlawful Contributions or Other Payments. Neither the
Company, the Subsidiaries, to the best of the Company's knowledge, any employee
or agent of the Company or the Subsidiaries, has made any contribution or other
payment to any official of, or candidate for office of, any federal, state or
foreign government in violation of any law or of a character required to be
disclosed in the Prospectus.
(ii) Environmental Laws. (i) The Company and the Subsidiaries are in
compliance with all rules, laws and regulations relating to the use, treatment,
storage and disposal of toxic substances and protection of health or the
environment ("Environmental Laws") which are applicable to its business, except
where the failure to comply would not result in a Material Adverse Change, (ii)
neither the Company nor the Subsidiaries have received any notice from any
governmental authority or third party of an asserted claim under Environmental
Laws, which claim is required to be disclosed in the Registration Statement or
the Prospectus, (iii) neither the Company nor the Subsidiaries will be required
to make future material capital expenditures to comply with Environmental Laws
and (iv) no property which is owned, leased or occupied by the Company or the
Subsidiaries has been designated as a Superfund site pursuant to the
Comprehensive Response, Compensation, and Liability Act of 1980, as amended (42
U.S.C. ss. 9601, et seq.), or otherwise designated as a contaminated site under
applicable state or local law.
(jj) ERISA Compliance. The Company and the Subsidiaries and any
"employee benefit plan" (as defined under the Employee Retirement Income
Security Act of 1974, as amended, and the regulations and published
interpretations thereunder (collectively, "ERISA")) established or maintained by
the Company and the Subsidiaries, or their "ERISA Affiliates" (as defined below)
are in compliance in all material respects with ERISA. "ERISA Affiliate" means,
with respect to the Company or the Subsidiaries, any member of any group of
organizations described in Sections 414(b),(c),(m) or (o) of the Internal
Revenue Code of 1986,
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as amended, and the regulations and published interpretations thereunder (the
"Code") or Sections 4001(a)(14) or 4001(b)(1) of ERISA of which the Company or
such Subsidiary is a member. No "reportable event" (as defined under ERISA) has
occurred or is reasonably expected to occur with respect to any "employee
benefit plan" established or maintained by the Company or the Subsidiaries, or
any of their ERISA Affiliates. Except as otherwise disclosed in this Prospectus,
no "employee benefit plan" established or maintained by the Company or the
Subsidiaries, or any of their ERISA Affiliates, if such "employee benefit plan"
were terminated, would have any "amount of unfunded benefit liabilities" (as
defined under ERISA) and neither the Company or the Subsidiaries, nor any of
their ERISA Affiliates has incurred or reasonably expects to incur any liability
under (i) Title IV of ERISA with respect to termination of, or withdrawal from,
any "employee benefit plan" or (ii) Sections 412, 4971, 4975 or 4980B of the
Code, whether with respect to plans sponsored by any such entity or any other
entity. Each "employee benefit plan" established or maintained by the Company or
the Subsidiaries, or any of their ERISA Affiliates that is intended to be
qualified under Section 401(a) of the Code is so qualified and nothing has
occurred, whether by action or failure to act, which would cause the loss of
such qualification.
Any certificate signed by an officer of the Company and delivered to
the Representatives or to counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
set forth therein.
Section 2. Purchase, Sale and Delivery of the Shares.
(a) The Firm Shares. The Company agrees to issue and sell to the
several Underwriters the Firm Shares upon the terms herein set forth. On the
basis of the representations, warranties and agreements herein contained, and
upon the terms but subject to the conditions herein set forth, the Underwriters
agree, severally and not jointly, to purchase from the Company the respective
number of Firm Shares set forth opposite their names on Schedule A. The purchase
price per Firm Share to be paid by the several Underwriters to the Company shall
be $___ per share.
(b) The First Closing Date. Delivery of the Firm Shares to be
purchased by the Underwriters and payment therefor shall be made by the Company
and the Representatives at 6:00 a.m. San Francisco time, at the offices of
Gordon Altman Butowsky Weitzen Shalov & Wein, 114 West 47th Street, New York,
New York (or at such other place as may be agreed upon among the Representatives
and the Company), (i) on the third (3rd) full business day following the first
day that Shares are traded, (ii) if this Agreement is executed and delivered
after 1:30 P.M., San Francisco time, the fourth (4th) full business day
following the day that this Agreement is executed and delivered or (iii) at such
other time and date not later that seven (7) full business days following the
first day that Shares are traded as the Representatives and the Company may
determine (or at such time and date to which payment and delivery shall have
been postponed pursuant to Section 8 hereof), such time and date of payment and
delivery being herein called the "Closing Date;" provided, however, that if the
Company has not made available to the Representatives copies of the Prospectus
within the time provided in Section 4(d) hereof, the Representatives may, in
their sole discretion, postpone the Closing Date until no later that two (2)
full business days following delivery of copies of the Prospectus to the
Representatives.
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(c) The Option Shares; the Second Closing Date. In addition, on the
basis of the representations, warranties and agreements herein contained, and
upon the terms but subject to the conditions herein set forth, the Company
hereby grants an option to the several Underwriters to purchase, severally and
not jointly, up to an aggregate of ___ Option Shares from the Company at the
purchase price per share to be paid by the Underwriters for the Firm Shares. The
option granted hereunder is for use by the Underwriters solely in covering any
over-allotments in connection with the sale and distribution of the Firm Shares.
The option granted hereunder may be exercised at any time upon notice by the
Representatives to the Company, which notice may be given at any time within 30
days from the date of this Agreement. The time and date of delivery of the
Option Shares, if subsequent to the First Closing Date, is called the "Second
Closing Date" and shall be determined by the Representatives and shall not be
earlier than three nor later than five full business days after delivery of such
notice of exercise. If any Option Shares are to be purchased, each Underwriter
agrees, severally and not jointly, to purchase the number of Option Shares
(subject to such adjustments to eliminate fractional shares as the
Representatives may determine) that bears the same proportion to the total
number of Option Shares to be purchased as the number of Firm Shares set forth
on Schedule A opposite the name of such Underwriter bears to the total number of
Firm Shares. The Representatives may cancel the option at any time prior to its
expiration by giving written notice of such cancellation to the Company.
(d) Public Offering of the Shares. The Representatives hereby advise
the Company that the Underwriters intend to offer for sale to the public, as
described in the Prospectus, their respective portions of the Shares as soon
after this Agreement has been executed and the Registration Statement has been
declared effective as the Representatives, in their sole judgment, has
determined is advisable and practicable.
(e) Payment for the Shares. Payment for the Shares shall be made at
the First Closing Date (and, if applicable, at the Second Closing Date) by wire
transfer in immediately available-funds to the order of the Company.
It is understood that the Representatives have been authorized, for
their own account and the accounts of the several Underwriters, to accept
delivery of and receipt for, and make payment of the purchase price for, the
Firm Shares and any Option Shares the Underwriters have agreed to purchase.
BancBoston Robertson Stephens Inc., individually and not as the Representatives
of the Underwriters, may (but shall not be obligated to) make payment for any
Shares to be purchased by any Underwriter whose funds shall not have been
received by the Representatives by the First Closing Date or the Second Closing
Date, as the case may be, for the account of such Underwriter, but any such
payment shall not relieve such Underwriter from any of its obligations under
this Agreement.
(f) Delivery of the Shares. The Company shall deliver, or cause to
be delivered, a credit representing the Firm Shares to an account or accounts at
The Depository Trust Company, as designated by the Representatives for the
accounts of the Representatives and the several Underwriters at the First
Closing Date, against the irrevocable release of a wire transfer of immediately
available funds for the amount of the purchase price therefor. The Company shall
also deliver, or cause to be delivered, a credit representing the Option Shares
the Underwriters have agreed to purchase at the First Closing Date (or the
Second Closing Date, as the case may
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be), to an account or accounts at The Depository Trust Company as designated by
the Representatives for the accounts of the Representatives and the several
Underwriters, against the irrevocable release of a wire transfer of immediately
available funds for the amount of the purchase price therefor. Time shall be of
the essence, and delivery at the time and place specified in this Agreement is a
further condition to the obligations of the Underwriters.
(g) Delivery of Prospectus to the Underwriters. Not later than 12:00
noon on the second business day following the date the Shares are released by
the Underwriters for sale to the public, the Company shall deliver or cause to
be delivered copies of the Prospectus in such quantities and at such places as
the Representatives shall request.
Section 3. Covenants of the Company.
The Company further covenants and agrees with each Underwriter as follows:
(a) Registration Statement Matters. The Company will (i) use its
best efforts to cause a registration statement on Form 8-A (the "Form 8-A
Registration Statement") as required by the Securities Exchange Act of 1934 (the
"Exchange Act") to become effective simultaneously with the Registration
Statement, (ii) use its best efforts to cause the Registration Statement to
become effective or, if the procedure in Rule 430A of the Securities Act is
followed, to prepare and timely file with the Commission under Rule 424(b) under
the Securities Act a Prospectus in a form approved by the Representatives
containing information previously omitted at the time of effectiveness of the
Registration Statement in reliance on Rule 430A of the Securities Act and (iii)
not file any amendment to the Registration Statement or supplement to the
Prospectus of which the Representatives shall not previously have been advised
and furnished with a copy or to which the Representatives shall have reasonably
objected in writing or which is not in compliance with the Securities Act. If
the Company elects to rely on Rule 462(b) under the Securities Act, the Company
shall file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) under the Securities Act prior to the time
confirmations are sent or given, as specified by Rule 462(b)(2) under the
Securities Act, and shall pay the applicable fees in accordance with Rule 111
under the Securities Act.
(b) Securities Act Compliance. The Company will advise the
Representatives promptly (i) when the Registration Statement or any
post-effective amendment thereto shall have become effective, (ii) of receipt of
any comments from the Commission, (iii) of any request of the Commission for
amendment of the Registration Statement or for supplement to the Prospectus or
for any additional information and (iv) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or the use
of the Prospectus or of the institution of any proceedings for that purpose. The
Company will use its best efforts to prevent the issuance of any such stop order
preventing or suspending the use of the Prospectus and to obtain as soon as
possible the lifting thereof, if issued.
(c) Blue Sky Compliance. The Company will cooperate with the
Representatives and counsel for the Underwriters in endeavoring to qualify the
Shares for sale under the securities laws of such jurisdictions (both national
and foreign) as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
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shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Shares.
(d) Amendments and Supplements to the Prospectus and Other
Securities Act Matters. The Company will comply with the Securities Act and the
Exchange Act, and the rules and regulations of the Commission thereunder, so as
to permit the completion of the distribution of the Shares as contemplated in
this Agreement and the Prospectus. If during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer, any event shall
occur as a result of which, in the judgment of the Company or in the reasonable
opinion of the Representatives or counsel for the Underwriters, it becomes
necessary to amend or supplement the Prospectus in order to make the statements
therein, in the light of the circumstances existing at the time the Prospectus
is delivered to a purchaser, not misleading, or, if it is necessary at any time
to amend or supplement the Prospectus to comply with any law, the Company
promptly will prepare and file with the Commission, and furnish at its own
expense to the Underwriters and to dealers, an appropriate amendment to the
Registration Statement or supplement to the Prospectus so that the Prospectus as
so amended or supplemented will not, in the light of the circumstances when it
is so delivered, be misleading, or so that the Prospectus will comply with the
law.
(e) Copies of any Amendments and Supplements to the Prospectus. The
Company agrees to furnish the Representatives, without charge, during the period
beginning on the date hereof and ending on the later of the First Closing Date
or such date, as in the opinion of counsel for the Underwriters, the Prospectus
is no longer required by law to be delivered in connection with sales by an
Underwriter or dealer (the "Prospectus Delivery Period"), as many copies of the
Prospectus and any amendments and supplements thereto as the Representatives may
request.
(f) Insurance. The Company shall (i) obtain Directors and Officers
liability insurance in the minimum amount of $10 million which shall apply to
the offering contemplated hereby and (ii) shall cause BancBoston Robertson
Stephens Inc. to be added as an additional insured to such policy in respect of
the offering contemplated hereby.
(g) Notice of Subsequent Events. If at any time during the ninety
(90) day period after the Registration Statement becomes effective, any rumor,
publication or event relating to or affecting the Company shall occur as a
result of which in your opinion the market price of the Company Shares has been
or is likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment of the
Prospectus), the Company will, after written notice from you advising the
Company to the effect set forth above, forthwith prepare, consult with you
concerning the substance of and disseminate a press release or other public
statement, reasonably satisfactory to you, responding to or commenting on such
rumor, publication or event.
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(h) Use of Proceeds. The Company shall apply the net proceeds from
the sale of the Shares sold by it in the manner described under the caption "Use
of Proceeds" in the Prospectus.
(i) Transfer Agent. The Company shall engage and maintain, at its
expense, a registrar and transfer agent for the Company Shares.
(j) Earnings Statement. As soon as practicable, the Company will
make generally available to its security holders and to the Representatives an
earnings statement (which need not be audited) covering the twelve-month period
ending __________ that satisfies the provisions of Section 11(a) of the
Securities Act.
(k) Periodic Reporting Obligations. During the Prospectus Delivery
Period the Company shall file, on a timely basis, with the Commission and the
Nasdaq National Market all reports and documents required to be filed under the
Exchange Act.
(l) Agreement Not to Offer or Sell Additional Securities. The
Company will not, without the prior written consent of BancBoston Robertson
Stephens Inc., for a period of 180 days following the date of the Prospectus,
offer, sell or contract to sell, or otherwise dispose of or enter into any
transaction which is designed to, or could be expected to, result in the
disposition (whether by actual disposition or effective economic disposition due
to cash settlement or otherwise by the Company or any affiliate of the Company
or any person in privity with the Company or any affiliate of the Company)
directly or indirectly, or announce the offering of, any other Common Shares or
any securities convertible into, or exchangeable for, Common Shares; provided,
however, that the Company may (i) issue and sell Common Shares pursuant to any
director or employee stock option plan, stock ownership plan or dividend
reinvestment plan of the Company in effect at the date of the Prospectus and
described in the Prospectus so long as none of those shares may be transferred
on during the period of 180 days from the date that the Registration Statement
is declared effective (the "Lock-Up Period") and the Company shall enter stop
transfer instructions with its transfer agent and registrar against the transfer
of any such Common Shares and (ii) the Company may issue Common Shares issuable
upon the conversion of securities or the exercise of warrants outstanding at the
date of the Prospectus and described in the Prospectus.
(m) Future Reports to the Representatives. During the period of five
years hereafter the Company will furnish to the Representatives (i) as soon as
practicable after the end of each fiscal year, copies of the Annual Report of
the Company containing the balance sheet of the Company as of the close of such
fiscal year and statements of income, stockholders' equity and cash flows for
the year then ended and the opinion thereon of the Company's independent public
or certified public accountants; (ii) as soon as practicable after the filing
thereof, copies of each proxy statement, Annual Report on Form 10-K, Quarterly
Report on Form 10-Q, Current Report on Form 8-K or other report filed by the
Company with the Commission, the National Association of Securities Dealers, LLC
or any securities exchange; and (iii) as soon as available, copies of any report
or communication of the Company mailed generally to holders of its capital
stock.
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(n) The Company will (i) use its best efforts to satisfy all
conditions to the consummation of the Organizational Restructuring as set forth
in the Transfer Agreements with respect thereto, (ii) use its best efforts to
cause each other party to such agreements to satisfy all conditions to the
consummation of the Organizational Restructuring, and (iii) promptly notify the
Representatives of the occurrence of any event which may result in the
non-consummation of the Organizational Restructuring on the Closing Date.
(o) Each transaction comprising the Organizational Restructuring
shall have been completed according to the terms of Transfer Agreements prior to
the Closing Date.
Section 4. Conditions of the Obligations of the Underwriters
The obligations of the several Underwriters to purchase and pay for the
Shares as provided herein on the First Closing Date and, with respect to the
Option Shares, the Second Closing Date, shall be subject to the accuracy of the
representations and warranties on the part of the Company set forth in Section 1
hereof as of the date hereof and as of the First Closing Date as though then
made and, with respect to the Option Shares, as of the Second Closing Date as
though then made, to the timely performance by the Company of its covenants and
other obligations hereunder, and to each of the following additional conditions:
(a) Compliance with Registration Requirements; No Stop Order; No
Objection from the National Association of Securities Dealers, LLC. The
Registration Statement shall have become effective prior to the execution of
this Agreement, or at such later date as shall be consented to in writing by
you; and no stop order suspending the effectiveness thereof shall have been
issued and no proceedings for that purpose shall have been initiated or, to the
knowledge of the Company or any Underwriter, threatened by the Commission, and
any request of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been complied
with to the satisfaction of Underwriters' Counsel; and the National Association
of Securities Dealers, LLC shall have raised no objection to the fairness and
reasonableness of the underwriting terms and arrangements.
(b) Corporate Proceedings. All corporate proceedings and other legal
matters in connection with this Agreement, the form of Registration Statement
and the Prospectus, and the registration, authorization, issue, sale and
delivery of the Shares, shall have been reasonably satisfactory to Underwriters'
Counsel, and such counsel shall have been furnished with such papers and
information as they may reasonably have requested to enable them to pass upon
the matters referred to in this Section.
(c) No Material Adverse Change. Subsequent to the execution and
delivery of this Agreement and prior to the First Closing Date, or the Second
Closing Date, as the case may be, there shall not have been any Material Adverse
Change in the condition (financial or otherwise), earnings, operations, business
or business prospects of the Company and its subsidiaries considered as one
enterprise from that set forth in the Registration Statement or Prospectus,
which, in your sole judgment, is material and adverse and that makes it, in your
sole judgment, impracticable or inadvisable to proceed with the public offering
of the Shares as contemplated by the Prospectus.
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<PAGE> 17
(d) Opinion of Counsel for the Company. You shall have received on
the First Closing Date, or the Second Closing Date, as the case may be, an
opinion of Gordon Altman Butowsky Weitzen Shalov & Wein, counsel for the
Company, substantially in the form of Exhibit B attached hereto, dated the First
Closing Date, or the Second Closing Date, addressed to the Underwriters and with
reproduced copies or signed counterparts thereof for each of the Underwriters.
Counsel rendering the opinion contained in Exhibit B may rely as to
questions of law not involving the laws of the United States or the State of New
York and Delaware upon opinions of local counsel, and as to questions of fact
upon representations or certificates of officers of the Company, and of
government officials, in which case their opinion is to state that they are so
relying and that they have no knowledge of any material misstatement or
inaccuracy in any such opinion, representation or certificate. Copies of any
opinion, representation or certificate so relied upon shall be delivered to you,
as Representatives of the Underwriters, and to Underwriters' Counsel.
(e) Opinion of Counsel for the Underwriters. You shall have received
on the First Closing Date or the Second Closing Date, as the case may be, an
opinion of Brobeck, Phleger & Harrison LLP, substantially in the form of Exhibit
D hereto. The Company shall have furnished to such counsel such documents as
they may have requested for the purpose of enabling them to pass upon such
matters.
(f) Accountants' Comfort Letter. You shall have received on the
First Closing Date and on the Second Closing Date, as the case may be, a letter
from KPMG LLP addressed to the Underwriters, dated the First Closing Date or the
Second Closing Date, as the case may be, confirming that they are independent
certified public accountants with respect to the Company within the meaning of
the Act and the applicable published Rules and Regulations and based upon the
procedures described in such letter delivered to you concurrently with the
execution of this Agreement (herein called the "Original Letter"), but carried
out to a date not more than four (4) business days prior to the First Closing
Date or the Second Closing Date, as the case may be, (i) confirming, to the
extent true, that the statements and conclusions set forth in the Original
Letter are accurate as of the First Closing Date or the Second Closing Date, as
the case may be, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letter which are necessary
to reflect any changes in the facts described in the Original Letter since the
date of such letter, or to reflect the availability of more recent financial
statements, data or information. The letter shall not disclose any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise from
that set forth in the Registration Statement or Prospectus, which, in your sole
judgment, is material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the Shares
as contemplated by the Prospectus. The Original Letter from KPMG LLP shall be
addressed to or for the use of the Underwriters in form and substance
satisfactory to the Underwriters and shall (i) represent, to the extent true,
that they are independent certified public accountants with respect to the
Company and the Subsidiaries within the meaning of the Act and the applicable
published Rules and Regulations, (ii) set forth their opinion with respect to
their examination of the combined balance sheet of Global Discount and Global
Travel as of December 31, 1998, and (iii) set forth their opinion with respect
to their examination of the balance sheet of the Company
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<PAGE> 18
as of December 31, 1998 and related statement of [operations, shareholders'
equity and] cash flows for the period from August 15, 1998 (inception) to
December 31, 1998, and related combined statements of operations, shareholders'
equity, and cash flows for the twelve (12) months ended December 31, 1998, (iv)
KPMG LLP has performed the procedures set out in Statement on Auditing Standards
No. 71 ("SAS 71") for a review of interim financial information and providing
the report of KMPG LLP as described in SAS 71 on the financial statements for
the quarter ended March 31, 1999 (the "Quarterly Financial Statements"), (v)
state that in the course of such review, nothing came to their attention that
leads them to believe that any material modifications need to be made to any of
the Quarterly Financial Statements in order for them to be in compliance with
generally accepted accounting principles consistently applied across the periods
presented, and (iv) address other matters agreed upon by KPMG LLP and you. In
addition, you shall have received from KPMG LLP a letter addressed to the
Company and made available to you for the use of the Underwriters stating that
their review of the Company's, Global Discount's and Global Travel's system of
internal accounting controls, to the extent they deemed necessary in
establishing the scope of their examination of the combined financial statements
of Global Discount and Global Travel as of December 31, 1998 and the Company's
financial statements as of December 31, 1998, did not disclose any weaknesses in
internal controls that they considered to be material weaknesses.
(g) Officers' Certificate. You shall have received on the First
Closing Date and the Second Closing Date, as the case may be, a certificate of
the Company, dated the First Closing Date or the Second Closing Date, as the
case may be, signed by the Chief Executive Officer and Chief Financial Officer
of the Company, to the effect that, and you shall be satisfied that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the
First Closing Date or the Second Closing Date, as the case may
be, and the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or
satisfied at or prior to the First Closing Date or the Second
Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for
that purpose have been instituted or are pending or threatened
under the Act;
(iii) When the Registration Statement became effective and at
all times subsequent thereto up to the delivery of such
certificate, the Registration Statement and the Prospectus,
and any amendments or supplements thereto, contained all
material information required to be included therein by the
Securities Act and in all material respects conformed to the
requirements of the Securities Act, the Registration Statement
and the Prospectus, and any amendments or supplements thereto,
did not and does not include any untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading; and, since the effective date of the Registration
Statement, there has occurred no event required to be set
forth
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<PAGE> 19
in an amended or supplemented Prospectus which has not been so
set forth; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and
Prospectus, there has not been (a) any material adverse change
in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and
the Subsidiaries considered as one enterprise, (b) any
transaction that is material to the Company and the
Subsidiaries, considered as one enterprise, except
transactions entered into in the ordinary course of business,
(c) any obligation, direct or contingent, that is material to
the Company and the Subsidiaries, considered as one
enterprise, incurred by the Company or the Subsidiaries,
except obligations incurred in the ordinary course of
business, (d) any change in the capital stock or outstanding
indebtedness of the Company or the Subsidiaries that is
material to the Company and the Subsidiaries considered as one
enterprise, (e) any dividend or distribution of any kind
declared, paid or made on the capital stock of the Company or
the Subsidiaries, or (f) any loss or damage (whether or not
insured) to the property of the Company or the Subsidiaries
which has been sustained or will have been sustained which has
a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business
prospects of the Company and the Subsidiaries considered as
one enterprise.
(h) Lock-up Agreement from Certain Stockholders of the Company. The
Company shall have obtained and delivered to you an agreement substantially in
the form of Exhibit A attached hereto from each officer and director of the
Company, and each beneficial owner of one or more percent of the outstanding
issued share capital of the Company (including each person or entity receiving
shares of Common Stock in connection with the acquisition of the Subsidiaries).
(i) Stock Exchange Listing. The Shares shall have been approved for
inclusion on the Nasdaq National Market, subject only to official notice of
issuance.
(j) Compliance with Prospectus Delivery Requirements. The Company
shall have complied with the provisions of Sections 2(g) and 3(e) hereof with
respect to the furnishing of Prospectuses.
(k) Combination Transaction. Each transaction comprising the
Organizational Restructuring shall have been completed according to the terms of
Transfer Agreements.
(l) Organizational Restructuring Certificates. Each certificate
delivered to the Company pursuant to each Transfer Agreement shall also have
been delivered to the Representatives.
(m) Additional Documents. On or before each of the First Closing
Date and the Second Closing Date, as the case may be, the Representatives and
counsel for the Underwriters
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<PAGE> 20
shall have received such information, documents and opinions as they may
reasonably require for the purposes of enabling them to pass upon the issuance
and sale of the Shares as contemplated herein, or in order to evidence the
accuracy of any of the representations and warranties, or the satisfaction of
any of the conditions or agreements, herein contained.
If any condition specified in this Section 4 is not satisfied when
and as required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company at any time on or prior to the First
Closing Date and, with respect to the Option Shares, at any time prior to the
Second Closing Date, which termination shall be without liability on the part of
any party to any other party, except that Section 5 (Payment of Expenses),
Section 6 (Reimbursement of Underwriters' Expenses), Section 7 (Indemnification
and Contribution) and Section 10 (Representations and Indemnities to Survive
Delivery) shall at all times be effective and shall survive such termination.
Section 5. Payment of Expenses. The Company agrees to pay all costs, fees and
expenses incurred in connection with the performance of its obligations
hereunder and in connection with the transactions contemplated hereby, including
without limitation (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs), (ii) all fees and
expenses of the registrar and transfer agent of the Common Stock, (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Shares to the Underwriters, (iv) all fees and expenses of the
Company's counsel, independent public or certified public accountants and other
advisors, (v) all costs and expenses incurred in connection with the
preparation, printing, filing, shipping and distribution of the Registration
Statement (including financial statements, exhibits, schedules, consents and
certificates of experts), each preliminary prospectus and the Prospectus, and
all amendments and supplements thereto, and this Agreement, (vi) all filing
fees, attorneys' fees and expenses incurred by the Company or the Underwriters
in connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Shares for offer and
sale under the state securities or blue sky laws or the provincial securities
laws of Canada or any other country, and, if requested by the Representatives,
preparing and printing a "Blue Sky Survey", an "International Blue Sky Survey"
or other memorandum, and any supplements thereto, advising the Underwriters of
such qualifications, registrations and exemptions, (vii) the filing fees
incident to, and the reasonable fees and expenses of counsel for the
Underwriters in connection with, the National Association of Securities Dealers,
LLC review and approval of the Underwriters' participation in the offering and
distribution of the Common Shares, (viii) the fees and expenses associated with
including the Common Shares on the Nasdaq National Market, (ix) all costs and
expenses incident to the preparation and undertaking of "road show" preparations
to be made to prospective investors, and (x) all other fees, costs and expenses
referred to in Item 13 of Part II of the Registration Statement. Except as
provided in this Section 5, Section 6, and Section 7 hereof, the Underwriters
shall pay their own expenses, including the fees and disbursements of their
counsel.
Section 6. Reimbursement of Underwriters' Expenses. If this Agreement is
terminated by the Representatives pursuant to Section 4, Section 7, Section 8,
Section 9, or if the sale to the Underwriters of the Shares on the First Closing
Date is not consummated because of any refusal, inability or failure on the part
of the Company to perform any agreement herein or to comply with any provision
hereof, the Company agrees to reimburse the Representatives and the other
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<PAGE> 21
Underwriters (or such Underwriters as have terminated this Agreement with
respect to themselves), severally, upon demand for all out-of-pocket expenses
that shall have been reasonably incurred by the Representatives and the
Underwriters in connection with the proposed purchase and the offering and sale
of the Shares, including but not limited to fees and disbursements of counsel,
printing expenses, travel expenses, postage, facsimile and telephone charges.
Section 7. Indemnification and Contribution.
(a) Indemnification of the Underwriters.
(i) The Company agrees to indemnify and hold harmless each
Underwriter, its officers and employees, and each person, if
any, who controls any Underwriter within the meaning of the
Securities Act and the Exchange Act against any loss, claim,
damage, liability or expense, as incurred, to which such
Underwriter or such controlling person may become subject,
under the Securities Act, the Exchange Act or other federal or
state statutory law or regulation, or at common law or
otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of the
Company, which consent shall not be unreasonably withheld),
insofar as such loss, claim, damage, liability or expense (or
actions in respect thereof as contemplated below) arises out
of or is based (i) upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration
Statement, or any amendment thereto, including any information
deemed to be a part thereof pursuant to Rule 430A or Rule 434
under the Securities Act, or the omission or alleged omission
therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading; or
(ii) upon any untrue statement or alleged untrue statement of
a material fact contained in any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto), or the
omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading; or (iii) in whole or in part upon any inaccuracy
in the representations and warranties of the Company contained
herein; or (iv) in whole or in part upon any failure of the
Company to perform its obligations hereunder or under law; or
(v) any act or failure to act or any alleged act or failure to
act by any Underwriter in connection with, or relating in any
manner to, the Shares or the offering contemplated hereby, and
which is included as part of or referred to in any loss,
claim, damage, liability or action arising out of or based
upon any matter covered by clause (i), (ii), (iii) or (iv)
above, provided that the Company shall not be liable under
this clause (v) to the extent that a court of competent
jurisdiction shall have determined by a final judgment that
such loss, claim, damage, liability or action resulted
directly from any such acts or failures to act undertaken or
omitted to be taken by such Underwriter through its bad faith
or willful misconduct; and to reimburse each
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<PAGE> 22
Underwriter and each such controlling person for any and all
expenses (including the fees and disbursements of counsel
chosen by BancBoston Robertson Stephens Inc.) as such expenses
are reasonably incurred by such Underwriter or such
controlling person in connection with investigating,
defending, settling, compromising or paying any such loss,
claim, damage, liability, expense or action; provided,
however, that the foregoing indemnity agreement shall not
apply to any loss, claim, damage, liability or expense to the
extent, but only to the extent, arising out of or based upon
any untrue statement or alleged untrue statement or omission
or alleged omission made in reliance upon and in conformity
with written information furnished to the Company by the
Representatives expressly for use in the Registration
Statement, any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto); and provided, further,
that with respect to any preliminary prospectus, the foregoing
indemnity agreement shall not inure to the benefit of any
Underwriter from whom the person asserting any loss, claim,
damage, liability or expense purchased Shares, or any person
controlling such Underwriter, if copies of the Prospectus were
timely delivered to the Underwriter pursuant to Section 2 and
a copy of the Prospectus (as then amended or supplemented if
the Company shall have furnished any amendments or supplements
thereto) was not sent or given by or on behalf of such
Underwriter to such person, if required by law so to have been
delivered, at or prior to the written confirmation of the sale
of the Shares to such person, and if the Prospectus (as so
amended or supplemented) would have cured the defect giving
rise to such loss, claim, damage, liability or expense. The
indemnity agreement set forth in this Section 7(a) shall be in
addition to any liabilities that the Company may otherwise
have.
(b) Indemnification of the Company, its Directors and Officers. Each
Underwriter agrees, severally and not jointly, to indemnify and hold harmless
the Company, each of its directors, each of its officers who signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of the Securities Act or the Exchange Act, against any loss, claim,
damage, liability or expense, as incurred, to which the Company, or any such
director, officer or controlling person may become subject, under the Securities
Act, the Exchange Act, or other federal or state statutory law or regulation, or
at common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of such Underwriter), insofar as
such loss, claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based upon any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or arises out of or is based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in the Registration Statement, any preliminary
prospectus, the Prospectus (or any amendment or supplement thereto), in reliance
upon and in conformity with written information furnished to the Company by the
Representatives expressly for use therein; and to reimburse the Company, or any
such director, officer or controlling person for any legal and
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<PAGE> 23
other expense reasonably incurred by the Company, or any such director, officer
or controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action. The indemnity agreement set forth in this Section 7(b) shall be in
addition to any liabilities that each Underwriter may otherwise have.
(c) Information Provided by the Underwriters. The Company hereby
acknowledges that the only information that the Underwriters have furnished to
the Company expressly for use in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto) are the
statements set forth in the table in the first paragraph and the second
paragraph under the caption "Underwriting" in the Prospectus; and the
Underwriters confirm that such statements are correct.
(d) Notifications and Other Indemnification Procedures. Promptly
after receipt by an indemnified party under this Section 7 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 7, notify
the indemnifying party in writing of the commencement thereof, but the omission
so to notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party for contribution or otherwise than under
the indemnity agreement contained in this Section 7 or to the extent it is not
prejudiced as a proximate result of such failure. In case any such action is
brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it shall elect,
jointly with all other indemnifying parties similarly notified, by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that a conflict may arise between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that there
may be legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of such indemnifying
party's election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 7 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the expenses of
more than one separate counsel (together with local counsel), approved by the
indemnifying party (BancBoston Robertson Stephens Inc. in the case of Section
7(b) and Section 8), representing the indemnified parties who are parties to
such action), (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action, or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party, in each of which cases the fees
and expenses of counsel shall be at the expense of the indemnifying party.
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<PAGE> 24
(e) Settlements. The indemnifying party under this Section 7 shall
not be liable for any settlement of any proceeding effected without its written
consent, which consent shall not be unreasonably withheld, but if settled with
such consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party against any loss, claim, damage,
liability or expense by reason of such settlement or judgment. Notwithstanding
the foregoing sentence, if at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by Section 7(d) hereof, the indemnifying party agrees
that it shall be liable for any settlement of any proceeding effected without
its written consent if (i) such settlement is entered into more than 30 days
after receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in accordance
with such request prior to the date of such settlement. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement, compromise or consent to the entry of judgment in any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity was or could have been sought
hereunder by such indemnified party, unless such settlement, compromise or
consent includes (i) an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such action, suit or
proceeding and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party.
(f) Contribution. If the indemnification provided for in this
Section 7 is unavailable to or insufficient to hold harmless an indemnified
party under Section 7(a) or (b) above in respect of any losses, claims, damages
or liabilities (or actions or proceedings in respect thereof) then each
indemnifying party shall contribute to the aggregate amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other from the offering of the Shares. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law then each indemnifying party shall contribute to such amount paid or payable
by such indemnified party in such proportion as is appropriate to reflect not
only such relative benefits but also the relative fault of the Company on the
one hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities, (or
actions or proceedings in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriter on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bears to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 7(f) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7(f).
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<PAGE> 25
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
referred to above in this Section 7(f) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (f), (i) no Underwriter shall be required to
contribute any amount in excess of the underwriting discounts and commissions
applicable to the Shares purchased by such Underwriter and (ii) no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this Section 7(f) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(g) Timing of Any Payments of Indemnification. Any losses, claims,
damages, liabilities or expenses for which an indemnified party is entitled to
indemnification or contribution under this Section 7 shall be paid by the
indemnifying party to the indemnified party as such losses, claims, damages,
liabilities or expenses are incurred, but in all cases, no later than thirty
(30) days of invoice to the indemnifying party.
(h) Survival. The indemnity and contribution agreements contained in
this Section 7 and the representation and warranties of the Company set forth in
this Agreement shall remain operative and in full force and effect, regardless
of (i) any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Company, its directors or officers or any
persons controlling the Company, (ii) acceptance of any Shares and payment
therefor hereunder, and (iii) any termination of this Agreement. A successor to
any Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 7.
(i) Acknowledgements of Parties. The parties to this Agreement
hereby acknowledge that they are sophisticated business persons who were
represented by counsel during the negotiations regarding the provisions hereof
including, without limitation, the provisions of this Section 7, and are fully
informed regarding said provisions. They further acknowledge that the provisions
of this Section 7 fairly allocate the risks in light of the ability of the
parties to investigate the Company and its business in order to assure that
adequate disclosure is made in the Registration Statement and Prospectus as
required by the Securities Act and the Exchange Act.
Section 8. Default of One or More of the Several Underwriters. If, on the First
Closing Date or the Second Closing Date, as the case may be, any one or more of
the several Underwriters shall fail or refuse to purchase Shares that it or they
have agreed to purchase hereunder on such date, and the aggregate number of
Common Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase does not exceed 10% of the aggregate number of the
Shares to be purchased on such date, the other Underwriters shall be obligated,
severally, in the proportions that the number of Firm Common Shares set forth
opposite their respective names on Schedule A bears to the aggregate number of
Firm Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as may be specified by the
Representatives with the consent of the non-defaulting Underwriters, to
25
<PAGE> 26
purchase the Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase on such date. If, on the First Closing Date or the
Second Closing Date, as the case may be, any one or more of the Underwriters
shall fail or refuse to purchase Shares and the aggregate number of Shares with
respect to which such default occurs exceeds 10% of the aggregate number of
Shares to be purchased on such date, and arrangements satisfactory to the
Representatives and the Company for the purchase of such Shares are not made
within 48 hours after such default, this Agreement shall terminate without
liability of any party to any other party except that the provisions of Section
4, and Section 7 shall at all times be effective and shall survive such
termination. In any such case either the Representatives or the Company shall
have the right to postpone the First Closing Date or the Second Closing Date, as
the case may be, but in no event for longer than seven days in order that the
required changes, if any, to the Registration Statement and the Prospectus or
any other documents or arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this Section
8. Any action taken under this Section 8 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
Section 9. Termination of this Agreement. Prior to the First Closing Date, this
Agreement may be terminated by the Representatives by notice given to the
Company if at any time (i) trading or quotation in any of the Company's
securities shall have been suspended or limited by the Commission or by the
Nasdaq Stock Market, or trading in securities generally on either the Nasdaq
Stock Market or the New York Stock Exchange shall have been suspended or
limited, or minimum or maximum prices shall have been generally established on
any of such stock exchanges by the Commission or the National Association of
Securities Dealers, LLC; (ii) a general banking moratorium shall have been
declared by any of federal, New York, Delaware or California authorities; (iii)
there shall have occurred any outbreak or escalation of national or
international hostilities or any crisis or calamity, or any change in the United
States or international financial markets, or any substantial change or
development involving a prospective change in United States' or international
political, financial or economic conditions, as in the judgment of the
Representatives is material and adverse and makes it impracticable or
inadvisable to market the Common Shares in the manner and on the terms described
in the Prospectus or to enforce contracts for the sale of securities; (iv) in
the judgment of the Representatives there shall have occurred any Material
Adverse Change; or (v) the Company shall have sustained a loss by strike, fire,
flood, earthquake, accident or other calamity of such character as in the
judgment of the Representatives may interfere materially with the conduct of the
business and operations of the Company regardless of whether or not such loss
shall have been insured. Any termination pursuant to this Section 9 shall be
without liability on the part of (a) the Company to any Underwriter, except that
the Company shall be obligated to reimburse the expenses of the Representatives
and the Underwriters pursuant to Sections 5 and 6 hereof, (b) any Underwriter to
the Company, or (c) of any party hereto to any other party except that the
provisions of Section 7 shall at all times be effective and shall survive such
termination.
Section 10. Representations and Indemnities to Survive Delivery. The respective
indemnities, agreements, representations, warranties and other statements of the
Company, of its officers and of the several Underwriters set forth in or made
pursuant to this Agreement will
26
<PAGE> 27
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter or the Company or any of its or their partners,
officers or directors or any controlling person, as the case may be, and will
survive delivery of and payment for the Shares sold hereunder and any
termination of this Agreement.
Section 11. Notices. All communications hereunder shall be in writing and shall
be mailed, hand delivered or telecopied and confirmed to the parties hereto as
follows:
If to the Representatives:
BANCBOSTON ROBERTSON STEPHENS INC.
555 California Street
San Francisco, California 94104
Facsimile: (415) 676-2696
Attention: General Counsel
If to the Company:
LowestFare.com Inc.
980 Kelly Johnson Drive
Las Vegas, Nevada 89119
Facsimile: (702) 260-3772
Attention: Kenneth G. Swanton, Chief Executive Officer
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
Section 12. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto, including any substitute Underwriters pursuant
to Section 9 hereof, and to the benefit of the employees, officers and directors
and controlling persons referred to in Section 7, and to their respective
successors, and no other person will have any right or obligation hereunder. The
term "successors" shall not include any purchaser of the Shares as such from any
of the Underwriters merely by reason of such purchase.
Section 13. Partial Unenforceability. The invalidity or unenforceability of any
Section, paragraph or provision of this Agreement shall not affect the validity
or enforceability of any other Section, paragraph or provision hereof. If any
Section, paragraph or provision of this Agreement is for any reason determined
to be invalid or unenforceable, there shall be deemed to be made such minor
changes (and only such minor changes) as are necessary to make it valid and
enforceable.
Section 14. Governing Law Provisions.
(a) Governing Law. This agreement shall be governed by and construed
in accordance with the internal laws of the state of New York applicable to
agreements made and to be performed in such state.
27
<PAGE> 28
(b) Consent to Jurisdiction. Any legal suit, action or proceeding
arising out of or based upon this Agreement or the transactions contemplated
hereby ("Related Proceedings") may be instituted in the federal courts of the
United States of America located in the City and County of San Francisco or the
courts of the State of California in each case located in the City and County of
San Francisco (collectively, the "Specified Courts"), and each party irrevocably
submits to the exclusive jurisdiction (except for proceedings instituted in
regard to the enforcement of a judgment of any such court (a "Related
Judgment"), as to which such jurisdiction is non-exclusive) of such courts in
any such suit, action or proceeding. Service of any process, summons, notice or
document by mail to such party's address set forth above shall be effective
service of process for any suit, action or other proceeding brought in any such
court. The parties irrevocably and unconditionally waive any objection to the
laying of venue of any suit, action or other proceeding in the Specified Courts
and irrevocably and unconditionally waive and agree not to plead or claim in any
such court that any such suit, action or other proceeding brought in any such
court has been brought in an inconvenient forum. Each party not located in the
United States irrevocably appoints CT Corporation System, which currently
maintains a San Francisco office at 49 Stevenson Street, San Francisco,
California 94105, United States of America, as its agent to receive service of
process or other legal summons for purposes of any such suit, action or
proceeding that may be instituted in any state or federal court in the City and
County of San Francisco.
Section 15. General Provisions. This Agreement constitutes the entire agreement
of the parties to this Agreement and supersedes all prior written or oral and
all contemporaneous oral agreements, understandings and negotiations with
respect to the subject matter hereof. This Agreement may be executed in two or
more counterparts, each one of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument. This
Agreement may not be amended or modified unless in writing by all of the parties
hereto, and no condition herein (express or implied) may be waived unless waived
in writing by each party whom the condition is meant to benefit. The Section
headings herein are for the convenience of the parties only and shall not affect
the construction or interpretation of this Agreement.
[The remainder of this page has been intentionally left blank.]
28
<PAGE> 29
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company the enclosed copies hereof,
whereupon this instrument, along with all counterparts hereof, shall become a
binding agreement in accordance with its terms.
Very truly yours,
Lowestfare.com Inc.
By:__________________________
Kenneth G. Swanton
Chief Executive Officer
The foregoing Underwriting Agreement is hereby confirmed and accepted by
the Representatives as of the date first above written.
BANCBOSTON ROBERTSON STEPHENS INC.
BEAR, STEARNS & CO. INC.
On their behalf and on behalf of each of the several underwriters named in
Schedule A hereto.
By BANCBOSTON ROBERTSON STEPHENS INC.
By:_________________________________
Authorized Signatory
29
<PAGE> 30
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Firm Common
Shares
Underwriters To be Purchased
<S> <C>
BANCBOSTON ROBERTSON STEPHENS INC... [___]
BEAR STEARNS & CO. INC.............. [___]
Total......................... [___]
</TABLE>
S-A
<PAGE> 31
Exhibit A
Lock-Up Agreement
BancBoston Robertson Stephens Inc.
Bear, Stearns & Co., Inc.
As Representatives of the Several Underwriters
c/o BancBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, California 94104
RE: Lowestfare.com, Inc. (the "Company")
Ladies & Gentlemen:
The undersigned is an owner of record or beneficially of certain shares of
Common Stock of the Company ("Common Stock") or securities convertible into or
exchangeable or exercisable for Common Stock. The Company proposes to carry out
a public offering of Common Stock (the "Offering") for which you will act as the
representatives (the "Representatives") of the underwriters. The undersigned
recognizes that the Offering will be of benefit to the undersigned and will
benefit the Company by, among other things, raising additional capital for its
operations. The undersigned acknowledges that you and the other underwriters are
relying on the representations and agreements of the undersigned contained in
this letter in carrying out the Offering and in entering into underwriting
arrangements with the Company with respect to the Offering.
In consideration of the foregoing, the undersigned hereby agrees that the
undersigned will not offer to sell, contract to sell, or otherwise sell, dispose
of, loan, pledge or grant any rights with respect to (collectively, a
"Disposition") 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 (collectively, "Securities") now owned or hereafter
acquired directly by such person or with respect to which such person has or
hereafter acquires the power of disposition, otherwise than (i) as a bona fide
gift or gifts, provided the donee or donees thereof agree in writing to be bound
by this restriction, (ii) as a distribution to partners or shareholders of such
person, provided that the distributees thereof agree in writing to be bound by
the terms of this restriction, (iii) with respect to dispositions of Common
Shares acquired on the open market, (iv) to entities which are controlled by
Carl Icahn, which entities agree to be bound by the terms of this Agreement or
(v) with the prior written consent of BancBoston Robertson Stephens Inc., for a
period commencing on the date hereof and continuing to a date 180 days after the
Registration Statement is declared effective by the Securities and Exchange
Commission (the "Lock-up Period"). The foregoing restriction has been expressly
agreed to preclude the holder of the Securities from engaging in any hedging or
other transaction which is designed to or reasonably expected to lead to or
result in a Disposition of Securities during the Lock-up Period, even if such
Securities would be disposed of by someone other than such holder. Such
prohibited hedging or other transactions would include, without limitation, any
short sale (whether or not against the box) or any purchase, sale or grant of
any right (including, without limitation, any put or call option) with respect
to any Securities or with respect to any
A-1
<PAGE> 32
security (other than a broad-based market basket or index) that included,
relates to or derives any significant part of its value from Securities. The
undersigned also agrees and consents to the entry of stop transfer instructions
with the Company's transfer agent and registrar against the transfer of shares
of Common Stock or Securities held by the undersigned except in compliance with
the foregoing restrictions.
This agreement is irrevocable and will be binding on the undersigned and
the respective successors, heirs, personal representatives, and assigns of the
undersigned.
Dated:___________________________________
_________________________________________
Printed Name of Holder
By:______________________________________
Signature
_________________________________________
Printed Name of Person Signing
(and indicate capacity of person
signing if signing as custodian, trustee,
or on behalf of an entity)
A-2
<PAGE> 33
Exhibit B
Matters to be Covered in the Opinion of Company Counsel
(i) The Company and the Subsidiaries have been duly incorporated or, where
appropriate, organized, and are validly existing as corporations (or limited
liability companies) in good standing under the laws of the jurisdiction of
their incorporation or organization;
(ii) The Company and each of the Subsidiaries, has the corporate power and
authority to own, lease and operate its properties and to conduct its business
as described in the Prospectus;
(iii) The Company and each of the Subsidiaries is duly qualified to do business
as a foreign corporation and is in good standing in each jurisdiction, if any,
in which the ownership or leasing of its properties or the conduct of its
business requires such qualification, except where the failure to be so
qualified or be in good standing would not have a Material Adverse Effect. To
such counsel's knowledge, the Company does not own or control, directly or
indirectly, any corporation, association or other entity other than Global
Discount and Global Travel. To each counsel's knowledge, the Subsidiaries do not
now own or control, directly or indirectly, any corporation, association, or
entity other than ________________;
(iv) The information in the Prospectus under the caption "Organizational
Restructuring," to the extent that it constitutes matters of law or legal
conclusions, has been reviewed by such counsel and is a fair summary of such
matters and conclusions; no parties other than Vauxhall LLC and Icahn Associates
Corp., shall, as of such date, own or possess the right to acquire shares of the
Company's stock other than employees of the Company pursuant to option
agreements described in the Prospectus.
(v) The authorized, issued and outstanding capital stock of the Company is as
set forth in the Prospectus under the caption "Capitalization" as of the dates
stated therein, the issued and outstanding shares of capital stock of the
Company have been duly and validly issued and are fully paid and nonassessable,
and, to such counsel's knowledge, will not have been issued in violation of or
subject to any preemptive right, co-sale right, registration right, right of
first refusal or other similar right;
(vi) All issued and outstanding shares of capital stock of each of the
Subsidiaries have been duly authorized and validly issued and are fully paid and
nonassessable, and, to such counsel's knowledge, have not been issued in
violation of or subject to any preemptive right, co-sale right, registration
right, right of first refusal or other similar right and are owned by the
Company free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest;
(vii) The Firm Shares or the Option Shares, as the case may be, to be issued by
the Company pursuant to the terms of this Agreement have been duly authorized
and, upon issuance and delivery against payment therefor in accordance with the
terms hereof, will be duly and validly issued and fully paid and nonassessable,
and will not have been issued in violation of or subject
B-1
<PAGE> 34
to any preemptive right, co-sale right, registration right, right of first
refusal or other similar right.
(viii) The Company has the corporate power and authority to enter into this
Agreement and to issue, sell and deliver to the Underwriters the Shares to be
issued and sold by it hereunder;
(ix) The Company, and each of the Subsidiaries has the corporate power and
authority to enter into the applicable Transfer Agreements and to perform the
obligations set forth therein;
(x) This Agreement has been duly authorized by all necessary corporate action on
the part of the Company and has been duly executed and delivered by the Company
and, assuming due authorization, execution and delivery by the Company, is a
valid and binding agreement of the Company, enforceable in accordance with its
terms, except as rights to indemnification hereunder may be limited by
applicable law and except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or affecting
creditors' rights generally or by general equitable principles;
(xi) The Registration Statement has become effective under the Act and, to such
counsel's knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are pending or threatened under the Securities Act;
(xii) The 8-A Registration Statement complied as to form in all material
respects with the requirements of the Exchange Act; the 8-A Registration
Statement has become effective under the Exchange Act; and the Firm Shares or
the Option Shares have been validly registered under the Securities Act and the
Rules and Regulations of the Exchange Act and the applicable rules and
regulations of the Commission thereunder;
(xiii) The Registration Statement and the Prospectus, and each amendment or
supplement thereto (other than the financial statements (including supporting
schedules) and financial data derived therefrom as to which such counsel need
express no opinion), as of the effective date of the Registration Statement,
complied as to form in all material respects with the requirements of the Act
and the applicable Rules and Regulations;
(xiv) The information in the Prospectus under the captions "Risk Factors --
Future sales of our common stock in the public could adversely affect our stock
price," "Description of Capital Stock," "Certain Transactions," "Shares Eligible
for Future Sale," and the information in the Registrations Statement in Part II,
Items 14 and 15, to the extent that it constitutes matters of law or legal
conclusions, has been reviewed by such counsel and is a fair summary of such
matters and conclusions; and the forms of certificates evidencing the Common
Stock and filed as exhibits to the Registration Statement comply with Delaware
law;
(xv) The description in the Registration Statement and the Prospectus of the
charter and bylaws of the Company and of statutes are accurate and fairly
present the information required to be presented by the Securities Act;
(xvi) To such counsel's knowledge, there are no agreements, contracts, leases or
documents to which the Company or any of the Subsidiaries are a party of a
character required to be described
B-2
<PAGE> 35
or referred to in the Registration Statement or Prospectus or to be filed as an
exhibit to the Registration Statement which are not described or referred to
therein or filed as required;
(xvii) The performance of this Agreement and each Transfer Agreement and the
consummation of the transactions herein and therein contemplated (other than
performance of the Company's indemnification obligations hereunder, concerning
which no opinion need be expressed) will not (a) result in any violation of the
Company's charter or bylaws or the bylaws, charter or Operating Agreement of the
Subsidiaries or (b) to such counsel's knowledge, result in a material breach or
violation of any of the terms and provisions of, or constitute a default under,
any bond, debenture, note or other evidence of indebtedness, or any lease,
contract, indenture, mortgage, deed of trust, loan agreement, joint venture or
other agreement or instrument known to such counsel to which the Company or the
Subsidiaries are a party or by which their properties are bound, or any
applicable statute, rule or regulation known to such counsel or, to such
counsel's knowledge, any order, writ or decree of any court, government or
governmental agency or body having jurisdiction over the Company or the
Subsidiaries or any of their respective subsidiaries, or over any of their
properties or operations;
(xviii) No consent, approval, authorization or order of or qualification with
any court, government or governmental agency or body having jurisdiction over
the Company or the Subsidiaries, or over any of their properties or operations
is necessary in connection with the consummation by the Company of the
transactions herein contemplated (including the Organizational Restructuring),
except (i) such as have been obtained under the Securities Act, (ii) such as may
be required under state or other securities or Blue Sky laws in connection with
the purchase and the distribution of the Shares by the Underwriters, (iii) such
as may be required by the National Association of Securities Dealers, LLC and
(iv) such as may be required under the federal or provincial laws of Canada;
(xix) To such counsel's knowledge, there are no legal or governmental
proceedings pending or threatened against the Company or the Subsidiaries of a
character required to be disclosed in the Registration Statement or the
Prospectus by the Securities Act, other than those described therein;
(xx) Neither the Company nor the Subsidiaries, is presently (a) in material
violation of its respective charter, bylaws, or Operating Agreement or (b) in
material breach of any applicable statute, rule or regulation known to such
counsel or, to such counsel's knowledge, any order, writ or decree of any court
or governmental agency or body having jurisdiction over the Company or the
Subsidiaries, or over any of their properties or operations;
(xxi) To such counsel's knowledge, except as set forth in the Registration
Statement and Prospectus, no holders of Company Shares or other securities of
the Company have registration rights with respect to securities of the Company
and, except as set forth in the Registration Statement and Prospectus, all
holders of securities of the Company having rights known to such counsel to
registration of such shares of Company Shares or other securities, because of
the filing of the Registration Statement by the Company have, with respect to
the offering contemplated thereby, waived such rights or such rights have
expired by reason of lapse of time following notification of the Company's
intent to file the Registration Statement or have included securities in the
Registration Statement pursuant to the exercise of and in full satisfaction of
such rights;
B-3
<PAGE> 36
(xxii) The Company is not, the Subsidiaries are not and, after giving effect to
the offering and the sale of the Shares and the application of the proceeds
thereof as described in the Prospectus, neither the Company nor either of the
Subsidiaries will be, an "investment company" as such term is defined in the
Investment Company Act of 1940, as amended;
(xxiii) To such counsel's knowledge, the Company owns or possesses sufficient
trademarks, trade names, patent rights, copyrights, licenses, approvals, domain
names, trade secrets and other similar rights (collectively, "Intellectual
Property Rights") reasonably necessary to conduct their business as now
conducted; and the expected expiration of any such Intellectual Property Rights
would not result in a Material Adverse Effect. The Company has not received any
notice of infringement or conflict with asserted Intellectual Property Rights of
others, which infringement or conflict, if the subject of an unfavorable
decision, would result in a Material Adverse Effect. To such counsel's
knowledge, the Company's discoveries, inventions, products, or processes
referred to in the Registration Statement or Prospectus do not infringe or
conflict with any right or patent which is the subject of a patent application
known to the Company;
(xxiv) Each of the Transfer Agreements has been duly authorized, executed and
delivered by and is a valid and binding agreement of the Company and each
applicable Subsidiary in accordance with its terms and, to the knowledge of such
counsel, neither the Company nor the Subsidiaries are in default in any respect
thereunder; upon closing of each of the Transfer Agreements, the Company will
own all of the outstanding capital stock of each of the Subsidiaries, free and
clear of any pledge, lien, security interest, encumbrance, claim or equitable
interest; and
(xxv) Upon the filing of the appropriate documents with the appropriate
governmental entities, the Organizational Restructuring will become effective
pursuant to the Transfer Agreements and applicable state law.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters were
discussed, and although they have not verified the accuracy or completeness of
the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which leads them to believe
that, at the time the Registration Statement became effective and at all times
subsequent thereto up to and on the First Closing Date or Second Closing Date,
as the case may be, the Registration Statement and any amendment or supplement
thereto (other than the financial statements including supporting schedules and
other financial and statistical information derived therefrom, as to which such
counsel need express no comment) contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or at the First Closing
Date or the Second Closing Date, as the case may be, the Registration Statement,
the Prospectus and any amendment or supplement thereto (except as aforesaid)
contained any untrue statement of a material fact or omitted to state a material
fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
B-4
<PAGE> 37
Exhibit D
Matters to be Covered in the Opinion of Underwriters' Counsel
(i) The [Firm Shares] [Option Shares] have been duly authorized and,
upon issuance and delivery and payment therefor in accordance with the
terms of the Underwriting Agreement, will be validly issued, fully paid
and non-assessable.
(ii) The Registration Statement complied as to form in all material
respects with the requirements of the Act; the Registration Statement has
become effective under the Act and, to such counsel's knowledge, no stop
order proceedings with respect thereto have been instituted or threatened
or are pending under the Act.
(iii) The 8-A Registration Statement complied as to form in all
material respects with the requirements of the Exchange Act; the 8-A
Registration Statement has become effective under the Exchange Act; and
the Firm Shares or the Option Shares have been validly registered under
the Securities Act and the Rules and Regulations of the Exchange Act and
the applicable rules and regulations of the Commission thereunder;
(iv) The Underwriting Agreement has been duly authorized, executed
and delivered by the Company.
Such counsel shall state that such counsel has reviewed the opinions
addressed to the Representatives from [list each set of counsel that has
provided an opinion], each dated the date hereof, and furnished to you in
accordance with the provisions of the Underwriting Agreement. Such opinions
appear on their face to be appropriately responsive to the requirements of the
Underwriting Agreement.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters were
discussed, and although they have not verified the accuracy or completeness of
the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which leads them to believe
that, at the time the Registration Statement became effective and at all times
subsequent thereto up to and on the First Closing Date or Second Closing Date,
as the case may be, the Registration Statement and any amendment or supplement
thereto (other than the financial statements including supporting schedules and
other financial and statistical information derived therefrom, as to which such
counsel need express no comment) contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or at the First Closing
Date or the Second Closing Date, as the case may be, the Registration Statement,
<PAGE> 38
the Prospectus and any amendment or supplement thereto [and any Incorporated
Document] (except as aforesaid) contained any untrue statement of a material
fact or omitted to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
D-2
<PAGE> 1
Exhibit 2.1
TRANSFER AGREEMENT
Transfer Agreement pursuant to Section 351 of the Internal Revenue Code
of 1986, as amended (the "Code"), dated March 15, 1999, among Vauxhall LLC, a
Nevada limited liability company ("Vauxhall"), Global Discount Travel Services
LLC, a Nevada limited liability company ("Global Discount"), Global Travel
Marketing Services, Inc., a Nevada corporation ("Global Marketing") and
Lowestfare.com, Inc., a Delaware corporation ("Lowestfare.com").
W I T N E S S E T H:
WHEREAS, Lowestfare.com intends to file a Registration
Statement on Form S-1 (the "Registration Statement") with the Securities and
Exchange Commission ("SEC") under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to which Lowestfare.com intends to sell to the
public shares of its common stock, par value $.01 per share ("Common Stock");
and
WHEREAS, prior to the closing of the IPO, Vauxhall will own
all of the outstanding membership interests in Global Discount (the "Global
Discount Interest"); and
WHEREAS, prior to the closing of the IPO, Vauxhall will own
all of the outstanding capital stock of Global Marketing (the "Global Marketing
Interest", together with the Global Discount Interest, the "Global Interests");
and
WHEREAS, Lowestfare.com desires to acquire from Vauxhall the
Global Interests, and Vauxhall desires to transfer the Global Interests to
Lowestfare.com in exchange for shares of Common Stock, in a tax-free transfer
under Section 351 of the Internal Revenue Code, and in accordance with and
subject to all of the terms and conditions of this Agreement; and
WHEREAS, in connection with the transfer described above,
Global Discount and Lowestfare.com desire to have the Global Options (as
hereinafter defined) converted into options to purchase shares of Common Stock
of Lowestfare.com.
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants, conditions and agreements hereinafter
set forth, the parties hereto, desiring to be legally bound, hereby agree as
follows:
1. The Purchase and Sale. Subject to the terms and conditions set
forth herein, at the Closing (as hereinafter defined), Vauxhall will sell and
Lowestfare.com will purchase the Global Interests, in full consideration for
which, at the Closing, Lowestfare.com shall issue to Vauxhall 28,599,900 shares
of Common Stock (the "Vauxhall Shares").
2. The Closing.
1
<PAGE> 2
(a) The closing of the transactions described herein (the
"Closing") shall take place at the offices of Gordon Altman Butowsky Weitzen
Shalov & Wein, 114 West 47th Street, New York, New York 10036 simultaneously
with the effectiveness of the Registration Statement (as defined below) of its
Common Stock. At the Closing: (i) Vauxhall shall deliver to Lowestfare.com a
duly executed instruments of transfer transferring the Global Interests to
Lowestfare.com, accompanied by applicable transfer taxes, if any and (ii)
Lowestfare.com shall deliver to Vauxhall certificates representing the Vauxhall
Stock, registered in Vauxhall's name.
(b) For purposes of this Agreement "IPO" shall mean the initial
public offering by Lowestfare.com of its Common Stock pursuant to the
Registration Statement. The effectiveness of the Registration Statement shall be
deemed to be the day and time at which the SEC declares the Registration
Statement effective.
3. Representations and Warranties Of Vauxhall. Vauxhall hereby
represents and warrants to Lowestfare.com as follows:
(a) Organization. Vauxhall is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Nevada with all requisite power to enable it to own, lease and operate its
assets and properties and to conduct its business as currently conducted.
(b) Authority. Vauxhall has all requisite power and authority
to execute and deliver this Agreement, to perform its obligations hereunder and
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all requisite action on the part of the members of
Vauxhall. This Agreement has been duly executed and delivered by Vauxhall and
constitutes the legal, valid and binding obligation of Vauxhall.
(c) Prohibitions. Neither the execution and delivery
of this Agreement, the performance by Vauxhall of its obligations hereunder, nor
the consummation of the transactions contemplated hereby will: (i) with or
without the giving of notice or the passage of time, or both, violate, or be in
conflict with, or constitute a default under, or cause or permit the termination
or the acceleration of the maturity of, any debt, contract, agreement or
obligation of Vauxhall or require the payment of any prepayment or other
penalty; (ii) require notice to or the consent of any party to any agreement or
commitment, including, without limitation, any lease, license, franchise
agreement or any other agreement (including a right of first refusal or any
similar right), to which Vauxhall is a party, or by which Vauxhall's properties
are bound or subject or permit any such party to renegotiate, modify or
otherwise change any such agreement or commitment; (iii) result in the creation
or imposition of any security interest, lien or other encumbrance upon any
property or assets of Vauxhall under any agreement or commitment to which
Vauxhall is a party, or by which Vauxhall's properties are bound or subject;
(iv) violate any statute or law or any judgment, decree, order, regulation or
rule of any court or governmental authority to which Vauxhall or any of
Vauxhall's properties are bound or subject; or (v) violate Vauxhall's
organizational documents.
(d) Consents and Approvals of Governmental Authorities. No
consent,
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<PAGE> 3
approval or authorization of, or declaration, filing or registration with, any
governmental or regulatory authority is required to be made or obtained by
Vauxhall in connection with the execution or delivery by it of this Agreement,
the performance of its obligations hereunder or the consummation by it of the
transactions contemplated hereby.
(e) Ownership. Immediately prior to the closing of the IPO,
Vauxhall will be the owner, beneficially and of record, of the Global Interest
and there will exist no Encumbrance (as hereinafter defined) of any kind with
respect to the Global Interest. Vauxhall is not a party to any stockholders
agreement, voting trust or other voting or similar agreement with respect to the
Global Interest. For purposes of this Agreement, the term "Encumbrances" means
all mortgages, deeds of trust, claims, security interests, liens, pledges,
leases, subleases, charges, escrows, proxies, rights of occupancy, rights of
first refusal, preemptive rights, covenants, conditional limitations,
hypothecations, prior assignments, easements, title retention agreements,
indentures, security agreements or any other encumbrances of any kind.
(f) Investment Intent. Vauxhall is acquiring the
Vauxhall Shares solely for the purpose of investment for its own account and not
with a view to, or for sale in connection with, the "distribution," as such term
is used in Section 2(11) of the Securities Act, of any of the Vauxhall Shares in
violation of the 1933 Act or any applicable state securities laws. Vauxhall
understands that the Vauxhall Shares have not been registered under the 1933 Act
or any applicable state securities laws and that it will not be legally entitled
to offer for sale, sell, or otherwise transfer any of the Vauxhall Shares unless
they have been registered under the 1933 Act and applicable state securities
laws or unless an exemption from registration is available for such offer, sale,
or other transfer under the 1933 Act and applicable state securities laws.
Vauxhall has the financial capability and business acumen to evaluate whether or
not to acquire the Vauxhall Shares pursuant to this Agreement. All certificates
representing the Vauxhall Shares to be issued pursuant to this Agreement shall
bear a legend on the face thereof to the following effect:
The shares evidenced by this certificate have not been
registered under the Securities Act of 1933, as amended. No
transfer, sale or other disposition of these shares may be
made unless they are registered thereunder or unless an
exemption from registration is available.
4. Representations and Warranties of Global Discount. Global
represents and warrants to Lowestfare.com as follows:
(a) Organization. Global Discount is a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of Nevada with all requisite power to enable it to own,
lease and operate its assets and properties and to conduct its business as
currently conducted.
(b) Authority. Global Discount has all requisite
power and authority to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the
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<PAGE> 4
consummation of the transactions contemplated hereby have been duly authorized
by all requisite action on the part of the members of Global Discount. This
Agreement has been duly executed and delivered by Global Discount and
constitutes the legal, valid and binding obligation of Global Discount.
(c) Prohibitions. Neither the execution and delivery of this
Agreement, the performance by Global Discount of its obligations hereunder, nor
the consummation of the transactions contemplated hereby will: (i) with or
without the giving of notice or the passage of time, or both, violate, or be in
conflict with, or constitute a default under, or cause or permit the termination
or the acceleration of the maturity of, any debt, contract, agreement or
obligation of Global Discount or require the payment of any prepayment or other
penalty; (ii) require notice to or the consent of any party to any agreement or
commitment, including, without limitation, any lease, license, franchise
agreement or any other agreement (including a right of first refusal or any
similar right), to which Global Discount is a party, or by which Global
Discount's properties are bound or subject or permit any such party to
renegotiate, modify or otherwise change any such agreement or commitment; (iii)
result in the creation or imposition of any security interest, lien or other
encumbrance upon any property or assets of Global Discount under any agreement
or commitment to which Global Discount is a party, or by which Global Discount's
properties are bound or subject; (iv) violate any statute or law or any
judgment, decree, order, regulation or rule of any court or governmental
authority to which Global Discount or any of Global Discount's properties are
bound or subject; or (v) violate Global Discount's organizational documents.
(d) Consents and Approvals of Governmental
Authorities. No consent, approval or authorization of, or declaration, filing or
registration with, any governmental or regulatory authority is required to be
made or obtained by Global Discount in connection with the execution or delivery
by it of this Agreement, the performance of its obligations hereunder or the
consummation by it of the transactions contemplated hereby.
(e) Capitalization. The Global Discount Interest is
the only authorized, issued and outstanding equity interest of Global Discount.
The Global Discount Interest is validly issued, fully paid and non-assessable,
and not subject to preemptive rights. Other than the Global Discount Options (as
hereinafter defined), there are no outstanding options, warrants, calls or other
rights to subscribe for, purchase or acquire, or any plans, contracts or
commitments providing for the issuance of, or granting of rights to acquire, any
equity interests in Global Discount.
5. Representations and Warranties of Global Marketing. Global
Marketing represents and warrants to Lowestfare.com as follows:
(a) Organization. Global Marketing is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Nevada with all requisite power to enable it to own, lease and operate
its assets and properties and to conduct its business as currently conducted.
(b) Authority. Global Marketing has all requisite
power and authority to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the
4
<PAGE> 5
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all requisite action on the part of the shareholders of Global
Marketing. This Agreement has been duly executed and delivered by Global
Marketing and constitutes the legal, valid and binding obligation of Global
Marketing.
(c) Prohibitions. Neither the execution and delivery
of this Agreement, the performance by Global Marketing of its obligations
hereunder, nor the consummation of the transactions contemplated hereby will:
(i) with or without the giving of notice or the passage of time, or both,
violate, or be in conflict with, or constitute a default under, or cause or
permit the termination or the acceleration of the maturity of, any debt,
contract, agreement or obligation of Global Marketing or require the payment of
any prepayment or other penalty; (ii) require notice to or the consent of any
party to any agreement or commitment, including, without limitation, any lease,
license, franchise agreement or any other agreement (including a right of first
refusal or any similar right), to which Global Marketing is a party, or by which
Global Marketing's properties are bound or subject or permit any such party to
renegotiate, modify or otherwise change any such agreement or commitment; (iii)
result in the creation or imposition of any security interest, lien or other
encumbrance upon any property or assets of Global Marketing under any agreement
or commitment to which Global Marketing is a party, or by which Global
Marketing's properties are bound or subject; (iv) violate any statute or law or
any judgment, decree, order, regulation or rule of any court or governmental
authority to which Global Marketing or any of Global Marketing's properties are
bound or subject; or (v) violate Global Marketing's organizational documents.
(d) Consents and Approvals of Governmental
Authorities. No consent, approval or authorization of, or declaration, filing or
registration with, any governmental or regulatory authority is required to be
made or obtained by Global Marketing in connection with the execution or
delivery by it of this Agreement, the performance of its obligations hereunder
or the consummation by it of the transactions contemplated hereby.
(e) Capitalization. The Global Marketing Interest is
the only authorized, issued and outstanding equity interest of Global Marketing.
The Global Marketing Interest is validly issued, fully paid and non-assessable,
and not subject to preemptive rights. Other than the Global Marketing Options
(as hereinafter defined), there are no outstanding options, warrants, calls or
other rights to subscribe for, purchase or acquire, or any plans, contracts or
commitments providing for the issuance of, or granting of rights to acquire, any
equity interests in Global Marketing.
6. Representations and Warranties of Lowestfare.com.
Lowestfare.com represents and warrants to Vauxhall as follows:
(a) Organization. Lowestfare.com is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware with all requisite power to enable it to own, lease and operate its
assets and properties and to conduct its business as currently conducted.
(b) Authority. Lowestfare.com has all requisite corporate
power and
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<PAGE> 6
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all requisite corporate action
on the part of Lowestfare.com. This Agreement has been duly executed and
delivered by Lowestfare.com and constitutes the legal, valid and binding
obligation of Lowestfare.com.
(c) Prohibitions. Neither the execution and delivery of this
Agreement, the performance by Lowestfare.com of its obligations hereunder, nor
the consummation of the transactions contemplated hereby will: (i) with or
without the giving of notice or the passage of time, or both, violate, or be in
conflict with, or constitute a default under, or cause or permit the termination
or the acceleration of the maturity of, any debt, contract, agreement or
obligation of Lowestfare.com or require the payment of any prepayment or other
penalty; (ii) require notice to or the consent of any party to any agreement or
commitment, including, without limitation, any lease, license, franchise
agreement or any other agreement (including a right of first refusal or any
similar right), to which Lowestfare.com is a party, or by which Lowestfare.com's
properties are bound or subject or permit any such party to renegotiate, modify
or otherwise change any such agreement or commitment; (iii) result in the
creation or imposition of any security interest, lien or other encumbrance upon
any property or assets of Lowestfare.com under any agreement or commitment to
which Lowestfare.com is a party, or by which Lowestfare.com's properties are
bound or subject; (iv) violate any statute or law or any judgment, decree,
order, regulation or rule of any court or governmental authority to which
Lowestfare.com or any of Lowestfare.com's properties are bound or subject; or
(v) violate Lowestfare.com's certificate of incorporation or by-laws.
(d) Consents and Approvals of Governmental
Authorities. No consent, approval or authorization of, or declaration, filing or
registration with, any governmental or regulatory authority is required to be
made or obtained by Lowestfare.com in connection with the execution or delivery
by it of this Agreement, the performance of its obligations hereunder or the
consummation by it of the transactions contemplated hereby.
(e) Ownership. At the Closing, the authorized capital
stock of Lowestfare.com will consist of 75,000,000 shares of Common Stock and
5,000,000 shares of preferred stock, par value $.01 per share ("Preferred
Stock"). There are 100 shares of Common Stock issued and outstanding and no
shares of Preferred Stock be issued or outstanding. All outstanding shares of
Common Stock are, and the Vauxhall Shares to be issued pursuant to this
Agreement will be, validly issued, fully paid and non-assessable, and not
subject to preemptive rights. There is no stockholders agreement, voting trust
or other voting or similar agreement with respect to the Common Stock. There are
no outstanding options, warrants, calls or other rights to subscribe for,
purchase or acquire, or any plans, contracts or commitments providing for the
issuance of, or granting of rights to acquire, any equity interests in
Lowestfare.com. There are no shares of Common Stock held in the treasury of
Lowestfare.com.
(f) Investment Intent. Lowestfare.com is acquiring
the Global Interests solely for the purpose of investment for its own account
and not with a view to, or for sale in connection with, the "distribution," as
such term is used in Section 2(11) of the Securities Act, of
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<PAGE> 7
any portion of the Global Interests in violation of the 1933 Act or any
applicable state securities laws. Lowestfare.com understands that the Global
Interests have not been registered under the 1933 Act or any applicable state
securities laws and that it will not be legally entitled to offer for sale,
sell, or otherwise transfer any portion of the Global Interests unless it has
been registered under the 1933 Act and applicable state securities laws or
unless an exemption from registration is available for such offer, sale, or
other transfer under the 1933 Act and applicable state securities laws.
Lowestfare.com has the financial capability and business acumen to evaluate
whether or not to acquire the Global Interests pursuant to this Agreement. All
certificates representing the Global Marketing Interest to be issued pursuant to
this Agreement shall bear a legend on the face thereof to the following effect:
The shares evidenced by this certificate has not been
registered under the Securities Act of 1933, as amended. No
transfer, sale or other disposition of these shares may be
made unless it is registered thereunder or unless an exemption
from registration is available.
7. Additional Agreements.
(a) Stock Options. At the Closing, each existing
option to purchase a membership interest in Global Discount (the "Global
Options"), whether vested or unvested, shall be assumed by Lowestfare.com. After
the Closing, each Global Option shall automatically be deemed to constitute an
option to acquire, on the same terms and conditions as were applicable under
such Global Option, an equal percentage of the shares of Common Stock
(collectively, the "Lowestfare.com Stock Options"). To the extent possible, such
options will be issued under the Lowestfare.com 1999 Stock Option Plan.
At the Closing, Lowestfare.com shall deliver to each
holder of a Global Option a stock option agreement setting forth such holder's
rights to acquire Common Stock.
All Global Options outstanding immediately prior to
the Closing shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each holder of a Global Option shall
cease to have any rights with respect thereto, except the right to receive the
Lowestfare.com Stock Options to be issued in consideration therefor. Set forth
on EXHIBIT A hereto is a list of all Global Options outstanding as of the date
hereof.
(b) Registration Rights. At the Closing,
Lowestfare.com and Vauxhall shall execute and deliver a registration rights
agreement (the "Registration Rights Agreement"), in form and substance
acceptable to Vauxhall, pursuant to which Lowestfare.com shall grant certain
registration rights to Vauxhall with respect to the Vauxhall Shares.
(c) Amended and Restated Articles of Organization. At
the Closing, Vauxhall shall execute and deliver Amended and Restated Articles of
Organization of Global Discount, in the form attached hereto as EXHIBIT B,
pursuant to which, upon filing with the Secretary of State of the State of
Nevada, Lowestfare.com shall become the sole member of Global Discount.
(d) Further Instruments. At any time and from time to
time after the
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<PAGE> 8
Closing, Vauxhall and Lowestfare.com, as the case may be, at the request of the
other and without further consideration, will execute and deliver such other
instruments of sale, transfer, assignment and confirmation and take such action
to the other, in form and substance reasonably satisfactory to the other, as may
be reasonably necessary or desirable to carry out or implement any provision of
this Agreement.
8. Conditions Precedent to Lowestfare.com's Obligations. All
obligations of Lowestfare.com under this Agreement are subject, at
Lowestfare.com's option, to the fulfillment, prior to or at the Closing, of the
following condition:
(a) The Registration Statement shall have become effective
under the Securities Act.
9. Conditions Precedent to Vauxhall's Obligations. All
obligations of Vauxhall under this Agreement are subject, at Vauxhall's option,
to the fulfillment, prior to or at the Closing, of the following condition:
(a) The Registration Statement shall have become effective
under the Securities Act.
10. Indemnification of Vauxhall. Lowestfare.com shall indemnify,
defend and hold harmless Vauxhall its members, employees and agents from and
against all losses, fines, civil penalties, judgments, claims, damages or
expenses (including reasonable attorneys' fees) of every kind payable by any of
them relating to (i) any claim against Vauxhall arising out of the IPO (unless
such claim arises due to a material misrepresentation or breach of any of the
representations, warranties, covenants or agreements of Vauxhall); and (ii) the
breach by Lowestfare.com of any representation or warranty, covenant or
agreement made by Lowestfare.com contained in this Agreement.
11. Termination. (a) This Agreement may be terminated at any time
prior to the Closing:
(i) upon the mutual written consent of the parties hereto;
(ii) by Lowestfare.com upon notice to Vauxhall, if all of the
conditions described in Paragraph 8 hereof have not been fulfilled by Vauxhall
or waived by Lowestfare.com at the Closing;
(iii) by Vauxhall upon notice to Lowestfare.com, if all of the
conditions described in Paragraph 9 hereof have not been fulfilled by
Lowestfare.com or waived by Vauxhall at the Closing; and
(iv) at the option of either Lowestfare.com or Vauxhall, if
the Closing does not occur before August 1, 1999.
(b) In the event of a termination of this Agreement, this
Agreement shall
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<PAGE> 9
forthwith become void and there shall be no liability on the part of a party
hereto or their respective directors or officers.
12. Miscellaneous Provisions.
(a) Expenses. The parties shall each pay their own expenses in
connection with the negotiation, preparation and carrying out of this Agreement,
and the consummation of the transactions contemplated hereby.
(b) Parties in Interest. Nothing in this Agreement, whether
express or implied, is intended to confer any rights or remedies under, or by
reason of, this Agreement on any person or entity other than the parties hereto
and their executors, administrators, personal representatives, successors and
permitted assigns.
(c) Amendment and Modification. This Agreement may be amended,
modified, supplemented or terminated and any of the terms, covenants,
representations and warranties or conditions hereof may be waived only by a
written instrument duly executed by the parties hereto, or in the case of a
waiver, by the party waiving compliance.
(d) Notices. All notices, requests, demands and other
communications which are required to be or may be given under this Agreement
shall be in writing and shall be deemed to have been duly given when delivered
in person, or transmitted by telecopy or telex, or upon receipt after dispatch
by certified or registered first class mail, postage prepaid, return receipt
requested, to the party to whom the same is so given or made, at the following
addresses or telecopy or telex numbers (or such others as shall be provided in
writing hereinafter):
If to Lowestfare.com, to:
Lowestfare.com, Inc.
980 Kelly Johnson Drive
Las Vegas, Nevada 89119
Attention: Gail Golden
If to Vauxhall, Global Discount or Global Marketing, to:
c/o Icahn Associates Corp.
767 Fifth Avenue
New York, NY 10153
Attention: Edward E. Mattner
Copies of all notices to:
Gordon Altman Butowsky Weitzen Shalov & Wein
114 West 47th Street
New York, NY 10036
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<PAGE> 10
Attention: Marc Weitzen, Esq.
(e) Binding Agreement. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective executors, administrators, personal representatives,
successors and permitted assigns.
(f) Entire Agreement. This Agreement and the exhibits referred
to herein constitute the entire agreement of the parties hereto with respect to
the subject matter hereof and thereof. All prior agreements, understandings,
representations, warranties and negotiations, whether written or oral, are
merged into the aforesaid documents.
(g) Governing Law. This Agreement shall be governed, construed
and enforced in accordance with the laws of the State of New York without regard
for its conflict of laws rules.
(h) Counterparts. This Agreement may be executed in two or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when two or more counterparts have been signed by
each of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
(i) Interpretation. The article and section headings contained
in this Agreement are solely for the purpose of reference, are not part of the
Agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement.
(j) Severability. Each party agrees that, should any court or
other competent authority hold any provision of this Agreement or part hereof to
be null, void or unenforceable, or order any party to take any action
inconsistent herewith or not take an action consistent herewith or required
hereby, the validity, legality and enforceability of the remaining provisions
and obligations contained or set forth herein shall not in any way be affected
or impaired hereby.
(k) Tax Returns. Vauxhall and Lowestfare.com each agree to
file with their respective federal income tax returns for their taxable years
which include the date of execution and delivery of this Agreement the
statements required by Treasury Regulation Section 1.351-3.
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<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed on the date first above written.
VAUXHALL LLC
By: Highcrest Investors Corp., Member
By:_________________________________
Name: Richard T. Buonato
Title: Senior Vice President
LOWESTFARE.COM, INC.
By:_________________________________
Name: Kenneth G. Swanton
Title: Chief Executive Officer
GLOBAL DISCOUNT TRAVEL SERVICES LLC
By: Highcrest Investors Corp., Member
By:_________________________________
Name: Richard T. Buonato
Title: Senior Vice President
GLOBAL TRAVEL MARKETING SERVICES,
INC.
By:_________________________________
Name: Gail Golden
Title: President
11
<PAGE> 12
EXHIBIT A
OPTION CONVERSION
<TABLE>
<CAPTION>
Options to Purchase Shares
of Common Stock of Global
Optionee Name Discount Travel Services, LLC
------------- -----------------------------
<S> <C> <C>
Denise Barton 78,867 shares at $5.0719 per share
Russell D. Glass 157,733 shares at $5.0719 per share
Gail Golden 788,665 shares at $5.0719 per share
Steven S. Lay 157,733 shares at $5.0719 per share
Douglas Lanner 39,433 shares at $5.0719 per share
Vincent L. Martinelli 78,867 shares at $5.0719 per share
Gregory A. Monton 157,733 shares at $5.0719 per share
Kenneth G. Swanton 591,499 shares at $5.0719 per share
Terry L. O'Neal 157,733 shares at $5.0719 per share
</TABLE>
12
<PAGE> 1
Exhibit 3.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
LOWESTFARE.COM, INC.
ADOPTED IN ACCORDANCE WITH THE PROVISIONS OF SECTIONS 242 AND 245 OF
THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
Lowestfare.com, Inc., a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
The name of the corporation is Lowestfare.com, Inc.
(hereinafter called the "Company").
The Certificate of Incorporation of the Company was filed by
the Secretary of State on the 27th day of August, 1998.
Pursuant to Sections 242 and 245 of the General Corporation
Law of the State of Delaware (the "DGCL"), the Amended and Restated
Certificate of Incorporation set forth in Appendix I attached hereto
restates and integrates and amends the provisions of the Certificate of
Incorporation of the Company.
Pursuant to and in accordance with Sections 242 and 245 of the
DGCL, this Amended and Restated Certificate of Incorporation was
proposed by the directors of the Company and adopted by the holders of
a majority of the outstanding shares of capital stock of the Company
entitled to vote at a special meeting of the stockholders.
Effective on the closing date of the Company's initial public
offering of Common Stock, the Certificate of Incorporation of the
Company in effect at the time immediately prior thereto shall be
amended and restated in its entirety as set forth in Appendix I
attached hereto.
<PAGE> 2
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation of the Company has been signed by its President and attested to by
its Secretary on _______________ _____________, 1999.
______________________
Gail Golden, President
Attest:
___________________________
Russell D. Glass, Secretary
<PAGE> 3
APPENDIX I
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
LOWESTFARE.COM, INC.
ARTICLE I
The name of the corporation is Lowestfare.com, Inc. (hereinafter
sometimes referred to as the "Company").
ARTICLE II
The address of the registered office of the Company in the State of
Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle.
The name of its registered agent at such address is Corporation Service Company.
ARTICLE III
The nature of the business of the Company and the objects or purposes
to be transacted, promoted or carried on by it are as follows: To engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
ARTICLE IV
The aggregate number of shares which the Company shall have authority
to issue is 80,000,000, which are divided into 75,000,000 shares of Common
Stock, $.01 par value, and 5,000,000 shares of Preferred Stock, $.01 par value
(the "Preferred Stock").
The Board of Directors shall have the power, without the assent or vote
of the stockholders, to set the powers, preferences and rights and the
qualifications, limitations and restrictions thereof, if any, of each class of
Preferred Stock or series thereof, as the case may be.
<PAGE> 4
A copy of such powers, designations, preferences and relative rights as
determined by resolution or resolutions of the Board of Directors, in the form
of a Certificate, shall be duly executed, acknowledged and recorded in
accordance with Section 103 of the General Corporation Law of the State of
Delaware, as amended, and shall become effective at such time as such
Certificate is filed and made a part of the Certificate of Incorporation.
ARTICLE V
The Board of Directors is expressly authorized to make, alter, or
repeal the Bylaws of the Company.
ARTICLE VI
Elections of directors need not be by written ballot unless the Bylaws
of the Company shall so provide. The number of directors shall be fixed from
time to time by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (whether or not there exist
any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board for adoption).
ARTICLE VII
No contract or other transaction between the Company and any other
person, firm, corporation, association or other organization, and no act of the
Company, shall in any way be affected or invalidated by the fact that any of the
directors or officers of the Company are parties to such contract, transaction,
or act or are pecuniarily or otherwise interested in the same or are directors
or officers or members of any such other firm, Company, association or other
organization, provided that the interest of such director or officer shall be
disclosed or shall have been known to the Board of Directors authorizing or
approving the same, or to a majority thereof. Any director of the Company who is
a party to such transaction, contract, or act or who is pecuniarily or otherwise
interested in the same or is a director or officer or member of such other firm,
corporation, association or other organization, may be counted in determining a
quorum of any meeting of the Board of Directors which shall authorize or approve
any such contract, transaction or act, and may vote thereon with like force and
effect as if he were in no way interested therein. Neither any director nor any
officer of the Company, being so interested in such contract, transaction or act
of the Company which shall be approved by the Board of Directors of the Company,
nor any such other person, firm, corporation, association or other organization
in which such director or officer may be interested or of which such officer or
director may be a director, officer or member, shall be liable or accountable to
the Company, or to any stockholder thereof, for any loss incurred by the Company
pursuant to or by reason of
<PAGE> 5
such contract, transaction or act, or for any gain received by any such other
party pursuant thereto or by reason thereof.
ARTICLE VIII
The Company reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
ARTICLE IX
No director shall be personally liable to the Company 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 Company 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 IX shall
apply to or have any effect on the liability or alleged liability of any
director of the Company for or with respect to any acts or omissions of such
director occurring prior to such amendment.
The Company 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 and 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.
ARTICLE X
The Company shall not be subject to or governed by the provisions of
Section 203 of the General Corporation Law of the State of Delaware, or any
amendment or successor provisions thereto, with respect to business combinations
between the Company and interested stockholders.
<PAGE> 1
Exhibit 4.1
U Lowestfare.com, Inc.
SEE REVERSE FOR
CERTAIN DEFINITIONS
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP
THIS IS TO CERTIFY THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF THE PAR VALUE OF
$0.01 PER SHARE OF
Lowestfare.com, Inc. transferable only on the books of the Corporation by the
holder hereof in person or by duly authorized Attorney upon surrender of this
Certificate properly endorsed. This certificate and the shares represented
hereby are issued and shall be held subject to all of the provisions of the
Certificate of Incorporation of the Corporation and any amendments thereto, to
all of which the holder, by acceptance hereof, assents. This certificate is not
valid unless countersigned and registered by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
CHAIRMAN OF THE BOARD
SECRETARY
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE> 2
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM-
TEN ENT-
JT TEN-
as tenants in common as tenants by the entireties as joint tenants with right of
survivorship and not as tenants in commonUNIF GIFT MIN ACT-
Custodian
(Cust) (Minor)
under Uniform Gifts to Minors
Act
(State)
Additional abbreviations may also be used though not in the above list.
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
For value received hereby sell, assign and transfer unto (PLEASE PRINT OR
TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE)
Shares
Attorney
represented by the within Certificate and do hereby irrevocably
constitute and appoint to transfer the said Shares on the books of the within
named Corporation with full power of substitution in the premises.
Dated 19
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE
17Ad-15. KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED
OR DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO
THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
<PAGE> 1
Exhibit 4.2
REGISTRATION RIGHTS AGREEMENT
AGREEMENT dated as of March 15, 1999, between Lowestfare.com, Inc., a
Delaware corporation (the "Company"), and Vauxhall LLC, a Nevada limited
liability company ("Vauxhall" and together with its permitted assigns, the
"Holder").
W I T N E S S E T H
WHEREAS, the Company and the Holder are parties to a Transfer Agreement
dated March 15, 1999, pursuant to which the Holder agreed to transfer its entire
membership interest in Global Discount Travel Services LLC and its entire equity
interest in Global Travel Marketing Services, Inc. to the Company in exchange
for 28,599,900 shares (the "Global Shares") of the Company's Common Stock, par
value $.01 per share (the "Common Stock"); and
WHEREAS, the Holder and Icahn Associates Corp., a Delaware corporation
("Icahn Associates"), are parties to a Transfer Agreement dated April 16, 1999,
pursuant to which the Holder acquired from Icahn Associates 100 shares (the
"Icahn Associates Shares") of the Company's Common Stock (the Global Shares and
the Icahn Associates Shares being hereinafter referred to collectively as the
"Shares"); and
WHEREAS, the Company has agreed to provide the Holder certain
registration rights with respect to the Shares.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Company and the Holder hereby agree as follows:
1. Demand Registration.
(a) At any time following the six-month anniversary of the date of this
Agreement, the Holder may make a written request to the Company requesting that
the Company register under the Securities Act of 1933, as amended (the "Act"),
all or any portion of the Shares held by the Holder (but in no event shall the
written demand be for less than 150,000 Shares) for sale in the manner specified
in such notice; provided, however, that the Company shall not be required to
effect a registration pursuant to this Section 1 if counsel for the Company
shall deliver an opinion, in form and substance reasonably satisfactory to the
Holder, to the effect that all of the Shares sought to be sold by the Holder are
salable pursuant to Rule 144 under the Act.
<PAGE> 2
(b) The Company shall use its reasonable commercial efforts to register
the Shares under the Act by taking all actions necessary, including, without
limitation, those actions set forth in Section 3 hereof, to permit the public
sale of the Shares in accordance with the method of disposition specified in the
notice described in paragraph (a) above, the number of Shares specified in such
notice. If such method of disposition shall be an underwritten public offering,
the Holder may designate the managing underwriter of such offering, subject to
the approval of the Company, which approval shall not be unreasonably withheld
or delayed. The Company shall be obligated to register the Shares held by the
Holder pursuant to this Section 1 on three occasions only, provided, however,
that such obligation shall be deemed satisfied only when a registration
statement covering all Shares specified in the notice received as aforesaid, for
sale in accordance with the method of disposition specified by the Holder shall
have become effective.
(c) The Company shall be entitled to include in any registration
statement referred to in this Section 1, for sale in accordance with the method
of disposition specified by the Holder, shares of Common Stock to be sold by
other selling stockholders or by the Company for its own account, except as and
to the extent that, in the opinion of the managing underwriter (if such method
of disposition shall be an underwritten public offering), such inclusion would
adversely affect the marketing of the Shares to be sold.
2. Piggyback Registration. If the Company at any time following the
six-month anniversary of the date of this Agreement (other than pursuant to
Section 1) proposes to register any shares of Common Stock under the Act for
sale to the public, whether for its own account or for the account of other
security holders or both (except with respect to registration statements on Form
S-4, S-8 or another form not available for registering the Shares for sale to
the public), it will give written notice to the Holder at least twenty (20) days
before the initial filing with the Securities and Exchange Commission (the
"Commission") of such registration statement. Upon the written request of the
Holder to register any of its Shares, such notice to be delivered to the Company
within 15 days after the giving of any such notice by the Company, the Company
will use its reasonable commercial efforts to cause the number of Shares as to
which registration shall have been so requested to be included in the
registration statement proposed to be filed by the Company, all to the extent
requisite to permit the sale or other disposition by the Holder (in accordance
with its written request) of the Shares so registered. In the event that any
registration pursuant to this Section 2 shall be, in whole or in part, an
underwritten public offering, the number of Shares to be included in such
offering may be reduced if and to the extent that the managing underwriter or
underwriters, if any, of such offering shall be of the opinion that inclusion of
the Shares would adversely affect the marketing of the securities to be sold by
the Company therein. In such event, the Company shall include in the
registration statement the number of shares of Common Stock that the Company is
so advised can be sold in such offering in the following priority: (i) first,
all shares of Common Stock proposed to be included in such registration
statement by the Company; (ii) second, all shares of Common Stock to be sold by
the shareholder, if any, who has exercised his demand or similar right to
require the Company to file such registration statement; (iii) third, all shares
of Common Stock proposed to be included in such registration statement by the
Holder; and (iv) fourth, all other shares of Common Stock proposed to be
included in such registration statement by other holders thereof (pro rata based
upon the number of shares of Common Stock proposed to be included by such
holders).
2
<PAGE> 3
3. Registration Procedures. In the event that the Company is required
by the provisions of Sections 1 or 2 to effect the registration of any Shares
under the Act, the Company will, as expeditiously as possible:
(a) prepare and file with the Commission a registration
statement (which, in the case of an underwritten public offering pursuant to
Section 3, shall be on Form S-1, S-2, S-3 or other form of general applicability
satisfactory to the managing underwriter selected as therein provided) with
respect to the Shares and use its reasonable commercial efforts to cause such
registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as hereinafter provided), provided
that in the case of a registration pursuant to Sections 1 or 2 (I) the Company
shall not be required to cause any special audit to be undertaken in connection
with any such registration and in the case of a registration pursuant to Section
1 only, (II) the Company shall not be required to file any registration
statement during any period of time when (x) the Company is contemplating a
public offering of its securities and, in the judgment of the managing
underwriter thereof (or the Company, if such offering is not underwritten) such
filing would have a material adverse effect on the contemplated offering, or (y)
the Company is in possession of material information that it deems advisable not
to disclose in a registration statement or (z) the Company is engaged in any
program for the repurchase of its own securities. The foregoing notwithstanding,
the restrictions set forth in this Section 3(a) shall not, under any
circumstances, work so as to effect a delay of more than one hundred eighty
(180) days in the filing of any registration statement demanded by the Holder to
be filed in accordance with Section 1;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
the period specified in paragraph (a) above and comply with the provisions of
the Act with respect to the sale or other disposition of all of the Shares
covered by such registration statement in accordance with the Holder's intended
method of disposition set forth in such registration statement for such period;
(c) furnish to the Holder and each underwriter such number of
copies of the registration statement and each such amendment and supplement
thereto (in each case including all exhibits) and the prospectus included
therein (including each preliminary prospectus) as such persons may reasonably
request in order to facilitate the public sale or other disposition of the
Shares covered by such registration statement;
(d) use its reasonable commercial efforts to register or
qualify the Shares covered by such registration statement under the securities
or "blue sky" laws of such jurisdictions as the Holder, or in the case of an
underwritten public offering, the managing underwriter, shall reasonably
request, provided, however, that the Company shall not for any such purpose be
required to (i)
3
<PAGE> 4
qualify generally to transact business as a foreign corporation in any
jurisdiction where it is not so qualified, (ii) to subject itself to taxation in
any such jurisdiction, or (iii) to consent to general service of process in any
such jurisdiction;
(e) use its reasonable commercial efforts to list the Shares
covered by such registration statement with any securities exchange on which the
Common Stock of the Company is then listed;
(f) immediately notify the Holder and each underwriter under
such registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Act, of the happening of any event of which
the Company has knowledge as a result of which the prospectus contained in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of
circumstances then existing, and promptly prepare and furnish to the Holder a
reasonable number of copies of a prospectus supplement or amendment so that, as
thereafter delivered to the purchasers of such shares, such prospectus shall not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing;
(g) if the offering is underwritten and the Holder so
requests, use its reasonable commercial efforts to furnish on the date that any
of the Shares are delivered to the underwriters for sale pursuant to such
registration; (i) an opinion dated such date of counsel representing the Company
for the purposes of such registration, addressed to the underwriters and to the
Holder, to such effects as reasonably may be requested by counsel for the
underwriters or by the Holder or its counsel, and (ii) a letter dated such date
from the independent pubic accountants retained by the Company, addressed to the
underwriters and to the Holder, stating that they are independent public
accountants within the meaning of the Act and that, in the opinion of such
accountants, the financial statements of the Company included in the
registration statement or the prospectus, or any amendment or supplement
thereof, comply as to form in all material respects with the applicable
accounting requirements of the Act, and such letter shall additionally cover
such other financial matters (including information as to the period ending no
more than five business days prior to the date of such letter) with respect to
such registration as such underwriters reasonably may request;
(h) make available for inspection by the Holder, any
underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by the Holder or
underwriter, reasonable access to all financial records and other records,
pertinent corporate documents and properties of the Company, as such parties may
reasonably request, and cause the Company's officers, directors and employees to
supply all information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such registration statement;
(i) cooperate with the Holder and the managing underwriters,
if any, to facilitate the timely preparation and delivery of certificates
representing the Shares to be sold, such certificates to be in such
denominations and registered in such names as the Holder or the managing
underwriters may request at least two business days prior to any sale of the
Shares;
4
<PAGE> 5
(j) permit the Holder to participate in good faith in the
preparation of such registration or comparable statement and to require the
insertion therein of material, furnished to the Company in writing, which in the
reasonable judgment of the Holder and its counsel should be included; and
(k) otherwise cooperate to give effect to the rights granted
in Sections 3 and 4 hereof;
For purposes of Section 3(a) and 3(b) and of Section 1(c), the
period of distribution of the Shares in a firm commitment underwritten public
offering shall be deemed to extend until each underwriter has completed the
distribution of all securities purchased by it, and the period of distribution
of the Shares in any other registration shall be deemed to extend until the sale
of all of the Shares covered thereby.
In connection with each registration hereunder, the Holder
will furnish to the Company in writing such information requested by the Company
with respect to himself and the proposed distribution by him as reasonably shall
be necessary in order to assure compliance with federal and applicable state
securities laws.
In connection with each registration pursuant to Sections 1 or
2 covering an underwritten public offering, the Company and the Holder agree to
enter into and perform their obligations under a written agreement with the
managing underwriter selected in the manner herein provided in such form and
containing such provisions as are customary in the securities business for such
an arrangement between such underwriter and companies of the Company's size and
investment stature.
4. Indemnification.
(a) In the event of a registration of any of the Shares under
the Act pursuant to Sections 1 or 2, the Company shall indemnify and hold
harmless the Holder against any losses, claims, damages or liabilities to which
the Holder may become subject under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of any material fact contained
in any registration statement under which the Shares were registered under the
Act pursuant to Section 1 or 2, any preliminary, final or summary prospectus
contained therein, or any amendment or supplement thereto, (ii) or any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, and the Company shall
reimburse the Holder for any legal or any other expenses reasonably incurred by
him in connection with investigating or defending any such loss, claim, damage,
liability, action or proceeding; provided, however, that the Company shall not
be liable in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission from such registration statement, any such preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement, which
statement or omission is made in reliance
5
<PAGE> 6
upon and in conformity with information furnished by the Holder in writing
specifically for use in such registration statement or prospectus.
(b) In the event of a registration of any of the Shares under
the Act pursuant to Sections 1 or 2, the Holder shall indemnify and hold
harmless the Company, each director of the Company, each officer of the Company
and each other person, if any, who controls the Company within the meaning of
Section 15 of the Act, each underwriter and each person who controls any
underwriter within the meaning of Section 15 of the Act against all losses,
claims, damages or liabilities, joint or several, to which the Company or any
such officer, director, underwriter or controlling person may become subject
under the Act or otherwise, but only insofar as and to the extent that such
losses, claims, damages or liabilities (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise as a result of (i) any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which the Shares were registered under the Act
pursuant to Section 1 or 2, any preliminary, final or summary prospectus
contained therein, or any amendment or supplement thereto, (ii) or any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, and the Holder shall
reimburse the Company and each such officer, director, underwriter or
controlling person for any legal or any other expenses reasonably incurred by
him in connection with investigating or defending any such loss, claim, damage,
liability, action or proceeding; provided, however, that the Holder shall be
liable hereunder in any such case if, and only to the extent that any such loss,
claim, damage, liability (or action or proceeding in respect thereof) or expense
arises as a result of an untrue statement or alleged untrue statement or
omission or alleged omission from such registration statement, any such
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement, which statement or omission was made in reliance upon and in
conformity with information pertaining to the Holder, as such, furnished in
writing by the Holder specifically for use in such registration statement or
prospectus.
(c) Promptly after receipt by an indemnified party of notice
of the commencement of any action or proceeding involving a claim referred to in
Section 4(a) or 4(b), such indemnified party shall, if a claim in respect
thereof is to be made against an indemnifying party hereunder, give written
notice to the indemnifying party of the commencement of such action; provided
that the failure of any indemnified party to give notice as provided herein
shall not relieve the indemnifying party of its obligations under Section 4(a)
or 4(b), except to the extent that the indemnifying party is actually prejudiced
by such failure to give notice. In case any such action is brought against an
indemnified party and it shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate in and, to the
extent it shall wish, to assume and undertake the defense thereof with counsel
reasonably satisfactory to such indemnified party, and, after notice from the
indemnifying party to such indemnified party of its election so to assume and
undertake the defense thereof, the indemnifying party shall not be liable to the
indemnified party under this Section for any legal expenses subsequently
incurred by such indemnified party in connection with the defense thereof other
than reasonable costs of investigation and of liaison with counsel so selected,
provided, however, that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be reasonable defenses available to it
which are different from or in addition to those available to the indemnifying
party or if the interests of the indemnified party
6
<PAGE> 7
reasonably may be deemed to conflict with the interests of the indemnifying
party, the indemnified party shall have the right to select a separate counsel
and to assume such legal defense and otherwise participate in the defense of
such action, with the reasonable expenses and fees of such separate counsel and
other reasonable expenses related to such participation to be reimbursed by the
indemnifying party as incurred. No indemnifying party shall be liable for any
settlement of any action or proceeding effected without its written consent,
which consent shall not be unreasonable withheld, delayed or conditioned. No
indemnifying party shall, without the consent of the indemnified party, consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation.
(d) The indemnification required by this Section 4 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred.
5. Expenses. All expenses incurred by the Company in complying with
Sections 1 and 2, including, without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel and independent
public accountants for the Company, fees and expenses (including counsel fees)
incurred in connection with complying with state securities or "blue sky" laws,
fees of the securities exchange upon which the Common Stock of the Company is
then listed, transfer taxes and fees of transfer agents and registrars, but
excluding any Selling Expenses, are called "Registration Expenses". All
underwriting discounts and selling commissions and transfer taxes applicable to
the sale of the Shares and fees and expenses of counsel to the sellers of the
Shares are called "Selling Expenses".
The Company will pay all Registration Expenses in connection
with each registration statement under Sections 1 or 2. All Selling Expenses in
connection with each registration statement under Sections 1 or 2 shall be borne
by the participating sellers in proportion to the number of shares sold by each,
or by such participating sellers other than the Company (except to the extent
the Company shall be a seller) as they may agree.
6. Holder Information. The Holder shall provide the Company
with such information with respect to the Shares to be sold, the plans for the
proposed disposition thereof and such other information as shall, in the opinion
of counsel for the Company be reasonably necessary to enable the Company to
include in such registration statement all material facts required to be
disclosed with respect to the Holder as a shareholder of the Company.
7. Miscellaneous.
(a) All covenants and agreements contained in this Agreement
by or on behalf of any of the parties hereto shall bind and inure to the benefit
of the respective successors and assigns of the parties hereto (including
without limitation transferees of any Shares), whether so expressed or not.
(b) All notices, requests, demands and other communications
which are required to be or may be given under this Agreement shall be in
writing and shall be deemed to have been
7
<PAGE> 8
duly given when delivered in person, or transmitted by telecopy or telex, or
upon receipt after dispatch by certified or registered first class mail, postage
prepaid, return receipt requested, to the party to whom the same is so given or
made, at the following addresses or telecopy or telex numbers (or such others as
shall be provided in writing hereinafter):
If to the Company, to:
Lowestfare.com, Inc.
980 Kelly Johnson Drive
Las Vegas, Nevada 89119
Attention: Gail Golden
If to Vauxhall, to:
Vauxhall LLC
980 Kelly Johnson Drive
Las Vegas, Nevada 89119
Attention: Edward E. Mattner
Copies of all notices to:
Gordon Altman Butowsky Weitzen Shalov & Wein
114 West 47th Street
New York, NY 10036
Attention: Marc Weitzen, Esq.
(c) This Agreement shall be governed by, and interpreted
under, the laws of the State of New York without regard to conflicts of law
principles.
(d) This Agreement may not be amended or modified, and no
provision hereof may be waived, without the written consent of each of the
original parties hereto.
(e) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(f) If requested in writing by the underwriters for an
underwritten public offering of securities of the Company, the Holder shall
agree not to sell publicly any Shares or any other shares of Common stock (other
than any Shares or other shares of Common Stock being registered in such
offering), without the consent of such underwriters, for a period of not more
than 90 days following the effective date of the registration statement
relating to such offering or for such shorter period as is applicable to any
other officer or director of the Company who holds Common Stock.
(g) If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
8
<PAGE> 9
Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained herein.
9
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
LOWESTFARE.COM, INC.
By:
Name: Gail Golden
Title: President
VAUXHALL LLC
By: Global Partner, Inc., Member
By:
Name: Edward E. Mattner
Title: Vice President
10
<PAGE> 1
Exhibit 5.1
April 23, 1999
Lowestfare.com, Inc.
980 Kelly Johnson Drive
Las Vegas, Nevada 89119
Ladies and Gentlemen:
In connection with the registration under the Securities Act of 1933,
as amended (the "Act"), of 7,500,000 shares (the "Shares") of common stock, par
value $.01 per share, of Lowestfare.com, Inc., a Delaware corporation (the
"Company"), we, as your counsel, have examined such corporate records,
certificates and other documents, and such questions of law, as we have
considered necessary or appropriate for the purposes of this opinion.
Upon the basis of such examination, it is our opinion that, when the
registration statement on Form S-1 (No. 333-74514) relating to the Shares (the
"Registration Statement") has become effective under the Act, the Shares, when
duly issued and sold as contemplated in the Registration Statement, will be
validly issued, fully paid and nonassessable.
The foregoing opinion is limited to the federal laws of the United
States, the laws of the State of New York and the General Corporation Law of the
State of Delaware, and we express no opinion as to the effect of the laws of any
other jurisdiction.
We have relied as to certain matters on information obtained from
public officials, officers of the Company and other sources believed by us to be
responsible.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the prospectus forming a part of the Registration Statement. In
giving this consent, we do not thereby admit that we are within the category of
persons whose consent is required under Section 7 of the Act or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Gordon Altman Butowsky Weitzen
----------------------------------
Shalov & Wein
- -------------
Gordon Altman Butowsky Weitzen
Shalov & Wein
<PAGE> 1
Exhibit 10.1
LOWESTFARE.COM, INC.
1999 STOCK OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this Lowestfare.com, Inc. 1999
Stock Option Plan are to attract and retain the best available personnel, to
provide additional incentive to Employees, Directors and Consultants and to
promote the success of the Company's business.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of the Committees appointed
to administer the Plan.
(b) "Applicable Laws" means the applicable provisions of federal
securities laws, state corporate and securities laws, the Code, the rules of any
applicable stock exchange or national market system, and the rules of any
foreign jurisdiction applicable to Options granted to residents therein.
(c) "Board" means the Board of Directors of the Company.
(d) "Cause" means, with respect to the termination by the Company or a
Related Entity of the Optionee's Continuous Service, that such termination is
for"Cause" as such term is expressly defined in a then-effective written
agreement between the Optionee and the Company or such Related Entity, or in the
absence of such then-effective written agreement and definition, is based on, in
the determination of the Administrator, the Optionee's: (i) refusal or failure
to act in accordance with any specific, lawful direction or order of the Company
or a Related Entity; (ii) unfitness or unavailability for service or
unsatisfactory performance (other than as a result of Disability); (iii)
performance of any act or failure to perform any act in bad faith and to the
detriment of the Company or a Related Entity; (iv) dishonesty, intentional
misconduct or material breach of any agreement with the Company or a Related
Entity; or (v) commission of a crime involving dishonesty or breach of trust. At
least 30 days prior to the termination of the Optionee's Continuous Service
pursuant to (i) or (ii) above, the Administrator shall provide the Optionee with
notice of the Company's or such Related Entity's intent to terminate, the reason
therefor, and an opportunity for the Optionee to cure such defects in his or her
service to the Company's or such Related Entity's satisfaction. During this 30
day (or longer) period, no Option issued to the Optionee under the Plan may be
exercised or purchased.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
<PAGE> 2
(f) "Committee" means any committee appointed by the Board to
administer the Plan.
(g) "Common Stock" means the common stock of the Company.
(h) "Company" means Lowestfare.com, Inc.
(i) "Consultant" means any person (other than an Employee or a
Director, solely with respect to rendering services in such person's capacity as
a Director) who is engaged by the Company or any Related Entity to render
consulting or advisory services to the Company or such Related Entity.
(j) "Continuous Service" means that the provision of services to the
Company or a Related Entity in any capacity of Employee, Director or Consultant,
is not interrupted or terminated. Except as otherwise provided in the Option
Agreement, Continuous Service shall not be considered interrupted in the case of
(i) any approved leave of absence, (ii) transfers between locations of the
Company or among the Company, any Related Entity, or any successor, in any
capacity of Employee, Director or Consultant, or (iii) any change in status as
long as the individual remains in the service of the Company or a Related Entity
in any capacity of Employee, Director or Consultant. An approved leave of
absence shall include sick leave, military leave, or any other authorized
personal leave. For purposes of Incentive Stock Options, no such leave may
exceed ninety (90) days, unless reemployment upon expiration of such leave is
guaranteed by statute or contract.
(k) "Director" means a member of the Board or the board of directors of
any Related Entity.
(l) "Disability" means that a Optionee is permanently unable to carry
out the responsibilities and functions of the position held by the Optionee by
reason of any medically determinable physical or mental impairment. A Optionee
will not be considered to have incurred a Disability unless he or she furnishes
proof of such impairment sufficient to satisfy the Administrator in its
discretion.
(m) "Employee" means any person, including an Officer or Director, who
is an employee of the Company or any Related Entity. The payment of a director's
fee by the Company or a Related Entity shall not be sufficient to constitute
employment.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(o) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
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<PAGE> 3
(i) Where there exists a public market for the Common Stock,
the Fair Market Value shall be (A) the closing price for a Share for the last
market trading day prior to the time of the determination (or, if no closing
price was reported on that date, on the last trading date on which a closing
price was reported) on the stock exchange determined by the Administrator to be
the primary market for the Common Stock or the Nasdaq National Market, whichever
is applicable or (B) if the Common Stock is not traded on any such exchange or
national market system, the average of the closing bid and asked prices of a
Share on the Nasdaq Small Cap Market for the day prior to the time of the
determination (or, if no such prices were reported on that date, on the last
date on which such prices were reported), in each case, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable; or
(ii) In the absence of an established market for the Common
Stock of the type described in (i), above, the Fair Market Value thereof shall
be determined by the Administrator in good faith.
(p) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code.
(q) "Non-Qualified Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(r) "Officer" means a person who is an officer of the
Company or a Related Entity within the meaning of Section 16 of the Exchange Act
and the rules and regulations promulgated thereunder.
(s) "Option" means a stock option to purchase Shares
granted pursuant to the Plan.
(t) "Option Agreement" means the written agreement
evidencing the grant of an Option executed by the Company and the Optionee,
including any amendments thereto.
(u) "Optionee" means an Employee, Director or Consultant
who receives an Option pursuant to an Option Agreement under the Plan.
(v) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(w) "Plan" means this Lowestfare.com, Inc. 1999 Stock
Option Plan.
(x) "Related Entity" means any Parent, Subsidiary and any
business, corporation, partnership, limited liability company or other entity in
which the Company, a Parent or a Subsidiary holds a substantial ownership
interest, directly or indirectly.
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<PAGE> 4
(y) "Rule 16b-3" means Rule 16b-3 promulgated under the
Exchange Act or any successor thereto.
(z) "Share" means a share of the Common Stock.
(aa) "Subsidiary" means a "subsidiary corporation,"
whether now or hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 15 of the Plan, (i)
the maximum aggregate number of Shares which may be issued pursuant to Options
under the Plan is 3.5 million Shares, and (ii) the maximum number of Shares with
respect to which Options may be issued in any calendar year to any individual
under the Plan is one million. The Shares to be issued pursuant to Options may
be authorized, but unissued, or reacquired Common Stock.
(b) Any Shares covered by an Option (or portion of an Option)
which is forfeited or canceled, expires or is settled in cash, shall be deemed
not to have been issued for purposes of determining the maximum aggregate number
of Shares which may be issued under the Plan. Shares that actually have been
issued under the Plan pursuant to an Option shall not be returned to the Plan
and shall not become available for future issuance under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) Composition of Administrator.
(i) Administration with Respect to Directors and
Officers. With respect to grants of Options to Directors or Employees who are
also Officers or Directors of the Company, the Plan shall be administered by (A)
the Board or (B) a Committee designated by the Board, which Committee shall be
constituted in such a manner as to satisfy Applicable Laws, to permit such
grants and related transactions under the Plan to be exempt from Section 16(b)
of the Exchange Act in accordance with Rule 16b-3, and to qualify Options to
Officers as performance-based compensation under Section 162(m) of the Code, if
applicable. Once appointed, such Committee shall continue to serve in its
designated capacity until otherwise directed by the Board.
(ii) Administration With Respect to Consultants and
Other Employees. With respect to grants of Options to Employees or Consultants
who are neither Directors nor Officers of the Company, the Plan shall be
administered by (A) the Board or (B) a Committee designated by the Board, which
Committee shall be constituted in such a manner as to satisfy Applicable Laws.
Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board.
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<PAGE> 5
(b) Powers of the Administrator. Subject to Applicable Laws
and the provisions of the Plan (including any other powers given to the
Administrator hereunder), and except as otherwise provided by the Board, the
Administrator shall have the authority, in its discretion:
(i) to select the Employees, Directors and
Consultants to whom Options may be granted from time to time hereunder;
(ii) to determine whether and to what extent Options
are granted hereunder;
(iii) to determine the number of Shares to be covered
by each Option granted hereunder;
(iv) to approve forms of Option Agreements for use
under the Plan;
(v) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any Option granted hereunder,
including, but not limited to, the Option exercise price, vesting schedule,
forfeiture provisions, the exercisability of an Option following a termination
of Continuous Service, the form of payment upon settlement of the Option, and
the establishment and satisfaction of any performance criteria relating to the
vesting of any Option;
(vi) to amend the terms of any outstanding Option
granted under the Plan, provided that any amendment that would adversely affect
the Optionee's rights under an outstanding Option shall not be made without the
Optionee's written consent;
(vii) to issue Options under the Plan in settlement,
assumption or substitution for, outstanding options or obligations to grant
future options in connection with the Company or a Related Entity acquiring
another entity, an interest in another entity or an additional interest in a
Related Entity whether by merger, stock purchase, asset purchase or other form
of transaction;
(viii) to establish one or more separate programs
under the Plan for the purpose of issuing particular forms of Options to one or
more classes of Optionees on such terms and conditions as determined by the
Administrator from time to time;
(ix) to construe and interpret the terms of the Plan
and Options granted pursuant to the Plan, including without limitation, any
notice of Option or Option Agreement, granted pursuant to the Plan; and
(x) to take such other action, not inconsistent with
the terms of the Plan, as the Administrator deems appropriate.
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<PAGE> 6
(c) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be conclusive and
binding on all persons.
5. ELIGIBILITY. Non-Qualified Stock Options may be granted to
Employees, Directors and Consultants. Incentive Stock Options may be granted
only to Employees of the Company, a Parent or a Subsidiary. An Employee,
Director or Consultant who has been granted an Option may, if otherwise
eligible, be granted additional Options.
6. DESIGNATION OF TYPE OF OPTION. Each Option shall be designated
as either an Incentive Stock Option or a Non-Qualified Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of Shares subject to Options designated as Incentive Stock Options which
become exercisable for the first time by an Optionee during any calendar year
(under all plans of the Company or any Parent or Subsidiary) exceeds $100,000,
such excess Options, to the extent of the Shares covered thereby in excess of
the foregoing limitation, shall be treated as Non-Qualified Stock Options. For
this purpose, Incentive Stock Options shall be taken into account in the order
in which they were granted, and the Fair Market Value of the Shares shall be
determined as of the date the Option with respect to such Shares is granted.
7. TERM OF OPTION. The term of each Option shall be the term
stated in the Option Agreement, provided, however, that the term of an Option
shall be no more than ten (10) years from the date of grant thereof. However, in
the case of an Incentive Stock Option granted to a Optionee who, at the time the
Option is granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the term of the Incentive Stock Option shall be five (5) years from the date of
grant thereof or such shorter term as may be provided in the Option Agreement.
8. TIME OF GRANTING OPTIONS. The date of grant of an Option shall
for all purposes be the date on which the Administrator makes the determination
to grant such Option, or such other date as is determined by the Administrator;
provided however that in the case of any Incentive Stock Option, the grant date
shall be the later of the date on which the Administrator makes the
determination granting such Incentive Stock Option or the date of commencement
of the Optionee's employment relationship with the Company. Notice of the grant
determination shall be given to each Employee, Director or Consultant to whom an
Option is so granted within a reasonable time after the date of such grant.
9. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) Exercise Price. The exercise price for an Option shall be
as follows:
(i) In the case of an Incentive Stock Option:
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<PAGE> 7
(A) granted to an Employee who, at the time of the
grant of such Incentive Stock Option owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be not less than one
hundred ten percent (110%) of the Fair Market Value per Share on the date of
grant; or
(B) granted to any other Employee, the per Share
exercise price shall be not less than one hundred percent (100%) of the Fair
Market Value per Share on the date of grant.
(ii) In the case of a Non-Qualified Stock Option, the per
Share exercise price shall be not less than one hundred percent (100%) of the
Fair Market Value per Share on the date of grant, unless otherwise determined by
the Administrator.
(iii) Notwithstanding the foregoing provisions of this Section
9(a), in the case of an Option issued in connection with a transaction pursuant
to the Administrator's authority in Section 4(b) (vii) hereof, the exercise or
purchase price for the Option shall be determined in accordance with the
principles of Section 424(a) of the Code.
(b) Consideration. Subject to Applicable Laws, the consideration to be
paid for the Shares to be issued upon exercise of an Option including the method
of payment, shall be determined by the Administrator (and, in the case of an
Incentive Stock Option, shall be determined at the time of grant). In addition
to any other types of consideration the Administrator may determine, the
Administrator is authorized to accept as consideration for Shares issued under
the Plan the following:
(i) cash (or check);
(ii) delivery of an Optionee's promissory note;
(iii) surrender of Shares or delivery of a
properly executed form of attestation of
ownership of Shares as the Administrator may
require (including withholding of Shares
otherwise deliverable upon exercise of the
Option) which have a Fair market Value on
the date of surrender or attestation equal
to the aggregate exercise price of the
Shares as to which said Option shall be
exercised (but only to the extent that such
exercise of the Option would not result in
an accounting compensation charge with
respect to the Shares used to pay the
exercise price, unless otherwise determined
by the Administrator);
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<PAGE> 8
(iv) payment through a broker-dealer sale and
remittance procedure pursuant to which the
Optionee (A) shall provide written
instructions to a Company designated
brokerage firm to effect the immediate sale
of some or all of the purchased Shares and
remit to the Company, out of the sale
proceeds available on the settlement date,
sufficient funds to cover the aggregate
exercise price payable for the purchased
Shares and (B) shall provide written
directives to the Company to deliver the
certificates for the purchased Shares
directly to such brokerage firm in order to
complete the sale transaction; or
(v) any combination of the foregoing methods of
payment.
10. EXERCISABILITY OF OPTION.
(a) In General. An Option shall be exercisable at such
times and under such conditions, including performance criteria with respect to
the Company and/or the Optionee, as determined by the Administrator under the
terms of the Plan and specified in the Option Agreement; provided, however, that
no Option shall be exercisable after its termination date as set forth in the
Option Agreement pursuant to Section 7 hereof.
(b) Following Termination of Continuous Service.
(i) An Option may be exercised following the
termination of a Optionee's Continuous Service only to the extent specified in
the Option Agreement. An Option shall terminate to the extent not exercised on
the last day of such specified period or the last day of the original term of
the Option, whichever occurs first.
(ii) To the extent any Option designated as an
Incentive Stock Option is not exercised within the time permitted by law for the
exercise of Incentive Stock Options following the termination of a Optionee's
Continuous Service, such Option shall convert automatically to a Non-Qualified
Stock Option and thereafter shall be exercisable as such to the extent
exercisable by its terms for the period specified in the Option Agreement.
11. PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER.
(a) An Option shall be deemed to be exercised when written
notice of such exercise has been given to the Company in accordance with the
terms of the Option Agreement by the person entitled to exercise the Option and
full payment for the Shares with respect to which the Option is exercised has
been made or provided for in accordance with the terms of the Plan and the
Option Agreement.
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<PAGE> 9
(b) Until the issuance (as evidenced by the appropriate entry
on the books of the Company or of a duly authorized transfer agent of the
Company) of the stock certificate evidencing such Shares, no right to vote or
receive dividends or any other rights as a stockholder shall exist with respect
to Shares subject to an Option, notwithstanding the exercise of an Option. The
Company shall issue (or cause to be issued) such stock certificate promptly upon
exercise of the Option. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the stock certificate is issued,
except as provided in the Option Agreement or Section 15 below.
12. COMPLIANCE WITH APPLICABLE LAWS.
(a) Shares shall not be issued pursuant to the exercise of an
Option unless the exercise of such Option and the issuance and delivery of such
Shares pursuant thereto shall comply with all Applicable Laws. As a condition to
the exercise of an Option, the Administrator may require the person exercising
such Option to represent and warrant at the time of any such exercise that the
Shares are being purchased only for investment and without any present intention
to sell or distribute such Shares if, in the opinion of the Administrator, such
a representation is required by any Applicable Laws.
(b) The Company, during the term of the Plan, will at all
times reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan. The inability of the Company to obtain
authority from any regulatory body having jurisdiction shall relieve the Company
of any liability in respect of the failure to issue or sell such Shares as to
which such requisite authority shall not have been obtained.
13. WITHHOLDING TAXES. No Shares shall be delivered under the Plan to
any Optionee or other person until such Optionee or other person has made
arrangements acceptable to the Administrator for the satisfaction of any
federal, state, local or foreign income and employment tax withholding
obligations, including, without limitation, obligations incident to the receipt
of Shares or the disqualifying disposition of Shares received on exercise of an
Incentive Stock Option. Upon exercise of an Option, the Company shall withhold
or collect from the Optionee an amount sufficient to satisfy such tax
obligations.
14. NON-TRANSFERABILITY OF OPTIONS. An Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution; provided that the Administrator
may in its discretion grant transferable Non-Qualified Stock Options pursuant to
Option Agreements specifying (i) the manner in which such Non-Qualified Stock
Options are transferable and (ii) that any such transfer shall be subject to
Applicable Laws. An Optionee may designate a beneficiary of the Optionee's
Option in the event of the Optionee's death on a beneficiary designation form
provided by the Administrator.
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<PAGE> 10
Such designation of a beneficiary by an Optionee shall not be deemed to
constitute a transfer. An Option may be exercised, during the lifetime of the
Optionee, only by the Optionee or a transferee as may be permitted by an Option
Agreement.
15. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CORPORATE
TRANSACTIONS.
(a) The existence of the Plan and the Options granted
hereunder shall not affect or restrict in any way the right or power of the
Board or the shareholders of the Company, in their sole and absolute
discretion, to make, authorize or consummate any adjustment, recapitalization,
reorganization or other change in the Company's capital structure or its
business, any merger or consolidation of the Company, any issue of bonds,
debentures, common stock, preferred or prior preference stock ahead of or
affecting the Company's capital stock or the rights thereof, the dissolution or
liquidation of the Company or any sale or transfer of all or any part of its
assets or business, or any other grant of rights, issuance of securities,
transaction, corporate act or proceeding and notwithstanding the fact that any
such activity, proceeding, action, transaction or other event may have, or be
expected to have, an impact (whether positive or negative) on the value of any
Option or underlying Shares.
(b) Except as otherwise provided in this Section 15 and
subject to any required action by the shareholders of the Company, in the event
of any change in capitalization affecting the Common Stock, such as a stock
dividend, stock split or recapitalization, the Administrator shall make
proportionate adjustments with respect to the number of Shares covered by each
outstanding Option, the exercise price of each such outstanding Option, the
number of Shares which have been authorized for issuance under the Plan but as
to which no Options have yet been granted or which have been returned to the
Plan, the maximum number of Shares for which Options may be granted to any
individual under the Plan, as well as any other terms that the Administrator
determines require adjustment. Such adjustment shall be made by the
Administrator and its determination shall be final, binding and conclusive.
Except as the Administrator determines, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason hereof shall be made with respect to,
the number or price of Shares subject to an Option.
(c) In the event of the proposed dissolution or liquidation of
the Company, each outstanding Option under the Plan shall terminate immediately
prior to the consummation of such proposed action, unless otherwise provided by
the Administrator. The Administrator may, in the exercise of its sole discretion
in such instances, declare that any Option shall terminate as of a date fixed by
the Administrator and give each Optionee the right to exercise his or her Option
as to all or any part of the Shares subject to such Option, including Shares as
to which the Option would not otherwise be exercisable. Unless otherwise
provided by the Administrator in the exercise of its sole discretion, in the
event of a proposed sale of all or substantially all of the assets of the
Company, or the merger of the Company with or into another corporation,
outstanding Options shall terminate unless assumed or an equivalent option is
substituted by such successor corporation or a parent or subsidiary of such
successor corporation.
16. NO EFFECT ON TERMS OF EMPLOYMENT OR OTHER BENEFITS.
(a) The Plan shall not confer upon any Optionee any right with
respect to the Optionee's Continuous Service, nor shall it interfere in any way
with his or her right or the
10
<PAGE> 11
Company's right to terminate the Optionee's Continuous Service at any time, with
or without cause.
(b) Except as specifically provided in a retirement or other
benefit plan of the Company or a Related Entity or as required by Applicable
Laws, Options shall not be deemed compensation for purposes of computing
benefits or contributions under any retirement plan of the Company or a Related
Entity, and shall not affect any benefits under any other benefit plan of any
kind or any benefit plan subsequently instituted under which the availability or
amount of benefits is related to level of compensation. The Plan is not intended
to be a "pension plan" or "welfare plan" under the Employee Retirement Income
Security Act of 1974, as amended.
17. AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN.
(a) The Board may at any time amend, suspend or terminate the
Plan. To the extent necessary to comply with Applicable Laws, the Company shall
obtain stockholder approval of any Plan amendment in such a manner and to such a
degree as required.
(b) No Option may be granted during any suspension of the Plan
or after termination of the Plan.
(c) Any amendment, suspension or termination of the Plan shall
not affect Options already granted, and such Options shall remain in full force
and effect as if the Plan had not been amended, suspended or terminated, unless
mutually agreed otherwise between the Optionee and the Administrator, which
agreement must be in writing and signed by the Optionee and the Company.
18. EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become
effective upon the adoption of the Plan by the Board. The Plan shall continue in
effect for a term of ten (10) years from the date the Plan was adopted by the
Board unless sooner terminated.
11
<PAGE> 1
EXHIBIT 10.5
January 8, 1999
Mr. Kenneth G. Swanton
608 St. Andrews Boulevard
New Smyrna Beach, FL 32168
Dear Ken:
We are pleased to make you the following offer to be Chief Executive Officer of
Lowestfare.com ("LF"). We look forward to having you as part of our team and
adding to the continued success of the Company.
POSITION:
Chief Executive Officer and Board Member
REPORTING TO:
Vice Chairman and Board of Directors
START DATE:
February 1, 1999
BASE SALARY:
$250,000 per year, payable after deductions required by law, on a bi-weekly
basis with three weeks paid vacation per year and ancillary benefits accorded to
all employees of the Company. The Board of Directors will consider increases in
your base salary annually which, if granted, will take effect at the beginning
of the next calendar year. You will be named insured on the Company's Officers
and Directors Liability Insurance once it is obtained before the anticipated
initial public offering ("IPO"). In the meantime, you will be indemnified by an
Icahn subsidiary (Starfire) in your capacity as an officer, except claims or
actions which pertain to willful misconduct committed by you without the
Company's authorization.
STOCK OPTIONS:
If LF completes an IPO of common stock during your employment with the Company,
you will be granted at the IPO date options exercisable within five years to
purchase one and a half percent of
<PAGE> 2
January 8, 1999
Page 2
the equity capitalization of the Company for a total cash price of $3,000,000.
Accordingly, upon such IPO you will receive options to purchase 591,499 shares
of common stock of the Company for a cash exercise price of $5.0719 per share
(with the number of shares and exercise price being subject to equitable
adjustment in the event of a stock split, stock dividend, recapitalization or
other similar change in capitalization affecting the common stock of the
Company). You and the Company acknowledge and agree that the foregoing number of
shares subject to such option and exercise price are calculated based upon an
assumed capitalization of 39,433,263 shares of common stock outstanding upon
completion of the IPO, which includes shares issuable upon exercise of the
underwriters' over-allotment option and options issued to employees as of the
IPO date.
Beginning with the date of employment, these options will vest in equal monthly
installments over three years. Vested stock options may be exercised starting on
the first anniversary of the IPO and ending five years after the IPO. In the
event you resign or your employment is terminated by the Company for cause, as
defined below, at any time before the first anniversary of the IPO, you agree to
forfeit all vested and unvested stock options.
In the event you resign or your employment is terminated by the Company for
cause any time after the fist anniversary of the IPO, you shall not be entitled
to any unvested stock options. Vested options not yet exercised shall expire at
the time of your resignation. After the first anniversary of the IPO, vested
options not yet exercised shall expire three months after your employment is
terminated by the Company for cause.
If you are terminated by the Company at will (without cause) or die, your vested
options will be exercisable for 12 months after your employment is terminated or
your death, and all unvested options will expire on the date of termination or
death.
During your employment with the Company, if the Company is sold or there is a
change in control of more than 51% of the shares of the Company, you will
receive accelerated vesting for 50% of any unvested options, and all vested
options will be exercisable for 12 months after the sale or change of control of
the Company. The remaining 50% of the unvested options will continue to become
vested and become exercisable in accordance with this section, assuming
continued employment.
BONUS:
Until the Company completes an IPO, during your employment with the Company, you
will receive annual incentive compensation of up to 100% of your base salary.
You will receive annual incentive compensation equal to 3% of your base salary
for every $1,000,000 (prorated for amounts of less
<PAGE> 3
January 8, 1999
Page 3
than $1,000,000) in net income and calculated on a stand-alone basis (without
the imposition of overhead charges by any parent Company) before interest income
and before taxes. Therefore, it the Company earns $5.5 million before taxes, you
shall be entitled to 16.5% of your base salary as a bonus. Incentive
compensations shall be calculated as of December 31, 1999 and each December 31st
thereafter, provided you remain employed through the respective December 31st,
prorated to the date of completion of the IPO if that event occurs during the
applicable calendar year. Incentive payments will be made in the calendar year
following the year for which they are calculated but shall not be construed as
part of future base compensation. Incentive payments will be made for each year
in equal quarterly increments starting April 30, 2000 and each quarter end
thereafter, if applicable. You must be employed by the Company on these dates to
receive payments, except if you are terminated by the Company at will (without
cause), die or if you have been employed for at least 12 months and the Company
is sold before it has completed an IPO (unless you accept a position with or
receive any compensation from the acquirer of the business). In these cases, all
earned and unpaid bonuses due for that prorated period and the previous calendar
year will be paid in one lump sum. (In the event your rights in this paragraph
arise because the Company is sold, your right to all payments as a result
thereof cannot exceed 3 times your base salary.)
TERMINATION:
Termination by the Company for cause means because of (i) willful misconduct,
(ii) gross neglect of your obligation to the business of the Company, (iii)
conviction of a crime, other than traffic violations or infractions, (iv) moral
turpitude or dishonesty, or (v) disability that prevents you from performing the
essential functions of your job for in excess of six (6) months. In the event
the Company terminates your employment at will, you shall receive six (6) months
of base salary with health benefits as total severance. In the event you resign,
or the Company terminates your employment for cause, from the date thereof you
shall not receive any further base salary, bonus, options or severance payments.
NON-COMPETE, NON-DISCLOSURE, NON-SOLICITATION AGREEMENT:
For a period of six months from the date on which your employment with the
Company terminates for any reason whatsoever ("Termination") you agree that you
will not, anywhere, directly or indirectly, own, manage, operate, control, be
employed by, participate in, provide consulting services to, or be connected in
any manner with the ownership, management, operation or control of any entity
which is substantially engaged in the Internet travel business, except that you
may own, for investment purposes only, up to 1% of the capital stock or
indebtedness of any company whose capital stock is publicly traded. An entity
shall not be considered substantially engaged in the Internet
<PAGE> 4
January 8, 1999
Page 4
travel business if less than 5% of its gross sales are derived from Internet
travel revenues. However, even if the entity does have less than 5% of its gross
sales derived from Internet travel revenues, you shall not be directly involved
in the entity's Internet travel business during the applicable period.
Notwithstanding the above, you may continue to hold the 251,374 shares of the
common stock you presently own of Internet Travel Network.
For a period of 12 months from Termination, you agree that you will not contact
or solicit any person known by you to be an employee of the Company or any of
its affiliates or to have been employed by the Company or any of its affiliates
within the prior 90 days for the purpose of inducing such employees to leave
such employ.
For a period of 12 months from Termination you shall hold in a fiduciary
capacity for the benefit of the Company and its affiliates all secret or
confidential information, knowledge or data relating directly to the business of
the Company or its affiliates, and their respective businesses, including but
not limited to trade secrets, (i) obtained by you during your employment by the
Company and (ii) not otherwise in the public knowledge, you shall not, without
written consent of the Company, except to the extent compelled pursuant to the
order of a court or other body having jurisdiction over such matter or based
upon the advice of counsel communicate or divulge any such information,
knowledge, or data to anyone other than the Company and those designated by the
Company; provider, however, that you will assist the Company, at the Company's
expense, in obtaining a protective order, other appropriate remedy or other
reliable assurance that confidential treatment will be accorded such information
disclosed pursuant to the terms of this agreement.
You are scheduled to receive bonuses and options under this agreement which will
benefit you based upon the performance of the company's business. You represent
to the Company that the enforcement of the restrictions contained in this
section would not be unduly burdensome to you. You agree that the remedy at law
for any breach by you of the provisions of this section may be inadequate and
the Company shall be entitled to injunctive relief. This section constitutes an
independent and separate covenant that shall be enforceable notwithstanding any
right or remedy that the Company may have under any other provision of this
Agreement or otherwise.
RELOCATION EXPENSES:
The Company will pay for all normal itemized relocation costs approved in
advance to move your personal belongings, furniture and automobile from Florida
to the New York area. Interim reasonable hotel and travel expenses incurred
during the first two months of employment will be reimbursed as expensed.
<PAGE> 5
January 8, 1999
Page 5
OTHER BOARD MEMBERSHIPS:
You may serve on a maximum of two outside Boards reasonably acceptable to the
Chairman of the Board of the Company, assuming they do not compete in any way
with Lowestfare.com or its affiliates, one which can be not-for-profit and the
other for-profit. All other opportunities can be mutually agreed upon if it
benefits the Company.
If this agreement is acceptable please sign and return a copy to me. We look
forward to working together with you.
Sincerely,
Carl C. Icahn
AGREED:___________________________________________ DATE:____________________
Kenneth G. Swanton
<PAGE> 1
Exhibit 10.6
EMPLOYMENT AGREEMENT
Amended and Restated Employment Agreement dated as of January 20, 1999,
between Denise Barton ("Employee") and Global Discount Travel Services LLC (the
"Company").
WHEREAS, Employee executed an employment agreement effective January
20, 1999 (the "Original Agreement"), setting forth the terms of Employee's
employment with the Company; and
WHEREAS, the parties hereto wish to amend and restate the Original
Agreement to clarify certain terms thereof.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
1. Employment. Upon the terms and conditions hereinafter set
forth, the Company hereby employs Employee and Employee hereby accepts
employment as Chief Financial Officer of the Company.
2. Salary.
(a) The Company will pay Employee a base salary of $150,000
per year ("Base Salary"), payable on a bi-weekly basis effective February 8,
1999.
(b) The Company will pay an incentive compensation of 3% of
Employee's annual base salary, capped at 100% of Employee's annual base salary,
for every million dollars of net income before taxes, excluding interest income,
starting with the fiscal year of 1999. Incentive payment shall be calculated as
of December 31, 1999 and each December 31st thereafter, provided Employee
remains employed through the respective December 31st. Incentive payments will
be made in the calendar year following the year for which they are calculated.
Incentive payments will be made for each year in equal quarterly increments
starting March 31, 2000 and each quarter thereafter, if applicable.
3. Stock Options.
(a) Employee is granted an option to purchase a membership
interest in the Company entitling Employee to a two tenths of one percent (0.2%)
interest in the profits and distributions of the Company for a total cash price
of $400,000. Such option shall vest on January 20, 2005, provided that Employee
remains employed with the Company through such date, and such option may be
exercised by Employee for a period of ninety (90) days following such vesting
date.
<PAGE> 2
In the event of Employee's termination of employment for any reason (including,
without limitation, involuntary termination by the Company, resignation by the
Employee or death) prior to an IPO (as defined below) and prior to January 20,
2005, such option to purchase a membership interest in the Company shall
terminate and be of no further effect.
(b) If the Company (or an entity which owns substantially all
of the assets of or membership interests in the Company) completes an initial
public offering (the "IPO") of common stock ("Common Stock") during Employee's
employment with the Company, any outstanding option to purchase a membership
interest in the Company shall be converted into and be deemed to constitute a
non-qualified stock option to purchase 78,867 shares of Common Stock for a cash
exercise price of $5.0719 per share (with the number of shares and exercise
price being subject to equitable adjustment in the event of a stock split, stock
dividend, recapitalization or other similar change in capitalization affecting
the Common Stock). Employee and the Company acknowledge and agree that the
foregoing number of shares of Common Stock subject to such option and exercise
price are calculated based upon an assumed capitalization of 39,433,263 shares
of Common Stock outstanding upon completion of the IPO, which includes shares
issuable upon exercise of the underwriters' over-allotment option and options
issued to employees as of the IPO date.
(c) These stock options will vest in equal semi-annual
installments over a period of four years, beginning with the IPO date, in
accordance with Schedule A attached hereto.
(d) If, following an IPO, the Company (i) ceases operation,
(ii) consummates a "going private" transaction, (iii) is sold to a private
company or (iv) is sold to a public company, any unvested options to purchase
Common Stock shall become vested immediately prior to the effective date of any
such transaction. Upon any such transaction, Employee shall receive upon
exercise of outstanding options to purchase Common Stock such consideration per
share as shareholders of Common Stock are entitled to receive pursuant to such
transaction unless, in the case of a sale to a public company, provisions are
made in the transaction for the assumption of the outstanding options or the
substitution of the outstanding options for options of a publicly-traded
successor corporation or a publicly-traded parent thereof (with appropriate
adjustments as to the number and kind of shares and exercise price as to prevent
dilution or enlargement of rights).
(e) Stock options to purchase shares of Common Stock may be
purchased through the use of a broker-dealer sale and remittance procedure
pursuant to which Employee (i) shall provide written instructions to a
Company-designated brokerage firm to effect the immediate sale of some or all of
the purchased shares and remit to the Company, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares and (ii) shall provide written
directives to the Company to deliver the certificates
2
<PAGE> 3
<PAGE> 4
for the purchased shares directly to such brokerage firm in order to complete
the sale transaction.
4. Termination.
(a) In the event that Employee's employment is terminated
other than (i) by reason of Employee's resignation or death or (ii) by the
Company for "Cause", (A) Employee shall continue to receive Employee's annual
base salary through February 28, 2001, and any unpaid quarterly incentive
payments due based on what was already earned in the calendar year prior to
Employee's termination, (B) Employee's unvested stock options to purchase Common
Stock shall become immediately vested, and (C) all vested stock options to
purchase Common Stock shall be exercisable for 12 months after termination of
employment. For purposes of the foregoing, a buyer's failure immediately
following a transaction described in Section 3(d) above to offer Employee a
position comparable to the position held by Employee immediately prior to such
transaction shall be deemed to be a termination by the Company other than for
Cause and, in addition to the acceleration of vesting of Employee's outstanding
options to purchase Common Stock pursuant to Section 3(d), Employee shall be
entitled to receive the payments provided for in clause (A) of this paragraph.
For purposes of this Agreement, "Cause" is defined as (1) Employee's willful
misconduct, (2) gross neglect of Employee's obligation to the business of the
Company, (3) Employee's conviction of a crime involving moral turpitude or
dishonesty or (4) Employee's disability that prevents him from performing the
essential functions of Employee's job for in excess of six (6) months.
(b) In the event that Employee dies, (i) Employee shall be
entitled only to Employee's annual base salary for the period of time Employee
worked during the applicable year and quarterly incentive payments made prior to
the date Employee dies, (ii) Employee's vested stock options to purchase Common
Stock shall be exercisable for 12 months after death and (iii) all unvested
stock options to purchase Common Stock shall expire on the date of death.
(c) In the event that Employee resigns, (i) Employee shall be
entitled only to Employee's annual base salary for the period of time Employee
worked during the applicable year and quarterly incentive payments made prior to
the date Employee notifies the Company of Employee's resignation, (ii) at any
time before the first anniversary of the IPO, Employee agrees to forfeit all
vested stock options and unvested stock options to purchase Common Stock and
(iii) at any time after the first anniversary of the IPO, (A) Employee's
unvested stock options to purchase Common Stock shall expire on the date
Employee notifies the Company of Employee's resignation and (B) Employee's
vested stock options to purchase Common Stock shall expire three months after
the date Employee notifies the Company of Employee's resignation.
(d) In the event that Employee is terminated by the Company
for Cause, (i) Employee shall be entitled only to Employee's annual base salary
for the period of time Employee worked during the applicable year and quarterly
incentive payments made prior to the date that
3
<PAGE> 5
Employee is terminated for Cause, (ii) at any time before the first anniversary
of the IPO, Employee agrees to forfeit all vested stock options and unvested
stock options to purchase Common Stock and (iii) at any time after the first
anniversary of the IPO, (A) Employee's unvested stock options to purchase Common
Stock shall expire on the date of termination and (B) Employee's vested stock
options to purchase Common Stock shall expire three months after the date of
termination.
5. Non-Compete; Non-Disclosure; Non-Solicitation; Inventions.
(a) For a period of six months (the "Restricted Period") from
the date on which your employment with the Company terminates for any reason
("Termination"), Employee will not, anywhere, directly or indirectly, own,
manage, operate, control, be employed by, participate in, provide consulting
services to, or be connected in any manner with the ownership, management,
operation or control of any entity (collectively, "Involved") which is engaged
in the Internet travel business, except that Employee may own, for investment
purposes only, up to 1% of the capital stock or indebtedness of any company
whose capital stock is publicly traded. An entity shall not be considered
substantially engaged in the Internet travel business if less than 5% of its
gross sales are derived from Internet travel revenues. However, even if the
entity does have less than 5% of its gross sales derived from Internet travel
revenues, Employee shall not be directly Involved in the development or growth
of such entity's Internet travel business during the applicable period. In the
event that Termination was due to the resignation by Employee, Employee further
agrees that Employer shall have the option (the "Extension Option") to extend
the Restricted Period for an additional six month period (the "Additional
Restricted Period"). In the event that Employer elects to exercise the Extension
Option, Employer shall pay to Employee during the period commencing on the first
day of the Additional Restricted Period and ending on the last day of the
Additional Restricted Period, on a monthly basis, an amount equal to one-twelve
(1/12th) of Employee's Base Salary.
(b) For a period of 12 months from Termination, Employee
agrees not to contact or solicit any person known by Employee to be an employee
of the Company or any of its affiliates or to have been employed by the Company
or any of its affiliates within the prior 90 days for the purpose of inducing
such employees to leave such employ.
(c) During the term of this Agreement and at all times
thereafter, Employee shall hold in a fiduciary capacity for the benefit of the
Company and its affiliates all secret or confidential information, knowledge or
data relating directly to the business of the Company or its affiliates, and
their respective businesses, including but not limited to trade secrets, (i)
obtained by Employee during Employee's employment by the Company and (ii) not
otherwise in the public knowledge. Employee shall not, without prior written
consent of the Company, except to the extent compelled pursuant to the order of
a court or other body having jurisdiction over such matter or based upon the
advice of counsel communicate or divulge any such information, knowledge or data
to anyone other than the Company and those designated by the Company; provided,
however, that Employee will assist the Company, at the Company's expense, in
obtaining a protective order, other appropriate
4
<PAGE> 6
remedy or other reliable assurance that confidential treatment will be accorded
such information disclosed pursuant to the terms of this Agreement.
(d) All processes, technologies and inventions (collectively,
"Inventions"), including new contributions, improvements, ideas, discoveries,
trademarks and trade names, conceived, developed, invented, made or found by
Employee, alone or with others, during the period of Employee's employment by
the Company, whether or not patentable and whether or not conceived, developed,
invented, made or found on the Company's time or with the use of the Company's
facilities or materials, shall be the property of the Company and shall be
promptly and fully disclosed by Employee to the Company. Employee shall perform
all necessary acts (including, without limitation, executing and delivering any
confirmatory assignments, documents or instruments requested by the Company) to
vest title to any such Invention in the Company and to enable the Company, at
its expense, to secure and maintain domestic and/or foreign patents or any other
rights for such Inventions.
(e) Employee is scheduled to receive bonuses and stock options
under this agreement which will benefit Employee based upon the performance of
the Company's business. Employee represents to the Company that the enforcement
of the restrictions contained in this section would not be unduly burdensome to
Employee. Employee agrees that the remedy at law for any breach by Employee of
the provisions of this section may be inadequate and that the Company shall be
entitled to injunctive relief. This section constitutes an independent and
separable covenant that shall be enforceable notwithstanding any right or remedy
that the Company may have under any other provision of this Agreement or
otherwise.
6. Miscellaneous.
(a) This agreement constitutes the entire agreement between
the parties with respect to the subject matter hereof and supersedes all
previous written, and all previous or contemporaneous oral, negotiations,
understandings, arrangements, and agreements.
(b) The headings in this Agreement are for convenience of
reference only and are not part of the substance of this Agreement.
(c) This Agreement and all of the provisions hereof shall
inure to the benefit of and be binding upon the legal representatives, heirs,
distributees, successors (whether by merger, operation of law or otherwise) and
assigns of the parties hereto; provided, however, that Employee may not delegate
any of Employee's duties hereunder, and may not assign any of Employee's rights
hereunder, without the prior written consent of the Company.
(d) This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
5
<PAGE> 7
(e) If any section, paragraph, term or provision of this
Agreement shall be held or determined to be unenforceable, the balance of this
Agreement shall nevertheless continue in full force and effect unaffected by
such holding or determination. In addition, in any such event, the parties agree
that it is their intention and agreement that any such section, paragraph, term
or provision which is held or determined to be unenforceable, as written, shall
nonetheless be in force and binding to the fullest extent permitted by law as
though such section, paragraph, term or provision had been written in such a
manner and to such an extent as to be enforceable under the circumstances.
(f) This Agreement will be interpreted and the rights of the
parties determined in accordance with the laws of the United States applicable
thereto and the internal laws of the State of New York applicable to an
agreement executed, delivered and performed therein without giving effect to the
choice-of-law rules thereof or any other principle that could require the
application of the substantive law of any other jurisdiction.
6
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
GLOBAL DISCOUNT TRAVEL SERVICES LLC
By: Global Partner, Inc., Manager
By: ______________________________
Gail Golden
Vice President
_________________________
Denise Barton
SS# _______________
7
<PAGE> 9
Schedule A
Vesting Date Number of Shares Vested
------------ -----------------------
IPO Date 8,763
6 Month Anniversary 8,763
12 Month Anniversary 8,763
18 Month Anniversary 8,763
24 Month Anniversary 8,763
30 Month Anniversary 8,763
36 Month Anniversary 8,763
42 Month Anniversary 8,763
48 Month Anniversary 8,763
------
78,867
8
<PAGE> 1
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
Amended and Restated Employment Agreement dated as of May 26, 1998,
between Terry O'Neal ("Employee") and Global Discount Travel Services LLC (the
"Company").
WHEREAS, Employee executed an employment agreement effective May 26,
1998 (the "Original Agreement"), setting forth the terms of Employee's
employment with the Company; and
WHEREAS, the parties hereto wish to amend and restate the Original
Agreement to clarify certain terms thereof.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
1. Employment. Upon the terms and conditions hereinafter set forth, the
Company hereby employs Employee and Employee hereby accepts employment as Chief
Operating Officer of the Company.
2. Salary.
(a) The Company will pay Employee a base salary of $175,000
per year ("Base Salary"), payable on a bi-weekly basis effective May 1, 1998.
(b) The Company will pay an incentive compensation of 3% of
Employee's annual base salary, capped at 100% of Employee's annual base salary,
for every million dollars of net income before taxes, excluding interest income,
starting with the fiscal year of 1998. Incentive payment shall be calculated as
of December 31, 1998 and each December 31st thereafter, provided Employee
remains employed through the respective December 31st. Incentive payments will
be made in the calendar year following the year for which they are calculated.
Incentive payments will be made for each year in equal quarterly increments
starting March 31, 1999 and each quarter thereafter, if applicable.
3. Stock Options.
(a) Employee is granted an option to purchase a membership
interest in the Company entitling Employee to a four tenths of one percent
(0.4%) interest in the profits and distributions of the Company for a total cash
price of $800,000. Such option shall vest on May 26, 2004, provided that
Employee remains employed with the Company through such date, and such option
may be exercised by Employee for a period of ninety (90) days following such
vesting date. In the event of Employee's termination of employment for any
reason (including, without limitation,
<PAGE> 2
involuntary termination by the Company, resignation by the Employee or death)
prior to an IPO (as defined below) and prior to May 26, 2004, such option to
purchase a membership interest in the Company shall terminate and be of no
further effect.
(b) If the Company (or an entity which owns substantially all
of the assets of or membership interests in the Company) completes an initial
public offering (the "IPO") of common stock ("Common Stock") during Employee's
employment with the Company, any outstanding option to purchase a membership
interest in the Company shall be converted into and be deemed to constitute a
non-qualified stock option to purchase 157,733 shares of Common Stock for a cash
exercise price of $5.0719 per share (with the number of shares and exercise
price being subject to equitable adjustment in the event of a stock split, stock
dividend, recapitalization or other similar change in capitalization affecting
the Common Stock). Employee and the Company acknowledge and agree that the
foregoing number of shares of Common Stock subject to such option and exercise
price are calculated based upon an assumed capitalization of 39,433,263 shares
of Common Stock outstanding upon completion of the IPO, which includes shares
issuable upon exercise of the underwriters' over-allotment option and options
issued to employees as of the IPO date.
(c) Stock options to purchase shares of Common Stock shall
vest in equal semi-annual installments over a period of four years, with the
first installment vesting on the six-month anniversary of the IPO date. Vested
stock options may be exercised starting on the six-month anniversary of the IPO
and ending five years from the date of the IPO.
(d) If, following an IPO, the Company (i) ceases operation,
(ii) consummates a "going private" transaction, (iii) is sold to a private
company or (iv) is sold to a public company, any unvested options to purchase
Common Stock shall become vested immediately prior to the effective date of any
such transaction. Upon any such transaction, Employee shall receive upon
exercise of outstanding options to purchase Common Stock such consideration per
share as shareholders of Common Stock are entitled to receive pursuant to such
transaction unless, in the case of a sale to a public company, provisions are
made in the transaction for the assumption of the outstanding options or the
substitution of the outstanding options for options of a publicly-traded
successor corporation or a publicly-traded parent thereof (with appropriate
adjustments as to the number and kind of shares and exercise price as to prevent
dilution or enlargement of rights).
(e) Stock options to purchase shares of Common Stock may be
purchased through the use of a broker-dealer sale and remittance procedure
pursuant to which Employee (i) shall provide written instructions to a
Company-designated brokerage firm to effect the immediate sale of some or all of
the purchased shares and remit to the Company, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares and (ii) shall provide written
directives to the Company to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale transaction.
2
<PAGE> 3
4. Termination.
(a) In the event that Employee's employment is terminated
other than (i) by reason of Employee's resignation or death or (ii) by the
Company for "Cause", (A) Employee shall continue to receive Employee's annual
base salary through April 30, 2001, and any unpaid quarterly incentive payments
due based on what was already earned in the calendar year prior to Employee's
termination, (B) Employee's unvested stock options to purchase Common Stock
shall become immediately vested, and (C) all vested stock options to purchase
Common Stock shall be exercisable for 12 months after termination of employment.
For purposes of the foregoing, a buyer's failure immediately following a
transaction described in Section 3(d) above to offer Employee a position
comparable to the position held by Employee immediately prior to such
transaction shall be deemed to be a termination by the Company other than for
Cause and, in addition to the acceleration of vesting of Employee's outstanding
options to purchase Common Stock pursuant to Section 3(d), Employee shall be
entitled to receive the payments provided for in clause (A) of this paragraph.
For purposes of this Agreement, "Cause" is defined as (1) Employee's willful
misconduct, (2) gross neglect of Employee's obligation to the business of the
Company, (3) Employee's conviction of a crime involving moral turpitude or
dishonesty or (4) Employee's disability that prevents him from performing the
essential functions of Employee's job for in excess of six (6) months.
(b) In the event that Employee dies, (i) Employee shall be
entitled only to Employee's annual base salary for the period of time Employee
worked during the applicable year and quarterly incentive payments made prior to
the date Employee dies, (ii) Employee's vested stock options to purchase Common
Stock shall be exercisable for 12 months after death and (iii) all unvested
stock options to purchase Common Stock shall expire on the date of death.
(c) In the event that Employee resigns, (i) Employee shall be
entitled only to Employee's annual base salary for the period of time Employee
worked during the applicable year and quarterly incentive payments made prior to
the date Employee notifies the Company of Employee's resignation, (ii) at any
time before the first anniversary of the IPO, Employee agrees to forfeit all
vested stock options and unvested stock options to purchase Common Stock and
(iii) at any time after the first anniversary of the IPO, (A) Employee's
unvested stock options to purchase Common Stock shall expire on the date
Employee notifies the Company of Employee's resignation and (B) Employee's
vested stock options to purchase Common Stock shall expire three months after
the date Employee notifies the Company of Employee's resignation.
(d) In the event that Employee is terminated by the Company
for Cause, (i) Employee shall be entitled only to Employee's annual base salary
for the period of time Employee worked during the applicable year and quarterly
incentive payments made prior to the date that Employee is terminated for Cause,
(ii) at any time before the first anniversary of the IPO, Employee agrees to
forfeit all vested stock options and unvested stock options to purchase Common
Stock and (iii) at any time after the first anniversary of the IPO, (A)
Employee's unvested stock options to purchase Common Stock shall expire on the
date of termination and (B) Employee's vested stock options to purchase Common
Stock shall expire three months after the date of termination.
3
<PAGE> 4
5. Non-Compete; Non-Disclosure; Non-Solicitation; Inventions.
(a) For a period of six months (the "Restricted Period") from
the date on which your employment with the Company terminates for any reason
("Termination"), Employee will not, anywhere, directly or indirectly, own,
manage, operate, control, be employed by, participate in, provide consulting
services to, or be connected in any manner with the ownership, management,
operation or control of any entity (collectively, "Involved") which is engaged
in the Internet travel business, except that Employee may own, for investment
purposes only, up to 1% of the capital stock or indebtedness of any company
whose capital stock is publicly traded. An entity shall not be considered
substantially engaged in the Internet travel business if less than 5% of its
gross sales are derived from Internet travel revenues. However, even if the
entity does have less than 5% of its gross sales derived from Internet travel
revenues, Employee shall not be directly Involved in the development or growth
of such entity's Internet travel business during the applicable period. In the
event that Termination was due to the resignation by Employee, Employee further
agrees that Employer shall have the option (the "Extension Option") to extend
the Restricted Period for an additional six month period (the "Additional
Restricted Period"). In the event that Employer elects to exercise the Extension
Option, Employer shall pay to Employee during the period commencing on the first
day of the Additional Restricted Period and ending on the last day of the
Additional Restricted Period, on a monthly basis, an amount equal to one-twelve
(1/12th) of Employee's Base Salary.
(b) For a period of 12 months from Termination, Employee
agrees not to contact or solicit any person known by Employee to be an employee
of the Company or any of its affiliates or to have been employed by the Company
or any of its affiliates within the prior 90 days for the purpose of inducing
such employees to leave such employ.
(c) During the term of this Agreement and at all times
thereafter, Employee shall hold in a fiduciary capacity for the benefit of the
Company and its affiliates all secret or confidential information, knowledge or
data relating directly to the business of the Company or its affiliates, and
their respective businesses, including but not limited to trade secrets, (i)
obtained by Employee during Employee's employment by the Company and (ii) not
otherwise in the public knowledge. Employee shall not, without prior written
consent of the Company, except to the extent compelled pursuant to the order of
a court or other body having jurisdiction over such matter or based upon the
advice of counsel communicate or divulge any such information, knowledge or data
to anyone other than the Company and those designated by the Company; provided,
however, that Employee will assist the Company, at the Company's expense, in
obtaining a protective order, other appropriate remedy or other reliable
assurance that confidential treatment will be accorded such information
disclosed pursuant to the terms of this Agreement.
(d) All processes, technologies and inventions (collectively,
"Inventions"), including new contributions, improvements, ideas, discoveries,
trademarks and trade names, conceived, developed, invented, made or found by
Employee, alone or with others, during the period
4
<PAGE> 5
of Employee's employment by the Company, whether or not patentable and whether
or not conceived, developed, invented, made or found on the Company's time or
with the use of the Company's facilities or materials, shall be the property of
the Company and shall be promptly and fully disclosed by Employee to the
Company. Employee shall perform all necessary acts (including, without
limitation, executing and delivering any confirmatory assignments, documents or
instruments requested by the Company) to vest title to any such Invention in the
Company and to enable the Company, at its expense, to secure and maintain
domestic and/or foreign patents or any other rights for such Inventions.
(e) Employee is scheduled to receive bonuses and stock options
under this agreement which will benefit Employee based upon the performance of
the Company's business. Employee represents to the Company that the enforcement
of the restrictions contained in this section would not be unduly burdensome to
Employee. Employee agrees that the remedy at law for any breach by Employee of
the provisions of this section may be inadequate and that the Company shall be
entitled to injunctive relief. This section constitutes an independent and
separable covenant that shall be enforceable notwithstanding any right or remedy
that the Company may have under any other provision of this Agreement or
otherwise.
6. Miscellaneous.
(a) This agreement constitutes the entire agreement between
the parties with respect to the subject matter hereof and supersedes all
previous written, and all previous or contemporaneous oral, negotiations,
understandings, arrangements, and agreements.
(b) The headings in this Agreement are for convenience of
reference only and are not part of the substance of this Agreement.
(c) This Agreement and all of the provisions hereof shall
inure to the benefit of and be binding upon the legal representatives, heirs,
distributees, successors (whether by merger, operation of law or otherwise) and
assigns of the parties hereto; provided, however, that Employee may not delegate
any of Employee's duties hereunder, and may not assign any of Employee's rights
hereunder, without the prior written consent of the Company.
(d) This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
(e) If any section, paragraph, term or provision of this
Agreement shall be held or determined to be unenforceable, the balance of this
Agreement shall nevertheless continue in full force and effect unaffected by
such holding or determination. In addition, in any such event, the parties agree
that it is their intention and agreement that any such section, paragraph, term
or provision which is held or determined to be unenforceable, as written, shall
nonetheless be in force and binding to the fullest extent permitted by law as
though such section, paragraph, term or
5
<PAGE> 6
provision had been written in such a manner and to such an extent as to be
enforceable under the circumstances.
(f) This Agreement will be interpreted and the rights of the
parties determined in accordance with the laws of the United States applicable
thereto and the internal laws of the State of New York applicable to an
agreement executed, delivered and performed therein without giving effect to the
choice-of-law rules thereof or any other principle that could require the
application of the substantive law of any other jurisdiction.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
GLOBAL DISCOUNT TRAVEL SERVICES LLC
By: Global Partner, Inc., Manager
By: ________________________________
Gail Golden
Vice President
_____________________________
Terry O'Neal
SS# _________________
7
<PAGE> 1
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
Amended and Restated Employment Agreement dated as of May 26, 1998,
between Greg Monton ("Employee") and Global Discount Travel Services LLC (the
"Company").
WHEREAS, Employee executed an employment agreement effective May 26,
1998 (the "Original Agreement"), setting forth the terms of Employee's
employment with the Company; and
WHEREAS, the parties hereto wish to amend and restate the Original
Agreement to clarify certain terms thereof.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
1. Employment. Upon the terms and conditions hereinafter set forth, the
Company hereby employs Employee and Employee hereby accepts employment as Vice
President of Information Technology of the Company.
2. Salary.
(a) The Company will pay Employee a base salary of $125,000
per year ("Base Salary"), payable on a bi-weekly basis effective May 1, 1998.
(b) The Company will pay an incentive compensation of 3% of
Employee's annual base salary, capped at 100% of Employee's annual base salary,
for every million dollars of net income before taxes, excluding interest income,
starting with the fiscal year of 1998. Incentive payment shall be calculated as
of December 31, 1998 and each December 31st thereafter, provided Employee
remains employed through the respective December 31st. Incentive payments will
be made in the calendar year following the year for which they are calculated.
Incentive payments will be made for each year in equal quarterly increments
starting March 31, 1999 and each quarter thereafter, if applicable.
3. Stock Options.
(a) Employee is granted an option to purchase a membership
interest in the Company entitling Employee to a four tenths of one percent
(0.4%) interest in the profits and distributions of the Company for a total cash
price of $800,000. Such option shall vest on May 26, 2004, provided that
Employee remains employed with the Company through such date, and such option
may be exercised by Employee for a period of ninety (90) days following such
vesting date. In the event of Employee's termination of employment for any
reason (including, without limitation,
<PAGE> 2
involuntary termination by the Company, resignation by the Employee or death)
prior to an IPO (as defined below) and prior to May 26, 2004, such option to
purchase a membership interest in the Company shall terminate and be of no
further effect.
(b) If the Company (or an entity which owns substantially all
of the assets of or membership interests in the Company) completes an initial
public offering (the "IPO") of common stock ("Common Stock") during Employee's
employment with the Company, any outstanding option to purchase a membership
interest in the Company shall be converted into and be deemed to constitute a
non-qualified stock option to purchase 157,733 shares of Common Stock for a cash
exercise price of $5.0719 per share (with the number of shares and exercise
price being subject to equitable adjustment in the event of a stock split, stock
dividend, recapitalization or other similar change in capitalization affecting
the Common Stock). Employee and the Company acknowledge and agree that the
foregoing number of shares of Common Stock subject to such option and exercise
price are calculated based upon an assumed capitalization of 39,433,263 shares
of Common Stock outstanding upon completion of the IPO, which includes shares
issuable upon exercise of the underwriters' over-allotment option and options
issued to employees as of the IPO date.
(c) Stock options to purchase shares of Common Stock shall
vest in equal semi-annual installments over a period of four years, with the
first installment vesting on the six-month anniversary of the IPO date. Vested
stock options may be exercised starting on the six-month anniversary of the IPO
and ending five years from the date of the IPO.
(d) If, following an IPO, the Company (i) ceases operation,
(ii) consummates a "going private" transaction, (iii) is sold to a private
company or (iv) is sold to a public company, any unvested options to purchase
Common Stock shall become vested immediately prior to the effective date of any
such transaction. Upon any such transaction, Employee shall receive upon
exercise of outstanding options to purchase Common Stock such consideration per
share as shareholders of Common Stock are entitled to receive pursuant to such
transaction unless, in the case of a sale to a public company, provisions are
made in the transaction for the assumption of the outstanding options or the
substitution of the outstanding options for options of a publicly-traded
successor corporation or a publicly-traded parent thereof (with appropriate
adjustments as to the number and kind of shares and exercise price as to prevent
dilution or enlargement of rights).
(e) Stock options to purchase shares of Common Stock may be
purchased through the use of a broker-dealer sale and remittance procedure
pursuant to which Employee (i) shall provide written instructions to a
Company-designated brokerage firm to effect the immediate sale of some or all of
the purchased shares and remit to the Company, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares and (ii) shall provide written
directives to the Company to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale transaction.
2
<PAGE> 3
4. Termination.
(a) In the event that Employee's employment is terminated
other than (i) by reason of Employee's resignation or death or (ii) by the
Company for "Cause", (A) Employee shall continue to receive Employee's annual
base salary through April 30, 2001, and any unpaid quarterly incentive
payments due based on what was already earned in the calendar year prior to
Employee's termination, (B) Employee's unvested stock options to purchase Common
Stock shall become immediately vested, and (C) all vested stock options to
purchase Common Stock shall be exercisable for 12 months after termination of
employment. For purposes of the foregoing, a buyer's failure immediately
following a transaction described in Section 3(d) above to offer Employee a
position comparable to the position held by Employee immediately prior to such
transaction shall be deemed to be a termination by the Company other than for
Cause and, in addition to the acceleration of vesting of Employee's outstanding
options to purchase Common Stock pursuant to Section 3(d), Employee shall be
entitled to receive the payments provided for in clause (A) of this paragraph.
For purposes of this Agreement, "Cause" is defined as (1) Employee's willful
misconduct, (2) gross neglect of Employee's obligation to the business of the
Company, (3) Employee's conviction of a crime involving moral turpitude or
dishonesty or (4) Employee's disability that prevents him from performing the
essential functions of Employee's job for in excess of six (6) months.
(b) In the event that Employee dies, (i) Employee shall be
entitled only to Employee's annual base salary for the period of time Employee
worked during the applicable year and quarterly incentive payments made prior to
the date Employee dies, (ii) Employee's vested stock options to purchase Common
Stock shall be exercisable for 12 months after death and (iii) all unvested
stock options to purchase Common Stock shall expire on the date of death.
(c) In the event that Employee resigns, (i) Employee shall be
entitled only to Employee's annual base salary for the period of time Employee
worked during the applicable year and quarterly incentive payments made prior to
the date Employee notifies the Company of Employee's resignation, (ii) at any
time before the first anniversary of the IPO, Employee agrees to forfeit all
vested stock options and unvested stock options to purchase Common Stock and
(iii) at any time after the first anniversary of the IPO, (A) Employee's
unvested stock options to purchase Common Stock shall expire on the date
Employee notifies the Company of Employee's resignation and (B) Employee's
vested stock options to purchase Common Stock shall expire three months after
the date Employee notifies the Company of Employee's resignation.
(d) In the event that Employee is terminated by the Company
for Cause, (i) Employee shall be entitled only to Employee's annual base salary
for the period of time Employee worked during the applicable year and quarterly
incentive payments made prior to the date that Employee is terminated for Cause,
(ii) at any time before the first anniversary of the IPO, Employee agrees to
forfeit all vested stock options and unvested stock options to purchase Common
Stock and (iii) at any time after the first anniversary of the IPO, (A)
Employee's unvested stock options to purchase Common Stock shall expire on the
date of termination and (B) Employee's vested stock options to purchase Common
Stock shall expire three months after the date of termination.
3
<PAGE> 4
5. Non-Compete; Non-Disclosure; Non-Solicitation; Inventions.
(a) For a period of six months (the "Restricted Period") from
the date on which your employment with the Company terminates for any reason
("Termination"), Employee will not, anywhere, directly or indirectly, own,
manage, operate, control, be employed by, participate in, provide consulting
services to, or be connected in any manner with the ownership, management,
operation or control of any entity (collectively, "Involved") which is engaged
in the Internet travel business, except that Employee may own, for investment
purposes only, up to 1% of the capital stock or indebtedness of any company
whose capital stock is publicly traded. An entity shall not be considered
substantially engaged in the Internet travel business if less than 5% of its
gross sales are derived from Internet travel revenues. However, even if the
entity does have less than 5% of its gross sales derived from Internet travel
revenues, Employee shall not be directly Involved in the development or growth
of such entity's Internet travel business during the applicable period. In the
event that Termination was due to the resignation by Employee, Employee further
agrees that Employer shall have the option (the "Extension Option") to extend
the Restricted Period for an additional six month period (the "Additional
Restricted Period"). In the event that Employer elects to exercise the Extension
Option, Employer shall pay to Employee during the period commencing on the first
day of the Additional Restricted Period and ending on the last day of the
Additional Restricted Period, on a monthly basis, an amount equal to one-twelve
(1/12th) of Employee's Base Salary.
(b) For a period of 12 months from Termination, Employee
agrees not to contact or solicit any person known by Employee to be an employee
of the Company or any of its affiliates or to have been employed by the Company
or any of its affiliates within the prior 90 days for the purpose of inducing
such employees to leave such employ.
(c) During the term of this Agreement and at all times
thereafter, Employee shall hold in a fiduciary capacity for the benefit of the
Company and its affiliates all secret or confidential information, knowledge or
data relating directly to the business of the Company or its affiliates, and
their respective businesses, including but not limited to trade secrets, (i)
obtained by Employee during Employee's employment by the Company and (ii) not
otherwise in the public knowledge. Employee shall not, without prior written
consent of the Company, except to the extent compelled pursuant to the order of
a court or other body having jurisdiction over such matter or based upon the
advice of counsel communicate or divulge any such information, knowledge or data
to anyone other than the Company and those designated by the Company; provided,
however, that Employee will assist the Company, at the Company's expense, in
obtaining a protective order, other appropriate remedy or other reliable
assurance that confidential treatment will be accorded such information
disclosed pursuant to the terms of this Agreement.
(d) All processes, technologies and inventions (collectively,
"Inventions"), including new contributions, improvements, ideas, discoveries,
trademarks and trade names, conceived, developed, invented, made or found by
Employee, alone or with others, during the period
4
<PAGE> 5
of Employee's employment by the Company, whether or not patentable and whether
or not conceived, developed, invented, made or found on the Company's time or
with the use of the Company's facilities or materials, shall be the property of
the Company and shall be promptly and fully disclosed by Employee to the
Company. Employee shall perform all necessary acts (including, without
limitation, executing and delivering any confirmatory assignments, documents or
instruments requested by the Company) to vest title to any such Invention in the
Company and to enable the Company, at its expense, to secure and maintain
domestic and/or foreign patents or any other rights for such Inventions.
(e) Employee is scheduled to receive bonuses and stock options
under this agreement which will benefit Employee based upon the performance of
the Company's business. Employee represents to the Company that the enforcement
of the restrictions contained in this section would not be unduly burdensome to
Employee. Employee agrees that the remedy at law for any breach by Employee of
the provisions of this section may be inadequate and that the Company shall be
entitled to injunctive relief. This section constitutes an independent and
separable covenant that shall be enforceable notwithstanding any right or remedy
that the Company may have under any other provision of this Agreement or
otherwise.
6. Miscellaneous.
(a) This agreement constitutes the entire agreement between
the parties with respect to the subject matter hereof and supersedes all
previous written, and all previous or contemporaneous oral, negotiations,
understandings, arrangements, and agreements.
(b) The headings in this Agreement are for convenience of
reference only and are not part of the substance of this Agreement.
(c) This Agreement and all of the provisions hereof shall
inure to the benefit of and be binding upon the legal representatives, heirs,
distributees, successors (whether by merger, operation of law or otherwise) and
assigns of the parties hereto; provided, however, that Employee may not delegate
any of Employee's duties hereunder, and may not assign any of Employee's rights
hereunder, without the prior written consent of the Company.
(d) This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
(e) If any section, paragraph, term or provision of this
Agreement shall be held or determined to be unenforceable, the balance of this
Agreement shall nevertheless continue in full force and effect unaffected by
such holding or determination. In addition, in any such event, the parties agree
that it is their intention and agreement that any such section, paragraph, term
or provision which is held or determined to be unenforceable, as written, shall
nonetheless be in force and binding to the fullest extent permitted by law as
though such section, paragraph, term or
5
<PAGE> 6
provision had been written in such a manner and to such an extent as to be
enforceable under the circumstances.
(f) This Agreement will be interpreted and the rights of the
parties determined in accordance with the laws of the United States applicable
thereto and the internal laws of the State of New York applicable to an
agreement executed, delivered and performed therein without giving effect to the
choice-of-law rules thereof or any other principle that could require the
application of the substantive law of any other jurisdiction.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
GLOBAL DISCOUNT TRAVEL SERVICES LLC
By: Global Partner, Inc., Manager
By: _________________________________
Gail Golden
Vice President
______________________________
Greg Monton
SS# _________________
7
<PAGE> 1
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
Amended and Restated Employment Agreement dated as of May 26, 1998,
between Steven Lay ("Employee") and Global Discount Travel Services LLC (the
"Company").
WHEREAS, Employee executed an employment agreement effective May 26,
1998 (the "Original Agreement"), setting forth the terms of Employee's
employment with the Company; and
WHEREAS, the parties hereto wish to amend and restate the Original
Agreement to clarify certain terms thereof.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
1. Employment. Upon the terms and conditions hereinafter set forth, the
Company hereby employs Employee and Employee hereby accepts employment as Vice
President of Strategic Planning of the Company.
2. Salary.
(a) The Company will pay Employee a base salary of $120,000
per year ("Base Salary"), payable on a bi-weekly basis effective May 1, 1998.
(b) The Company will pay an incentive compensation of 3% of
Employee's annual base salary, capped at 100% of Employee's annual base salary,
for every million dollars of net income before taxes, excluding interest income,
starting with the fiscal year of 1998. Incentive payment shall be calculated as
of December 31, 1998 and each December 31st thereafter, provided Employee
remains employed through the respective December 31st. Incentive payments will
be made in the calendar year following the year for which they are calculated.
Incentive payments will be made for each year in equal quarterly increments
starting March 31, 1999 and each quarter thereafter, if applicable.
3. Stock Options.
(a) Employee is granted an option to purchase a membership
interest in the Company entitling Employee to a four tenths of one percent
(0.4%) interest in the profits and distributions of the Company for a total cash
price of $800,000. Such option shall vest on May 26, 2004, provided that
Employee remains employed with the Company through such date, and such option
may be exercised by Employee for a period of ninety (90) days following such
vesting date. In the event of Employee's termination of employment for any
reason (including, without limitation,
<PAGE> 2
involuntary termination by the Company, resignation by the Employee or death)
prior to an IPO (as defined below) and prior to May 26, 2004, such option to
purchase a membership interest in the Company shall terminate and be of no
further effect.
(b) If the Company (or an entity which owns substantially all
of the assets of or membership interests in the Company) completes an initial
public offering (the "IPO") of common stock ("Common Stock") during Employee's
employment with the Company, any outstanding option to purchase a membership
interest in the Company shall be converted into and be deemed to constitute a
non-qualified stock option to purchase 157,733 shares of Common Stock for a cash
exercise price of $5.0719 per share (with the number of shares and exercise
price being subject to equitable adjustment in the event of a stock split, stock
dividend, recapitalization or other similar change in capitalization affecting
the Common Stock). Employee and the Company acknowledge and agree that the
foregoing number of shares of Common Stock subject to such option and exercise
price are calculated based upon an assumed capitalization of 39,433,263 shares
of Common Stock outstanding upon completion of the IPO, which includes shares
issuable upon exercise of the underwriters' over-allotment option and options
issued to employees as of the IPO date.
(c) Stock options to purchase shares of Common Stock shall
vest in equal semi-annual installments over a period of four years, with the
first installment vesting on the six-month anniversary of the IPO date. Vested
stock options may be exercised starting on the six-month anniversary of the IPO
and ending five years from the date of the IPO.
(d) If, following an IPO, the Company (i) ceases operation,
(ii) consummates a "going private" transaction, (iii) is sold to a private
company or (iv) is sold to a public company, any unvested options to purchase
Common Stock shall become vested immediately prior to the effective date of any
such transaction. Upon any such transaction, Employee shall receive upon
exercise of outstanding options to purchase Common Stock such consideration per
share as shareholders of Common Stock are entitled to receive pursuant to such
transaction unless, in the case of a sale to a public company, provisions are
made in the transaction for the assumption of the outstanding options or the
substitution of the outstanding options for options of a publicly-traded
successor corporation or a publicly-traded parent thereof (with appropriate
adjustments as to the number and kind of shares and exercise price as to prevent
dilution or enlargement of rights).
(e) Stock options to purchase shares of Common Stock may be
purchased through the use of a broker-dealer sale and remittance procedure
pursuant to which Employee (i) shall provide written instructions to a
Company-designated brokerage firm to effect the immediate sale of some or all of
the purchased shares and remit to the Company, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares and (ii) shall provide written
directives to the Company to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale transaction.
2
<PAGE> 3
4. Termination.
(a) In the event that Employee's employment is terminated
other than (i) by reason of Employee's resignation or death or (ii) by the
Company for "Cause", (A) Employee shall continue to receive Employee's annual
base salary through April 30, 2001, and any unpaid quarterly incentive
payments due based on what was already earned in the calendar year prior to
Employee's termination, (B) Employee's unvested stock options to purchase Common
Stock shall become immediately vested, and (C) all vested stock options to
purchase Common Stock shall be exercisable for 12 months after termination of
employment. For purposes of the foregoing, a buyer's failure immediately
following a transaction described in Section 3(d) above to offer Employee a
position comparable to the position held by Employee immediately prior to such
transaction shall be deemed to be a termination by the Company other than for
Cause and, in addition to the acceleration of vesting of Employee's outstanding
options to purchase Common Stock pursuant to Section 3(d), Employee shall be
entitled to receive the payments provided for in clause (A) of this paragraph.
For purposes of this Agreement, "Cause" is defined as (1) Employee's willful
misconduct, (2) gross neglect of Employee's obligation to the business of the
Company, (3) Employee's conviction of a crime involving moral turpitude or
dishonesty or (4) Employee's disability that prevents him from performing the
essential functions of Employee's job for in excess of six (6) months.
(b) In the event that Employee dies, (i) Employee shall be
entitled only to Employee's annual base salary for the period of time Employee
worked during the applicable year and quarterly incentive payments made prior to
the date Employee dies, (ii) Employee's vested stock options to purchase Common
Stock shall be exercisable for 12 months after death and (iii) all unvested
stock options to purchase Common Stock shall expire on the date of death.
(c) In the event that Employee resigns, (i) Employee shall be
entitled only to Employee's annual base salary for the period of time Employee
worked during the applicable year and quarterly incentive payments made prior to
the date Employee notifies the Company of Employee's resignation, (ii) at any
time before the first anniversary of the IPO, Employee agrees to forfeit all
vested stock options and unvested stock options to purchase Common Stock and
(iii) at any time after the first anniversary of the IPO, (A) Employee's
unvested stock options to purchase Common Stock shall expire on the date
Employee notifies the Company of Employee's resignation and (B) Employee's
vested stock options to purchase Common Stock shall expire three months after
the date Employee notifies the Company of Employee's resignation.
(d) In the event that Employee is terminated by the Company
for Cause, (i) Employee shall be entitled only to Employee's annual base salary
for the period of time Employee worked during the applicable year and quarterly
incentive payments made prior to the date that Employee is terminated for Cause,
(ii) at any time before the first anniversary of the IPO, Employee agrees to
forfeit all vested stock options and unvested stock options to purchase Common
Stock and (iii) at any time after the first anniversary of the IPO, (A)
Employee's unvested stock options to purchase Common Stock shall expire on the
date of termination and (B) Employee's vested stock options to purchase Common
Stock shall expire three months after the date of termination.
3
<PAGE> 4
5. Non-Compete; Non-Disclosure; Non-Solicitation; Inventions.
(a) For a period of six months (the "Restricted Period") from
the date on which your employment with the Company terminates for any reason
("Termination"), Employee will not, anywhere, directly or indirectly, own,
manage, operate, control, be employed by, participate in, provide consulting
services to, or be connected in any manner with the ownership, management,
operation or control of any entity (collectively, "Involved") which is engaged
in the Internet travel business, except that Employee may own, for investment
purposes only, up to 1% of the capital stock or indebtedness of any company
whose capital stock is publicly traded. An entity shall not be considered
substantially engaged in the Internet travel business if less than 5% of its
gross sales are derived from Internet travel revenues. However, even if the
entity does have less than 5% of its gross sales derived from Internet travel
revenues, Employee shall not be directly Involved in the development or growth
of such entity's Internet travel business during the applicable period. In the
event that Termination was due to the resignation by Employee, Employee further
agrees that Employer shall have the option (the "Extension Option") to extend
the Restricted Period for an additional six month period (the "Additional
Restricted Period"). In the event that Employer elects to exercise the Extension
Option, Employer shall pay to Employee during the period commencing on the first
day of the Additional Restricted Period and ending on the last day of the
Additional Restricted Period, on a monthly basis, an amount equal to one-twelve
(1/12th) of Employee's Base Salary.
(b) For a period of 12 months from Termination, Employee
agrees not to contact or solicit any person known by Employee to be an employee
of the Company or any of its affiliates or to have been employed by the Company
or any of its affiliates within the prior 90 days for the purpose of inducing
such employees to leave such employ.
(c) During the term of this Agreement and at all times
thereafter, Employee shall hold in a fiduciary capacity for the benefit of the
Company and its affiliates all secret or confidential information, knowledge or
data relating directly to the business of the Company or its affiliates, and
their respective businesses, including but not limited to trade secrets, (i)
obtained by Employee during Employee's employment by the Company and (ii) not
otherwise in the public knowledge. Employee shall not, without prior written
consent of the Company, except to the extent compelled pursuant to the order of
a court or other body having jurisdiction over such matter or based upon the
advice of counsel communicate or divulge any such information, knowledge or data
to anyone other than the Company and those designated by the Company; provided,
however, that Employee will assist the Company, at the Company's expense, in
obtaining a protective order, other appropriate remedy or other reliable
assurance that confidential treatment will be accorded such information
disclosed pursuant to the terms of this Agreement.
(d) All processes, technologies and inventions (collectively,
"Inventions"), including new contributions, improvements, ideas, discoveries,
trademarks and trade names, conceived, developed, invented, made or found by
Employee, alone or with others, during the period
4
<PAGE> 5
of Employee's employment by the Company, whether or not patentable and whether
or not conceived, developed, invented, made or found on the Company's time or
with the use of the Company's facilities or materials, shall be the property of
the Company and shall be promptly and fully disclosed by Employee to the
Company. Employee shall perform all necessary acts (including, without
limitation, executing and delivering any confirmatory assignments, documents or
instruments requested by the Company) to vest title to any such Invention in the
Company and to enable the Company, at its expense, to secure and maintain
domestic and/or foreign patents or any other rights for such Inventions.
(e) Employee is scheduled to receive bonuses and stock options
under this agreement which will benefit Employee based upon the performance of
the Company's business. Employee represents to the Company that the enforcement
of the restrictions contained in this section would not be unduly burdensome to
Employee. Employee agrees that the remedy at law for any breach by Employee of
the provisions of this section may be inadequate and that the Company shall be
entitled to injunctive relief. This section constitutes an independent and
separable covenant that shall be enforceable notwithstanding any right or remedy
that the Company may have under any other provision of this Agreement or
otherwise.
6. Miscellaneous.
(a) This agreement constitutes the entire agreement between
the parties with respect to the subject matter hereof and supersedes all
previous written, and all previous or contemporaneous oral, negotiations,
understandings, arrangements, and agreements.
(b) The headings in this Agreement are for convenience of
reference only and are not part of the substance of this Agreement.
(c) This Agreement and all of the provisions hereof shall
inure to the benefit of and be binding upon the legal representatives, heirs,
distributees, successors (whether by merger, operation of law or otherwise) and
assigns of the parties hereto; provided, however, that Employee may not delegate
any of Employee's duties hereunder, and may not assign any of Employee's rights
hereunder, without the prior written consent of the Company.
(d) This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
(e) If any section, paragraph, term or provision of this
Agreement shall be held or determined to be unenforceable, the balance of this
Agreement shall nevertheless continue in full force and effect unaffected by
such holding or determination. In addition, in any such event, the parties agree
that it is their intention and agreement that any such section, paragraph, term
or provision which is held or determined to be unenforceable, as written, shall
nonetheless be in force and binding to the fullest extent permitted by law as
though such section, paragraph, term or
5
<PAGE> 6
provision had been written in such a manner and to such an extent as to be
enforceable under the circumstances.
(f) This Agreement will be interpreted and the rights of the
parties determined in accordance with the laws of the United States applicable
thereto and the internal laws of the State of New York applicable to an
agreement executed, delivered and performed therein without giving effect to the
choice-of-law rules thereof or any other principle that could require the
application of the substantive law of any other jurisdiction.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
GLOBAL DISCOUNT TRAVEL SERVICES LLC
By: Global Partner, Inc., Manager
By: _______________________________
Gail Golden
Vice President
_____________________________
Steven Lay
SS# _______________
7
<PAGE> 1
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
Amended and Restated Employment Agreement dated as of January 1, 1998,
between Vincent Martinelli ("Employee") and Global Travel Marketing Services,
Inc. (the "Company").
WHEREAS, Employee executed an employment agreement effective January 1,
1998 (the "Karabu Agreement"), setting forth the terms of Employee's employment
with Karabu Corp.
("Karabu");
WHEREAS, the Company agreed to assume certain obligations of Karabu
under the Karabu Agreement pursuant to an Assumption Agreement dated as of the
date hereof (the "Assumption"); and
WHEREAS, Employee executed an employment agreement dated as of January
1, 1998 (the "Original Agreement") in connection with the Assumption, setting
forth the terms of Employee's employment with the Company; and
WHEREAS, the parties hereto wish to amend and restate the Original
Agreement to clarify certain terms thereof.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
1. Employment. Upon the terms and conditions hereinafter set forth, the
Company hereby employs Employee and Employee hereby accepts employment as Vice
President of Advertising and Marketing of the Company.
2. Salary. The Company will pay Employee a base salary of $150,000 per
year ("Base Salary"), payable on a bi-weekly basis effective January 1, 1998.
3. Stock Options.
(a) Employee is granted an option to purchase a membership
interest in Global Discount Travel Services LLC ("Global") entitling Employee to
a two tenths of one percent (0.2%) interest in the profits and distributions of
Global for a total cash price of $400,000. Such option shall vest on January 1,
2004, provided that Employee remains employed with the Company through such
date, and such option may be exercised by Employee for a period of ninety (90)
days following such vesting date. In the event of Employee's termination of
employment for any reason (including, without limitation, involuntary
termination by the Company, resignation by the Employee or death) prior to an
IPO (as defined below) and prior to January 1, 2004, such option to purchase a
<PAGE> 2
membership interest in Global shall terminate and be of no further effect.
(b) If Global (or an entity which owns substantially all of
the assets of or membership interests in Global) completes an initial public
offering (the "IPO") of common stock ("Common Stock") during Employee's
employment with the Company, any outstanding option to purchase a membership
interest in Global shall be converted into and be deemed to constitute a
non-qualified stock option to purchase 78,867 shares of Common Stock for a cash
exercise price of $5.0719 per share (with the number of shares and exercise
price being subject to equitable adjustment in the event of a stock split, stock
dividend, recapitalization or other similar change in capitalization affecting
the Common Stock). Employee and the Company acknowledge and agree that the
foregoing number of shares of Common Stock subject to such option and exercise
price are calculated based upon an assumed capitalization of 39,433,263 shares
of Common Stock outstanding upon completion of the IPO, which includes shares
issuable upon exercise of the underwriters' over-allotment option and options
issued to employees as of the IPO date.
(c) Stock options to purchase shares of Common Stock shall
vest in equal semi-annual installments over a period of four years, with the
first installment vesting on the six-month anniversary of the IPO date. Vested
stock options may be exercised starting on the six-month anniversary of the IPO
and ending five years from the date of the IPO.
(d) If, following an IPO, Global (or the entity that completed
the IPO) (i) ceases operation, (ii) consummates a "going private" transaction,
(iii) is sold to a private company or (iv) is sold to a public company, any
unvested options to purchase Common Stock shall become vested immediately prior
to the effective date of any such transaction. Upon any such transaction,
Employee shall receive upon exercise of outstanding options to purchase Common
Stock such consideration per share as shareholders of Common Stock are entitled
to receive pursuant to such transaction unless, in the case of a sale to a
public company, provisions are made in the transaction for the assumption of the
outstanding options or the substitution of the outstanding options for options
of a publicly-traded successor corporation or a publicly-traded parent thereof
(with appropriate adjustments as to the number and kind of shares and exercise
price as to prevent dilution or enlargement of rights).
(e) Stock options to purchase shares of Common Stock may be
exercised through the use of a broker-dealer sale and remittance procedure
pursuant to which Employee (i) shall provide written instructions to a
Company-designated brokerage firm to effect the immediate sale of some or all of
the purchased shares and remit to the Company, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares and (ii) shall provide written
directives to the Company to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale transaction.
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<PAGE> 3
4. Termination.
(a) In the event that Employee's employment is terminated
other than (i) by reason of Employee's resignation or death or (ii) by the
Company for "Cause", (A) Employee shall be entitled only to Employee's annual
base salary for the period of time Employee worked during the applicable year,
(B) Employee's unvested stock options to purchase Common Stock shall become
immediately vested, and (C) all vested stock options to purchase Common Stock
shall be exercisable for 12 months after termination of employment. For purposes
of the foregoing, a buyer's failure immediately following a transaction
described in Section 3(d) above to offer Employee a position comparable to the
position held by Employee immediately prior to such transaction shall be deemed
to be a termination by the Company other than for Cause. For purposes of this
Agreement, "Cause" is defined as (1) Employee's willful misconduct, (2) gross
neglect of Employee's obligation to the business of the Company, (3) Employee's
conviction of a crime involving moral turpitude or dishonesty or (4) Employee's
disability that prevents him from performing the essential functions of
Employee's job for in excess of six (6) months.
(b) In the event that Employee dies, (i) Employee shall be
entitled only to Employee's annual base salary for the period of time Employee
worked during the applicable year, (ii) Employee's vested stock options to
purchase Common Stock shall be exercisable for 12 months after death and (iii)
all unvested stock options to purchase Common Stock shall expire on the date of
death.
(c) In the event that Employee resigns, (i) Employee shall be
entitled only to Employee's annual base salary for the period of time Employee
worked during the applicable year, (ii) at any time before the first anniversary
of the IPO, Employee agrees to forfeit all vested stock options and unvested
stock options to purchase Common Stock and (iii) at any time after the first
anniversary of the IPO, (A) Employee's unvested stock options to purchase Common
Stock shall expire on the date Employee notifies the Company of Employee's
resignation and (B) Employee's vested stock options to purchase Common Stock
shall expire three months after the date Employee notifies the Company of
Employee's resignation.
(d) In the event that Employee is terminated by the Company
for Cause, (i) Employee shall be entitled only to Employee's annual base salary
for the period of time Employee worked during the applicable year, (ii) at any
time before the first anniversary of the IPO, Employee agrees to forfeit all
vested stock options and unvested stock options to purchase Common Stock and
(iii) at any time after the first anniversary of the IPO, (A) Employee's
unvested stock options to purchase Common Stock shall expire on the date of
termination and (B) Employee's vested stock options to purchase Common Stock
shall expire three months after the date of termination.
3
<PAGE> 4
5. Non-Compete; Non-Disclosure; Non-Solicitation; Inventions.
(a) For a period of six months (the "Restricted Period") from
the date on which your employment with the Company terminates for any reason
("Termination"), Employee will not, anywhere, directly or indirectly, own,
manage, operate, control, be employed by, participate in, provide consulting
services to, or be connected in any manner with the ownership, management,
operation or control of any entity (collectively, "Involved") which is engaged
in the Internet travel business, except that Employee may own, for investment
purposes only, up to 1% of the capital stock or indebtedness of any company
whose capital stock is publicly traded. An entity shall not be considered
substantially engaged in the Internet travel business if less than 5% of its
gross sales are derived from Internet travel revenues. However, even if the
entity does have less than 5% of its gross sales derived from Internet travel
revenues, Employee shall not be directly Involved in the development or growth
of such entity's Internet travel business during the applicable period. In the
event that Termination was due to the resignation by Employee, Employee further
agrees that Employer shall have the option (the "Extension Option") to extend
the Restricted Period for an additional six month period (the "Additional
Restricted Period"). In the event that Employer elects to exercise the Extension
Option, Employer shall pay to Employee during the period commencing on the first
day of the Additional Restricted Period and ending on the last day of the
Additional Restricted Period, on a monthly basis, an amount equal to one-twelve
(1/12th) of Employee's Base Salary.
(b) For a period of 12 months from Termination, Employee
agrees not to contact or solicit any person known by Employee to be an employee
of the Company or any of its affiliates or to have been employed by the Company
or any of its affiliates within the prior 90 days for the purpose of inducing
such employees to leave such employ.
(c) During the term of this Agreement and at all times
thereafter, Employee shall hold in a fiduciary capacity for the benefit of the
Company and its affiliates all secret or confidential information, knowledge or
data relating directly to the business of the Company or its affiliates, and
their respective businesses, including but not limited to trade secrets, (i)
obtained by Employee during Employee's employment by the Company and (ii) not
otherwise in the public knowledge. Employee shall not, without prior written
consent of the Company, except to the extent compelled pursuant to the order of
a court or other body having jurisdiction over such matter or based upon the
advice of counsel communicate or divulge any such information, knowledge or data
to anyone other than the Company and those designated by the Company; provided,
however, that Employee will assist the Company, at the Company's expense, in
obtaining a protective order, other appropriate remedy or other reliable
assurance that confidential treatment will be accorded such information
disclosed pursuant to the terms of this Agreement.
(d) All processes, technologies and inventions (collectively,
"Inventions"), including new contributions, improvements, ideas, discoveries,
trademarks and trade names, conceived, developed, invented, made or found by
Employee, alone or with others, during the period of Employee's employment by
the Company, whether or not patentable and whether or not conceived,
4
<PAGE> 5
developed, invented, made or found on the Company's time or with the use of the
Company's facilities or materials, shall be the property of the Company and
shall be promptly and fully disclosed by Employee to the Company. Employee shall
perform all necessary acts (including, without limitation, executing and
delivering any confirmatory assignments, documents or instruments requested by
the Company) to vest title to any such Invention in the Company and to enable
the Company, at its expense, to secure and maintain domestic and/or foreign
patents or any other rights for such Inventions.
(e) Employee is scheduled to receive stock options under this
agreement which will benefit Employee based upon the performance of the
Company's business. Employee represents to the Company that the enforcement of
the restrictions contained in this section would not be unduly burdensome to
Employee. Employee agrees that the remedy at law for any breach by Employee of
the provisions of this section may be inadequate and that the Company shall be
entitled to injunctive relief. This section constitutes an independent and
separable covenant that shall be enforceable notwithstanding any right or remedy
that the Company may have under any other provision of this Agreement or
otherwise.
6. Miscellaneous.
(a) This agreement constitutes the entire agreement between
the parties with respect to the subject matter hereof and supersedes all
previous written, and all previous or contemporaneous oral, negotiations,
understandings, arrangements, and agreements.
(b) The headings in this Agreement are for convenience of
reference only and are not part of the substance of this Agreement.
(c) This Agreement and all of the provisions hereof shall
inure to the benefit of and be binding upon the legal representatives, heirs,
distributees, successors (whether by merger, operation of law or otherwise) and
assigns of the parties hereto; provided, however, that Employee may not delegate
any of Employee's duties hereunder, and may not assign any of Employee's rights
hereunder, without the prior written consent of the Company.
(d) This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
(e) If any section, paragraph, term or provision of this
Agreement shall be held or determined to be unenforceable, the balance of this
Agreement shall nevertheless continue in full force and effect unaffected by
such holding or determination. In addition, in any such event, the parties agree
that it is their intention and agreement that any such section, paragraph, term
or provision which is held or determined to be unenforceable, as written, shall
nonetheless be in force and binding to the fullest extent permitted by law as
though such section, paragraph, term or provision had been written in such a
manner and to such an extent as to be enforceable under the
5
<PAGE> 6
circumstances.
(f) This Agreement will be interpreted and the rights of the
parties determined in accordance with the laws of the United States applicable
thereto and the internal laws of the State of New York applicable to an
agreement executed, delivered and performed therein without giving effect to the
choice-of-law rules thereof or any other principle that could require the
application of the substantive law of any other jurisdiction.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
GLOBAL TRAVEL MARKETING SERVICES, INC.
By: __________________________________
Gail Golden
President
________________________________
Vincent Martinelli
SS# _______________
7
<PAGE> 1
Exhibit 10.11
OPTION AGREEMENT
Amended and Restated Option Agreement dated as of May 26, 1998, between
Gail Golden Exhibit 10.11 ("Optionee") and Global Discount Travel Services LLC
(the "Company").
WHEREAS, Optionee executed an option agreement effective May 26, 1998
(the "Original Agreement"), setting forth the terms upon which Optionee may
acquire equity interests in the Company (the "Original Agreement"); and
WHEREAS, the parties hereto wish to amend and restate the Original
Agreement to clarify certain terms thereof.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
1. Grant of Option.
(a) Optionee is granted an option to purchase a membership
interest in the Company entitling Optionee to a two percent (2.0%) interest in
the profits and distributions of the Company for a total cash price of
$4,000,000. Such option shall vest on May 26, 2004, provided that Optionee
remains employed with the Company through such date, and such option may be
exercised by Optionee for a period of ninety (90) days following such vesting
date. In the event of Optionee's termination of employment for any reason
(including, without limitation, involuntary termination by the Company,
resignation by the Optionee or death) prior to an IPO (as defined below) and
prior to May 26, 2004, such option to purchase a membership interest in the
Company shall terminate and be of no further effect.
(b) If the Company (or an entity which owns substantially all
of the assets of or membership interests in the Company) completes an initial
public offering (the "IPO") of common stock ("Common Stock") during Optionee's
employment with the Company, any outstanding option to purchase a membership
interest in the Company shall be converted into and be deemed to constitute a
non-qualified stock option to purchase 788,665 shares of Common Stock for a cash
exercise price of $5.0719 per share (with the number of shares and exercise
price being subject to equitable adjustment in the event of a stock split, stock
dividend, recapitalization or other similar change in capitalization affecting
the Common Stock). Optionee and the Company acknowledge and agree that the
foregoing number of shares of Common Stock subject to such option and exercise
price are calculated based upon an assumed capitalization of 39,433,263 shares
of Common Stock outstanding upon completion of the IPO, which includes shares
issuable upon exercise of the underwriters' over-allotment option and options
issued to employees as of the IPO date.
<PAGE> 2
(c) Stock options to purchase shares of Common Stock shall
vest in equal semi-annual installments over a period of three years, with the
first installment vesting on the six-month anniversary of the IPO date. Vested
stock options may be exercised starting on the six-month anniversary of the IPO
and ending five years from the date of the IPO.
(d) If, following an IPO, the Company (i) ceases operation,
(ii) consummates a "going private" transaction, (iii) is sold to a private
company or (iv) is sold to a public company, any unvested options to purchase
Common Stock shall become vested immediately prior to the effective date of any
such transaction. Upon any such transaction, Optionee shall receive for all
outstanding options to purchase Common Stock such consideration per share as
shareholders of Common Stock are entitled to receive pursuant to such
transaction unless, in the case of a sale to a public company, provisions are
made in the transaction for the assumption of the outstanding options or the
substitution of the outstanding options for options of a publicly-traded
successor corporation or a publicly-traded parent thereof (with appropriate
adjustments as to the number and kind of shares and exercise price as to prevent
dilution or enlargement of rights).
(e) Stock options to purchase shares of Common Stock may be
exercised through the use of a broker-dealer sale and remittance procedure
pursuant to which Optionee (i) shall provide written instructions to a
Company-designated brokerage firm to effect the immediate sale of some or all of
the purchased shares and remit to the Company, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares and (ii) shall provide written
directives to the Company to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale transaction.
2. Termination.
(a) In the event that Optionee's employment is terminated
other than (i) by reason of Optionee's resignation or death or (ii) by the
Company for "Cause", (A) Optionee's unvested stock options to purchase Common
Stock shall become immediately vested, and (B) all vested stock options to
purchase Common Stock shall be exercisable for 12 months after termination of
employment. For purposes of this Agreement, "Cause" is defined as Optionee's (1)
willful misconduct, (2) gross neglect of Optionee's obligation to the business
of the Company, (3) Optionee's conviction of a crime involving moral turpitude
or dishonesty or (4) Optionee's disability that prevents him from performing the
essential functions of Optionee's job for in excess of six (6) months.
(b) In the event that Optionee dies, (i) Optionee's vested
stock options to purchase Common Stock shall be exercisable for 12 months after
death and (ii) all unvested stock options to purchase Common Stock shall expire
on the date of death.
(c) In the event that Optionee resigns, (i) at any time before
the first anniversary
2
<PAGE> 3
of the IPO, Optionee agrees to forfeit all vested stock options and unvested
stock options to purchase Common Stock and (ii) at any time after the first
anniversary of the IPO, (A) Optionee's unvested stock options to purchase Common
Stock shall expire on the date Optionee notifies the Company of Optionee's
resignation and (B) Optionee's vested stock options to purchase Common Stock
shall expire three months after the date Optionee notifies the Company of
Optionee's resignation.
(d) In the event that Optionee is terminated by the Company
for Cause, (i) at any time before the first anniversary of the IPO, Optionee
agrees to forfeit all vested stock options and unvested stock options to
purchase Common Stock and (ii) at any time after the first anniversary of the
IPO, (A) Optionee's unvested stock options to purchase Common Stock shall expire
on the date of termination and (B) Optionee's vested stock options to purchase
Common Stock shall expire three months after the date of termination.
3. Miscellaneous.
(a) This agreement constitutes the entire agreement between
the parties with respect to the subject matter hereof and supersedes all
previous written, and all previous or contemporaneous oral, negotiations,
understandings, arrangements, and agreements.
(b) The headings in this Agreement are for convenience of
reference only and are not part of the substance of this Agreement.
(c) This Agreement and all of the provisions hereof shall
inure to the benefit of and be binding upon the legal representatives, heirs,
distributees, successors and assigns of the parties hereto; provided, however,
that Optionee may not delegate any of Optionee's duties hereunder, and may not
assign any of Optionee's rights hereunder, without the prior written consent of
the Company.
(d) This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
(e) If any section, paragraph, term or provision of this
Agreement shall be held or determined to be unenforceable, the balance of this
Agreement shall nevertheless continue in full force and effect unaffected by
such holding or determination. In addition, in any such event, the parties agree
that it is their intention and agreement that any such section, paragraph, term
or provision which is held or determined to be unenforceable, as written, shall
nonetheless be in force and binding to the fullest extent permitted by law as
though such section, paragraph, term or provision had been written in such a
manner and to such an extent as to be enforceable under the circumstances.
(f) This Agreement will be interpreted and the rights of the
parties determined in accordance with the laws of the United States applicable
thereto and the internal laws of the State
3
<PAGE> 4
of New York applicable to an agreement executed, delivered and performed therein
without giving effect to the choice-of-law rules thereof or any other principle
that could require the application of the substantive law of any other
jurisdiction.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
GLOBAL DISCOUNT TRAVEL SERVICES LLC
By: Global Partner, Inc., Manager
By: ______________________________
Carl C. Icahn
President
________________________________
Gail Golden
SS# _______________
5
<PAGE> 1
Exhibit 10.12
OPTION AGREEMENT
Amended and Restated Option Agreement dated as of May 26, 1998, between
Russell Glass Exhibit 10.12 ("Optionee") and Global Discount Travel Services LLC
(the "Company").
WHEREAS, Optionee executed an option agreement effective May 26, 1998
(the "Original Agreement"), setting forth the terms upon which Optionee may
acquire equity interests in the Company (the "Original Agreement"); and
WHEREAS, the parties hereto wish to amend and restate the Original
Agreement to clarify certain terms thereof.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
1. Grant of Option.
(a) Optionee is granted an option to purchase a membership
interest in the Company entitling Optionee to a four tenths of one percent
(0.4%) interest in the profits and distributions of the Company for a total cash
price of $800,000. Such option shall vest on May 26, 2004, provided that
Optionee remains employed with the Company through such date, and such option
may be exercised by Optionee for a period of ninety (90) days following such
vesting date. In the event of Optionee's termination of employment for any
reason (including, without limitation, involuntary termination by the Company,
resignation by the Optionee or death) prior to an IPO (as defined below) and
prior to May 26, 2004, such option to purchase a membership interest in the
Company shall terminate and be of no further effect.
(b) If the Company (or an entity which owns substantially all
of the assets of or membership interests in the Company) completes an initial
public offering (the "IPO") of common stock ("Common Stock") during Optionee's
employment with the Company, any outstanding option to purchase a membership
interest in the Company shall be converted into and be deemed to constitute a
non-qualified stock option to purchase 157,733 shares of Common Stock for a cash
exercise price of $5.0719 per share (with the number of shares and exercise
price being subject to equitable adjustment in the event of a stock split, stock
dividend, recapitalization or other similar change in capitalization affecting
the Common Stock). Optionee and the Company acknowledge and agree that the
foregoing number of shares of Common Stock subject to such option and exercise
price are calculated based upon an assumed capitalization of 39,433,263 shares
of Common Stock outstanding upon completion of the IPO, which includes shares
issuable upon exercise of the underwriters' over-allotment option and options
issued to employees as of the IPO date.
<PAGE> 2
(c) Stock options to purchase shares of Common Stock shall
vest in equal semi-annual installments over a period of four years, with the
first installment vesting on the six-month anniversary of the IPO date. Vested
stock options may be exercised starting on the six-month anniversary of the IPO
and ending five years from the date of the IPO.
(d) If, following an IPO, the Company (i) ceases operation,
(ii) consummates a "going private" transaction, (iii) is sold to a private
company or (iv) is sold to a public company, any unvested options to purchase
Common Stock shall become vested immediately prior to the effective date of any
such transaction. Upon any such transaction, Optionee shall receive for all
outstanding options to purchase Common Stock such consideration per share as
shareholders of Common Stock are entitled to receive pursuant to such
transaction unless, in the case of a sale to a public company, provisions are
made in the transaction for the assumption of the outstanding options or the
substitution of the outstanding options for options of a publicly-traded
successor corporation or a publicly-traded parent thereof (with appropriate
adjustments as to the number and kind of shares and exercise price as to prevent
dilution or enlargement of rights).
(e) Stock options to purchase shares of Common Stock may be
exercised through the use of a broker-dealer sale and remittance procedure
pursuant to which Optionee (i) shall provide written instructions to a
Company-designated brokerage firm to effect the immediate sale of some or all of
the purchased shares and remit to the Company, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares and (ii) shall provide written
directives to the Company to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale transaction.
2. Termination.
(a) In the event that Optionee's employment is terminated
other than (i) by reason of Optionee's resignation or death or (ii) by the
Company for "Cause", (A) Optionee's unvested stock options to purchase Common
Stock shall become immediately vested, and (B) all vested stock options to
purchase Common Stock shall be exercisable for 12 months after termination of
employment. For purposes of this Agreement, "Cause" is defined as Optionee's (1)
willful misconduct, (2) gross neglect of Optionee's obligation to the business
of the Company, (3) Optionee's conviction of a crime involving moral turpitude
or dishonesty or (4) Optionee's disability that prevents him from performing the
essential functions of Optionee's job for in excess of six (6) months.
(b) In the event that Optionee dies, (i) Optionee's vested
stock options to purchase Common Stock shall be exercisable for 12 months after
death and (ii) all unvested stock options to purchase Common Stock shall expire
on the date of death.
(c) In the event that Optionee resigns, (i) at any time before
the first anniversary
2
<PAGE> 3
of the IPO, Optionee agrees to forfeit all vested stock options and unvested
stock options to purchase Common Stock and (ii) at any time after the first
anniversary of the IPO, (A) Optionee's unvested stock options to purchase Common
Stock shall expire on the date Optionee notifies the Company of Optionee's
resignation and (B) Optionee's vested stock options to purchase Common Stock
shall expire three months after the date Optionee notifies the Company of
Optionee's resignation.
(d) In the event that Optionee is terminated by the Company
for Cause, (i) at any time before the first anniversary of the IPO, Optionee
agrees to forfeit all vested stock options and unvested stock options to
purchase Common Stock and (ii) at any time after the first anniversary of the
IPO, (A) Optionee's unvested stock options to purchase Common Stock shall expire
on the date of termination and (B) Optionee's vested stock options to purchase
Common Stock shall expire three months after the date of termination.
3. Miscellaneous.
(a) This agreement constitutes the entire agreement between
the parties with respect to the subject matter hereof and supersedes all
previous written, and all previous or contemporaneous oral, negotiations,
understandings, arrangements, and agreements.
(b) The headings in this Agreement are for convenience of
reference only and are not part of the substance of this Agreement.
(c) This Agreement and all of the provisions hereof shall
inure to the benefit of and be binding upon the legal representatives, heirs,
distributees, successors and assigns of the parties hereto; provided, however,
that Optionee may not delegate any of Optionee's duties hereunder, and may not
assign any of Optionee's rights hereunder, without the prior written consent of
the Company.
(d) This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
(e) If any section, paragraph, term or provision of this
Agreement shall be held or determined to be unenforceable, the balance of this
Agreement shall nevertheless continue in full force and effect unaffected by
such holding or determination. In addition, in any such event, the parties agree
that it is their intention and agreement that any such section, paragraph, term
or provision which is held or determined to be unenforceable, as written, shall
nonetheless be in force and binding to the fullest extent permitted by law as
though such section, paragraph, term or provision had been written in such a
manner and to such an extent as to be enforceable under the circumstances.
(f) This Agreement will be interpreted and the rights of the
parties determined in accordance with the laws of the United States applicable
thereto and the internal laws of the State
3
<PAGE> 4
of New York applicable to an agreement executed, delivered and performed therein
without giving effect to the choice-of-law rules thereof or any other principle
that could require the application of the substantive law of any other
jurisdiction.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
GLOBAL DISCOUNT TRAVEL SERVICES LLC
By: Global Partner, Inc., Manager
By: ______________________________
Gail Golden
Vice President
______________________________
Russell Glass
SS# _______________
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Exhibit 10.14
SOFTWARE DEVELOPMENT AND LICENSE AGREEMENT
THIS SOFTWARE DEVELOPMENT AGREEMENT (the "Agreement") is made as of the
19th day of January, 1999 by and between AUTOMATED TRAVEL SYSTEMS, INC.
("ATSI"), a Delaware corporation having an office at 119 West 40th Street, 12th
Floor, New York, New York 10018, and 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 ("Global").
WHEREAS, ATSI is designing and developing a travel database booking
system (the "Booking Engine System") providing access to airline fare, routing,
rules, travel information and computer reservation systems necessary to create a
PNR and facilitating airline reservations;
WHEREAS, pursuant to a certain Booking Database License Agreement dated
the date hereof between ATSI and Global (the "License Agreement"), ATSI has
agreed to license to Global the Booking Engine System for use in connection with
Global's travel reservation business;
WHEREAS, Global desires to have ATSI develop for Global's use in
connection with Global's on-line ticket booking service a booking engine
software application to provide access to the Booking Engine System and to
permit users to make airline and other travel reservations over the World Wide
Web (such software system including the source code and all documentation
related thereto, as enhanced or modified from time to time, is referred to
herein as the "Web Site Front End System"); and
WHEREAS, Global will develop the integrated site navigation software to
be used to provide navigation consistency throughout the Web Site Front End
System (the "Global Modules").
NOW, THEREFORE, in consideration of the mutual promises, covenants,
undertakings and agreements set forth herein and in the License Agreement, the
receipt and sufficiency of which are hereby acknowledged, the parties mutually
agree as follows:
1. Development of the Web Site Front End System; Training; and
Support.
(a) Engagement. Global hereby engages ATSI, and ATSI hereby agrees to
be engaged by Global, (i) to develop the Web Site Front End System in accordance
with the specifications attached hereto as Exhibit A as amended from time to
time by the parties (the "Specifications"), (ii) to provide Global personnel or
its designees with reasonable support in the integration of the Web Site Front
End System into the Global Modules and
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(ii) to provide training and support with respect to the Web Site Front End
System as more specifically described in this Section 1 below (the development,
training and support services to be provided hereunder are collectively referred
to herein as the "Services"), it being acknowledged and agreed that ATSI shall
have no obligation to provide training or support services with respect to the
Global Modules. Global agrees to provide ATSI with all information reasonably
requested by ATSI as required to carry out ATSI's duties under this Agreement.
(b) Time Commitment. In connection with the development of the Web Site
Front End System and the training of Global personnel in the operation and
programming of the Web Site Front End System, unless this Agreement is sooner
terminated as hereafter provided, ATSI shall deliver the Web Site Front End
System on or before March 1, 1999 (the "Delivery Date").
(c) Subsequent Maintenance, Training and Support. For a period of 60
days after the Delivery Date, ATSI shall provide Global, without charge other
than payment of expenses as stated in Section 3(d) below, support and training
services as reasonably required by Global for the implementation of the Web Site
Front End System. An initial response to or acknowledgment of a request for
support shall be made by ATSI within four hours of receipt of the request.
(d) No Other Support. Except as expressly provided in this Agreement,
ATSI shall not be obligated under this Agreement to provide any other support or
assistance to Global or any third party.
2. License; Delivery; Acceptance; Testing.
(a) License. Upon the terms and subject to the conditions of this
Agreement, unless this Agreement is terminated in accordance with the terms
hereof, ATSI grants to Global a perpetual, non-exclusive, non-transferable,
royalty-free right and license (the "License") solely (i) to use the Web Site
Front End System on Global's servers where such servers are principally located
(the "Global Facility") in connection with Global's on-line travel booking
business, (ii) to upgrade, update, replace, revise, enhance, add t o or convert
the Web Site Front End System (the "System Enhancements") for the purposes
stated in (i) above, and (iii) to develop and test Global Modules (the foregoing
are referred to as the "Permitted Uses"). Global shall have no right to grant
sublicenses under, nor to transfer, the Web Site Front End System. Global shall
also have the right to maintain not more than one back-up copy of the Web Site
Front End System for: (i) non-productive, archival purposes and (ii) for use at
a facility other than the Global Facility in the event of an emergency that
renders inoperable the servers located in the Global Facility. In the event ATSI
shall develop modifications or enhancements to the Web Site Front End System
(the "Modifications"), and if the Modifications are not developed exclusively
for a third party, then ATSI shall make the Modifications available to Global
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on terms and conditions (including cost) not less favorable than the terms and
conditions which the Modifications are offered to other third parties.
(b) Delivery; Acceptance. The Web Site Front End System shall function
in accordance with the Specifications on or before the 15th day after the
Delivery Date. For all work product deliverables in connection with the
development of the Web Site Front End System, Global shall, within sixty (60)
days of receipt of ATSI's statement that the deliverable is complete, place the
deliverable in productive use and review it and accept it or notify ATSI in
writing of non-acceptance if the deliverable does not conform to the
Specifications, documenting in reasonable detail any and all material defects in
the deliverable. ATSI shall, upon receipt of such notice, use its reasonable
efforts to correct any such material failures and shall notify Global of its
completion of the correction. Global shall, after receipt of said notice, review
the corrected deliverable and report to ATSI. Global shall do so promptly using
diligent efforts, but in no event shall such process exceed twenty (20) days.
This cycle shall be repeated only as is reasonably necessary. A deliverable
shall be deemed accepted by Global on the earlier to occur of : (i) Global
notifies ATSI in writing of its acceptance, in which event the acceptance date
shall then be the date of such notice; or (ii) Global fails to notify ATSI in
writing of any defect in the deliverable within the 60-day period described
above, in which event the acceptance date shall be the last day of said period.
(c) Rights Respecting Source Code. As the deliverable under this
Agreement, ATSI shall deliver to Global the Web Site Front End System in source
code form, together with all technical documentation relating thereto. Global
may not (i) permit any third party access to the source code for the Web Site
Front End System, except as provided elsewhere herein or (ii) otherwise permit
any third parties to use the Web Site Front End System to create a derivative
work, except, in any case, consultants retained on a "work-for-hire" basis (who
have agreed in writing that all rights relating to the Web Site Front End System
belong to ATSI) and who are subject to confidentiality provisions no less
stringent than those set forth herein. Global shall not, and shall not permit,
any third party to use, reproduce, sublicense, distribute or dispose of the Web
Site Front End System, in whole or in part, except as expressly permitted under
the terms of this Agreement.
(d) Intellectual Property Notices. In order to protect ATSI's trade
secrets and copyrights in the Web Site Front End System, Global agrees to
reproduce and incorporate ATSI's trade secret or copyright notices in the Web
Site Front End System.
(e) Reservation of Rights.
(i) Nothing contained in this Agreement shall prohibit ATSI
from making, using, licensing, distributing, selling or granting any rights in
and to the Web Site Front End System, or any portion thereof or making
derivative works from the Web
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Site Front End System and granting any rights with respect thereto, except with
respect to those portions of the source code of the Web Site Front End System
which are specifically identified on Exhibit BC hereto, as such Exhibit shall be
amended from time to time upon the mutual agreement of Global and ATSI (such
specific portions of the source code are referred to as the "Global Property"),
and ATSI agrees it shall not permit any third party to use the Global Property.
Global shall have no rights in or to the Web Site Front End System (including
its source code and technical documentation) or to any product or service
offered by ATSI except as contemplated hereby or in other agreements between the
parties hereto. Global shall not market, distribute, provide or license, or
permit any third party to market, distribute, provide or license, the Web Site
Front End System for any uses other than as provided herein. The Board of
Directors of ATSI shall determine to whom in the leisure travel business a
license for the Web Site Front End System may be granted.
(ii) Subject to the underlying intellectual property rights of
ATSI in and to the Web Site Front End System, nothing contained in this
Agreement shall prohibit Global from making, using, licensing, distributing,
selling or granting any rights in and to the Global Property or the Global
Modules or any portion thereof or making derivative works from the Global
Property or the Global Modules and granting any rights with respect thereto,
which ATSI agrees it shall not permit any third party to use. ATSI shall have no
rights in or to the Global Property, the Global Modules, the System
Enhancements, or any product or service offered by Global except as contemplated
hereby or in other agreements between the parties hereto. ATSI shall not market,
distribute, provide or license, or permit any third party to market, distribute,
provide or license, the Global Property, the Global Modules or the System
Enhancements for any uses other than as provided herein.
3. Payments.
(a) License Fees. The fees set forth in the License Agreement shall
constitute full and complete payment for the services set forth herein.
(b) Expenses. Each party shall bear its expenses arising from the
performance of its obligations under and relating to this Agreement, including
(without limitation) expenses for facilities, employee salaries, work spaces,
utilities, license fees (subject to Section 5(d) below), clerical and
reproduction services and supplies. Notwithstanding the foregoing, Global shall
reimburse ATSI for its actual out-of-pocket expenses which are reasonable and
necessary under this Agreement incurred in connection with ATSI personnel's
travel to and from Global's places of business (including accommodations and
meals) within 45 days after receipt of an invoice therefor; provided, however,
that ATSI shall obtain prior approval from Global for expenditures in excess of
$100 per person per day. Travel arrangements and hotel accommodations shall be
arranged through Global.
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(c) Taxes. Global shall pay for, or reimburse ATSI for, all sales, use,
transfer or other taxes and all duties, whether international, national, state,
or local however designated, which are levied or imposed by reason of the
transactions contemplated hereby; excluding, however, taxes based upon ATSI's
revenue, income or profits.
4. Ownership of Intellectual Property and Confidentiality.
(a) Title to the Web Site Front End System. ATSI represents that it is
or will be the owner of all right, title and interest in and to the Web Site
Front End System, other than the Global Property, and has the right to grant the
License to, and will have the right to deliver the source code to, Global.
Global acknowledges and agrees that the Web Site Front End System contains and
will contain valuable trade secrets and/or proprietary and confidential
information of ATSI, and, except as provided in this Agreement, any right, title
and interest to the Web Site Front End System shall vest in ATSI, including any
patents, copyrights, trademarks, trade secrets, methods of processing, design
and structure of individual programs and their interaction and programming
techniques employed therein. The Web Site Front End System shall belong
exclusively to ATSI, with ATSI having the right to obtain and to hold in its own
name patent registrations, copyright registrations, or such other protections as
may be appointed to the subject matter and any extensions or renewals thereof.
Global agrees to give ATSI reasonable assistance, at ATSI's sole cost and
expense, required to perfect and protect the rights defined in this Section
4(a). Global agrees that it will execute and deliver all such further papers as
may be necessary, including original applications and applications for renewal,
extension or reissue of patents or copyrights in any and all countries, to vest
title to the Web Site Front End System to ATSI, its successors, assigns or
nominees. Except as provided in Section 4(b) hereof, nothing in this Agreement
shall be construed to vest in Global any proprietary interest in the Web Site
Front End System, and any enhancements to the Web Site Front End System
developed by or for ATSI.
(b) Title to the Global Property, System Enhancements and Global
Modules. Global represents and ATSI hereby acknowledges that Global is or will
be the owner of all right, title and interest in and to the Global Modules, the
System Enhancements, and the Global Property, and any material additional
functionality to the Global Modules, the System Enhancements, and the Global
Property developed by Global, including, without limitation, patents,
copyrights, trademarks and trade secrets. ATSI acknowledges and agrees that,
subject to the underlying intellectual property rights of ATSI to the Web Site
Front End System, the Global Modules, the System Enhancements and Global
Property contain and will contain valuable trade secrets and/or proprietary and
confidential information of Global, and, except as provided in this Agreement,
any right, title and interest to the Global Property, the System Enhancements,
and Global Modules shall vest in Global, including any patents, copyrights,
trademarks, trade secrets, methods of processing, design and structure of
individual programs and their interaction and
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programming techniques employed therein. The Global Modules, the System
Enhancements, and the Global Property shall belong exclusively to Global, with
Global having the right to obtain and to hold in its own name patent
registrations, copyright registrations, or such other protections as may be
appointed to the subject matter and any extensions or renewals thereof. ATSI
agrees to give Global reasonable assistance, at Global's sole cost and expense,
required to perfect and protect the rights defined in this Section 4(b). ATSI
agrees that it will execute and deliver all such further papers as may be
necessary, including original applications and applications for renewal,
extension or reissue of patents or copyrights in any and all countries, to vest
title to the Global Modules, the System Enhancements, and Global Property to
Global, its successors, assigns or nominees.
(c) Confidentiality. ATSI and Global acknowledge that in the course of
performing their responsibilities under this Agreement, they each may be exposed
to or acquire information that is proprietary to or confidential to the other.
ATSI and Global agree to hold such information in strict confidence and not to
copy, reproduce, sell, assign, license, market, transfer, give or otherwise
disclose such information to third parties or to use such information for any
purposes whatsoever, without the express written permission of the other party,
other than for the performance of their respective obligations hereunder, and to
advise each of their employees, agents and representatives of their obligations
to keep such information confidential. All such confidential and proprietary
information, data, code, finances, business plans and computer software are
hereinafter collectively referred to as "Confidential Information." ATSI and
Global shall use their reasonable efforts to assist each other in identifying
and preventing any unauthorized use or disclosure of any Confidential
Information. Without limitation of the foregoing, ATSI and Global shall use
reasonable efforts to advise each other immediately in the event that either
learns or has reason to believe that any person who has had access to
Confidential Information has violated or intends to violate the terms of this
Agreement, and will reasonably cooperate in seeking injunctive relief against
any such person.
(d) Non-Confidential Information. Notwithstanding the obligations set
forth in Section 4(c), the confidentiality obligations of ATSI and Global shall
not extend to information that:
(i) is, as of the time of its disclosure, or thereafter,
becomes part of the public domain through a source other than the receiving
party;
(ii) was known to the receiving party as of the time of its
disclosure;
(iii) is independently developed by the receiving party;
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(iv) is subsequently learned from a third party whose
disclosure of the information does not constitute a direct or indirect breach by
that third party of any confidentiality obligation to the providing party or to
ATSI or Global; or
(v) is required to be disclosed pursuant to court order or
government authority, including as part of any filing with the Securities and
Exchange Commission, whereupon the receiving party shall provide notice to the
other party prior to such disclosure so as to allow sufficient time to oppose
such order or authority's request.
5. WARRANTIES AND DISCLAIMERS.
(a) ATSI represents and Warrants to Global as follows:
(i) Organization. ATSI is a corporation duly organized,
validly existing and in good standing under the laws of Delaware.
(ii) Authorization. This Agreement constitutes ATSI's valid
and legally binding agreement enforceable against it in accordance with the
terms hereof.
(iii) No Violation. Execution and delivery of this Agreement
and the performance of its obligations hereunder are not in violation of, and do
not conflict with or constitute a default under, any of the terms and provisions
of any agreement to which it is expressly a party, indenture or instrument to
which it is bound.
(iv) No Infringement.
(A) There are no claims, disputes, actions, suits or
proceedings, including, without limitation, suits for patent infringement,
pending or, to the knowledge of ATSI, threatened against or affecting the Web
Site Front End System, or the use thereof by Global. Neither the Web Site Front
End System, nor the use thereof by Global as delivered to Global (and excluding
any claims based on use in combination with any other products), does or will
infringe or conflict with any United States patents, United States patent
applications, know-how, processes, trade secrets, techniques, procedures or
other United States proprietary property rights or intellectual property, of or
held by, any Person, nor has any claim (whether or not embodied in an action,
past or present) of such infringement been threatened or asserted, nor is such a
claim pending, against ATSI (or, insofar as ATSI is aware, any entity from which
ATSI has obtained such rights).
(B) The Web Site Front End System shall not violate the United
States intellectual property rights of any third party.
(v) Web Site Front End System. ATSI agrees to develop the Web
Site Front End System in accordance with the Specifications. Global agrees to
cooperate with
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ATSI and to promptly provide ATSI with all information reasonably requested by
ATSI which is required to carry out ATSI's duties under this Agreement. The Web
Site Front End System shall function in accordance with the Specifications for
the later to occur of (i) the period of 60 days after acceptance of the Web Site
Front End System, or (ii) until such time as Global, directly or through its
agents, makes modifications to the Web Site Front End System.
(vi) Year 2000 Compliance. The Web Site Front End System will
be (A) 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 (provided that
this is not a warranty that the system will be virus free after it is used or
combined with other software) and (B) shall not experience any abnormality,
malfunction, or degradation in its operation as a result of changing date values
in connection with moving from the calendar year 1999 to the calendar year 2000
and beyond that arise from an internal systems failure ("Year 2000 Compliant").
Global acknowledges that the Web Site Front End System will interact with third
party software, hardware, systems, databases and computer networks that may
experience abnormality, malfunction or degradation in their operation as a
result of changing date values in connection with moving from calendar year 1999
to calendar year 2000 and beyond, which may in turn cause the Web Site Front End
System to experience abnormality, malfunction or degradation in its operation.
Global agrees that ATSI is in no way responsible for such abnormality,
malfunction or degradation in the operation of the Web Site Front End System
caused by third party software, hardware, systems, databases and computer
networks. ATSI shall take reasonable steps to insure that any third party
software that is integrated into the Web Site Front End System is Year 2000
Compliant.
(b) Each party agrees to indemnify and hold the other party harmless
against any suit, claim, damage, and expense (including reasonable attorneys'
fees) by reason of (i) its negligence or willful misconduct in the course of the
performance of this Agreement or (ii) a breach of its warranties and obligations
under this Agreement (except with respect to section 5(a)(vi), Year 2000
Compliance, with respect to which correction by ATSI of any defect in the Web
Site Front End System in violation of that section shall be the exclusive remedy
of Global).
(c) No Warranties. EXCEPT AS PROVIDED IN THIS AGREEMENT, THE WEB SITE
FRONT END SYSTEM AND THE SYSTEM ENHANCEMENTS ARE LICENSED "AS IS" AND ATSI MAKES
NO REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE WEB SITE FRONT END SYSTEM,
EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE OR THAT THE WEB SITE FRONT
END SYSTEM OR THE SYSTEM ENHANCEMENTS AS DEVELOPED AND DESIGNED WILL MEET ANY
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REQUIREMENTS OR WILL PERFORM ERROR FREE OR IN CONFORMANCE WITH THE NEEDS OR
REQUIREMENTS OF GLOBAL.
(d) Third Party Software. ATSI and Global understand that the Web Site
Front End System, the System Enhancements, the Global Modules and the Global
Property may include certain third party software. It is acknowledged by the
party utilizing such third party software that such party shall be solely
responsible for obtaining licenses to such third party software if such software
is not already in such parties' possession, including the right to incorporate
such software into the Web Site Front End System or the Global Modules. NEITHER
ATSI NOR GLOBAL MAKES ANY WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, AS
TO THE QUALITY, CAPABILITIES, OPERATIONS, PERFORMANCE OR SUITABILITY OF THIRD
PARTY SOFTWARE, INCLUDING THE ABILITY TO INTEGRATE WITH MODIFICATIONS TO THE WEB
SITE FRONT END SYSTEM, THE SYSTEM ENHANCEMENTS, THE GLOBAL PROPERTY OR THE
GLOBAL MODULES, AS THE CASE MAY BE, OR OF NEW RELEASES TO INTEGRATE WITH THE WEB
SITE FRONT END SYSTEM, THE SYSTEM ENHANCEMENTS, THE GLOBAL PROPERTY OR THE
GLOBAL MODULES, AS THE CASE MAY BE. The quality, capabilities, operations,
performance and suitability of such third party software lies solely with Global
or ATSI, as the case may be, and the vendor or supplier of such third party
software.
(e) Disclaimer of Warranty. THE WARRANTIES SET FORTH HEREIN ARE LIMITED
WARRANTIES AND ARE IN LIEU OF ALL OTHER WARRANTIES EXPRESS OR IMPLIED. ATSI DOES
NOT WARRANT THAT THE SOFTWARE LICENSED HEREBY WILL MEET SUCH PARTY'S FUTURE OR
UNDISCLOSED REQUIREMENTS.
6. LIMITATION OF LIABILITY.
(a) EXCEPT FOR CLAIMS FOR MISAPPROPRIATION BY ONE PARTY OF THE
INTELLECTUAL PROPERTY OR CONFIDENTIAL INFORMATION OF THE OTHER PARTY, IN NO
EVENT SHALL EITHER GLOBAL'S OR ATSI'S AGGREGATE LIABILITY ARISING OUT OF OR
RELATING TO THIS AGREEMENT FOR ANY REASON AND UPON ANY CAUSE OF ACTION
WHATSOEVER EXCEED THE PAYMENTS MADE UNDER THE LICENSE AGREEMENT. OTHER THAN THE
INDEMNIFICATION OBLIGATIONS SET FORTH IN THIS AGREEMENT, NEITHER ATSI NOR GLOBAL
SHALL HAVE ANY LIABILITY FOR DAMAGES ARISING OUT OF OR IN CONNECTION WITH THE
DELIVERY, USE, OR PERFORMANCE OF THE WEB SITE FRONT END SYSTEM, THE SYSTEM
ENHANCEMENTS, THE GLOBAL PROPERTY OR THE GLOBAL MODULES, WHETHER IN WARRANTY,
CONTRACT, NEGLIGENCE OR STRICT LIABILITY IN TORT.
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(b) NEITHER ATSI NOR GLOBAL SHALL HAVE ANY LIABILITY WITH RESPECT TO
ITS OBLIGATIONS UNDER THIS AGREEMENT OR OTHERWISE FOR SPECIAL, CONSEQUENTIAL,
EXEMPLARY, OR INCIDENTAL DAMAGES, INCLUDING DAMAGES AS A RESULT OF LOST PROFITS
OR BUSINESS INTERRUPTION, EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
(c) BOTH ATSI AND GLOBAL AGREE THAT THE OTHER'S AFFILIATES,
REPRESENTATIVES, OFFICERS, DIRECTORS AND ADVISORS SHALL NOT BE LIABLE TO THE
OTHER PARTY UNDER ANY THEORY OF LIABILITY OR ANY FORM OF ACTION.
7. THIRD PARTY INTELLECTUAL PROPERTY RIGHTS.
(a) ATSI Indemnification. Subject to the limitations contained in
Section 6 hereof, ATSI shall indemnify, defend and hold Global harmless from any
liabilities, damages, losses, costs and expenses (including reasonable
attorneys' fees) in the event that Global is subject to a claim that the Web
Site Front End System, as delivered by ATSI, infringes the United States
intellectual property rights of any third party or is enjoined, for any reason,
from using the Web Site Front End System as a result of such claim.
Notwithstanding the foregoing, if Global cannot use the Web Site Front End
System as set out in this Agreement without infringing the patents or
proprietary rights of a third party, ATSI shall have the right to determine the
most effective way of proceeding to obtain such rights, which may include ATSI
negotiating with the third party for a license under the third party's patents,
copyrights, and proprietary rights, subject to reasonable license terms.
Global acknowledges and agrees that the foregoing is the sole
obligation of ATSI in the event of any infringement of any intellectual property
rights of any third party by the Web Site Front End System or any part thereof;
provided, that Global shall give prompt notice, cooperation and assistance to
ATSI relative to any such claim and provided that ATSI shall have the option to
undertake and conduct the defense of any such claim or suit.
If requested by ATSI, Global shall make any reasonable modification of
its use of the Web Site Front End System and shall take such other reasonable
action as ATSI reasonably may request at ATSI's expense in order to avoid suit
for an alleged infringement, to reduce the potential adverse effect of any such
claim, or to settle any alleged infringement claim by making such practice
non-infringing, provided that the functionality of the Web Site Front End System
shall remain substantially the same as before the modifications.
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Except as provided in Section 7(b) below, ATSI shall indemnify, defend
and hold Global harmless from any liabilities, damages, losses, claims, liens,
costs and expenses (including reasonable attorneys' fees) incurred by Global as
a result of any claims or proceedings against Global arising out of or based
upon ATSI's violation of any applicable export provision.
(b) Global Indemnification.
(i) Except as provided in Section 7(a) above, Global shall
indemnify, defend and hold ATSI harmless from any liabilities, damages, losses,
claims, liens, costs and expenses (including reasonable attorneys' fees)
incurred by ATSI as a result of any claims or proceedings against ATSI arising
out of or based upon (i) a claim that the Global Modules, the System
Enhancements or the Global Property infringe the intellectual property rights of
any third party, (ii) the use of the Global Modules, the Global Property or f
the System Enhancements by Global, (iii) the combination, operation or use of
the Global Modules, the System Enhancements or the Global Property with any
hardware, programs or data not supplied and/or recommended for use by ATSI if
such claims or proceedings would have been avoided but for such combination,
operation or use, or (iv) Global's violation of any applicable export provision
or other failure to comply with the provisions hereof.
(ii) Global shall use its reasonable efforts to assist ATSI in
identifying and preventing any unauthorized use, disclosure, or infringement of
the Web Site Front End System or the System Enhancements. Without limitation of
the foregoing, Global shall advise ATSI immediately in the event that it learns
or has reason to believe that any person who has had access to the Web Site
Front End System or the System Enhancements has violated or intends to violate
the terms of this Agreement, and will cooperate in seeking injunctive relief
against any such person.
8. Termination.
(a) Termination. ATSI or Global may terminate this Agreement upon
thirty (30) days (the "Notice Period") written notice of a material breach of
the terms of this Agreement by the other party and failure to cure such breach
within the Notice Period or in the event either party (i) terminates or suspends
its business; (ii) becomes subject to any bankruptcy or insolvency proceeding
under Federal or state statute; or (iii) becomes insolvent or becomes subject to
direct control by a trustee, receiver or similar authority. This Agreement shall
also automatically terminate upon the termination of the License Agreement, such
termination to be effective on the date of termination of the License Agreement.
(b) Termination Obligations. Upon termination of this Agreement for any
reason by either party other than as a result of a material breach of this
Agreement by
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ATSI, Global shall immediately cease use of the Web Site Front End System and
the System Enhancements and shall, within fifteen (15) days of such termination,
return to ATSI all materials furnished to Global by ATSI, including all
documentation pertaining to the Web Site Front End System. Global shall certify
in writing to ATSI, promptly at its request, that all use of the Web Site Front
End System or any portion thereof has been permanently discontinued. Upon
termination of this Agreement hereunder, ATSI's obligation to provide
maintenance or other services hereunder shall cease. In the event of termination
by Global due to an uncured material breach by ATSI, the provisions of section
2(a) shall survive to permit continued use of the Web Site Front End System by
Global.
(c) Termination By Global or Breach By ATSI. In the event (i) Global
terminates this Agreement pursuant to section 8(a) above prior to the Delivery
Date under this Agreement, (ii) ATSI fails to deliver the Web Site Front End
System by the Delivery Date, or (iii) the Web Site Front End System fails to
achieve acceptance in accordance with this Agreement within 120 days after the
Delivery Date then Global shall have the right to require ATSI to deliver to
Global one copy of all notebooks, data, information and other material acquired
or compiled by ATSI in connection with the Web Site Front End System, including
source code, object code and technical documentation, in order for Global to
complete the Web Site Front End System in accordance with the Specifications or
otherwise continue to maintain, modify and enhance the Web Site Front End System
in accordance with the terms hereof. In the case of (i), (ii) or (iii) above
(whether or not Global has exercised its right under the previous sentence),
ATSI shall be obligated to deliver to Global the Web Site Front End System once
it is completed by ATSI. ATSI shall not market, offer to sell, sell or license
the Web Site Front End System to any third party until ATSI has delivered the
Web Site Front End System to Global and Global has accepted it. Any portion of
the Web Site Front End developed by Global pursuant to the provisions of this
section 8(c) shall belong to Global and be part of the Global Modules. Any part
of the Web Site Front End System which was developed and delivered to Global by
ATSI shall remain the property of ATSI and shall be subject to the license
contained in section 2(a) above.
9. Force Majeure. Neither party shall be liable or deemed to be in
default for any delay or failure in performance under this Agreement for
interruption of service resulting directly or indirectly from acts of God, or
any causes beyond the reasonable control of such party.
10. Non-Solicitation. Global and ATSI agree that neither they nor their
subsidiaries or other affiliated companies shall directly or indirectly solicit
for employment, employ or otherwise retain staff of the other party who they
have met as a result of the performance of work under this Agreement during the
term of this Agreement, nor for a period of two (2) years after termination of
this Agreement unless written consent is given by appropriate parties to this
Agreement.
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<PAGE> 13
11. Approvals and Consents. Where agreement, approval, acceptance, or
consent by either party is required by any provision of this Agreement, such
action shall not be unreasonably delayed or withheld.
12. Right to Supervise. ATSI has the sole right and obligation to
supervise, manage, contract, direct, procure, perform, or cause to be performed
all work to be performed by ATSI hereunder unless otherwise provided herein.
13. Independent Contractors. It is expressly agreed that ATSI and
Global are acting hereunder as an independent contractors and under no
circumstances shall any of the employees of one party be deemed the employees of
the other for any purpose. This Agreement shall not be construed as authority
for either party to act for the other party in any agency or other capacity, or
to make commitments of any kind for the account of or on the behalf of the other
except to the extent and for the purposes provided for herein.
14. Notice. Any notice required to be given by either party to the
other shall be deemed given upon receipt if in writing and actually delivered by
overnight courier, or facsimile transmission or deposited in the United States
mail in registered or certified form with return receipt requested, postage
paid, addressed to the notified party at the address set forth above with a copy
to ATSI's counsel, Piper & Marbury L.L.P., 1251 Avenue of the Americas, New
York, New York 10020, attn: Paul J. Pollock, Esq., telecopy: 212-835-6001; and
with a copy to Global's counsel, Gordon Altman Butowsky Weitzen Shalov & Wein,
114 West 47th Street, New York, New York 10036, attn.: Marc Weitzen, Esq.,
telecopy: 212-626-0799. Either party and their counsel may change the address to
which notice is sent by written notice to the other party.
15. Assignment. ATSI may not, without the prior written consent of
Global, assign or transfer (whether by merger, reorganization, consolidation,
sale of all or substantially all of ATSI's assets or otherwise) this Agreement
or any obligation incurred hereunder. Global may assign this Agreement without
consent to a subsidiary or affiliated company now existing or hereafter
organized. This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors.
16. Severability. If any provision of this Agreement is determined by a
court of competent jurisdiction to be invalid or unenforceable, such
determination shall not affect the validity or enforceability of any other part
or provision of this Agreement.
17. Waiver. No waiver by any party of any breach of any provision
hereof shall constitute a waiver of any other breach of that or any other
provision hereof.
18. Entire Agreement. This Agreement, including the Exhibit attached
hereto, contains the entire Agreement of the parties, and there are no
understandings or
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<PAGE> 14
agreements relative thereto that are not expressed herein. No waiver,
modification or addition to this Agreement shall be valid unless in writing and
signed by ATSI and Global. In addition, the parties agree that this Agreement
shall supersede any and all prior contracts, agreements, or understandings
entered into by the parties.
19. Survival. The obligations, covenants and agreements set forth in
this Section 19 and in Sections 3, 4, 5, 6, 7, 10, 13 and 14 of this Agreement
shall continue beyond the term of the Agreement.
20. Governing Law. This Agreement shall be construed according to the
laws of New York without giving effect to the principles of conflicts of law
thereof. The parties agree that the federal or state courts sitting within the
State of New York shall be the exclusive jurisdiction for governing all matters
arising out of or relating to this Agreement.
21. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
22. Construction. The parties acknowledge that each party and its
counsel have reviewed this Agreement and have participated jointly in
negotiations and drafting of this Agreement. The parties hereby agree that the
normal rule of construction to the effect that ambiguities are to be resolved
against the drafting party shall not be employed in the interpretation of this
Agreement or any amendments or exhibits hereto.
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<PAGE> 15
The parties hereto, by their duly authorized agents, have set their
hands hereto on the date first set forth above.
AUTOMATED TRAVEL SYSTEMS, INC.
By:________________________________
Seth Perelman
President
GLOBAL DISCOUNT TRAVEL SERVICES, LLC
By:________________________________
Terry O'Neal
Manager
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<PAGE> 1
Exhibit 10.15
BOOKING DATABASE LICENSE AGREEMENT
This BOOKING Database LICENSE Agreement (this "Agreement") is entered into
this 19th day of January, 1999, by and between Automated Travel Systems, Inc., a
Delaware corporation with its principal place of business at 119 West 40th
Street, New York, NY 10018 ("ATSI"), and 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 ("Global").
RECITALS:
WHEREAS, ATSI is designing and developing a travel database system (the
"Booking Engine System") providing access to airline fare, routing, rules, car
and hotel rates and rules, travel information and computer reservation systems
necessary to create a PNR and facilitating airline reservations in accordance
with the functional System Specification set forth in Exhibit A hereto as such
schedule may be amended from time to time by agreement of the parties (the
"System Specification"); and
WHEREAS, Global desires to license from ATSI the Booking Engine System
having the System Specification on the terms and subject to the conditions set
forth herein.
NOW, THEREFORE, in consideration of the mutual promises, covenants,
undertakings and agreements set forth herein, the receipt and sufficiency of
which are hereby acknowledged, ATSI and Global mutually agree as follows:
SECTION 1
DEFINITIONS
The following terms will have the meanings set forth below for the purpose
of this Agreement:
BOOKING ENGINE SYSTEM shall have the meaning set forth in the
recitals.
DELIVERY DATE shall mean March 1, 1999.
EFFECTIVE DATE shall mean the date that the Booking Engine System
performs in accordance with the System Specification.
GLOBAL shall have the meaning assigned to it in the Recitals.
ATSI shall have the meaning assigned to it in the Recitals.
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<PAGE> 2
LICENSE shall have the meaning assigned to it in Section 2.1.
PERSON shall mean any individual, corporation, association,
partnership, limited liability company, joint venture, trust or other entity or
organization.
PNR shall mean a passenger name record created in order to book and
secure airline and travel reservations.
YEAR 2000 COMPLIANT shall mean the Booking Engine System shall not
experience any abnormality, malfunction, or degradation in its operation as a
result of changing date values in connection with moving from the calendar year
1999 to the calendar year 2000 and beyond that arise from an internal systems
failure.
SECTION 2
ACCESS TO BOOKING ENGINE SYSTEM
2.1. GRANT OF LICENSE. ATSI grants and Global accepts the
non-exclusive right, license and privilege (the "License") to use the Booking
Engine System. The License shall automatically terminate on the earlier of: (a)
the expiration of the term of this Agreement pursuant to Section 10.1, or (b)
upon termination of this Agreement for cause pursuant to Section 10.2. The
License shall include, at no additional cost, any and all additions,
modifications, updates or upgrades to the Booking Engine System. Additions,
modifications or upgrades to the Booking Engine System which create entirely new
functionalities, will be made available to Global on a non-exclusive basis at
prices to be set by ATSI. The License shall apply regardless of the method by
which the Booking Engine System is accessed, including, but not limited to,
direct reservations via the World Wide Web, Global's call-in center or
electronically by authorized travel agencies. In connection with the License,
ATSI shall develop a Web Site Front End System which shall provide access to the
Booking Engine System via the World Wide Web (the "Web Site Front End System")
pursuant to a Development Agreement which the parties are signing concurrently
herewith (the "Development Agreement").
2.2. OWNERSHIP. All right, title and interest in and to the Booking
Engine System shall at all times remain the sole and exclusive property of ATSI.
Subject to the rights granted to Global pursuant to Section 2.1, all applicable
copyrights, trade secrets, patents and other intellectual property rights in the
Booking Engine System remain in ATSI. No title to the Booking Engine System is
being transferred to Global hereby.
2.3. GRANT OF LICENSE TO OTHER CUSTOMERS. The Board of Directors of
ATSI shall determine to whom in the leisure travel business a license for the
Booking Engine System may be granted.
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<PAGE> 3
SECTION 3
PRICE AND PAYMENT TERMS
3.1. Global agrees to pay ATSI a transaction fee on an annual basis
with the first annual period commencing on the Effective Date and ending on the
day prior to the anniversary of the Effective Date according to the following
schedule:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
NUMBER OF PNRS CREATED USING
THE BOOKING ENGINE SYSTEM PRICE PER PNR
-------------------------------------------------------------------------
<S> <C>
[CONFIDENTIAL TREATMENT REQUESTED] $[CONFIDENTIAL TREATMENT REQUESTED]
-------------------------------------------------------------------------
[CONFIDENTIAL TREATMENT REQUESTED] $[CONFIDENTIAL TREATMENT REQUESTED]
-------------------------------------------------------------------------
[CONFIDENTIAL TREATMENT REQUESTED] $[CONFIDENTIAL TREATMENT REQUESTED]
-------------------------------------------------------------------------
</TABLE>
ATSI shall invoice Global on a monthly basis. Global shall
have thirty (30) days from receipt of the invoice to submit payment. The
transaction fee shall be retroactively adjusted once the number of PNR's exceed
the applicable threshold. To effectuate the adjustment, Global shall receive a
credit against the fees due hereunder of (a) $[CONFIDENTIAL TREATMENT REQUESTED]
when the number of PNR's exceed [CONFIDENTIAL TREATMENT REQUESTED] in any year
of the term and (b) an additional $[CONFIDENTIAL TREATMENT REQUESTED] when the
number of PNR's exceed [CONFIDENTIAL TREATMENT REQUESTED].
SECTION 4
EXPENSES
4.1. Except as specifically set forth herein, each party shall bear
its expenses arising from the performance of its obligations under and relating
to this Agreement, including (without limitation) expenses for facilities,
employee salaries, work spaces, utilities, license fees, clerical and
reproduction services and supplies. Notwithstanding the foregoing, Global shall
reimburse ATSI for its actual out-of-pocket expenses which are reasonable and
necessary under this Agreement incurred in connection with ATSI personnel's
travel to and from Global's places of business (including accommodations and
meals) ) within 45 days after receipt of an invoice therefor; provided, however,
that ATSI shall obtain prior approval from Global for expenditures in excess of
$100 per person per day. Travel arrangements and hotel accommodations shall be
arranged through Global.
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<PAGE> 4
SECTION 5
CONFIDENTIALITY
5.1. CONFIDENTIAL INFORMATION. ATSI and Global acknowledge that in
the course of dealings between the parties, each party will acquire information
about the other party, its business activities and operations, its technical
information and trade secrets, all of which is highly confidential and
proprietary in nature ("Confidential Information"). ATSI and Global agree to
maintain the secrecy of the other party's Confidential Information and agree not
to use it except in connection with the subject matter of this Agreement and in
performing the services covered by this Agreement and not to disclose it to any
third-party who does not have a need to know it to perform under this Agreement.
"Confidential Information" shall not be deemed to include any information which
(a) was already lawfully known to the non-disclosing party at the time of
disclosure as reflected in the written records of the non-disclosing 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
non-disclosing party without access to, or use of, the Confidential Information;
(e) is approved in writing by the disclosing party for disclosure; (f) is
required to be disclosed in order for a party to enforce its rights under this
Agreement; or (g) is required to be disclosed by law or by the order of a court
or similar judicial or administrative body, including as part of any filing with
the Securities and Exchange Commission. ATSI and Global agree to safeguard the
other party's Confidential Information with not less than the same degree of
care as is exercised in connection with its own most proprietary and
confidential materials.
5.2. PROPRIETARY PROTECTION OF THE BOOKING ENGINE SYSTEM. Global
further acknowledges that the Booking Engine System is proprietary and
confidential and constitutes valuable trade secrets of ATSI. Global agrees to
keep confidential all material and information regarding and furnished to it in
connection with the Booking Engine System, which shall be deemed to be
Confidential Information under Section 5.1. In the event that this Agreement is
terminated, all documents, materials, copies, or derivatives thereof related to
the Booking Engine System shall be immediately returned to ATSI.
5.3. REMEDIES. If a party breaches or threatens to breach any
provision of this Agreement that would serve to jeopardize the confidentiality
of the other party's proprietary interests, the injured party will be entitled
to a restraining order, injunction or other similar remedy to enforce the
provisions of this Agreement. ATSI and Global specifically acknowledge that
monetary damages alone will not be an adequate remedy for the injuries and
damage that would be suffered and incurred by the other party as a result of the
breach.
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<PAGE> 5
SECTION 6
DELIVERY
6.1. The Booking Engine System shall function in accordance with the
System Specification and the Web Site Front End System shall function in
accordance with its specifications on or before the 15th day after the Delivery
Date. In the event that by the 15th day after the Delivery Date the Booking
Engine System does not function in accordance with the System Specification or
the Web Site Front End System does not function in accordance with its
specifications as a result of ATSI's failure to fulfill its obligations under
this Agreement or the Development Agreement, ATSI agrees that Global may use the
Booking Engine System free of charge for a period of time equal to two weeks for
every one week past the Delivery Date that the Booking Engine System shall be
delivered. By way of example, if the delivery occurs on March 15, 1999, Global
is not entitled to a free period. If delivery occurs on March 16, 1999 (two
weeks late), the use of the Booking Engine System shall be free until April 13,
1999 (four weeks free).
SECTION 7
CONTINUED SUPPORT
7.1. SUPPORT DESK. ATSI shall maintain a designated call-in desk
from 9:00 a.m. to 5:00 p.m. eastern standard time to respond to requests for
assistance from Global and other users of the Booking Engine. Notwithstanding
the foregoing, in the event that the provisions of Section 7.2 apply, ATSI shall
respond within four hours.
7.2. REPAIRS. During the term of this Agreement, in the event that
the Booking Engine System does not function in accordance with the System
Specification, ATSI shall correct, at no cost to Global, any non-conformities of
the Booking Engine System.
SECTION 8
REPRESENTATIONS AND WARRANTIES
ATSI makes the following representations and warranties for the
benefit of Global, as a present and ongoing affirmation of facts in existence at
all times:
8.1. ORGANIZATION. ATSI is a corporation duly organized, validly
existing and in good standing under the laws of Delaware.
8.2. AUTHORIZATION. When executed and delivered by ATSI, this
Agreement shall constitute ATSI's valid and legally binding agreement
enforceable against it in accordance with the terms hereof.
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<PAGE> 6
8.3. NO VIOLATION. Execution and delivery of this Agreement and the
performance of its obligations hereunder are not in violation of, and do not
conflict with or constitute a default under, any of the terms and provisions of
any agreement to which it is expressly a party, indenture or instrument to which
it is bound.
8.4. NO INFRINGEMENT. (a) There are no claims, disputes, actions,
suits or proceedings, including, without limitation, suits for patent
infringement, pending or, to the knowledge of ATSI, threatened against or
affecting the Booking Engine System, or the use thereof by ATSI or Global.
Neither the Booking Engine System nor the use thereof by Global does or will
infringe or conflict with any United States patents, United States patent
applications, know-how, processes, trade secrets, techniques, procedures or
other proprietary property rights or intellectual property, of or held by, any
Person, nor has any claim (whether or not embodied in an action, past or
present) of such infringement been threatened or asserted, nor is such a claim
pending, against ATSI (or, insofar as ATSI is aware, any entity from which ATSI
has obtained such rights).
(b) The Booking Engine System shall not violate the United
States intellectual property rights of any third party.
8.5. BOOKING ENGINE SYSTEM. ATSI agrees to develop the Booking
Engine SYSTEM in accordance with the System Specification. Global agrees to
cooperate with ATSI and to promptly provide ATSI with all information reasonably
requested by ATSI which is required to carry out ATSI's duties under this
Agreement.
The Booking Engine System shall function in accordance with
the System Specification.
8.6. YEAR 2000 COMPLIANCE. The Booking Engine System will be (a)
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 and (b) Year 2000
Compliant. Global acknowledges that the Booking Engine System will interact with
third party software, hardware, systems, databases and computer networks that
may experience abnormality, malfunction or degradation in their operation as a
result of changing date values in connection with moving from calendar year 1999
to calendar year 2000 and beyond, which may in turn cause the Booking Engine
System to experience abnormality, malfunction or degradation in its operation.
Global agrees that ATSI is in no way responsible for such abnormality,
malfunction or degradation in the operation of the Booking Engine System. ATSI
shall take all reasonable steps to insure that all such third party software,
hardware, systems, databases and computer networks are Year 2000 Compliant.
8.7. OWNERSHIP RIGHTS. ATSI is and will be the sole owner of, or be
duly licensed to use, all intellectual property rights in the Booking Engine
System. ATSI has and will have full and sufficient right to grant the rights
granted pursuant to this Agreement.
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<PAGE> 7
SECTION 9
9.1. NEGLIGENCE/BREACH. Each party agrees to indemnify and hold the
other party harmless against any suit, claim, damage, and expense (including
reasonable attorneys' fees) by reason of (a) its negligence or willful
misconduct in the course of the performance of this Agreement or (b) a breach of
its warranties and obligations under this Agreement.
9.2. LIMITATIONS.
(a) No Warranties. EXCEPT AS PROVIDED HEREIN, THE BOOKING ENGINE
SYSTEM IS LICENSED "AS IS" AND ATSI MAKES NO REPRESENTATIONS OR WARRANTIES WITH
RESPECT TO THE BOOKING ENGINE SYSTEM, EXPRESS OR IMPLIED, INCLUDING, BUT NOT
LIMITED TO, IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE OR THAT THE BOOKING ENGINE SYSTEM AS DEVELOPED AND DESIGNED WILL MEET
ANY REQUIREMENTS OR WILL PERFORM ERROR FREE OR IN CONFORMANCE WITH THE NEEDS OR
REQUIREMENTS OF GLOBAL.
(b) Third Party Software and information ATSI and Global understand
that the Booking Engine may include certain third party software and data.
EXCEPT AS PROVIDED HEREIN, ATSI MAKES NO WARRANTIES OR REPRESENTATIONS, EXPRESS
OR IMPLIED, AS TO THE QUALITY, CAPABILITIES, OPERATIONS, PERFORMANCE OR
SUITABILITY OF THIRD PARTY SOFTWARE OR DATA, INCLUDING THE ABILITY TO INTEGRATE
WITH MODIFICATIONS TO THE BOOKING ENGINE SYSTEM, OR OF NEW RELEASES TO INTEGRATE
WITH THE BOOKING ENGINE SYSTEM.
(c) Disclaimer of Warranty. THE WARRANTIES SET FORTH HEREIN ARE
LIMITED WARRANTIES AND ARE IN LIEU OF ALL OTHER WARRANTIES EXPRESS OR IMPLIED.
ATSI DOES NOT WARRANT THAT THE BOOKING ENGINE SYSTEM LICENSED HEREBY WILL MEET
SUCH PARTY'S FUTURE OR UNDISCLOSED REQUIREMENTS.
9.3. LIMITATION OF LIABILITY.
(a) IN NO EVENT SHALL EITHER PARTY'S AGGREGATE LIABILITY ARISING OUT
OF OR RELATING TO THIS AGREEMENT FOR ANY REASON AND UPON ANY CAUSE OF ACTION
WHATSOEVER EXCEED THE PAYMENTS MADE PURSUANT TO SECTION 3 HEREOF. OTHER THAN THE
INDEMNIFICATION OBLIGATIONS SET FORTH IN SECTIONS 9.1 AND 9.2 OF THIS AGREEMENT,
NEITHER PARTY SHALL HAVE ANY LIABILITY FOR DAMAGES ARISING OUT OF OR IN
CONNECTION WITH THE DELIVERY, USE, OR PERFORMANCE OF THE BOOKING ENGINE SYSTEM,
WHETHER IN WARRANTY, CONTRACT, NEGLIGENCE OR STRICT LIABILITY IN TORT.
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<PAGE> 8
(b) NEITHER ATSI NOR GLOBAL SHALL HAVE ANY LIABILITY WITH RESPECT TO
ITS OBLIGATIONS UNDER THIS AGREEMENT OR OTHERWISE FOR SPECIAL, CONSEQUENTIAL,
EXEMPLARY, OR INCIDENTAL DAMAGES, INCLUDING DAMAGES AS A RESULT OF LOST PROFITS
OR BUSINESS INTERRUPTION, EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
(c) BOTH ATSI AND GLOBAL AGREE THAT THE OTHER'S AFFILIATES,
REPRESENTATIVES, OFFICERS, DIRECTORS AND ADVISORS SHALL NOT BE LIABLE TO THE
OTHER PARTY UNDER ANY THEORY OF LIABILITY OR ANY FORM OF ACTION.
9.4. THIRD PARTY INTELLECTUAL PROPERTY RIGHTS.
(a) ATSI Indemnification. Subject to the limitations contained in
Section 9.3, ATSI shall indemnify, defend and hold Global harmless from any
liabilities, damages, losses, costs and expenses (including reasonable
attorneys' fees) in the event Global is subject to a claim that the Booking
Engine System, as delivered by ATSI, infringes the United States intellectual
property rights of any third party or is enjoined, for any reason, from using
the Booking Engine System as a result of such claim. Notwithstanding the
foregoing, if Global cannot use the Booking Engine System as set out in this
Agreement without infringing the intellectual property rights of a third party,
ATSI shall have the right to determine the most effective way of proceeding to
obtain such rights, which may include ATSI negotiating with the third party for
a license under the third party's patents, copyrights, and proprietary rights,
subject to reasonable license terms.
(b) Global acknowledges and agrees that the foregoing is the sole
obligation of ATSI in the event of any infringement of any intellectual property
rights of any third party by the Booking Engine System or any part thereof;
provided, that Global shall give prompt notice, cooperation and assistance to
ATSI relative to any such claim and provided that ATSI shall have the option to
undertake and conduct the defense of any such claim or suit.
(c) If requested by ATSI, Global shall make any reasonable
modification of its use of the Booking Engine System and shall take such other
reasonable action as ATSI reasonably may request at ATSI's expense in order to
avoid suit for an alleged infringement, to reduce the potential adverse effect
of any such claim, or to settle any alleged infringement claim by making such
practice non-infringing. Notwithstanding the foregoing modifications, the
Booking Engine System shall function in accordance with the System
Specification.
SECTION 10
TERM AND TERMINATION
10.1. TERM. The term of this Agreement shall be five (5) years
commencing on the Effective Date.
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<PAGE> 9
10.2. TERMINATION FOR CAUSE.
(a) This Agreement may be terminated by either party immediately
upon the other party's insolvency or inability to pay debts as they become due,
the initiation of voluntary or involuntary bankruptcy proceedings by or against
the other party, or the appointment of a receiver or assignee for the benefit of
creditors. Termination shall be effective when the party exercising its right to
terminate gives written notice to the other party pursuant to Section 11.7.
(b) Global may terminate this Agreement in the event of the
occurrence of any material breach of this Agreement by ATSI that is not cured
within fourteen (14) days of having been given Global's written notice pursuant
to Section 11.7.
(c) ATSI may terminate this Agreement upon Global's default in
payment under Section 3.1 that is not cured within thirty (30) days of having
been given ASTI's written notice. ATSI may terminate this Agreement in the event
of the occurrence of any other material breach of this Agreement by Global that
is not cured within fourteen (14) days of having been given ATSI's written
notice pursuant to Section 11.7.
10.3. EFFECTS OF TERMINATION.
Upon termination of this Agreement, the License and all other rights
and obligations under this Agreement shall immediately cease and terminate
except for the rights and obligations of the parties under Section 5
(Confidentiality), and Section 2.2 (Ownership), which shall survive termination.
SECTION 11
MISCELLANEOUS
11.1. SAVINGS CLAUSE. In case any one or more of the provisions
contained in this Agreement shall for any reason be held to be invalid, illegal,
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision hereof, and this Agreement shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein, with this Agreement being enforced to the fullest extent
possible. Such removal or elimination shall not be deemed to result in a failure
of consideration under this Agreement.
11.2. DESCRIPTIVE HEADINGS. The descriptive headings of the Sections
and subsections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions of
this Agreement.
11.3. FORCE MAJEURE. Neither party shall be liable to the other for
any delay or failure to perform any of the services or obligations set forth in
this Agreement due to causes beyond its reasonable control.
11.4. THIRD PARTY BENEFICIARY. This Agreement is intended for the
benefit of the parties and their permitted assigns, and no other person shall be
entitled to rely upon this Agreement or be entitled to any benefits under this
Agreement.
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<PAGE> 10
11.5. INDEPENDENT CONTRACTORS. It is expressly agreed that ATSI and
Global are acting hereunder as independent contractors and under no
circumstances shall any of the employees of one party be deemed the employees of
the other for any purpose. This Agreement shall not be construed as authority
for either party to act for the other party in any agency or other capacity, or
to make commitments of any kind for the account of or on the behalf of the other
except to the extent and for the purposes provided for herein.
11.6. ASSIGNMENT. ATSI may not, without the prior written consent of
Global, assign or transfer (whether by merger, reorganization, consolidation,
sale of all or substantially all of ATSI's assets or otherwise) this Agreement
or any obligation incurred hereunder. Global may assign this Agreement without
consent to a subsidiary or affiliated company now existing or hereafter
organized.
11.7. NOTICE. Any notice required to be given by either party to the
other shall be deemed given upon receipt if in writing and actually delivered by
overnight courier or facsimile transmission addressed to the notified party at
the address set forth below or actually delivered or deposited in the United
States mail in registered or certified form with return receipt requested,
postage paid, addressed to the notified party at the address set forth below.
Either party may change the address to which notice is sent by written notice to
the other party.
If to ATSI:
Automated Travel Systems, Inc.
119 West 40th Street, 12th floor
New York, New York 10018
Fax No.: (212)596-1410
Attn.: Seth Perelman
with a copy to:
Piper & Marbury L.L.P.
1251 Avenue of the Americas
New York, New York 10020-1104
Fax No.: 212-835-6001
Attn.: Paul J. Pollock, Esq.
If to Global:
Global Discount Travel Services, LLC
980 Kelly Johnson Drive
Las Vegas, Nevada 89119
Fax No.: (702) 260-3750
Attn.: Terry O'Neal
with a copy to:
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<PAGE> 11
Gordon Altman Butowsky Weitzen Shalov & Wein
114 West 47th Street
New York, New York 10036
Fax No.: (212) 626-0799
Attn.: Marc Weitzen
11.8. NO WAIVER. No delay or omission by either party hereto to
exercise any right or power occurring upon any noncompliance or default by the
other party with respect to any of the terms of this Agreement shall impair any
such right or power or be construed to be a waiver thereof, unless such waiver
shall be in writing and signed by both parties. A waiver by either of the
parties hereto of any of the covenants, conditions or agreements to be performed
by the other shall not be construed to be a waiver of any succeeding breach
thereof or of any covenant, condition, or agreement herein contained. Unless
stated otherwise, all remedies provided for in this Agreement shall be
cumulative and in addition to and not in lieu of any other remedies available to
either party at law, in equity, or otherwise and may be exercised separately or
concurrently without waiver of the other available remedies.
11.9. GOVERNING LAW. This Agreement and its performance shall be
governed by and construed according to the laws of the State of New York without
giving effect to conflict of laws principles thereof. The parties agree that the
federal or state courts sitting within the State of New York shall be the
exclusive jurisdiction for governing all matters arising out of or relating to
this Agreement.
11.10. ENTIRE AGREEMENT. This Agreement, including the exhibits to
the Agreement, constitutes the entire understanding between the parties and
shall supersede all prior proposals and/or agreements, oral or written, and all
other communications between the parties relating to the subject matter of this
Agreement. The Agreement shall not be varied other than by an instrument in
writing of subsequent date hereof, executed by the authorized representatives of
Global and ATSI.
11.11. CONSTRUCTION. The parties acknowledge that each party and its
counsel have reviewed this Agreement and have participated jointly in
negotiations and drafting of this Agreement. The parties hereby agree that the
normal rule of construction to the effect that ambiguities are to be resolved
against the drafting party shall not be employed in the interpretation of this
Agreement or any amendments or exhibits hereto.
11.12. 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.
11.13. NON-SOLICITATION. Global and ATSI agree that neither they nor
their subsidiaries or other affiliated companies shall directly or indirectly
solicit for employment, employ or otherwise retain staff of the other party who
they have met as a result of the performance of work under this Agreement during
the term of this Agreement, nor for a period
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of two (2) years after termination of this Agreement unless written consent is
given by appropriate parties to this Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
AUTOMATED TRAVEL SYSTEMS, INC. GLOBAL DISCOUNT TRAVEL SERVICES, LLC
By By
------------------------------------ -----------------------------------
Name: Seth Perelman Name: Terry O'Neal
-------------------------------- -------------------------------
Title: President and Chief Title: Manager
Executive Officer -------------------------------
-------------------------------
Date: January 15, 1999 Date: January 15, 1999
-------------------------------- -------------------------------
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<PAGE> 1
EXHIBIT 10.24
EMPLOYMENT AGREEMENT
Amended and Restated Employment Agreement dated as of May 26, 1998,
between Douglas Lanner ("Employee") and Global Discount Travel Services LLC (the
"Company").
WHEREAS, Employee executed an employment agreement effective May 26,
1998 (the "Original Agreement"), setting forth the terms of Employee's
employment with the Company; and
WHEREAS, the parties hereto wish to amend and restate the Original
Agreement to clarify certain terms thereof.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
1. Employment. Upon the terms and conditions hereinafter set forth, the
Company hereby employs Employee and Employee hereby accepts employment as
Controller of the Company.
2. Salary. The Company will pay Employee a base salary of $110,000 per
year ("Base Salary"), payable on a bi-weekly basis effective May 1, 1998.
3. Stock Options.
(a) Employee is granted an option to purchase a membership
interest in the Company entitling Employee to a one tenth of one percent (0.1%)
interest in the profits and distributions of the Company for a total cash price
of $200,000. Such option shall vest on May 26, 2004, provided that Employee
remains employed with the Company through such date, and such option may be
exercised by Employee for a period of ninety (90) days following such vesting
date.
In the event of Employee's termination of employment for any reason (including,
without limitation, involuntary termination by the Company, resignation by the
Employee or death) prior to an IPO (as defined below) and prior to May 26, 2004,
such option to purchase a membership interest in the Company shall terminate and
be of no further effect.
(b) If the Company (or an entity which owns substantially all
of the assets of or membership interests in the Company) completes an initial
public offering (the "IPO") of common stock ("Common Stock") during Employee's
employment with the Company, any outstanding option to purchase a membership
interest in the Company shall be converted into and be deemed to constitute a
non-qualified stock option to purchase 39,433 shares of Common Stock for a cash
exercise price of $5.0719 per share (with the number of shares and exercise
price being subject to equitable adjustment in the event of a stock split, stock
dividend, recapitalization or other similar change in capitalization affecting
the Common Stock). Employee and the Company acknowledge and
<PAGE> 2
agree that the foregoing number of shares of Common Stock subject to such option
and exercise price are calculated based upon an assumed capitalization of
39,433,263 shares of Common Stock outstanding upon completion of the IPO, which
includes shares issuable upon exercise of the underwriters' over-allotment
option and options issued to employees as of the IPO date.
(c) Stock options to purchase shares of Common Stock shall
vest in equal semi-annual installments over a period of four years, with the
first installment vesting on the six-month anniversary of the IPO date. Vested
stock options may be exercised starting on the six-month anniversary of the IPO
and ending five years from the date of the IPO.
(d) If, following an IPO, the Company (i) ceases operation,
(ii) consummates a "going private" transaction, (iii) is sold to a private
company or (iv) is sold to a public company, any unvested options to purchase
Common Stock shall become vested immediately prior to the effective date of any
such transaction. Upon any such transaction, Employee shall receive upon
exercise of outstanding options to purchase Common Stock such consideration per
share as shareholders of Common Stock are entitled to receive pursuant to such
transaction unless, in the case of a sale to a public company, provisions are
made in the transaction for the assumption of the outstanding options or the
substitution of the outstanding options for options of a publicly-traded
successor corporation or a publicly-traded parent thereof (with appropriate
adjustments as to the number and kind of shares and exercise price as to prevent
dilution or enlargement of rights).
(e) Stock options to purchase shares of Common Stock may be
purchased through the use of a broker-dealer sale and remittance procedure
pursuant to which Employee (i) shall provide written instructions to a
Company-designated brokerage firm to effect the immediate sale of some or all of
the purchased shares and remit to the Company, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares and (ii) shall provide written
directives to the Company to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale transaction.
4. Termination.
(a) In the event that Employee's employment is terminated
other than (i) by reason of Employee's resignation or death or (ii) by the
Company for "Cause", (A) Employee shall be entitled only to Employee's annual
base salary for the period of time Employee worked during the applicable year,
(B) Employee's unvested stock options to purchase Common Stock shall become
immediately vested, and (C) all vested stock options to purchase Common Stock
shall be exercisable for 12 months after termination of employment. For purposes
of the foregoing, a buyer's failure immediately following a transaction
described in Section 3(d) above to offer Employee a position comparable to the
position held by Employee immediately prior to such transaction shall be deemed
to be a termination by the Company other than for Cause. For purposes of this
Agreement, "Cause" is defined as (1) Employee's willful misconduct, (2) gross
neglect of Employee's obligation to the business of the Company, (3) Employee's
conviction of a crime involving moral turpitude or
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<PAGE> 3
dishonesty or (4) Employee's disability that prevents him from performing the
essential functions of Employee's job for in excess of six (6) months.
(b) In the event that Employee dies, (i) Employee shall be
entitled only to Employee's annual base salary for the period of time Employee
worked during the applicable year, (ii) Employee's vested stock options to
purchase Common Stock shall be exercisable for 12 months after death and (iii)
all unvested stock options to purchase Common Stock shall expire on the date of
death.
(c) In the event that Employee resigns, (i) Employee shall be
entitled only to Employee's annual base salary for the period of time Employee
worked during the applicable year, (ii) at any time before the first anniversary
of the IPO, Employee agrees to forfeit all vested stock options and unvested
stock options to purchase Common Stock and (iii) at any time after the first
anniversary of the IPO, (A) Employee's unvested stock options to purchase Common
Stock shall expire on the date Employee notifies the Company of Employee's
resignation and (B) Employee's vested stock options to purchase Common Stock
shall expire three months after the date Employee notifies the Company of
Employee's resignation.
(d) In the event that Employee is terminated by the Company
for Cause, (i) Employee shall be entitled only to Employee's annual base salary
for the period of time Employee worked during the applicable year, (ii) at any
time before the first anniversary of the IPO, Employee agrees to forfeit all
vested stock options and unvested stock options to purchase Common Stock and
(iii) at any time after the first anniversary of the IPO, (A) Employee's
unvested stock options to purchase Common Stock shall expire on the date of
termination and (B) Employee's vested stock options to purchase Common Stock
shall expire three months after the date of termination.
5. Non-Compete; Non-Disclosure; Non-Solicitation; Inventions.
(a) For a period of six months (the "Restricted Period") from
the date on which your employment with the Company terminates for any reason
("Termination"), Employee will not, anywhere, directly or indirectly, own,
manage, operate, control, be employed by, participate in, provide consulting
services to, or be connected in any manner with the ownership, management,
operation or control of any entity (collectively, "Involved") which is engaged
in the Internet travel business, except that Employee may own, for investment
purposes only, up to 1% of the capital stock or indebtedness of any company
whose capital stock is publicly traded. An entity shall not be considered
substantially engaged in the Internet travel business if less than 5% of its
gross sales are derived from Internet travel revenues. However, even if the
entity does have less than 5% of its gross sales derived from Internet travel
revenues, Employee shall not be directly Involved in the development or growth
of such entity's Internet travel business during the applicable period. In the
event that Termination was due to the resignation by Employee, Employee further
agrees that Employer shall have the option (the "Extension Option") to extend
the Restricted Period for an additional six month period (the "Additional
Restricted Period"). In the event that Employer elects to exercise the Extension
Option, Employer shall pay to Employee during the period commencing on
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<PAGE> 4
the first day of the Additional Restricted Period and ending on the last day of
the Additional Restricted Period, on a monthly basis, an amount equal to
one-twelve (1/12th) of Employee's Base Salary.
(b) For a period of 12 months from Termination, Employee
agrees not to contact or solicit any person known by Employee to be an employee
of the Company or any of its affiliates or to have been employed by the Company
or any of its affiliates within the prior 90 days for the purpose of inducing
such employees to leave such employ.
(c) During the term of this Agreement and at all times
thereafter, Employee shall hold in a fiduciary capacity for the benefit of the
Company and its affiliates all secret or confidential information, knowledge or
data relating directly to the business of the Company or its affiliates, and
their respective businesses, including but not limited to trade secrets, (i)
obtained by Employee during Employee's employment by the Company and (ii) not
otherwise in the public knowledge. Employee shall not, without prior written
consent of the Company, except to the extent compelled pursuant to the order of
a court or other body having jurisdiction over such matter or based upon the
advice of counsel communicate or divulge any such information, knowledge or data
to anyone other than the Company and those designated by the Company; provided,
however, that Employee will assist the Company, at the Company's expense, in
obtaining a protective order, other appropriate remedy or other reliable
assurance that confidential treatment will be accorded such information
disclosed pursuant to the terms of this Agreement.
(d) All processes, technologies and inventions (collectively,
"Inventions"), including new contributions, improvements, ideas, discoveries,
trademarks and trade names, conceived, developed, invented, made or found by
Employee, alone or with others, during the period of Employee's employment by
the Company, whether or not patentable and whether or not conceived, developed,
invented, made or found on the Company's time or with the use of the Company's
facilities or materials, shall be the property of the Company and shall be
promptly and fully disclosed by Employee to the Company. Employee shall perform
all necessary acts (including, without limitation, executing and delivering any
confirmatory assignments, documents or instruments requested by the Company) to
vest title to any such Invention in the Company and to enable the Company, at
its expense, to secure and maintain domestic and/or foreign patents or any other
rights for such Inventions.
(e) Employee is scheduled to receive stock options under this
agreement which will benefit Employee based upon the performance of the
Company's business. Employee represents to the Company that the enforcement of
the restrictions contained in this section would not be unduly burdensome to
Employee. Employee agrees that the remedy at law for any breach by Employee of
the provisions of this section may be inadequate and that the Company shall be
entitled to injunctive relief. This section constitutes an independent and
separable covenant that shall be enforceable notwithstanding any right or remedy
that the Company may have under any other provision of this Agreement or
otherwise.
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6. Miscellaneous.
(a) This agreement constitutes the entire agreement between
the parties with respect to the subject matter hereof and supersedes all
previous written, and all previous or contemporaneous oral, negotiations,
understandings, arrangements, and agreements.
(b) The headings in this Agreement are for convenience of
reference only and are not part of the substance of this Agreement.
(c) This Agreement and all of the provisions hereof shall
inure to the benefit of and be binding upon the legal representatives, heirs,
distributees, successors (whether by merger, operation of law or otherwise) and
assigns of the parties hereto; provided, however, that Employee may not delegate
any of Employee's duties hereunder, and may not assign any of Employee's rights
hereunder, without the prior written consent of the Company.
(d) This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
(e) If any section, paragraph, term or provision of this
Agreement shall be held or determined to be unenforceable, the balance of this
Agreement shall nevertheless continue in full force and effect unaffected by
such holding or determination. In addition, in any such event, the parties agree
that it is their intention and agreement that any such section, paragraph, term
or provision which is held or determined to be unenforceable, as written, shall
nonetheless be in force and binding to the fullest extent permitted by law as
though such section, paragraph, term or provision had been written in such a
manner and to such an extent as to be enforceable under the circumstances.
(f) This Agreement will be interpreted and the rights of the
parties determined in accordance with the laws of the United States applicable
thereto and the internal laws of the State of New York applicable to an
agreement executed, delivered and performed therein without giving effect to the
choice-of-law rules thereof or any other principle that could require the
application of the substantive law of any other jurisdiction.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
GLOBAL DISCOUNT TRAVEL SERVICES LLC
By: Global Partner, Inc., Manager
By: ________________________________
Gail Golden
Vice President
________________________________
Douglas Lanner
SS# _______________
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<PAGE> 1
Exhibit 21.1
Subsidiaries of Lowestfare.com, Inc.
Lowestfare.com LLC
Global Travel Marketing Services, Inc.
<PAGE> 1
Exhibit 23.1
Consent of Independent Auditors
The Board of Directors
Lowestfare.com LLC and
Global Travel Marketing Services, Inc.:
We consent to the use of our report dated February 19, 1999, except for the
eleventh paragraph of Note 1, which is 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
April 23, 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 the
first paragraph of 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
April 23, 1999
