<PAGE>
As filed with the Securities and Exchange Commission on June 1, 1999
Registration No. 333-77073
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
AMENDMENT NO. 2
to
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------------------
TRAVELSCAPE.COM, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 4724 51-0387511
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
8951 W. Sahara Ave.
Las Vegas, Nevada 89117-5826
(702) 792-3811
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
---------------------------------------------
TIMOTHY N. POSTER
Chief Executive Officer
TRAVELSCAPE.COM, INC.
8951 W. Sahara Ave.
Las Vegas, NV 89117-5826
(702) 792-3811
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
---------------------------------------------
PLEASE SEND COPIES OF ALL COMMUNICATIONS TO:
<TABLE>
<S> <C>
Francis S. Currie, Esq. Kenneth R. Lamb, Esq.
Martin A. Wellington, Esq. Peter T. Heilmann, Esq.
Kelly S. Boyd, Esq. Brian R. Gin, Esq.
Wilson Sonsini Goodrich & Rosati, P.C. Gibson, Dunn & Crutcher LLP
650 Page Mill Road One Montgomery Street
Palo Alto, CA 94304 Telesis Tower
(650) 493-9300 San Francisco, CA 94104
(415) 393-8200
</TABLE>
------------------------------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
------------------------------------
If 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 of
1933, as amended (the "Securities Act"), please 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 statement 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 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
Subject to completion, dated June 1, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE SECURITIES AND EXCHANGE COMMISSION DECLARES
OUR REGISTRATION STATEMENT EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
5,000,000 Shares
TRAVELSCAPE.COM, INC.
Common Stock
[LOGO]
$ per share
- ----------------------------------------------------------------------
- - Travelscape.com, Inc. is offering 5,000,000 shares.
- - We anticipate that the initial public offering price will be between $10.00
and $12.00 per share.
- - This is our initial public offering and no public market currently exists for
our shares.
- - Proposed trading symbol: Nasdaq National Market -- RSVN
------------------------------------
This investment involves risk. You should carefully consider the "Risk Factors"
beginning on page 8.
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Per Share Total
----------- --------------
<S> <C> <C>
Public offering price................................................................. $ $
Underwriting discounts and commissions................................................ $ $
Proceeds to Travelscape.com, Inc...................................................... $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE UNDERWRITERS HAVE A 30-DAY OPTION TO PURCHASE UP TO 750,000 ADDITIONAL
SHARES OF COMMON STOCK FROM US TO COVER OVER-ALLOTMENTS, IF ANY. WE GENERALLY
REFER TO THIS AS AN OVER-ALLOTMENT OPTION IN THIS PROSPECTUS.
Neither the Securities and Exchange Commission nor any state securities
commission has approved of anyone's investment in these securities or determined
if this prospectus is truthful or complete. Any representation to the contrary
is a criminal offense.
<TABLE>
<S> <C>
JOINT LEAD MANAGER JOINT LEAD MANAGER
U.S. Bancorp Piper Jaffray CIBC World Markets
DLJDIRECT Inc.
</TABLE>
The date of this prospectus is , 1999
<PAGE>
OUTSIDE GATEFOLD:
[On this page, a graphic illustration depicts our home page. The page is headed
by our logo, followed by the caption "the travelscape.com difference."]
[Captions point to various items on the web page and read as follows:]
- ["Travelscape's guaranteed low rates and flexible change/cancel
policies are designed to give customers added confidence."]
- ["Travelscape's specialty! customers have access to below market
prices and room availability with our featured hotels and
negotiated discount rates."]
- ["Advanced low fare search technology and access to all major
airlines provide customers with the tools to find the lowest
published airfares."]
- ["The fast and simple online booking form allows for flexibility
with minimal keystrokes for customer convenience."]
- ["Travelscape offers customized travel packages online. We offer
customers low rates on these proprietary packages."]
INSIDE GATEFOLD:
[The next two pages make a gatefold consisting of six images of our web site. A
list of our "Internet Service Providers," "Major Travel Sites," "Search Engines
and Portals" and "Major Content Sites" run down the right side of the right
page.]
[The captions under each image read as follows:]
- ["Travelscape.com Home Page. Customers find an easy to use booking
form, a destination guide, "hot deals," and consistent
navigation."]
- ["Destination Guide. Travelscape.com provides customers an overview
of the city and a selection of quality hotels."]
- ["Hotel Descriptions. Customers can view detailed hotel information
on one page, and can easily check rates and availability for their
travel preferences."]
- ["Rates and Availability. Shop and Select. Travelscape.com searches
published fares on all major airlines plus our own proprietary air
and hotel rates. Complete travel package options and prices are
displayed."]
- ["Review Itinerary. Customers select their trip and receive an
itinerary summary."]
- ["Confirmation. Customers complete the simple trip and booking
information and receive prompt email confirmation. You're
confirmed. Enjoy your trip!"]
INSIDE BACK COVER:
[This page includes a picture of our logo and a variety of travel-related
images.]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Summary................................................................................ 5
Risk Factors........................................................................... 8
Forward Looking Statements............................................................. 23
Use of Proceeds........................................................................ 24
Dividend Policy........................................................................ 24
Capitalization......................................................................... 25
Dilution............................................................................... 26
Selected Combined and Consolidated Financial Data...................................... 27
Management's Discussion and Analysis of Financial Condition and Results of
Operations........................................................................... 28
Business............................................................................... 39
Management............................................................................. 51
Certain Transactions................................................................... 60
Principal Stockholders................................................................. 61
Description of Capital Stock........................................................... 62
Shares Eligible for Future Sale........................................................ 65
Underwriting........................................................................... 66
Legal Matters.......................................................................... 68
Experts................................................................................ 68
Where You Can Find More Information.................................................... 68
Index to Financial Statements.......................................................... F-1
</TABLE>
------------------------------------
You should rely only on the information contained in this prospectus. We have
not, and the underwriters have not, authorized any other person to provide you
with different information. This prospectus is not an offer to sell, nor is it
seeking an offer to buy, these securities in any state where the offer or sale
is not permitted. The information in this prospectus is complete and accurate as
of the date on the front cover, but the information may have changed since that
date.
3
<PAGE>
(This page has been intentionally left blank.)
4
<PAGE>
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SUMMARY
THE ITEMS IN THE FOLLOWING SUMMARY ARE DESCRIBED IN MORE DETAIL LATER IN THIS
PROSPECTUS. THIS SUMMARY PROVIDES AN OVERVIEW OF SELECTED INFORMATION AND DOES
NOT CONTAIN ALL THE INFORMATION YOU SHOULD CONSIDER. THEREFORE, YOU SHOULD ALSO
READ THE MORE DETAILED INFORMATION SET OUT IN THIS PROSPECTUS, THE FINANCIAL
STATEMENTS AND THE OTHER INFORMATION INCORPORATED BY REFERENCE INTO THIS
PROSPECTUS.
Travelscape.com is a leading consumer-direct online travel wholesaler serving
popular destination markets across the United States, including Las Vegas,
Orlando, New York, San Francisco and Hawaii. Through our relationships with
selected travel service suppliers, we provide low prices on a wide range of
accommodation and transportation alternatives to meet a variety of consumer
travel preferences and budgets. At March 31, 1999, we had wholesale supply
agreements with over 335 hotels in 35 destination markets and negotiated rate
agreements for discount airfares with major airlines that enable us to offer our
customers hotel or hotel/air packages at significant discounts from published
rates and fares. Visitors to our web sites at WWW.TRAVELSCAPE.COM and
WWW.LVRS.COM have immediate access both to our easy to use proprietary booking
engine to compare travel options, rates and availability, and to detailed hotel
information and destination guides. Customers may book and purchase travel
services, 24 hours a day, 7 days a week, in a few easy steps, either online or
through our toll-free call center at (888) 335-0101. From 1996 to 1998, our
annual revenue grew from $8.3 million to $20.9 million, a compound annual growth
rate of 59%. We launched our Internet operations in March 1998, and Internet
sales have grown from approximately 30% of gross bookings in 1998 to
approximately 65% of gross bookings for the three months ended March 31, 1999,
based on the aggregate retail value of the travel booked.
Online sales of travel services have expanded dramatically in recent years due
to the substantial benefits of e-commerce to both travel service providers and
consumers. According to Forrester Research, online travel bookings are expected
to grow to $29.5 billion in 2003 from $3.1 billion in 1998, representing a
compound annual growth rate of 57%.
Our strong relationships with hotels and airlines enable us to provide consumers
access to a lower rate structure for hotels and hotel/air packages than is
generally available from other online travel service providers. Our hotel
partners include a wide range of independent hotel operators, as well as hotels
associated with national chains, including Doubletree, Hilton, Marriott, Westin,
Loews, Best Western and Hampton Inn. We also have system-wide negotiated rate
agreements for discount airfares with American Airlines, America West Airlines
and Reno Air. We believe that by offering wholesale pricing of travel services
directly to consumers, we are able to maintain better gross margins than are
available either to retail travel agencies or to travel wholesalers that rely on
travel agencies for distribution.
Our objective is to be the premier consumer-direct online travel wholesaler by:
- enhancing the consumer value proposition by offering a complete
travel planning solution at discount prices;
- strengthening and expanding our strategic hotel relationships;
- aggressively developing our brand through high quality service,
active marketing and promotional programs;
- increasing airfare sales and pursuing incremental revenue
opportunities;
- investing in leading technology to enhance our web sites,
transaction-processing systems and call center; and
- pursuing strategic acquisitions.
We have aggressively invested to implement this strategy beginning in 1998, and
as a result we experienced net losses of approximately $4.4 million and $5.4
million in 1998 and the three months ended March 31, 1999, respectively. We
expect to continue to experience net losses for the foreseeable future.
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5
<PAGE>
- --------------------------------------------------------------------------------
Travelscape.com was incorporated in January 1999 under the laws of the State of
Delaware. Our predecessor corporations, Las Vegas Reservation Systems, Inc.,
Professional Travel Services, Inc. and Travelscape.com, Inc., or Old
Travelscape, were incorporated under the laws of the State of Nevada in 1990,
1993 and 1998, respectively. Our offices are located at 8951 West Sahara Avenue,
Las Vegas, Nevada 89117, and our telephone number is (702) 792-3811.
The Offering
<TABLE>
<S> <C>
Common stock offered by Travelscape.com, Inc....... 5,000,000 shares
Common stock outstanding after the offering........ 20,000,000 shares
Assumed offering price............................. $11.00 per share
Use of proceeds.................................... For the repayment of approximately $7.0
million of debt and for advertising and
brand development, working capital,
general corporate purposes and
potential strategic investments or
acquisitions.
</TABLE>
Common stock outstanding after the offering does not include:
- 2,190,750 shares subject to options at March 31, 1999;
- 150,000 shares subject to options granted after March 31, 1999; and
- 527,752 shares subject to warrants at March 31, 1999 (all of which
we expect to issue within 30 days of the completion of this
offering).
Please see, "Description of Capital Stock--Options and Warrants," for further
descriptions of these securities.
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6
<PAGE>
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Summary Combined and Consolidated Financial Data
(in thousands, except per share data)
On January 21, 1999, we were formed for the purpose of completing an
organizational restructuring, in which all of the outstanding common stock of
Las Vegas Reservation Systems, Old Travelscape and Professional Travel Services
was contributed to us in exchange for an aggregate of 15,000,000 shares of our
common stock. As a result, Las Vegas Reservation Systems, Old Travelscape and
Professional Travel Services became our wholly-owned subsidiaries. Statement of
operations and balance sheet data are presented on a combined basis through
January 22, 1999 and on a consolidated basis after that date. The pro forma
statement of operations data below is presented as if the organizational
restructuring had taken place on January 1, 1998. Net loss and the related per
share amounts reflect adjustments for amortization of intangible assets recorded
in the organizational restructuring. No adjustments have been made to reflect
federal income taxes as if the combined company had been taxed as a sub-chapter
C corporation rather than a sub-chapter S corporation under the Internal Revenue
Code because the pro forma income tax provision would be zero.
The "as adjusted" balance sheet data below gives effect to this offering and the
application of the net proceeds we receive in the offering.
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended March 31,
------------------------------------------------------ --------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Room sales......................................... $ 3,670 $ 4,961 $ 8,078 $ 11,716 $ 18,852 $ 2,901 $ 7,603
Airfare sales...................................... 50 129 178 716 2,027 439 472
--------- --------- --------- --------- ---------- --------- ---------
Total revenue.................................... 3,720 5,090 8,256 12,432 20,879 3,340 8,075
Gross profit....................................... 1,531 2,249 3,343 4,232 6,181 983 2,450
Total operating expenses(1)........................ 1,391 2,047 3,019 4,171 10,427 1,257 7,518
Operating income (loss)............................ 140 202 324 61 (4,246) (274) (5,068)
--------- --------- --------- --------- ---------- --------- ---------
Net income (loss).................................. $ 263 $ 159 $ 336 $ 2 $ (4,427) $ (294) $ (5,427)
--------- --------- --------- --------- ---------- --------- ---------
--------- --------- --------- --------- ---------- --------- ---------
Pro Forma Statement of Operations Data:
Pro forma net loss................................. $ (4,552) $ (5,437)
Pro forma net loss per share(2):
Basic and Diluted.................................. $ (0.30) $ (0.36)
Weighted average shares outstanding(2):
Basic and Diluted.................................. 15,000 15,000
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999
--------------------------
Actual As Adjusted
----------- -------------
(unaudited)
<S> <C> <C>
Balance Sheet Data:
Net working capital (deficit)..................................................... $ (2,407) $ 40,406
Total assets...................................................................... 13,340 56,153
Long-term debt, including current portion(3)...................................... 4,525 2,357
Net stockholders' equity (deficiency)(3).......................................... (247) 49,603
</TABLE>
- ---------------------------------------------
(1) Total operating expenses in the three months ended March 31, 1999, include
approximately $1.8 million in stock compensation expense.
(2) Please refer to note 9 to our combined and consolidated financial
statements for the calculation of net loss per share, including an
explanation of the number of shares used in computing the amount of basic
and diluted net loss per share.
(3) On February 28, 1999, we issued $7.0 million in senior notes with
detachable warrants to purchase an aggregate of 527,752 shares of our common
stock at $0.01 per share. The issuance of the debt was recorded as $7.0
million in notes payable. The warrants were recorded at their fair value of
approximately $5.1 million as an original issuance discount, reflected as a
reduction in the notes payable and additional paid-in capital.
PLEASE SEE "CAPITALIZATION" FOR A MORE COMPLETE DISCUSSION REGARDING THE
OUTSTANDING SHARES OF TRAVELSCAPE.COM COMMON STOCK, OPTIONS AND WARRANTS TO
PURCHASE TRAVELSCAPE.COM COMMON STOCK AND OTHER RELATED MATTERS.
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7
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND ALL OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE YOU DECIDE TO BUY OUR COMMON
STOCK. INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. THE RISKS
AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES FACING US. ADDITIONAL
RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US OR THAT WE CURRENTLY DEEM
IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS OPERATIONS. ANY OF THESE PRESENTLY
UNKNOWN OR IMMATERIAL RISKS OR ANY OF THE FOLLOWING RISKS COULD MATERIALLY AND
ADVERSELY AFFECT OUR BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION AND
COULD RESULT IN A PARTIAL OR COMPLETE LOSS OF YOUR INVESTMENT.
Our success depends on growth of our online sales. Because we have a limited
online operating history, we cannot be sure that our online sales will grow.
Our future success is heavily dependent upon growth of our online operations,
which we have only operated since March 1998. We believe the ability to grow our
online operations will depend upon a number of factors, many of which we do not
control. These factors include, among others:
- Increased market acceptance of e-commerce. While e-commerce has
grown rapidly to date, there is no guarantee that this growth will
continue or that our business will benefit from this growth.
- Our success in establishing brand awareness and increasing web site
traffic through online and offline marketing and strategic
relationships.
- Increased customer acceptance of our automated online booking
system. Booking travel has traditionally involved intensive human
contact, and we do not know if customers will accept our system as
a substitute for personal interaction.
- Increased customer acceptance of our pre-selected and, thus,
limited hotel selection.
- Our ability to provide a fast, easy to use, reliable and secure
online shopping experience.
- Our ability to build customer loyalty and increase the percentage
of visitors to our web sites who make travel purchases.
If we are unable to take advantage of growth in e-commerce, or to successfully
meet any of the foregoing challenges, we may be unable to grow our online
business and our operating results and stock price would be adversely affected.
Because we are investing heavily to grow our online sales, we expect to
recognize significant net losses in the second quarter of 1999 and do not know
when, if ever, we will become profitable.
We have invested heavily in growing our online operations, including substantial
increases in operating expenses that resulted in net losses of approximately
$4.4 million in 1998 and approximately $5.4 million in the three months ended
March 31, 1999. We expect to spend an aggregate of approximately $40 million to
expand our online operations during the next 12 months, although our actual
expenses may exceed this amount. In addition, we plan to continue to invest
heavily in growing our online operations for the foreseeable future. We also
expect to recognize significant non-cash expenses in the second quarter of 1999,
including interest expense of approximately $5.3 million as a result of
repayment of our senior notes and stock compensation expense of approximately
$600,000. Further, we expect to recognize stock compensation expense of
approximately $400,000 per quarter beginning in the third quarter of 1999, based
on stock options granted to date. To the extent we grant additional options or
rights to acquire our stock in the future, we may recognize additional stock
compensation expense in future periods. As a result of the foregoing factors, we
expect to experience a record net loss in the second quarter of 1999, and to
continue to experience substantial additional losses in the foreseeable future.
8
<PAGE>
In evaluating the risks involved in investing in a company in the early stages
of development, such as ours, you should consider uncertainties and expenses
such as additional marketing and sales expenses to grow the business, expenses
and uncertainties involved in building new products and services and expenses
and uncertainties in funding opportunities such as strategic acquisitions. We do
not know if we will be successful in addressing these risks or in executing our
business strategy.
Our operating results are subject to quarterly fluctuations and our revenue is
unpredictable. Future fluctuations in operating results or revenue shortfalls
could adversely affect the value of your investment.
Because we have a limited operating history in e-commerce and because of the
emerging nature of the markets in which we compete, our revenue is highly
unpredictable. At the same time, our current and future expense levels are based
on our operating plans and are to a large extent fixed. We are unlikely to be
able to adjust spending quickly to compensate for any revenue shortfall. As a
result, any significant revenue shortfall would have an immediate negative
effect on our results of operations and stock price.
We expect to experience significant fluctuations in our future quarterly
operating results due to a variety of factors, many of which we do not control.
Factors that may adversely affect our quarterly operating results include, but
are not limited to:
- our inability to successfully replicate our business model in new
destination markets;
- our inability to develop strong brand recognition, build customer
loyalty and attract new and repeat customers;
- our inability to increase the level of traffic on our web sites;
- our inability to retain or expand our wholesale hotel and airfare
supply arrangements or reductions in discounts we receive on these
wholesale travel services;
- decreases in commission rates paid by travel suppliers on published
rates and fares;
- the announcement or introduction of lower prices or new travel
services and products by our competitors;
- any deterioration in general economic conditions, such as a global
recession, or economic conditions specific to the Internet or
travel industry;
- seasonal fluctuations in consumer travel spending patterns;
- slower growth in the level of use of online services and consumer
acceptance of the Internet for the purchase of consumer products
and services such as those we offer;
- any inability to upgrade and develop our systems and
infrastructure;
- any inability to retain or to attract qualified personnel in a
timely and effective manner;
- technical difficulties, system downtime or slowdowns in Internet
response times;
- increases in operating expenses or capital expenditures relating to
expansion of our business, operations and infrastructure that are
not accompanied by increased revenue;
- difficulties in assimilating the operations and personnel of any
acquired business;
- adverse government regulation; and
- events affecting the travel industry such as natural disasters,
wars or terrorist attacks.
9
<PAGE>
For any of the foregoing reasons, or for other reasons we do not presently
anticipate, in a future quarter it is likely that our operating results will not
meet market expectations, including the expectations of financial analysts. If
this occurs, it would have a material and adverse effect on our stock price.
If we are unable to successfully replicate our business model in new markets,
our future growth and operating results would be adversely affected.
From our inception in 1990 through 1998, we developed our business model serving
the Las Vegas market and derived substantially all of our revenue from
transactions associated with Las Vegas. Our growth strategy depends in part upon
substantially replicating this model in new markets across the United States. We
cannot be sure that this business model will be successful in other markets. For
example, as we have expanded our network of hotels into new markets, we have
generally received smaller room blocks and discounts than we receive in Las
Vegas, where we have longstanding relationships. These less favorable terms are
expected to adversely affect gross margins. We believe that, unless we prove our
ability to successfully distribute hotel rooms in these new markets, hotel
operators will not offer us their most favorable room blocks and discounts. In
addition, our room utilization rates in destinations outside Las Vegas have so
far been lower than in Las Vegas. If we are unable to increase utilization rates
outside Las Vegas, this may hinder our ability to develop strong strategic hotel
relationships in these new markets. We cannot assure you that we can reproduce
relationships with strategic hotel partners in the new markets we are entering
or that such new hotel partners will provide us with room blocks and discounts
comparable to what we receive in Las Vegas. In either case, operating results
would be adversely affected. Please see "Business -- Strategy" for a discussion
of our strategy for replicating our business model in new markets.
If our strategy to increase market awareness of our brand through extensive
online advertising fails, we may be unable to substantially grow our business.
We believe that establishing, maintaining and enhancing the Travelscape.com and
lvrs.com brands is a critical aspect of our efforts to attract and expand our
online traffic. We plan to spend a significant portion of the proceeds of the
offering on establishing brand recognition. However, our expenditures may fail
to increase market awareness of our brand. We have recently entered into a
number of significant online advertising agreements, many of which involve
substantial financial commitments. For example, effective March 1999, we entered
into an agreement with DoubleClick pursuant to which we are required to pay up
to $6.5 million through June 2000 in exchange for online advertising services.
We are also obligated to pay MapQuest an aggregate of approximately $1.9 million
through May 2000, in exchange for advertising rights on the MapQuest web site.
In addition, we have advertising arrangements with a variety of other web sites
that include commitments in the aggregate of over $6.9 million through June
2000. We expect to enter into additional agreements of these types after the
offering. We believe that the success of this aggressive marketing campaign is
critical to our ability to establish brand awareness and increase our revenue.
If this campaign is unsuccessful, we expect that these substantial financial
commitments will cause us to experience increasing operating losses for the
foreseeable future. In addition, if we are unable to maintain and expand our
online marketing relationships, our ability to establish brand awareness and
increase sales in the future will be adversely affected. Please see "Business --
Strategy" and "-- Online Marketing" for a discussion of our branding strategy.
We could lose market share if we do not keep up with the significant competition
in the travel services market.
The online travel services market is new, rapidly evolving, intensely
competitive and has relatively low barriers to entry. We compete primarily with
online travel reservation services such as Preview Travel, Expedia Travel and
Travelocity, as well as online travel wholesalers such as Cheap Tickets, Hotel
Reserva-
tion Network, Lowestfare.com and Priceline.com. In addition, and to a lesser
extent, we compete with
10
<PAGE>
traditional travel agencies, such as American Express Travel Service, Carlson
Wagonlit Travel and Uniglobe Travel, individual airlines and hotels selling
directly to consumers, and consolidators and wholesalers of airline tickets and
other travel products such as Global Vacation Group and 800 Travel Systems.
Some of our current and potential competitors have competitive advantages due to
various factors, which include, among others:
- greater brand recognition and web site traffic;
- longer operating histories;
- larger customer bases;
- greater financial, marketing and other resources; and
- ability to secure products and services from travel suppliers with
greater discounts and on more favorable terms than we can.
These and other competitors may be able to replicate the factors that make us
successful. In addition, we may face competitive pressure due to the expansion
of current and the creation of new technologies. Announcements of technological
innovations, new services, business relationships or acquisitions by our
competitors could cause our stock price to decline. 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. Please see
"Business -- Competition" for a discussion of our competition.
If any of our airline partners cease offering their services to us on negotiated
rate terms or at all, or if they reduce commissions on published fares, these
actions could adversely affect our operating results.
Our strategy includes increasing sales of airfares both as a means of promoting
additional hotel room sales and also on a stand-alone basis. If we fail to
increase airfare sales, our growth will be adversely affected. We have recently
entered into a non-exclusive negotiated rate agreement with American Airlines
that provides us with access to non-published airfares throughout American
Airlines' domestic system, provided sales of such fares are in combination with
hotel room sales. While sales of airfares pursuant to the agreement have not
accounted for a material amount of revenue to date, we expect to increasingly
rely on the American Airlines agreement as we implement our growth strategy. The
agreement terminates in March 2000, and is subject to renegotiation at that
time. We do not know whether we will be able to renew this agreement on
acceptable terms, if at all. In addition, we have non-exclusive negotiated rate
agreements with Reno Air and America West Airlines, and a non-exclusive
negotiated rate agreement for routes to and from Las Vegas with another major
airline. These agreements expire at the end of each calendar year and are
subject to renegotiation upon expiration. If one or more of these airlines were
to cease doing business with us or refuse to renew their agreements with us on
favorable terms or at all, our growth strategy would be severely impaired, and
our future operating results and stock price would be adversely affected. We
also sell published airfares on a commission basis. Any reduction or limitation
on commissions paid by airlines for these sales could materially and adversely
affect future operating results. Please see "Business -- Strategic Travel
Relationships" for a discussion of our partnerships with airlines.
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Changes to or cancellations of our wholesale arrangements with hotel suppliers
could adversely affect our operating results.
We operate almost exclusively on a wholesale basis with our hotel suppliers. We
rely on these suppliers to provide us with hotel room capacity to sell. We do
not have any non-cancelable, long-term contracts with any of our hotel
suppliers. In addition, our agreements with our hotel suppliers allow them to
enter into wholesale arrangements with any of our competitors. If we are unable
to maintain satisfactory relationships with our hotel suppliers and establish
new wholesale agreements with hotel suppliers in new markets, or if our hotel
suppliers establish similar or more favorable relationships with our
competitors, either development would adversely affect our operating results and
the value of our stock. In 1997 and 1998, sales of rooms at the Luxor
Hotel/Casino in Las Vegas accounted for 18.7% and 14.5%, respectively, of our
gross hotel bookings. Our wholesale contract with Luxor is a non-exclusive,
one-year agreement that gives us the ability to offer rooms at the Luxor
Hotel/Casino in Las Vegas at non-published rates. No other single supplier
accounted for more than 10% of gross hotel bookings in 1997 or 1998. In
addition, our top ten hotel suppliers accounted for approximately 66.6% of gross
hotel bookings in 1998. The loss of one of these top ten supplier relationships,
or any substantial reduction in the room blocks available to us from these
suppliers would have an immediate and adverse affect on our operating results
and stock price. Please see "Business -- Strategic Travel Relationships" for
more detailed information about our strategic relationship with our hotel
suppliers.
We may be unable to protect our intellectual property, including our trademarks,
which could adversely affect our operating results.
We regard our trademarks, domain names, service marks, trade dress, trade
secrets, copyrights and similar intellectual property as important to our
success, and rely on trademark and copyright law, trade secret protection and
confidentiality to protect our proprietary rights. We are pursuing the
registration of our key trademarks in the United States and internationally.
Effective trademark, service mark, copyright and trade secret protection may not
be available in every country in which our products and services are made
available online. Failure to effectively protect our intellectual property could
adversely affect our business and stock price or result in erosion of our brand
name.
Currently, the only registered trademark we own is "Travelscapes Vacations,"
which we acquired in April 1999. In addition, we have filed an application with
the United States Patent and Trademark Office, or the Trademark Office, for the
trademark "Travelscape.com," and that application is currently pending. We are
aware of two other applications for the trademark "Travelscape" that are under
rejection by the Trademark Office. We have obtained the rights to the first of
these applications from the party who filed it. We believe that our ownership of
the Travelscapes Vacations trademark and the rights to the first application for
Travelscape will be sufficient to allow us to register the trademark
"Travelscape.com" with the Trademark Office. However, we cannot assure you that
we are correct in this regard. Further, we are aware that there are a number of
other businesses using the name Travelscape or variations thereof in commerce.
We do not know when these companies started using the name. One or more of these
companies may have started using the name prior to the time the rights we have
acquired were established, and could have rights in the name that are superior
to ours. As part of our strategy to protect our trademarks, we plan to contact
these companies and take actions to cause them to stop using the name. There is
also the chance that another party could claim that our use of the name
infringes their rights. In either case, we could become involved in litigation,
which would likely be expensive and time consuming, and could distract
management from the operations of the business. Furthermore, we cannot be sure
we would prevail in any such litigation. We also plan to apply for the trademark
"lvrs.com," which is the name of our Las Vegas focused web site. We cannot be
sure we will be successful with this application.
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We cannot be sure that the steps we have taken to protect our proprietary rights
will be adequate or that third parties will not infringe or misappropriate our
copyrights, trademarks, trade dress and similar proprietary rights. 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. In addition, other parties might
assert infringement claims against us. We may be subject to legal proceedings
and claims from time to time in the ordinary course of our business, including
claims that we or our licensees have infringed the trademarks and other
intellectual property rights of third parties. If we do not prevail, we could be
required to stop using our trademarks or domain names or to pay damages. Such
claims, even if not meritorious, could result in the expenditure of significant
financial and managerial resources.
We may not acquire or maintain our domain name in all of the countries in which
we do business, and we may be required to expend significant funds to prevent
infringement of our domain name, which could inhibit our ability to expand our
business internationally.
We currently hold the Internet domain names WWW.TRAVELSCAPE.COM and WWW.LVRS.COM
as well as various other related names. Third parties may acquire domain names
that are similar to, infringe or otherwise decrease the value of our domain
names, trademarks and other proprietary rights, which may hurt our business. We
may be required to expend significant funds in the legal defense of our domain
names. Domain names generally are regulated by Internet regulatory bodies. The
regulation of domain names 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. The relationship
between regulations governing domain names and laws protecting trademarks and
similar proprietary rights is unclear. As a result, we may not acquire or
maintain the "TRAVELSCAPE" and "LVRS" domain names in all of the countries in
which we conduct business in the future.
Adverse conditions in Las Vegas could have a disproportionately large negative
effect on our operating results.
For 1998 and the three months ended March 31, 1999, we derived approximately 99%
and 85%, respectively, of our gross hotel bookings from transactions in which
Las Vegas was the destination. We expect that Las Vegas travel will continue to
account for a substantial portion of revenue and gross profits for the
foreseeable future. Adverse events or conditions which affect travel to Las
Vegas, such as changes in regional travel patterns, extreme weather conditions,
natural disasters, or a reduction in Las Vegas travel due to the legalization or
expansion of gaming in other states or geographic regions, could have a
disproportionate negative effect on our operations.
Managing potential growth may be difficult, time consuming and expensive. The
failure to properly manage growth may negatively affect the value of your
investment.
Since early 1998, we have grown our business by launching our online operations,
significantly expanding the number of destination markets we serve and largely
transitioning our inbound call center to a web site customer support service.
These changes have rapidly increased the volume of sales through our web sites
and have placed, and are expected to continue to place, a significant strain on
our managerial, operational and financial resources. Our inability to manage our
growth effectively could disrupt operations and have an adverse effect on our
revenue. For example, the increased volume of calls to our call center generated
by our web sites has, at times, resulted in long hold times for customers and,
we believe, lost sales. In addition, being a public company will place new
strains on our senior management, none of whom have experience in operating a
public company. We anticipate that further significant
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growth and development of our business will be required to expand our customer
base and take advantage of market opportunities. We expect to hire additional
key personnel and support staff in the future. To manage the expected growth of
our operations and personnel, we will be required to:
- improve existing and implement new transaction-processing,
operational, customer service and financial systems, procedures and
controls;
- implement a formal disaster recovery program; and
- expand, train and manage our growing employee base.
We also will be required to expand our finance, administrative and operations
staff. Further, we will be required to maintain and expand our relationships
with various travel service suppliers, other web sites and other web service
providers, Internet service providers and other third parties necessary to our
business. We cannot be sure that:
- our current and planned personnel, systems, procedures and controls
will be adequate to support our future operations;
- our management will be able to hire, train, retain, motivate and
manage required personnel; or
- our management will be able to successfully identify, manage and
exploit existing and potential market opportunities.
Our productivity and operating results will be negatively affected if we are
unable to manage growth effectively. Please see "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business --
Strategy," "-- Employees" and "Management" for a discussion of factors that may
affect our ability to manage potential growth.
Our gross margins vary depending on the mix of travel services sold, which could
have a detrimental effect on our operating results.
Our operating results will be affected by a number of factors, including the mix
of travel services we sell, the proportion of our sales that are associated with
the Las Vegas market and the mix of sales of non-published versus commission
rates and fares. We typically realize higher gross margins on hotel revenue than
airline revenue, higher gross margins on hotel rooms in Las Vegas than hotel
rooms outside Las Vegas and higher gross profits on wholesale business than on
commission business. Our business strategy includes expanding sales in markets
other than Las Vegas and increasing sales of airfares as a percentage of total
revenue. As a result, if we are successful in executing our strategy, we are
likely to experience lower overall gross margins. Any change in one or more of
the foregoing factors could have a detrimental effect on our gross margins and
operating results in future periods, which could in turn adversely affect the
value of your investment. Please see "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview" for further
discussion of how our gross margins have varied depending on the mix of travel
services sold.
We expect increased operating expenses in connection with new and expanded
services. If these services are unsuccessful or revenue increases are
significantly below expenses, the value of your investment could be negatively
affected.
We currently intend to:
- develop and offer new and expanded travel services;
- further develop our technology and transaction-processing systems;
and
- begin offering international travel services.
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Of the approximately $40 million we expect to invest to grow our online business
during the next 12 months, we expect to invest approximately $8 million to
develop these new and expanded services. We expect that these investments will
contribute to net losses for the foreseeable future. To the extent the expenses
we incur to fund these activities are not followed by increased revenue, we may
be unable to achieve or maintain profitability. In addition, we may incur
expenses when we enter new markets or offer new services that significantly
exceed the amounts we anticipate. If so, our management, financial and
operational resources may be severely strained. Our inability to generate
revenue from such expanded services or products sufficient to offset our
expenses could be damaging to our business. Please see "Business -- Strategy"
for details about our planned new and expanded services.
We depend on internally developed technology systems and Internet capacity to
handle all traffic to our web sites, and we could be subject to Internet
capacity constraints. If our systems fail or do not perform optimally, our
operations and revenue may be negatively affected.
Our revenue depends on the number of customers who use our web sites to book
their travel reservations. Accordingly, the satisfactory performance,
reliability and availability of our web sites, transaction-processing systems
and network infrastructure are critical to our operating results, as well as our
ability to attract and retain customers and maintain adequate customer service
levels. Any system interruptions that result in the loss of data, the
unavailability of our web sites or reduced performance of the reservation system
would reduce the volume of reservations and the attractiveness of our service
offerings, which could have a negative effect on our operating results and stock
price.
We use an internally developed system that supports our web sites and
substantially all aspects of transaction processing, including making
reservations and confirmations. We have experienced periodic system
interruptions and delays, which we believe will continue to occur from time to
time. Any substantial increase in the volume of traffic on our web sites or the
number of reservations made by customers will require us to expand and upgrade
our technology, transaction-processing systems and network infrastructure. We
have experienced and expect to continue to experience temporary capacity
constraints due to sharply increased traffic during "fare wars" or other
promotions. Capacity constraints such as these may cause unanticipated system
disruptions, slower response times, degradation in levels of customer service,
impaired quality and speed of reservations and confirmations and delays in
reporting accurate financial information.
We cannot be sure that our transaction-processing systems and network
infrastructure will be able to accommodate increases in web site traffic in the
future, or that we will, in general, be able to accurately project the rate or
timing of such increases or upgrade our systems and infrastructure to
accommodate future traffic levels on our web sites. In addition, e-commerce is
characterized by rapid technological change, changes in user and customer
requirements and preferences and changes in industry standards and practices.
Our existing technology and systems could quickly become obsolete because of the
rapidly changing technologies of e-commerce. We cannot be sure that we will be
able to effectively upgrade and expand our transaction-processing systems in a
timely manner or to successfully integrate any newly developed or purchased
modules with our existing systems. Upgrading or expanding our systems would
likely be expensive and time-consuming, and could have an adverse effect on our
operating results.
Our call center and substantially all of our computer and communications systems
are located at a single facility in Las Vegas. Our systems and operations are
vulnerable to damage or interruption from human error, fire, flood, power loss,
telecommunications failure, break-ins, sabotage, intentional acts of vandalism,
natural disasters and similar events. We currently do not have redundant systems
or a disaster recovery plan and do not carry sufficient business interruption
insurance to compensate us for losses that may occur. Despite our implementation
of network security measures, our servers are vulnerable to computer viruses,
physical or electronic break-ins and similar disruptions, which could lead to
interruptions, delays, loss of data or the inability to accept and confirm
customer reservations. Please see "Business -- Technology" for a discussion of
our technology.
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If providers of the third-party systems on which we rely decide to no longer
offer or maintain our services, the value of your investment might decrease.
We depend on third-party service providers for a substantial portion of our
communications, technology and operating infrastructure, including UUNet and
Epoch Networks, our Internet service providers; the SABRE Group, our airline
booking system; and Thoughtmail, our web site development consultant. Any
discontinuation of third-party provider services, or any reduction in
performance that requires us to replace these services, would be disruptive to
our business. In the past, these third-party providers have experienced
interruptions or failures in their systems or services that have temporarily
prevented our customers from accessing or purchasing certain travel services
through our web sites. Any reduction in performance, disruption in Internet or
web site access or discontinuation of services provided by UUNet, Epoch or any
other Internet service provider, or any disruption in our ability to access the
SABRE system or any other travel reservation systems, could have a negative
effect on our business, operating results and financial condition. Please see
"Business -- Strategic Travel Relationships" and "-- Technology" for a
discussion of our third-party system providers.
Our operations and customer databases are susceptible to security risks, which
might adversely affect our operating results.
A fundamental requirement for e-commerce is the secure transmission of
confidential information over public networks. Our security measures may not
prevent security breaches. If our security were ever compromised, it could have
a detrimental effect on our reputation, operating results and stock price. We
rely on encryption and authentication technology licensed from third parties to
ensure secure transmission of confidential information, such as customer credit
card numbers. In addition, we maintain an extensive confidential database of
customer profiles and transaction information. Advances in computer
capabilities, new discoveries in the field of cryptography, or other events or
developments may result in a compromise or breach of the algorithms we use to
protect customer transaction data and personal information contained in our
customer database. A person who circumvents our security measures could steal or
misuse proprietary information or cause interruptions in our operations. We may
be required to expend significant financial and other resources to protect
against security breaches or to alleviate problems caused by such breaches.
Publicized security problems could increase concerns over the security of online
transactions and the privacy of users, which may also inhibit the Internet's
growth, especially as a means of conducting commercial transactions. To the
extent that our or our third-party contractors' activities involve the storage
and transmission of proprietary information, such as credit card numbers or
other personal information, security breaches could expose us to a risk of loss
or litigation and possible liability. Failure to prevent security breaches will
have a negative effect on our reputation, business and operating results. Please
see "Business -- Technology" for a more detailed discussion of our technology.
The loss of our senior management or other key personnel or our failure to
attract additional personnel could negatively affect our business and decrease
the value of your investment.
Our performance is substantially dependent on the continued services and
performance of our senior management and other key personnel. The loss of the
services of any of our executive officers or other key employees would adversely
affect our ability to manage our business and would likely have a detrimental
effect on our operating results. In particular, we are dependent upon the
services of Timothy Poster, our Chairman and Chief Executive Officer, and Thomas
Breitling, our Chief Operating Officer. Both Messrs. Poster and Breitling own
substantial amounts of our stock, none of which is subject to vesting. We do not
intend to maintain "key person" life insurance policies on any of our key
personnel. In April 1999, we hired a new Chief Technology Officer, who will play
a critical role in managing and developing our online services. Failure of our
new Chief Technology Officer to work well with our existing management team
could adversely affect our operating results and the value of your investment.
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Our future success also depends on our ability to identify, attract, hire,
train, retain and motivate other highly skilled technical, managerial, marketing
and customer service personnel. Competition for such personnel is intense, and
we are not sure that we will be able to successfully attract, assimilate or
retain sufficiently qualified personnel. In particular, we may encounter
difficulties in attracting and retaining a sufficient number of qualified
software developers for our online services and transaction-processing systems.
Failure to retain and attract necessary technical, managerial, marketing and
customer service personnel would have a negative effect on our operating results
and stock price. Please see "Business -- Employees" and "Management" for more
detailed information about our management team.
Declines in consumer travel spending could harm our operating results.
The majority of our revenue is derived from consumer spending in the travel
industry. The travel industry, especially leisure travel, depends on personal
discretionary spending levels and suffers during economic downturns and
recessions. The travel industry is also highly susceptible to unforeseen events,
such as political instability, regional hostilities, terrorism, fuel price
escalation, travel-related accidents, natural disasters, unusual weather
patterns or travel industry related labor strikes. Any event that results in
decreased consumer travel spending would likely have a negative effect on our
operating results.
We experience seasonality in customer travel that could cause quarterly
fluctuations and adversely affect our business and stock price.
Seasonality in the travel industry is likely to cause quarterly fluctuations in
our operating results which may adversely affect our stock price. Our sales do
not currently reflect typical seasonal fluctuations in the travel industry
because of the magnitude of our sales associated with Las Vegas. For the
business we do with the destination of Las Vegas, our revenue typically
increases during late winter/early spring and fall and are slightly lower during
the middle of the summer and at year end. As our business expands beyond Las
Vegas, seasonal fluctuations will affect us in different ways. For the business
we do with destinations other than Las Vegas, we anticipate that our revenue
will increase during the summer as a result of vacation travel and will decline
during the winter as spending on travel declines, as is typical in the travel
industry. Because of our limited operating history, we do not know which
seasonal patterns, if any, will predominate. If seasonality in the travel
industry causes quarterly fluctuations, there could be a material adverse effect
on our business and stock price.
We may need more money, which may not be available to us on favorable terms or
at all.
We require substantial working capital to fund our business. We currently
anticipate that the net proceeds of this offering, together with our existing
funds and ability to borrow, will be sufficient to meet our capital requirements
for the foreseeable future. We may, however, be required to raise additional
funds if our needs or circumstances change. Additional financing may not be
available in sufficient amounts or on favorable terms. If we raise additional
funds by issuing equity or convertible debt securities, the percentage ownership
of our stockholders will be diluted. In addition, any new securities could have
rights, preferences and privileges senior to those of our common stock. If we
are unable to raise additional financing when necessary, our operations and
financial condition will be materially adversely affected. Please see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" for more detailed information
regarding our possible future capital requirements.
We could face litigation because of our web page content, which might require
considerable effort and expense to defend and result in significant liability.
As a publisher and distributor of online content, we face potential liability
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. Such claims have been brought, and sometimes successfully pressed,
against other online services. In addition, we do not and cannot practically
screen all of the content generated by other web sites that are linked to our
web sites, and we could be exposed to
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liability with respect to such content. Although we carry general liability
insurance, our insurance may not cover claims of these types or may not be
adequate to indemnify us for all liability that may be imposed. Any imposition
of liability, particularly liability that is not covered by insurance or is in
excess of insurance coverage, could have a damaging effect on our reputation,
operating results, financial condition and stock price. Please see "Business --
Travelscape.com Services" for more detailed information concerning our web page
content.
Our business could be hurt if we make acquisitions that are unsuccessful.
We believe that there are opportunities for consolidation in the online travel
services market and in travel-related web sites. One element of our growth
strategy is to pursue strategic acquisitions to broaden the scope and content of
our business through the acquisition of existing complementary businesses. Our
management team does not have experience in completing or integrating
acquisitions, and we may not be successful in overcoming problems encountered in
connection with such acquisitions. Even if we are successful, such acquisitions
may be time consuming and costly, which may affect our operating results.
Acquisitions would also expose us to various other risks such as those
associated with:
- the assimilation of new operations, sites and personnel;
- the diversion of resources from our existing operations, sites and
technologies;
- the inability to generate revenue from acquisitions sufficient to
offset associated acquisition costs;
- the inability to maintain uniform standards, controls, procedures
and policies; and
- the impairment of relationships with employees, suppliers and
customers as a result of integration of new businesses.
Acquisitions may also result in additional expenses associated with one-time
charges or amortization of acquired intangible assets. Furthermore, although we
will conduct due diligence and generally require representations, warranties and
indemnifications from the former owners of acquired companies, we cannot be sure
that such owners will accurately represent the results of operations, financial
condition and business of their companies or will have the means to satisfy
their indemnification obligations. If misrepresentations are made, the
acquisition could have a material adverse effect on our business, financial
condition and results of operations. We do not have current commitments with
respect to any particular acquisition, but management regularly evaluates
acquisition opportunities. Please see "Business -- Strategy" for more
information about our acquisition strategy.
Evolving government rules and regulations may negatively affect us.
Certain segments of the travel industry are heavily regulated by the United
States and foreign governments, and accordingly, certain services we offer are
affected by such regulations. For example, we are subject to United States
Department of Transportation regulations prohibiting unfair and deceptive
practices. In addition, Transportation Department regulations concerning the
display and presentation of information that are currently applicable to the
SABRE Group's services we access could be extended to us in the future, as well
as other laws and regulations aimed at protecting consumers. We are subject to
regulation by nine states that have "seller of travel" acts. These acts require
us to register as a seller of travel, comply with certain disclosure
requirements, post a bond or escrow funds and/or participate in state
restitution funds. We are in the process of obtaining bonds in and making
applications to these states. There is a possibility that we may be subject to
fines or other sanctions for any past failure to comply with these requirements.
All of our services are subject to federal and state consumer protection laws
and regulations prohibiting unfair and deceptive trade practices. These consumer
protection laws could result in substantial compliance costs and interfere with
the conduct of our business.
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We are also subject to regulations applicable to businesses generally and laws
or regulations directly applicable to e-commerce. Although there are currently
few laws and regulations directly applicable to e-commerce, it is possible that
a number of laws and regulations may be adopted with respect to e-commerce
covering issues such as user privacy, pricing, content, copyrights,
distribution, antitrust and characteristics and quality of products and
services. For example, California requires that sellers of goods and services
online make certain disclosures to California residents. In addition, California
also imposes certain requirements on such sellers relating to refunds, returns
and exchanges. Furthermore, the growth and development of the market for
e-commerce may prompt calls for more stringent consumer protection laws that may
impose additional burdens on those companies conducting business online. The
adoption of any additional laws or regulations may impose additional burdens on
us or decrease the growth of the Internet, which could, in turn, decrease the
demand for our products and services and increase our cost of doing business, or
otherwise have a negative effect on our business, operating results and
financial condition.
Moreover, the applicability to e-commerce of existing laws in various
jurisdictions governing issues such as property ownership, sales and other
taxes, libel and personal privacy is uncertain and may take years to resolve.
For example, tax authorities in a number of states are currently reviewing the
appropriate tax treatment of companies engaged in e-commerce, and new state tax
regulations may subject us to additional state sales and income taxes. Any such
new legislation or regulation, the application of laws and regulations from
jurisdictions whose laws do not currently apply to our business, or the
application of existing laws and regulations to e-commerce could negatively
affect our operating results.
There are uncertainties regarding taxes that could have a negative effect on us
if unfavorable changes or determinations are made.
Changes in tax laws, determinations, or interpretations that result in
significant additional taxes on our business could have an adverse effect on our
cash flows and results of operations.
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 is 8% until October 1, 1999
and 7.5% after October 1, 1999. In our arrangements with certain airlines, we
purchase airline tickets and then resell them to customers at a higher price. It
is not clear how this federal tax should be calculated when these ticket sales
are made by us, and we have not obtained any opinion of counsel as to how this
tax should be calculated. We pay 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 us. While our potential exposure for
incorrectly paying this tax has historically not been material, if our airfares
sales grow in the future and it is ultimately determined that our method of
calculating the tax is incorrect, we could be required significant additional
taxes as well as any penalties and interest on back taxes we are required to
pay.
STATE TAXES. We file tax returns in certain states based on applicable
statutory requirements. In addition, we do not collect sales or other similar
taxes with respect to transactions conducted through our web sites. 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. A number of proposals have been made at state
and local levels that could impose these taxes on the sale of products and
services online or the income derived from such sales. These proposals, if
adopted, could substantially impair the growth of online commerce.
Federal legislation imposing limitations on the ability of states to impose
taxes on online sales was enacted in 1998. The Internet Tax Freedom Act, as this
legislation is known, imposes on electronic
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commerce a three-year moratorium on state and local taxes imposed after October
1, 1998 but only where such taxes are discriminatory on Internet access. It is
possible that the legislation could not be renewed when it terminates in October
2001. Failure to renew the legislation could allow state and local governments
to impose taxes on online sales, and such taxes could have an adverse effect on
our operating results.
Investors must rely on our management's judgment regarding the use of proceeds
from this offering.
The net proceeds of this offering are estimated to be approximately $49.9
million (approximately $57.5 million if the underwriters' over-allotment option
is exercised in full) at an assumed initial public offering price of $11.00 per
share and after deducting the estimated underwriting discount and estimated
offering expenses. Approximately $7.0 million will be used to repay debt. We
currently plan to use the remaining net proceeds for advertising and brand
development, additional working capital, future development of our web sites and
technology or possible acquisitions of businesses, products or technologies. Our
management will retain broad discretion as to the allocation of the remaining
approximately $42.9 million of the net proceeds of this offering. The broad
discretion we have in the use of proceeds of this offering involves risks that
we will not use such proceeds effectively or that we will use them in ways with
which you may not agree. Please see "Use of Proceeds," for a more detailed
discussion of how we will allocate proceeds.
Because our directors and officers will own approximately 75% of our outstanding
stock after this offering, you and other investors will have minimal influence
on stockholder decisions.
Upon consummation of this offering, our executive officers and directors,
together with their respective affiliates, will beneficially own approximately
75% (72% if the underwriters' over-allotment option is exercised in full), of
our outstanding common stock. As a result, if they act together, they will have
the ability to control the outcome on all matters requiring stockholder
approval, including the election and removal of directors and any merger,
consolidation or sale of all or substantially all of our assets, and to control
our management and affairs. Such control could discourage others from initiating
potential merger, takeover or other change of control transactions. As a result,
the market price of our common stock could be adversely affected. Please see
"Principal Stockholders" for a more detailed discussion of the influence our
principal stockholders have over us.
Some of the products we work with may not be year 2000 compliant, which could
result in customer dissatisfaction or claims against us.
We believe that our internal computer systems are Year 2000 compliant and do not
anticipate that we will incur significant expenditures to ensure that our
systems will function properly with respect to dates in the Year 2000 and
beyond. However, the Internet could face serious disruptions arising from the
Year 2000 computer problem. If there are serious Internet failures, consumers
may not be able to visit our web site. Given the pervasive nature of the Year
2000 problem, these issues may impact other entities with which we do business,
including, for example, those responsible for maintaining telephone and online
communications. Accordingly, we cannot predict the effect of the Year 2000
problem on those entities or us. We cannot be sure that a failure of third party
systems on which our systems and operations rely to be Year 2000 compliant will
not have a damaging affect on our business, financial condition or operating
results. The foregoing constitutes Year 2000 readiness disclosure within the
meaning of the Year 2000 Information and Readiness Disclosure Act. Please see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000 Readiness Disclosure" for a more detailed discussion of
year 2000 issues.
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Our charter and bylaw provisions could limit another party's ability to acquire
us.
A number of provisions in our certificate of incorporation and bylaws, as well
as provisions of Delaware law, may make it more difficult for another company to
acquire us, which could adversely affect the value of our stock. For example,
our certificate of incorporation allows our board of directors to issue up to
5,000,000 shares of preferred stock without a stockholder vote, divides our
board into three classes of directors, each with a three year term, and
eliminates the ability of stockholders to take action without a meeting. In
addition, our bylaws do not allow stockholders to call special stockholder
meetings or to take any action without a stockholder meeting. Finally, Delaware
law will prohibit an acquisition of Travelscape.com in some situations. Any or
all of these provisions could have the effect of delaying or prohibiting a
change of control, and as such, may preclude stockholders from receiving any
premium that might be offered in such a transaction. See "Description of Capital
Stock" for more details about these provisions.
We expect that the market price for our common stock may be volatile, which
could cause the value of your investment in our company to decline.
The value of your investment could decline due to the impact of any of following
factors, among others, upon the market price of our common stock:
- changes in our earnings estimates by financial analysts;
- our failure to meet financial analysts' performance expectations;
- changes in market valuations of other online service companies; and
- lack of liquidity.
In addition, many of the risks described elsewhere in this section could
materially and adversely affect our stock price, as discussed in those risk
factors. The stock markets have recently experienced price and volume volatility
that has affected companies' stock prices. Stock prices for many companies in
the Internet and emerging growth sectors have experienced wide fluctuations that
have often been unrelated to the operating performance of these companies.
Fluctuations such as these are likely to affect the market price of our common
stock.
In the past, securities class action litigation has often been instituted
against companies following periods of volatility in the market price of such
companies' 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. We could be required to pay
substantial damages, including punitive damages, if we were to lose such a
lawsuit.
Some of our shares will be eligible for future sale which could adversely affect
our stock price.
Sales of substantial amounts of our common stock in the public market after this
offering could adversely affect the prevailing market price of our common stock.
Upon completion of the offering, we will have 20,000,000 shares of common stock
outstanding, assuming no exercise of outstanding warrants or options after March
31, 1999. In addition, within 30 days after the closing of this offering, we
expect to issue up to 527,752 shares of common stock pursuant to the exercise of
outstanding warrants. Please see "Description of Capital Stock--Options and
Warrants" for a more detailed discussion of our outstanding shares.
Of the shares expected to be outstanding after the offering, all of the shares
sold in the offering will be freely tradable without restriction or further
registration under the Securities Act unless purchased by
21
<PAGE>
"affiliates" of Travelscape.com as that term is defined in Rule 144 under the
Securities Act. The remaining 15,527,752 shares expected to be outstanding after
the offering (including shares issuable upon exercise of warrants) will be
"restricted securities" as that term is defined under Rule 144 and may not be
sold publicly unless they are registered under the Securities Act or are sold
pursuant to Rule 144 or another exemption from registration. These restricted
securities will be be eligible for resale pursuant to Rule 144, subject to
compliance with the volume limitations and other restrictions under Rule 144 as
follows:
Eligibility of Restricted Securities For Sale in Public Market
<TABLE>
<S> <C>
At Effective Date............................................... 0
At January 22, 2000............................................. 15,000,000
At February 16, 2000............................................ 164,250
At February 28, 2000............................................ 363,502
</TABLE>
Within 180 days after the offering, we intend to file a registration statement
on Form S-8 under the Securities Act to register 2,340,750 shares of common
stock issuable under our 1998 Stock Plan, 2,000,000 shares of common stock
issuable under our 1999 Stock Plan and 500,000 shares of common stock issuable
under our 1999 Stock Purchase Plan. Please see "Description of Capital Stock"
and "Shares Eligible for Future Sale" for a more detailed discussion of our
outstanding stock.
22
<PAGE>
Forward Looking Statements
Certain statements under the captions "Summary," "Risk Factors," "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business," and elsewhere in this prospectus are
"forward-looking statements." These forward-looking statements include, but are
not limited to, statements about our plans, objectives, expectations and
intentions and other statements contained in the prospectus that are not
historical facts. When used in this prospectus, the words "expects,"
"anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar
expressions are generally intended to identify forward-looking statements.
Because these forward-looking statements involve risks and uncertainties, there
are important factors that could cause actual results to differ materially from
those expressed or implied by these forward-looking statements, including the
factors discussed under "Risk Factors."
23
<PAGE>
USE OF PROCEEDS
The net proceeds to us from the sale of the 5,000,000 shares of common stock
offered by us at an assumed initial public offering price of $11.00 per share
are estimated to be approximately $49.9 million, after deducting the
underwriting discount and estimated offering expenses (approximately $57.5
million if the over-allotment option is exercised in full).
We intend to use approximately $7.0 million of the net proceeds to repay debt
that was incurred in February 1999 to meet working capital requirements. This
debt is subject to senior notes due February 2001 bearing interest at 10%
through February 2000 and 12% after February 2000. The maturity of these notes
will be accelerated by the completion of this offering. The balance of the net
proceeds of the offering will be used for advertising and brand development,
working capital, general corporate purposes and potential strategic investments
or acquisitions that complement our products, services, technologies or
distribution channels. We currently have no commitments or agreements and are
not involved in any negotiations with respect to any acquisition or investment.
We cannot specify with certainty the particular uses for the net proceeds to be
received upon the completion of this offering. Accordingly, our management team
will have broad discretion in using the net proceeds of this offering. Pending
such uses, we intend to invest the net proceeds of the initial public offering
in investment grade interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on shares of our common stock.
We intend to retain any future earnings for future growth and do not anticipate
paying any cash dividends in the foreseeable future.
24
<PAGE>
CAPITALIZATION
All information in this prospectus relating to outstanding shares of
Travelscape.com common stock or options or warrants to purchase Travelscape.com
common stock is based upon information as of March 31, 1999 on a pro forma basis
to give effect to a 3-for-2 split of our common stock that will be completed
prior to the offering. Unless otherwise indicated, the information throughout
this prospectus does not take into account the possible issuance of additional
shares of common stock to the underwriters pursuant to their over-allotment
option.
The following table sets forth the capitalization of Travelscape.com at March
31, 1999:
- on an actual basis; and
- as adjusted to give effect to Travelscape.com's receipt of the
estimated net proceeds from the sale of 5,000,000 shares of common
stock offered by Travelscape.com at an assumed initial public
offering price of $11.00 per share and the application of these net
proceeds.
The outstanding share information excludes 527,752 shares of common stock
subject to outstanding warrants exercisable at $0.01 per share, all of which we
expect to issue within 30 days after the completion of this offering. Please see
"Description of Capital Stock--Options and Warrants" for a discussion of the
terms of these securities.
The outstanding share information also excludes 2,340,750 shares of common stock
subject to options outstanding under the 1998 Plan as of the date of this
prospectus at a weighted average exercise price of $2.98 per share. In addition,
in connection with this offering, our board of directors has approved:
- a reserve of 2,000,000 shares for issuance under the 1999 Stock
Plan; and
- a reserve of 500,000 shares for issuance under the 1999 Employee
Stock Purchase Plan.
In this prospectus, we refer to these equity incentive plans as the 1998 Plan,
the 1999 Plan and the 1999 Stock Purchase Plan as appropriate. Please see
"Management--Incentive Stock Plans" for a discussion of the terms of these
plans.
The capitalization information set forth in the table below is qualified by, and
should be read in conjunction with, our more detailed combined and consolidated
financial statements and notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
March 31, 1999
-----------------------
Actual As Adjusted
---------- -----------
(in thousands)
<S> <C> <C>
Cash and cash equivalents............................................................... $ 6,335 $ 49,148
---------- -----------
---------- -----------
Long-term debt, including current portion(1)............................................ $ 4,525 $ 2,357
Stockholders' equity (deficiency):
Preferred stock: $0.01 par value, 5,000,000 shares authorized; no shares issued and
outstanding, actual and as adjusted................................................. -- --
Common stock: $0.01 par value, 50,000,000 shares authorized; 15,000,000 shares issued
and outstanding, actual; 20,000,000 shares issued and outstanding, pro forma as
adjusted............................................................................ 150 200
Additional paid-in capital.............................................................. 16,112 65,912
Deferred stock compensation............................................................. (4,810) (4,810)
Stockholder loans....................................................................... (83) (83)
Accumulated deficit..................................................................... (11,616) (11,616)
---------- -----------
Net stockholders' equity (deficiency)............................................... (247) 49,603
---------- -----------
Total capitalization................................................................ $ 4,278 $ 51,960
---------- -----------
---------- -----------
</TABLE>
- ------------------------------------
(1) The long-term debt is recorded net of original issuance discount of $4.9
million. Please see note 6 to the unaudited combined and consolidated
financial statements for further details.
25
<PAGE>
DILUTION
Our net tangible book value as of March 31, 1999 was ($2.1) million, or
approximately ($0.14) per share. Net tangible book value per share represents
the amount of Travelscape.com's total assets less total liabilities and
intangible assets, divided by the number of shares of common stock outstanding.
Dilution in net tangible book value per share represents the difference between
the amount per share paid by purchasers of shares of common stock in the
offering made hereby and the net tangible book value per share of common stock
immediately after the completion of this offering. After giving effect to the
sale of the 5,000,000 shares of common stock offered by Travelscape.com hereby
at an assumed initial public offering price of $11.00 per share and after
deducting the estimated underwriting discounts and commissions and estimated
offering expenses payable by Travelscape.com, the net tangible book value of
Travelscape.com at March 31, 1999 would have been $47.7 million, or
approximately $2.39 per share. The following table illustrates this dilution on
a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............................. $ 11.00
Net tangible book value per share as of March 31, 1999.................... ($ 0.14)
Increase per share attributable to new investors.......................... 2.53
---------
Net tangible book value per share after this offering....................... 2.39
---------
Dilution per share to new investors......................................... $ 8.61
---------
---------
</TABLE>
The following table sets forth, on a pro forma basis as of March 31, 1999, the
differences between the number of shares of common stock purchased from
Travelscape.com, the total effective cash consideration paid and the average
price per share paid by existing holders of common stock and by the new
investors, before deducting underwriting discounts and commissions and estimated
offering expenses payable by Travelscape.com, at an assumed initial public
offering price of $11.00 per share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------------ ------------------------- Average Price
Number Percent Amount Percent Per Share
------------ ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........................ 15,000,000 75% $ 2,668,305 5% $ 0.18
New investors................................ 5,000,000 25 55,000,000 95 11.00
------------ ---------- ------------- ---------- ------
Total.................................... 20,000,000 100% $ 57,668,305 100% $ 2.88
------------ ---------- ------------- ---------- ------
------------ ---------- ------------- ---------- ------
</TABLE>
The foregoing excludes 527,752 shares of common stock subject to warrants
exercisable for $0.01 per share outstanding as of March 31, 1999, all of which
we expect to issue within 30 days after the completion of this offering.
Assuming the issuance of these shares, dilution per share to new investors would
equal $8.67, and the average price per share for all outstanding shares would
equal $2.33.
To the extent that any shares are issued upon exercise of options that were
outstanding at March 31, 1999 or granted after that date, or reserved for future
issuance under our stock plans, there will be further dilution to new investors.
Please see "Management--Incentive Stock Plans," "Description of Capital
Stock--Options and Warrants" and note 8 to our combined and consolidated
financial statements for further details.
26
<PAGE>
SELECTED COMBINED AND CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
The following table sets forth for the periods indicated selected combined and
consolidated financial data for Travelscape.com, and is qualified by our more
detailed combined and consolidated financial statements and notes thereto
included elsewhere in this prospectus. The following table should be read in
conjunction with such financial statements and notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
combined statement of operations data for the years ended December 31, 1996,
1997 and 1998 and the combined balance sheet data at December 31, 1997 and 1998
have been derived from our combined financial statements included elsewhere in
this prospectus. The combined statement of operations data and balance sheet
data for and as of the years ended December 31, 1994 and 1995 and the combined
balance sheet data as of December 31, 1996 have been derived from unaudited
(1994 and 1995) and audited (1996) financial statements not included in the
prospectus. The combined and consolidated statement of operations data and
balance sheet data for and as of the three months ended March 31, 1998 and 1999
are derived from unaudited combined and consolidated financial statements
included elsewhere in this prospectus which, in the opinion of management, have
been prepared on the same basis as the audited combined financial statements and
contain all adjustments, consisting only of normal recurring accruals, necessary
for a fair presentation of the financial position and results of operations for
such periods. On January 21, 1999, we completed an organizational restructuring
in which all of the outstanding common stock of Las Vegas Reservation Systems,
Old Travelscape and Professional Travel Services was contributed to us in
exchange for an aggregate of 15,000,000 shares of our common stock. As a result,
Las Vegas Reservation Systems, Old Travelscape and Professional Travel Services
became our wholly-owned subsidiaries. Statement of operations and balance sheet
data are presented on a combined basis through January 22, 1999 and on a
consolidated basis thereafter. The pro forma statement of operations data below
is presented as if the organizational restructuring had taken place on January
1, 1998. Net loss and the related per share amounts reflect adjustments for
amortization of intangible assets recorded in the organizational restructuring.
No adjustments have been made for federal income taxes as if the combined
company had been taxed as a sub-chapter C corporation rather than a sub-chapter
S corporation under the Internal Revenue Code, as the pro forma income tax
provision would be zero.
<TABLE>
<CAPTION>
Three
Months
Ended
Year Ended December 31, March 31,
----------------------------------------------------- ---------
1994 1995 1996 1997 1998
--------- --------- --------- --------- --------- 1998
---------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Room sales.................................................. $ 3,670 $ 4,961 $ 8,078 $ 11,716 $ 18,852 $ 2,901
Airfare sales............................................... 50 129 178 716 2,027 439
--------- --------- --------- --------- --------- ---------
Total revenues............................................ 3,720 5,090 8,256 12,432 20,879 3,340
Cost of sales................................................. 2,189 2,841 4,913 8,200 14,698 2,357
--------- --------- --------- --------- --------- ---------
Gross profit.................................................. 1,531 2,249 3,343 4,232 6,181 983
--------- --------- --------- --------- --------- ---------
Operating expenses:
General and administrative.................................. 1,187 1,575 2,087 3,066 5,421 853
Sales and marketing......................................... 204 472 797 990 4,109 383
Systems development......................................... -- -- 135 115 897 21
Stock compensation.......................................... -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Total operating expenses.................................. 1,391 2,047 3,019 4,171 10,427 1,257
--------- --------- --------- --------- --------- ---------
Operating income (loss)....................................... 140 202 324 61 (4,246) (274)
--------- --------- --------- --------- --------- ---------
Other income (expense):
Interest expense, net....................................... 1 (43) (4) (77) (184) (28)
Other income................................................ 122 -- 16 18 3 8
--------- --------- --------- --------- --------- ---------
Total other income (expense).............................. 123 (43) 12 (59) (181) (20)
--------- --------- --------- --------- --------- ---------
Net income (loss)............................................. $ 263 $ 159 $ 336 $ 2 $ (4,427) $ (294)
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Pro Forma Statement of Operations Data:
Pro forma net loss............................................ $ (4,552)
Pro forma net loss per share:(1)
Basic and Diluted........................................... $ (0.30)
Weighted average shares outstanding:(1)
Basic and Diluted........................................... 15,000
Balance Sheet Data:
Net working capital deficit................................... $ (362) $ (511) $ (1,241) $ (2,580) $ (5,032) $ (2,922)
Total assets.................................................. 542 577 718 2,507 3,844 2,970
Long-term debt, including current portion..................... 173 142 78 1,568 2,235 1,577
Net stockholders' deficiency.................................. (59) (503) (926) (1,716) (3,606) (2,131)
<CAPTION>
1999
---------
<S> <C>
Statement of Operations Data:
Revenues:
Room sales.................................................. $ 7,603
Airfare sales............................................... 472
---------
Total revenues............................................ 8,075
Cost of sales................................................. 5,625
---------
Gross profit.................................................. 2,450
---------
Operating expenses:
General and administrative.................................. 2,209
Sales and marketing......................................... 3,194
Systems development......................................... 288
Stock compensation.......................................... 1,827
---------
Total operating expenses.................................. 7,518
---------
Operating income (loss)....................................... (5,068)
---------
Other income (expense):
Interest expense, net....................................... (360)
Other income................................................ 1
---------
Total other income (expense).............................. (359)
---------
Net income (loss)............................................. $ (5,427)
---------
---------
Pro Forma Statement of Operations Data:
Pro forma net loss............................................ $ (5,437)
Pro forma net loss per share:(1)
Basic and Diluted........................................... $ (0.36)
Weighted average shares outstanding:(1)
Basic and Diluted........................................... 15,000
Balance Sheet Data:
Net working capital deficit................................... $ (2,407)
Total assets.................................................. 13,340
Long-term debt, including current portion..................... 4,525
Net stockholders' deficiency.................................. (247)
</TABLE>
- ------------------------------------
(1) Please refer to note 9 to our combined and consolidated financial
statements for the calculation of net loss per share, including an
explanation of the number of shares used in computing the amount of basic
and diluted net loss per share.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH OUR COMBINED AND
CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO INCLUDED ELSEWHERE IN
THIS PROSPECTUS. OUR DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS BASED UPON
CURRENT EXPECTATIONS THAT INVOLVE RISKS AND UNCERTAINTIES, SUCH AS OUR PLANS,
OBJECTIVES, EXPECTATIONS AND INTENTIONS. TRAVELSCAPE.COM'S ACTUAL RESULTS AND
THE TIMING OF CERTAIN EVENTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN
THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF A VARIETY OF FACTORS, INCLUDING
THOSE SET FORTH UNDER "RISK FACTORS," "BUSINESS" AND ELSEWHERE IN THIS
PROSPECTUS. OUR HISTORICAL RESULTS ARE NOT NECESSARILY INDICATIVE OF OUR FUTURE
RESULTS.
Overview
Travelscape.com is a leading consumer-direct online travel wholesaler serving
popular destination markets across the United States. Through our relationships
with selected travel service suppliers, we provide low prices on a wide range of
accommodation and transportation alternatives to meet a variety of consumer
travel preferences and budgets. Our wholesale supply agreements with hotels and
major airlines enable us to offer our customers hotel or hotel/air packages at
significant discounts from published rates and fares. Visitors to our web sites
at WWW.TRAVELSCAPE.COM and WWW.LVRS.COM have immediate access both to our easy
to use proprietary booking engine to compare travel options, rates and
availability, and to detailed hotel information and destination guides. From
1996 to 1998, our revenue grew from $8.3 million to $20.9 million, a compound
annual growth rate of 59%.
Travelscape.com was formed in Delaware on January 21, 1999. Concurrent with our
formation, we executed a reorganization of our three predecessor Nevada
corporations, Las Vegas Reservation Systems, Professional Travel Services and
Old Travelscape, as wholly-owned subsidiaries of Travelscape.com. Las Vegas
Reservation Systems, Professional Travel Services and Old Travelscape commenced
operations in 1990, 1993 and 1998, respectively. Statement of operations and
balance sheet data for all periods up to and including the year ended December
31, 1998 are presented on a combined basis reflecting the operating results and
financial condition of all three subsidiaries. Statement of operations and
balance sheet data for and as of the three months ended March 31, 1999 are
presented on a combined basis through January 22, 1999 and on a consolidated
basis for the remainder of the period.
Substantially all of our revenue through the end of 1998 was generated by
reselling travel services to Las Vegas visitors, principally through our call
center. In March 1998, we began selling travel services over the Internet from
our web site at WWW.LVRS.COM, and in November 1998, we began selling travel
services from our second web site at WWW.TRAVELSCAPE.COM. Internet sales
represented approximately 30% of our gross bookings in 1998 and approximately
65% of our gross bookings in the three months ended March 31, 1999, based on the
aggregate retail value of the travel booked. We expect that Internet bookings
will continue to increase as a percentage of bookings. Historically, hotel room
sales have comprised the vast majority of our revenue. We expect airfare sales
to increase as we expand our marketing of these services. In addition, in 1998
we began to offer travel services associated with destinations other than Las
Vegas. While bookings associated with travel outside Las Vegas were not material
in 1998, their sales accounted for 15% of our travel bookings in the three
months ended March 31, 1999, and we expect these bookings to increase as we
execute our strategy to enter into new destination markets.
Our revenue includes sales of both "non-published" and "published" rates and
fares. In sales of non-published rates and fares, or "wholesale transactions,"
we purchase travel services from the travel supplier pursuant to an agreement,
resell the services to consumers and act as the merchant of record for the
credit card transaction. We receive payment of the aggregate retail value of the
travel booked in wholesale transactions at the time travel is booked and record
the payment as deferred revenue. Revenue is recognized at the time the customer
checks into the hotel or completes the air travel. After the
28
<PAGE>
consummation of this offering we will hold deferred revenue in interest bearing
accounts pending recognition, although historically we have not done so.
Wholesale transactions accounted for approximately 97%, 99%, 98% and 95% of
revenue in 1996, 1997 and 1998 and the three months ended March 31, 1999,
respectively.
In sales of published rates and fares, or "commissionable transactions," we
receive a commission from the travel supplier for acting as the booking agent
and the travel supplier is the merchant of record for the credit card
transaction. Commissions are recognized at the time the commission is received
from the travel supplier, and average approximately 5% and 10% of the aggregate
value of travel booked for airlines and hotels, respectively.
Our cost of sales in wholesale transactions includes the price paid to travel
suppliers for the services that we resell. Our gross margin on non-published
airfare sales tends to be substantially lower than our gross margin on hotel
room sales because airlines do not generally offer discounts from published
rates comparable to those offered by hotels. In addition, our gross margins tend
to be lower on room sales outside of Las Vegas than they are for room sales in
Las Vegas because our relationships with our hotel partners in these new markets
are not as well developed as our relationships in Las Vegas, and therefore hotel
operators in these markets often do not offer us their most favorable discounts
from published rates. Our commissions on published rates and fares are generally
less than our gross profits in wholesale transactions. However, all commissions
are reflected as gross profits because we do not recognize cost of sales on
commissionable transactions. In 1996, 1997 and 1998 and the three months ended
March 31, 1999, gross margins were approximately 40.5%, 34.0%, 29.6% and 30.3%,
respectively. The decline in gross margins reflects disproportionate growth in
sales of non-published airfares and, in the three months ended March 31, 1999,
increased sales associated with destinations other than Las Vegas, offset by
increases in commissionable sales. To the extent that non-published airfare
sales and sales associated with destinations other than Las Vegas continue to
increase as a percentage of revenue, we expect to continue to experience
declining overall gross margins.
During 1998 and the three months ended March 31, 1999, we substantially
increased our operating expenses in connection with the launch of our online
operations. General and administrative expense increased as the result of
additional staffing to launch our web sites, expand our call center and increase
the number of hotels we have under contract. Sales and marketing expense
increased principally as the result of entering into online advertising
arrangements with other web sites and online marketing representatives. Systems
development expense increased as the result of increased technical staff and
infrastructure requirements to support our web sites. We expect that operating
expenses will continue to increase as we execute our strategy to develop greater
brand recognition and web site traffic, increase destination content, expand
into new markets and improve our web sites.
In the three months ended March 31, 1999, we recorded an aggregate of $6.6
million in deferred stock compensation relating to stock options granted with an
exercise price below the deemed fair market value of our common stock on the
date of grant. Stock compensation expense is recognized as the options vest.
During the three months ended March 31, 1999, we recognized approximately $1.8
million in stock compensation expense. The remaining $4.8 million of deferred
stock compensation expense at March 31, 1999 is reflected in the stockholders'
deficiency section of our balance sheet and will be amortized over the three
year vesting period of the related options. To the extent we grant additional
options or rights to acquire our stock in the future, we may recognize
additional stock compensation expense in future periods. Please see note 8 to
our combined and consolidated financial statements for further details on our
stock compensation expense.
In the three months ended March 31, 1999, we issued approximately $7.0 million
of our senior notes. In connection with the issuance of the notes, we also
issued warrants to purchase an aggregate of 527,752 shares of our common stock
for $0.01 per share, and recorded an aggregate of $5.1 million in original
29
<PAGE>
issuance discount to be amortized over the two year term of the notes. In
addition, we incurred approximately $500,000 in debt issuance costs in
connection with the issuance of the notes, which will be amortized over the term
of the notes. The consummation of this offering will cause the maturity of the
notes to be accelerated. As a result, we expect to recognize the unamortized
balance of original issuance discount and debt issuance costs, or approximately
$5.3 million, as interest expense in the three months ending June 30, 1999,
assuming this offering is completed in that period.
Prior to our reorganization with Las Vegas Reservation Systems, Professional
Travel Services and Old Travelscape, Las Vegas Reservation Systems and
Professional Travel Services operated as sub-chapter S corporations under the
Internal Revenue Code, and were not subject to federal income taxes. We are now
a sub-chapter C corporation and will be subject to applicable federal income
tax.
Results of Operations
The following table sets forth our historical results of operations expressed as
a percentage of total revenue.
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
Statement of Operations Data:
Revenues:
Room sales.................................................... 97.8% 94.2% 90.3% 86.9% 94.2%
Airfare sales................................................. 2.2 5.8 9.7 13.1 5.8
--------- --------- --------- --------- ---------
Total revenues............................................ 100.0 100.0 100.0 100.0 100.0
Cost of sales................................................... 59.5 66.0 70.4 70.6 69.7
--------- --------- --------- --------- ---------
Gross profit.................................................... 40.5 34.0 29.6 29.4 30.3
--------- --------- --------- --------- ---------
Operating expenses:
General and administrative.................................... 25.3 24.7 25.9 25.5 27.4
Sales and marketing........................................... 9.7 8.0 19.7 11.5 39.5
Systems development........................................... 1.6 0.8 4.3 0.6 3.6
Stock compensation............................................ -- -- -- -- 22.6
--------- --------- --------- --------- ---------
Total operating expenses.................................. 36.6 33.5 49.9 37.6 93.1
--------- --------- --------- --------- ---------
Operating income (loss)......................................... 3.9 0.5 (20.3) (8.2) (62.8)
--------- --------- --------- --------- ---------
Other income (expense):
Interest expense, net......................................... -- (0.6) (0.9) (0.9) (4.4)
Other income.................................................. 0.2 0.1 -- 0.3 --
--------- --------- --------- --------- ---------
Total other income (expense).............................. 0.2 (0.5) (0.9) (0.6) (4.4)
--------- --------- --------- --------- ---------
Net income (loss)............................................... 4.1% --% (21.2)% (8.8)% (67.2)%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
Comparison of Three Months Ended March 31, 1999 and 1998
ROOM SALES. Room sales increased $4.7 million, or 162.1%, to $7.6 million in
the three months ended March 31, 1999 from $2.9 million in the prior year
period. As a percentage of total revenue, room sales increased to 94.2% in the
three months ended March 31, 1999 from 86.9% in the prior year period. The
increase in room sales was attributable to operation of both of our web sites
for the entire period in 1999, while we had only one web site operational for
one month in the 1998 period. The additional
30
<PAGE>
volume was supported by an increase in our contracted room allotments both
within and outside of Las Vegas.
AIRFARE SALES. Airfare sales increased $33,000, or 7.6%, to $472,000 in the
three months ended March 31, 1999 from $439,000 in the prior year period. As a
percentage of total revenue, airfare sales decreased to 5.8% in the three months
ended March 31, 1999 from 13.1% in the prior year period. In the three months
ended March 31, 1999, we sold 64% more airline tickets than we sold in the prior
year period. However, because a greater proportion of these tickets were at
published rates in 1999, we recognized only the net commission from the supplier
in these transactions and, as a result, our revenue from airfare sales was only
marginally higher in the 1999 period.
GROSS PROFIT. Gross profit increased $1.5 million, or 149.4%, to $2.5 million
in the three months ended March 31, 1999 from $983,000 in the prior year period.
Gross margin increased to 30.3% in the three months ended March 31, 1999 from
29.4% in the prior year period. The increase in overall gross margin was
primarily attributable to an increase in commissionable airfare sales, all of
which is reflected as gross profit. This increase was partially offset by a
decrease in gross margins on room sales caused by increased room sales in
markets other than Las Vegas, which produced lower gross margins than room sales
in Las Vegas.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense includes
salaries for customer support, administrative and financial staff, merchant
fees, corporate overhead and amortization of goodwill. General and
administrative expense increased $1.4 million, or 159.1%, to $2.2 million in the
three months ended March 31, 1999 from $853,000 in the prior year period. As a
percentage of total revenue, general and administrative expense increased to
27.4% in the three months ended March 31, 1999 from 25.5% in the prior year
period. The increase in general and administrative expense in both absolute
dollars and as a percentage of total revenue was primarily attributable to
increased staffing related to efforts to increase our contracted room allotments
and to a lesser extent, to the expansion of our call center.
SALES AND MARKETING EXPENSE. Sales and marketing expense includes advertising
costs under both fixed rate and revenue sharing arrangements. Sales and
marketing expense increased $2.8 million, or 733.8% to $3.2 million in the three
months ended March 31, 1999 from $383,000 in the prior year period. As a
percentage of total revenue, sales and marketing expense increased to 39.5% in
the three months ended March 31, 1999 from 11.5% in the prior year period. The
increase in sales and marketing expense in both absolute dollars and as a
percentage of total revenue was primarily attributable to increased online
advertising expenditures to build market share, generate traffic on our web
sites and further develop brand awareness. In the three months ended March 31,
1999, we entered into new advertising commitments pursuant to which we expect to
pay DoubleClick approximately $6.5 million through June 2000 and MapQuest
approximately $1.9 million through May 2000. We expect to enter into additional
similar advertising commitments after the offering and as a result we expect
sales and marketing expense to continue to increase in absolute dollars for the
foreseeable future.
SYSTEMS DEVELOPMENT EXPENSE. Systems development expense includes salaries of
our technical staff, expenses to maintain our web sites and payments to outside
vendors for technical systems and support. Systems development expense increased
$267,000 to $288,000 in the three months ended March 31, 1999 from $21,000 in
the prior year period. As a percentage of total revenue, systems development
expense increased to 3.6% in the three months ended March 31, 1999 from 0.6% in
the prior year period. The increase in systems development expense in both
absolute dollars and as a percentage of total revenue was primarily attributable
to additional expenditures made to further develop our web sites and, to a
lesser extent, to expand our in-house technical staff. We expect systems
development expense to continue to increase in absolute dollars for the
foreseeable future.
31
<PAGE>
STOCK COMPENSATION EXPENSE. Stock compensation expense in the three months
ended March 31, 1999 totaled approximately $1.8 million. Based on options
granted to date, we expect to recognize approximately $600,000 in stock
compensation expense in the three months ending June 30, 1999, and $400,000 in
stock compensation expense each quarter thereafter through the first quarter of
2002. To the extent we grant additional options or rights to acquire our stock
in the future, we may recognize additional stock compensation expense in future
periods.
OTHER INCOME (EXPENSE). Other expense increased $339,000 to $359,000 in the
three months ended March 31, 1999 from $20,000 in the prior year period. The
increase in other expense was primarily attributable to the increase in interest
expense resulting from the sale of approximately $7.0 million of senior notes in
February 1999 and the amortization of $232,000 of the original issuance discount
on the warrants issued and debt issuance costs in connection with the notes. We
expect to recognize interest expense of approximately $5.3 million in the three
months ending June 30, 1999 in connection with our issuance of notes in February
1999, assuming we complete this offering prior to June 30, 1999.
NET LOSS. Net loss increased $5.1 million to $5.4 million in the three months
ended March 31, 1999 from $294,000 in the prior year period. The increase in net
loss was primarily attributable to the increased operating expenses discussed
above.
Comparison of Fiscal Years Ended December 31, 1998 and 1997
ROOM SALES. Room sales increased $7.2 million, or 60.9%, to $18.9 million in
1998 from $11.7 million in 1997. As a percentage of total revenue, room sales
decreased to 90.3% in 1998 from 94.2% in 1997. The increase in room sales was
primarily attributable to the launch of our web sites and the success of our
online advertising efforts. Other factors contributing to increased room sales
were increased sales through our call center and growth in our contracted room
allotments. The decrease as a percentage of total revenue was attributable to
the disproportionate growth of airfare sales.
AIRFARE SALES. Airfare sales increased $1.3 million, or 183.1%, to $2.0 million
in 1998 from $716,000 in 1997. As a percentage of total revenue, airfare sales
increased to 9.7% in 1998 from 5.8% in 1997. The increase in airfare sales both
in absolute dollars and as a percentage of sales was primarily attributable to
our having a full year of non-published airfare sales in 1998 compared to only
seven months of non-published airfare sales in 1997.
GROSS PROFIT. Gross profit increased $2.0 million, or 46.1%, to $6.2 million in
1998 from $4.2 million in 1997. Gross margin decreased to 29.6% in 1998 from
34.0% in 1997. The decrease in gross margin was primarily attributable to
declining margins on room sales, which resulted from discounts we offered to
promote our web sites and build market share combined with general declines in
Las Vegas room prices. To a lesser extent, increased sales of non-published
airfares, which produce lower gross margins than room sales, had a negative
effect on our gross margin. The decline in gross margin was partially offset by
increased sales of published airfares, all of which is reflected as gross
profit.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense
increased $2.3 million, or 76.8%, to $5.4 million in 1998 from $3.1 million in
1997. As a percentage of total revenue, general and administrative expense
increased to 25.9% in 1998 from 24.7% in 1997. The increase in general and
administrative expense both in absolute dollars and as a percentage of total
revenue was primarily attributable to increased staffing related to the
expansion of our call center and to efforts to increase our contracted room
allotments in markets outside Las Vegas in preparation for the launch of our
second web site.
SALES AND MARKETING EXPENSE. Sales and marketing expense increased $3.1
million, or 314.8%, to $4.1 million in 1998 from $990,000 in 1997. As a
percentage of total revenue, sales and marketing expense increased to 19.7% in
1998 from 8.0% in 1997. The increase in sales and marketing expense in both
absolute dollars
32
<PAGE>
and as a percentage of total revenue was primarily attributable to increased
online marketing expenses to build market share, generate traffic on our web
sites and develop brand awareness.
SYSTEMS DEVELOPMENT EXPENSE. Systems development expense for 1998 increased
$782,000, or 680.5%, to $897,000 in 1998 from $115,000 in 1997. As a percentage
of total revenue, systems development expense increased to 4.3% in 1998 from
0.8% in 1997. The increase in systems development expense in both absolute
dollars and as a percentage of total revenue was primarily attributable to
additional expenditures made to develop our web sites and, to a lesser extent,
to expand our in-house technical staff.
OTHER INCOME (EXPENSE). Other expense increased $122,000 to $181,000 in 1998
from $59,000 in 1997. The increase in other expense resulted primarily from a
full year of interest expense on the mortgage on our headquarters facility
compared to a partial year in 1997.
NET INCOME (LOSS). We had a net loss of $4.4 million in 1998 compared to net
income of $2,000 in 1997. The net loss was primarily attributable to increased
operating expenses discussed above.
Comparison of Fiscal Years Ended December 31, 1997 and 1996
ROOM SALES. Room sales increased $3.6 million, or 45.0%, to $11.7 million in
1997 from $8.1 million in 1996. As a percentage of total revenue, room sales
decreased to 94.2% in 1997 from 97.8% in 1996. The increase in room sales was
primarily attributable to growth in our customer base and contracted room
allotments and increases in advertising expenditures. The decrease as a
percentage of total revenue was attributable to our introduction of
non-published airfares in 1997.
AIRFARE SALES. Airfare sales increased $538,000 or 302.1% to $716,000 in 1997
from $178,000 in 1996. As a percentage of total revenue, airfare sales increased
to 5.8% in 1997 from 2.2% in 1996. The increase in airfare sales in both
absolute dollars and as a percentage of total revenue was primarily attributable
to our entry into negotiated rate agreements with a number of airlines that
allowed us to sell non-published airfares to our customers.
GROSS PROFIT. Gross profit increased $890,000, or 26.6%, to $4.2 million in
1997 from $3.3 million in 1996. Gross margin decreased to 34.0% in 1997 from
40.5% in 1996. The decrease in gross margin was primarily attributable to
declining margins on room sales due to aggressive pricing. To a lesser extent,
gross margins were also adversely affected by the introduction of non-published
airfare sales and a decrease in the sale of published airfares.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense
increased $979,000, or 46.9%, to $3.1 million in 1997 from $2.1 million in 1996.
As a percentage of total revenue, general and administrative expense remained
essentially flat at 24.7% in 1997 and 25.3% in 1996. The dollar increase in
general and administrative expense was primarily attributable increased staffing
related to the expansion of our call center.
SALES AND MARKETING EXPENSE. Sales and marketing expense increased $194,000, or
24.2%, to $990,000 in 1997 from $797,000 in 1996. As a percentage of total
revenue, sales and marketing expense decreased to 8.0% in 1997 from 9.7% in
1996. The dollar increase in sales and marketing expense was attributable to
increases in advertising expenditures to build market share.
SYSTEMS DEVELOPMENT EXPENSE. Systems development expense decreased $20,000, or
14.7%, to $115,000 in 1997 from $135,000 in 1996. As a percentage of total
revenue, systems development expense decreased to 0.8% in 1997 from 1.6% in
1996. Systems development expense decreased due to the completion of our
proprietary reservations system in early 1997.
OTHER INCOME (EXPENSE). We had other expense of $59,000 in 1997, compared to
other income of $13,000 of income in 1996. The increase in other expense
resulted primarily from interest expense on the mortgage on our newly built
headquarters facility.
NET INCOME. Net income decreased $334,000, or 99%, to $2,000 in 1997 from
$336,000 in 1996. The decrease in net income was primarily attributable to
increased staffing, advertising and interest expense.
33
<PAGE>
Selected Unaudited Historical Quarterly Results of Operations
The following tables set forth selected unaudited combined statement of
operations data for Travelscape.com for the eight quarters ended December 31,
1998 and consolidated statement of operations data for the quarter ended March
31, 1999 in absolute dollars and as a percentage of total revenue. This data
should be read in conjunction with our combined and consolidated financial
statements for 1997 and 1998 and consolidated financial statements for the three
months ended March 31, 1999 and the notes thereto included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
Mar. 31, Jun. 30, Sep. 30, Dec. 31, Mar. 31, Jun. 30, Sep. 30, Dec. 31,
1997 1997 1997 1997 1998 1998 1998 1998
----------- --------- --------- ----------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Room sales.................. $ 2,792 $ 3,070 $ 2,594 $ 3,260 $ 2,901 $ 4,731 $ 4,951 $ 6,269
Airfare sales............... 38 49 365 264 439 699 549 340
----------- --------- --------- ----------- ----------- --------- --------- ---------
Total revenue............. 2,830 3,119 2,959 3,524 3,340 5,430 5,500 6,609
Cost of sales................. 1,845 1,996 2,016 2,343 2,357 3,886 3,899 4,556
----------- --------- --------- ----------- ----------- --------- --------- ---------
Gross profit.................. 985 1,123 943 1,181 983 1,544 1,601 2,053
----------- --------- --------- ----------- ----------- --------- --------- ---------
Operating expenses:
General and
administrative............ 640 660 723 1,043 853 1,147 1,422 1,999
Sales and marketing......... 259 211 238 283 383 637 1,047 2,042
Systems development......... 29 28 29 29 21 125 420 331
Stock compensation.......... -- -- -- -- -- -- -- --
----------- --------- --------- ----------- ----------- --------- --------- ---------
Total operating
expenses................ 928 899 990 1,355 1,257 1,909 2,889 4,372
----------- --------- --------- ----------- ----------- --------- --------- ---------
Operating income (loss)....... 57 224 (47) (174) (274) (365) (1,288) (2,319)
----------- --------- --------- ----------- ----------- --------- --------- ---------
Other income (expense):
Interest expense, net....... -- (1) (7) (68) (28) (26) (69) (60)
Other income................ -- -- 18 -- 8 3 (10) 1
----------- --------- --------- ----------- ----------- --------- --------- ---------
Total other income
(expense)............... -- (1) 11 (68) (20) (23) (79) (59)
----------- --------- --------- ----------- ----------- --------- --------- ---------
Net income (loss)............. $ 57 $ 223 $ (36) $ (242) $ (294) $ (388) $ (1,367) $ (2,378)
----------- --------- --------- ----------- ----------- --------- --------- ---------
----------- --------- --------- ----------- ----------- --------- --------- ---------
As a Percentage of Total Revenue
--------------------------------------------------------------------------------------------
Revenue:
Room sales.................. 98.7% 98.4% 87.7% 92.5% 86.9% 87.1% 90.0% 94.9%
Airfare sales............... 1.3 1.6 12.3 7.5 13.1 12.9 10.0 5.1
----------- --------- --------- ----------- ----------- --------- --------- ---------
Total revenue............. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of sales................. 65.2 64.0 68.1 66.5 70.6 71.6 70.9 68.9
----------- --------- --------- ----------- ----------- --------- --------- ---------
Gross profit.................. 34.8 36.0 31.9 33.5 29.4 28.4 29.1 31.1
----------- --------- --------- ----------- ----------- --------- --------- ---------
Operating expenses:
General and
administrative............ 22.6 21.2 24.5 29.6 25.5 21.1 25.9 30.2
Sales and marketing......... 9.2 6.7 8.0 8.0 11.5 11.7 19.0 30.9
Systems development......... 1.0 0.9 1.0 0.8 0.6 2.3 7.6 5.1
Stock compensation.......... -- -- -- -- -- -- -- --
----------- --------- --------- ----------- ----------- --------- --------- ---------
Total operating
expenses................ 32.8 28.8 33.5 38.4 37.6 35.1 52.5 66.2
----------- --------- --------- ----------- ----------- --------- --------- ---------
Operating income (loss)....... 2.0 7.2 (1.6) (4.9) (8.2) (6.7) (23.4) (35.1)
----------- --------- --------- ----------- ----------- --------- --------- ---------
Other income (expense):
Interest expense, net..... -- -- (0.2) (1.9) (0.9) (0.5) (1.3) (0.9)
Other income................ -- -- 0.6 -- 0.3 0.1 (0.2) --
----------- --------- --------- ----------- ----------- --------- --------- ---------
Total other income
(expense)............... -- -- 0.4 (1.9) (0.6) (0.4) (1.5) (0.9)
----------- --------- --------- ----------- ----------- --------- --------- ---------
Net income (loss)........... 2.0% 7.2% (1.2)% (6.8 )% (8.8 )% (7.1)% (24.9)% (36.0)%
----------- --------- --------- ----------- ----------- --------- --------- ---------
----------- --------- --------- ----------- ----------- --------- --------- ---------
<CAPTION>
Mar. 31,
1999
---------
<S> <C>
Revenues:
Room sales.................. $ 7,603
Airfare sales............... 472
---------
Total revenue............. 8,075
Cost of sales................. 5,625
---------
Gross profit.................. 2,450
---------
Operating expenses:
General and
administrative............ 2,209
Sales and marketing......... 3,194
Systems development......... 288
Stock compensation.......... 1,827
---------
Total operating
expenses................ 7,518
---------
Operating income (loss)....... (5,068)
---------
Other income (expense):
Interest expense, net....... (360)
Other income................ 1
---------
Total other income
(expense)............... (359)
---------
Net income (loss)............. $ (5,427)
---------
---------
Revenue:
Room sales.................. 94.2%
Airfare sales............... 5.8
---------
Total revenue............. 100.0
Cost of sales................. 69.7
---------
Gross profit.................. 30.3
---------
Operating expenses:
General and
administrative............ 27.4
Sales and marketing......... 39.5
Systems development......... 3.6
Stock compensation.......... 22.6
---------
Total operating
expenses................ 93.1
---------
Operating income (loss)....... (62.8)
---------
Other income (expense):
Interest expense, net..... (4.4)
Other income................ --
---------
Total other income
(expense)............... (4.4)
---------
Net income (loss)........... (67.2)%
---------
---------
</TABLE>
34
<PAGE>
Seasonality and Quarterly Financial Information
The travel industry is subject to seasonal fluctuations dependent on business
and leisure travel patterns. If seasonality in the travel industry causes
quarterly fluctuations, there could be a material adverse effect on our business
and the value of your stock. Please see "Risk Factors--We experience seasonality
in customer travel that may affect our revenue" for a more detailed explanation
of how seasonal fluctuations might affect our operating results.
Liquidity and Capital Resources
In February 1999, we completed a private senior note offering which resulted in
net proceeds to us of $6.5 million. We have also financed our activities through
cash provided by operations, a private issuance of $1.5 million of equity in
June 1998, equipment financing and various lines of credit.
We currently anticipate that the net proceeds from this offering, together with
our current cash and cash equivalents and anticipated cash flow from operations
will be sufficient to meet our presently anticipated working capital and capital
expenditure requirements for at least the next 12 months. Specifically, we
currently have advertising commitments through June 2000 totalling over $15.0
million, which we expect to fund out of the proceeds of this offering and cash
flows from operations. We currently have no material capital expenditure
commitments, and our anticipated debt service requirements after this offering
are immaterial. We also currently anticipate that available sources of liquidity
will be sufficient to meet working capital and capital expenditure requirements
well beyond the next 12 months. However, we may need to raise additional funds
in order to support more rapid expansion, develop new or enhanced services,
respond to competitive pressures, acquire complementary business or technologies
or take advantage of unanticipated opportunities. If additional funds are raised
through the issuance of equity securities, the percentage ownership of our
stockholders will be reduced, our stockholders may experience additional
dilution in net book value per share or such securities may have rights,
preferences or privileges senior to those of the holders of our common stock.
There can be no assurance that additional financing will be available when
needed on terms favorable to us or at all. If adequate funds are not available
on acceptable terms, we may be unable to develop or enhance our services and
products, take advantage of future opportunities or respond to competitive
pressures, any of which could have a material adverse effect on our business,
financial condition and operating results.
At March 31, 1999, we had a net working capital deficit of $2.4 million. We have
historically operated with a net working capital deficit due to the fact that we
have invested working capital assets in operating expenses, investments and
fixed assets. Our net working capital deficit has not historically negatively
affected our ability to operate or meet our obligations as they come due. After
the net proceeds of this offering, we expect to have significant positive net
working capital.
Cash used in operating activities was $732,000 for the three months ended March
31, 1999, compared to $335,000 provided by operations in the prior year period.
The increase in cash used in operating activities in the three months ended
March 31, 1999 was primarily the result of significantly increased sales and
marketing expenditures relative to the prior period. Partially offsetting these
expenditures was the substantial increase in current liabilities resulting from
increased bookings. Cash used in operating activities during 1998 was $2.2
million, and cash provided by operations in 1997 and 1996 was $1.3 million and
$758,000, respectively. Such amounts primarily reflect net income or net loss
for the respective periods in addition to increases in working capital
liabilities resulting from increased bookings in the respective periods.
Cash used in investing activities was $172,000 for the three months ended March
31, 1999, compared to $43,000 for the prior year period. The increase in cash
used in the three months ended March 31, 1999 was primarily the result of
additional technical hardware being purchased in the period. Cash used in
35
<PAGE>
investing activities during 1998, 1997 and 1996 was $67,000, $2.0 million and
$145,000, respectively. Cash used in investing activities in the 1998 period was
in addition to $711,000 of purchases made pursuant to capital lease obligations
which are recorded as non-cash capital expenditures. Cash used in investing
activities in the 1997 period was primarily comprised of our purchase of our
headquarters facility for $1.9 million.
Cash provided by financing activities was $7.0 million for the three months
ended March 31, 1999, compared to cash used in financing activities totaling
$111,000 for the prior year period. The increase in cash provided by financing
activities was primarily due to the net proceeds of $6.5 million from our
issuance of senior notes in February 1999. Cash provided by financing activities
during 1998 and 1997 was $2.5 million and $704,000, respectively, compared to
cash used in financing activities totaling $618,000 in 1996. Cash provided by
financing activities in the 1998 period was primarily comprised of a $1.5
million private issuance of equity and net capital contributions of $1.0 million
by our Chairman of the Board. Cash provided by financing activities in the 1997
period was comprised of $1.5 million of loan proceeds from the mortgage on our
headquarters facility offset by $792,000 of distributions to our Chairman of the
Board. Cash used in financing activities in the 1996 period was primarily
comprised of $759,000 of distributions to our Chairman of the Board.
Market Risks
We currently have no significant floating rate indebtedness, hold no derivative
instruments and do not earn income denominated in foreign currencies.
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 revenue is recognized in dollars and almost
all of our revenue is 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.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards, or 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. Our comprehensive income (loss) is the same
as net income (loss). Accordingly, SFAS No. 130 did not have a material impact
on the combined and consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. 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, including the way
management organizes the segments within the enterprise for making operating
decisions and assessing performance. Management currently reviews financial data
at the highest level, the sale of travel services. Therefore, under the
management approach of SFAS No. 131, we have only one operating segment.
Accordingly, SFAS No. 131 did not have a material impact on the combined and
consolidated financial statements.
The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants issued Statement of Position, or 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
36
<PAGE>
capitalized and amortized and all remaining costs must be expensed when
incurred. Management is currently evaluating the impact of SOP No. 98-1.
Year 2000 Readiness Disclosure
Many currently installed computer systems and software products are coded to
accept only two digit entries to denote the year in the date code field.
Beginning in the Year 2000, these code fields will be required to accept four
digit entries to distinguish 21(st) century dates from 20(th) century dates. As
a result, computer systems and/or software products used by many companies may
need to be upgraded to comply with such Year 2000 requirements.
STATE OF READINESS OF OUR INTERNALLY-CREATED SYSTEMS
Our web sites and supporting tools and infrastructure were initially designed
and developed in 1998 to be Year 2000 compliant. We do not anticipate that any
of the products we have developed internally will experience operational
difficulties related to the Year 2000.
STATE OF READINESS OF THE THIRD-PARTY SYSTEMS USED BY TRAVELSCAPE.COM
We may be affected by Year 2000 issues related to non-compliant systems
developed by third-party vendors. We currently have two types of computer
systems or programs which may be affected. They include: (1) reservation
database systems and (2) non-information technology, or non-IT, systems. The
reservation database systems involve the computer programs and products
responsible for airline and hotel reservations and other transactional systems.
Non-IT systems include systems or hardware containing embedded technology such
as micro-controllers and building security systems.
The main supplier of our air reservation database system is the SABRE Group.
Currently, substantially all of our air transactions are processed through the
SABRE system. Although SABRE has not provided us with any written assurances as
to its readiness for the year 2000, as of February 1999, reservation agents have
been booking reservations on the SABRE system for travel in the Year 2000 and
have not encountered any difficulties caused by Year 2000 issues. We do not
anticipate that Year 2000 issues will cause the SABRE system or any of the other
reservation database systems used by us to have more difficulties after the Year
2000 than have occurred since SABRE began booking travel into Year 2000.
We also currently rely on Norwest Bank to process credit card transactions. We
have not received any written assurances from Norwest Bank as to its readiness
for the Year 2000.
Because we have not received written assurances from either the SABRE Group or
Norwest Bank, we have assumed that neither will be ready for the Year 2000
before January 1, 2000, and that both the SABRE global distribution service and
Norwest Bank's credit card processing capabilities will fail at that time. Based
on this assumption, we believe such failures would be the most reasonably likely
worst case Year 2000 scenario.
If the SABRE global distribution service fails, we would be unable to query the
service to retrieve published airfares and room rates, but it would not affect
our ability to sell hotel rooms at wholesale rates from our own database. In
addition, we would log incoming calls regarding airfares, and return the calls
once the global distribution service has been restored. If service is not
restored promptly, we could switch to another global distribution service, which
we believe would require approximately 60 days. During the transition to a new
service, sales of airfares would be severely disrupted.
If the Norwest Bank credit card processing capabilities fail, we would complete
credit card transactions manually using temporary staff. If Norwest Bank were
unable to restore service promptly, we believe
37
<PAGE>
switching to another financial institution for automated credit card processing
would require approximately five days.
We are not currently aware of any Year 2000 problem relating to any of our
material internal non-IT systems. We plan to test all such systems for Year 2000
compliance by June 30, 1999.
COSTS
Based on the steps being taken and progress to date, management estimates that
the expenses for ensuring Year 2000 compliance of our computer products and
systems will not have a material adverse effect on operations or earnings, and,
to the extent they exist, can be financed out of cash flow from operations. We
do not track Year 2000 readiness expenses separately from other expenses.
RISKS
Despite such plans and our assessment of current hardware and software, our
assessment of our current state of compliance may not be fully accurate. In
certain cases, we have relied in good faith on representations and warranties
regarding Year 2000 compliance provided to us by third-party vendors of hardware
and software and the advice and assessment of our consultants, and we have not
independently verified such representations and warranties. Such representations
and warranties may not be accurate in all material respects and the advice or
assessments of our consultants may not be reliable. If third parties are not
able to make their systems Year 2000 compliant in a timely manner, it could
adversely affect our business.
Finally, Year 2000 issues may impact other entities with which we do business,
including those responsible for maintaining telephone and online communications.
Accordingly, we cannot predict the effect of the Year 2000 problem on such
entities. If these other entities fail to take preventative or corrective
actions in a timely manner, the Year 2000 issue could have a negative effect on
our business.
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BUSINESS
THE FOLLOWING DISCUSSION OF OUR BUSINESS CONTAINS FORWARD-LOOKING STATEMENTS
RELATING TO FUTURE EVENTS OR OUR FUTURE FINANCIAL PERFORMANCE THAT INVOLVE RISKS
AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF A VARIETY OF
FACTORS, INCLUDING THOSE DISCUSSED IN "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS.
Travelscape.com is a leading consumer-direct online travel wholesaler serving
popular destination markets across the United States, including Las Vegas,
Orlando, New York, San Francisco and Hawaii. Through our relationships with
selected travel service suppliers, we provide low prices on a wide range of
accommodation and transportation alternatives to meet a variety of consumer
travel preferences and budgets. At March 31, 1999, we had wholesale supply
agreements with over 335 hotels in 35 destination markets and negotiated rate
agreements for discount airfares with major airlines that enable us to offer our
customers hotel or hotel/air packages at significant discounts from published
rates and fares. Visitors to our web sites at WWW.TRAVELSCAPE.COM and
WWW.LVRS.COM have immediate access both to our easy to use proprietary booking
engine to compare travel options, rates and availability, and to detailed hotel
information and destination guides. Customers may book and purchase travel
services, 24 hours a day, 7 days a week, in a few easy steps, either online or
through our toll-free call center at (888) 335-0101. From 1996 to 1998, our
annual revenue grew from $8.3 million to $20.9 million, a compound annual growth
rate of 59%. We launched our Internet operations in March 1998, and Internet
sales have grown from approximately 30% of gross bookings in 1998 to
approximately 65% of gross bookings for the three months ended March 31, 1999,
based on the aggregate retail value of the travel booked.
Industry Background
THE TRAVEL INDUSTRY
Travel and tourism represents one of the largest consumer markets in the United
States. The Travel Industry Association of America, or the Travel Industry
Association, estimates that in 1997, domestic travel expenditures totaled $482
billion, with spending on airfares and hotels comprising approximately $79.5
billion and $62.5 billion, respectively. The Travel Industry Association also
estimates that 76% of all trips taken in 1997 were for leisure travel. The
distribution channels for leisure travel are highly fragmented. Travel service
suppliers, such as hotels, airlines and rental car companies, sell travel
services directly to consumers and indirectly through retail travel agencies and
travel wholesalers. The Travel Industry Association estimates that travel
agencies alone generated approximately $126 billion in total sales in 1997. In
addition, the Airlines Reporting Corporation estimates that there are
approximately 32,540 travel agency locations in the United States. The principal
distribution channels for leisure travel services to consumers include:
DIRECT SALES. Travel service suppliers typically sell their services directly
to consumers through call centers and, more recently, through their own web
sites. These suppliers generally offer only their own services, or offer their
services in conjunction with partners from other areas of the travel industry,
such as in hotel/airfare packages. Bookings are generally made at retail, or
"published," rates that suppliers have difficulty deviating from due to
competitive constraints.
RETAIL TRAVEL AGENCIES. Retail travel agencies offer consumers travel services
at published rates and fares through global distribution services, such as those
offered by Pegasus Systems and the SABRE Group, as well as discount, or
"non-published," fares through travel wholesalers. Retail travel agencies
receive commissions and incentives on gross bookings that typically average
5-10%. As travel service suppliers have increasingly sought to cut costs and
drive more traffic through their own booking channels in recent years, retail
travel agencies have experienced shrinking or capped commissions and increased
competition from travel service suppliers selling directly to consumers.
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TRAVEL WHOLESALERS. Travel wholesalers purchase hotel, airline and car rental
capacity directly from travel service suppliers at discounts substantially in
excess of commissions paid on published rates, and generally resell this
capacity individually or in packages through travel agencies.
THE WHOLESALE TRAVEL BUSINESS MODEL
Travel wholesalers provide travel service suppliers with a supplemental
distribution channel to assist them in achieving "yield optimization." Yield
optimization is the process of maximizing revenue by minimizing levels of excess
capacity, such as hotel rooms or airplane seats, while maximizing average
revenue per unit of capacity. Travel service suppliers employ two pricing
mechanisms to influence their yield optimization. First, to maximize revenue,
travel service suppliers maintain full fares and rates targeted at business
travelers, who may have little choice and limited flexibility with their travel
plans and cannot tolerate restrictions. Second, to minimize excess capacity,
travel service suppliers provide economy fares and rates to leisure travelers
whose travel decisions are primarily influenced by price. The following
illustrates some of the ways in which airlines and hotel operators engage travel
wholesalers to optimize their yield:
- AIRLINES. Airlines optimize yield at the system level by imposing
no restrictions on full fares, while imposing advance purchase and
Saturday stay requirements, change restrictions and cancellation
penalties on economy fares. Airlines further reduce excess capacity
by granting travel wholesalers access to non-published discount
rates, which allows the airlines to maintain published rates and
avoid fare wars.
- HOTELS. Hotels are generally unable to differentiate between
business and leisure travelers, except by charging lower weekend
rates. To minimize excess capacity while maintaining published
rates, hotel operators contract room blocks at discount rates to
travel wholesalers who generally package these rooms with discount
airfares for the leisure market. In addition, hotel operators
sometimes face unexpected large cancellations or declines in
reservations that leave them with unfilled, or "distressed,"
inventory. Travel wholesalers help alleviate distressed inventory
by passing on deep promotional discounts through their channels.
Travel wholesalers generally rely on retail travel agencies to sell their
products and services, and lack the infrastructure and expertise to interact
directly with consumers. In return for their services, retail travel agencies
typically receive a 5-10% commission, which results in higher prices for
consumers and reduced margins for wholesalers. In addition, travel wholesalers
must publish and disseminate rate and availability data to their travel agency
networks in advance, which restricts wholesalers' ability to adjust prices in
response to distressed inventory. Despite potential advantages for travel
wholesalers of selling directly to consumers, we believe that they are generally
reluctant to develop this channel because doing so could jeopardize their
relationships with the retail distribution networks that generate most of their
sales.
THE EMERGENCE OF E-COMMERCE AND ONLINE DISTRIBUTION OF TRAVEL SERVICES
The Internet has emerged as a global medium for communication, content delivery
and e-commerce, and Internet use continues to increase rapidly. International
Data Corporation, estimates that the number of users worldwide with access to
the Internet will increase to 320 million in 2002 from 100 million in 1998,
representing a compound annual growth rate of approximately 34%. As consumers
have become increasingly adept at using the Internet for evaluating and
purchasing a wide variety of goods, the dollar volume of online commerce
transactions has risen dramatically. International Data Corporation estimates
that the volume of goods and services purchased over the Internet will increase
to $400 billion in 2002 from $32 billion in 1998, representing a compound annual
growth rate in excess of 88%.
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Online sales of travel services have expanded dramatically in recent years due
to the substantial benefits of e-commerce to both travel service suppliers and
consumers. By moving their travel services online, travel service suppliers,
retail travel agencies and travel wholesalers can reach a global customer base
from a central location. Furthermore, both the low cost of customer interaction
and the automation of processing and fulfillment functions supported by Internet
sales allow online travel service providers the potential to maintain lower
operating expenses. Consumers benefit from convenient access to a range of
travel options and information regarding available travel services and products.
According to Forrester Research, online travel bookings are expected to grow to
$29.5 billion in 2003 from $3.1 billion in 1998, representing a compound annual
growth rate of 57%.
A number of approaches have emerged to address the online travel market,
including:
- ONLINE TRAVEL RESERVATION SERVICES. Online travel reservation
services generally have adopted the retail travel agency model and
sell published rates and fares quoted through global distribution
systems on a commission basis. Because global distribution services
are not configured for simultaneous display of multiple hotel
options or hotel/air packages, comparison shopping for these travel
services can be time consuming. A small number of these online
travel reservation services also resell travel packages provided by
wholesalers.
- DIRECT ONLINE SALES BY SUPPLIERS. Airlines, hotels and car rental
companies have begun offering their services online through their
own web sites. These web sites frequently access only published
rates for the hosts' or their partners' travel services, thereby
limiting consumer choice and prohibiting convenient comparison
shopping.
- ONLINE TRAVEL WHOLESALERS. A small number of travel wholesalers
have begun offering consumer-direct wholesale travel services
online. These providers typically focus almost exclusively on a
single service, primarily air travel, and lack the strategic
relationships needed to effectively service leisure travel to
destination markets.
In addition, many online travel service providers require consumers to register
by providing personal information prior to searching for travel options. These
registration requirements often make these web sites cumbersome to use and may
give rise to security concerns.
As the online travel services industry continues to evolve and mature, we
believe consumers will increasingly demand an easy to use web site that provides
a broad range of travel services, including transportation, accommodations,
activities and travel-related content and the ability to comparison shop for
preferred suppliers, price levels, destinations and packages. To offer consumers
maximum value and competitive prices, the web site must have access to wholesale
travel pricing in addition to published rates and fares through a global
distribution service. In addition, we believe travel service suppliers will seek
online distribution partners that combine extensive wholesale travel experience
with aggressive online marketing to provide an effective distribution channel
that helps minimize excess capacity and responds quickly to distressed
inventory, while also allowing suppliers to maintain published rates and fares
and avoid fare wars.
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Travelscape.com Solution
Travelscape.com is a leading consumer-direct online travel wholesaler serving
popular destination markets across the United States. We believe we have
overcome many of the shortcomings of the traditional and online travel service
distribution channels by simultaneously addressing needs of both suppliers and
consumers. We believe that by offering wholesale pricing of travel services
directly to consumers, we are able to maintain better margins than are available
to either retail travel agencies or the travel wholesalers that rely on them.
We have successfully operated as a consumer-direct travel wholesaler since 1990,
and extended our business to the Internet in 1998. We have established strategic
relationships with travel service suppliers, including leading hotels and
airlines, and by featuring these partners on our web sites, we enable them to
optimize yield, increase profits and enhance product and service distribution.
We intend to replicate the model we have developed in destination markets across
the United States and around the world. We leverage our strong travel service
supplier relationships to provide online consumers with low prices on a wide
range of accommodation and transportation alternatives that meet a variety of
travel preferences and budgets. We are building brand awareness and increasing
traffic on our web sites by establishing strategic online relationships with
advertising representatives, content providers, Internet service providers and
portals. We provide consumers with fast, intuitive and easy to use web sites
that are supported 24 hours a day, 7 days a week by our call center. The
Travelscape.com business model provides the following benefits:
BENEFITS TO CONSUMERS
BETTER PRICING AND PACKAGING OPPORTUNITIES. As a consumer-direct travel
wholesaler, we offer consumers access to a lower rate structure for hotels and
hotel/air packages than is generally available from online travel services. We
have established relationships with hotels and airlines that give us access to
discount prices and other terms that are of value to our clients. We actively
pass part of these savings and the benefit of these terms on to our customers.
In addition, our hotel and airline relationships allow us to provide attractive
travel packages to our destination markets.
INFORMATIVE CONTENT AND CHOICE. We have developed strategic relationships with
a broad range of travel suppliers to offer our customers travel alternatives
that fit their preferences and budget constraints. Multiple accommodation and
transportation options and packages are displayed simultaneously to assist in
comparison shopping, unlike most other online travel sites that display only one
package or hotel at a time. We provide options tailored to a variety of customer
needs, include detailed descriptions of our featured hotel properties and
package hotel and air options for maximum discounts. Customers browsing for
travel values can also review online brochures from travel service suppliers and
detailed information about the destination market.
CONVENIENT SHOPPING EXPERIENCE. We have leveraged our experience in the travel
industry to create an online shopping experience that anticipates our customers'
questions and concerns. Our web sites are designed for intuitive operation and
include helpful guidance to "walk" consumers through each step of booking travel
and completing an online transaction. Unlike many other online travel sites, we
do not require customers to pre-register by providing detailed personal
information, which allows for more convenient travel searches and reduces
customer concerns about online privacy.
CONTINUOUS CUSTOMER SUPPORT. Our call center assists online customers 24 hours
a day, 7 days a week in using our web sites and finding travel options. In
addition, our call center offers an alternative for completing transactions for
customers who are uncomfortable with e-commerce or who prefer to purchase over
the telephone.
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BENEFITS TO TRAVEL SUPPLIERS
PROVEN WHOLESALE PARTNER. We developed and demonstrated the effectiveness of
our wholesale travel business model in the Las Vegas market, the number one
travel destination in the United States. We have established strong
relationships with leading travel suppliers in Las Vegas and we are now seeking
to replicate our model in other popular destination markets. At March 31, 1999,
we had wholesale supply agreements with over 335 hotels in 35 markets, including
Las Vegas, Orlando, New York, San Francisco and Hawaii. We believe that the
extensive and close relationships with hotel operators required for success in
the wholesale travel market can be established only through consistent
performance over time. Furthermore, we believe the desire of property managers
to deal with a limited number of proven distributors restricts entry into this
market.
YIELD OPTIMIZATION. We enable hotel operators and airlines to improve their
yield by providing them with an efficient and flexible distribution platform. We
have a proven record of selling substantial hotel inventory and helping our
hotel partners optimize yield through flexible pricing and the ability to move
distressed inventory rapidly with "last minute" offers. Similarly, we help our
airline partners sell excess capacity at discounted prices while maintaining
their published rate structures and avoiding fare wars.
INCREASE ONLINE SALES FOR STRATEGIC HOTEL SUPPLIERS. We select and feature a
limited number of hotels in the economy, mid-price and luxury price ranges in
each market we serve, unlike many other online travel services that simply offer
the entire universe of hotel choices. By offering customers recommended
properties that meet our quality standards, we increase the probability that our
hotel partners will achieve increased revenue through online distribution while
helping customers find hotels that meet their needs.
ONLINE BRAND EXPOSURE. We provide our suppliers with high profile online brand
exposure and advertising presence that they would otherwise have difficulty
attaining. When featured on our web sites, travel service suppliers benefit from
our extensive online marketing strategy, which may be uneconomical for them to
replicate on their own. In addition, by bringing together multiple air and hotel
options on our web sites, we are able to generate greater consumer interest and
web site traffic than many individual travel service suppliers would be capable
of on their own.
Strategy
Travelscape.com's objective is to be the premier consumer-direct online travel
wholesaler for leisure travel, and to be the wholesaler of choice for leading
travel service suppliers. The principal elements of our business strategy are
to:
ENHANCE THE CONSUMER VALUE PROPOSITION. We intend to increase value for
consumers by broadening the range of destination markets served by our web sites
and offering a complete travel planning solution, including hotel
accommodations, air travel, and, in the future, rental cars and other travel
related products and services, while attempting to offer the lowest possible
prices. In addition, we plan to enhance our ability to proactively communicate
with our customers by utilizing customer profile information, personalizing the
shopping experience and creating a Travelscape.com community through travel
bulletin boards and chat rooms.
STRENGTHEN AND EXPAND STRATEGIC HOTEL RELATIONSHIPS. We plan to strengthen and
expand our leadership position as a strategic partner in hotel yield
optimization by increasing our room blocks under existing relationships and
establishing new hotel relationships in key destination markets. We plan to
continue to identify and enter into relationships with leading hotels in the
economy, mid-price and luxury range in each market we serve. From the beginning
of 1998 through March 31, 1999, we substantially increased our inventory of
wholesale rooms by expanding our existing relationships and entering into
agreements with over 290 hotels in 34 new destination markets in the United
States. In 1999, we plan to increase our inventory in U.S. markets, and to begin
serving new international destination markets, including the Caribbean, Latin
America and Europe.
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AGGRESSIVELY DEVELOP BRAND. Travelscape.com's strategy is to promote, advertise
and increase the value and visibility of our brand through high quality service,
active marketing and promotional programs. These programs include advertising on
leading web sites and other media, conducting an ongoing public relations
campaign and developing business alliances and partnerships. We plan to increase
awareness of our brand by entering into additional online marketing
relationships with advertising representatives, content providers, Internet
service providers and portals. We believe that strong brand recognition is
increasingly important in e-commerce to attract customers and promote consumer
trust and loyalty in the absence of face-to-face relationships.
INCREASE AIRFARE SALES AND PURSUE INCREMENTAL REVENUE OPPORTUNITIES. We intend
to increase airfare sales, both in connection with room sales and on a stand
alone basis, by entering into new and enhanced relationships with major
airlines. In addition, we plan to pursue other incremental revenue opportunities
by expanding the range of products and services we offer, including the addition
of rental cars, cruises and tours, and by selling advertising space.
INVEST IN LEADING TECHNOLOGY. We intend to continue to invest in the
implementation of technology-driven enhancements to our web sites,
transaction-processing systems and call center. In addition, we intend to
develop tighter integration with the booking systems of our travel suppliers to
ensure that our customers are exposed to special promotional discounts as soon
as these discounts are initiated to help suppliers optimize their yields.
PURSUE STRATEGIC ACQUISITIONS. We intend to expand the travel content and
features of our web sites, build brand recognition and increase traffic volume
on our web sites both through investment in our existing operations and through
strategic acquisitions of complementary businesses and technologies.
Travelscape.com Services
Travelscape.com provides consumers with content-rich, value-added travel
services at significant discounts. Visitors to our sites at WWW.TRAVELSCAPE.COM
and WWW.LVRS.COM have immediate access to our easy to use proprietary booking
engine. Unlike many other travel web sites, we do not require customers to
pre-register or provide personal information prior to searching our database for
travel options. Visitors simply type in their desired destination and itinerary,
and the booking engine simultaneously displays a range of travel options, rates
and availability for the visitor to compare. At any time, visitors can review
detailed information about each of our destination markets, including in-depth
hotel, shopping and dining information, local news and events and other travel
planning information. We provide customer support through our call center 24
hours a day, 7 days a week to answer customer questions and assist in finding
the best travel value for their needs. Customers can either complete travel
purchases in a few easy steps online, or call our call center to purchase travel
offline.
THE TRAVELSCAPE.COM BOOKING PROCESS. At March 31, 1999, Travelscape.com's
travel inventory includes reserved blocks of hotel rooms at wholesale prices
from over 335 hotels in 35 destination markets and access to wholesale airfares
with several major airlines. In addition to our own inventory, we have access to
over 28,000 hotels and 400 airlines through the Pegasus Systems electronic
distribution service and the SABRE global distribution service at published
rates and fares. Visitors can choose to search for hotel, air or hotel/air
packages. Once a visitor initiates a search, our booking engine searches our
wholesale inventory and published airfares quoted through the SABRE global
distribution service to locate the best prices possible for the desired travel.
Our relational database and proprietary SABRE global distribution service
interface enables simultaneous presentation of numerous options that meet the
customer's requests to allow easy comparison shopping. To complete a purchase,
customers select the hotel and/or airline of their choice and supply basic
identification and credit card information. Once the order is submitted, the
customer receives instant online confirmation that travel has been booked and a
subsequent e-mail to verify the transaction. We also provide our customers with
the option to complete travel purchases quickly and efficiently through our call
center. Fulfillment is completed with e-tickets, whenever possible, or printed
tickets sent to the customer by second day air.
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DESTINATION GUIDES. Travelscape.com customers can view detailed information on
hotel options and destination markets at any time while shopping for travel
values, all without leaving the convenience of our web sites.
- HOTEL CONTENT. In addition to rates and availability, we provide
in-depth content on the hotels featured on our web sites, including
pictures of properties and rooms, descriptions of amenities and
locations, our own five star rating system and directions to the
hotel. By selecting and featuring a limited number of hotels in the
economy, mid-price and luxury price ranges in desirable areas of
each market we serve, we assist our customers in finding the
properties best suited to their individual preferences and budget
constraints.
- "HOT DEALS." The Travelscape.com home and destination pages feature
multiple "hot deals" in cooperation with our strategic partners in
each market we serve by offering deeper than usual promotional
discounts for a select number of hotels and hotel/air packages.
- LOCAL EVENTS AND ATTRACTIONS. Travelscape.com offers extensive
information on local events and attractions by providing access to
local content providers in each of our destination markets.
- RESTAURANT GUIDE. Travelscape.com allows customers to view dining
alternatives by featuring local restaurant guides.
- GROUND TRANSPORTATION. Travelscape.com offers access to rental car
reservations and other local transportation options, such as taxi,
limousine and shuttle services.
- MAPS. As part of our strategic online relationship with MapQuest,
Travelscape.com provides customers access to detailed and accurate
maps that pinpoint and provide directions to local attractions,
businesses and other addresses requested by the customer.
- WEATHER REPORTS. Travelscape.com provides access to current weather
information for planning future travel.
CUSTOMER SERVICE. Travelscape.com believes that its customer support service is
unparalleled in the online travel industry. We maintain a 90-station call
center, 24 hours a day, 7 days a week, to assist customers in using our web
sites. The call center also receives and processes orders for customers more
comfortable with that medium, and assists customers in changing or canceling
travel arrangements prior to the dates of travel. In addition, if a customer
purchases hotel accommodations at one of our strategic hotel partners through us
and finds a lower rate for the same property and dates elsewhere, we will refund
the difference to the customer upon verifying the lower rates.
Strategic Travel Relationships
Travelscape.com pursues strategic relationships with premier travel service
suppliers to provide the greatest travel value to its customers. Our strategic
travel relationships include:
- HOTELS. At March 31, 1999, Travelscape.com had established a
network of over 335 hotels in 35 destination markets nationwide,
including Las Vegas, Orlando, New York, San Francisco and Hawaii.
Hotels in the network include a wide range of independent hotels
and hotels in national chains, such as Doubletree, Hilton,
Marriott, Westin, Loews, Best Western and Hampton Inn. Sales of
rooms at the Luxor Hotel/Casino in Las Vegas accounted for 18.7% of
our gross hotel bookings in 1997 and 14.5% of our gross hotel
bookings in 1998. Our agreement with Luxor is non-exclusive, its
term runs for the calendar year and it is subject to renegotiation
each year upon expiration. No other supplier accounted for more
than 10% of our gross hotel bookings in 1997 and
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1998. We have entered into rate and inventory agreements with each
hotel in our network that allow us to purchase rooms at wholesale
prices. We resell these rooms at marked-up prices, while still
offering attractive discounts to consumers. By establishing
relationships with selected hotels in each destination market, we
are able to provide value-added advice to help customers decide on
accommodations and help our strategic hotel partners achieve higher
occupancy levels while maintaining their published rate structure.
- AIRLINES. Travelscape.com has entered into a non-exclusive
negotiated rate agreement with American Airlines for its entire
domestic system. Under the negotiated rate agreement, American
Airlines allows us access to airfares at wholesale prices on all
available domestic flights, provided we resell the fare in
combination with a hotel room. By combining discount air and hotel
prices, we offer customers extremely attractive package rates. In
addition, the negotiated rate agreement allows Travelscape.com to
offer consumers lower fares with less restrictive advance purchase
and weekend stay requirements than are generally available, even on
short notice. We have also entered into non-exclusive negotiated
rate agreements with Reno Air and America West Airlines for their
entire systems.
- GLOBAL DISTRIBUTION SERVICES. SABRE is a world leader in the
electronic distribution of travel-related products and services and
is a leading provider of information technology solutions for the
travel and transportation industry. Through the SABRE global
distribution service, Travelscape.com offers published airfares
from more than 400 airlines, including those of all major domestic
and international commercial airlines. In addition, SABRE's
electronic booking system and database hosts our non-published fare
information through a unique arrangement that permits
Travelscape.com to integrate our non-published fares with published
fares in a dedicated area of the SABRE global distribution service
to which only we have access. This system automatically sorts
through millions of fares, including our own non-published fares,
to identify the lowest fare available for the desired itinerary. In
addition, we offer reservations for hotels outside of our networks
through the Pegasus Systems electronic distribution service on a
commision basis.
Online Marketing
Travelscape.com's marketing strategy is to strengthen our brand name, enhance
customer awareness of our services and attract new customers through online
banner advertising, web site sponsorship arrangements, co-branding relationships
and, to a lesser extent, print and broadcast media advertising. Travelscape.com
markets its wholesale travel services directly to consumers by entering into
strategic marketing relationships with online advertising representatives,
Internet service providers, portals and content providers. Our online marketing
relationships include:
- DOUBLECLICK. Effective March 1999, Travelscape.com entered into a
strategic relationship with DoubleClick, a leading provider of
online advertising solutions, to heighten visibility and brand
awareness of the Travelscape.com name and increase the volume of
traffic to our web sites. Under the one year agreement, DoubleClick
promises to deliver 327 million advertisements on other web sites
that link to our web sites, or impressions, per quarter that
include Travelscape.com text or graphic links. DoubleClick delivers
impressions to Travelscape.com primarily through ad placements on
web sites in the DoubleClick Network, including permanent text
links, rotating graphics links, banner ads and, in certain cases,
custom integration of Travelscape.com features and services on web
sites in the DoubleClick Network. DoubleClick features
Travelscape.com as the preferred hotel reservation service provider
on specified web sites on the DoubleClick
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Network. In return, Travelscape.com has agreed to pay DoubleClick
approximately $6.5 million in service fees over the term of the
contract, plus a share of revenue in certain circumstances. The
agreement is subject to re-negotiation after the term has expired.
- MAPQUEST. Travelscape.com and MapQuest, a leading online provider
of mapping and destination information, have entered into a
strategic relationship pursuant to which we are the preferred hotel
reservation service provider on the MapQuest site. MapQuest
includes permanent graphic and text links and rotating banner ads
for our web sites on its web site. MapQuest also has embedded the
Travelscape.com hotel booking engine directly into its web site.
MapQuest had an estimated 3.1 million unique visitors to its web
site in March 1999, according to Media Metrix, and has committed to
deliver 40 million impressions per month to Travelscape.com under a
series of agreements. In return, we will pay MapQuest a total $1.9
million through May 2000. Our agreements with MapQuest are subject
to re-negotiation after their terms have expired.
- INTERNET PORTALS AND INTERNET SERVICE PROVIDERS. Travelscape.com is
a featured travel service provider on the web sites of a wide range
of leading portals and Internet service providers, including Yahoo,
the Go2Net Network's Metacrawler, America Online, Earthlink,
Encompass and AT&T Worldnet Service. Advertising on these sites
allows Travelscape.com to reach potential customers at the point
where they access the Internet or begin to search for travel
information. These ads take a variety of forms, including rotating
banner ads and graphic links with minimum impressions requirements
per month, permanently installed text and graphic links and custom
integration of the Travelscape.com booking engine in the travel
sections of these sites. In exchange, we generally pay a set fee
per year ranging from approximately $200,000 to approximately $1.5
million, and in certain instances we pay a percentage of the
revenue generated by the ads in excess of target levels. These
arrangements are generally negotiated on a year to year basis.
- TRAVEL RELATED SITES. Travelscape.com is the preferred travel
service provider or hotel reservation service on a variety of
travel related web sites. For example, our hotel booking engine is
embedded as the discount hotel solution on WWW.ORLANDO.COM and
WWW.LASVEGAS.COM, leading destination-focused web sites in their
respective markets. In addition, our permanent graphic links are
the travel booking systems in the travel sections of regional
newspaper web sites including WWW.WASHINGTONPOST.COM and
WWW.SFGATE.COM. In exchange, we generally pay a set fee per year
ranging from $50,000 to $200,000, and in certain instances we pay a
percentage of the revenue generated by the ads. These arrangements
are generally negotiated on a year to year basis.
A key element of the Travelscape.com strategy is to aggressively develop our
brand recognition. We plan to increase online awareness of our brand by entering
into agreements with additional Internet service providers, portals and travel
related sites and by expanding our use of online advertising representatives and
co-branded sites.
OFFLINE MARKETING. In addition to our online marketing strategy, we continue to
advertise Las Vegas travel packages for sale directly from our call center in
regional newspapers including the LOS ANGELES TIMES, ORANGE COUNTY REGISTER, SAN
DIEGO UNION TRIBUNE and ARIZONA REPUBLIC.
Sales
From our inception in 1990 to 1997, we booked substantially all of our sales
through our call center. Since launching our web sites in 1998, our online sales
have steadily increased as a percentage of gross bookings. Internet sales
represented 30% of gross bookings in 1998 and 65% of gross bookings in the first
quarter of 1999. As online sales increase, our call center is increasingly
providing customer support for the online operations, while also offering an
alternative sales channel for customers more comfortable with that medium.
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Competition
The online travel services market is new, rapidly evolving, intensely
competitive and has relatively low barriers to entry. We believe that
competition in the online travel services market is based predominantly on:
- price;
- selection and availability of hotel rooms and airfares;
- selection of destination markets;
- ease of use of online booking service;
- customer service;
- reliability; and
- travel related content.
We compete primarily with online travel reservation services such as Preview
Travel, Expedia Travel and Travelocity, as well as online travel wholesalers
such as Cheap Tickets, Hotel Reservation Network, Lowestfare.com and
Priceline.com. In addition, and to a lesser extent, we compete with traditional
travel agencies such as American Express Travel Service, Carlson Wagonlit Travel
and Uniglobe Travel, individual airlines, hotels and car rental companies
selling directly to consumers and consolidators and wholesalers of airline
tickets and other travel products such as Global Vacation Group and 800 Travel
Systems.
As the market for online travel services grows, we believe that companies
already involved in the online travel services industry will increase their
efforts to develop services that compete with our services. Currently, most
travel suppliers sell their services through travel agencies, travel wholesalers
and directly to customers, mainly by telephone. Increasingly, major airlines and
hotels are offering travel products and services directly to consumers through
their own web sites. Some of these web sites also include travel products and
services of other travel suppliers. We believe that this trend will continue. We
also face potential competition from Internet companies not yet in the leisure
travel market and travel companies not yet operating online. We are unable to
anticipate which other companies are likely to offer competitive services in the
future. We cannot be sure that our web sites and toll-free call center will
compete successfully with any current or future competitors.
Technology
Travelscape.com has developed proprietary automated database applications to
manage its inventory of contracted wholesale hotel rooms and airline seats.
Customers access the database through our web site interface to search for rates
and availability on a desired travel itinerary, and can quickly vary travel
parameters to determine the lowest prices available within their travel
constraints. The web site interface allows customers to search the SABRE global
distribution service directly for published fares. With a single interface for
all transactions, the difference between wholesale transactions from inventory
and commission-based transactions through the SABRE global distribution service
is transparent to customers. When the customer places an online order, our
automated back office obtains credit card approval for the transaction, confirms
the bookings with the travel service providers, arranges for e-tickets, e-mails
confirmations and mails paper tickets to the customer when e-tickets are
unavailable.
Travelscape.com users are linked to our servers through a redundant
configuration of a T3 data communication line and two T1 data communication
lines. In addition, 56 Kbp leased lines are used for data communications between
the servers and the SABRE global distribution service. Travelscape.com has
significantly expanded its data communications capacities in recent months and
anticipates continuing to do so in the future to support increased growth.
Travelscape.com maintains an Internet firewall to protect its internal systems.
All credit card transactions are processed using encryption and authentication
technology, including public key cryptology technology and secure socket layer
technology.
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Proprietary Rights
We regard our trademarks, domain names, service marks, trade dress, trade
secrets, copyrights and similar intellectual property as important to our
success, and rely on trademark and copyright law, trade secret protection and
confidentiality to protect our proprietary rights. We are pursuing the
registration of our key trademarks in the United States and internationally.
Effective trademark, service mark, copyright and trade secret protection may not
be available in every country in which our products and services are made
available online. Failure to effectively protect our intellectual property could
adversely affect our business or result in erosion of our brand name.
Currently, the only registered trademark we own is "Travelscapes Vacations,"
which we acquired in April 1999. In addition, we have filed an application with
the United States Patent and Trademark Office, or the Trademark Office, for the
trademark "Travelscape.com," and that application is currently pending. We are
aware of two other applications for the trademark "Travelscape" that are under
rejection by the Trademark Office. We have obtained the rights to the first of
these applications from the party who filed it. We believe that our ownership of
the Travelscapes Vacations trademark and the rights to the first application for
Travelscape will be sufficient to allow us to register the trademark
"Travelscape.com" with the Trademark Office. However, we cannot assure you that
we are correct in this regard. Further, we are aware that there are a number of
other businesses using the name Travelscape or variations thereof in commerce.
We do not know when all of these companies started using the name. One or more
of these companies may have started using the name prior to the time the rights
we have acquired were established, and could have rights in the name that are
superior to ours. As part of our strategy to protect our trademarks, we plan to
contact these companies and take actions to cause them to stop using the name.
There is also the chance that another party could claim that our use of the name
infringes their rights. In either case, we could become involved in litigation,
which would likely be expensive and time consuming, and could distract
management from the operations of the business. Furthermore, we cannot be sure
we would prevail in any such litigation. We also plan to apply for the trademark
"lvrs.com," which is the name of our Las Vegas focused web site. We cannot be
sure we will be successful with this application.
Government Regulation
The United States and foreign governments heavily regulate certain segments of
the travel industry, and accordingly some services we offer are affected by such
regulations. For example, we are subject to the United States Department of
Transportation, or the Transporation Department, regulations prohibiting unfair
and deceptive practices. In addition, Transportation Department regulations
concerning the display and presentation of information that are currently
applicable to the global distribution services we access could be extended to us
in the future, as well as other laws and regulations aimed at protecting
consumers. We are subject to regulation by nine states that have "seller of
travel" acts. These acts require us to register as a seller of travel, comply
with certain disclosure requirements, post a bond or escrow funds and/or
participate in state restitution funds. We are in the process of obtaining bonds
in and making applications to these states. There is a possiblity that we may be
subject to fines or other sanctions upon us for any past failure to comply with
these requirements.
Employees
As of March 31, 1999, we had 148 employees, consisting of 119 reservation agents
and call center employees and 29 corporate and administrative staff. Our ability
to attract and retain highly qualified employees will be the principal
determinant of our success. We provide performance-based and equity-based
compensation programs to reward and motivate significant contributors among our
employees. Competition for qualified personnel in the industry is intense. There
can be no assurance that our current and planned staffing will be adequate to
support our future operations or that management will
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be able to hire, train, retain, motivate, and manage required personnel.
Although none of our employees is represented by a labor union, there can be no
assurance that our employees will not join or form a labor union. We have not
experienced any work stoppages and consider our relations with our employees to
be good.
Facilities
Our headquarters are in Las Vegas where we own a facility comprising an
aggregate of approximately 9,000 square feet of space, housing our
administrative, sales and marketing, customer service and computer and
communications systems facilities. All of operations are located at the Las
Vegas facility. Our systems and operations are vulnerable to damage or
interruption from fire, flood, power loss, telecommunications failure, break-ins
and similar events. We currently do not have redundant systems or a formal
disaster recovery plan and do not carry sufficient business interruption
insurance to compensate us for losses that may occur. Despite our implementation
of network security measures, our servers are vulnerable to computer viruses,
physical or electrical break-ins and similar disruptions, which could lead to
interruptions, delays, loss of data, or the inability to accept and confirm
customer reservations.
Litigation
We are not presently involved in any material legal proceedings.
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MANAGEMENT
The following table sets forth certain information with respect to the executive
officers and directors of Travelscape.com as of the date of this prospectus.
Executive Officers and Directors
<TABLE>
<CAPTION>
Name Age Position with Travelscape.com
- ---------------------------------------- --- -------------------------------------------------------
<S> <C> <C>
Timothy N. Poster....................... 30 President, Chairman of the Board and Chief Executive
Officer
Thomas C. Breitling..................... 29 Chief Operating Officer and Director
Jeffrey A. Marquis...................... 30 Chief Financial Officer
Michelle K. Decker...................... 41 Chief Technology Officer
Michael Reichartz....................... 29 President, Las Vegas Reservation Systems
Erick A. Rodriguez...................... 30 Executive Vice President, Product Development
Steven C. Sarner........................ 40 Vice President, Business Development and Marketing
Jose L. Yofe............................ 46 Vice President, International Product Development
Edward L. Muncey........................ 28 Vice President, Domestic Product Development
Michael J. Conway....................... 53 Director
Tobin J. Corey.......................... 38 Director
Lorenzo J. Fertitta..................... 30 Director
</TABLE>
- ------------------------------------
TIMOTHY N. POSTER co-founded Travelscape.com in March 1998 and has served as its
Chairman of the Board and Chief Executive Officer since that time. In October
1990, Mr. Poster founded Las Vegas Reservation Systems and was President of that
company from October 1990 to January 1999. Mr. Poster holds a bachelors degree
from the University of Southern California in Business Administration.
THOMAS C. BREITLING co-founded Travelscape.com with Mr. Poster in March 1998 and
has served as its Chief Operating Officer since that time. From 1993 through
March 1998, Mr. Breitling served as the Executive Vice President for Las Vegas
Reservation Systems. Mr. Breitling currently manages the operations of both
Travelscape.com and Las Vegas Reservation Systems. Mr. Breitling holds a
bachelors degree from the University of San Diego in Communications.
JEFFREY A. MARQUIS joined Travelscape.com in April 1998. From September 1994 to
April 1998, Mr. Marquis was employed as an investment analyst and portfolio
manager at Fertitta Enterprises, a private equity fund. Prior to holding his
position with Fertitta Enterprises, from September 1991 to September 1994, Mr.
Marquis was employed with KPMG Peat Marwick as a Senior Auditor. Mr. Marquis is
a certified public accountant and a chartered financial analyst. Mr. Marquis
holds a bachelors degree from the University of San Diego in Accounting.
MICHELLE K. DECKER joined Travelscape.com in April 1999. From April 1998 to
April 1999, Ms. Decker was employed as the Senior Corporate Director of New
Technology at Lifetouch, a photography firm. Prior to holding her position with
Lifetouch, from 1988 to 1998 Ms. Decker was employed with Carlson Marketing
Group in various technical positions including Senior Corporate Director of New
Technology and Senior Director of International Systems. Ms. Decker holds a
bachelors degree from Slippery Rock State University in Computer Technology and
an MBA from Youngstown State University.
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MICHAEL REICHARTZ joined Las Vegas Reservation Systems in 1995. From June 1988
to May 1995, Mr. Reichartz was employed with the Las Vegas Hilton in various
positions, including Reservation Manager and International Sales Manager. Mr.
Reichartz's primary duties included managing and coordinating all travel agency
and tour operator relationships. Mr. Reichartz was named Chairman of the Las
Vegas Tourism Board in 1997. Mr. Reichartz's primary responsibilities at
Travelscape.com include managing Las Vegas operations. Mr. Reichartz holds a
bachelors degree from the University of Nevada, Las Vegas in Business
Administration.
ERICK A. RODRIGUEZ joined Travelscape.com in May 1998. From January 1993 to May
1998, Mr. Rodriguez was employed at Sprint in various positions including as
General Manager Sales and Service in the Hotel Industry and as a National
Account Manager. Mr. Rodriguez's primary responsibilities at Travelscape.com
include securing hotel contracts with Travelscape.com partners. Mr. Rodriguez
holds a bachelors degree from the University of San Diego in Business
Administration.
STEVEN C. SARNER joined Travelscape.com in July 1998. From July 1994 to July
1998, Mr. Sarner was employed at Reno Air as Vice President of Marketing and
Sales. Prior to holding his position with Reno Air, from June 1992 to July 1994,
Mr. Sarner was employed at Rosenbluth, the third largest travel management firm
in the nation, as Director of Sales, Western Region. Mr. Sarner has over 15
years experience in the airline/travel industry. Mr. Sarner's primary
responsibilities at Travelscape.com include securing wholesale airline contracts
and to secure distribution arrangements with web site partners. Mr. Sarner holds
a bachelors degree from the California State University, Long Beach in Business
Administration.
JOSE L. YOFE joined Travelscape.com in November 1998. From December 1995 to
October 1998, Mr. Yofe was employed in various positions at the SABRE Group
including as a Division Sales Manager and as an Account Executive. Prior to
being employed by the SABRE Group, Mr. Yofe was employed by Mirage Resorts as
General Manager for Airline Services. Mr. Yofe's primary responsibilities at
Travelscape.com include securing hotel agreements with international
Travelscape.com partners. Mr. Yofe holds a bachelors degree from Moreno College
in Argentina.
EDWARD L. MUNCEY joined Travelscape.com in May 1998. From December 1997 to May
1998, Mr. Muncey was employed by Mirage Resorts as Senior Travel Industry Sales
Manager. Prior to working for Mirage Resorts, from August 1994 to December 1997,
Mr. Muncey was employed as a Sales Manager by Circus Circus Enterprises. Mr.
Muncey's primary responsibilities at Travelscape.com include securing hotel
contracts with domestic Travelscape.com partners. Mr. Muncey holds a bachelor's
degree from San Diego State University in Business Administration with an
emphasis in marketing.
MICHAEL J. CONWAY became a director of Travelscape.com in April 1999. Since
April 1995, Mr. Conway has been employed as the President and Chief Executive
Officer of National Airlines. Prior to founding National Airlines, from 1994 to
1995, Mr. Conway was employed as an aviation consultant for financial investors
and foreign airlines. Mr. Conway was also a co-founder of America West Airlines.
TOBIN J. COREY became a director of Travelscape.com in April 1999. Mr. Corey
co-founded USWeb/CKS, an Internet consulting firm, in December 1995 and has
served as its President since June 1996 and as a Director since April 1998.
Prior to June 1996, Mr. Corey served as Executive Vice President, Marketing for
USWeb/CKS. From 1994 to December 1995, Mr. Corey served as Vice President of
Marketing for the NetWare Products Division of Novell, a computer software
company. From 1991 through 1994, Mr. Corey served as Director of Marketing for
the Desktop Division of Novell.
LORENZO J. FERTITTA became a director of Travelscape.com in April 1998. Since
December 1997, Mr. Fertitta has been employed as the President and Chief
Executive Officer of Gordon Biersch Brewing
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Company. Since 1993, Mr. Fertitta has also been an officer and director of
Fertitta Enterprises, Inc. and has been an officer and/or director of many
companies associated with Fertitta Enterprises. Mr. Fertitta holds a bachelors
degree from the University of San Diego and an MBA from New York University. Mr.
Fertitta is also a member of the board of directors of Station Casinos, Inc., a
gaming company, and several private companies.
Classified Board
Our Amended and Restated Certificate of Incorporation provides for a board of
directors consisting of three classes serving three-year staggered terms. Class
I consists of Thomas C. Breitling and Tobin J. Corey; Class II consists of
Michael J. Conway; and Class III consists of Timothy N. Poster and Lorenzo J.
Fertitta. The initial term of office of the Class I directors expires at the
annual meeting of stockholders in 2000. The initial term of office of the Class
II directors expires at the annual meeting of stockholders held in 2001. The
initial term of office of the Class III directors expires at the annual meeting
of stockholders held in 2002.
Board of Directors; Committees
Travelscape.com maintains two standing committees, an audit committee and a
compensation committee. We have no nominating committee or other committee
performing the functions of a nominating committee.
AUDIT COMMITTEE
In April 1999, the board of directors formed the audit committee for the purpose
of reviewing our internal accounting procedures and consulting with and
reviewing the services provided by our independent public accountants. Lorenzo
J. Fertitta, Michael J. Conway and Tobin J. Corey constitute the audit
committee.
COMPENSATION COMMITTEE
In April 1999, the board of directors formed the compensation committee. The
compensation committee reviews and recommends to the board the compensation and
benefits of all of our officers and reviews general policy relating to
compensation and benefits of our employees. The compensation committee also
administers our stock option plans and will administer our Employee Stock
Purchase Plan upon completion of this offering. Timothy N. Poster, Lorenzo J.
Fertitta and Michael J. Conway constitute the compensation committee.
Compensation Committee Interlocks and Insider Participation
Prior to April, 1999, our board of directors did not maintain a standing
compensation committee, and the entire board participated in all decisions
regarding compensation of our executive officers. In April 1999, the board
formed the compensation committee and appointed Messrs. Poster, Fertitta and
Conway as committee members. No executive officer of Travelscape.com serves as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers serving as a member of our board of directors
or compensation committee.
Director Compensation
Directors do not currently receive cash compensation for services rendered as
members of our board of directors. We do, however, reimburse our directors for
certain reasonable expenses incurred in connection with their attendance at
board and committee meetings. Outside directors are granted an option to
purchase 50,000 shares upon joining the board, of which 25% are immediately
vested and 25% vest each year thereafter for a period of three years. In
addition, each outside director is granted an option to purchase 7,500 shares of
common stock at the market price for each successive year after joining the
board.
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Executive Compensation
The following table summarizes the compensation paid to Travelscape.com's Chief
Executive Officer and the other executive officers of Travelscape.com whose
salary and bonus exceeded $100,000 for services rendered to Travelscape.com in
all capacities during 1998, who are collectively, the named executive officers.
Fiscal 1998 Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
Other -------------
-------------------- Annual Securities
Salary Bonus Compensation Underlying
Name and Principal Position ($) ($) ($)(1) Options (#)
- -------------------------------------------------------------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C>
Timothy N. Poster ............................................ 205,769 50,000 19,296 --
Chairman of the Board and Chief Executive Officer
Thomas C. Breitling .......................................... 137,500 25,000 24,250 --
Chief Operating Officer
Jeffrey A. Marquis ........................................... 98,077 25,000 -- 345,000
Chief Financial Officer
</TABLE>
- ------------------------------------
(1) Represents personal car expenses paid by Travelscape.com.
Option Grants During Last Fiscal Year
The following table sets forth information with respect to stock options granted
to each of the named executive officers during 1998, including the potential
realizable value over the 10-year term of the options based on assumed rates of
stock appreciation of 5% and 10%, compounded annually. These assumed rates of
appreciation comply with the rules of the Securities and Exchange Commission and
do not represent our estimate of future stock price. Actual gains, if any, on
stock option exercises will be dependent on the future performance of our common
stock. In 1998, we (or our predecessors) granted options to acquire up to an
aggregate of 1,027,500 shares to employees and directors under the 1998 Plan and
all at an exercise price equal to not less than the fair market value of our
common stock on the date of grant as determined in good faith by the board of
directors. Optionees may pay the exercise price by cash, check, promissory note
(in special cases approved by the compensation committee), delivery of
already-owned shares of Travelscape.com's common stock or pursuant to a cashless
exercise procedure. Options under the 1998 Plan generally vest over three years
with 33% of the shares vesting on the first anniversary of the grant date, and
33% of the shares vesting on each anniversary thereafter.
<TABLE>
<CAPTION>
Potential Realizable
Individual Grants Value at Assumed
------------------------------------------------------------ Annual Rates of
Number of Stock Price
Shares Percent of Total Appreciation for
Underlying Options Granted Options Term
Options to Employees in Exercise Price Expiration --------------------
Name Granted Fiscal 1998 ($/Share) Date 5% ($) 10% ($)
- --------------------------------- ----------- ----------------- --------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Timothy N. Poster................ -- --% -- -- -- --
Thomas C. Breitling.............. -- --% -- -- -- --
Jeffrey A. Marquis............... 345,000 33.6% $ 1.33 7/1/08 288,568 731,288
</TABLE>
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<PAGE>
Aggregate Option Exercises During the Last Fiscal Year and Fiscal Year-End
Option Values
No named executive officer exercised stock options during 1998. The following
table sets forth information regarding stock options held as of March 31, 1999
by the named executive officers. The "Value of Unexercised In-the-Money Options"
is based upon a value of $11.00 per share, the assumed initial public offering
price, minus the per share exercise price, multiplied by the number of shares
underlying the option.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at March 31, 1999 at March 31, 1999
-------------------------------- --------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------------------------- ----------------- ------------- ----------------- -------------
<S> <C> <C> <C> <C>
Timothy N. Poster......................................... -- -- -- --
Thomas C. Breitling....................................... -- -- -- --
Jeffrey A. Marquis........................................ -- 345,000 -- $ 3,336,150
</TABLE>
Incentive Stock Plans
1998 STOCK OPTION PLAN. Travelscape.com's 1998 Stock Option Plan, or the 1998
Plan, provides for the grant of incentive stock options within the meaning of
Section 422 of the Internal Revenue Code to our employees and nonstatutory stock
options to our employees, directors and consultants. The 1998 Plan was approved
by the board of directors and our stockholders in 1998, and until April 1999 was
administered by the board of directors. Since April 1999, the 1998 Plan has been
administered by the compensation committee. A total of 3,000,000 shares of
common stock have been reserved for issuance pursuant to the 1998 Plan. To date,
no shares had been issued upon the exercise of stock options granted under the
1998 Plan and 2,340,750 shares were subject to outstanding options. The board of
directors has determined that no further options will be granted under the 1998
Plan after the completion of this offering.
The exercise price of incentive stock options granted under the 1998 Plan must
be at least 100% of the fair market value of the common stock on the date of
grant. The exercise price of nonstatutory stock options must be at least 85% of
the fair market value of the common stock on the date of grant. In the case of
an incentive stock or nonstatutory stock option granted to a holder of more than
10% of the voting power of Travelscape.com, the exercise price must be at least
110% of such fair market value.
Options granted under the 1998 Plan are not generally transferable by the
optionee, and each option is exercisable during the lifetime of the optionee
only by such optionee. Options granted under the 1998 Plan must generally be
exercised within three months of the termination of optionee's service with us,
or within 12 months after such optionee's termination by death or disability,
but in no event later than the expiration of the option's term. The board of
directors may amend or modify the 1998 Plan at any time, except that without the
consent of the option holders, no amendment or modification shall adversely
affect rights and obligations with respect to options at the time outstanding
under the 1998 Plan.
1999 EMPLOYEE STOCK PURCHASE PLAN.
Our 1999 Employee Stock Purchase Plan, or the 1999 Stock Purchase Plan, was
adopted by the board of directors in April 1999 and by the stockholders in May
1999. A total of 500,000 shares of common stock have been reserved for issuance
under the 1999 Stock Purchase Plan, plus annual increases equal to the lesser
of:
- 500,000 shares;
- 2% of the outstanding shares; and
- a lesser amount determined by the board.
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The 1999 Stock Purchase Plan, which is intended to qualify under Section 423 of
the Internal Revenue Code, is implemented by overlapping offering periods
generally consisting of 24 months each. The offering periods generally start on
the first trading day on or after February 1 and August 1 of each year, except
for the first such offering period which commences on the first trading day on
or after the effective date of this offering and ends on the last trading day on
or before July 31, 2001. Each offering period consists of four exercise periods,
generally of six months duration. However, the first exercise period in the
first offering period will begin on the first trading day on or after the
effective date of this offering and will end on the last trading day on or
before January 31, 2000.
Employees are eligible to participate if they are customarily employed by us or
any participating subsidiary for at least 20 hours per week and more than five
months in any calendar year. However, any employee who immediately after grant
owns stock possessing 5% or more of the total combined voting power or value of
all classes of our capital stock, or whose rights to purchase stock under all
our employee stock purchase plans accrues at a rate which exceeds $25,000 worth
of stock for each calendar year may not be granted an option to purchase stock
under the 1999 Stock Purchase Plan. The 1999 Stock Purchase Plan permits
participants to purchase common stock through payroll deductions of up to 10% of
the participant's "compensation." Compensation is defined as the participant's
base straight time gross earnings but exclusive of commissions, overtime,
bonuses and any other compensation. The maximum number of shares a participant
may purchase during a single offering period is 5,000 shares.
Amounts deducted and accumulated by the participant are used to purchase shares
of common stock at the end of each exercise period. The price of stock purchased
under the 1999 Stock Purchase Plan is generally 85% of the lower of the fair
market value of the common stock at the beginning of the offering period or the
end of the exercise period. If the fair market value of the common stock at the
end of an exercise period is lower than the fair market value of the common
stock at the beginning of the offering period, all employees in that offering
period will be automatically re-enrolled in the new offering period beginning
immediately after the end of the exercise period. Participants may end their
participation at any time during an offering period, and they will be paid their
payroll deductions to date. Participation ends automatically upon termination of
employment with us.
Rights granted under the 1999 Stock Purchase Plan are not transferable by a
participant other than by will, the laws of descent and distribution, or as
otherwise provided under the 1999 Stock Purchase Plan. The 1999 Stock Purchase
Plan provides that, in the event we merge with or into another corporation or
sell substantially all of our assets, each outstanding option may be assumed or
substituted for by the successor corporation. If the successor corporation
refuses to assume or substitute for the outstanding options, the offering period
then in progress will be shortened and a new exercise date will be set.
The board of directors generally has the authority to amend or terminate the
1999 Stock Purchase Plan and the board of directors may terminate an offering
period on any exercise date if the board determines that the termination of the
1999 Stock Purchase Plan is in the best interests of Travelscape.com and its
stockholders. However, no such action, other than termination of the 1999
Purchase Plan, may adversely affect any outstanding rights to purchase stock
under the 1999 Stock Purchase Plan. The 1999 Stock Purchase Plan will terminate
in 2009, unless sooner terminated by the board of directors.
1999 STOCK PLAN.
Our 1999 Stock Plan, or the 1999 Plan, provides for the grant of incentive stock
options, within the meaning of Section 422 of the Internal Revenue Code, to
employees and for the grant of nonstatutory stock options and stock purchase
rights to employees, directors and consultants. The 1999 Plan was approved by
the board of directors in April 1999 and by the stockholders in May 1999. Unless
terminated sooner, the 1999 Plan will terminate automatically in 2009. A total
of 2,000,000 shares of common
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<PAGE>
stock have been reserved for issuance pursuant to the 1999 Plan, plus annual
increases equal to the lesser of:
- 1,000,000 shares;
- 3% of the outstanding shares on such date; and
- a lesser amount determined by the board.
The 1999 Plan may be administered by the board of directors or a committee of
the board (as applicable, or the Administrator), which committee shall, in the
case of options intended to qualify as "performance-based compensation" within
the meaning of Section 162(m) of the Internal Revenue Code, consist of two or
more "outside directors" within the meaning of Section 162(m) of the Internal
Revenue Code. Currently, the compensation committee is the Administrator. The
Administrator has the power to determine the terms of the options or stock
purchase rights granted, including the exercise price, the number of shares
subject to each option or stock purchase right, the exercisability thereof, and
the form of consideration payable upon such exercise. In addition, the
Administrator has the authority to amend, suspend or terminate the 1999 Plan,
provided that no such action may affect any share of common stock previously
issued and sold or any option previously granted under the 1999 Plan.
Options and stock purchase rights granted under the 1999 Plan are not generally
transferable by the optionee, and each option and stock purchase right is
exercisable during the lifetime of the optionee only by such optionee. Options
granted under the 1999 Plan must generally be exercised within three months of
the end of optionee's status as our employee, director or consultant, or within
12 months after such optionee's termination by death or disability, but in no
event later than the expiration of the option's 10-year term. In the case of
stock purchase rights, unless the Administrator determines otherwise, shares of
stock will be sold pursuant to a restricted stock purchase agreement under which
we will reserve a repurchase option exercisable upon the voluntary or
involuntary termination of the purchaser's employment with us for any reason
(including death or disability). The purchase price for shares repurchased
pursuant to a restricted stock purchase agreement shall be the original price
paid by the purchaser and may be paid in cash or by cancellation of any
indebtedness or other obligation of the purchaser to us. The repurchase option
shall lapse at a rate determined by the Administrator. The exercise price of all
incentive stock options granted under the 1999 Plan must be at least equal to
the fair market value of the common stock on the date of grant. The exercise
price of nonstatutory stock options and stock purchase rights granted under the
1999 Plan is determined by the Administrator. However, nonstatutory stock
options intended to qualify as "performance-based compensation" within the
meaning of Section 162(m) of the Internal Revenue Code must be granted at an
exercise price equal to at least the fair market value of the common stock on
the date of grant. With respect to any participant who owns stock possessing
more than 10% of the voting power of all classes of our outstanding capital
stock, the exercise price of any incentive stock option granted must equal to at
least 110% of the fair market value on the grant date and the term of such
incentive stock option must not exceed five years. The term of all other options
granted under the 1999 Plan may not exceed ten years.
Change in Control Arrangements
Under the 1998 Plan and the 1999 Plan, in the event of a change of control,
vesting of options and restricted stock issued under the 1998 Plan and the 1999
Plan will automatically accelerate such that options will become fully
exercisable, including with respect to shares for such options which would
otherwise be unvested, and any outstanding repurchase options relating to
restricted stock will lapse.
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<PAGE>
Employment Agreements
EMPLOYMENT AGREEMENT WITH TIMOTHY POSTER, CHIEF EXECUTIVE OFFICER
Our employment agreement with Mr. Poster provides for, among other things:
- at-will employment;
- membership on and Chairmanship of our board of directors;
- participation in all employee benefit programs; and
- an agreement not to compete with us, nor to solicit our employees
or customers for three years after termination of employment,
although we cannot assure you that the provisions will be
enforceable in all jurisdictions.
Mr. Poster's employment agreement provides for a base salary of $250,000 per
year and an annual bonus of up to 200% of his base salary based on our
performance. Our agreement with Mr. Poster also provides for one year severance
pay if he is terminated without cause or upon a change in control.
EMPLOYMENT AGREEMENT WITH THOMAS BREITLING, CHIEF OPERATING OFFICER
The agreement with Mr. Breitling provides for, among other things:
- at-will employment;
- membership on our board of directors;
- participation in all employee benefit programs; and
- an agreement not to compete with us, nor to solicit our employees
or customers for three years after termination of employment,
although we cannot assure you that these provisions will be
enforceable in all jurisdictions.
Mr. Breitling's employment agreement provides for a base salary of $175,000 per
year and an annual bonus of up to 100% of his base salary based on our
performance. Our agreement with Mr. Breitling also provides for one year
severance pay if he is terminated without cause or upon a change in control.
EMPLOYMENT AGREEMENT WITH JEFFREY MARQUIS, CHIEF FINANCIAL OFFICER
The agreement with Mr. Marquis provides for, among other things:
- at-will employment;
- participation in all employee benefit programs; and
- an agreement not to compete with us, nor to solicit our employees
or customers for three years after termination of employment,
although we cannot assure you that these provisions will be
enforceable in all jurisdictions.
Mr. Marquis's employment agreement provides for a base salary of $150,000 per
year, and an annual bonus of up to 100% of his base salary based on our
performance. Our agreement with Mr. Marquis also provides for one year severance
pay if he is terminated without cause or upon a change in control.
Limitations on Directors' Liability and Indemnification
Our Certificate of Incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for
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<PAGE>
monetary damages for breach of their fiduciary duties as directors, except
liability for any of the following acts:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; and
- any transaction from which the director derived an improper
personal benefit.
Such limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or recission.
Our Certificate of Incorporation and Bylaws provide that we will indemnify our
directors and executive officers and may indemnify our other corporate agents to
the fullest extend permitted by law. We believe that indemnification under our
Bylaws covers at least negligence and gross negligence on the part of
indemnified parties. Our Bylaws also permit us to secure insurance on behalf of
any officer, director, employee or other agent for any liability arising out of
his or her actions in such capacity, regardless of whether the Bylaws would
permit indemnification.
We have entered into agreements to indemnify our directors and executive
officers in addition to the indemnification provided for in our Bylaws. These
agreements, among other things, provide for indemnification of our directors and
executive officers for certain expenses; including attorneys' fees, judgments,
fines and settlement amounts incurred by any such person in any action or
proceeding, including any action by or in our right arising out of such person's
services as a director or executive officer any subsidiary or any other company
or enterprise to which the person provided services at our request. We believe
that these provisions and agreements are necessary to attract and retain
qualified persons as directors and executive officers.
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<PAGE>
CERTAIN TRANSACTIONS
During the last three fiscal years, Victoria Partners has loaned money to Mr.
Timothy Poster and Las Vegas Reservation Systems, as listed below. Mr. Lorenzo
Fertitta, a director of Travelscape.com, is the president of the general partner
of Victoria Partners.
<TABLE>
<CAPTION>
Lender Borrower Loan Date Repay Date Amount Interest Rate
- ------------------ ---------------------------------------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Victoria Partners Timothy Poster 12/16/97 1/30/98 $ 150,000 Broker Call
Victoria Partners Las Vegas Reservation Systems 10/20/98 11/02/98 $ 314,000 Broker Call
</TABLE>
In April 1998, Travelscape.com made a secured loan in the principal amount of
$105,750 to Mr. Thomas Breitling. The loan accrues interest at a rate of 10% per
year and is currently in repayment. As of the date of this initial public
offering, $72,810 is outstanding on the loan.
In April 1998, Messrs. Timothy Poster, Jeffrey Marquis and Thomas Breitling
entered into a voting agreement pursuant to which they agreed to vote their
shares of Travelscape.com, Inc. in the manner specified by the holders of a
majority of the shares held among them. This voting agreement is binding until
Travelscape.com completes an initial public offering.
In June 1998, Mr. Lorenzo Fertitta purchased 1,000,000 shares of common stock of
our predecessor, Travelscape.com, Inc., a Nevada corporation for $1.5 million.
In April 1998, we granted to each of our non-employee directors, Messrs. Lorenzo
Fertitta, Tobin Corey and Michael Conway, an option to purchase up to 50,000
shares of our common stock for $6.00 per share. The options are immediately
vested and exercisable as to 25% of the shares, and become vested with respect
to an additional 25% of the shares on the first, second and third anniversaries
of the date of grant.
In May 1999, we entered into employment agreements with each of Timothy Poster,
Thomas Breitling and Jeffrey Marquis. Please see "Management--Employment
Agreements" for a discussion of the terms of these agreements.
In 1998, Timothy Poster made a contribution of approximately $1.0 million to us
in connection with certain investing activities on behalf of Travelscape.com.
All future transactions, including any loans from Travelscape.com to its
officers, directors, principal stockholders or affiliates, will be approved by a
majority of the board of directors, including a majority of the independent and
disinterested members of the board of directors or if required by law, a
majority of disinterested stockholders.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial ownership of
our common stock as of May 30, 1999 by the following individuals or groups: (i)
each person or entity who is known by us to own beneficially more than 5% of our
outstanding common stock, (ii) each of the Named Executive Officers, (iii) each
of our directors and (iv) all directors and executive officers as a group.
The address for each holder of more than 5% of Travelscape.com common stock is
c/o Travelscape.com, 8951 W. Sahara, Suite 100, Las Vegas, Nevada 89117. Except
as otherwise indicated, and subject to applicable community property laws, the
persons named in the table have sole voting and investment power with respect to
all shares of common stock held by them. Applicable percentage ownership in the
following table is based on 15,000,000 shares of common stock outstanding as of
May 30, 1999 and 20,000,000 shares immediately following the completion of this
offering. To the extent that any shares are issued upon exercise of options,
warrants or other rights to acquire Travelscape.com's capital stock that are
presently outstanding or granted in the future or reserved for future issuance
under Travelscape.com's stock plans, there will be further dilution to new
public investors.
<TABLE>
<CAPTION>
Shares Beneficially
Owned Prior to the Shares Beneficially
Offering(1) Owned After Offering(1)
--------------------------- ---------------------------
Name of Beneficial Owner Number Percent(2) Number Percent(2)
- -------------------------------------------------------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Timothy N. Poster(3).......................................... 6,975,000 46.5 6,975,000 34.9
Thomas C. Breitling(3)........................................ 6,033,000 40.2 6,033,000 30.2
Lorenzo J. Fertitta(5)........................................ 1,512,500 10.1 1,512,500 7.6
Zucchero, LLC(5).............................................. 1,500,000 10.0 1,500,000 7.5
Jeffrey A. Marquis(3)(4)...................................... 565,000 3.7 565,000 2.8
Michael J. Conway(6).......................................... 12,500 * 12,500 *
Tobin J. Corey(7)............................................. 12,500 * 12,500 *
All directors and executive officers as a group (12
persons)(8)................................................. 15,241,750 99.7 15,241,750 75.1
------------ --- ------------ ---
</TABLE>
- ---------------------------------------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting and
investment power with respect to securities.
(2) All shares subject to options or warrants that are exercisable within 60
days of the date of this table are deemed to be outstanding and to be
beneficially owned by the person holding such options or warrants for the
purpose of computing the percentage ownership of such person, but are not
deemed to be outstanding and to be beneficially owned for the purpose of
computing the percentage ownership of any other person. Assumes no exercise
of the Underwriters' over-allotment option.
(3) Mr. Poster, Mr. Breitling and Mr. Marquis have entered into a voting
agreement pursuant to which they have agreed to vote all of their shares in
accordance with the directions of the holders of a majority of the shares
held by them. As a group, Messrs. Poster, Breitling and Marquis hold a total
of 13,458,000 shares of common stock, or 89.7% of our common stock prior to
this offering. The voting agreement will terminate upon the completion of
this offering.
(4) Includes 115,000 shares of common stock subject to options held by Mr.
Marquis exercisable within 60 days of the date of this table.
(5) Includes 1,500,000 shares held in the name of Zucchero LLC. Mr. Fertitta
holds a 2.5% interest in, is the managing member of, and has voting and
dispository control of all of the shares held by Zucchero LLC. In the case
of Mr. Fertitta, includes 12,500 shares of common stock subject to options
exercisable within 60 days of the date of this table.
(6) Includes 12,500 shares of common stock subject to options held by Mr.
Conway exercisable within 60 days of the date of this table.
(7) Includes 12,500 shares of common stock subject to options held by Mr. Corey
exercisable within 60 days of the date of this table.
(8) Includes 290,000 shares of common stock subject to options exercisable
within 60 days of the date of this table.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Travelscape.com is authorized to issue up to 50,000,000 shares of common stock,
$.01 par value, and up to 5,000,000 shares of undesignated preferred stock, $.01
par value. Immediately after the completion of this offering, we estimate that
there will be an aggregate of 20,000,000 shares of common stock outstanding and
no shares of preferred stock will be issued and outstanding. In addition, based
on options granted to date, 2,340,750 shares of common stock will be issuable
upon exercise of outstanding options upon completion of the offering.
The following description of our capital stock summarizes material provisions
contained in our Amended and Restated Certificate of Incorporation and Restated
Bylaws, but does not purport to be complete and is subject to and qualified in
its entirety by our Amended and Restated Certificate of Incorporation and
Amended and Restated Bylaws and by the provisions of applicable Delaware law.
Common Stock
As of March 31, 1999, there were 15,000,000 shares of common stock outstanding,
which were held by 12 stockholders. Holders of common stock are entitled to one
vote per share on all matters to be voted upon by the stockholders and do not
have cumulative voting rights. Therefore, holders of a majority of the shares
voting for the election of directors will be able to elect all of the directors.
Holders of common stock are entitled to receive such dividends as may be
declared from time to time by the board of directors out of funds legally
available for the payment of dividends, subject to the terms of any existing or
future agreements between Travelscape.com and our debtholders. We have never
declared or paid cash dividends on our capital stock, expect to retain future
earnings, if any, for use in the operation and expansion of our business and do
not anticipate paying any cash dividends in the foreseeable future. In the event
of the liquidation, dissolution or winding up of Travelscape.com, the holders of
common stock are entitled to share ratably in all assets legally available for
distribution after payment of all debts and other liabilities and subject to the
prior rights of any holders of preferred stock then outstanding.
Preferred Stock
Pursuant to our Amended and Restated Certificate of Incorporation, the board of
directors has the authority, without further action by the stockholders, to
issue up to 5,000,000 shares of preferred stock in one or more series and to fix
the designations, powers, preferences and privileges, relative participating,
optional or special rights and the qualifications, limitations or restrictions
thereof, including dividend rights, conversion rights, voting rights, terms of
redemption and liquidation preferences, any or all of which may be greater than
the rights of the common stock. The board of directors, without stockholder
approval, can issue preferred stock with voting, conversion or other rights that
could adversely affect the voting power and other rights of holders of common
stock. Preferred stock could thus be issued quickly with terms calculated to
delay, or prevent a change in control of Travelscape.com or make removal of
management more difficult. Additionally, the issuance of preferred stock may
have the effect of decreasing the market price of the common stock, and may
adversely affect the voting and the other rights of the holders of common stock.
At present, there are no shares of preferred stock outstanding and we have no
plans to issue any of the preferred stock.
Options and Warrants
Based on options granted to date, options to purchase 2,340,750 shares were
outstanding, with exercise prices ranging from $1.33 to $6.00 per share. Of
these outstanding options, all shares are subject to
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<PAGE>
options under the 1998 Option Plan and no shares are subject to options under
the 1999 Plan. Please see "Management -- Stock Plans" for a more detailed
description of the options.
We have also issued warrants to purchase an aggregate of 527,752 shares at an
exercise price of $0.01 per share in connection with a private financing in
February 1999. We have the right to repurchase the warrants at the par value of
the shares subject to the warrants within 30 days after the closing of this
offering. However, the holders of the warrants may exercise the warrants pending
the closing of such repurchase. We intend to exercise our repurchase right, and
we expect that all warrant holders will exercise their warrants instead of
allowing us to repurchase them. As a result, we expect to issue up to 527,752
shares to the warrant holders within 30 days after the completion of this
offering. These shares will be "restricted securities" within the meaning of
Rule 144 under the Securities Act of 1933, and will not be eligible for resale
into the public market prior to February 16, 2000. Please see "Shares Eligible
for Future Sale" for a more detailed description of the warrants.
Antitakeover Effects of Provisions of Our Certificate of Incorporation and
Bylaws
Travelscape.com's Amended and Restated Certificate of Incorporation provides
that the board of directors is classified into three classes of directors, each
with three-year terms. The term of one class of directors expires at each annual
meeting of stockholders. As a result, stockholders desiring to replace the
incumbent directors and gain control of the board would be required to win at
least two annual contests before their nominees constituted a majority of
directors. Please see "Management -- Classified Board" for a more detailed
description of the classified board. In addition, our Amended and Restated
Certificate of Incorporation eliminates the ability of stockholders to take
actions by written consent, allows for the Board to designate and issue
preferred stock without further stockholder approval and requires a 66 2/3% vote
of the stockholders to amend or repeal certain provisions of the Certificate of
Incorporation or Bylaws that may currently delay or inhibit an acquisition of
Travelscape.com. Any of these provisions may have the effect of delaying or
preventing a change of control of Travelscape.com without the approval of the
Board of Directors.
Our Amended and Restated Bylaws permit only a majority of the board of directors
or the Chief Executive Officer to call a special meeting of the stockholders and
require prior notice of matters to be brought before meetings of the
stockholders.
These provisions of our Amended and Restated Certificate of Incorporation and
Bylaws are intended to enhance the likelihood of continuity and stability in the
composition of the board of directors and in the policies formulated by the
board of directors and to discourage certain types of transactions which may
involve an actual or threatened change of control of Travelscape.com. Such
provisions are designed to reduce the vulnerability of Travelscape.com to an
unsolicited acquisition proposal and, accordingly, could discourage potential
acquisition proposals and could delay or prevent a change in control of
Travelscape.com. Such provisions are also intended to discourage certain tactics
that may be used in proxy fights. These provisions could, however, have the
effect of discouraging others from making tender offers for our shares and,
consequently, may also inhibit increases in the market price of our shares that
could result from actual or rumored takeover attempts. These provisions may also
have the effect of preventing changes in the management of Travelscape.com.
Effect of Delaware Antitakeover Statute
Travelscape.com is subject to Section 203 of the Delaware General Corporation
Law which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any business combination with
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<PAGE>
any interested stockholder for a period of three years following the date that
such stockholder became an interested stockholder, unless:
- prior to such date, the board of directors of the corporation
approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder;
- upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced,
excluding, for purposes of determining the number of shares
outstanding, those shares owned (x) by persons who are directors
and also officers and (y) by employee stock plans in which
participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a
tender or exchange offer; and
- on or subsequent to such date, the business combination is approved
by the board of directors and authorized at an annual or special
meeting of stockholders, and not by written consent, by the
affirmative vote of at least two thirds of the outstanding voting
stock which is not owned by the interested stockholder.
Prior to the offering made hereby, each stockholder that is an interested
stockholder of Travelscape.com became an interested stockholder in a transaction
approved by our board of directors. Therefore, Section 203 would not impose any
restrictions on a business combination between us and any of our existing
stockholders.
Section 203 defines "business combination" to include:
- any merger or consolidation involving the corporation and the
interested stockholder
- any sale, transfer, pledge or other disposition involving the
interested stockholder of 10% or more of the assets of the
corporation;
- subject to exceptions, any transaction which results in the
issuance or transfer by the corporation of any stock of the
corporation to the interested stockholder; and
- the receipt by the interested stockholder of the benefit of any
loans, advances, guarantees, pledges or other financial benefits
provided by or through the corporation.
In general, Section 203 defines an "interested stockholder" as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
LIMITATION OF DIRECTOR AND OFFICER LIABILITY
Our Amended and Restated Certificate of Incorporation contains certain
provisions relating to the limitation of liability and indemnification of
directors and officers. Our Amended and Restated Certificate of Incorporation
provides Travelscape.com shall indemnify its directors and officers to the
fullest extent authorized by Delaware law.
Transfer Agent
The transfer agent and registrar for our common stock is Norwest Shareowner
Services, N.A.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, Travelscape.com will have outstanding
20,000,000 shares of common stock based upon shares outstanding at March 31,
1999 (assuming no exercise of the underwriters' over-allotment option).
Excluding the 5,000,000 shares of common stock offered hereby and assuming no
exercise of the underwriters' over-allotment option, as of the effective date of
the registration statement, there will be 15,000,000 shares of common stock
outstanding, all of which are "restricted securities" under the Securities Act.
In addition, within 30 days after the completion of this offering, we expect to
issue up to 527,752 shares of common stock pursuant to the exercise of
outstanding warrants. These shares will also be restricted securities. Please
see "Description of Capital Stock--Options and Warrants" for a more detailed
description of the options and warrants. All restricted securities are subject
to lock-up agreements with the underwriters pursuant to which the holders of the
restricted securities have agreed not to sell, pledge or otherwise dispose of
their shares of common stock for a period of 180 days after the date of this
prospectus. U.S. Bancorp Piper Jaffray Inc. may release the shares subject to
the lock-up agreements in whole or in part at any time with or without notice.
However, U.S. Bancorp Piper Jaffray Inc. has no current plans to do so.
All of the 15,000,000 restricted shares currently outstanding will become
eligible for sale in the public market beginning on January 22, 2000 pursuant to
Rule 144. Of the 527,752 shares of common stock issuable upon exercise of
warrants, 164,250 and 363,502 will be eligible for resale in the public market
begining on February 16, 2000 and February 28, 2000, respectively, pursuant to
Rule 144. The general provisions of Rule 144 are described below.
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 200,000 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 certain manner of sale provisions and notice
requirements and to the availability of current public information about
Travelscape.com.
To date, 3,000,000 shares of common stock have been reserved under the 1998
Plan, of which options to purchase 2,340,750 shares were then outstanding
although none of these options were then exercisable. In addition, we have
reserved 500,000 shares of common stock under the 1999 Stock Purchase Plan and
2,000,000 shares of common stock under the 1999 Plan, none of which are subject
to outstanding options. We intend to file, within 180 days after the date of
this prospectus, a Form S-8 registration statement under the Securities Act to
register all of the shares reserved under the 1998 Plan, the 1999 Stock Purchase
Plan and the 1999 Plan.
Lock-Up Agreements
All officers and directors, stockholders, optionholders and warrant holders have
agreed pursuant to certain "lock-up" agreements, that they will not offer, sell,
contract to sell, pledge, grant any option to sell, or otherwise dispose of,
directly or indirectly, any shares of common stock or securities convertible or
exchangeable for common stock, or warrants or other rights to purchase common
stock for a period of 180 days after the date of this prospectus without the
prior written consent of U.S. Bancorp Piper Jaffray Inc.
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<PAGE>
UNDERWRITING
The underwriters named below, for whom U.S. Bancorp Piper Jaffray Inc. and CIBC
World Markets Corp. are acting as representatives, have agreed to buy, subject
to the terms and conditions of the purchase agreement, the number of shares
listed opposite their names below. The underwriters are committed to purchase
and pay for all of the shares if any are purchased, other than those shares
covered by the over-allotment option described below.
<TABLE>
<CAPTION>
Number
Underwriters of Shares
- ----------------------------------------------------------------------------------- -----------
<S> <C>
U.S. Bancorp Piper Jaffray Inc.....................................................
CIBC World Markets Corp............................................................
DLJdirect Inc......................................................................
Total........................................................................
-----------
-----------
</TABLE>
The underwriters have advised us that they propose to offer the shares to the
public at $11.00 per share. The underwriters propose to offer the shares to
certain dealers at the same price less a concession of not more than $
per share. The underwriters may allow and the dealers may reallow a
concession of not more than $ per share on sales to certain other
brokers and dealers. After the offering, these figures may be changed by the
representatives. An electronic prospectus is available on the web site
maintained by DLJdirect Inc.
Of the 5,000,000 shares of common stock offered by us, up to 475,000 shares will
be reserved for sale to persons designated by us. These shares will be offered
to the holders of our outstanding notes, to certain of our strategic partners
and to certain business acquaintances of our officers and directors. Shares not
sold to these persons will be reoffered immediately by the underwriters to the
public at the initial public offering price.
We have granted to the underwriters an option to purchase up to an additional
750,000 shares of common stock from us, at the same price to the public, and
with the same underwriting discount, as set forth in the table on the cover page
of this prospectus. The underwriters may exercise this option any time during
the 30-day period after the date of this prospectus, but only to cover
over-allotments, if any. To the extent the underwriters exercise the option,
each underwriter will become obligated, subject to certain conditions, to
purchase approximately the same percentage of the additional shares as it was
obligated to purchase under the purchase agreement.
The following table shows the underwriting commissions to be paid to the
underwriters in connection with this offering. These amounts are shown assuming
both no exercise and full exercise of the over-allotment option.
<TABLE>
<CAPTION>
Full
No Exercise Exercise
----------- ------------
<S> <C> <C>
Per Share......................................................... $ $
Total............................................................. $ $
</TABLE>
We have agreed to indemnify the underwriters against certain liabilities,
including civil liabilities under the Securities Act, or to contribute to
payments that the underwriters may be required to make in respect to those
liabilities.
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<PAGE>
The underwriters have informed us that neither they, nor any other underwriter
participating in the distribution of the offering, will make sales of the common
stock offered by this prospectus to accounts over which they exercise
discretionary authority without the prior specific written approval of the
customer.
The offering of our shares of common stock is made for delivery when, as and if
accepted by the underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the offering without notice. The underwriters
reserve the right to reject an order for the purchase of shares in whole or
part.
We and each of our directors, executive officers, stockholders and option and
warrant holders have agreed to certain restrictions on our and their ability to
sell additional shares of our common stock for a period of 180 days after the
date of this prospectus. We and each of our directors, executive officers,
stockholders and option and warrant holders have agreed not to directly or
indirectly offer for sale, sell, contract to sell, grant any option for the sale
of, or otherwise issue or dispose of, any shares of common stock, options or
warrants to acquire shares of common stock, or any related security or
instrument, without the prior written consent of U.S. Bancorp Piper Jaffray Inc.
The agreements provide exceptions for (1) sales to underwriters pursuant to the
purchase agreement, (2) our sales in connection with the exercise of options
granted and the granting of options to purchase shares under our existing stock
option plans, (3) our issuance of up to 527,752 shares of common stock pursuant
to the exercise or conversion of warrants outstanding as of March 31, 1999 and
(4) other exceptions.
Prior to the offering, there has been no established trading market for the
common stock. The initial public offering price for the shares of common stock
offered by this prospectus will be negotiated by us and the underwriters. The
factors considered in determining the initial public offering price will include
the history of and the prospects for the industry in which we compete, our past
and present operations, our historical results of operations, our prospects for
future earnings, the recent market prices of securities of generally comparable
companies and the general condition of the securities markets at the time of the
offering and other relevant factors. There can be no assurance that the initial
public offering price of the common stock will correspond to the price at which
the common stock will trade in the public market subsequent to this offering or
that an active public market for the common stock will develop and continue
after this offering.
To facilitate the offering, the underwriters may engage in transactions that
stabilize, maintain or otherwise affect the price of the common stock during and
after the offering. Specifically, the underwriters may over-allot or otherwise
create a short position in the common stock for their own account by selling
more shares of common stock than have been sold to them by us. The underwriters
may elect to cover any such short position by purchasing shares of common stock
in the open market or by exercising the over-allotment option granted to the
underwriters. In addition, the underwriters may stabilize or maintain the price
of the common stock by bidding for or purchasing shares of common stock on the
open market and may impose penalty bids. If penalty bids are imposed, selling
concessions allowed to syndicate members or other broker-dealers participating
in the offering are reclaimed if shares of common stock previously distributed
in the offering are repurchased, whether in connection with stabilization
transactions or otherwise. The effect of these transactions may be to stabilize
or maintain the market price of the common stock at a level above that which
might otherwise prevail in the open market. The imposition of a penalty bid may
also affect the price of the common stock to the extent that it discourages
resales of the common stock. The magnitude or effect of any stabilization or
other transactions is uncertain. These transactions may be effected on the
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
67
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Travelscape.com by Wilson Sonsini Goodrich & Rosati, Professional Corporation,
Palo Alto, California. Certain legal matters will be passed upon for the
underwriters by Gibson, Dunn & Crutcher LLP, San Francisco, California.
EXPERTS
The combined financial statements of Las Vegas Reservation Systems, Inc.,
Travelscape.com, Inc. and Professional Travel Services, Inc. as of December 31,
1997 and 1998 and for each of the years in the three-year period ended December
31, 1998 included herein and in the registration statement are included in
reliance upon the reports of KPMG LLP independent auditors, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the SEC for the stock we
are offering by this prospectus. This prospectus does not include all of the
information contained in the registration statement. You should refer to the
registration statement and its exhibits for additional information. Whenever we
make reference in this prospectus to any of our contracts, agreements or other
documents, the references are not necessarily complete and you should refer to
the exhibits attached to the registration statement for copies of the actual
contract, agreement or other document. When we complete this offering, we will
also be required to file annual, quarterly and special reports, proxy statements
and other information with the SEC.
You can read our SEC filings, including the registration statement, over the
Internet at the SEC's web site at WWW.SEC.GOV. You may also read and copy any
document we file with the SEC at its public reference facilities at 450 Fifth
Street, NW, Washington, D.C., 20549, 7 World Trade Center, Suite 1300, New York,
New York, 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. You may also obtain copies of the documents at
prescribed rates by writing to the Public Reference Section of the SEC at 450
Fifth Street, NW, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330
for further information about the public reference rooms. Information contained
on Travelscape.com's web site does not constitute part of this prospectus. Our
SEC filings are also available at the office of the Nasdaq National Market. For
further information on obtaining copies of our public filings at the Nasdaq
National Market, you should call (212) 656-5060.
------------------------------------
Information contained on Travelscape.com's web sites does not constitute part of
this prospectus.
Travelscapes Vacations is a registered trademark of Travelscape.com. In
addition, Travelscape.com and lvrs.com are trademarks of Travelscape.com. This
prospectus also contains trademarks and trade names of other companies.
68
<PAGE>
INDEX TO FINANCIAL STATEMENTS
LAS VEGAS RESERVATION SYSTEMS, INC.,
TRAVELSCAPE.COM, INC. AND PROFESSIONAL TRAVEL SERVICES INC.
<TABLE>
<S> <C>
Page
---------
Report of Independent Auditors....................................................... F-2
Combined Balance Sheets of Las Vegas Reservation Systems, Inc., Travelscape.com, Inc.
and Professional Travel Services, Inc. as of December 31, 1997 and 1998 and March
31, 1999 (unaudited)............................................................... F-3
Combined Statements of Operations of Las Vegas Reservation Systems, Inc.,
Travelscape.com, Inc. and Professional Travel Services, Inc. for the years ended
December 31, 1996, 1997 and 1998 and for the three months ended March 31, 1998 and
1999 (unaudited)................................................................... F-4
Combined Statements of Stockholders' Deficiency of Las Vegas Reservation Systems,
Inc., Travelscape.com, Inc. and Professional Travel Services, Inc. for the years
ended December 31, 1996, 1997 and 1998 and for the three months ended March 31,
1999 (unaudited)................................................................... F-5
Combined Statements of Cash Flows of Las Vegas Reservation Systems, Inc.,
Travelscape.com, Inc. and Professional Travel Services, Inc. for the years ended
December 31, 1996, 1997 and 1998 and for the three months ended March 31, 1998 and
1999 (unaudited)................................................................... F-6
Notes to Combined Financial Statements............................................... F-7
</TABLE>
F-1
<PAGE>
Report of Independent Auditors
The Board of Directors
Las Vegas Reservation Systems, Inc.,
Travelscape.com, Inc.,
and Professional Travel Services, Inc.:
We have audited the accompanying combined balance sheets of Las Vegas
Reservation Systems, Inc., Travelscape.com, Inc. and Professional Travel
Services, Inc. as of December 31, 1997 and 1998, and the related combined
statements of operations, stockholders' deficiency, and cash flows for each of
the years in the three year period ended December 31, 1998. 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 Las Vegas
Reservation Systems, Inc., Travelscape.com, Inc. and Professional Travel
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
March 5, 1999, except for the fifth paragraph
of Note 9, which is as of April 24, 1999
F-2
<PAGE>
LAS VEGAS RESERVATION SYSTEMS, INC.,
TRAVELSCAPE.COM, INC. AND PROFESSIONAL TRAVEL SERVICES, INC.
Combined Balance Sheets
<TABLE>
<CAPTION>
December 31,
----------------------------
1997 1998
------------- ------------- March 31,
1999
--------------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents........................................ $ 63,494 $ 265,674 $ 6,335,428
Prepaid expenses................................................. 72,044 177,788 684,576
Other current assets............................................. 6,044 -- 26,246
------------- ------------- --------------
Total current assets........................................... 141,582 443,462 7,046,250
Property, plant and equipment, net (notes 2, 3 and 6).............. 2,029,879 2,647,401 2,917,762
Other assets (note 7).............................................. 335,232 752,853 1,521,063
Intangible assets, net............................................. -- -- 1,855,000
------------- ------------- --------------
$ 2,506,693 $ 3,843,716 $ 13,340,075
------------- ------------- --------------
------------- ------------- --------------
Liabilities and Stockholders' Deficiency
Current liabilities:
Accounts payable................................................. $ 1,427,447 $ 2,063,549 $ 1,729,229
Accrued room payable............................................. 286,237 660,571 1,175,702
Accrued expenses................................................. 95,056 461,072 455,761
Deferred revenue................................................. 777,702 1,983,472 5,654,421
Borrowings under lines of credit (note 5)........................ 97,580 91,144 89,932
Current portion of notes payable (note 6)........................ 37,940 32,926 33,605
Current portion of capital lease obligations (note 3)............ -- 182,274 314,221
------------- ------------- --------------
Total current liabilities...................................... 2,721,962 5,475,008 9,452,871
Notes payable, less current portion (note 6)....................... 1,432,450 1,399,524 3,558,192
Related party loan (note 4)........................................ 68,475 46,684 46,684
Capital lease obligations, less current portion (note 3)........... -- 528,815 529,103
------------- ------------- --------------
Total liabilities.............................................. 4,222,887 7,450,031 13,586,850
------------- ------------- --------------
Stockholders' deficiency:
Common stock, $0.01 par value. Authorized 50,000,000 shares,
15,000,000 shares issued and outstanding....................... -- -- 150,000
Common stock, no par value. Authorized 2,500 shares, 200 shares
issued and outstanding......................................... -- -- --
Common stock, $0.001 par value. Authorized 25,000,000 shares,
5,000,000 shares issued and outstanding........................ -- 5,000 --
Common stock, no par value. Authorized 2,500 shares, 1,000 shares
issued and outstanding......................................... 40,000 40,000 --
Additional paid-in capital....................................... -- 2,623,305 16,112,277
Deferred stock compensation...................................... -- -- (4,810,045)
Stockholder loans (note 4)....................................... -- (91,786) (83,345)
Accumulated deficit.............................................. (1,756,194) (6,182,834) (11,615,662)
------------- ------------- --------------
Net stockholders' deficiency................................... (1,716,194) (3,606,315) (246,775)
------------- ------------- --------------
Commitments and contingencies (notes 3 and 7)...................... $ 2,506,693 $ 3,843,716 $ 13,340,075
------------- ------------- --------------
------------- ------------- --------------
</TABLE>
See accompanying notes to combined financial statements.
F-3
<PAGE>
LAS VEGAS RESERVATION SYSTEMS, INC.,
TRAVELSCAPE.COM, INC. AND PROFESSIONAL TRAVEL SERVICES, INC.
Combined Statements of Operations
<TABLE>
<CAPTION>
Three months ended
Year ended December 31, March 31,
--------------------------------- ---------------------
1996 1997 1998 1998 1999
--------- ---------- ---------- --------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Room sales.................... $8,078,290 $11,715,836 $18,851,718 $2,900,782 $7,603,443
Airfare sales................. 178,092 716,121 2,027,067 438,834 472,009
--------- ---------- ---------- --------- ----------
Total revenues.............. 8,256,382 12,431,957 20,878,785 3,339,616 8,075,452
Cost of sales................... 4,913,592 8,200,004 14,697,664 2,357,080 5,625,360
--------- ---------- ---------- --------- ----------
Gross profit.................... 3,342,790 4,231,953 6,181,121 982,536 2,450,092
--------- ---------- ---------- --------- ----------
Operating expenses:
General and administrative.... 2,087,220 3,065,933 5,420,838 852,687 2,209,247
Sales and marketing........... 797,413 990,601 4,109,105 383,038 3,193,719
Systems development........... 134,626 114,896 896,753 20,993 287,737
Stock compensation............ -- -- -- -- 1,827,430
--------- ---------- ---------- --------- ----------
Total operating expenses.... 3,019,259 4,171,430 10,426,696 1,256,718 7,518,133
--------- ---------- ---------- --------- ----------
Operating income (loss)......... 323,531 60,523 (4,245,575) (274,182) (5,068,041)
--------- ---------- ---------- --------- ----------
Other income (expense):
Interest expense, net......... (3,561) (76,602) (183,949) (28,441) (359,878)
Other income.................. 16,112 17,994 2,884 8,564 1,091
--------- ---------- ---------- --------- ----------
Total other income
(expense)................. 12,551 (58,608) (181,065) (19,877) (358,787)
--------- ---------- ---------- --------- ----------
Net income (loss)............... $ 336,082 $ 1,915 $(4,426,640) $(294,059) $(5,426,828)
--------- ---------- ---------- --------- ----------
--------- ---------- ---------- --------- ----------
</TABLE>
See accompanying notes to combined financial statements.
F-4
<PAGE>
LAS VEGAS RESERVATION SYSTEMS, INC.,
TRAVELSCAPE.COM, INC. AND PROFESSIONAL TRAVEL SERVICES, INC.
Combined Statements of Stockholders' Deficiency (Notes 8 and 9)
<TABLE>
<CAPTION>
Common
Stock/
Additional Deferred Net
Paid-in Stock Stockholder Accumulated Stockholders'
Capital Compensation Loans Deficit Deficiency
------------- ------------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995.......... $ 40,000 $ -- $ -- $ (543,272) $ (503,272)
Net income............................ -- -- -- 336,082 336,082
Distributions......................... -- -- -- (758,513) (758,513)
------------- ------------- ----------- -------------- -------------
Balance at December 31, 1996.......... 40,000 -- -- (965,703) (925,703)
Net income............................ -- -- -- 1,915 1,915
Distributions......................... -- -- -- (792,406) (792,406)
------------- ------------- ----------- -------------- -------------
Balance at December 31, 1997.......... 40,000 -- -- (1,756,194) (1,716,194)
Net loss.............................. -- -- -- (4,426,640) (4,426,640)
Contributions......................... 2,628,305 -- (91,786) -- 2,536,519
------------- ------------- ----------- -------------- -------------
Balance at December 31, 1998.......... 2,668,305 -- (91,786) (6,182,834) (3,606,315)
Net loss (unaudited).................. -- -- -- (5,426,828) (5,426,828)
Contributions (unaudited)............. -- -- 8,441 -- 8,441
Deferred stock compensation
(unaudited)......................... 6,637,475 (4,810,045) -- -- 1,827,430
Stock warrants (unaudited)............ 5,080,497 -- -- -- 5,080,497
Reorganization adjustment
(unaudited)......................... 1,876,000 -- -- -- 1,876,000
Distributions (unaudited) -- -- -- (6,000) (6,000)
------------- ------------- ----------- -------------- -------------
Balance at March 31, 1999
(unaudited)......................... $ 16,262,277 $(4,810,045) $ (83,345) $ (11,615,662) $ (246,775)
------------- ------------- ----------- -------------- -------------
------------- ------------- ----------- -------------- -------------
</TABLE>
See accompanying notes to combined financial statements.
F-5
<PAGE>
LAS VEGAS RESERVATION SYSTEMS, INC.,
TRAVELSCAPE.COM, INC. AND PROFESSIONAL TRAVEL 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>
Cash flows from operating activities:
Net income (loss)......................................... $ 336,082 $ 1,915 $(4,426,640) $(294,059) $(5,426,828)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization........................... 71,991 96,836 160,444 40,035 114,288
Amortization of debt discount and issuance costs........ -- -- -- -- 231,507
Stock compensation...................................... -- -- -- -- 1,827,430
Changes in operating assets and liabilities:
Decrease in related party receivables................. 351,495 23,336 -- -- --
Increase in prepaid expenses and other current
assets.............................................. (7,766) (54,818) (99,700) (346,548) (533,034)
Increase (decrease) in other assets................... (416,321) 175,415 (417,621) 66,773 (791,981)
Increase(decrease) in accounts payable and accrued
expenses............................................ 257,696 913,683 1,376,452 (436,075) 175,500
Increase in deferred revenue.......................... 164,741 169,581 1,205,770 1,304,948 3,670,949
--------- ---------- ---------- --------- ----------
Net cash provided by (used in) operating
activities........................................ 757,918 1,325,948 (2,201,295) 335,074 (732,169)
--------- ---------- ---------- --------- ----------
Cash flows from investing activities:
Acquisition of property and equipment..................... (112,941) (2,036,228) (66,877) (43,258) (172,276)
(Purchase) sale of investments............................ (32,310) 32,310 -- -- --
--------- ---------- ---------- --------- ----------
Net cash used in investing activities............... (145,251) (2,003,918) (66,877) (43,258) (172,276)
--------- ---------- ---------- --------- ----------
Cash flows from financing activities:
(Distributions to) contributions from stockholders, net... (758,513) (792,406) 2,536,519 (120,263) (6,000)
Proceeds from (repayments of) loan from stockholders...... 78,275 (9,800) (21,791) -- 8,441
Advances from (repayments of) line of credit, net......... 61,800 35,780 (6,436) (1,336) (1,212)
Proceeds from notes payable............................... -- 1,470,390 -- 10,362 7,028,158
Repayment of notes payable................................ -- -- (37,940) -- --
Repayments of capital lease obligations................... -- -- -- -- (55,188)
--------- ---------- ---------- --------- ----------
Net cash provided by (used in) financing
activities........................................ (618,438) 703,964 2,470,352 (111,237) 6,974,199
--------- ---------- ---------- --------- ----------
Net increase (decrease) in cash and cash
equivalents....................................... (5,771) 25,994 202,180 180,579 6,069,754
Cash and cash equivalents:
Beginning of period....................................... 43,271 37,500 63,494 63,494 265,674
--------- ---------- ---------- --------- ----------
End of period............................................. $ 37,500 $ 63,494 $ 265,674 $ 244,073 $6,335,428
--------- ---------- ---------- --------- ----------
--------- ---------- ---------- --------- ----------
See accompanying notes to combined financial statements.
Supplemental disclosures of cash flow information:
Cash paid during the year for interest.................... $ 5,661 $ 8,722 $ 85,613 $ 7,724 $ 136,444
--------- ---------- ---------- --------- ----------
--------- ---------- ---------- --------- ----------
Equipment acquired under capital lease.................... $ -- $ -- $ 711,089 $ -- $ 187,423
--------- ---------- ---------- --------- ----------
--------- ---------- ---------- --------- ----------
Stockholder loan.......................................... $ -- $ -- $ 91,786 $ -- $ --
--------- ---------- ---------- --------- ----------
--------- ---------- ---------- --------- ----------
Deferred compensation..................................... $ -- $ -- $ -- $ -- $6,637,475
--------- ---------- ---------- --------- ----------
--------- ---------- ---------- --------- ----------
Original issue discount................................... $ -- $ -- $ -- $ -- $5,080,497
--------- ---------- ---------- --------- ----------
--------- ---------- ---------- --------- ----------
Intangible assets......................................... $ -- $ -- $ -- $ -- $1,876,000
--------- ---------- ---------- --------- ----------
--------- ---------- ---------- --------- ----------
</TABLE>
F-6
<PAGE>
LAS VEGAS RESERVATION SYSTEMS, INC.,
TRAVELSCAPE.COM, INC. AND PROFESSIONAL TRAVEL 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 (unaudited)
(1) Summary of Significant Accounting Policies
(A) BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
The accompanying combined financial statements include the accounts of
Las Vegas Reservation Systems, Inc. ("LVRS"), Travelscape.com, Inc. ("Old
Travelscape") and Professional Travel Services, Inc. ("PTS") (Nevada
Corporations) (collectively referred to as the "Company"). The entities
are owned and controlled principally by common ownership and management.
All intercompany transactions have been eliminated in combination.
LVRS, a Nevada Corporation, sells hotel room packages in Las Vegas, Reno,
Laughlin, and Lake Tahoe to individual and group customers. In the normal
course of business, certain hotel properties require cash deposits or
letters of credit to secure hotel room inventory.
In March 1998, LVRS established its web site WWW.LVRS.COM to sell rooms
over the Internet. The success of the web site prompted management to
begin an effort to replicate its Las Vegas based system across the United
States through Old Travelscape, which was created in April 1998. Old
Travelscape created its own web site WWW.TRAVELSCAPE.COM in which it
offers its services. The Internet offers the Company advertising and
distribution means to market and sell its rooms to a worldwide audience
in a cost-effective manner.
Effective September 30, 1998, LVRS was merged with Fort Apache, Inc.
whose principal business was to hold a building and land in Las Vegas.
Fort Apache, Inc. shares 100% common ownership with LVRS, accordingly,
the transaction was recorded as a reorganization of entities under common
control and the historical cost basis of the net assets of Fort Apache,
Inc. was carried over to LVRS. Prior year financial statements have been
restated to reflect this reorganization.
LVRS began making non-published airline reservations for its customers in
May 1997. The flights are often packaged together with hotel
reservations.
PTS operates a travel agency in Las Vegas. PTS provides transportation
arrangements primarily for business travel.
On January 22, 1999, the Company completed a reorganization whereby LVRS,
Old Travelscape and PTS became wholly owned subsidiaries of
Travelscape.com, Inc., a Delaware corporation. The transaction was
accounted for principally as a reorganization of entities under common
control. Accordingly, the combined financial statements of LVRS, Old
Travelscape and PTS for the years presented herein are predecessor
operations to the comparable entity which exists after January 21, 1999.
At the time of the reorganization, 20% of the common stock of Old
Travelscape was not owned by the common control group. Therefore, the net
assets of Old Travelscape were stepped up by $1,876,000, which represents
20% of the amount by which the fair value of the net assets of Old
Travelscape exceeded its historical net assets at the time of the
reorganization. The amount was allocated to goodwill in the accompanying
balance sheet. Amortization of goodwill is recorded on a straight-line
basis over 15 years.
F-7
<PAGE>
LAS VEGAS RESERVATION SYSTEMS, INC.,
TRAVELSCAPE.COM, INC. AND PROFESSIONAL TRAVEL SERVICES, INC.
Notes to Combined Financial Statements (Continued)
Years ended December 31, 1996, 1997 and 1998
and the three months ended March 31, 1998 and 1999 (unaudited)
The financial statements as of and for the three months ended March 31,
1999 are combined through January 22, 1999 (the date of the
organizational restructuring) and consolidated through and as of March
31, 1999.
(B) CASH EQUIVALENTS
Cash equivalents include highly liquid investments purchased with an
original maturity date of three months or less.
(C) PROPERTY, PLANT AND EQUIPMENT
Property and equipment are recorded at cost and depreciated on a
straight-line basis over their estimated useful lives ranging from 3-20
years. Expenditures for maintenance and repairs are expensed when
incurred. Property and equipment 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 term or estimated useful lives of the asset.
(D) INTERIM FINANCIAL DATA
The unaudited operating results have been prepared on the same basis as
the audited combined financial statements and, in the opinion of
management, include all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation for the periods presented.
The results of operations for the three months ended March 31, 1999 are
not necessarily indicative of results to be achieved for the full fiscal
year. The unaudited financial statements should be read in conjunction
with the audited combined financial statements presented for the years
ended December 31, 1996, 1997 and 1998.
(E) REVENUE RECOGNITION
Revenue from sales of hotel rooms and airline tickets, as well as the
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. Such
revenues are deferred until the customer checks in to the hotel or
completes their air travel. Revenue earned from sales of travel products
and services in which the travel provider is the credit card merchant of
record are recognized upon receipt and are recorded at the commission
amount.
(F) SYSTEMS DEVELOPMENT
Systems development expenses are comprised primarily of compensation to
the Company's information systems and technical staff, payments to
outside contractors for information systems and technical services, data
communications lines, web hosting services and other expenses associated
with operating the Company's web sites.
F-8
<PAGE>
LAS VEGAS RESERVATION SYSTEMS, INC.,
TRAVELSCAPE.COM, INC. AND PROFESSIONAL TRAVEL SERVICES, INC.
Notes to Combined Financial Statements (Continued)
Years ended December 31, 1996, 1997 and 1998
and the three months ended March 31, 1998 and 1999 (unaudited)
(G) USE OF ESTIMATES
Management of the Company has made estimates and assumptions relating to
the reporting of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting period to
prepare these financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.
(H) INCOME TAXES
Prior to January 22, 1999, LVRS and PTS were taxed as S corporations
under provisions of the Internal Revenue Code. Under these provisions,
LVRS and PTS did not pay income tax on their income. Instead, the
stockholders of LVRS and PTS were liable for income tax on the taxable
income as it effects the stockholders' income tax returns. Accordingly, a
provision for income taxes has not been included in the accompanying
combined financial statements for LVRS and PTS.
Old Travelscape is a Nevada C corporation which is subject to federal
income tax. Old Travelscape accounted for income taxes under the asset
and liability method whereby deferred income taxes are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years
those temporary differences are expected to be recovered or settled. The
effect on deferred taxes of a change in the tax rates is recognized in
income for the period that includes enactment date.
Old Travelscape recognized a taxable loss for the period ended December
31, 1998 and therefore no current tax provision was recorded. A net
deferred tax asset has been recognized by Old Travelscape, aggregating
$1,100,000, which consists primarily of net operating loss carryforwards.
A 100% valuation allowance has been provided against the net deferred tax
assets since the likelihood of taxable income sufficient enough to
realize the entire balance of the deferred tax assets in the future is
uncertain.
(I) START-UP COSTS
Start-up costs are expensed as incurred.
(J) ADVERTISING EXPENSES
The Company expenses advertising as incurred. Advertising expense
aggregated $797,413, $990,601 and $4,109,105 for the years ended December
31, 1996, 1997 and 1998 and $383,038 and $3,193,719 for the three months
ended March 31, 1998 and 1999, respectively.
(K) STOCK COMPENSATION
The Company has adopted Statement of Financial Accounting Standards
Statement, or SFAS, No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION and
has elected to measure compensation
F-9
<PAGE>
LAS VEGAS RESERVATION SYSTEMS, INC.,
TRAVELSCAPE.COM, INC. AND PROFESSIONAL TRAVEL SERVICES, INC.
Notes to Combined Financial Statements (Continued)
Years ended December 31, 1996, 1997 and 1998
and the three months ended March 31, 1998 and 1999 (unaudited)
cost under Accounting Principles Board Opinion No. 25 and comply with the
pro forma disclosure requirements of SFAS No. 123, except for options and
warrants granted to non-employees, which are accounted for under SFAS No.
123.
(L) RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, 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. Our comprehensive income (loss)
is the same as net income (loss). Accordingly, SFAS No. 130 did not have
a material impact on the combined and consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION.
SFAS No. 131 that 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, including the way management organizes the segments
within the enterprise for making operating decisions and assessing
performance. Management currently reviews financial data at the highest
level, the sale of travel services. Therefore, under the management
approach of SFAS No. 131, we have only one operating segment.
Accordingly, SFAS No. 131 did not have a material impact on the combined
and consolidated financial statements.
The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants issued Statement of Position, or 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.
(M) LONG-LIVED ASSETS
The Company accounts for long-lived assets at amortized costs. 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 the
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-10
<PAGE>
LAS VEGAS RESERVATION SYSTEMS, INC.,
TRAVELSCAPE.COM, INC. AND PROFESSIONAL TRAVEL SERVICES, INC.
Notes to Combined Financial Statements (Continued)
Years ended December 31, 1996, 1997 and 1998
and the three months ended March 31, 1998 and 1999 (unaudited)
(2) Property, Plant and Equipment
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------- March 31,
1997 1998 1999
--------- --------- ---------
(unaudited)
<S> <C> <C> <C>
Land..................................... $ 408,000 $ 408,000 $ 408,000
Building and improvements................ 1,445,312 1,549,756 1,549,757
Computer hardware and software........... 171,714 729,807 1,052,787
Furniture and office equipment........... 147,668 263,817 300,955
--------- --------- ---------
2,172,694 2,951,380 3,311,499
Less accumulated depreciation and
amortization........................... 142,815 303,979 393,737
--------- --------- ---------
$2,029,879 $2,647,401 $2,917,762
--------- --------- ---------
--------- --------- ---------
</TABLE>
(3) Lease Commitments
The Company is obligated under various capital leases entered into during
1998, for certain office equipment, that expire at various dates through
2003. The gross amount of office equipment and related accumulated
depreciation capitalized and recorded under capital leases at December 31,
1998 were as follows:
<TABLE>
<CAPTION>
December March 31,
31, 1998 1999
----------- -----------
(unaudited)
<S> <C> <C>
Office equipment..................................... $ 517,519 $ 709,591
Less accumulated depreciation........................ 18,493 81,610
----------- -----------
$ 499,026 $ 627,981
----------- -----------
----------- -----------
</TABLE>
F-11
<PAGE>
LAS VEGAS RESERVATION SYSTEMS, INC.,
TRAVELSCAPE.COM, INC. AND PROFESSIONAL TRAVEL SERVICES, INC.
Notes to Combined Financial Statements (Continued)
Years ended December 31, 1996, 1997 and 1998
and the three months ended March 31, 1998 and 1999 (unaudited)
Future minimum capital lease payments as of December 31, 1998 are:
<TABLE>
<CAPTION>
Capital Operating
leases leases
---------- -----------
<S> <C> <C>
Years ending December 31:
1999.............................................................. $ 247,472 $ 15,179
2000.............................................................. 223,902 4,709
2001.............................................................. 163,424 674
2002.............................................................. 130,704 --
2003.............................................................. 108,920 --
---------- -----------
Net minimum lease payments.................................... 874,422 $ 20,562
-----------
-----------
Less amounts representing interest.................................... 163,333
----------
Present value of net minimum capital lease payments........... 711,089
Less current portion of obligations under capital leases.............. 182,274
----------
Obligations under capital leases excluding current portion.... $ 528,815
----------
----------
</TABLE>
The Company leases office equipment under operating leases, which expire in
2001. Rent expense for the years ended December 31, 1996, 1997 and 1998 was
$16,059, $25,510 and $24,603, and for the three months ended March 31, 1998
and 1999 was $8,568 and $6,167, respectively.
The carrying amount of capital leases approximates fair value at December
31, 1998.
(4) Related Party Transactions
LVRS, Old Travelscape and PTS make payments on behalf of each other for
normal operating activity. All amounts were eliminated in combination.
At December 31, 1997 and 1998 and at March 31, 1999, PTS had loans from the
stockholders of $68,475, $46,684 and $46,684, respectively, for start-up
costs of the business. This is a noninterest-bearing loan with no fixed
repayment terms, however repayment is not expected during 1999, and
accordingly, this amount has been recorded as long-term in the accompanying
balance sheet. Old Travelscape has loaned $91,786 to officers of the Company
for the purchase of common stock as of December 31, 1998 of which $63,534 is
due within one year, with the remaining balance of $28,252 due in 2001. This
amount has been recorded as a reduction in net stockholders' deficiency.
F-12
<PAGE>
LAS VEGAS RESERVATION SYSTEMS, INC.,
TRAVELSCAPE.COM, INC. AND PROFESSIONAL TRAVEL SERVICES, INC.
Notes to Combined Financial Statements (Continued)
Years ended December 31, 1996, 1997 and 1998
and the three months ended March 31, 1998 and 1999 (unaudited)
(5) Borrowings Under Lines of Credit
Borrowings under unsecured lines of credit with various financial
institutions are as follows:
<TABLE>
<CAPTION>
December 31,
-------------------- March 31,
1997 1998 1999
--------- --------- -----------
(unaudited)
<S> <C> <C> <C>
Wells Fargo Bank, interest is 11%, expires on
June 30, 1999................................ $ 47,580 $ 41,144 $ 39,932
Bank West of Nevada, interest is 11%, expires
on March 27, 1999............................ 50,000 50,000 50,000
--------- --------- -----------
$ 97,580 $ 91,144 $ 89,932
--------- --------- -----------
--------- --------- -----------
</TABLE>
The Company's borrowing capacity available under each of these lines of
credit is $50,000.
(6) Notes Payable
Notes payable consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------------- March 31,
1997 1998 1999
--------- --------- ---------
(unaudited)
<S> <C> <C> <C>
First mortgage note payable in monthly
installments of $7,681, at an interest
rate of prime plus 1.5% (9.9% as of
December 31, 1998), maturity date of
June 30, 2017; secured by real
property............................... $ 822,345 $ 801,687 $ 797,683
First mortgage note payable in monthly
installments of $4,741, at an interest
rate of 6.85%, maturity date of
November 11, 2017; secured by real
property............................... 625,350 609,645 605,553
Second mortgage note payable in monthly
installments of $303, at an interest
rate of prime plus 1.5% (9.9% as of
December 31, 1998), maturity date of
June 30, 2007; secured by real
property............................... 22,695 21,118 20,672
Senior notes payable, at an interest rate
of 10 % for initial 12 months and 12 %
for the subsequent 12 months, maturity
date in February, 2001, unsecured...... -- -- 7,036,700
Less original issue discount (1)..... -- -- (4,868,811)
--------- --------- ---------
1,470,390 1,432,450 3,591,797
Less current portion..................... 37,940 32,926 33,605
--------- --------- ---------
$1,432,450 $1,399,524 $3,558,192
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-13
<PAGE>
LAS VEGAS RESERVATION SYSTEMS, INC.,
TRAVELSCAPE.COM, INC. AND PROFESSIONAL TRAVEL SERVICES, INC.
Notes to Combined Financial Statements (Continued)
Years ended December 31, 1996, 1997 and 1998
and the three months ended March 31, 1998 and 1999 (unaudited)
The aggregate maturities of long-term debt for each of the five years
subsequent to December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999............................................................ $ 32,926
2000............................................................ 35,640
2001............................................................ 38,582
2002............................................................ 41,774
2003............................................................ 45,236
Thereafter...................................................... 1,238,292
---------
$1,432,450
---------
---------
</TABLE>
(1) During February 1999, Travelscape.com completed a private placement whereby
70.367 units of Travelscape.com's senior notes and common stock purchase
warrants were subscribed for a total value of $100,000 per unit or
$7,036,700. Each unit consists of a note with a face value of $100,000
bearing interest at 10% prior to February 2000 and 12% thereafter and a
warrant to purchase 7,500 shares of Travelscape.com's common stock, par
value $0.01 per share. The notes have a stated maturity of two years from
the date of issuance. The notes' maturity accelerates at a "trigger event,"
which is generally defined as either an initial public offering of the
Company's common stock or a sale of the Company. The fair value of the
warrants issued in connection with the private placement of $5,080,497 has
been allocated to a debt discount and will be amortized over the effective
interest method. As a result of the original issue discount, the effective
interest rate is estimated at 32%. The warrants are exercisable over three
years. Warrants for a total of 527,752 shares of common stock were issued in
connection with the private placement. The fair value of the warrants was
determined pursuant to Black-Scholes model for calculating the fair value of
equity instruments. The discount will be amortized to interest expense over
the term of the Senior notes using the effective interest method. Upon
repayment, any outstanding balance of the discount will be written off to
interest expense.
(7) Commitments and Contingencies
(A) LITIGATION
The Company is involved in legal proceedings from outside parties
involving routine business matters. Management believes that the ultimate
resolution of these matters will not have a material adverse affect on
the Company's financial condition or results of operations.
F-14
<PAGE>
LAS VEGAS RESERVATION SYSTEMS, INC.,
TRAVELSCAPE.COM, INC. AND PROFESSIONAL TRAVEL SERVICES, INC.
Notes to Combined Financial Statements (Continued)
Years ended December 31, 1996, 1997 and 1998
and the three months ended March 31, 1998 and 1999 (unaudited)
(B) ADVERTISING CONTRACTS
The Company has entered into several advertising contracts, including
with various Internet web sites, which run through the year 2000. The
agreements provide for monthly and quarterly payments and are summarized
as follows as of December 31, 1998:
<TABLE>
<S> <C>
Years ending December 31:
1999.......................................................... $5,020,000
2000.......................................................... 50,000
---------
$5,070,000
---------
---------
</TABLE>
(C) LETTERS OF CREDIT
The Company has an agreement with Bank West of Nevada to extend letters
of credit on behalf of the Company to certain hotel properties to secure
payment for the potential purchase of blocks of hotel rooms. Letters of
credit with Bank West of Nevada at December 31, 1998 were $1,000,000. The
letter of credit agreements require the Company to place approximately
67% of a required hotel deposit in a certificate of deposit with the
bank. If the Company were to default on the payment of a block of rooms,
the hotel would exercise the letter of credit. As of December 31, 1998,
the Company has placed $670,000 in a certificate of deposit under this
arrangement. These deposits are restricted and are included in other
assets.
(8) Stock Options
The Financial Accounting Standards Board issued SFAS No. 123 which 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, or APB, No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES. 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.
During 1998, Old Travelscape issued options to purchase 1,027,500 shares of
its common stock to certain key employees. Old Travelscape accounted for
these options pursuant to APB No. 25. These options were issued with an
option price substantially equal to the fair market value of the common
stock on the date of the grant. As of December 31, 1998, options to purchase
1,027,500 shares of common stock are outstanding at an exercise price of
$1.33 per share. The options vest over a three year period. No options were
exercisable at December 31, 1998.
Had the Company complied with SFAS No. 123 for financial reporting purposes,
the impact on net loss for the year ended December 31, 1998 would be to
increase the net loss to $6,043,240. The pro forma net loss is based on the
following assumptions: risk-free interest rate of 6.5%, volatility of 20%,
dividend yield of 0% and economic life of the option of three years.
F-15
<PAGE>
LAS VEGAS RESERVATION SYSTEMS, INC.,
TRAVELSCAPE.COM, INC. AND PROFESSIONAL TRAVEL SERVICES, INC.
Notes to Combined Financial Statements (Continued)
Years ended December 31, 1996, 1997 and 1998
and the three months ended March 31, 1998 and 1999 (unaudited)
In the three months ended March 31, 1999, Old Travelscape and the Company
granted 1,177,500 options to purchase its common stock at a price of $4.00
per share. As a result of these option grants, the Company recorded
compensation expense of $1,827,430 for the three months ended March 31, 1999
and will record deferred stock compensation expense of $4,810,045 over the
future vesting period of the options, calculated under APB No. 25 for
employees and SFAS No. 123 for non-employees. The deferred stock
compensation is recorded as a component of net stockholders' deficiency in
the accompanying balance sheet.
All outstanding options to purchase common stock prior to January 21, 1999
were assumed by Travelscape.com, Inc. and will retain all of the same terms
included in the initial grant.
(9) Reorganization
On January 22, 1999, Travelscape.com, Inc., a Delaware Corporation
("Travelscape.com"), entered into a organizational restructuring whereby
LVRS, Old Travelscape and PTS became wholly owned subsidiaries of
Travelscape.com. To execute this organizational restructuring, each of the
stockholders of LVRS, Old Travelscape and PTS exchanged their respective
shares for shares of Travelscape.com. All four entities are principally
under common management and control, and accordingly, the predecessor's
historical cost basis has been carried over to Travelscape.com at the same
values, except for 20% of Old Travelscape, which was owned by a minority
stockholder outside of the control group. As a result, the Company recorded
a step-up in the historical cost basis equal to 20% of the excess of fair
value over the net assets of Old Travelscape at the time of the
reorganization, aggregating $1,876,000. The step-up has been allocated to
goodwill.
The following pro forma statements of operations for the year ended December
31, 1998 and the three months ended March 31, 1999 reflect the results of
operations as if the aforementioned reorganization had occurred on the first
day of each of the periods presented and represents the results of
operations adjusted to reflect pro forma amortization of goodwill, which
gives effect to the acquisition of LVRS, Old Travelscape and PTS by
Travelscape.com. The Company incurred a net loss for the periods included
for the pro forma statement of operations and recorded a 100% valuation
allowance against all deferred tax assets at December 31, 1998 and March 31,
1999. Therefore no pro forma income tax provision has been provided. The
following pro forma balance sheet at December 31, 1998 and March 31, 1999
reflects 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 provisions of
SFAS No. 128, EARNINGS PER SHARE. 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 period. Pro forma basic income per share
reflects the issuance of shares for the acquisition of LVRS, Old Travelscape
and PTS by Travelscape.com and are considered outstanding for all periods
presented. Diluted loss per share is computed using the dilutive effect of
all options to purchase Travelscape.com's common stock.
F-16
<PAGE>
LAS VEGAS RESERVATION SYSTEMS, INC.,
TRAVELSCAPE.COM, INC. AND PROFESSIONAL TRAVEL SERVICES, INC.
Notes to Combined Financial Statements (Continued)
Years ended December 31, 1996, 1997 and 1998
and the three months ended March 31, 1998 and 1999 (unaudited)
The following is a reconciliation of the numerator and denominator for the
basic and diluted net loss per share.
<TABLE>
<CAPTION>
Three months
Year ended ended
December 31, March 31,
1998 1999
------------- -------------
(unaudited)
<S> <C> <C>
Pro forma net loss used in basic and diluted loss per share........................ $ 4,551,706 $ 5,437,250
------------- -------------
------------- -------------
Shares of common stock and common stock equivalents:
Basic:
Shares issued for acquisition of LVRS, Old Travelscape and PTS................. $ 15,000,000 $15,000,000
Diluted:
Dilutive effect of stock options and warrants.................................. -- --
------------- -------------
$ 15,000,000 $15,000,000
------------- -------------
------------- -------------
Net loss per share:
Basic............................................................................ $ (0.30) $ (0.36)
------------- -------------
------------- -------------
Diluted.......................................................................... $ (0.30) $ (0.36)
------------- -------------
------------- -------------
</TABLE>
Effective April 24, 1999, Travelscape.com's Board of Directors approved an
increase in the number of authorized shares from 25,000,000 to 50,000,000
shares. The financial statements reflect this increase. The number of shares
outstanding of Travelscape.com common stock is on a pro forma basis giving
effect to a 3-for-2 split of common stock that will be completed prior to
the initial public offering. All references to the number of shares of
common stock have been retroactively adjusted to reflect this stock split.
All stock options and warrants to purchase common stock have been excluded
from the calculation of diluted loss per share as their impact is
anti-dilutive.
Effective with the reorganization, LVRS, Old Travelscape and PTS became
wholly-owned subsidiaries of Travelscape.com, and accordingly,
Travelscape.com recorded net deferred tax assets of $1,220,000 related to
the cumulative differences between the basis of certain assets and
liabilities for financial reporting and income tax purposes. Travelscape.com
recorded a corresponding 100% valuation allowance due to the uncertainty
regarding Travelscape.com's ability to utilize its deferred tax assets.
F-17
<PAGE>
LAS VEGAS RESERVATION SYSTEMS, INC.,
TRAVELSCAPE.COM, INC. AND PROFESSIONAL TRAVEL SERVICES, INC.
Travelscape.com, Inc.
Pro Forma Balance Sheet
(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......... $ 265,674 $ -- $ 265,674 $ 6,335,428 $ -- $6,335,428
Prepaid expenses.................. 177,788 -- 177,788 684,576 -- 684,576
Other current assets.............. -- -- -- 26,246 -- 26,246
---------- ------------ ------------ ----------- ------------ ------------
Total current assets............ 443,462 -- 443,462 7,046,250 -- 7,046,250
Property, plant and equipment,
net............................... 2,647,401 -- 2,647,401 2,917,762 -- 2,917,762
Other assets........................ 752,853 -- 752,853 1,521,063 -- 1,521,063
Intangible assets................... -- 1,876,000(1) 1,876,000 1,855,000 -- 1,855,000
---------- ------------ ------------ ----------- ------------ ------------
$3,843,716 $1,876,000 $5,719,716 $13,340,075 $ -- $13,340,075
---------- ------------ ------------ ----------- ------------ ------------
---------- ------------ ------------ ----------- ------------ ------------
Liabilities and Stockholders'
Deficiency
Current liabilities:
Accounts payable.................. $2,063,549 $ -- $2,063,549 $ 1,729,229 $ -- $1,729,229
Accrued room payable.............. 660,571 -- 660,571 1,175,702 -- 1,175,702
Accrued expenses.................. 461,072 -- 461,072 455,761 -- 455,761
Deferred revenue.................. 1,983,472 -- 1,983,472 5,654,421 -- 5,654,421
Borrowings under lines of
credit.......................... 91,144 -- 91,144 89,932 -- 89,932
Current portion of notes
payable......................... 32,926 -- 32,926 33,605 -- 33,605
Current portion of capital lease
obligations..................... 182,274 -- 182,274 314,221 -- 314,221
---------- ------------ ------------ ----------- ------------ ------------
Total current liabilities....... 5,475,008 -- 5,475,008 9,452,871 -- 9,452,871
Notes payable, less current
portion........................... 1,399,524 -- 1,399,524 3,558,192 -- 3,558,192
Related party loan.................. 46,684 -- 46,684 46,684 -- 46,684
Capital lease obligations, less
current portion................... 528,815 -- 528,815 529,103 -- 529,103
---------- ------------ ------------ ----------- ------------ ------------
Total liabilities............... 7,450,031 -- 7,450,031 13,586,850 -- 13,586,850
---------- ------------ ------------ ----------- ------------ ------------
Stockholders' deficiency:
Common stock, 0.01 par value.
Authorized 50,000,000 shares,
15,000,000 shares issued and
outstanding, actual............. 45,000 55,000(1) 100,000 150,000 150,000
Additional paid-in capital........ 2,623,305 1,821,000(1) 4,444,305 16,112,277 16,112,277
Deferred stock compensation....... -- -- -- (4,810,045) -- (4,810,045)
Stockholders' loan................ (91,786) -- (91,786) (83,345) -- (83,345)
Accumulated deficit............... (6,182,834) -- (6,182,834) (11,615,662) -- (11,615,662)
---------- ------------ ------------ ----------- ------------ ------------
Net stockholders' deficiency.... (3,606,315) 1,876,000 (1,730,315) (246,775) -- (246,775)
---------- ------------ ------------ ----------- ------------ ------------
$3,843,716 $1,876,000 $5,719,716 $13,340,075 $ -- $13,340,075
---------- ------------ ------------ ----------- ------------ ------------
---------- ------------ ------------ ----------- ------------ ------------
</TABLE>
F-18
<PAGE>
LAS VEGAS RESERVATION SYSTEMS, INC.,
TRAVELSCAPE.COM, INC. AND PROFESSIONAL TRAVEL SERVICES, INC.
Travelscape.com, Inc.
Pro Forma Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Year Ended December 31, 1998 Three Months Ended 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>
Revenues:
Room sales............... $18,851,718 $ -- 1$8,851,718 $7,603,443 $ -- $7,603,443
Airfare sales............ 2,027,067 -- 2,027,067 472,009 -- 472,009
---------- ----------- ----------- ---------- ----------- -----------
Total revenues......... 20,878,785 -- 20,878,785 8,075,452 -- 8,075,452
Cost of sales.............. 14,697,664 -- 14,697,664 5,625,360 -- 5,625,360
---------- ----------- ----------- ---------- ----------- -----------
Gross profit............... 6,181,121 -- 6,181,121 2,450,092 -- 2,450,092
---------- ----------- ----------- ---------- ----------- -----------
Operating expenses:
General and
administrative......... 5,420,838 125,066(2) 5,545,904 2,209,247 10,422(2) 2,219,669
Sales and marketing...... 4,109,105 -- 4,109,105 3,193,719 -- 3,193,719
Systems development...... 896,753 -- 896,753 287,737 -- 287,737
Stock compensation....... -- -- -- 1,827,430 -- 1,827,430
---------- ----------- ----------- ---------- ----------- -----------
Total operating
expenses............. 10,426,696 125,066 10,551,762 7,518,133 10,422 7,528,555
---------- ----------- ----------- ---------- ----------- -----------
Operating loss............. (4,245,575) (125,066) (4,370,641) (5,068,041) (10,422) (5,078,463)
---------- ----------- ----------- ---------- ----------- -----------
Other income (expense):
Interest expense, net.... (183,949) -- (183,949) (359,878) -- (359,878)
Other income............. 2,884 -- 2,884 1,091 -- 1,091
---------- ----------- ----------- ---------- ----------- -----------
Total other income
(expense)............ (181,065) -- (181,065) (358,787) -- (358,787)
---------- ----------- ----------- ---------- ----------- -----------
Net loss................... $(4,426,640) $(125,066) ($4,551,706) $(5,426,878) $ (10,422) ($5,437,250)
---------- ----------- ----------- ---------- ----------- -----------
---------- ----------- ----------- ---------- ----------- -----------
Pro forma net loss per
share:
Basic and diluted........ $ (0.30) $ (0.36)
----------- -----------
----------- -----------
Pro forma weighted average
share of common stock
outstanding:
Basic and diluted........ 15,000,000 15,000,000
----------- -----------
----------- -----------
</TABLE>
F-19
<PAGE>
LAS VEGAS RESERVATION SYSTEMS, INC.,
TRAVELSCAPE.COM, INC. AND PROFESSIONAL TRAVEL SERVICES, INC.
Travelscape.com, Inc.
Notes to Pro Forma Financial Statements
(Unaudited)
(1) Reflects the conversion of equity accounts from the historical structure of
LVRS (a Nevada S corporation), Old Travelscape (a Nevada C corporation) and
PTS (a Nevada S corporation) on a combined basis, to Travelscape.com (a
Delaware C corporation) on a consolidated basis. This transaction was
principally accounted for as a reorganization of entities under common
control. Accordingly, the combined financial statements of LVRS, Old
Travelscape and PTS for the years presented herein are predecessor
operations to the comparable entity which exists after January 22, 1999. At
the time of the reorganization, 20% of the common stock of Old Travelscape
was not owned by the common control group. Therefore, the assets of Old
Travelscape were stepped-up by $1,876,000, which represents 20% of the
amount by which the fair value of the net assets of Old Travelscape exceeded
the historical net assets at the time of the reorganization.
(2) Reflects the amortization of goodwill as if the reorganization taken place
on the first day of the beginning of each of the periods presented. The
goodwill representing $1,876,000 is being amortized over 15 years.
F-20
<PAGE>
5,000,000 Shares
TRAVELSCAPE.COM, INC.
Common Stock
[LOGO]
--------------
PROSPECTUS
--------------
Until , all dealers that affect transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
U.S. Bancorp Piper Jaffray
CIBC World Markets
----------------------
DLJDIRECT Inc.
, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than the
underwriting discounts, payable by the Registrant in connection with the sale of
the securities being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fee and the Nasdaq/NMS listing fee.
<TABLE>
<S> <C>
SEC Registration Fee.................................................... $ 19,182
NASD Filing Fee......................................................... 7,400
Nasdaq National Market Listing Fee...................................... 30,000
Printing Costs.......................................................... 160,000
Legal Fees and Expenses................................................. 300,000
Accounting Fees and Expenses............................................ 175,000
Blue Sky Fees and Expenses.............................................. 20,000
Transfer Agent and Registrar Fees....................................... 15,000
Director and Officer Liability Insurance................................ 400,000
Miscellaneous........................................................... 123,418
---------
Total............................................................... $1,250,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's Board of Directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933. Article X of our Amended and
Restated Certificate of Incorporation (Exhibit 3.1 hereto) and Article VI of our
Amended and Restated Bylaws (Exhibit 3.2 hereto) which will be adopted and, as
necessary, filed upon completion of this offering, will provide for
indemnification of our directors, officers, employees and other agents to the
maximum extent permitted by Delaware law. In addition, we have entered into
Indemnification Agreements (Exhibit 10.1 hereto) with our officers and
directors. The Underwriting Agreement (Exhibit 1.1) also provides for
cross-indemnification among Travelscape.com and the Underwriters with respect to
certain matters, including matters arising under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since April 1996, we have sold and issued the following securities (as
adjusted to reflect 3-for-2 split of common stock to be completed prior to the
initial public offering):
1. In May 1998 Travelscape.com, Inc. a Nevada corporation, or Old
Travelscape, issued 3,000,000 shares of common stock to Thomas Breitling,
2,550,000 shares of common stock to Las Vegas Reservation Systems, Inc., a
Nevada corporation and 450,000 shares of common stock to Jeffrey Marquis for an
aggregate consideration of $234,500.
2. In June 1998, Old Travelscape issued 1,500,000 shares of common stock to
the Fertitta Family Trust for an aggregate consideration of $1,500,000.
3. In January 1999, pursuant to an Agreement and plan of Reorganization,
(i) Thomas Breitling, the Fertitta Family Trust, Las Vegas Reservation Systems
and Jeffrey Marquis assigned to the Registrant all right and title to their
shares of Old Travelscape (as described above) in exchange for an aggregate of
7,500,000 shares of common stock of the Registrant; (ii) Timothy Poster and
Thomas Breitling assigned
II-1
<PAGE>
to the Registrant all right and title to their shares of Professional Travel
Service, Inc., a Nevada corporation in exchange for an aggregate of 300,000
shares of common stock of the Registrant; and (iii) Timothy Poster and Thomas
Breitling assigned to the Registrant, all right and title to their shares of Las
Vegas Reservation Systems in exchange for an aggregate of 9,750,000 shares of
common stock of the Registrant, and (v) 2,550,000 shares of common stock of
Travelscape.com, a Delaware corporation, owned by Las Vegas Reservation System,
a Nevada corporation, were canceled.
4. In February 1999, the Registrant issued units consisting of the
Registrant's notes in the aggregate principal amount of approximately $7.0
million and warrants to purchase up to 527,752 shares of common stock pursuant
to a Private Placement Memorandum dated January 26, 1999 for an aggregate
consideration of $7,036,700.
5. Since the incorporation of Old Travelscape, the Registrant has issued,
and there remain outstanding, options to purchase an aggregate of 2,340,750
shares of common stock with exercise prices ranging from $1.33 to $6.00 per
share.
There were no underwriters employed in connection with any of the
transactions set forth in Item 15.
The issuances of securities described in Items 15(1) through 15(4) were
deemed to be exempt from registration under the Securities Act in reliance on
Section 4(2) or Rule 506 of the Securities Act as transactions by an issuer not
involving a public offering. The issuances of securities described in Item 15(5)
were deemed to be exempt from registration under the Securities Act in reliance
on Section 4(2) or Rule 701 promulgated thereunder as transactions pursuant to
compensatory benefit plans and contracts relating to compensation. The
recipients of securities in each such transaction represented their intention to
acquire the securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were affixed to
the share certificates and other instruments issued in such transactions. All
recipients either received adequate information about the Registrant or had
access, through employment or other relationships, to such information.
ITEM 16. EXHIBITS.
<TABLE>
<S> <C>
1.1* Form of Underwriting Agreement
2.1** Agreement and Plan of Reorganization
3.1 Form of Amended and Restated Certificate of Incorporation (to be filed with the
Delaware Secretary of State prior to the closing of the offering covered by this
Registration Statement)
3.2 Amended and Restated Bylaws
4.1 Form of Specimen Stock Certificate
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation, regarding
legality of the securities being issued
10.1** Form of Indemnification Agreement between the Registrant and each of its directors
and officers
10.2** 1998 Stock Plan
10.3 1999 Stock Plan
10.4 1999 Employee Stock Purchase Plan
10.5+** Campaign Insertion Order between Registrant and 24/7 Media dated August 28, 1998
(MapQuest Agreement #1).
10.6+** Campaign Insertion Order between Registrant and 24/7 Media dated January 19, 1999
(MapQuest Agreement #2).
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
10.7+** Campaign Insertion Order between Registrant and 24/7 Media dated February 24, 1999
(MapQuest Agreement #3).
10.8+** Shopping and Services Program Merchant Agreement between the Registrant and
DoubleClick Inc., dated as of December 11, 1998.
10.9+** Luxor Las Vegas 1998 Wholesale Contract Agreement between the Registrant and
Ramparts, Inc. dated as of January 1, 1998.
10.10+** Luxor Las Vegas 1999 Wholesale Contract Agreement between the Registrant and
Ramparts, Inc. dated as of January 3, 1999.
10.11+** Contract Bulk Fare and Marketing Agreement between Registrant and American
Airlines, Inc. dated as of October 22, 1998.
10.12** Voting Agreement by and among Timothy Poster, Thomas Breitling and Jeffrey Marquis
10.13** Form of Promissory Note from the February 1999 private placement of units
10.14** Form of Warrant from the February 1999 private placement of units
10.15* Employment Agreement with Timothy Poster dated as of May 20, 1999.
10.16* Employment Agreement with Thomas Breitling dated as of May 20, 1999.
10.17 Employment Agreement with Jeffrey Marquis dated as of May 20, 1999.
10.18 Employment Agreement with Michelle Decker dated as of May 20, 1999.
10.19 Employment Agreement with Steven Sarner dated as of May 20, 1999.
10.20 Employment Agreement with Jose Yofe dated as of May 20, 1999.
10.21 Employment Agreement with Edward Muncey dated as of May 20, 1999.
10.22 Employment Agreement with Michael Reichartz dated as of May 20, 1999.
10.23 Employment Agreement with Erick Rodriguez dated as of May 20, 1999.
23.1 Consent of KPMG LLP
23.2 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (contained
in Exhibit 5.1)
24.1** Power of Attorney (contained in the signature page to this Registration Statement)
27.1 Financial Data Schedule
</TABLE>
- ------------------------------------
* to be filed by amendment
** filed previously
+ confidential treatment requested
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, 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
II-3
<PAGE>
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, 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.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, 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 Las
Vegas, State of Nevada on May 28, 1999.
By: /s/ JEFFREY A. MARQUIS
-----------------------------------
Jeffrey A. Marquis
Chief Financial Officer
POWER OF ATTORNEY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED:
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
President, Chief Executive
/s/ TIMOTHY N. POSTER* Officer and Director
- ------------------------------ (Principal Executive May 28, 1999
Timothy N. Poster Officer)
/s/ JEFFREY A. MARQUIS Chief Financial Officer
- ------------------------------ (Principal Financial and May 28, 1999
Jeffrey A. Marquis Accounting Officer)
/s/ THOMAS C. BREITLING*
- ------------------------------ Director and Chief May 28, 1999
Thomas C. Breitling Operating Officer
/s/ LORENZO J. FERTITTA*
- ------------------------------ Director May 28, 1999
Lorenzo J. Fertitta
/s/ MICHAEL J. CONWAY*
- ------------------------------ Director May 28, 1999
Michael J. Conway
/s/ TOBIN J. COREY*
- ------------------------------ Director May 28, 1999
Tobin J. Corey
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ JEFFREY A. MARQUIS
-------------------------
Jeffrey A. Marquis,
ATTORNEY IN FACT
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
1.1* Form of Underwriting Agreement
2.1** Agreement and Plan of Reorganization
3.1 Form of Amended and Restated Certificate of Incorporation (to be filed with the
Delaware Secretary of State prior to the closing of the offering covered by this
Registration Statement)
3.2 Amended and Restated Bylaws
4.1 Form of Specimen Stock Certificate
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation, regarding
legality of the securities being issued
10.1** Form of Indemnification Agreement between the Registrant and each of its directors
and officers
10.2** 1998 Stock Plan
10.3 1999 Stock Plan
10.4 1999 Employee Stock Purchase Plan
10.5+** Campaign Insertion Order between Registrant and 24/7 Media dated August 28, 1998
(MapQuest Agreement #1).
10.6+** Campaign Insertion Order between Registrant and 24/7 Media dated January 19, 1999
(MapQuest Agreement #2).
10.7+** Campaign Insertion Order between Registrant and 24/7 Media dated February 24, 1999
(MapQuest Agreement #3).
10.8+** Shopping and Services Program Merchant Agreement between the Registrant and
DoubleClick Inc., dated as of December 11, 1998.
10.9+** Luxor Las Vegas 1998 Wholesale Contract Agreement between the Registrant and
Ramparts, Inc. dated as of January 1, 1998.
10.10+** Luxor Las Vegas 1999 Wholesale Contract Agreement between the Registrant and
Ramparts, Inc. dated as of January 3, 1999.
10.11+** Contract Bulk Fare and Marketing Agreement between Registrant and American
Airlines, Inc. dated as of October 22, 1998.
10.12** Voting Agreement by and among Timothy Poster, Thomas Breitling and Jeffrey Marquis
10.13** Form of Promissory Note from the February 1999 private placement of units
10.14** Form of Warrant from the February 1999 private placement of units
10.15* Employment Agreement with Timothy Poster dated as of May 20, 1999.
10.16* Employment Agreement with Thomas Breitling dated as of May 20, 1999.
10.17 Employment Agreement with Jeffrey Marquis dated as of May 20, 1999.
10.18 Employment Agreement with Michelle Decker dated as of May 20, 1999.
10.19 Employment Agreement with Steven Sarner dated as of May 20, 1999.
10.20 Employment Agreement with Jose Yofe dated as of May 20, 1999.
10.21 Employment Agreement with Edward Muncey dated as of May 20, 1999.
10.22 Employment Agreement with Michael Reichartz dated as of May 20, 1999.
10.23 Employment Agreement with Erick Rodriguez dated as of May 20, 1999.
23.1 Consent of KPMG LLP
23.2 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (contained
in Exhibit 5.1)
24.1** Power of Attorney (contained in the signature page to this Registration Statement)
27.1 Financial Data Schedule
</TABLE>
- ------------------------------------
* to be filed by amendment
** filed previously
+ confidential treatment requested
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
TRAVELSCAPE.COM, INC.
(Incorporated January 21, 1999)
The undersigned, Timothy N. Poster and Jeffrey A. Marquis do hereby verify
that:
I. They are duly elected and acting President and Secretary,
respectively, of Travelscape.com, Inc., a Delaware corporation (the
"Corporation").
II. The Certificate of Incorporation of the Corporation, originally filed
January 21, 1999, with the Delaware Secretary of State, is hereby amended and
restated to read in its entirety as follows:
"FIRST: The name of the corporation is:
Travelscape.com, Inc.
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, Wilmington, Delaware 19801, County of
New Castle. The name of its registered agent at such address is Corporation
Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware (the "General Corporation Law").
FOURTH: The total number of shares of all classes of stock that the
Corporation shall have authority to issue is Fifty-Five Million (55,000,000),
consisting of Fifty Million (50,000,000) shares of Common Stock, par value $.01
per share (the "Common Stock"), and Five Million (5,000,000) shares of Preferred
Stock, par value $.01 per share (the "Preferred Stock"). Upon the filing of
this Amended and Restated Certificate of Incorporation (the "Effective Time"),
each share of Common Stock outstanding immediately prior thereto shall be split
into 1.5 shares of Common Stock. Any stock certificate which immediately prior
to the Effective Time represents shares of Common Stock $0.01 par value, will,
from and after the Effective Time, automatically and without the necessity of
presenting the same for exchange, represent that number of shares of Common
Stock equal to the number of shares of Common Stock represented by such
certificate prior to the Effective Time. No fractional shares shall be issued
as a result of the foregoing stock split but instead such fraction of a share
represented by an outstanding certificate shall be rounded down to the nearest
whole number of shares.
<PAGE>
The Preferred Stock may be issued from time to time in one or more
series pursuant to a resolution or resolutions providing for such issue duly
adopted by the Board of Directors. To the fullest extent permitted by the
General Corporation Law, the Board of Directors is expressly authorized to
set forth and amend the designations, powers, preferences, and relative,
optional, participating, and other special rights, and the qualifications,
limitations, and restrictions thereof, of the shares of any series of the
Preferred Stock, and to increase (but not above the total number of
authorized shares of Preferred Stock) and to decrease (but not below the
number of shares of such series then outstanding) the number of shares of
stock of any such series.
Authorized and unissued shares of any series of the Preferred Stock
may be issued with such designations, powers, preferences, and relative,
optional, participating, and other special rights, and the qualifications,
limitations, and restrictions thereof, as the Board of Directors may
authorize by resolutions duly adopted prior to the issuance of any shares of
such series of the Preferred Stock, including, but not limited to, the
distinctive designation of each series and the number of shares that will
constitute such series; the dividends payable on the shares of such series,
any restriction, limitation, or condition upon the payment of such dividends,
whether dividends shall be cumulative, and the dates on which dividends are
payable; the prices at which, and the terms and conditions on which, the
shares of such series may be redeemed, if such shares are redeemable; the
purchase or sinking fund provisions, if any, for the purchase or redemption
of shares of such series; any preferential amount payable upon shares of such
series in the event of the liquidation, dissolution, or winding up of the
Corporation, or any distribution of its assets; the voting rights, if any, of
shares of such series and whether the shares of any such series having voting
rights shall have multiple votes per share or rights to a separate vote on
any matter; and the prices or rates of conversion or exchange at which, and
the terms and condition on which, the shares of such series are convertible
or exchangeable, if such shares are convertible or exchangeable.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: Following the effectiveness of the registration of any class of
securities of the Corporation pursuant to the requirements of the Securities
and Exchange Act of 1934, as amended (the "Exchange Act"), no action shall be
taken by the stockholders of the Corporation except at an annual or special
meeting of the stockholders called in accordance with the Bylaws and no
action shall be taken by the stockholders by written consent. The
affirmative vote of sixty-six and two-thirds percent (66 2/3%) of the then
issued and outstanding voting securities of the Corporation, voting together
as a single class, shall be required for the amendment, repeal or
modification of the provisions of Article SIXTH, or SEVENTH of this Amended
and Restated Certificate of Incorporation or Article 2 Section 3 (Special
Meeting) or Article 2 Section 13 (Advance Notice of Stockholder Nominees and
Stockholder Business) of the Corporation's Bylaws.
SEVENTH: In furtherance and not in limitation of the powers conferred
by the law of the State of Delaware, the Board of Directors is expressly
authorized and empowered to adopt, amend and repeal the bylaws of the
Corporation, subject to the power of the stockholders of the Corporation to
amend or repeal any bylaw made by the Board of Directors.
-2-
<PAGE>
EIGHTH: The authorized number of directors of this Corporation shall be
not less than 1 and not more than 15. The number of directors within this
range shall be stated in the Corporation's Bylaws, as may be amended from
time to time.
Effective as of the date that any securities of the corporation are
registered under the Exchange Act, the Board of Directors shall be divided
into three classes, designated as Class I, Class II and Class III, as nearly
equal in number as possible, and the term of office of directors of one class
shall expire at each annual meeting of stockholders and in all cases until
their successors shall be elected and shall qualify, or until their earlier
resignation, removal from office, death or incapacity. The initial term of
office of Class I shall expire at the annual meeting of stockholders in 2000,
that of Class II shall expire at the annual meeting in 2001, and that of
Class III shall expire at the annual meeting in 2002, and in all cases as to
each director until his successor shall be elected and shall qualify, or
until his earlier resignation, removal from office, death or incapacity.
When the number of directors is changed, the Board of Directors shall
determine the class or classes to which the increased or decreased number of
directors shall be apportioned; provided that the directors in each class
shall be as nearly equal in number as possible. No decrease in the number of
directors shall have the effect of shortening the term of any incumbent
director.
Subject to the foregoing, at each annual meeting of stockholders
the successors to the class of directors whose term shall then expire shall
be elected to hold office for a term expiring at the third succeeding annual
meeting and until their successors shall be elected and qualified.
The directors remaining in office acting by a majority vote, or a
sole remaining director, although less than a quorum, are hereby expressly
delegated the power to fill any vacancies in the Board of Directors, however
occurring, whether by an increase in the number of directors, death,
resignation, retirement, disqualification, removal from office or otherwise,
and any director so chosen shall hold office until the next election of the
class for which such director shall have been chosen and until his successor
shall have been elected and qualified, or until his earlier resignation,
removal from office, death or incapacity. Unless and except to the extent
that the bylaws of the Corporation shall so require, the election of the
directors of the Corporation need not be by written ballot.
NINTH:
(a) LIMITATION OF DIRECTOR'S LIABILITY. To the fullest extent
permitted by the Delaware General Corporation Law as the same exists or as
may hereafter be amended, a director of the Corporation shall not be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director. Any repeal or modification of
the foregoing sentence shall not adversely affect any right or protection of
a director of the Corporation existing hereunder with respect to any act or
omission occurring prior to such repeal or modification.
(b) INDEMNIFICATION OF CORPORATE AGENTS. The Corporation shall
indemnify to the fullest extent permitted by law any person made or
threatened to be made a party to an action or proceeding, whether criminal,
civil, administrative or investigative, by reason of the fact
-3-
<PAGE>
that such person, such person's testator or intestate is or was a director,
officer, employee benefit plan fiduciary, or employee of the Corporation or
any predecessor of the Corporation or serves or served at the request of the
Corporation or any predecessor of the Corporation as a director, officer,
agent, employee benefit plan fiduciary or employee of another corporation,
partnership, limited liability company, joint venture, trust or other entity
or enterprise.
(c) REPEAL OR MODIFICATION. Neither any amendment or repeal of
this Article Ninth nor the adoption of any provision of the corporation's
Certificate of Incorporation inconsistent with this Article Ninth, shall
eliminate or reduce the effect of this Article Ninth in respect of any matter
occurring, or any action or proceeding accruing or arising or that, but for
this Article Ninth, would accrue or arise, prior to such amendment, repeal or
adoption of an inconsistent provision."
The foregoing amendment and restatement of the Certificate of
incorporation has been duly approved by a meeting of the Board of Directors
of the Corporation.
The foregoing amendment and restatement of the Certificate of
Incorporation has been duly approved by the written consent of the
stockholders in accordance with Sections 228 and 245 of the Delaware General
Corporation Law. The total number of outstanding shares of Common Stock of
the corporation is 10,000,000. There are no outstanding shares of Preferred
Stock. The number of shares held by stockholders who consented to this
amendment in writing equaled or exceeded the required percentages. The
percentage required was more than 50% of the outstanding Common Stock.
Pursuant to Section 228 of the Delaware General Corporation Law, prompt
written notice of this amendment and restatement has been given to all
stockholders who did not consent to this amendment.
-4-
<PAGE>
Executed at Las Vegas, Nevada on May 21, 1999.
/s/ Timothy N. Poster
-------------------------------------
Timothy N. Poster, President and
Chief Executive Officer
/s/ Jeffrey A. Marquis
-------------------------------------
Jeffrey A. Marquis, Secretary
-5-
<PAGE>
EXHIBIT 3.2
TRAVELSCAPE.COM, INC.
AMENDED AND RESTATED
BYLAWS
ARTICLE I.
OFFICES
Section 1. REGISTERED OFFICE. The registered office of the corporation
shall be located in the City of Wilmington, County of New Castle, Delaware.
Section 2. ADDITIONAL OFFICES. The corporation may also have offices at
any other place or places, both within and without the State of Delaware, that
the board of directors determines from time to time or the business of the
corporation requires.
ARTICLE II.
MEETINGS OF STOCKHOLDERS
Section 1. PLACE. All meetings of stockholders shall be held at any
place, within or without the State of Delaware, stated in the notice of the
meeting.
Section 2. ANNUAL MEETING. An annual meeting of the stockholders for the
election of directors and the transaction of any business within the powers of
the corporation shall be held during the month of May in each year on a date and
at the time set by the board of directors, beginning with the year 1999, or at
such other date as shall be designated by the board of directors and stated in
the notice of the meeting.
Section 3. SPECIAL MEETINGS. The chief executive officer, president or
board of directors may call special meetings of the stockholders. No other
person or persons are permitted to call a Special Meeting.
Section 4. NOTICE. Not less than ten nor more than 60 days before each
meeting of stockholders, the secretary shall give to each stockholder
entitled to vote at the meeting and to each stockholder not entitled to vote
who is entitled to notice of the meeting, written or printed notice stating
the time and place of the meeting and, in the case of a special meeting or as
otherwise may be required by statute, the purpose for which the meeting is
called, either by mail, by facsimile or by presenting it to the stockholder
personally or by leaving it at the stockholder's residence or usual place of
business. If mailed, the notice shall be deemed to be given when deposited
in the United States mail addressed to the stockholder at the stockholder's
post office address as it appears on the records of the corporation, with
postage prepaid. If given by facsimile, the notice shall be deemed to
<PAGE>
be given when transmitted to the stockholder at the stockholder's facsimile
number that appears on the corporation's records, if any, provided that
confirmation of the transmission is received.
Section 5. SCOPE OF NOTICE. No business shall be transacted at a special
meeting of stockholders except that specifically designated in the notice. Any
business of the corporation may be transacted at the annual meeting without
being specifically designated in the notice, except business that is required by
statute to be stated in the notice.
Section 6. STOCKHOLDER LIST. The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten days before
every meeting of stockholders, a complete list of the stockholders entitled
to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name
of each stockholder. The list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the whole time of the meeting, and
may be inspected by any stockholder who is present.
Section 7. QUORUM. At any meeting of stockholders, the presence in person
or by proxy of stockholders entitled to cast a majority of all the votes
entitled to be cast at the meeting shall constitute a quorum; but this section
shall not affect any requirement under any statute or the charter for the vote
necessary for the adoption of any measure. If, however, a quorum is not present
at any meeting of the stockholders, the stockholders entitled to vote at the
meeting, present in person or by proxy, shall have power to adjourn the meeting
from time to time without notice other than announcement at the meeting of the
time and place of the adjourned meeting until a quorum is present; provided,
however, that if the adjournment is for more than 30 days, or if after
adjournment, a new record date is fixed for the adjourned meeting, notice of the
adjourned meeting shall be given to each stockholder of record entitled to vote
at the meeting. At an adjourned meeting at which a quorum is present, any
business may be transacted which might have been transacted at the originally
scheduled meeting.
Section 8. VOTING. A plurality of all the votes cast at a meeting of
stockholders duly called and at which a quorum is present shall be sufficient to
elect a director. Each share of stock may be voted for as many individuals as
there are directors to be elected and for whose election the share is entitled
to be voted. A majority of the votes cast at a meeting of stockholders duly
called and at which a quorum is present shall be sufficient to approve any other
matter which may properly come before the meeting, unless more than a majority
of the votes cast is required by statute or by the charter of the corporation.
Unless otherwise provided in the charter, each outstanding share of stock,
regardless of class, shall be entitled to one vote on each matter submitted to a
vote at a meeting of stockholders.
Section 9. PROXIES. A stockholder may vote the shares of stock owned of
record by that stockholder, either in person or by proxy executed in writing by
the stockholder or by a duly authorized attorney in fact. A proxy shall be
filed with the secretary of the corporation before or at the time of the
meeting. No proxy shall be valid after three years from the date of its
execution, unless otherwise provided in the proxy.
-2-
<PAGE>
Section 10. VOTING OF SHARES BY CERTAIN HOLDERS. Shares registered in the
name of another corporation, if entitled to be voted, may be voted by the
president, a vice president or a proxy appointed by the president or a vice
president of the other corporation, unless some other person who has been
appointed to vote the shares pursuant to a bylaw or a resolution of the board of
directors of the other corporation presents a certified copy of the bylaw or
resolution, in which case that person may vote the shares. Any fiduciary may
vote shares registered in the name of that fiduciary, either in person or by
proxy.
Shares of its own stock belonging to the corporation or to
another corporation, if a majority of the shares entitled to vote in the
election of directors of that other corporation is held, directly or indirectly,
by the corporation shall not be voted at any meeting and shall not be counted in
determining the total number of outstanding shares entitled to be voted at any
given time, unless they are held by it in a fiduciary capacity, in which case
they may be voted and shall be counted in determining the total number of
outstanding shares at any given time.
Section 11. INSPECTORS. In advance of any meeting of stockholders, the
chairman of the meeting shall appoint one or more persons as inspectors for the
meeting. The inspectors shall ascertain and report the number of shares
outstanding and the voting power of each, the number of shares represented at
the meeting based upon their determination of the validity and effect of proxies
and ballots, and shall count all votes and ballots, determine and retain for a
reasonable time a record of the disposition of any challenges made to any
determination made by the inspectors, certify their determination of the number
of shares represented at the meeting and their count of all votes and ballots,
and perform all other acts that are proper to conduct the election and voting
with impartiality and fairness to all stockholders.
Each report of the inspector or inspectors shall be in writing
and signed by the inspector or by a majority of them if there is more than one
inspector acting at the meeting. If there is more than one inspector, the
report of a majority shall be the report of the inspectors. The report of the
inspector or inspectors shall be prima facie evidence of the number of shares
represented at the meeting and the results of the voting.
Section 12. VOTING BY BALLOT. Voting on any question or in any election
may be VIVA VOCE unless the presiding officer orders or any stockholder demands
that voting be by ballot.
Section 13. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.
(a) ANNUAL MEETINGS OF STOCKHOLDERS.
(i) Nominations of persons for election to the Board of
Directors of the Corporation and the proposal of business to be considered by
the stockholders may be made at an annual meeting of stockholders:
(1) pursuant to the Corporation's notice of
meeting pursuant to Article II Section 2 of these Bylaws,
(2) by or at the direction of the Board of
Directors, or
-3-
<PAGE>
(3) by any stockholder of the Corporation who was
a stockholder of record at the time of giving of notice provided for in this
Bylaw, who is entitled to vote at the meeting and who complies with the notice
procedures set forth in this Bylaw.
(ii) For nominations or other business to be properly
brought before an annual meeting by a stockholder pursuant to clause (c) of
paragraph (A)(1) of this By-Law, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation and such other business
must otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on the
90th calendar day prior to the first anniversary of the preceding year's annual
meeting; provided, however, that in the event that the date of the annual
meeting is more than 30 calendar days before or after such anniversary date or
that no annual meeting was held in the prior year, notice by the stockholder to
be timely must be so delivered not later than the close of business on the later
of the 90th calendar day prior to such annual meeting or the 10th calendar day
following the calendar day on which public announcement of the date of such
meeting is first made by the Corporation. In the event any business other than
nominations is properly brought by a stockholder before an annual meeting less
than 90 calendar days prior to such annual meeting pursuant to the proviso in
the foregoing sentence, the Board's proxy may confer discretionary authority on
its holder to vote on such business for which notice is received after public
announcement of the date of such meeting is first made by the Corporation. In
no event shall the public announcement of an adjournment of an annual meeting
commence a new time period for the giving of a stockholder's notice as described
above. Such stockholder's notice shall set forth:
(1) as to each person whom the stockholder
proposes to nominate for election or reelection as a director all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors in an election contest, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected);
(2) as to any other business that the stockholder
proposes to bring before the meeting, a brief description of the business
desired to be brought before the meeting, the reasons for conducting such
business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and
(3) as to the stockholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal is made
(i) the name and address of such stockholder, as they appear on the
Corporation's books, and of such beneficial owner and (ii) the class and number
of shares of the Corporation which are owned beneficially and of record by such
stockholder and such beneficial owner.
(b) SPECIAL MEETINGS OF STOCKHOLDERS. Only such business
shall be conducted at a special meeting of stockholders as shall have been
brought before the meeting by the person or persons calling such meeting
pursuant to Article II Section 2 of these Bylaws.
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(c) GENERAL.
(1) Except as otherwise provided by law, the
Certificate of Incorporation or these Bylaws, the Chairman of the meeting shall
have the power and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made or proposed, as the case may
be, in accordance with the procedures set forth in this Bylaw and, if any
proposed nomination or business is not in compliance with this Bylaw, to declare
that such defective proposal or nomination shall be disregarded.
(2) For purposes of this Bylaw, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press, Business Wire or comparable national news service or in a
document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this
Bylaw, a stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Bylaw. Nothing in this Bylaw shall be deemed to
affect any rights of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
ARTICLE III.
DIRECTORS
Section 1. GENERAL POWERS. The business and affairs of the corporation
shall be managed under the direction of its board of directors.
Section 2. NUMBER, TENURE AND QUALIFICATIONS. The number of directors
of the corporation shall be not less than one and shall not be more than 15.
At any regular meeting or at any special meeting called for that purpose, a
majority of the entire board of directors may establish, increase or decrease
the number of directors. The tenure of office of a director shall not be
affected by any decrease in the number of directors. Each director,
including a director elected to fill a vacancy, shall hold office until his
or her successor is elected and qualified or until the director's earlier
resignation or removal.
Section 3. ANNUAL AND REGULAR MEETINGS. An annual meeting of the board of
directors shall be held immediately after and at the same place as the annual
meeting of stockholders, no notice other than this bylaw being necessary. The
board of directors may provide, by resolution, the time and place, either within
or without the State of Delaware, for the holding of regular meetings of the
board of directors without notice other than that resolution.
Section 4. SPECIAL MEETINGS. Special meetings of the board of directors
may be called by or at the request of the president or by a majority of the
directors then in office. The person or persons authorized to call special
meetings of the board of directors may fix any place, either within or without
the State of Delaware, as the place for holding any special meeting of the board
of directors called by them.
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Section 5. NOTICE. Notice of any special meeting shall be in writing and
shall be delivered personally or sent by facsimile, overnight delivery, next day
express mail, or certified or registered mail, postage prepaid, return receipt
requested, to each director at the director's business or residence address.
Notice that is personally delivered or sent by facsimile shall be given at least
two (2) days before the meeting. Notice sent by overnight delivery or next day
express mail shall be given at least three (3) days before the meeting. Notice
sent by mail shall be given at least five (5) days before the meeting. If
mailed or sent by overnight delivery or next day express mail, a notice shall be
deemed given when properly addressed and deposited with the United States Postal
Service or when deposited with a reputable national overnight courier service,
as the case may be. If given by facsimile, notice shall be deemed given when
transmitted to the director at the director's facsimile number that appears on
the corporation's records, if any, provided that confirmation of the
transmission is received. Neither the business to be transacted at, nor the
purpose of, any annual, regular or special meeting of the board of directors
need be specified in the notice unless specifically required by statute or by
these bylaws.
Section 6. QUORUM. A majority of the entire board of directors shall
constitute a quorum for transaction of business at any meeting of the board of
directors, provided that, if less than a majority of that number of directors
are present at the meeting, a majority of the directors present may adjourn the
meeting from time to time without further notice.
The directors present at a meeting which has been duly called
and convened may continue to transact business until adjournment,
notwithstanding the withdrawal of enough directors to leave less than a quorum.
Section 7. VOTING. The action of the majority of the directors present at
a meeting at which a quorum is present shall be the action of the board of
directors, unless the concurrence of a greater proportion is required for the
action under the corporation's charter or applicable statute.
Section 8. TELEPHONE MEETINGS. Members of the board of directors may
participate in a meeting by means of a conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time. Participation in a meeting by these means shall
constitute presence in person at the meeting.
Section 9. INFORMAL ACTION BY DIRECTORS. Any action required or permitted
to be taken at any meeting of the board of directors may be taken without a
meeting if a consent in writing to the action is signed by each director and the
written consent is filed with the minutes of proceedings of the board of
directors.
Section 10. VACANCIES. Vacancies and newly-created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, though less than a quorum, or by a
sole remaining director, and the directors so chosen shall hold office until the
next annual election and until their successors are duly elected and shall
qualify, unless sooner displaced. If there are no directors in office, then an
election of directors may be held in the manner provided by statute. If, at the
time of filling any vacancy or any newly-created directorship, the directors
then in office shall constitute less than a majority of the whole board (as
constituted immediately prior to the increase), the Court of Chancery may, upon
application of any stockholder or stockholders holding at least ten percent of
the total number of the shares at the time
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outstanding having the right to vote for those directors, summarily order an
election to be held to fill the vacancies or newly-created directorships, or to
replace the directors chosen by the directors then in office.
Section 11. COMPENSATION. Directors shall not receive any stated salary
for their services as directors but, by resolution of the board of directors, a
fixed sum and expenses of attendance, if any, may be allowed to directors for
attendance at each annual, regular or special meeting of the board of directors
or of any committee of the board of directors; but nothing contained in these
bylaws shall be construed to preclude any director from serving the corporation
in any other capacity and receiving compensation for those services.
Section 12. REMOVAL OF DIRECTORS. The stockholders may, at any time,
remove any director, with or without cause, by the affirmative vote of a
majority of all the votes entitled to be cast on the matter and may elect a
successor to fill any resulting vacancy for the balance of the term of the
removed director.
ARTICLE IV.
COMMITTEES
Section 1. NUMBER, TENURE AND QUALIFICATIONS. The board of directors may
appoint from among its members an executive committee and other committees,
composed of one or more directors, to serve at the pleasure of the board of
directors.
Section 2. POWERS. The board of directors may delegate to committees
appointed under Section 1 of this Article any of the powers of the board of
directors, except as prohibited by law.
Section 3. MEETINGS. In the event of absence or disqualification of any
member of any committee, the members of that committee present at any meeting,
whether or not they constitute a quorum, may unanimously appoint a director to
act in the place of the absent or disqualified member.
Section 4. TELEPHONE MEETINGS. Members of a committee of the board of
directors may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting can
hear each other at the same time. Participation in a meeting by these means
shall constitute presence in person at the meeting.
Section 5. INFORMAL ACTION BY COMMITTEES. Any action required or
permitted to be taken at any meeting of a committee of the board of directors
may be taken without a meeting, if a consent in writing to the action is signed
by each member of the committee and the written consent is filed with the
minutes of proceedings of the committee.
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ARTICLE V.
OFFICERS
Section 1. GENERAL PROVISIONS. The officers of the corporation may
consist of a chairman of the board, a vice chairman of the board, a chief
executive officer, a president, one or more vice presidents, a treasurer, one or
more assistant treasurers, a secretary, and one or more assistant secretaries,
PROVIDED, HOWEVER, that any chairman or vice chairman of the board may serve in
such capacities and not be an officer of the corporation if so determined by the
board of directors. The officers of the corporation shall be elected annually
by the board of directors at the first meeting of the board of directors held
after each annual meeting of stockholders. If the election of officers shall
not be held at the meeting, the election shall be held as soon thereafter as may
be convenient. Each officer shall hold office until the officer's successor is
elected and qualified or until the officer's death, resignation or removal in
the manner hereinafter provided. Any two or more offices may be held by the
same person. In its discretion, the board of directors may leave unfilled any
office except that of president, treasurer or secretary. Election of an officer
or agent shall not of itself create contract rights between the corporation and
that officer or agent.
Section 2. REMOVAL AND RESIGNATION. Any officer or agent of the
corporation may be removed by the board of directors if in its judgment the best
interests of the corporation would be served thereby, but the removal shall be
without prejudice to the contract rights, if any, of the person so removed. Any
officer of the corporation may resign at any time by giving written notice of
the resignation to the board of directors, the chairman of the board, the
president or the secretary. Any resignation shall take effect at the time
specified therein or, if the time when it shall become effective is not
specified therein, immediately upon its receipt. The acceptance of a
resignation shall not be necessary to make it effective unless otherwise stated
in the resignation.
Section 3. VACANCIES. A vacancy in any office may be filled by the board
of directors for the balance of the term.
Section 4. CHIEF EXECUTIVE OFFICER. The board of directors may designate
a chief executive officer from among the elected officers. The chief executive
officer shall have responsibility for implementing the policies of the
corporation, as determined by the board of directors, and for administering the
corporation's business and affairs.
Section 5. CHIEF FINANCIAL OFFICER. The chief financial officer shall
keep and maintain, or cause to be kept and maintained, adequate and correct
books and records of accounts of the properties and business transactions of the
corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital retained earnings and shares. The books
of account shall at all reasonable times be open to inspection by any director.
The chief financial officer shall deposit all moneys and other valuables in the
name and to the credit of the corporation with such depositories as may be
designated by the board of directors. The chief financial officer shall
disburse the funds of the corporation as may be ordered by the board of
directors, shall render to the president and directors, whenever they request
it, an account of all his or her transactions as chief financial officer and of
the financial condition of the corporation, and shall have other powers and
perform such other duties as may be prescribed by the board of directors or
these bylaws.
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Section 6. CHIEF OPERATING OFFICER. The board of directors may designate
a chief operating officer from among the elected officers. That officer will
have the responsibility and duties as set forth by the board of directors or the
chief executive officer.
Section 7. CHAIRMAN AND VICE CHAIRMAN OF THE BOARD. The chairman of the
board shall preside over the meetings of the board of directors and of the
stockholders. In the absence of the chairman of the board, the vice chairman of
the board shall preside at those meetings. The chairman of the board and the
vice chairman of the board shall, respectively, perform all other duties
assigned by the board of directors.
Section 8. PRESIDENT. The president shall in general supervise and
control all of the business and affairs of the corporation. Unless the
president is not a member of the board of directors, in the absence of both the
chairman and vice chairman of the board, the president shall preside at all
meetings of the board of directors and of the stockholders. If a chief
executive officer has not been designated by the board of directors, the
president shall be the chief executive officer. The president may execute any
deed, mortgage, bond, contract or other instrument which the board of directors
has authorized to be executed, except in cases where execution shall be
expressly delegated by the board of directors or by these bylaws to some other
officer or agent of the corporation or shall be required by law to be otherwise
executed; and in general shall perform all duties incident to the office of
president and any other duties prescribed by the board of directors from time to
time.
Section 9. VICE PRESIDENTS. In the absence of the president or in the
event of a vacancy in that office, the vice president (or if there is more than
one vice president, the vice presidents in the order designated at the time of
their election or, in the absence of any designation, then in the order of their
election) shall perform the duties of the president and when so acting shall
have all the powers of and be subject to all the restrictions upon the
president; and shall perform all other duties assigned from time to time by the
president or by the board of directors. The board of directors may designate
one or more vice presidents as executive vice president or as vice president for
particular areas of responsibility.
Section 10. SECRETARY. The secretary shall (a) keep the minutes of the
proceedings of the stockholders, the board of directors and committees of the
board of directors in one or more books provided for that purpose; (b) see that
all notices are duly given in accordance with the provisions of these bylaws or
as required by law; (c) be custodian of the corporate records and of the seal of
the corporation; (d) keep a register of the post office address, telephone
number and facsimile number of each stockholder which shall be furnished to the
secretary by the stockholder; (e) have general charge of the stock transfer
books of the corporation; and (f) in general perform all other duties assigned
from time to time by the president or by the board of directors.
Section 11. TREASURER. The treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the corporation in those depositories designated by the board of directors.
The treasurer shall disburse the funds of the corporation as
may be ordered by the board of directors, taking proper vouchers for the
disbursements, and shall render to the president
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and board of directors, at the regular meetings of the board of directors or
whenever they may require it, an account of all transactions as treasurer and of
the financial condition of the corporation.
If required by the board of directors, the treasurer shall give
the corporation a bond in an amount and with a surety or sureties which are
satisfactory to the board of directors for the faithful performance of the
duties of this office and for the restoration to the corporation, in case of the
treasurer's death, resignation, retirement or removal from office, of all books,
papers, vouchers, moneys and other property of whatever kind in the treasurer's
possession or control belonging to the corporation.
Section 12. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The assistant
secretaries and assistant treasurers, in general, shall perform the duties
assigned to them by the secretary or treasurer, respectively, or by the
president or the board of directors. The assistant treasurers shall, if
required by the board of directors, give bonds for the faithful performance of
their duties in amounts and with a surety or sureties which are satisfactory to
the board of directors.
Section 13. ANNUAL REPORT. The president or other executive officer of the
corporation shall prepare or cause to be prepared annually a full and correct
statement of the affairs of the corporation, including a balance sheet and a
statement of the results of operations for the preceding fiscal year, which
shall be submitted at the annual meeting of the stockholders and filed within 20
days thereafter at the principal office of the corporation in the State of
Delaware.
Section 14. SALARIES. The salaries of the officers shall be fixed from
time to time by the board of directors, and no officer shall be prevented from
receiving such salary by reason of the fact that the officer is also a director
of the corporation.
ARTICLE VI.
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. The board of directors may authorize any officer or
agent to enter into any contract or to execute and deliver any instrument in the
name of and on behalf of the corporation. The authority may be general or
confined to specific instances.
Section 2. CHECKS AND DRAFTS. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the corporation shall be signed by the officer or officers, agent or agents of
the corporation and in the manner determined from time to time by the board of
directors or an officer authorized by the board.
Section 3. DEPOSITS. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in banks,
trust companies or other depositories designated by the board of directors.
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ARTICLE VII.
SHARES OF STOCK
Section 1. CERTIFICATES OF STOCK. Each stockholder shall be entitled to a
certificate or certificates which shall represent and certify the number of
shares of each class of stock held by that stockholder in the corporation. Each
certificate shall be signed by the president or a vice president and
countersigned by the secretary or an assistant secretary or the treasurer or an
assistant treasurer and may be sealed with the corporate seal. The signatures
may be either manual or facsimile. Certificates shall be consecutively
numbered; and if the corporation shall, from time to time, issue several classes
of stock, each class may have its own number series. A certificate is valid and
may be issued whether or not an officer who signed it is still an officer when
it is issued. Each certificate representing stock which is restricted as to its
transferability or voting powers, which is preferred or limited as to its
dividends or as to its share of the assets upon liquidation or which is
redeemable at the option of the corporation, shall have a statement of such
restriction, limitation, preference or redemption provision, or a summary,
plainly stated on the certificate. In lieu of such statement or summary, the
corporation may set forth upon the face or back of the certificate a statement
that the corporation will furnish to any stockholder, upon request and without
charge, a full statement of such information.
Section 2. TRANSFERS OF STOCK. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate of stock duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, the corporation shall issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
The corporation shall be entitled to treat the holder of record
of any share or shares of stock as the holder in fact and, accordingly, shall
not be bound to recognize any equitable or other claim to or interest in the
share on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of the State of
Delaware.
Section 3. LOST CERTIFICATE. The board of directors may direct a new
certificate or uncertificated shares to be issued in place of any certificate
previously issued by the corporation alleged to have been lost, stolen or
destroyed upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing the
issuance of a new certificate or uncertificated shares, the board of directors
may, in its discretion and as a condition precedent to the issuance, require the
owner of the lost, stolen or destroyed certificate or the owner's legal
representative to advertise the same in such manner as it shall require and/or
to give bond, with sufficient surety, to the corporation to indemnify it against
any loss or claim which may arise as a result of the issuance of a new
certificate or uncertificated shares.
Section 4. RECORD DATE. The board of directors may fix a record date for
the determination of stockholders entitled to notice of or to vote at any
meeting of stockholders or any adjournment, or to express consent (or dissent)
to corporate action in writing without a meeting, or entitled to receive payment
of any dividend or other distribution, or allotment of any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action. The record date shall not precede the date upon which the
resolution fixing the record date is adopted by the board of directors and, (i)
in the case of determination of stockholders entitled to vote at any
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meeting of stockholders or adjournment, shall, unless otherwise required by law,
not be more than 60 nor less than ten days before the date of the meeting; (ii)
in the case of determination of stockholders entitled to express consent to
corporate action in writing without a meeting, shall not be more than ten days
after the date upon which the resolution fixing the record date is adopted by
the board of directors; and (iii) in the case of determination of stockholders
for the purpose of any other lawful action, shall not be more than 60 days prior
to the action. If no record date is fixed, (iv) the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held; (v) the record date for
determining stockholders entitled to express consent to corporate action in
writing without a meeting, when no prior action of the board of directors is
required by law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
corporation in accordance with the law or, if prior action by the board of
directors is required by law, shall be at the close of business on the day on
which the board of directors adopts the resolution taking the prior action; and
(vi) the record date for determining stockholders for the purpose of any other
lawful action shall be at the close of business on the day on which the board of
directors adopts the resolution relating to that action.
A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the board of directors may fix a new record
date for the adjourned meeting.
Section 5. STOCK LEDGER. The corporation shall maintain at its principal
office or at the office of its counsel, accountants or transfer agent, an
original or duplicate stock ledger containing the name and address of each
stockholder and the number of shares of stock of each class held by each
stockholder.
ARTICLE VIII.
ACCOUNTING YEAR
The board of directors shall have the power, from time to time, to fix the
accounting year of the corporation by a duly adopted resolution.
ARTICLE IX.
DIVIDENDS
Section 1. DECLARATION. Dividends upon the shares of stock of the
corporation may be declared by the board of directors, subject to the provisions
of law and the charter. Dividends may be paid in cash, property or shares of
the corporation, subject to the provisions of law and the charter.
Section 2. CONTINGENCIES. Before payment of any dividends, there may be
set aside out of any funds of the corporation available for dividends the sum or
sums which the board of directors from time to time, in its absolute discretion,
deems proper as a reserve fund for
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contingencies, for equalizing dividends, for repairing or maintaining any
property of the corporation or for any other purpose the board of directors
determines to be in the best interests of the corporation. The board of
directors may modify or abolish any reserve in the manner in which it was
created.
ARTICLE X.
SEAL
Section 1. SEAL. The corporate seal shall have inscribed thereon the name
of the corporation, the year of its organization and the words "Incorporated
Delaware." The board of directors may authorize one or more duplicate seals and
provide for the custody thereof.
Section 2. AFFIXING SEAL. Whenever the corporation is required to place
its corporate seal to a document, it shall be sufficient to meet the
requirements of any law, rule or regulation relating to a corporate seal to
place the word "(SEAL)" adjacent to the signature of the person authorized to
execute the document on behalf of the corporation.
ARTICLE XI.
INDEMNIFICATION
Section 1. THIRD PARTY ACTIONS
The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending, or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation)
by reason of the fact that he is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
(if such settlement is approved in advance by the corporation, which approval
shall not be unreasonably withheld) actually and reasonably incurred by him
in connection with such action, suit or proceeding if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not,
of itself, create a presumption that the person did not act in good faith and
in a manner which such person reasonably believed to be in or not opposed to
the best interest of the corporation, and, with respect to any criminal
action or proceeding, had reasonable cause to believe that his conduct was
unlawful.
Section 2. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION
The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that such person is or
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was a director, officer, employee or agent of corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) and amounts paid in settlement (if
such settlement is approved in advance by the corporation, which approval shall
not be unreasonably withheld) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit if the person
acted in good faith and in manner the person reasonably believed to be in or not
opposed to the best interests of the corporation, except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the Delaware Court of Chancery or the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Delaware
Court of Chancery or such other court shall deem proper. Notwithstanding any
other provision of this Article VI, no person shall be indemnified hereunder for
any expenses or amounts paid in settlement with respect to any action to recover
short-swing profits under Section 16(b) of the Securities Exchange Act of 1934,
as amended.
Section 3. SUCCESSFUL DEFENSE
To the extent that a director, officer, employee or agent of
the corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in Sections 1 and 2, or in defense
of any claim, issue or matter therein, such person shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred
by the person in connection therewith.
Section 4. DETERMINATION OF CONDUCT
Any indemnification under Sections 1 and 2 (unless ordered
by a court) shall be made by the corporation only as authorized in the
specific case upon a determination that the indemnification of the director,
officer, employee or agent is proper in the circumstances because the person
has met the applicable standard of conduct set forth in Sections 1 and 2.
Such determination shall be made (1) by a majority vote of the directors who
are not parties to such action, suit or proceeding, even though less than a
quorum, or (2) if there are no such directors, or if such directors so
direct, by independent legal counsel in a written opinion, or (3) by the
stockholders. Notwithstanding the foregoing, a director, officer, employee or
agent of the Corporation shall be entitled to contest any determination that
the director, officer, employee or agent has not met the applicable standard
of conduct set forth in Sections 1 and 2 by petitioning a court of competent
jurisdiction.
Section 5. PAYMENT OF EXPENSES IN ADVANCE
Expenses incurred in defending a civil or criminal action,
suit or proceeding, by an individual who may be entitled to indemnification
pursuant to Section 1 or 2, shall be paid by the corporation in advance of
the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent to
repay such amount if it shall ultimately be determined that the individual is
not entitled to be indemnified by the corporation as authorized in this
Article XI.
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<PAGE>
Section 6. INDEMNITY NOT EXCLUSIVE
The indemnification and advancement of expenses provided by
or granted pursuant to the other sections of this Article XI shall not be
deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any by-law, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action in
their official capacity and as to action in another capacity while holding
such office.
Section 7. INSURANCE INDEMNIFICATION
The corporation shall have the power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
any liability asserted against the person and incurred by the person in any
such capacity or arising out of the person's status as such, whether or not
the corporation would have the power to indemnify such person against such
liability under the provisions of this Article XI.
Section 8. THE CORPORATION
For purposes of this Article XI, references to "the
corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed
in a consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers, and
employees or agents, so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was serving at
the request of such constituent corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under and subject to the
provisions of this Article XI (including, without limitation the provisions
of Section 4) with respect to the resulting or surviving corporation as the
person would have with respect to such constituent corporation if its
separate existence had continued.
Section 9. EMPLOYEE BENEFIT PLANS
For purposes of this Article XI, references to "other
enterprises" shall include employee benefit plans; references to "fines"
shall include any excise taxes assessed on a person with respect to an
employee benefit plan; and references to "serving at the request of the
corporation" shall include any service as a director, officer, employee or
agent of the corporation which imposes duties on, or involves services by,
such director, officer, employee, or agent with respect to an employee
benefit plan, its participants, or beneficiaries; and a person who acted in
good faith and in a manner he reasonably believed to be in the interest of
the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Article XI.
Section 10. CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
The indemnification and advancement of expenses provided by,
or granted pursuant to, this Article XI shall, unless otherwise provided when
authorized or ratified, continue as
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<PAGE>
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
person.
ARTICLE XII.
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to the charter or
bylaws of the corporation or pursuant to applicable law, a waiver of notice in
writing, signed by the person or persons entitled to the notice, whether before
or after the time stated therein, shall be deemed equivalent to the giving of
the notice. Neither the business to be transacted at nor the purpose of any
meeting need be set forth in the waiver of notice, unless specifically required
by statute. A person's attendance at any meeting shall constitute a waiver of
notice of the meeting, except where the person attends the meeting for the
express purpose of objecting to the transaction of any business on the ground
that the meeting is not lawfully called or convened.
ARTICLE XIII.
AMENDMENT OF BYLAWS
Section 1. BY DIRECTORS. The board of directors shall have the power to
adopt, alter or repeal any bylaws of the corporation and to make new bylaws,
except that the board of directors shall not alter or repeal this Article.
Section 2. BY STOCKHOLDERS. The stockholders shall have the power to
adopt, alter or repeal any bylaws of the corporation and to make new bylaws.
The foregoing are certified as the bylaws of the corporation adopted by the
board of directors on April 24, 1999.
-----------------------------------
Jeffrey Marquis, Secretary
Approved by stockholders on May 15, 1999.
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<PAGE>
[LOGO]
Number Shares
C -
TRAVELSCAPE.COM, INC.
COMMON STOCK INCORPORATED UNDER THE LAWS CUSIP 894207
PAR VALUE $.01 OF THE STATE OF DELAWARE SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
Travelscape.com, Inc., transferable on the books of the corporation by
the owner in person, or by duly authorized attorney, upon surrender of this
certificate properly endorsed. This certificate and the shares represented
hereby are subject to all the terms, conditions and limitations of the
Certificate of Incorporation and all amendments thereto and supplements thereof.
This certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signature of its duly authorized officers.
Dated:
/s/ Jeffrey Marquis /s/ Timothy Poster
- -------------------------------- -----------------------------------
Secretary President and Chairman of the Board
<PAGE>
TRAVELSCAPE.COM, INC.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS,
A FULL STATEMENT OF THE DESIGNATIONS, RELATIVE RIGHTS, PREFERENCES AND
LIMITATIONS OF EACH CLASS OF STOCK OR SERIES THEREOF AUTHORIZED TO BE ISSUED AND
THE AUTHORITY OF THE BOARD OF DIRECTORS OF THE CORPORATION TO DESIGNATE AND FIX
THE RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS OF CLASSES OF PREFERRED STOCK
IN SERIES.
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 - as tenants in common
TEN ENT - as tenants by the entireties
JT WROS - as joint tenants with right of survivorship
and not as tenants in common
UNIF 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
For value received, _________________________ hereby sell, assign
and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
___________________________________________________
_______________________________________________________________________________
(Please print or typewrite name and address including postal zip code of
assignee)
_______________________________________________________________________________
_______________________________________________________________________________
________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint ____________________________________________
______________________________________________________________________ Attorney
to transfer the said Shares on the books of the within-named Corporation with
full power of substitution in the premises.
Dated: __________________________ __________________________________
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.
<PAGE>
Exhibit 5.1
May 28, 1999
Travelscape.com, Inc.
8951 West Sahara Ave.
Las Vegas, NV 89117-5826
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
We are acting as counsel to Travelscape.com, Inc., a Delaware corporation
(the "Company"), in connection with the registration of 5,750,000 shares of the
Company's Common Stock, par value $0.01 per share (the "Shares"), pursuant to a
Registration Statement on Form S-1 (Registration No. 333-77073), as amended (the
"Registration Statement"), filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended. The Shares are being sold by the
Company and the Selling Stockholders identified as such in the Registration
Statement.
As counsel for the Company, we have examined originals or copies, certified
or otherwise identified to our satisfaction, of such documents, corporate
records, certificates of public officials and other instruments as we have
deemed necessary for the purposes of rendering this opinion. In our examination,
we have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity with the originals of
all documents submitted to us as copies.
Based upon the foregoing, we are of the opinion that the Shares to be
registered for sale by the Company have been duly authorized by the Company and,
when issued, delivered and paid for in accordance with the terms of the
underwriting agreement referred to in the Registration Statement and in
accordance with the resolutions adopted by the Board of Directors of the
Company, will be validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and we consent to the reference of our name under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ Wilson Sonsini Goodrich & Rosati
<PAGE>
Exhibit 10.3
TRAVELSCAPE.COM, INC.
1999 STOCK PLAN
1. PURPOSES OF THE PLAN. The purposes of this 1999 Stock Plan are:
- to attract and retain the best available personnel for positions
of substantial responsibility,
- to provide additional incentive to Employees, Directors and
Consultants, and
- to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees as
shall be administering the Plan, in accordance with Section 4 of the Plan.
(b) "APPLICABLE LAWS" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws
of any foreign country or jurisdiction where Options or Stock Purchase Rights
are, or will be, granted under the Plan.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" means a committee of Directors appointed by the
Board in accordance with Section 4 of the Plan.
(f) "COMMON STOCK" means the common stock of the Company.
(g) "COMPANY" means Travelscape.com, Inc., a Delaware corporation.
(h) "CONSULTANT" means any person, including an advisor, engaged
by the Company or a Parent or Subsidiary to render services to such entity.
(i) "DIRECTOR" means a member of the Board.
<PAGE>
(j) "DISABILITY" means total and permanent disability as defined
in Section 22(e)(3) of the Code.
(k) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. A
Service Provider shall not cease to be an Employee in the case of (i) any
leave of absence approved by the Company or (ii) transfers between locations
of the Company or between the Company, its Parent, any Subsidiary, or any
successor. For purposes of Incentive Stock Options, no such leave may exceed
ninety days, unless reemployment upon expiration of such leave is guaranteed
by statute or contract. If reemployment upon expiration of a leave of
absence approved by the Company is not so guaranteed, on the 181st day of
such leave any Incentive Stock Option held by the Optionee shall cease to be
treated as an Incentive Stock Option and shall be treated for tax purposes as
a Nonstatutory Stock Option. Neither service as a Director nor payment of a
director's fee by the Company shall be sufficient to constitute "employment"
by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system
for the last market trading day prior to the time of determination, as
reported in THE WALL STREET JOURNAL or such other source as the Administrator
deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value
of a Share of Common Stock shall be the mean between the high bid and low
asked prices for the Common Stock on the last market trading day prior to the
day of determination, as reported in THE WALL STREET JOURNAL or such other
source as the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code
and the regulations promulgated thereunder.
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<PAGE>
(o) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(p) "NOTICE OF GRANT" means a written or electronic notice
evidencing certain terms and conditions of an individual Option or Stock
Purchase Right grant. The Notice of Grant is part of the Option Agreement.
(q) "OFFICER" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(r) "OPTION" means a stock option granted pursuant to the Plan.
(s) "OPTION AGREEMENT" means an agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the
Plan.
(t) "OPTION EXCHANGE PROGRAM" means a program whereby outstanding
Options are surrendered in exchange for Options with a lower exercise price.
(u) "OPTIONED STOCK" means the Common Stock subject to an Option
or Stock Purchase Right.
(v) "OPTIONEE" means the holder of an outstanding Option or Stock
Purchase Right granted under the Plan.
(w) "PARENT" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(x) "PLAN" means this Travelscape.com, Inc. 1999 Stock Plan.
(y) "RESTRICTED STOCK" means shares of Common Stock acquired
pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan.
(z) "RESTRICTED STOCK PURCHASE AGREEMENT" means a written
agreement between the Company and the Optionee evidencing the terms and
restrictions applying to stock purchased under a Stock Purchase Right. The
Restricted Stock Purchase Agreement is subject to the terms and conditions of
the Plan and the Notice of Grant.
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<PAGE>
(aa) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(bb) "SECTION 16(b)" means Section 16(b) of the Exchange Act.
(cc) "SERVICE PROVIDER" means an Employee, Director or Consultant.
(dd) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
(ee) "STOCK PURCHASE RIGHT" means the right to purchase Common
Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ff) "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. Subject to the provisions of Section 13
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is two million (2,000,000) shares, plus an annual
increase to be added on the first day of the Company's fiscal year beginning
in 2000 equal to the lesser of (i) one million (1,000,000) shares, (ii) 3% of
the outstanding shares on such date or (iii) a lesser amount determined by
the Board. The Shares may be authorized, but unissued, or reacquired Common
Stock.
If an Option or Stock Purchase Right expires or becomes
unexercisable without having been exercised in full, or is surrendered
pursuant to an Option Exchange Program, the unpurchased Shares which were
subject thereto shall become available for future grant or sale under the
Plan (unless the Plan has terminated); PROVIDED, however, that Shares that
have actually been issued under the Plan, whether upon exercise of an Option
or Right, shall not be returned to the Plan and shall not become available
for future distribution under the Plan, except that if Shares of Restricted
Stock are repurchased by the Company at their original purchase price, such
Shares shall become available for future grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE.
(i) MULTIPLE ADMINISTRATIVE BODIES. The Plan may be
administered by the Board or different Committees with respect to different
groups of Service Providers.
(ii) SECTION 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the
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<PAGE>
meaning of Section 162(m) of the Code, the Plan shall be administered by a
Committee of two or more "outside directors" within the meaning of Section
162(m) of the Code.
(iii) RULE 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions
contemplated hereunder shall be structured to satisfy the requirements for
exemption under Rule 16b-3.
(iv) OTHER ADMINISTRATION. Other than as provided above,
the Plan shall be administered by (A) the Board or (B) a Committee, which
committee shall be constituted to satisfy Applicable Laws.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties
delegated by the Board to such Committee, the Administrator shall have the
authority, in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and
Stock Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option or Stock Purchase Right granted
hereunder. Such terms and conditions include, but are not limited to, the
exercise price, the time or times when Options or Stock Purchase Rights may
be exercised (which may be based on performance criteria), any vesting
acceleration or waiver of forfeiture restrictions, and any restriction or
limitation regarding any Option or Stock Purchase Right or the shares of
Common Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value
of the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
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<PAGE>
(viii) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan), including the discretionary authority
to extend the post-termination exercisability period of Options longer than
is otherwise provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option or Stock Purchase Right that number of
Shares having a Fair Market Value equal to the amount required to be
withheld. The Fair Market Value of the Shares to be withheld shall be
determined on the date that the amount of tax to be withheld is to be
determined. All elections by an Optionee to have Shares withheld for this
purpose shall be made in such form and under such conditions as the
Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) EFFECT OF ADMINISTRATOR'S DECISION. The Administrator's
decisions, determinations and interpretations shall be final and binding on
all Optionees and any other holders of Options or Stock Purchase Rights.
5. ELIGIBILITY. Nonstatutory Stock Options and Stock Purchase Rights
may be granted to Service Providers. Incentive Stock Options may be granted
only to Employees.
6. LIMITATIONS.
(a) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair
Market Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year
(under all plans of the Company and any Parent or Subsidiary) exceeds
$100,000, such Options shall be treated as Nonstatutory Stock Options. For
purposes of this Section 6(a), Incentive Stock Options shall be taken into
account in the order in which they were granted. The Fair Market Value of
the Shares shall be determined as of the time the Option with respect to such
Shares is granted.
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<PAGE>
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere
in any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal
year of the Company, Options to purchase more than 1,000,000 Shares.
(ii) In connection with his or her initial service, a
Service Provider may be granted Options to purchase up to an additional
500,000 Shares which shall not count against the limit set forth in
subsection (i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization
as described in Section 13.
(iv) If an Option is cancelled in the same fiscal year of
the Company in which it was granted (other than in connection with a
transaction described in Section 13), the cancelled Option will be counted
against the limits set forth in subsections (i) and (ii) above. For this
purpose, if the exercise price of an Option is reduced, the transaction will
be treated as a cancellation of the Option and the grant of a new Option.
7. TERM OF PLAN. Subject to Section 19 of the Plan, the Plan shall
become effective upon its adoption by the Board. It shall continue in effect
for a term of ten (10) years unless terminated earlier under Section 15 of
the Plan.
8. TERM OF OPTION. The term of each Option shall be stated in the
Option Agreement. In the case of an Incentive Stock Option, the term shall
be ten (10) years from the date of grant or such shorter term as may be
provided in the Option Agreement. Moreover, in the case of an Incentive
Stock Option granted to an Optionee who, at the time the Incentive Stock
Option is granted, owns stock representing more than ten percent (10%) of the
total combined 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 or such shorter term as may be provided in
the Option Agreement.
9. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The per share exercise price for the Shares
to be issued pursuant
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to exercise of an Option shall be determined by the Administrator, subject to
the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the
Incentive Stock 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 per Share exercise price shall be no less than
110% of the Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price
shall be no less than 100% of the Fair Market Value per Share on the date of
grant.
(ii) In the case of a Nonstatutory Stock Option, the per
Share exercise price shall be determined by the Administrator. In the case
of a Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share
on the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted
with a per Share exercise price of less than 100% of the Fair Market Value
per Share on the date of grant pursuant to a merger or other corporate
transaction.
(b) WAITING PERIOD AND EXERCISE DATES. At the time an Option is
granted, the Administrator shall fix the period within which the Option may
be exercised and shall determine any conditions which must be satisfied
before the Option may be exercised.
(c) FORM OF CONSIDERATION. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the
method of payment. In the case of an Incentive Stock Option, the
Administrator shall determine the acceptable form of consideration at the
time of grant. Such consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired
upon exercise of an option, have been owned by the Optionee for more than six
months on the date of surrender, and (B) have a Fair Market Value on the date
of surrender equal to the aggregate exercise price of the Shares as to which
said Option shall be exercised;
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<PAGE>
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to
the Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation program or
arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and
at such times and under such conditions as determined by the Administrator
and set forth in the Option Agreement. Unless the Administrator provides
otherwise, vesting of Options granted hereunder shall be tolled during any
unpaid leave of absence. An Option may not be exercised for a fraction of a
Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by
the Administrator and permitted by the Option Agreement and the Plan. Shares
issued upon exercise of an Option shall be issued in the name of the Optionee
or, if requested by the Optionee, in the name of the Optionee and his or her
spouse. Until the Shares are issued (as evidenced by the appropriate entry on
the books of the Company or of a duly authorized transfer agent of the
Company), no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding
the exercise of the Option. The Company shall issue (or cause to be issued)
such Shares promptly after the Option is exercised. No adjustment will be
made for a dividend or other right for which the record date is prior to the
date the Shares are issued, except as provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number
of Shares thereafter available, both for purposes of the Plan and for sale
under the Option, by the number of Shares as to which the Option is exercised.
(b) TERMINATION OF RELATIONSHIP AS A SERVICE PROVIDER. If an
Optionee ceases to be a Service Provider, other than upon the Optionee's
death or Disability, the Optionee may exercise his
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or her Option within such period of time as is specified in the Option
Agreement to the extent that the Option is vested on the date of termination
(but in no event later than the expiration of the term of such Option as set
forth in the Option Agreement). In the absence of a specified time in the
Option Agreement, the Option shall remain exercisable for three (3) months
following the Optionee's termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by
the unvested portion of the Option shall revert to the Plan. If, after
termination, the Optionee does not exercise his or her Option within the time
specified by the Administrator, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
(c) DISABILITY OF OPTIONEE. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise
his or her Option within such period of time as is specified in the Option
Agreement to the extent the Option is vested on the date of termination (but
in no event later than the expiration of the term of such Option as set forth
in the Option Agreement). In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for twelve (12) months
following the Optionee's termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by
the unvested portion of the Option shall revert to the Plan. If, after
termination, the Optionee does not exercise his or her Option within the time
specified herein, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
(d) DEATH OF OPTIONEE. If an Optionee dies while a Service
Provider, the Option may be exercised within such period of time as is
specified in the Option Agreement (but in no event later than the expiration
of the term of such Option as set forth in the Notice of Grant), by the
Optionee's estate or by a person who acquires the right to exercise the
Option by bequest or inheritance, but only to the extent that the Option is
vested on the date of death. In the absence of a specified time in the
Option Agreement, the Option shall remain exercisable for twelve (12) months
following the Optionee's termination. If, at the time of death, the Optionee
is not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option shall immediately revert to the Plan. The
Option may be exercised by the executor or administrator of the Optionee's
estate or, if none, by the person(s) entitled to exercise the Option under
the Optionee's will or the laws of descent or distribution. If the Option is
not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(e) BUYOUT PROVISIONS. The Administrator may at any time offer to
buy out for a payment in cash or Shares an Option previously granted based on
such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
11. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under
the Plan and/or cash awards made outside of the
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Plan. After the Administrator determines that it will offer Stock Purchase
Rights under the Plan, it shall advise the offeree in writing or
electronically, by means of a Notice of Grant, of the terms, conditions and
restrictions related to the offer, including the number of Shares that the
offeree shall be entitled to purchase, the price to be paid, and the time
within which the offeree must accept such offer. The offer shall be accepted
by execution of a Restricted Stock Purchase Agreement in the form determined
by the Administrator.
(b) REPURCHASE OPTION. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination
of the purchaser's service with the Company for any reason (including death
or Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the
purchaser to the Company. The repurchase option shall lapse at a rate
determined by the Administrator.
(c) OTHER PROVISIONS. The Restricted Stock Purchase Agreement
shall contain such other terms, provisions and conditions not inconsistent
with the Plan as may be determined by the Administrator in its sole
discretion.
(d) RIGHTS AS A SHAREHOLDER. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered
upon the records of the duly authorized transfer agent of the Company. No
adjustment will be made for a dividend or other right for which the record
date is prior to the date the Stock Purchase Right is exercised, except as
provided in Section 13 of the Plan.
12. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. Unless
determined otherwise by the Administrator, an Option or Stock Purchase Right
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
and may be exercised, during the lifetime of the Optionee, only by the
Optionee. If the Administrator makes an Option or Stock Purchase Right
transferable, such Option or Stock Purchase Right shall contain such
additional terms and conditions as the Administrator deems appropriate.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR
ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by
the shareholders of the Company, the number of shares of Common Stock covered
by each outstanding Option and Stock Purchase Right, and the number of shares
of Common Stock which have been authorized for issuance under the Plan but as
to which no Options or Stock Purchase Rights have yet been granted or which
have been returned to the Plan upon cancellation or expiration of an Option
or Stock Purchase Right, as well as the price per share of Common Stock
covered by each such outstanding
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Option or Stock Purchase Right, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in
the number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made
by the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, 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 thereof shall
be made with respect to, the number or price of shares of Common Stock
subject to an Option or Stock Purchase Right.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify
each Optionee as soon as practicable prior to the effective date of such
proposed transaction. The Administrator in its discretion may provide for an
Optionee to have the right to exercise his or her Option until ten (10) days
prior to such transaction as to all of the Optioned Stock covered thereby,
including Shares as to which the Option would not otherwise be exercisable.
In addition, the Administrator may provide that any Company repurchase option
applicable to any Shares purchased upon exercise of an Option or Stock
Purchase Right shall lapse as to all such Shares, provided the proposed
dissolution or liquidation takes place at the time and in the manner
contemplated. To the extent it has not been previously exercised, an Option
or Stock Purchase Right will terminate immediately prior to the consummation
of such proposed action.
(c) MERGER OR ASSET SALE. In the event of the sale of
substantially all of the assets of the Company, or a merger of the Company
with or into another corporation, other than a merger in which the
shareholders of the Company immediately prior to the merger own a majority of
the voting power of the surviving corporation following the merger, the
Administrator shall, as soon as practicable prior to the effective date of
such transaction, provide for the Optionee to have the right to exercise the
Option as to all of the Optioned Stock, including Shares that would not
otherwise be exercisable. If an Option or Stock Purchase Right becomes fully
vested and exercisable in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully exercisable for a period of
fifteen (15) days from the date of such notice, and the Option or Stock
Purchase Right shall terminate upon the expiration of such period.
14. DATE OF GRANT. The date of grant of an Option or Stock Purchase
Right shall be, for all purposes, the date on which the Administrator makes
the determination granting such Option or Stock Purchase Right, or such other
later date as is determined by the Administrator. Notice of the
determination shall be provided to each Optionee within a reasonable time
after the date of such
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grant.
15. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) SHAREHOLDER APPROVAL. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to
comply with Applicable Laws.
(c) EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee
and the Company. Termination of the Plan shall not affect the Administrator's
ability to exercise the powers granted to it hereunder with respect to
Options granted under the Plan prior to the date of such termination.
16. CONDITIONS UPON ISSUANCE OF SHARES.
(a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to the
exercise of an Option or Stock Purchase Right unless the exercise of such
Option or Stock Purchase Right and the issuance and delivery of such Shares
shall comply with Applicable Laws and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
(b) INVESTMENT REPRESENTATIONS. As a condition to the exercise of
an Option or Stock Purchase Right, the Company may require the person
exercising such Option or Stock Purchase Right 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 counsel for the Company, such a representation
is required.
17. INABILITY TO OBTAIN AUTHORITY. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, 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.
18. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall
be sufficient to satisfy the requirements of the Plan.
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19. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan
is adopted. Such shareholder approval shall be obtained in the manner and to
the degree required under Applicable Laws.
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Exhibit 10.4
TRAVELSCAPE.COM, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1999 Employee Stock
Purchase Plan of Travelscape.com, Inc.
1. PURPOSE. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase
Common Stock of the Company through accumulated payroll deductions. It is
the intention of the Company to have the Plan qualify as an "Employee Stock
Purchase Plan" under Section 423 of the Internal Revenue Code of 1986, as
amended. The provisions of the Plan, accordingly, shall be construed so as
to extend and limit participation in a manner consistent with the
requirements of that section of the Code.
2. DEFINITIONS.
(a) "BOARD" shall mean the Board of Directors of the Company.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "COMMON STOCK" shall mean the common stock of the Company.
(d) "COMPANY" shall mean Travelscape.com, Inc. and any Designated
Subsidiary of the Company.
(e) "COMPENSATION" shall mean all base straight time gross
earnings but exclusive of payments for overtime, shift premium, incentive
compensation, incentive payments, bonuses and other compensation.
(f) "DESIGNATED SUBSIDIARY" shall mean any Subsidiary that has
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "EMPLOYEE" shall mean any individual who is an Employee of the
Company for tax purposes whose customary employment with the Company is at
least twenty (20) hours per week and more than five (5) months in any
calendar year. For purposes of the Plan, the employment relationship shall be
treated as continuing intact while the individual is on sick leave or other
leave of absence approved by the Company. Where the period of leave exceeds
90 days and the individual's right to reemployment is not guaranteed either
by statute or by contract, the employment relationship shall be deemed to
have terminated on the 91st day of such leave.
(h) "ENROLLMENT DATE" shall mean the first Trading Day of each
Offering Period.
(i) "EXERCISE DATE" shall mean the last Trading Day of each
Purchase Period.
(j) "FAIR MARKET VALUE" shall mean, as of any date, the value of
Common Stock determined as follows:
<PAGE>
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock
Market, its Fair Market Value shall be the closing sales price for such stock
(or the closing bid, if no sales were reported) as quoted on such exchange or
system for the last market trading day prior to the date of determination, as
reported in THE WALL STREET JOURNAL or such other source as the Board deems
reliable;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked prices for the
Common Stock prior to the date of determination, as reported in THE WALL
STREET JOURNAL or such other source as the Board deems reliable;
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith
by the Board; or
(iv) For purposes of the Enrollment Date of the first
Offering Period under the Plan, the Fair Market Value shall be the initial
price to the public as set forth in the final prospectus included within the
registration statement in Form S-1 filed with the Securities and Exchange
Commission for the initial public offering of the Company's Common Stock (the
"Registration Statement").
(k) "OFFERING PERIODS" shall mean the periods of approximately
twenty-four (24) months during which an option granted pursuant to the Plan
may be exercised, commencing on the first Trading Day on or after February 1
and August 1 of each year and terminating on the last Trading Day in the
periods ending twenty-four months later; provided, however, that the first
Offering Period under the Plan shall commence with the first Trading Day on
or after the date on which the Securities and Exchange Commission declares
the Company's Registration Statement effective and ending on the last Trading
Day on or before July 31, 2001. The duration and timing of Offering Periods
may be changed pursuant to Section 4 of this Plan.
(l) "PLAN" shall mean this 1999 Employee Stock Purchase Plan.
(m) "PURCHASE PERIOD" shall mean the approximately six month
period commencing after one Exercise Date and ending with the next Exercise
Date, except that the first Purchase Period of any Offering Period shall
commence on the Enrollment Date and end with the next Exercise Date.
(n) "PURCHASE PRICE" shall mean 85% of the Fair Market Value of a
share of Common Stock on the Enrollment Date or on the Exercise Date,
whichever is lower; provided however, that the Purchase Price may be adjusted
by the Board pursuant to Section 20.
(o) "RESERVES" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and
the number of shares of Common Stock which have been authorized for issuance
under the Plan but not yet placed under option.
(p) "SUBSIDIARY" shall mean a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.
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(q) "TRADING DAY" shall mean a day on which national stock
exchanges and the Nasdaq System are open for trading.
3. ELIGIBILITY.
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of the capital stock of the
Company or of any Subsidiary, or (ii) to the extent that his or her rights to
purchase stock under all employee stock purchase plans of the Company and its
subsidiaries accrues at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) worth of stock (determined at the fair market value of the shares
at the time such option is granted) for each calendar year in which such
option is outstanding at any time.
4. OFFERING PERIODS. The Plan shall be implemented by consecutive,
overlapping Offering Periods with a new Offering Period commencing on the
first Trading Day on or after February 1 and August 1 each year, or on such
other date as the Board shall determine, and continuing thereafter until
terminated in accordance with Section 20 hereof; provided, however, that the
first Offering Period under the Plan shall commence with the first Trading
Day on or after the date on which the Securities and Exchange Commission
declares the Company's Registration Statement effective and ending on the
last Trading Day on or before July 31, 2001. The Board shall have the power
to change the duration of Offering Periods (including the commencement dates
thereof) with respect to future offerings without shareholder approval if
such change is announced at least five (5) days prior to the scheduled
beginning of the first Offering Period to be affected thereafter.
5. PARTICIPATION.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the
form of Exhibit A to this Plan and filing it with the Company's payroll
office prior to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll
in the Offering Period to which such authorization is applicable, unless
sooner terminated by the participant as provided in Section 10 hereof.
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6. PAYROLL DEDUCTIONS.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay
day during the Offering Period in an amount not exceeding ten (10%) of the
Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into
such account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate
of his or her payroll deductions during the Offering Period by completing or
filing with the Company a new subscription agreement authorizing a change in
payroll deduction rate. The Board may, in its discretion, limit the number
of participation rate changes during any Offering Period. The change in rate
shall be effective with the first full payroll period following five (5)
business days after the Company's receipt of the new subscription agreement
unless the Company elects to process a given change in participation more
quickly. A participant's subscription agreement shall remain in effect for
successive Offering Periods unless terminated as provided in Section 10
hereof.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to zero percent (0%) at any
time during a Purchase Period. Payroll deductions shall recommence at the
rate provided in such participant's subscription agreement at the beginning
of the first Purchase Period which is scheduled to end in the following
calendar year, unless terminated by the participant as provided in Section 10
hereof.
(e) At the time the option is exercised, in whole or in part, or
at the time some or all of the Company's Common Stock issued under the Plan
is disposed of, the participant must make adequate provision for the
Company's federal, state, or other tax withholding obligations, if any, which
arise upon the exercise of the option or the disposition of the Common Stock.
At any time, the Company may, but shall not be obligated to, withhold from
the participant's compensation the amount necessary for the Company to meet
applicable withholding obligations, including any withholding required to
make available to the Company any tax deductions or benefits attributable to
sale or early disposition of Common Stock by the Employee.
7. GRANT OF OPTION. On the Enrollment Date of each Offering Period,
each eligible Employee participating in such Offering Period shall be granted
an option to purchase on each Exercise Date during such Offering Period (at
the applicable Purchase Price) up to a number of shares of the Company's
Common Stock determined by dividing such Employee's payroll deductions
accumulated prior to such Exercise Date and retained in the Participant's
account as of the Exercise Date by the applicable Purchase Price; provided
that in no event shall an Employee be permitted to purchase during each
Purchase Period more than 5,000 shares of the Company's Common Stock (subject
to any adjustment pursuant to Section 19), and provided further that such
purchase shall be subject to the limitations set forth in Sections 3(b) and
12 hereof. The Board may, for future Offering Periods, increase or decrease,
in its absolute discretion, the maximum number of shares of
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the Company's Common Stock an Employee may purchase during each Purchase
Period of such Offering Period. Exercise of the option shall occur as
provided in Section 8 hereof, unless the participant has withdrawn pursuant
to Section 10 hereof. The option shall expire on the last day of the
Offering Period.
8. EXERCISE OF OPTION.
(a) Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or
her account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in
a participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to
purchase shares hereunder is exercisable only by him or her.
(b) If the Board determines that, on a given Exercise Date, the
number of shares with respect to which options are to be exercised may exceed
(i) the number of shares of Common Stock that were available for sale under
the Plan on the Enrollment Date of the applicable Offering Period, or (ii)
the number of shares available for sale under the Plan on such Exercise Date,
the Board may in its sole discretion (x) provide that the Company shall make
a pro rata allocation of the shares of Common Stock available for purchase on
such Enrollment Date or Exercise Date, as applicable, in as uniform a manner
as shall be practicable and as it shall determine in its sole discretion to
be equitable among all participants exercising options to purchase Common
Stock on such Exercise Date, and continue all Offering Periods then in
effect, or (y) provide that the Company shall make a pro rata allocation of
the shares available for purchase on such Enrollment Date or Exercise Date,
as applicable, in as uniform a manner as shall be practicable and as it shall
determine in its sole discretion to be equitable among all participants
exercising options to purchase Common Stock on such Exercise Date, and
terminate any or all Offering Periods then in effect pursuant to Section 20
hereof. The Company may make pro rata allocation of the shares available on
the Enrollment Date of any applicable Offering Period pursuant to the
preceding sentence, notwithstanding any authorization of additional shares
for issuance under the Plan by the Company's shareholders subsequent to such
Enrollment Date.
9. DELIVERY. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. WITHDRAWAL.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to
exercise his or her option under the Plan at any time by giving written
notice to the Company in the form of Exhibit B to this Plan. All of the
participant's payroll deductions credited to his or her account shall be paid
to such participant
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promptly after receipt of notice of withdrawal and such participant's option
for the Offering Period shall be automatically terminated, and no further
payroll deductions for the purchase of shares shall be made for such Offering
Period. If a participant withdraws from an Offering Period, payroll
deductions shall not resume at the beginning of the succeeding Offering
Period unless the participant delivers to the Company a new subscription
agreement.
(b) A participant's withdrawal from an Offering Period shall not
have any effect upon his or her eligibility to participate in any similar
plan which may hereafter be adopted by the Company or in succeeding Offering
Periods under this Plan.
11. TERMINATION OF EMPLOYMENT.
Upon a participant's ceasing to be an Employee, for any reason, he
or she shall be deemed to have elected to withdraw from the Plan and the
payroll deductions credited to such participant's account during the Offering
Period but not yet used to exercise the option shall be returned to such
participant or, in the case of his or her death, to the person or persons
entitled thereto under Section 15 hereof, and such participant's option shall
be automatically terminated. The preceding sentence notwithstanding, a
participant who receives payment in lieu of notice of termination of
employment shall be treated as continuing to be an Employee for the
participant's customary number of hours per week of employment during the
period in which the participant is subject to such payment in lieu of notice.
12. INTEREST. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. STOCK.
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be Five Hundred Thousand (500,000) shares, plus an annual increase to
be added on the first trading day on or after February 1 of each year during
the term of the Plan equal to the lesser of (i) 500,000 shares, (ii) 2.0% of
the outstanding shares on such date or (iii) a lesser amount determined by
the Board.
(b) The participant shall have no interest or voting right in
shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall
be registered in the name of the participant or in the name of the
participant and his or her spouse.
14. ADMINISTRATION. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision
and determination made by the Board or its committee shall, to the full
extent permitted by law, be final and binding upon all parties.
15. DESIGNATION OF BENEFICIARY.
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(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to an
Exercise Date on which the option is exercised but prior to delivery to such
participant of such shares and cash. In addition, a participant may file a
written designation of a beneficiary who is to receive any cash from the
participant's account under the Plan in the event of such participant's death
prior to exercise of the option. If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required
for such designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the
estate of the participant, or if no such executor or administrator has been
appointed (to the knowledge of the Company), the Company, in its discretion,
may deliver such shares and/or cash to the spouse or to any one or more
dependents or relatives of the participant, or if no spouse, dependent or
relative is known to the Company, then to such other person as the Company
may designate.
16. TRANSFERABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option
or to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any
such attempt at assignment, transfer, pledge or other disposition shall be
without effect, except that the Company may treat such act as an election to
withdraw funds from an Offering Period in accordance with Section 10 hereof.
17. USE OF FUNDS. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose,
and the Company shall not be obligated to segregate such payroll deductions.
18. REPORTS. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to
participating Employees at least annually, which statements shall set forth
the amounts of payroll deductions, the Purchase Price, the number of shares
purchased and the remaining cash balance, if any.
19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION,
LIQUIDATION, MERGER OR ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by
the shareholders of the Company, the Reserves, the maximum number of shares
each participant may purchase each Purchase Period (pursuant to Section 7),
as well as the price per share and the number of shares of Common Stock
covered by each option under the Plan which has not yet been exercised shall
be proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock resulting from a stock split, reverse stock
split, stock dividend, combination or reclassification of the Common Stock,
or any other increase or decrease in the number of shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be
deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that
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respect shall be final, binding and conclusive. Except as expressly provided
herein, 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 thereof shall be made with respect to, the number or
price of shares of Common Stock subject to an option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in
progress shall be shortened by setting a new Exercise Date (the "New Exercise
Date"), and shall terminate immediately prior to the consummation of such
proposed dissolution or liquidation, unless provided otherwise by the Board.
The New Exercise Date shall be before the date of the Company's proposed
dissolution or liquidation. The Board shall notify each participant in
writing, at least ten (10) business days prior to the New Exercise Date, that
the Exercise Date for the participant's option has been changed to the New
Exercise Date and that the participant's option shall be exercised
automatically on the New Exercise Date, unless prior to such date the
participant has withdrawn from the Offering Period as provided in Section 10
hereof.
(c) MERGER OR ASSET SALE. 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, each outstanding option shall be
assumed or an equivalent option substituted by the successor corporation or a
Parent or Subsidiary of the successor corporation. In the event that the
successor corporation refuses to assume or substitute for the option, any
Purchase Periods then in progress shall be shortened by setting a New
Exercise Date and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the
Company's proposed sale or merger. The Board shall notify each participant in
writing, at least ten (10) business days prior to the New Exercise Date, that
the Exercise Date for the participant's option has been changed to the New
Exercise Date and that the participant's option shall be exercised
automatically on the New Exercise Date, unless prior to such date the
participant has withdrawn from the Offering Period as provided in Section 10
hereof.
20. AMENDMENT OR TERMINATION.
(a) The Board of Directors of the Company may at any time and for
any reason terminate or amend the Plan. Except as provided in Section 19
hereof, no such termination can affect options previously granted, provided
that an Offering Period may be terminated by the Board of Directors on any
Exercise Date if the Board determines that the termination of the Offering
Period or the Plan is in the best interests of the Company and its
shareholders. Except as provided in Section 19 and this Section 20 hereof,
no amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Section 423 of the Code (or any successor rule or provision or
any other applicable law, regulation or stock exchange rule), the Company
shall obtain shareholder approval in such a manner and to such a degree as
required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods,
limit the frequency and/or number of changes in the amount withheld during an
Offering Period, establish the exchange ratio applicable to amounts withheld
in a currency other than U.S. dollars, permit payroll withholding in excess
of the amount designated by a
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<PAGE>
participant in order to adjust for delays or mistakes in the Company's
processing of properly completed withholding elections, establish reasonable
waiting and adjustment periods and/or accounting and crediting procedures to
ensure that amounts applied toward the purchase of Common Stock for each
participant properly correspond with amounts withheld from the participant's
Compensation, and establish such other limitations or procedures as the Board
(or its committee) determines in its sole discretion advisable which are
consistent with the Plan.
(c) In the event the Board determines that the ongoing operation
of the Plan may result in unfavorable financial accounting consequences, the
Board may, in its discretion and, to the extent necessary or desirable,
modify or amend the Plan to reduce or eliminate such accounting consequence
including, but not limited to:
(i) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
(ii) shortening any Offering Period so that Offering
Period ends on a new Exercise Date, including an Offering Period underway at
the time of the Board action; and
(iii) allocating shares.
Such modifications or amendments shall not require stockholder
approval or the consent of any Plan participants.
21. NOTICES. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the
location, or by the person, designated by the Company for the receipt thereof.
22. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
with respect to an option unless the exercise of such option and the issuance
and delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
As a condition to the exercise of an option, the Company 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 counsel for the Company, such a representation
is required by any of the aforementioned applicable provisions of law.
23. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten
(10) years unless sooner terminated under Section 20 hereof.
24. AUTOMATIC TRANSFER TO LOW PRICE OFFERING PERIOD. To the extent
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock
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on any Exercise Date in an Offering Period is lower than the Fair Market
Value of the Common Stock on the Enrollment Date of such Offering Period,
then all participants in such Offering Period shall be automatically
withdrawn from such Offering Period immediately after the exercise of their
option on such Exercise Date and automatically re-enrolled in the immediately
following Offering Period as of the first day thereof.
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EXHIBIT 10.17
TRAVELSCAPE.COM, INC.
JEFFREY A. MARQUIS EMPLOYMENT AGREEMENT
This Agreement is made by and between Travelscape.com, Inc. (the
"Company"), and Jeffrey A. Marquis ("Executive") as of May 20, 1999.
1. DUTIES AND SCOPE OF EMPLOYMENT.
(a) POSITIONS AND DUTIES. Executive shall serve as Chief Financial
Officer of the Company. Executive shall render such business and professional
services in the performance of his duties, consistent with Executive's position
within the Company, as shall reasonably be assigned to him by the Company's
Chief Executive Officer, Chief Operating Officer and Board of Directors (the
"Board"). The period of Executive's employment under this Agreement is referred
to herein as the "Employment Term."
(b) OBLIGATIONS. During the Employment Term, Executive shall devote
his full business efforts and time to the Company. Executive agrees, during the
Employment Term, not to actively engage in any other employment, occupation or
consulting activity for any direct or indirect remuneration without the prior
approval of the Board (which approval shall not be unreasonably withheld);
provided, however, that Executive may, without the approval of the Board, serve
in any capacity with any civic, educational or charitable organization, or as a
member of corporate Boards of Directors or committees thereof upon which
Executive currently serves.
2. EMPLOYEE BENEFITS. During the Employment Term, Executive shall be
eligible to participate in the employee benefit plans maintained by the Company
that are applicable to other senior management to the full extent provided for
under those plans.
3. AT-WILL EMPLOYMENT. Executive and the Company understand and
acknowledge that Executive's employment with the Company constitutes "at-will"
employment. Subject to the Company providing severance benefits as specified
herein, Executive and the Company acknowledge that this employment relationship
may be terminated at any time, upon written notice to the other party, with or
without good cause or for any or no cause, at the option either of the Company
or Executive.
4. COMPENSATION.
(a) BASE SALARY. While employed by the Company, the Company shall
pay the Executive as compensation for his services a base salary at the
annualized rate of $150,000 (the "Base Salary"). Such salary shall be paid
periodically in accordance with normal Company payroll practices and subject to
the usual, required withholding. The Base Salary shall be reevaluated yearly
<PAGE>
by the Compensation Committee of the Board (the "Committee") and may be
increased by the Committee in accordance with its normal practices.
(b) BONUSES. For each fiscal year of the Company, Executive shall be
eligible to receive a target bonus equal to 50% of Base Salary (the "Target
Bonus") based upon the achievement of performance criteria specified by the
Committee. For performance that exceeds target, Executive shall be entitled to a
maximum bonus equal to 100% of Base Salary, all as determined by the Committee.
The payment of any such bonus shall be subject to Executive's employment with
the Company through the end of such fiscal year (which year-end employment
requirement is further subject to the severance provisions hereof).
(c) EQUITY COMPENSATION. Executive shall be eligible for annual or
more frequent grants of stock options, as determined by the Comensation
Committee of the Board in accordance with its normal practices.
5. SEVERANCE.
(a) INVOLUNTARY TERMINATION OTHER THAN FOR CAUSE. In the event
that Executive's employment with the Company as set forth in this Agreement
is involuntarily terminated by the Company without "Cause" (as defined
below), then promptly following such termination of employment, Executive
shall (i) receive a lump-sum payment equal to 100% of the Base Salary (less
applicable withholding), (ii) receive all accrued vacation, expense
reimbursements and any other benefits due to Executive through the date of
termination of employment in accordance with established Company plans and
policies (less applicable withholding), (iii) be entitled to the immediate
vesting of any and all options granted under any stock option agreement(s),
and (iv) be entitled to other compensation and benefits as may be required by
law (for example, under Section 4980B of the Code).
(b) VOLUNTARY TERMINATION FOR GOOD REASON. In the event that
Executive's employment with the Company is voluntarily terminated by
Executive for "Good Reason" (as defined below), then promptly following such
termination of employment, Executive shall (i) receive a lump-sum payment
equal to 100% of the Base Salary (less applicable withholding), (ii) receive
all accrued vacation, expense reimbursements and any other benefits due to
Executive through the date of termination of employment in accordance with
established Company plans and policies, (iii) be entitled to the immediate
vesting of any and all options granted under any stock option agreement(s),
and (iv) be entitled to other compensation and benefits as may be required by
law (for example, under Section 4980B of the Code).
(c) INVOLUNTARY TERMINATION FOR CAUSE OR VOLUNTARY TERMINATION NOT
FOR GOOD REASON. In the event that Executive's employment with the Company is
involuntarily terminated by the Company for Cause, death or permanent disability
(within the meaning of Internal Revenue Code Section 22(e)(3) or any successor
provision), or is voluntarily terminated by Executive other than for Good
Reason, then Executive shall (i) receive the Base Salary through the date of
termination of employment, (ii) receive all accrued vacation, expense
reimbursements and any other benefits due to Executive through the date of
termination of employment in accordance with established Company
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plans and policies, and (iii) not be entitled to any other compensation or
benefits (including, without limitation, accelerated vesting of stock
options) from the Company except to the extent provided under the applicable
stock option agreement(s) or as may be required by law (for example, under
Section 4980B of the Code).
For purposes of this Agreement, "Cause" means severe intentional misconduct
that has a material adverse effect on the Company.
For purposes of this Agreement, "Good Reason" means (i) a reduction in
Executive's Base Salary, target bonus or benefits, (ii) a material reduction
in title, authority, status, obligations or responsibilities.
For purposes of this Agreement, "Change of Control" means the occurrence of
any of the following events: (i) Any "person" as such term is used in
Sections 13(d) and 14(d) Section 13(d) of the Securities Exchange Act of 1934,
as amended (the ("Exchange Act")) (other than the Company, a subsidiary of the
Company, a Company employee benefit plan, Timothy N. Poster or Thomas C.
Breitling) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the combined voting power of the
Company's then outstanding securities; or, (ii) the occurrence of a transaction
requiring stockholder approval, involving the sale of all or substantially all
of the assets of the Company or the merger of the Company with or into another
corporation.
6. GOLDEN PARACHUTE EXCISE TAX. In the event that the benefits
provided for in this Agreement or otherwise payable to Executive (including,
but not by way of limitation, any accelerated vesting on stock options)
constitute "parachute payments" within the meaning of Section 280G of the
Code and will be subject to the excise tax imposed by Section 4999 of the
Code, then Executive's severance benefits under Section 5 shall be (i)
delivered in full, or (ii) delivered as to such lesser extent which would
result in no portion of such severance benefits being subject to the Excise
Tax, whichever of the foregoing amounts, taking into account the applicable
federal, state and local income taxes and the Excise Tax, results in the
receipt by Executive on an after-tax basis, of the greatest amount of
severance benefits, notwithstanding that all or some portion of such
severance benefits may be taxable under Section 4999 of the Code. Unless the
Company and Executive otherwise agree in writing, any determination required
under this Section 6 shall be made in writing in good faith by the accounting
firm serving as the Company's independent public accountants immediately
prior to the Change of Control (the "Accountants"). For purposes of making
the calculations required by this Section 6, the Accountants may make
reasonable assumptions and approximations concerning applicable taxes and may
rely on reasonable, good faith interpretations concerning the application of
Sections 280G and 4999 of the Code. The Company and Executive shall furnish
to the Accountants such information and documents as the Accountants may
reasonably request in order to make a determination under this Section. The
Company shall bear all costs the Accountants may reasonably incur in
connection with any calculations contemplated by this Section 6.
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<PAGE>
7. ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of (a) the heirs, executors and legal representatives of Executive
upon Executive's death and (b) any successor of the Company. Any such
successor of the Company shall be deemed substituted for the Company under
the terms of this Agreement for all purposes. As used herein, "successor"
shall include any person, firm, corporation or other business entity which at
any time, whether by purchase, merger or otherwise, directly or indirectly
acquires all or substantially all of the assets or business of the Company.
None of the rights of Executive to receive any form of compensation payable
pursuant to this Agreement shall be assignable or transferable except through
a testamentary disposition or by the laws of descent and distribution upon
the death of Executive following termination without cause. Any attempted
assignment, transfer, conveyance or other disposition (other than as
aforesaid) of any interest in the rights of Executive to receive any form of
compensation hereunder shall be null and void.
8. NOTICES. All notices, requests, demands and other communications
called for hereunder shall be in writing and shall be deemed given if (i)
delivered personally, (ii) one (1) day after being sent by Federal Express or
a similar commercial overnight service, or (iii) three (3) days after being
mailed by registered or certified mail, return receipt requested, prepaid and
addressed to the parties or their successors in interest at the following
addresses, or at such other addresses as the parties may designate by written
notice in the manner aforesaid:
If to the Company:
Travelscape.com, Inc.
8951 W. Sahara Avenue Suite 100
Las Vegas, NV 89117
ATTN: Chief Executive Officer
If to Executive:
at the last residential address known by the Company.
9. SEVERABILITY. In the event that any provision hereof becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision.
10. NON-COMPETITION AND NON-SOLICITATION.
(a) For a period beginning on the Effective Date and ending 12 months
after the date on which Executive ceases to be employed by the Company for any
reason whatsoever, Executive, directly or indirectly, whether as employee,
owner, sole proprietor, partner, shareholder, director, member, consultant,
agent, founder, co-venturer or otherwise, will: (i) not engage, participate or
invest in any business activity anywhere in the world which develops,
manufactures or markets products or performs services which are competitive with
the products or services of the Company at the time of Executive's termination,
or products or services which the Company has
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<PAGE>
under development or which are the subject of active planning at the time of
Executive's termination; PROVIDED, HOWEVER, that Executive, may own as a
passive investor, publicly-traded securities of any corporation which
competes with the business of the Company so long as such securities do not,
in the aggregate, constitute more than 1% of any class of outstanding
securities of such corporations; (ii) not hire or attempt to employ, recruit
or otherwise solicit, induce or influence any person to leave employment with
the Company or its resellers or distributors and (iii) not directly or
indirectly solicit business from any of the Company's customers and users,
resellers or distributors on behalf of any business which competes with the
Company.
(b) Executive understands that the restrictions set forth in this
Section 10 are intended to protect the Company's interest in its "proprietary
information" (as such term may be defined in the Non-disclosure Agreement) and
establish customer relationships in good will, and agrees that such restrictions
are reasonable, necessary and appropriate for this purpose.
(c) Executive agrees that it would be difficult to measure any
damages caused by the Company which might result from any breach by Executive of
the promises set forth in this Section 10, and that in any event money damages
would be an inadequate remedy for any such breach. Accordingly, Executive agrees
that if Executive breaches, or proposes to breach, any portion of this Section
10, the Company shall be entitled, in addition to all other remedies that it may
have, to injunction or other appropriate equitable relief to restrain any such
breach without showing or proving any actual damage to the Company.
11. ENTIRE AGREEMENT. This Agreement represents the entire agreement and
understanding between the Company and Executive concerning Executive's
employment relationship with the Company, and supersedes and replaces any and
all prior agreements and understandings concerning Executive's employment
relationship with the Company.
12. ARBITRATION AND EQUITABLE RELIEF.
(a) Except as provided in Section 12(d) below, Executive agrees that
any dispute or controversy arising out of, relating to, or in connection with
this Agreement, or the interpretation, validity, construction, performance,
breach, or termination thereof shall be settled by arbitration to be held in
Clark County, Nevada, in accordance with the National Rules for the Resolution
of Employment Disputes then in effect of the American Arbitration Association
(the "Rules"). The arbitrator may grant injunctions or other relief in such
dispute or controversy. The decision of the arbitrator shall be final,
conclusive and binding on the parties to the arbitration. Judgment may be
entered on the arbitrator's decision in any court having jurisdiction.
(b) The arbitrator shall apply Nevada law to the merits of any
dispute or claim, without reference to rules of conflict of law. The
arbitration proceedings shall be governed by federal arbitration law and by the
Rules, without reference to state arbitration law. Executive hereby expressly
consents to the personal jurisdiction of the state and federal courts located in
Nevada for any action or proceeding arising from or relating to this Agreement
and/or relating to any arbitration in which the parties are participants.
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<PAGE>
(c) The Company and Executive shall each pay one-half of the costs
and expenses of such arbitration, and shall separately pay its counsel fees and
expenses.
(d) Executive understands that nothing in Section 12 modifies
Executive's at-will status. Either the Company or Executive can terminate the
employment relationship at any time, with or without cause.
(e) EXECUTIVE HAS READ AND UNDERSTANDS SECTION 12, WHICH DISCUSSES
ARBITRATION. EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, EXECUTIVE
AGREES TO SUBMIT ANY FUTURE CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION
WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE,
BREACH, OR TERMINATION THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION
CLAUSE CONSTITUTES A WAIVER OF EXECUTIVE'S RIGHT TO A JURY TRIAL AND RELATES TO
THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EXECUTIVE
RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, THE FOLLOWING CLAIMS:
(i) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF EMPLOYMENT;
BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT OF GOOD
FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED; NEGLIGENT OR INTENTIONAL
INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL MISREPRESENTATION;
NEGLIGENT OR INTENTIONAL INTERFERENCE WITH CONTRACT OR PROSPECTIVE ECONOMIC
ADVANTAGE; AND DEFAMATION;
(ii) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL STATE OR
MUNICIPAL STATUTE, INCLUDING, BUT NOT LIMITED TO, TITLE VII OF THE CIVIL RIGHTS
ACT OF 1964, THE CIVIL RIGHTS ACT OF 1991, THE AGE DISCRIMINATION IN EMPLOYMENT
ACT OF 1967, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIR LABOR
STANDARDS ACT, AND ANY LAW OF THE STATE OF NEVADA; AND
(iii) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND
REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.
13. LEGAL FEE REIMBURSEMENT. The Company agrees to pay Executive's
reasonable legal fees associated with entering into this Agreement upon
receiving invoices for such services.
14. NO ORAL MODIFICATION, CANCELLATION OR DISCHARGE. This Agreement may
only be amended, canceled or discharged in writing signed by Executive and the
Company.
15. WITHHOLDING. The Company shall be entitled to withhold, or cause to
be withheld, from payment any amount of withholding taxes required by law with
respect to payments made to Executive in connection with his employment
hereunder.
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<PAGE>
16. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Nevada (with the exception of its conflict of laws provisions).
17. EFFECTIVE DATE. This Agreement is effective May 20, 1999.
18. ACKNOWLEDGMENT. Executive acknowledges that he has had the
opportunity to discuss this matter with and obtain advice from his private
attorney, has had sufficient time to, and has carefully read and fully
understands all the provisions of this Agreement, and is knowingly and
voluntarily entering into this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
respective dates set forth below:
TRAVELSCAPE.COM, INC.
/s/ Timothy N. Poster
-----------------------------
Timothy N. Poster
Chairman and Chief Executive Officer
EXECUTIVE
/s/ Jeffrey A. Marquis
-----------------------------
Jeffrey A. Marquis
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EXHIBIT 10.18
TRAVELSCAPE.COM, INC.
MICHELLE K. DECKER EMPLOYMENT AGREEMENT
This Agreement is made by and between Travelscape.com, Inc. (the
"Company"), and Michelle K. Decker ("Executive") as of May 20, 1999.
1. DUTIES AND SCOPE OF EMPLOYMENT.
(a) POSITIONS AND DUTIES. Executive shall serve as Chief Technology
Officer of the Company. Executive shall render such business and professional
services in the performance of his duties, consistent with Executive's position
within the Company, as shall reasonably be assigned to him by the Company's
Chief Executive Officer, Chief Operating Officer and Board of Directors (the
"Board"). The period of Executive's employment under this Agreement is referred
to herein as the "Employment Term."
(b) OBLIGATIONS. During the Employment Term, Executive shall devote
his full business efforts and time to the Company. Executive agrees, during the
Employment Term, not to actively engage in any other employment, occupation or
consulting activity for any direct or indirect remuneration without the prior
approval of the Board (which approval shall not be unreasonably withheld);
provided, however, that Executive may, without the approval of the Board, serve
in any capacity with any civic, educational or charitable organization, or as a
member of corporate Boards of Directors or committees thereof upon which
Executive currently serves.
2. EMPLOYEE BENEFITS. During the Employment Term, Executive shall be
eligible to participate in the employee benefit plans maintained by the Company
that are applicable to other senior management to the full extent provided for
under those plans.
3. AT-WILL EMPLOYMENT. Executive and the Company understand and
acknowledge that Executive's employment with the Company constitutes "at-will"
employment. Subject to the Company providing severance benefits as specified
herein, Executive and the Company acknowledge that this employment relationship
may be terminated at any time, upon written notice to the other party, with or
without good cause or for any or no cause, at the option either of the Company
or Executive.
4. COMPENSATION.
(a) BASE SALARY. While employed by the Company, the Company shall
pay the Executive as compensation for his services a base salary at the
annualized rate of $100,000 (the "Base Salary"). Such salary shall be paid
periodically in accordance with normal Company payroll practices and subject to
the usual, required withholding. The Base Salary shall be reevaluated yearly
<PAGE>
by the Compensation Committee of the Board (the "Committee") and may be
increased by the Committee in accordance with its normal practices.
(b) BONUSES. For each fiscal year of the Company, Executive shall be
eligible to receive a target bonus equal to 50% of Base Salary (the "Target
Bonus") based upon the achievement of performance criteria specified by the
Committee. For performance that exceeds target, Executive shall be entitled to a
maximum bonus equal to 100% of Base Salary, all as determined by the Committee.
The payment of any such bonus shall be subject to Executive's employment with
the Company through the end of such fiscal year (which year-end employment
requirement is further subject to the severance provisions hereof).
(c) EQUITY COMPENSATION. Executive shall be eligible for annual or
more frequent grants of stock options, as determined by the Compensation
Committee of the Board in accordance with its normal practices.
5. SEVERANCE.
(a) INVOLUNTARY TERMINATION OTHER THAN FOR CAUSE. In the event
that Executive's employment with the Company as set forth in this Agreement
is involuntarily terminated by the Company without "Cause" (as defined
below), then promptly following such termination of employment, Executive
shall (i) receive a lump-sum payment equal to 100% of the Base Salary (less
applicable withholding), (ii) receive all accrued vacation, expense
reimbursements and any other benefits due to Executive through the date of
termination of employment in accordance with established Company plans and
policies (less applicable withholding), (iii) be entitled to the immediate
vesting of any and all options granted under any stock option agreement(s)
and (iv) be entitled to other compensation and benefits as may be required by
law (for example, under Section 4980B of the Code).
(b) VOLUNTARY TERMINATION FOR GOOD REASON. In the event that
Executive's employment with the Company is voluntarily terminated by
Executive for "Good Reason" (as defined below), then promptly following such
termination of employment, Executive shall (i) receive a lump-sum payment
equal to 100% of the Base Salary (less applicable withholding), (ii) receive
all accrued vacation, expense reimbursements and any other benefits due to
Executive through the date of termination of employment in accordance with
established Company plans and policies, (iii) be entitled to the immediate
vesting of any and all options granted under any stock option agreement(s),
and (iv) be entitled to other compensation and benefits as may be required by
law (for example, under Section 4980B of the Code).
(c) INVOLUNTARY TERMINATION FOR CAUSE OR VOLUNTARY TERMINATION NOT
FOR GOOD REASON. In the event that Executive's employment with the Company is
involuntarily terminated by the Company for Cause, death or permanent disability
(within the meaning of Internal Revenue Code Section 22(e)(3) or any successor
provision), or is voluntarily terminated by Executive other than for Good
Reason, then Executive shall (i) receive the Base Salary through the date of
termination of
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employment, (ii) receive all accrued vacation, expense reimbursements and any
other benefits due to Executive through the date of termination of employment
in accordance with established Company plans and policies, and (iii) not be
entitled to any other compensation or benefits (including, without
limitation, accelerated vesting of stock options) from the Company except to
the extent provided under the applicable stock option agreement(s) or as may
be required by law (for example, under Section 4980B of the Code).
For purposes of this Agreement, "Cause" means severe intentional misconduct
that has a material adverse effect on the Company.
For purposes of this Agreement, "Good Reason" means (i) a reduction in
Executive's Base Salary, target bonus or benefits, (ii) a material reduction
in title, authority, status, obligations or responsibilities.
For purposes of this Agreement, "Change of Control" means the occurrence of
any of the following events: (i) Any "person" as such term is used in
Sections 13(d) and 14(d) Section 13(d) of the Securities Exchange Act of 1934,
as amended (the ("Exchange Act")) (other than the Company, a subsidiary of the
Company, a Company employee benefit plan, Timothy N. Poster or Thomas C.
Breitling) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the combined voting power of the
Company's then outstanding securities; or, (ii) the occurrence of a transaction
requiring stockholder approval, involving the sale of all or substantially all
of the assets of the Company or the merger of the Company with or into another
corporation.
6. GOLDEN PARACHUTE EXCISE TAX. In the event that the benefits provided
for in this Agreement or otherwise payable to Executive (including, but not by
way of limitation, any accelerated vesting on stock options) constitute
"parachute payments" within the meaning of Section 280G of the Code and will be
subject to the excise tax imposed by Section 4999 of the Code, then Executive's
severance benefits under Section 5 shall be (i) delivered in full, or
(ii) delivered as to such lesser extent which would result in no portion of such
severance benefits being subject to the Excise Tax, whichever of the foregoing
amounts, taking into account the applicable federal, state and local income
taxes and the Excise Tax, results in the receipt by Executive on an after-tax
basis, of the greatest amount of severance benefits, notwithstanding that all or
some portion of such severance benefits may be taxable under Section 4999 of the
Code. Unless the Company and Executive otherwise agree in writing, any
determination required under this Section 6 shall be made in writing in good
faith by the accounting firm serving as the Company's independent public
accountants immediately prior to the Change of Control (the "Accountants"). For
purposes of making the calculations required by this Section 6, the Accountants
may make reasonable assumptions and approximations concerning applicable taxes
and may rely on reasonable, good faith interpretations concerning the
application of Sections 280G and 4999 of the Code. The Company and Executive
shall furnish to the Accountants such information and documents as the
Accountants may reasonably
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<PAGE>
request in order to make a determination under this Section. The Company
shall bear all costs the Accountants may reasonably incur in connection with
any calculations contemplated by this Section 6.
7. ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of (a) the heirs, executors and legal representatives of Executive upon
Executive's death and (b) any successor of the Company. Any such successor of
the Company shall be deemed substituted for the Company under the terms of this
Agreement for all purposes. As used herein, "successor" shall include any
person, firm, corporation or other business entity which at any time, whether by
purchase, merger or otherwise, directly or indirectly acquires all or
substantially all of the assets or business of the Company. None of the rights
of Executive to receive any form of compensation payable pursuant to this
Agreement shall be assignable or transferable except through a testamentary
disposition or by the laws of descent and distribution upon the death of
Executive following termination without cause. Any attempted assignment,
transfer, conveyance or other disposition (other than as aforesaid) of any
interest in the rights of Executive to receive any form of compensation
hereunder shall be null and void.
8. NOTICES. All notices, requests, demands and other communications
called for hereunder shall be in writing and shall be deemed given if
(i) delivered personally, (ii) one (1) day after being sent by Federal Express
or a similar commercial overnight service, or (iii) three (3) days after being
mailed by registered or certified mail, return receipt requested, prepaid and
addressed to the parties or their successors in interest at the following
addresses, or at such other addresses as the parties may designate by written
notice in the manner aforesaid:
If to the Company:
Travelscape.com, Inc.
8951 W. Sahara Avenue Suite 100
Las Vegas, NV 89117
ATTN: Chief Executive Officer
If to Executive:
at the last residential address known by the Company.
9. SEVERABILITY. In the event that any provision hereof becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision.
10. NON-COMPETITION AND NON-SOLICITATION.
(a) For a period beginning on the Effective Date and ending 36 months
after the date on which Executive ceases to be employed by the Company for any
reason whatsoever,
-4-
<PAGE>
Executive, directly or indirectly, whether as employee, owner, sole
proprietor, partner, shareholder, director, member, consultant, agent,
founder, co-venturer or otherwise, will: (i) not engage, participate or
invest in any business activity anywhere in the world which develops,
manufactures or markets products or performs services which are competitive
with the products or services of the Company at the time of Executive's
termination, or products or services which the Company has under development
or which are the subject of active planning at the time of Executive's
termination; PROVIDED, HOWEVER, that Executive, may own as a passive
investor, publicly-traded securities of any corporation which competes with
the business of the Company so long as such securities do not, in the
aggregate, constitute more than 1% of any class of outstanding securities of
such corporations; (ii) not hire or attempt to employ, recruit or otherwise
solicit, induce or influence any person to leave employment with the Company
or its resellers or distributors and (iii) not directly or indirectly solicit
business from any of the Company's customers and users, resellers or
distributors on behalf of any business which competes with the Company.
(b) Executive understands that the restrictions set forth in this
Section 10 are intended to protect the Company's interest in its "proprietary
information" (as such term may be defined in the Non-disclosure Agreement) and
establish customer relationships in good will, and agrees that such restrictions
are reasonable, necessary and appropriate for this purpose.
(c) Executive agrees that it would be difficult to measure any
damages caused by the Company which might result from any breach by Executive of
the promises set forth in this Section 10, and that in any event money damages
would be an inadequate remedy for any such breach. Accordingly, Executive agrees
that if Executive breaches, or proposes to breach, any portion of this Section
10, the Company shall be entitled, in addition to all other remedies that it may
have, to injunction or other appropriate equitable relief to restrain any such
breach without showing or proving any actual damage to the Company.
11. ENTIRE AGREEMENT. This Agreement represents the entire agreement and
understanding between the Company and Executive concerning Executive's
employment relationship with the Company, and supersedes and replaces any and
all prior agreements and understandings concerning Executive's employment
relationship with the Company.
12. ARBITRATION AND EQUITABLE RELIEF.
(a) Except as provided in Section 12(d) below, Executive agrees that
any dispute or controversy arising out of, relating to, or in connection with
this Agreement, or the interpretation, validity, construction, performance,
breach, or termination thereof shall be settled by arbitration to be held in
Clark County, Nevada, in accordance with the National Rules for the Resolution
of Employment Disputes then in effect of the American Arbitration Association
(the "Rules"). The arbitrator may grant injunctions or other relief in such
dispute or controversy. The decision of the arbitrator shall be final,
conclusive and binding on the parties to the arbitration. Judgment may be
entered on the arbitrator's decision in any court having jurisdiction.
-5-
<PAGE>
(b) The arbitrator shall apply Nevada law to the merits of any
dispute or claim, without reference to rules of conflict of law. The
arbitration proceedings shall be governed by federal arbitration law and by the
Rules, without reference to state arbitration law. Executive hereby expressly
consents to the personal jurisdiction of the state and federal courts located in
Nevada for any action or proceeding arising from or relating to this Agreement
and/or relating to any arbitration in which the parties are participants.
(c) The Company and Executive shall each pay one-half of the costs
and expenses of such arbitration, and shall separately pay its counsel fees and
expenses.
(d) Executive understands that nothing in Section 12 modifies
Executive's at-will status. Either the Company or Executive can terminate the
employment relationship at any time, with or without cause.
(e) EXECUTIVE HAS READ AND UNDERSTANDS SECTION 12, WHICH DISCUSSES
ARBITRATION. EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, EXECUTIVE
AGREES TO SUBMIT ANY FUTURE CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION
WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE,
BREACH, OR TERMINATION THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION
CLAUSE CONSTITUTES A WAIVER OF EXECUTIVE'S RIGHT TO A JURY TRIAL AND RELATES TO
THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EXECUTIVE
RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, THE FOLLOWING CLAIMS:
(i) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF EMPLOYMENT;
BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT OF GOOD
FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED; NEGLIGENT OR INTENTIONAL
INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL MISREPRESENTATION;
NEGLIGENT OR INTENTIONAL INTERFERENCE WITH CONTRACT OR PROSPECTIVE ECONOMIC
ADVANTAGE; AND DEFAMATION.
(ii) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL STATE OR
MUNICIPAL STATUTE, INCLUDING, BUT NOT LIMITED TO, TITLE VII OF THE CIVIL RIGHTS
ACT OF 1964, THE CIVIL RIGHTS ACT OF 1991, THE AGE DISCRIMINATION IN EMPLOYMENT
ACT OF 1967, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIR LABOR
STANDARDS ACT, AND ANY LAW OF THE STATE OF NEVADA; AND
(iii) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND
REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.
-6-
<PAGE>
13. LEGAL FEE REIMBURSEMENT. The Company agrees to pay Executive's
reasonable legal fees associated with entering into this Agreement upon
receiving invoices for such services.
14. NO ORAL MODIFICATION, CANCELLATION OR DISCHARGE. This Agreement may
only be amended, canceled or discharged in writing signed by Executive and the
Company.
15. WITHHOLDING. The Company shall be entitled to withhold, or cause to
be withheld, from payment any amount of withholding taxes required by law with
respect to payments made to Executive in connection with his employment
hereunder.
16. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Nevada (with the exception of its conflict of laws provisions).
17. EFFECTIVE DATE. This Agreement is effective May 20, 1999.
18. ACKNOWLEDGMENT. Executive acknowledges that he has had the
opportunity to discuss this matter with and obtain advice from his private
attorney, has had sufficient time to, and has carefully read and fully
understands all the provisions of this Agreement, and is knowingly and
voluntarily entering into this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
respective dates set forth below:
TRAVELSCAPE.COM, INC.
/s/ Timothy N. Poster
-----------------------------
Timothy N. Poster
Chairman and Chief Executive Officer
EXECUTIVE
/s/ Michelle K. Decker
-----------------------------
Michelle K. Decker
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<PAGE>
EXHIBIT 10.19
TRAVELSCAPE.COM, INC.
STEVEN C. SARNER EMPLOYMENT AGREEMENT
This Agreement is made by and between Travelscape.com, Inc. (the
"Company"), and Steven C. Sarner ("Executive") as of May 20, 1999.
1. DUTIES AND SCOPE OF EMPLOYMENT.
(a) POSITIONS AND DUTIES. Executive shall serve as Vice President -
Marketing of the Company. Executive shall render such business and professional
services in the performance of his duties, consistent with Executive's position
within the Company, as shall reasonably be assigned to him by the Company's
Chief Executive Officer, Chief Operating Officer and Board of Directors (the
"Board"). The period of Executive's employment under this Agreement is referred
to herein as the "Employment Term."
(b) OBLIGATIONS. During the Employment Term, Executive shall devote
his full business efforts and time to the Company. Executive agrees, during the
Employment Term, not to actively engage in any other employment, occupation or
consulting activity for any direct or indirect remuneration without the prior
approval of the Board (which approval shall not be unreasonably withheld);
provided, however, that Executive may, without the approval of the Board, serve
in any capacity with any civic, educational or charitable organization, or as a
member of corporate Boards of Directors or committees thereof upon which
Executive currently serves.
2. EMPLOYEE BENEFITS. During the Employment Term, Executive shall be
eligible to participate in the employee benefit plans maintained by the Company
that are applicable to other senior management to the full extent provided for
under those plans.
3. AT-WILL EMPLOYMENT. Executive and the Company understand and
acknowledge that Executive's employment with the Company constitutes "at-will"
employment. Subject to the Company providing severance benefits as specified
herein, Executive and the Company acknowledge that this employment relationship
may be terminated at any time, upon written notice to the other party, with or
without good cause or for any or no cause, at the option either of the Company
or Executive.
4. COMPENSATION.
(a) BASE SALARY. While employed by the Company, the Company shall
pay the Executive as compensation for his services a base salary at the
annualized rate of $108,000 (the "Base Salary"). Such salary shall be paid
periodically in accordance with normal Company payroll practices and subject to
the usual, required withholding. The Base Salary shall be reevaluated yearly
<PAGE>
by the Compensation Committee of the Board (the "Committee") and may be
increased by the Committee in accordance with its normal practices.
(b) BONUSES. For each fiscal year of the Company, Executive shall be
eligible to receive a target bonus equal to 50% of Base Salary (the "Target
Bonus") based upon the achievement of performance criteria specified by the
Committee. For performance that exceeds target, Executive shall be entitled to a
maximum bonus equal to 100% of Base Salary, all as determined by the Committee.
The payment of any such bonus shall be subject to Executive's employment with
the Company through the end of such fiscal year (which year-end employment
requirement is further subject to the severance provisions hereof).
(c) EQUITY COMPENSATION. Executive shall be eligible for annual or
more frequent grants of stock options, as determined by the Compensation
Committee of the Board in accordance with its normal practices.
5. SEVERANCE.
(a) INVOLUNTARY TERMINATION OTHER THAN FOR CAUSE. In the event
that Executive's employment with the Company is involuntarily terminated by
the Company without "Cause" (as defined below), then promptly following such
termination of employment, Executive shall (i) receive a lump-sum payment
equal to 100% of the Base Salary (less applicable withholding), (ii) receive
all accrued vacation, expense reimbursements and any other benefits due to
Executive through the date of termination of employment in accordance with
established Company plans and policies (less applicable withholding), (iii)
be entitled to the immediate vesting of any and all options granted under any
stock option agreement(s), and (iv) be entitled to other compensation and
benefits as may be required by law (for example, under Section 4980B of the
Code).
(b) VOLUNTARY TERMINATION FOR GOOD REASON. In the event that
Executive's employment with the Company is voluntarily terminated by
Executive for "Good Reason" (as defined below), then promptly following such
termination of employment, Executive shall (i) receive a lump-sum payment
equal to 100% of the Base Salary (less applicable withholding), (ii) receive
all accrued vacation, expense reimbursements and any other benefits due to
Executive through the date of termination of employment in accordance with
established Company plans and policies, (iii) be entitled to the immediate
vesting of any and all options granted under any stock option agreement(s),
and, (iv) be entitled to other compensation and benefits as may be required
by law (for example, under Section 4980B of the Code).
(c) INVOLUNTARY TERMINATION FOR CAUSE OR VOLUNTARY TERMINATION NOT
FOR GOOD REASON. In the event that Executive's employment with the Company is
involuntarily terminated by the Company for Cause, death or permanent disability
(within the meaning of Internal Revenue Code Section 22(e)(3) or any successor
provision), or is voluntarily terminated by Executive other than for Good
Reason, then Executive shall (i) receive the Base Salary through the date of
termination of
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<PAGE>
employment, (ii) receive all accrued vacation, expense reimbursements and any
other benefits due to Executive through the date of termination of employment
in accordance with established Company plans and policies, and (iii) not be
entitled to any other compensation or benefits (including, without
limitation, accelerated vesting of stock options) from the Company except to
the extent provided under the applicable stock option agreement(s) or as may
be required by law (for example, under Section 4980B of the Code).
For purposes of this Agreement, "Cause" means severe intentional misconduct
that has a material adverse effect on the Company.
For purposes of this Agreement, "Good Reason" means (i) a reduction in
Executive's Base Salary, target bonus or benefits, (ii) a material reduction
in title, authority, status, obligations or responsibilities.
For purposes of this Agreement, "Change of Control" means the occurrence of
any of the following events: (i) Any "person" as such term is used in
Sections 13(d) and 14(d) Section 13(d) of the Securities Exchange Act of 1934,
as amended (the ("Exchange Act")) (other than the Company, a subsidiary of the
Company, a Company employee benefit plan, Timothy N. Poster or Thomas C.
Breitling) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the combined voting power of the
Company's then outstanding securities; or, (ii) the occurrence of a transaction
requiring stockholder approval, involving the sale of all or substantially all
of the assets of the Company or the merger of the Company with or into another
corporation.
6. GOLDEN PARACHUTE EXCISE TAX. In the event that the benefits provided
for in this Agreement or otherwise payable to Executive (including, but not by
way of limitation, any accelerated vesting on stock options) constitute
"parachute payments" within the meaning of Section 280G of the Code and will be
subject to the excise tax imposed by Section 4999 of the Code, then Executive's
severance benefits under Section 5 shall be (i) delivered in full, or
(ii) delivered as to such lesser extent which would result in no portion of such
severance benefits being subject to the Excise Tax, whichever of the foregoing
amounts, taking into account the applicable federal, state and local income
taxes and the Excise Tax, results in the receipt by Executive on an after-tax
basis, of the greatest amount of severance benefits, notwithstanding that all or
some portion of such severance benefits may be taxable under Section 4999 of the
Code. Unless the Company and Executive otherwise agree in writing, any
determination required under this Section 6 shall be made in writing in good
faith by the accounting firm serving as the Company's independent public
accountants immediately prior to the Change of Control (the "Accountants"). For
purposes of making the calculations required by this Section 6, the Accountants
may make reasonable assumptions and approximations concerning applicable taxes
and may rely on reasonable, good faith interpretations concerning the
application of Sections 280G and 4999 of the Code. The Company and Executive
shall furnish to the Accountants such information and documents as the
Accountants may reasonably
-3-
<PAGE>
request in order to make a determination under this Section. The Company
shall bear all costs the Accountants may reasonably incur in connection with
any calculations contemplated by this Section 6.
7. ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of (a) the heirs, executors and legal representatives of Executive upon
Executive's death and (b) any successor of the Company. Any such successor of
the Company shall be deemed substituted for the Company under the terms of this
Agreement for all purposes. As used herein, "successor" shall include any
person, firm, corporation or other business entity which at any time, whether by
purchase, merger or otherwise, directly or indirectly acquires all or
substantially all of the assets or business of the Company. None of the rights
of Executive to receive any form of compensation payable pursuant to this
Agreement shall be assignable or transferable except through a testamentary
disposition or by the laws of descent and distribution upon the death of
Executive following termination without cause. Any attempted assignment,
transfer, conveyance or other disposition (other than as aforesaid) of any
interest in the rights of Executive to receive any form of compensation
hereunder shall be null and void.
8. NOTICES. All notices, requests, demands and other communications
called for hereunder shall be in writing and shall be deemed given if
(i) delivered personally, (ii) one (1) day after being sent by Federal Express
or a similar commercial overnight service, or (iii) three (3) days after being
mailed by registered or certified mail, return receipt requested, prepaid and
addressed to the parties or their successors in interest at the following
addresses, or at such other addresses as the parties may designate by written
notice in the manner aforesaid:
If to the Company:
Travelscape.com, Inc.
8951 W. Sahara Avenue Suite 100
Las Vegas, NV 89117
ATTN: Chief Executive Officer
If to Executive:
at the last residential address known by the Company.
9. SEVERABILITY. In the event that any provision hereof becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision.
10. NON-COMPETITION AND NON-SOLICITATION.
(a) For a period beginning on the Effective Date and ending 36 months
after the date on which Executive ceases to be employed by the Company for any
reason whatsoever,
-4-
<PAGE>
Executive, directly or indirectly, whether as employee, owner, sole
proprietor, partner, shareholder, director, member, consultant, agent,
founder, co-venturer or otherwise, will: (i) not engage, participate or
invest in any business activity anywhere in the world which develops,
manufactures or markets products or performs services which are competitive
with the products or services of the Company at the time of Executive's
termination, or products or services which the Company has under development
or which are the subject of active planning at the time of Executive's
termination; PROVIDED, HOWEVER, that Executive, may own as a passive
investor, publicly-traded securities of any corporation which competes with
the business of the Company so long as such securities do not, in the
aggregate, constitute more than 1% of any class of outstanding securities of
such corporations; (ii) not hire or attempt to employ, recruit or otherwise
solicit, induce or influence any person to leave employment with the Company
or its resellers or distributors and (iii) not directly or indirectly solicit
business from any of the Company's customers and users, resellers or
distributors on behalf of any business which competes with the Company.
(b) Executive understands that the restrictions set forth in this
Section 10 are intended to protect the Company's interest in its "proprietary
information" (as such term may be defined in the Non-disclosure Agreement) and
establish customer relationships in good will, and agrees that such restrictions
are reasonable, necessary and appropriate for this purpose.
(c) Executive agrees that it would be difficult to measure any
damages caused by the Company which might result from any breach by Executive of
the promises set forth in this Section 10, and that in any event money damages
would be an inadequate remedy for any such breach. Accordingly, Executive agrees
that if Executive breaches, or proposes to breach, any portion of this Section
10, the Company shall be entitled, in addition to all other remedies that it may
have, to injunction or other appropriate equitable relief to restrain any such
breach without showing or proving any actual damage to the Company.
11. ENTIRE AGREEMENT. This Agreement represents the entire agreement and
understanding between the Company and Executive concerning Executive's
employment relationship with the Company, and supersedes and replaces any and
all prior agreements and understandings concerning Executive's employment
relationship with the Company.
12. ARBITRATION AND EQUITABLE RELIEF.
(a) Except as provided in Section 12(d) below, Executive agrees that
any dispute or controversy arising out of, relating to, or in connection with
this Agreement, or the interpretation, validity, construction, performance,
breach, or termination thereof shall be settled by arbitration to be held in
Clark County, Nevada, in accordance with the National Rules for the Resolution
of Employment Disputes then in effect of the American Arbitration Association
(the "Rules"). The arbitrator may grant injunctions or other relief in such
dispute or controversy. The decision of the arbitrator shall be final,
conclusive and binding on the parties to the arbitration. Judgment may be
entered on the arbitrator's decision in any court having jurisdiction.
-5-
<PAGE>
(b) The arbitrator shall apply Nevada law to the merits of any
dispute or claim, without reference to rules of conflict of law. The
arbitration proceedings shall be governed by federal arbitration law and by the
Rules, without reference to state arbitration law. Executive hereby expressly
consents to the personal jurisdiction of the state and federal courts located in
Nevada for any action or proceeding arising from or relating to this Agreement
and/or relating to any arbitration in which the parties are participants.
(c) The Company and Executive shall each pay one-half of the costs
and expenses of such arbitration, and shall separately pay its counsel fees and
expenses.
(d) Executive understands that nothing in Section 12 modifies
Executive's at-will status. Either the Company or Executive can terminate the
employment relationship at any time, with or without cause.
(e) EXECUTIVE HAS READ AND UNDERSTANDS SECTION 12, WHICH DISCUSSES
ARBITRATION. EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, EXECUTIVE
AGREES TO SUBMIT ANY FUTURE CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION
WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE,
BREACH, OR TERMINATION THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION
CLAUSE CONSTITUTES A WAIVER OF EXECUTIVE'S RIGHT TO A JURY TRIAL AND RELATES TO
THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EXECUTIVE
RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, THE FOLLOWING CLAIMS:
(i) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF EMPLOYMENT;
BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT OF GOOD
FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED; NEGLIGENT OR INTENTIONAL
INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL MISREPRESENTATION;
NEGLIGENT OR INTENTIONAL INTERFERENCE WITH CONTRACT OR PROSPECTIVE ECONOMIC
ADVANTAGE; AND DEFAMATION.
(ii) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL STATE OR
MUNICIPAL STATUTE, INCLUDING, BUT NOT LIMITED TO, TITLE VII OF THE CIVIL RIGHTS
ACT OF 1964, THE CIVIL RIGHTS ACT OF 1991, THE AGE DISCRIMINATION IN EMPLOYMENT
ACT OF 1967, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIR LABOR
STANDARDS ACT, AND ANY LAW OF THE STATE OF NEVADA; AND
(iii) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND
REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.
-6-
<PAGE>
13. LEGAL FEE REIMBURSEMENT. The Company agrees to pay Executive's
reasonable legal fees associated with entering into this Agreement upon
receiving invoices for such services.
14. NO ORAL MODIFICATION, CANCELLATION OR DISCHARGE. This Agreement may
only be amended, canceled or discharged in writing signed by Executive and the
Company.
15. WITHHOLDING. The Company shall be entitled to withhold, or cause to
be withheld, from payment any amount of withholding taxes required by law with
respect to payments made to Executive in connection with his employment
hereunder.
16. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Nevada (with the exception of its conflict of laws provisions).
17. EFFECTIVE DATE. This Agreement is effective May 20, 1999.
18. ACKNOWLEDGMENT. Executive acknowledges that he has had the
opportunity to discuss this matter with and obtain advice from his private
attorney, has had sufficient time to, and has carefully read and fully
understands all the provisions of this Agreement, and is knowingly and
voluntarily entering into this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
respective dates set forth below:
TRAVELSCAPE.COM, INC.
/s/ Timothy N. Poster
-----------------------------
Timothy N. Poster
Chairman and Chief Executive Officer
EXECUTIVE
/s/ Steven C. Sarner
-----------------------------
Steven C. Sarner
-7-
<PAGE>
EXHIBIT 10.20
TRAVELSCAPE.COM, INC.
JOSE L. YOFE EMPLOYMENT AGREEMENT
This Agreement is made by and between Travelscape.com, Inc. (the
"Company"), and Jose L. Yofe ("Executive") as of May 20, 1999.
1. DUTIES AND SCOPE OF EMPLOYMENT.
(a) POSITIONS AND DUTIES. Executive shall serve as Vice President -
International Product Development of the Company. Executive shall render such
business and professional services in the performance of his duties, consistent
with Executive's position within the Company, as shall reasonably be assigned to
him by the Company's Chief Executive Officer, Chief Operating Officer and Board
of Directors (the "Board"). The period of Executive's employment under this
Agreement is referred to herein as the "Employment Term."
(b) OBLIGATIONS. During the Employment Term, Executive shall devote
his full business efforts and time to the Company. Executive agrees, during the
Employment Term, not to actively engage in any other employment, occupation or
consulting activity for any direct or indirect remuneration without the prior
approval of the Board (which approval shall not be unreasonably withheld);
provided, however, that Executive may, without the approval of the Board, serve
in any capacity with any civic, educational or charitable organization, or as a
member of corporate Boards of Directors or committees thereof upon which
Executive currently serves.
2. EMPLOYEE BENEFITS. During the Employment Term, Executive shall be
eligible to participate in the employee benefit plans maintained by the Company
that are applicable to other senior management to the full extent provided for
under those plans.
3. AT-WILL EMPLOYMENT. Executive and the Company understand and
acknowledge that Executive's employment with the Company constitutes "at-will"
employment. Subject to the Company providing severance benefits as specified
herein, Executive and the Company acknowledge that this employment relationship
may be terminated at any time, upon written notice to the other party, with or
without good cause or for any or no cause, at the option either of the Company
or Executive.
4. COMPENSATION.
(a) BASE SALARY. While employed by the Company, the Company shall
pay the Executive as compensation for his services a base salary at the
annualized rate of $100,000 (the "Base Salary"). Such salary shall be paid
periodically in accordance with normal Company payroll practices and subject to
the usual, required withholding. The Base Salary shall be reevaluated yearly
<PAGE>
by the Compensation Committee of the Board (the "Committee") and may be
increased by the Committee in accordance with its normal practices.
(b) BONUSES. For each fiscal year of the Company, Executive shall be
eligible to receive a target bonus equal to 50% of Base Salary (the "Target
Bonus") based upon the achievement of performance criteria specified by the
Committee. For performance that exceeds target, Executive shall be entitled to a
maximum bonus equal to 100% of Base Salary, all as determined by the Committee.
The payment of any such bonus shall be subject to Executive's employment with
the Company through the end of such fiscal year (which year-end employment
requirement is further subject to the severance provisions hereof).
(c) EQUITY COMPENSATION. Executive shall be eligible for annual or
more frequent grants of stock options, as determined by the Compensation
Committee of the Board in accordance with its normal practices.
5. SEVERANCE.
(a) INVOLUNTARY TERMINATION OTHER THAN FOR CAUSE. In the event
that Executive's employment with the Company is involuntarily terminated by
the Company without "Cause" (as defined below), then promptly following such
termination of employment, Executive shall (i) receive a lump-sum payment
equal to 100% of the Base Salary (less applicable withholding), (ii) receive
all accrued vacation, expense reimbursements and any other benefits due to
Executive through the date of termination of employment in accordance with
established Company plans and policies (less applicable withholding), (iii)
be entitled to the immediate vesting of any and all options granted under any
stock option agreement(s), and (iv) be entitled to other compensation and
benefits as may be required by law (for example, under Section 4980B of the
Code).
(b) VOLUNTARY TERMINATION FOR GOOD REASON. In the event that
Executive's employment with the Company is voluntarily terminated by
Executive for "Good Reason" (as defined below), then promptly following such
termination of employment, Executive shall (i) receive a lump-sum payment
equal to 100% of the Base Salary (less applicable withholding), (ii) receive
all accrued vacation, expense reimbursements and any other benefits due to
Executive through the date of termination of employment in accordance with
established Company plans and policies, (iii) be entitled to the immediate
vesting of any and all options granted under any stock option agreement(s),
and (iv) be entitled to other compensation and benefits as may be required by
law (for example, under Section 4980B of the Code).
(c) INVOLUNTARY TERMINATION FOR CAUSE OR VOLUNTARY TERMINATION NOT
FOR GOOD REASON. In the event that Executive's employment with the Company is
involuntarily terminated by the Company for Cause, death or permanent disability
(within the meaning of Internal Revenue Code Section 22(e)(3) or any successor
provision), or is voluntarily terminated by Executive other than for Good
Reason, then Executive shall (i) receive the Base Salary through the date of
termination of
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<PAGE>
employment, (ii) receive all accrued vacation, expense reimbursements and any
other benefits due to Executive through the date of termination of employment
in accordance with established Company plans and policies, and (iii) not be
entitled to any other compensation or benefits (including, without
limitation, accelerated vesting of stock options) from the Company except to
the extent provided under the applicable stock option agreement(s) or as may
be required by law (for example, under Section 4980B of the Code).
For purposes of this Agreement, "Cause" means severe intentional misconduct
that has a material adverse effect on the Company.
For purposes of this Agreement, "Good Reason" means (i) a reduction in
Executive's Base Salary, target bonus or benefits, (ii) a material reduction
in title, authority, status, obligations or responsibilities.
For purposes of this Agreement, "Change of Control" means the occurrence of
any of the following events: (i) Any "person" as such term is used in
Sections 13(d) and 14(d) Section 13(d) of the Securities Exchange Act of 1934,
as amended (the ("Exchange Act")) (other than the Company, a subsidiary of the
Company, a Company employee benefit plan, Timothy N. Poster or Thomas C.
Breitling) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the combined voting power of the
Company's then outstanding securities; or, (ii) the occurrence of a transaction
requiring stockholder approval, involving the sale of all or substantially all
of the assets of the Company or the merger of the Company with or into another
corporation.
6. GOLDEN PARACHUTE EXCISE TAX. In the event that the benefits provided
for in this Agreement or otherwise payable to Executive (including, but not by
way of limitation, any accelerated vesting on stock options) constitute
"parachute payments" within the meaning of Section 280G of the Code and will be
subject to the excise tax imposed by Section 4999 of the Code, then Executive's
severance benefits under Section 5 shall be (i) delivered in full, or
(ii) delivered as to such lesser extent which would result in no portion of such
severance benefits being subject to the Excise Tax, whichever of the foregoing
amounts, taking into account the applicable federal, state and local income
taxes and the Excise Tax, results in the receipt by Executive on an after-tax
basis, of the greatest amount of severance benefits, notwithstanding that all or
some portion of such severance benefits may be taxable under Section 4999 of the
Code. Unless the Company and Executive otherwise agree in writing, any
determination required under this Section 6 shall be made in writing in good
faith by the accounting firm serving as the Company's independent public
accountants immediately prior to the Change of Control (the "Accountants"). For
purposes of making the calculations required by this Section 6, the Accountants
may make reasonable assumptions and approximations concerning applicable taxes
and may rely on reasonable, good faith interpretations concerning the
application of Sections 280G and 4999 of the Code. The Company and Executive
shall furnish to the Accountants such information and documents as the
Accountants may reasonably
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<PAGE>
request in order to make a determination under this Section. The Company
shall bear all costs the Accountants may reasonably incur in connection with
any calculations contemplated by this Section 6.
7. ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of (a) the heirs, executors and legal representatives of Executive upon
Executive's death and (b) any successor of the Company. Any such successor of
the Company shall be deemed substituted for the Company under the terms of this
Agreement for all purposes. As used herein, "successor" shall include any
person, firm, corporation or other business entity which at any time, whether by
purchase, merger or otherwise, directly or indirectly acquires all or
substantially all of the assets or business of the Company. None of the rights
of Executive to receive any form of compensation payable pursuant to this
Agreement shall be assignable or transferable except through a testamentary
disposition or by the laws of descent and distribution upon the death of
Executive following termination without cause. Any attempted assignment,
transfer, conveyance or other disposition (other than as aforesaid) of any
interest in the rights of Executive to receive any form of compensation
hereunder shall be null and void.
8. NOTICES. All notices, requests, demands and other communications
called for hereunder shall be in writing and shall be deemed given if
(i) delivered personally, (ii) one (1) day after being sent by Federal Express
or a similar commercial overnight service, or (iii) three (3) days after being
mailed by registered or certified mail, return receipt requested, prepaid and
addressed to the parties or their successors in interest at the following
addresses, or at such other addresses as the parties may designate by written
notice in the manner aforesaid:
If to the Company:
Travelscape.com, Inc.
8951 W. Sahara Avenue Suite 100
Las Vegas, NV 89117
ATTN: Chief Executive Officer
If to Executive:
at the last residential address known by the Company.
9. SEVERABILITY. In the event that any provision hereof becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision.
10. NON-COMPETITION AND NON-SOLICITATION.
(a) For a period beginning on the Effective Date and ending 36 months
after the date on which Executive ceases to be employed by the Company for any
reason whatsoever,
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<PAGE>
Executive, directly or indirectly, whether as employee, owner, sole
proprietor, partner, shareholder, director, member, consultant, agent,
founder, co-venturer or otherwise, will: (i) not engage, participate or
invest in any business activity anywhere in the world which develops,
manufactures or markets products or performs services which are competitive
with the products or services of the Company at the time of Executive's
termination, or products or services which the Company has under development
or which are the subject of active planning at the time of Executive's
termination; PROVIDED, HOWEVER, that Executive, may own as a passive
investor, publicly-traded securities of any corporation which competes with
the business of the Company so long as such securities do not, in the
aggregate, constitute more than 1% of any class of outstanding securities of
such corporations; (ii) not hire or attempt to employ, recruit or otherwise
solicit, induce or influence any person to leave employment with the Company
or its resellers or distributors and (iii) not directly or indirectly solicit
business from any of the Company's customers and users, resellers or
distributors on behalf of any business which competes with the Company.
(b) Executive understands that the restrictions set forth in this
Section 10 are intended to protect the Company's interest in its "proprietary
information" (as such term may be defined in the Non-disclosure Agreement) and
establish customer relationships in good will, and agrees that such restrictions
are reasonable, necessary and appropriate for this purpose.
(c) Executive agrees that it would be difficult to measure any
damages caused by the Company which might result from any breach by Executive of
the promises set forth in this Section 10, and that in any event money damages
would be an inadequate remedy for any such breach. Accordingly, Executive agrees
that if Executive breaches, or proposes to breach, any portion of this Section
10, the Company shall be entitled, in addition to all other remedies that it may
have, to injunction or other appropriate equitable relief to restrain any such
breach without showing or proving any actual damage to the Company.
11. ENTIRE AGREEMENT. This Agreement represents the entire agreement and
understanding between the Company and Executive concerning Executive's
employment relationship with the Company, and supersedes and replaces any and
all prior agreements and understandings concerning Executive's employment
relationship with the Company.
12. ARBITRATION AND EQUITABLE RELIEF.
(a) Except as provided in Section 12(d) below, Executive agrees that
any dispute or controversy arising out of, relating to, or in connection with
this Agreement, or the interpretation, validity, construction, performance,
breach, or termination thereof shall be settled by arbitration to be held in
Clark County, Nevada, in accordance with the National Rules for the Resolution
of Employment Disputes then in effect of the American Arbitration Association
(the "Rules"). The arbitrator may grant injunctions or other relief in such
dispute or controversy. The decision of the arbitrator shall be final,
conclusive and binding on the parties to the arbitration. Judgment may be
entered on the arbitrator's decision in any court having jurisdiction.
-5-
<PAGE>
(b) The arbitrator shall apply Nevada law to the merits of any
dispute or claim, without reference to rules of conflict of law. The
arbitration proceedings shall be governed by federal arbitration law and by
the Rules, without reference to state arbitration law. Executive hereby
expressly consents to the personal jurisdiction of the state and federal
courts located in Nevada for any action or proceeding arising from or
relating to this Agreement and/or relating to any arbitration in which the
parties are participants.
(c) The Company and Executive shall each pay one-half of the costs
and expenses of such arbitration, and shall separately pay its counsel fees and
expenses.
(d) Executive understands that nothing in Section 12 modifies
Executive's at-will status. Either the Company or Executive can terminate the
employment relationship at any time, with or without cause.
(e) EXECUTIVE HAS READ AND UNDERSTANDS SECTION 12, WHICH DISCUSSES
ARBITRATION. EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, EXECUTIVE
AGREES TO SUBMIT ANY FUTURE CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION
WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE,
BREACH, OR TERMINATION THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION
CLAUSE CONSTITUTES A WAIVER OF EXECUTIVE'S RIGHT TO A JURY TRIAL AND RELATES TO
THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EXECUTIVE
RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, THE FOLLOWING CLAIMS:
(i) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF EMPLOYMENT;
BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT OF GOOD
FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED; NEGLIGENT OR INTENTIONAL
INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL MISREPRESENTATION;
NEGLIGENT OR INTENTIONAL INTERFERENCE WITH CONTRACT OR PROSPECTIVE ECONOMIC
ADVANTAGE; AND DEFAMATION.
(ii) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL STATE OR
MUNICIPAL STATUTE, INCLUDING, BUT NOT LIMITED TO, TITLE VII OF THE CIVIL RIGHTS
ACT OF 1964, THE CIVIL RIGHTS ACT OF 1991, THE AGE DISCRIMINATION IN EMPLOYMENT
ACT OF 1967, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIR LABOR
STANDARDS ACT, AND ANY LAW OF THE STATE OF NEVADA; AND
(iii) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND
REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.
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<PAGE>
13. LEGAL FEE REIMBURSEMENT. The Company agrees to pay Executive's
reasonable legal fees associated with entering into this Agreement upon
receiving invoices for such services.
14. NO ORAL MODIFICATION, CANCELLATION OR DISCHARGE. This Agreement may
only be amended, canceled or discharged in writing signed by Executive and the
Company.
15. WITHHOLDING. The Company shall be entitled to withhold, or cause to
be withheld, from payment any amount of withholding taxes required by law with
respect to payments made to Executive in connection with his employment
hereunder.
16. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Nevada (with the exception of its conflict of laws provisions).
17. EFFECTIVE DATE. This Agreement is effective May 20, 1999.
18. ACKNOWLEDGMENT. Executive acknowledges that he has had the
opportunity to discuss this matter with and obtain advice from his private
attorney, has had sufficient time to, and has carefully read and fully
understands all the provisions of this Agreement, and is knowingly and
voluntarily entering into this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
respective dates set forth below:
TRAVELSCAPE.COM, INC.
/s/ Timothy N. Poster
-----------------------------
Timothy N. Poster
Chairman and Chief Executive Officer
EXECUTIVE
/s/ Jose L. Yofe
-----------------------------
Jose L. Yofe
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<PAGE>
EXHIBIT 10.21
TRAVELSCAPE.COM, INC.
EDWARD L. MUNCEY EMPLOYMENT AGREEMENT
This Agreement is made by and between Travelscape.com, Inc. (the
"Company"), and Edward L. Muncey ("Executive") as of May 20, 1999.
1. DUTIES AND SCOPE OF EMPLOYMENT.
(a) POSITIONS AND DUTIES. Executive shall serve as Vice President -
Domestic Product Development of the Company. Executive shall render such
business and professional services in the performance of his duties, consistent
with Executive's position within the Company, as shall reasonably be assigned to
him by the Company's Chief Executive Officer, Chief Operating Officer and Board
of Directors (the "Board"). The period of Executive's employment under this
Agreement is referred to herein as the "Employment Term."
(b) OBLIGATIONS. During the Employment Term, Executive shall devote
his full business efforts and time to the Company. Executive agrees, during the
Employment Term, not to actively engage in any other employment, occupation or
consulting activity for any direct or indirect remuneration without the prior
approval of the Board (which approval shall not be unreasonably withheld);
provided, however, that Executive may, without the approval of the Board, serve
in any capacity with any civic, educational or charitable organization, or as a
member of corporate Boards of Directors or committees thereof upon which
Executive currently serves.
2. EMPLOYEE BENEFITS. During the Employment Term, Executive shall be
eligible to participate in the employee benefit plans maintained by the Company
that are applicable to other senior management to the full extent provided for
under those plans.
3. AT-WILL EMPLOYMENT. Executive and the Company understand and
acknowledge that Executive's employment with the Company constitutes "at-will"
employment. Subject to the Company providing severance benefits as specified
herein, Executive and the Company acknowledge that this employment relationship
may be terminated at any time, upon written notice to the other party, with or
without good cause or for any or no cause, at the option either of the Company
or Executive.
4. COMPENSATION.
(a) BASE SALARY. While employed by the Company, the Company shall
pay the Executive as compensation for his services a base salary at the
annualized rate of $65,000 (the "Base Salary"). Such salary shall be paid
periodically in accordance with normal Company payroll practices and subject to
the usual, required withholding. The Base Salary shall be reevaluated yearly
<PAGE>
by the Compensation Committee of the Board (the "Committee") and may be
increased by the Committee in accordance with its normal practices.
(b) BONUSES. For each fiscal year of the Company, Executive shall be
eligible to receive a target bonus equal to 50% of Base Salary (the "Target
Bonus") based upon the achievement of performance criteria specified by the
Committee. For performance that exceeds target, Executive shall be entitled to a
maximum bonus equal to 100% of Base Salary, all as determined by the Committee.
The payment of any such bonus shall be subject to Executive's employment with
the Company through the end of such fiscal year (which year-end employment
requirement is further subject to the severance provisions hereof).
(c) EQUITY COMPENSATION. Executive shall be eligible for annual or
more frequent grants of stock options, as determined by the Compensation
Committee of the Board in accordance with its normal practices.
5. SEVERANCE.
(a) INVOLUNTARY TERMINATION OTHER THAN FOR CAUSE. In the event
that Executive's employment with the Company as set forth in this Agreement
is involuntarily terminated by the Company without "Cause" (as defined
below), then promptly following such termination of employment, Executive
shall (i) receive a lump-sum payment equal to 100% of the Base Salary (less
applicable withholding), (ii) receive all accrued vacation, expense
reimbursements and any other benefits due to Executive through the date of
termination of employment in accordance with established Company plans and
policies (less applicable withholding), (iii) be entitled to the immediate
vesting of any and all options granted under any stock option agreement(s),
and (iv) be entitled to other compensation and benefits as may be required by
law (for example, under Section 4980B of the Code).
(b) VOLUNTARY TERMINATION FOR GOOD REASON. In the event that
Executive's employment with the Company is voluntarily terminated by
Executive for "Good Reason" (as defined below), then promptly following such
termination of employment, Executive shall (i) receive a lump-sum payment
equal to 100% of the Base Salary (less applicable withholding), (ii) receive
all accrued vacation, expense reimbursements and any other benefits due to
Executive through the date of termination of employment in accordance with
established Company plans and policies, (iii) be entitled to the immediate
vesting of any and all options granted under any stock option agreement(s),
and (iv) be entitled to other compensation and benefits as may be required by
law (for example, under Section 4980B of the Code).
(c) INVOLUNTARY TERMINATION FOR CAUSE OR VOLUNTARY TERMINATION NOT
FOR GOOD REASON. In the event that Executive's employment with the Company is
involuntarily terminated by the Company for Cause, death or permanent disability
(within the meaning of Internal Revenue Code Section 22(e)(3) or any successor
provision), or is voluntarily terminated by Executive other than for Good
Reason, then Executive shall (i) receive the Base Salary through the date of
termination of
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<PAGE>
employment, (ii) receive all accrued vacation, expense reimbursements and any
other benefits due to Executive through the date of termination of employment
in accordance with established Company plans and policies, and (iii) not be
entitled to any other compensation or benefits (including, without
limitation, accelerated vesting of stock options) from the Company except to
the extent provided under the applicable stock option agreement(s) or as may
be required by law (for example, under Section 4980B of the Code).
For purposes of this Agreement, "Cause" means severe intentional misconduct
that has a material adverse effect on the Company.
For purposes of this Agreement, "Good Reason" means (i) a reduction in
Executive's Base Salary, target bonus or benefits, (ii) a material reduction
in title, authority, status, obligations or responsibilities.
For purposes of this Agreement, "Change of Control" means the occurrence of
any of the following events: (i) Any "person" as such term is used in
Sections 13(d) and 14(d) Section 13(d) of the Securities Exchange Act of 1934,
as amended (the ("Exchange Act")) (other than the Company, a subsidiary of the
Company, a Company employee benefit plan, Timothy N. Poster or Thomas C.
Breitling) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the combined voting power of the
Company's then outstanding securities; or, (ii) the occurrence of a transaction
requiring stockholder approval, involving the sale of all or substantially all
of the assets of the Company or the merger of the Company with or into another
corporation.
6. GOLDEN PARACHUTE EXCISE TAX. In the event that the benefits provided
for in this Agreement or otherwise payable to Executive (including, but not by
way of limitation, any accelerated vesting on stock options) constitute
"parachute payments" within the meaning of Section 280G of the Code and will be
subject to the excise tax imposed by Section 4999 of the Code, then Executive's
severance benefits under Section 5 shall be (i) delivered in full, or
(ii) delivered as to such lesser extent which would result in no portion of such
severance benefits being subject to the Excise Tax, whichever of the foregoing
amounts, taking into account the applicable federal, state and local income
taxes and the Excise Tax, results in the receipt by Executive on an after-tax
basis, of the greatest amount of severance benefits, notwithstanding that all or
some portion of such severance benefits may be taxable under Section 4999 of the
Code. Unless the Company and Executive otherwise agree in writing, any
determination required under this Section 6 shall be made in writing in good
faith by the accounting firm serving as the Company's independent public
accountants immediately prior to the Change of Control (the "Accountants"). For
purposes of making the calculations required by this Section 6, the Accountants
may make reasonable assumptions and approximations concerning applicable taxes
and may rely on reasonable, good faith interpretations concerning the
application of Sections 280G and 4999 of the Code. The Company and Executive
shall furnish to the Accountants such information and documents as the
Accountants may reasonably
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<PAGE>
request in order to make a determination under this Section. The Company
shall bear all costs the Accountants may reasonably incur in connection with
any calculations contemplated by this Section 6.
7. ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of (a) the heirs, executors and legal representatives of Executive upon
Executive's death and (b) any successor of the Company. Any such successor of
the Company shall be deemed substituted for the Company under the terms of this
Agreement for all purposes. As used herein, "successor" shall include any
person, firm, corporation or other business entity which at any time, whether by
purchase, merger or otherwise, directly or indirectly acquires all or
substantially all of the assets or business of the Company. None of the rights
of Executive to receive any form of compensation payable pursuant to this
Agreement shall be assignable or transferable except through a testamentary
disposition or by the laws of descent and distribution upon the death of
Executive following termination without cause. Any attempted assignment,
transfer, conveyance or other disposition (other than as aforesaid) of any
interest in the rights of Executive to receive any form of compensation
hereunder shall be null and void.
8. NOTICES. All notices, requests, demands and other communications
called for hereunder shall be in writing and shall be deemed given if
(i) delivered personally, (ii) one (1) day after being sent by Federal Express
or a similar commercial overnight service, or (iii) three (3) days after being
mailed by registered or certified mail, return receipt requested, prepaid and
addressed to the parties or their successors in interest at the following
addresses, or at such other addresses as the parties may designate by written
notice in the manner aforesaid:
If to the Company:
Travelscape.com, Inc.
8951 W. Sahara Avenue Suite 100
Las Vegas, NV 89117
ATTN: Chief Executive Officer
If to Executive:
at the last residential address known by the Company.
9. SEVERABILITY. In the event that any provision hereof becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision.
10. NON-COMPETITION AND NON-SOLICITATION.
(a) For a period beginning on the Effective Date and ending 36 months
after the date on which Executive ceases to be employed by the Company for any
reason whatsoever,
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<PAGE>
Executive, directly or indirectly, whether as employee, owner, sole
proprietor, partner, shareholder, director, member, consultant, agent,
founder, co-venturer or otherwise, will: (i) not engage, participate or
invest in any business activity anywhere in the world which develops,
manufactures or markets products or performs services which are competitive
with the products or services of the Company at the time of Executive's
termination, or products or services which the Company has under development
or which are the subject of active planning at the time of Executive's
termination; PROVIDED, HOWEVER, that Executive, may own as a passive
investor, publicly-traded securities of any corporation which competes with
the business of the Company so long as such securities do not, in the
aggregate, constitute more than 1% of any class of outstanding securities of
such corporations; (ii) not hire or attempt to employ, recruit or otherwise
solicit, induce or influence any person to leave employment with the Company
or its resellers or distributors and (iii) not directly or indirectly solicit
business from any of the Company's customers and users, resellers or
distributors on behalf of any business which competes with the Company.
(b) Executive understands that the restrictions set forth in this
Section 10 are intended to protect the Company's interest in its "proprietary
information" (as such term may be defined in the Non-disclosure Agreement) and
establish customer relationships in good will, and agrees that such restrictions
are reasonable, necessary and appropriate for this purpose.
(c) Executive agrees that it would be difficult to measure any
damages caused by the Company which might result from any breach by Executive of
the promises set forth in this Section 10, and that in any event money damages
would be an inadequate remedy for any such breach. Accordingly, Executive agrees
that if Executive breaches, or proposes to breach, any portion of this Section
10, the Company shall be entitled, in addition to all other remedies that it may
have, to injunction or other appropriate equitable relief to restrain any such
breach without showing or proving any actual damage to the Company.
11. ENTIRE AGREEMENT. This Agreement represents the entire agreement and
understanding between the Company and Executive concerning Executive's
employment relationship with the Company, and supersedes and replaces any and
all prior agreements and understandings concerning Executive's employment
relationship with the Company.
12. ARBITRATION AND EQUITABLE RELIEF.
(a) Except as provided in Section 12(d) below, Executive agrees that
any dispute or controversy arising out of, relating to, or in connection with
this Agreement, or the interpretation, validity, construction, performance,
breach, or termination thereof shall be settled by arbitration to be held in
Clark County, Nevada, in accordance with the National Rules for the Resolution
of Employment Disputes then in effect of the American Arbitration Association
(the "Rules"). The arbitrator may grant injunctions or other relief in such
dispute or controversy. The decision of the arbitrator shall be final,
conclusive and binding on the parties to the arbitration. Judgment may be
entered on the arbitrator's decision in any court having jurisdiction.
-5-
<PAGE>
(b) The arbitrator shall apply Nevada law to the merits of any
dispute or claim, without reference to rules of conflict of law. The
arbitration proceedings shall be governed by federal arbitration law and by the
Rules, without reference to state arbitration law. Executive hereby expressly
consents to the personal jurisdiction of the state and federal courts located in
Nevada for any action or proceeding arising from or relating to this Agreement
and/or relating to any arbitration in which the parties are participants.
(c) The Company and Executive shall each pay one-half of the costs
and expenses of such arbitration, and shall separately pay its counsel fees and
expenses.
(d) Executive understands that nothing in Section 12 modifies
Executive's at-will status. Either the Company or Executive can terminate the
employment relationship at any time, with or without cause.
(e) EXECUTIVE HAS READ AND UNDERSTANDS SECTION 12, WHICH DISCUSSES
ARBITRATION. EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, EXECUTIVE
AGREES TO SUBMIT ANY FUTURE CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION
WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE,
BREACH, OR TERMINATION THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION
CLAUSE CONSTITUTES A WAIVER OF EXECUTIVE'S RIGHT TO A JURY TRIAL AND RELATES TO
THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EXECUTIVE
RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, THE FOLLOWING CLAIMS:
(i) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF EMPLOYMENT;
BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT OF GOOD
FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED; NEGLIGENT OR INTENTIONAL
INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL MISREPRESENTATION;
NEGLIGENT OR INTENTIONAL INTERFERENCE WITH CONTRACT OR PROSPECTIVE ECONOMIC
ADVANTAGE; AND DEFAMATION.
(ii) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL STATE OR
MUNICIPAL STATUTE, INCLUDING, BUT NOT LIMITED TO, TITLE VII OF THE CIVIL
RIGHTS ACT OF 1964, THE CIVIL RIGHTS ACT OF 1991, THE AGE DISCRIMINATION IN
EMPLOYMENT ACT OF 1967, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIR
LABOR STANDARDS ACT, AND ANY LAW OF THE STATE OF NEVADA; AND
(iii) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND
REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.
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<PAGE>
13. LEGAL FEE REIMBURSEMENT. The Company agrees to pay Executive's
reasonable legal fees associated with entering into this Agreement upon
receiving invoices for such services.
14. NO ORAL MODIFICATION, CANCELLATION OR DISCHARGE. This Agreement may
only be amended, canceled or discharged in writing signed by Executive and the
Company.
15. WITHHOLDING. The Company shall be entitled to withhold, or cause to
be withheld, from payment any amount of withholding taxes required by law with
respect to payments made to Executive in connection with his employment
hereunder.
16. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Nevada (with the exception of its conflict of laws provisions).
17. EFFECTIVE DATE. This Agreement is effective May 20, 1999.
18. ACKNOWLEDGMENT. Executive acknowledges that he has had the
opportunity to discuss this matter with and obtain advice from his private
attorney, has had sufficient time to, and has carefully read and fully
understands all the provisions of this Agreement, and is knowingly and
voluntarily entering into this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
respective dates set forth below:
TRAVELSCAPE.COM, INC.
/s/ Timothy N. Poster
-----------------------------
Timothy N. Poster
Chairman and Chief Executive Officer
EXECUTIVE
/s/ Edward L. Muncey
-----------------------------
Edward L. Muncey
-7-
<PAGE>
EXHIBIT 10.22
TRAVELSCAPE.COM, INC.
MICHAEL REICHARTZ EMPLOYMENT AGREEMENT
This Agreement is made by and between Travelscape.com, Inc. (the
"Company"), and Michael Reichartz ("Executive") as of May 20, 1999.
1. DUTIES AND SCOPE OF EMPLOYMENT.
(a) POSITIONS AND DUTIES. Executive shall serve as President - LVRS
of the Company. Executive shall render such business and professional services
in the performance of his duties, consistent with Executive's position within
the Company, as shall reasonably be assigned to him by the Company's Chief
Executive Officer, Chief Operating Officer and Board of Directors (the "Board").
The period of Executive's employment under this Agreement is referred to herein
as the "Employment Term."
(b) OBLIGATIONS. During the Employment Term, Executive shall devote
his full business efforts and time to the Company. Executive agrees, during the
Employment Term, not to actively engage in any other employment, occupation or
consulting activity for any direct or indirect remuneration without the prior
approval of the Board (which approval shall not be unreasonably withheld);
provided, however, that Executive may, without the approval of the Board, serve
in any capacity with any civic, educational or charitable organization, or as a
member of corporate Boards of Directors or committees thereof upon which
Executive currently serves.
2. EMPLOYEE BENEFITS. During the Employment Term, Executive shall be
eligible to participate in the employee benefit plans maintained by the Company
that are applicable to other senior management to the full extent provided for
under those plans.
3. AT-WILL EMPLOYMENT. Executive and the Company understand and
acknowledge that Executive's employment with the Company constitutes "at-will"
employment. Subject to the Company providing severance benefits as specified
herein, Executive and the Company acknowledge that this employment relationship
may be terminated at any time, upon written notice to the other party, with or
without good cause or for any or no cause, at the option either of the Company
or Executive.
4. COMPENSATION.
(a) BASE SALARY. While employed by the Company, the Company shall
pay the Executive as compensation for his services a base salary at the
annualized rate of $125,000 (the "Base Salary"). Such salary shall be paid
periodically in accordance with normal Company payroll practices and subject to
the usual, required withholding. The Base Salary shall be reevaluated yearly
<PAGE>
by the Compensation Committee of the Board (the "Committee") and may be
increased by the Committee in accordance with its normal practices.
(b) BONUSES. For each fiscal year of the Company, Executive shall be
eligible to receive a target bonus equal to 50% of Base Salary (the "Target
Bonus") based upon the achievement of performance criteria specified by the
Committee. For performance that exceeds target, Executive shall be entitled to a
maximum bonus equal to 100% of Base Salary, all as determined by the Committee.
The payment of any such bonus shall be subject to Executive's employment with
the Company through the end of such fiscal year (which year-end employment
requirement is further subject to the severance provisions hereof).
(c) EQUITY COMPENSATION. Executive shall be eligible for annual or
more frequent grants of stock options, as determined by the Compensation
Committee of the Board in accordance with its normal practices.
5. SEVERANCE.
(a) INVOLUNTARY TERMINATION OTHER THAN FOR CAUSE. In the event
that Executive's employment with the Company as set forth in this agreement
is involuntarily terminated by the Company without "Cause" (as defined
below), then promptly following such termination of employment, Executive
shall (i) receive a lump-sum payment equal to 100% of the Base Salary (less
applicable withholding), (ii) receive all accrued vacation, expense
reimbursements and any other benefits due to Executive through the date of
termination of employment in accordance with established Company plans and
policies (less applicable withholding), (iii) be entitled to the immediate
vesting of any and all options granted under any stock option agreement(s),
and (iv) be entitled to other compensation and benefits as may be required by
law (for example, under Section 4980B of the Code).
(b) VOLUNTARY TERMINATION FOR GOOD REASON. In the event that
Executive's employment with the Company is voluntarily terminated by
Executive for "Good Reason" (as defined below), then promptly following such
termination of employment, Executive shall (i) receive a lump-sum payment
equal to 100% of the Base Salary (less applicable withholding), (ii) receive
all accrued vacation, expense reimbursements and any other benefits due to
Executive through the date of termination of employment in accordance with
established Company plans and policies, (iii) be entitled to the immediate
vesting of any and all options granted under any stock option agreement(s),
and (iv) be entitled to other compensation and benefits as may be required by
law (for example, under Section 4980B of the Code).
(c) INVOLUNTARY TERMINATION FOR CAUSE OR VOLUNTARY TERMINATION NOT
FOR GOOD REASON. In the event that Executive's employment with the Company is
involuntarily terminated by the Company for Cause, death or permanent disability
(within the meaning of Internal Revenue Code Section 22(e)(3) or any successor
provision), or is voluntarily terminated by Executive other than for Good
Reason, then Executive shall (i) receive the Base Salary through the date of
termination of
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<PAGE>
employment, (ii) receive all accrued vacation, expense reimbursements and any
other benefits due to Executive through the date of termination of employment
in accordance with established Company plans and policies, and (iii) not be
entitled to any other compensation or benefits from the Company except to the
extent provided under the applicable stock option agreement(s) or as may be
required by law (for example, under Section 4980B of the Code).
For purposes of this Agreement, "Cause" means severe intentional misconduct
that has a material adverse effect on the Company.
For purposes of this Agreement, "Good Reason" means (i) a reduction in
Executive's Base Salary, target bonus or benefits, (ii) a material reduction
in title, authority, status, obligations or responsibilities.
For purposes of this Agreement, "Change of Control" means the occurrence of
any of the following events: (i) Any "person" as such term is used in
Sections 13(d) and 14(d) Section 13(d) of the Securities Exchange Act of 1934,
as amended (the ("Exchange Act")) (other than the Company, a subsidiary of the
Company, a Company employee benefit plan, Timothy N. Poster or Thomas C.
Breitling) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the combined voting power of the
Company's then outstanding securities; or, (ii) the occurrence of a transaction
requiring stockholder approval, involving the sale of all or substantially all
of the assets of the Company or the merger of the Company with or into another
corporation.
6. GOLDEN PARACHUTE EXCISE TAX. In the event that the benefits provided
for in this Agreement or otherwise payable to Executive (including, but not by
way of limitation, any accelerated vesting on stock options) constitute
"parachute payments" within the meaning of Section 280G of the Code and will be
subject to the excise tax imposed by Section 4999 of the Code, then Executive's
severance benefits under Section 5 shall be (i) delivered in full, or
(ii) delivered as to such lesser extent which would result in no portion of such
severance benefits being subject to the Excise Tax, whichever of the foregoing
amounts, taking into account the applicable federal, state and local income
taxes and the Excise Tax, results in the receipt by Executive on an after-tax
basis, of the greatest amount of severance benefits, notwithstanding that all or
some portion of such severance benefits may be taxable under Section 4999 of the
Code. Unless the Company and Executive otherwise agree in writing, any
determination required under this Section 6 shall be made in writing in good
faith by the accounting firm serving as the Company's independent public
accountants immediately prior to the Change of Control (the "Accountants"). For
purposes of making the calculations required by this Section 6, the Accountants
may make reasonable assumptions and approximations concerning applicable taxes
and may rely on reasonable, good faith interpretations concerning the
application of Sections 280G and 4999 of the Code. The Company and Executive
shall furnish to the Accountants such information and documents as the
Accountants may reasonably
-3-
<PAGE>
request in order to make a determination under this Section. The Company
shall bear all costs the Accountants may reasonably incur in connection with
any calculations contemplated by this Section 6.
7. ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of (a) the heirs, executors and legal representatives of Executive upon
Executive's death and (b) any successor of the Company. Any such successor of
the Company shall be deemed substituted for the Company under the terms of this
Agreement for all purposes. As used herein, "successor" shall include any
person, firm, corporation or other business entity which at any time, whether by
purchase, merger or otherwise, directly or indirectly acquires all or
substantially all of the assets or business of the Company. None of the rights
of Executive to receive any form of compensation payable pursuant to this
Agreement shall be assignable or transferable except through a testamentary
disposition or by the laws of descent and distribution upon the death of
Executive following termination without cause. Any attempted assignment,
transfer, conveyance or other disposition (other than as aforesaid) of any
interest in the rights of Executive to receive any form of compensation
hereunder shall be null and void.
8. NOTICES. All notices, requests, demands and other communications
called for hereunder shall be in writing and shall be deemed given if
(i) delivered personally, (ii) one (1) day after being sent by Federal Express
or a similar commercial overnight service, or (iii) three (3) days after being
mailed by registered or certified mail, return receipt requested, prepaid and
addressed to the parties or their successors in interest at the following
addresses, or at such other addresses as the parties may designate by written
notice in the manner aforesaid:
If to the Company:
Travelscape.com, Inc.
8951 W. Sahara Avenue Suite 100
Las Vegas, NV 89117
ATTN: Chief Executive Officer
If to Executive:
at the last residential address known by the Company.
9. SEVERABILITY. In the event that any provision hereof becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision.
10. NON-COMPETITION AND NON-SOLICITATION.
(a) For a period beginning on the Effective Date and ending 36 months
after the date on which Executive ceases to be employed by the Company for any
reason whatsoever,
-4-
<PAGE>
Executive, directly or indirectly, whether as employee, owner, sole
proprietor, partner, shareholder, director, member, consultant, agent,
founder, co-venturer or otherwise, will: (i) not engage, participate or
invest in any business activity anywhere in the world which develops,
manufactures or markets products or performs services which are competitive
with the products or services of the Company at the time of Executive's
termination, or products or services which the Company has under development
or which are the subject of active planning at the time of Executive's
termination; PROVIDED, HOWEVER, that Executive, may own as a passive
investor, publicly-traded securities of any corporation which competes with
the business of the Company so long as such securities do not, in the
aggregate, constitute more than 1% of any class of outstanding securities of
such corporations; (ii) not hire or attempt to employ, recruit or otherwise
solicit, induce or influence any person to leave employment with the Company
or its resellers or distributors and (iii) not directly or indirectly solicit
business from any of the Company's customers and users, resellers or
distributors on behalf of any business which competes with the Company.
(b) Executive understands that the restrictions set forth in this
Section 10 are intended to protect the Company's interest in its "proprietary
information" (as such term may be defined in the Non-disclosure Agreement) and
establish customer relationships in good will, and agrees that such restrictions
are reasonable, necessary and appropriate for this purpose.
(c) Executive agrees that it would be difficult to measure any
damages caused by the Company which might result from any breach by Executive of
the promises set forth in this Section 10, and that in any event money damages
would be an inadequate remedy for any such breach. Accordingly, Executive agrees
that if Executive breaches, or proposes to breach, any portion of this Section
10, the Company shall be entitled, in addition to all other remedies that it may
have, to injunction or other appropriate equitable relief to restrain any such
breach without showing or proving any actual damage to the Company.
11. ENTIRE AGREEMENT. This Agreement represents the entire agreement and
understanding between the Company and Executive concerning Executive's
employment relationship with the Company, and supersedes and replaces any and
all prior agreements and understandings concerning Executive's employment
relationship with the Company.
12. ARBITRATION AND EQUITABLE RELIEF.
(a) Except as provided in Section 12(d) below, Executive agrees that
any dispute or controversy arising out of, relating to, or in connection with
this Agreement, or the interpretation, validity, construction, performance,
breach, or termination thereof shall be settled by arbitration to be held in
Clark County, Nevada, in accordance with the National Rules for the Resolution
of Employment Disputes then in effect of the American Arbitration Association
(the "Rules"). The arbitrator may grant injunctions or other relief in such
dispute or controversy. The decision of the arbitrator shall be final,
conclusive and binding on the parties to the arbitration. Judgment may be
entered on the arbitrator's decision in any court having jurisdiction.
-5-
<PAGE>
(b) The arbitrator shall apply Nevada law to the merits of any
dispute or claim, without reference to rules of conflict of law. The
arbitration proceedings shall be governed by federal arbitration law and by the
Rules, without reference to state arbitration law. Executive hereby expressly
consents to the personal jurisdiction of the state and federal courts located in
Nevada for any action or proceeding arising from or relating to this Agreement
and/or relating to any arbitration in which the parties are participants.
(c) The Company and Executive shall each pay one-half of the costs
and expenses of such arbitration, and shall separately pay its counsel fees and
expenses.
(d) Executive understands that nothing in Section 12 modifies
Executive's at-will status. Either the Company or Executive can terminate the
employment relationship at any time, with or without cause.
(e) EXECUTIVE HAS READ AND UNDERSTANDS SECTION 12, WHICH DISCUSSES
ARBITRATION. EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, EXECUTIVE
AGREES TO SUBMIT ANY FUTURE CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION
WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE,
BREACH, OR TERMINATION THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION
CLAUSE CONSTITUTES A WAIVER OF EXECUTIVE'S RIGHT TO A JURY TRIAL AND RELATES TO
THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EXECUTIVE
RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, THE FOLLOWING CLAIMS:
(i) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF EMPLOYMENT;
BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT OF GOOD
FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED; NEGLIGENT OR INTENTIONAL
INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL MISREPRESENTATION;
NEGLIGENT OR INTENTIONAL INTERFERENCE WITH CONTRACT OR PROSPECTIVE ECONOMIC
ADVANTAGE; AND DEFAMATION.
(ii) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL STATE OR
MUNICIPAL STATUTE, INCLUDING, BUT NOT LIMITED TO, TITLE VII OF THE CIVIL RIGHTS
ACT OF 1964, THE CIVIL RIGHTS ACT OF 1991, THE AGE DISCRIMINATION IN EMPLOYMENT
ACT OF 1967, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIR LABOR
STANDARDS ACT, AND ANY LAW OF THE STATE OF NEVADA; AND
(iii) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND
REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.
-6-
<PAGE>
13. LEGAL FEE REIMBURSEMENT. The Company agrees to pay Executive's
reasonable legal fees associated with entering into this Agreement upon
receiving invoices for such services.
14. NO ORAL MODIFICATION, CANCELLATION OR DISCHARGE. This Agreement may
only be amended, canceled or discharged in writing signed by Executive and the
Company.
15. WITHHOLDING. The Company shall be entitled to withhold, or cause to
be withheld, from payment any amount of withholding taxes required by law with
respect to payments made to Executive in connection with his employment
hereunder.
16. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Nevada (with the exception of its conflict of laws provisions).
17. EFFECTIVE DATE. This Agreement is effective May 20, 1999.
18. ACKNOWLEDGMENT. Executive acknowledges that he has had the
opportunity to discuss this matter with and obtain advice from his private
attorney, has had sufficient time to, and has carefully read and fully
understands all the provisions of this Agreement, and is knowingly and
voluntarily entering into this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
respective dates set forth below:
TRAVELSCAPE.COM, INC.
/s/ Timothy N. Poster
-------------------------------------
Timothy N. Poster
Chairman and Chief Executive Officer
EXECUTIVE
/s/ Michael Reichartz
-------------------------------------
Michael Reichartz
-7-
<PAGE>
EXHIBIT 10.23
TRAVELSCAPE.COM, INC.
ERICK A. RODRIGUEZ EMPLOYMENT AGREEMENT
This Agreement is made by and between Travelscape.com, Inc. (the
"Company"), and Erick A. Rodriguez ("Executive") as of May 20, 1999.
1. DUTIES AND SCOPE OF EMPLOYMENT.
(a) POSITIONS AND DUTIES. Executive shall serve as Executive Vice
President of the Company. Executive shall render such business and professional
services in the performance of his duties, consistent with Executive's position
within the Company, as shall reasonably be assigned to him by the Company's
Chief Executive Officer, Chief Operating Officer and Board of Directors (the
"Board"). The period of Executive's employment under this Agreement is referred
to herein as the "Employment Term."
(b) OBLIGATIONS. During the Employment Term, Executive shall devote
his full business efforts and time to the Company. Executive agrees, during the
Employment Term, not to actively engage in any other employment, occupation or
consulting activity for any direct or indirect remuneration without the prior
approval of the Board (which approval shall not be unreasonably withheld);
provided, however, that Executive may, without the approval of the Board, serve
in any capacity with any civic, educational or charitable organization, or as a
member of corporate Boards of Directors or committees thereof upon which
Executive currently serves.
2. EMPLOYEE BENEFITS. During the Employment Term, Executive shall be
eligible to participate in the employee benefit plans maintained by the Company
that are applicable to other senior management to the full extent provided for
under those plans.
3. AT-WILL EMPLOYMENT. Executive and the Company understand and
acknowledge that Executive's employment with the Company constitutes "at-will"
employment. Subject to the Company providing severance benefits as specified
herein, Executive and the Company acknowledge that this employment relationship
may be terminated at any time, upon written notice to the other party, with or
without good cause or for any or no cause, at the option either of the Company
or Executive.
4. COMPENSATION.
(a) BASE SALARY. While employed by the Company, the Company shall
pay the Executive as compensation for his services a base salary at the
annualized rate of $100,000 (the "Base Salary"). Such salary shall be paid
periodically in accordance with normal Company payroll practices and subject to
the usual, required withholding. The Base Salary shall be reevaluated yearly
<PAGE>
by the Compensation Committee of the Board (the "Committee") and may be
increased by the Committee in accordance with its normal practices.
(b) BONUSES. For each fiscal year of the Company, Executive shall be
eligible to receive a target bonus equal to 50% of Base Salary (the "Target
Bonus") based upon the achievement of performance criteria specified by the
Committee. For performance that exceeds target, Executive shall be entitled to a
maximum bonus equal to 100% of Base Salary, all as determined by the Committee.
The payment of any such bonus shall be subject to Executive's employment with
the Company through the end of such fiscal year (which year-end employment
requirement is further subject to the severance provisions hereof).
(c) EQUITY COMPENSATION. Executive shall be eligible for annual or
more frequent grants of stock options, as determined by the Compensation
Committee of the Board in accordance with its normal practices.
5. SEVERANCE.
(a) INVOLUNTARY TERMINATION OTHER THAN FOR CAUSE. In the event
that Executive's employment with the Company as set forth in this Agreement
is involuntarily terminated by the Company without "Cause" (as defined
below), then promptly following such termination of employment, Executive
shall (i) receive a lump-sum payment equal to 100% of the Base Salary (less
applicable withholding), (ii) receive all accrued vacation, expense
reimbursements and any other benefits due to Executive through the date of
termination of employment in accordance with established Company plans and
policies, less applicable withholding (iii) be entitled to the immediate
vesting of any and all options granted under any stock option agreement(s),
and (iv) be entitled to other comprehensive and benefits as may be required
by law (for example, under Section 4980B of the Code).
(b) VOLUNTARY TERMINATION FOR GOOD REASON. In the event that
Executive's employment with the Company is voluntarily terminated by
Executive for "Good Reason" within twelve months after the occurrence of a
"Change of Control" (both as defined below), then promptly following such
termination of employment, Executive shall (i) receive a lump-sum payment
equal to 100% of the Base Salary (less applicable withholding), (ii) receive
all accrued vacation, expense reimbursements and any other benefits due to
Executive through the date of termination of employment in accordance with
established Company plans and policies, (iii) be entitled to the immediate
vesting of any and all options granted under any stock option agreement(s),
and (iv) be entitled to other compensation and benefits as may be required by
law (for example, under Section 4980B of the Code).
(c) INVOLUNTARY TERMINATION FOR CAUSE OR VOLUNTARY TERMINATION NOT
FOR GOOD REASON. In the event that Executive's employment with the Company is
involuntarily terminated by the Company for Cause, death or permanent disability
(within the meaning of Internal Revenue Code Section 22(e)(3) or any successor
provision), or is voluntarily terminated by Executive other than for Good
Reason, then Executive shall (i) receive the Base Salary through the date of
termination
-2-
<PAGE>
of employment, (ii) receive all accrued vacation, expense reimbursements and
any other benefits due to Executive through the date of termination of
employment in accordance with established Company plans and policies, and
(iii) not be entitled to any other compensation or benefits (including,
without limitation, accelerated vesting of stock options) from the Company
except to the extent provided under the applicable stock option agreement(s)
or as may be required by law (for example, under Section 4980B of the Code).
For purposes of this Agreement, "Cause" means severe intentional misconduct
that has a material adverse effect on the Company.
For purposes of this Agreement, "Good Reason" means (i) a reduction in
Executive's Base Salary, target bonus or benefits, (ii) a material reduction
in title, authority, status, obligations or responsibilities.
For purposes of this Agreement, "Change of Control" means the occurrence of
any of the following events: (i) Any "person" as such term is used in
Sections 13(d) and 14(d) Section 13(d) of the Securities Exchange Act of 1934,
as amended (the ("Exchange Act")) (other than the Company, a subsidiary of the
Company, a Company employee benefit plan, Timothy N. Poster or Thomas C.
Breitling) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the combined voting power of the
Company's then outstanding securities; or, (ii) the occurrence of a transaction
requiring stockholder approval, involving the sale of all or substantially all
of the assets of the Company or the merger of the Company with or into another
corporation.
6. GOLDEN PARACHUTE EXCISE TAX. In the event that the benefits provided
for in this Agreement or otherwise payable to Executive (including, but not by
way of limitation, any accelerated vesting on stock options) constitute
"parachute payments" within the meaning of Section 280G of the Code and will be
subject to the excise tax imposed by Section 4999 of the Code, then Executive's
severance benefits under Section 5 shall be (i) delivered in full, or
(ii) delivered as to such lesser extent which would result in no portion of such
severance benefits being subject to the Excise Tax, whichever of the foregoing
amounts, taking into account the applicable federal, state and local income
taxes and the Excise Tax, results in the receipt by Executive on an after-tax
basis, of the greatest amount of severance benefits, notwithstanding that all or
some portion of such severance benefits may be taxable under Section 4999 of the
Code. Unless the Company and Executive otherwise agree in writing, any
determination required under this Section 6 shall be made in writing in good
faith by the accounting firm serving as the Company's independent public
accountants immediately prior to the Change of Control (the "Accountants"). For
purposes of making the calculations required by this Section 6, the Accountants
may make reasonable assumptions and approximations concerning applicable taxes
and may rely on reasonable, good faith interpretations concerning the
application of Sections 280G and 4999 of the Code. The Company and Executive
shall furnish to the Accountants such information and documents as the
Accountants may reasonably
-3-
<PAGE>
request in order to make a determination under this Section. The Company
shall bear all costs the Accountants may reasonably incur in connection with
any calculations contemplated by this Section 6.
7. ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of (a) the heirs, executors and legal representatives of Executive upon
Executive's death and (b) any successor of the Company. Any such successor of
the Company shall be deemed substituted for the Company under the terms of this
Agreement for all purposes. As used herein, "successor" shall include any
person, firm, corporation or other business entity which at any time, whether by
purchase, merger or otherwise, directly or indirectly acquires all or
substantially all of the assets or business of the Company. None of the rights
of Executive to receive any form of compensation payable pursuant to this
Agreement shall be assignable or transferable except through a testamentary
disposition or by the laws of descent and distribution upon the death of
Executive following termination without cause. Any attempted assignment,
transfer, conveyance or other disposition (other than as aforesaid) of any
interest in the rights of Executive to receive any form of compensation
hereunder shall be null and void.
8. NOTICES. All notices, requests, demands and other communications
called for hereunder shall be in writing and shall be deemed given if
(i) delivered personally, (ii) one (1) day after being sent by Federal Express
or a similar commercial overnight service, or (iii) three (3) days after being
mailed by registered or certified mail, return receipt requested, prepaid and
addressed to the parties or their successors in interest at the following
addresses, or at such other addresses as the parties may designate by written
notice in the manner aforesaid:
If to the Company:
Travelscape.com, Inc.
8951 W. Sahara Avenue Suite 100
Las Vegas, NV 89117
ATTN: Chief Executive Officer
If to Executive:
at the last residential address known by the Company.
9. SEVERABILITY. In the event that any provision hereof becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision.
10. NON-COMPETITION AND NON-SOLICITATION.
(a) For a period beginning on the Effective Date and ending 36 months
after the date on which Executive ceases to be employed by the Company for any
reason whatsoever,
-4-
<PAGE>
Executive, directly or indirectly, whether as employee, owner, sole
proprietor, partner, shareholder, director, member, consultant, agent,
founder, co-venturer or otherwise, will: (i) not engage, participate or
invest in any business activity anywhere in the world which develops,
manufactures or markets products or performs services which are competitive
with the products or services of the Company at the time of Executive's
termination, or products or services which the Company has under development
or which are the subject of active planning at the time of Executive's
termination; PROVIDED, HOWEVER, that Executive, may own as a passive
investor, publicly-traded securities of any corporation which competes with
the business of the Company so long as such securities do not, in the
aggregate, constitute more than 1% of any class of outstanding securities of
such corporations; (ii) not hire or attempt to employ, recruit or otherwise
solicit, induce or influence any person to leave employment with the Company
or its resellers or distributors and (iii) not directly or indirectly solicit
business from any of the Company's customers and users, resellers or
distributors on behalf of any business which competes with the Company.
(b) Executive understands that the restrictions set forth in this
Section 10 are intended to protect the Company's interest in its "proprietary
information" (as such term may be defined in the Non-disclosure Agreement) and
establish customer relationships in good will, and agrees that such restrictions
are reasonable, necessary and appropriate for this purpose.
(c) Executive agrees that it would be difficult to measure any
damages caused by the Company which might result from any breach by Executive of
the promises set forth in this Section 10, and that in any event money damages
would be an inadequate remedy for any such breach. Accordingly, Executive agrees
that if Executive breaches, or proposes to breach, any portion of this Section
10, the Company shall be entitled, in addition to all other remedies that it may
have, to injunction or other appropriate equitable relief to restrain any such
breach without showing or proving any actual damage to the Company.
11. ENTIRE AGREEMENT. This Agreement represents the entire agreement and
understanding between the Company and Executive concerning Executive's
employment relationship with the Company, and supersedes and replaces any and
all prior agreements and understandings concerning Executive's employment
relationship with the Company.
12. ARBITRATION AND EQUITABLE RELIEF.
(a) Except as provided in Section 12(d) below, Executive agrees that
any dispute or controversy arising out of, relating to, or in connection with
this Agreement, or the interpretation, validity, construction, performance,
breach, or termination thereof shall be settled by arbitration to be held in
Clark County, Nevada, in accordance with the National Rules for the Resolution
of Employment Disputes then in effect of the American Arbitration Association
(the "Rules"). The arbitrator may grant injunctions or other relief in such
dispute or controversy. The decision of the arbitrator shall be final,
conclusive and binding on the parties to the arbitration. Judgment may be
entered on the arbitrator's decision in any court having jurisdiction.
-5-
<PAGE>
(b) The arbitrator shall apply Nevada law to the merits of any
dispute or claim, without reference to rules of conflict of law. The
arbitration proceedings shall be governed by federal arbitration law and by the
Rules, without reference to state arbitration law. Executive hereby expressly
consents to the personal jurisdiction of the state and federal courts located in
Nevada for any action or proceeding arising from or relating to this Agreement
and/or relating to any arbitration in which the parties are participants.
(c) The Company and Executive shall each pay one-half of the costs
and expenses of such arbitration, and shall separately pay its counsel fees and
expenses.
(d) Executive understands that nothing in Section 12 modifies
Executive's at-will status. Either the Company or Executive can terminate the
employment relationship at any time, with or without cause.
(e) EXECUTIVE HAS READ AND UNDERSTANDS SECTION 12, WHICH DISCUSSES
ARBITRATION. EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, EXECUTIVE
AGREES TO SUBMIT ANY FUTURE CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION
WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE,
BREACH, OR TERMINATION THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION
CLAUSE CONSTITUTES A WAIVER OF EXECUTIVE'S RIGHT TO A JURY TRIAL AND RELATES TO
THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EXECUTIVE
RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, THE FOLLOWING CLAIMS:
(i) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF EMPLOYMENT;
BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT OF GOOD
FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED; NEGLIGENT OR INTENTIONAL
INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL MISREPRESENTATION;
NEGLIGENT OR INTENTIONAL INTERFERENCE WITH CONTRACT OR PROSPECTIVE ECONOMIC
ADVANTAGE; AND DEFAMATION.
(ii) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL STATE OR
MUNICIPAL STATUTE, INCLUDING, BUT NOT LIMITED TO, TITLE VII OF THE CIVIL RIGHTS
ACT OF 1964, THE CIVIL RIGHTS ACT OF 1991, THE AGE DISCRIMINATION IN EMPLOYMENT
ACT OF 1967, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIR LABOR
STANDARDS ACT, AND ANY LAW OF THE STATE OF NEVADA; AND
(iii) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND
REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.
-6-
<PAGE>
13. LEGAL FEE REIMBURSEMENT. The Company agrees to pay Executive's
reasonable legal fees associated with entering into this Agreement upon
receiving invoices for such services.
14. NO ORAL MODIFICATION, CANCELLATION OR DISCHARGE. This Agreement may
only be amended, canceled or discharged in writing signed by Executive and the
Company.
15. WITHHOLDING. The Company shall be entitled to withhold, or cause to
be withheld, from payment any amount of withholding taxes required by law with
respect to payments made to Executive in connection with his employment
hereunder.
16. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Nevada (with the exception of its conflict of laws provisions).
17. EFFECTIVE DATE. This Agreement is effective May 20, 1999.
18. ACKNOWLEDGMENT. Executive acknowledges that he has had the
opportunity to discuss this matter with and obtain advice from his private
attorney, has had sufficient time to, and has carefully read and fully
understands all the provisions of this Agreement, and is knowingly and
voluntarily entering into this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
respective dates set forth below:
TRAVELSCAPE.COM, INC.
/s/ Timothy N. Poster
------------------------------------
Timothy N. Poster
Chairman and Chief Executive Officer
EXECUTIVE
/s/ Erick A. Rodriguez
------------------------------------
Erick A. Rodriguez
-7-
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Las Vegas Reservation Systems, Inc.,
Travelscape.com, Inc. and
Professional Travel Services, Inc.:
We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" in the prospectus.
KPMG LLP
Las Vegas, Nevada
May 29, 1999
<TABLE> <S> <C>
<PAGE>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 265,674
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 443,462
<PP&E> 2,951,380
<DEPRECIATION> 303,979
<TOTAL-ASSETS> 3,843,716
<CURRENT-LIABILITIES> 5,475,008
<BONDS> 0
0
0
<COMMON> 45,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,843,716
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<TOTAL-REVENUES> 20,878,785
<CGS> 14,697,664
<TOTAL-COSTS> 10,426,696
<OTHER-EXPENSES> (2,884)
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<INTEREST-EXPENSE> 183,949
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,426,640)
<EPS-BASIC> 0.30
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