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As filed with the Securities and Exchange Commission on __________, 1999
SEC Registration No. 333-______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM SB-2 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
TRAVELNSTORE.COM, INC.
(Name of Small Business Issuer in its Charter)
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California 7399 77-0507163
(State or Other Jurisdiction of (Primary Standard Industrial (IRS Employer
Incorporation) Classification Identification Code Identification Number)
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1320 Flynn Road, Suite 402
Camarillo, California 93012
(805) 388-9004
(Address and Telephone Number of Principal
Executive Offices and Principal Place of Business)
Jim B. Tyner, Chief Executive Officer
1320 Flynn Road, Suite 402
Camarillo, California 93012
(805) 388-9004
(Name, Address and Telephone Number of Agent for Service)
Copies to:
Bruce W. McRoy, Esq.
Reicker, Clough, Pfau & Pyle, LLP
1421 State Street, Suite B
Santa Barbara, California 93101
(805) 966-2440 - TEL
(805) 966-3320 - FAX
Approximate date of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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(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,
check the following box. [ ] ____
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED PER SHARE OFFERING REGISTRATION FEE
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Common Stock,
No Par Value 500,000 Shares $10.00 per share $5,000,000 $1,390*
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* Estimated solely for the purpose of calculating the registration fee.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities & Exchange Commission, acting pursuant
to said Section 8(a), may determine.
PROSPECTUS SUBJECT TO COMPLETION; DATED ______________
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PROSPECTUS
INITIAL PUBLIC OFFERING PROSPECTUS
500,000 shares of common stock
$10.00 per share
TravelnStore.com, Inc.
1320 Flynn Road, Suite 402
Camarillo, California 93012
(805) 388-9004
We operate a Web site on the Internet through which users of travel services
access travel service providers and retail travel agencies.
The Offering
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Offering Proceeds
Per Share Minimum Maximum
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Public offering price $10.00 $1,200,000 $5,000,000
Underwriting discounts
and commissions $ 0.00 $ 0.00 $ 0.00
Proceeds to us $10.00 $1,200,000 $5,000,000
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This is our initial public offering. TravelnStore.com, Inc. will offer and
sell the shares covered by this offering directly to the investors. We have not
retained any underwriter or broker/dealer to assist in the offer and sale of the
shares.
There is no public market for the shares covered by this offering. After
the offering, the shares initially will not be listed on any exchange or through
Nasdaq or any other quotation source. (See, "UNDERWRITING - Secondary market".)
The price at which the shares of Common Stock may be resold after the
offering may not reflect the market price of our shares after the offering.
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INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 10.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon
the adequacy or accuracy of this prospectus. Any representation to the
contrary is a criminal offense.
The information in this prospectus is not complete and may be changed. We
cannot sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities, and it is not soliciting an offer to buy these
securities in any state where such an offer or sale is not permitted.
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TRAVELNSTORE.COM, INC.
LOGO
REPLICATION OF SELECTED SCREENS FROM TRAVELNSTORE.COM WEBSITE
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TABLE OF CONTENTS
PROSPECTUS SUMMARY ....................................................... 6
RISK FACTORS ............................................................. 10
DIVIDENDS ................................................................ 21
USE OF PROCEEDS .......................................................... 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS .......................................... 23
BUSINESS ................................................................. 27
MANAGEMENT ............................................................... 44
PRINCIPAL STOCKHOLDERS ................................................... 48
CERTAIN TRANSACTIONS ..................................................... 50
DESCRIPTION OF CAPITAL STOCK ............................................. 52
UNDERWRITING ............................................................. 53
LEGAL MATTERS ............................................................ 56
EXPERTS .................................................................. 56
ADDITIONAL INFORMATION ................................................... 57
INDEX TO FINANCIAL STATEMENTS ............................................ F-1
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PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
Prospectus. This summary may not contain all of the information that you should
consider before investing in the Common Stock. You should read the entire
Prospectus carefully, including "Risk Factors" and the financial statements,
before making an investment decision.
OUR BUSINESS
We created, maintain and promote the TravelnStore.com Web site which acts
as a navigational site to the Web sites created by a wide array of travel
service providers, such as cruise lines, tour companies, car rental firms,
destination resorts and hotel groups. Visitors to the TravelnStore.com Web site
can print out Certificates of Value for various travel services to which our
site provides links. These Certificates may be redeemed for discounts, upgrades
or other premiums designed to encourage the visitor to book a particular travel
service. Certificates may be redeemed at any of the 29,000 retail travel
agencies in the United States. We receive a commission or override from the
travel service provider for each Certificate that is redeemed. We also recruit
individual travel agencies to co-host our Web site within their market areas.
Agencies subscribe for ZIP codes within their market. When a visitor to our Web
site logs in from a subscribed ZIP code, that agency is graphically presented as
the local TravelnStore.com co-host agency. While Certificates may be redeemed at
any agency, a local co-host agency is presented as a preferred redemption
location. Using these methodologies, we are able to link the graphic
presentation of travel services on the Internet with the existing, retail
distribution infrastructure represented by the 29,000 retail travel agencies in
the United States.
OUR DIFFERENCE
Unlike other Internet travel companies, we do not directly sell travel
services over the Internet. The first part of the selling is done by the Web
sites of the travel service providers. The second part, which includes answering
specific questions and the paperwork, is done by the agents in the local, retail
travel agencies. For our business, this is very important. First, we do not have
to employ people to create content for our Web site because the content is
provided by the Web sites of the travel service providers. Second, we do not
have to employ people to answer phones, sell travel and create travel
documentation. We have employees who recruit and retain the co-host agencies,
work with the travel service providers to negotiate the Certificates of Value
and perform accounting functions to keep track of the Certificates and
commissions. We think that it is a good idea to use the power of the Internet to
graphically present a lot of information about travel so that people can decide
where they want to go and what they want to do. We know that once a person has
used the Internet to research their trip they like to use a travel agent to
complete their purchase. Our goal is to tie the two together in creative and
productive ways.
OUR STRATEGY
We intend to use the majority of the money that we raise from this Offering
to implement our marketing strategies which are designed to:
o Generate consumer traffic to the TravelnStore.com Web site by
implementing a comprehensive advertising and promotional program using
both online and offline media;
o Establish and expand relationships with travel service providers to
increase the depth and scope of the TravelnStore.com Web site; and
o Expand our existing network of our 300+ TravelnStore.com co-host
agencies towards an ultimate goal of 2000+ co-host agencies.
We also plan to invest in expanding our operational capacities in the
following areas.
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o TECHNOLOGY. Involvement in e-commerce requires a continuing commitment
to keep abreast of technological developments and opportunities in the
rapidly evolving Internet arena. To do this, we will need to invest in
new software, Web site design and equipment.
o MANAGEMENT. We must recruit, develop and retain management team
members who are experienced, committed and aggressive to drive the
growth of TravelnStore.com.
o OPERATIONS. We must recruit, develop and retain trained staff members
to operate efficiently within their individual capabilities and must
provide a productive work environment to maximize our operational
productivity.
We also want to grow the business by establishing strategic relationships
with both Internet and travel related firms. These relationships may include:
o Joint ventures designed to take advantage of the blending of our
strengths with the strengths of the joint venture partner;
o Long-term marketing relationships to enhance our presence on the
Internet or within the travel industry; and
o Acquisitions of companies whose market position or expertise will
better enhance our growth and/or operations.
TravelnStore.com was initially organized as a limited liability company on
August 18, 1998. Effective as of April 15, 1999, the limited liability company
was merged into the TravelnStore.com, Inc., a California corporation,
incorporated March 4, 1999. (See "Certain Transactions".) TravelnStore.com's
principal executive offices are located at 1320 Flynn Road, Suite 402,
Camarillo, California 93012 and its telephone number is (805) 388-9004.
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OUR OFFERING
We are offering shares of our Common Stock directly to you without using an
underwriter. Normally a company at our stage is being funded by venture capital.
Venture capitalists take higher risks in search of higher rewards. We are asking
you to assume that higher degree of risk by investing in our company at this
stage. However, you should read carefully the rest of this Prospectus so you can
determine if you are willing to take the risk of losing part or all of your
investment. If there are items that are unclear please contact our Investor
Relations Department at the above address. We want you to understand our
company, our challenges and our opportunity. (See, "UNDERWRITING".)
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Type of Securities Common Stock
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Minimum Shares to be Offered 120,000
Maximum Shares to be Offered 500,000
Maximum Shares Outstanding after this Offering 5,200,000*
Minimum Subscription The investor must purchase at least 200 shares
of Common Stock for a minimum investment of $2,000.
Suitability Standards Each individual investor must have a net worth of
at least $250,000 or a net worth of at least
$150,000 and gross income for each of the last two
years of at least $50,000, and anticipates having
at least that level of gross income for the
current tax year. For investors who are not an
individual, either the entity must have total
assets of at least $250,000 or the amount of the
investment must not exceed 5% of the entity's
total assets.
Interim Closing TravelnStore.com will not close on any
subscriptions until it has received subscriptions
for 120,000 shares. If it does not receive such
subscriptions by ________, 1999, TravelnStore.com
will refund all monies, without interest, and
terminate this offering. After accepting
subscriptions for a minimum of 120,000 shares,
TravelnStore.com may accept subscriptions for
additional shares as they are received.
Use of Proceeds Enhancement and marketing of the TravelnStore.com
Web site; recruitment of co-host travel agencies,
expansion of facilities, additional staff and
management, acquisition of computer-related
equipment, establishment of strategic
relationships, payment of trade payables, retirement
of debt, general and administrative purposes, and
working capital.
No Trading Market TravelnStore.com does not intend to immediately
list the shares for trading on any exchange, the
Nasdaq quotation system or the electronic bulletin
board. It will seek a listing no earlier than 4 months
after the close of this offering.
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*Based upon shares outstanding as of April 30, 1999. Excludes: (i) 500,000
shares of Common Stock reserved for issuance under TravelnStore.com's 1999
Equity Incentive Plan; (ii) up to 240,000 shares of Common Stock issuable upon
conversion of Convertible Notes previously issued by TravelnStore.com; and (iii)
up to 100,000 shares issuable upon exercise of outstanding Stock Option. (See
"MANAGEMENT -- Stock Option Plans" and "DESCRIPTION OF SECURITIES.")
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SUMMARY FINANCIAL DATA
The selected historical financial data presented below are derived from the
financial statements of TravelnStore, LLC, at the end of this Prospectus. The
financial statements for the period August 18, 1998 (date of inception) to
December 31, 1998 have been audited by Farber & Hass LLP, independent
accountants. The selected financial data set forth below and the financial
statements at the end of this prospectus are for TravelnStore.com, LLC, a
California limited liability company. Effective as of April 15, 1999, the
limited liability company was merged into TravelnStore.com, Inc., a California
corporation and the Registrant. The corporation had no operations prior to its
acquisition of the limited liability company.
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AT DECEMBER 31, 1998
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Balance Data Sheet
Cash, cash equivalents and short-term
investments $ 19,045
Total Assets $ 81,970
Current Liabilities $ 296,847
Working Capital $(214,877)
Long-Term Debt $ 225,000
Stockholders' Equity $(307,914)
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FOR THE YEAR ENDED
DECEMBER 31, 1998
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Statement of Operations Data
Revenues $ 23,128
Operating Expenses $ 326,356
Other Income (Expense) $ (4,086)
Net Income (Loss) $(308,114)
Net Income (Loss)
Per Common Share* $ (0.07)
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* Based on 4,700,000 shares of Common Stock issued and outstanding as of
April 30, 1999.
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RISK FACTORS
Investing in Common Stock is risky. You should carefully consider the following
risk factors and all other information contained in this Prospectus before
purchasing our Common Stock. Additional risks and uncertainties that are not yet
identified or that we currently think are immaterial may also materially
adversely affect our business and financial condition in the future. Any of the
following risks could materially adversely affect our business, operating
results and financial condition and could result in a complete loss of your
investment.
RISKS ASSOCIATED WITH OUR COMPANY
1. WE ARE A NEW COMPANY. We were only recently organized, in July 1998,
and have a limited operating history. We are subject to all the risks inherent
in the establishment and expansion of a new business enterprise. These include
problems of entering new markets, marketing of an innovative service, hiring and
training personnel, acquiring reliable computer systems and software, and
implementing operational controls.
In general, startup businesses are subject to risks and or levels of risk
that are often greater than those encountered by companies with established
operations and relationships. Startups often require significant capital from
sources other than operations. The management and employees of startup business
shoulder the burdens of the business operations and a workload associated with
company growth and capitalization that is disproportionately greater than that
for an established business. Any or all of the foregoing can have a material,
adverse effect on our business, financial condition and our operating results.
2. WE ARE A DEVELOPMENTAL STAGE COMPANY. We must be considered a
developmental stage company because we have been in operation for less than
twelve months. Our business plan is unproven and we must be able to adapt as we
grow. Companies at this point in their developmental process seldom seek to
register and offer stock in a public offering. Consequently, you are being asked
to invest at an earlier stage in our development than is typically the case in
an initial public offering. This Offering carries a higher degree of risk than a
typical initial public offering of stock.
3. WE EXPECT OPERATING LOSSES TO CONTINUE. We do not expect to operate
profitably in the near future. There is no assurance that revenue generated by
our sales will be sufficient to fund operations. We expect to incur losses for
the foreseeable future due to the significant costs associated with the
development and marketing of our services. We expect our operating losses to
continue until such time as our sales generate sufficient revenues to generate a
profit.
4. DOUBTS ABOUT OUR FUTURE PROFITABILITY. Our ability to attain
profitability will depend, in part, upon our ability to successfully develop and
market our services. We may not be able to successfully transition from our
current stage of development to stabilized operational revenues sufficient to
cover our expenses. While attempting to make this transition, we will be subject
to all the risks inherent in a growing business, including the needs to
adequately service and expand our customer base and to maintain and enhance our
current services. Our future profitability will be affected by all the risk
factors listed here.
5. THE COMPANY'S CONTINUING AS A GOING CONCERN DEPENDS UPON FINANCING
Our plans are dependent upon our closing of this Offering for no less than
$1,200,000. We believe that this will be sufficient to meet our capital
requirements for a minimum of twelve months. If we do not raise our minimum goal
of $1,200,000 in this Offering and we are unable to arrange alternative
financing, there will most likely be substantial doubt as to our ability to
continue as a going concern. Consequently our independent auditors have
qualified their report on our financial condition to state that if we do not
raise sufficient capital there is substantial doubt as to our ability to
continue as a going concern. See "Management Discussion and Analysis of
Financial Condition and Results of Operation."
6. WE MUST HAVE RELIABLE PERSONNEL. We anticipate that we must rapidly
expand our operations to establish an adequate customer base, and reliable
market for our services. We have added a number of key managerial and technical
employees, and we expect to add additional key personnel in the future. This
expansion has placed, and is expected to continue to place, a significant strain
on our management and our operational and financial resources. In addition to
addressing usual operations, management must expand, train and manage our
growing employee base.
a. STAFF. Our future success depends upon our ability to identify,
attract, hire, train, retain and motivate skilled technical, marketing,
accounting and customer service employees. Competition for such personnel is
intense and there can be no assurance that we will be able to successfully
attract, assimilate and/or retain qualified staff personnel. If we fail to
acquire a productive staff, it will adversely affect our business, operating
results and financial condition.
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b. KEY PERSONNEL. We are dependent on the efforts and relationships
of Jim Tyner, John Toal and other executive officers currently engaged or to be
engaged at some future date. If any of these individuals become unable to
continue in their role, our business or prospects could be adversely affected.
We have not entered into written employment agreements with any of these key
personnel. There can be no assurance that any of these individual(s) will
continue in their present capacity for any particular period of time. We do not
maintain key man life insurance covering any of our executive officers or other
members of senior management. If we are unable to obtain and maintain an
effective team of key employees to operate and manage our growth, our business,
operating results and financial condition could be materially and adversely
affected.
c. CHIEF FINANCIAL OFFICER. Richard Bush is our Chief Financial
Officer. Mr. Bush currently serves as the Vice President of Finance of Fairfield
Manufacturing, Inc. which is located in West Lafayette, Indiana. Mr. Bush has
agreed to serve as our Chief Financial Officer until such time as we are able to
identify and retain a full-time Chief Financial Officer. We propose to begin
actively looking for a full-time C.F.O. promptly after the completion of this
Offering.
6. WE MAY NEED MORE CAPITAL. We require working capital to fund our
operations and will use a portion of the net proceeds from this Offering for
that purpose. We currently anticipate that the net proceeds of the Offering will
be sufficient to meet our capital requirements for a minimum of 12 months. If we
need additional capital to establish our desired market position or for other
reasons, there can be no assurance that such capital will be available or will
be available on terms that are acceptable to TravelnStore.com. We anticipate
that we will not be able to obtain such additional capital from banks or similar
financial institutions.
7. OUR FINANCIAL FORECASTS MAY BE IN ERROR. Our financial forecasts
included in this Prospectus are our best estimates of the expected performance
based upon assumptions that we believe are reasonable. We can give you no
assurance, however, regarding the attainability of the forecasts or the
reliability of such assumptions. Certain of the assumptions inevitably will not
materialize and unanticipated events will occur for any number of reasons,
including the following:
o Changes in general economic conditions and other factors that affect
demand for travel services;
o Changes in the travel industry itself;
o Changes in our relationships with travel suppliers;
o Competitive factors including changes in travel services distribution
and payment methods; and
o The success of TravelnStore.com's operating and growth strategies.
Therefore, the actual results of operations likely will vary from the
forecasts and the variations may be material. The forecasts are included solely
to give you information concerning our best estimates of future operating
results based upon certain assumptions. We are making no representation that
such results will be achieved. Our independent accountants have not compiled or
examined these forecasts and are not offering an opinion or any form of
assurance of their accuracy. We can give you no assurance that our operating
results will in any way approximate these projected results.
8. WE MAY WANT TO MAKE ACQUISITIONS. We may seek to increase our
revenues, expand our markets or increase our products and services in part
through the acquisition of existing travel or internet related businesses.
Recent experience shows that businesses that operate primarily through an
Internet presence may need to acquire or combine with other businesses in order
to maintain or enhance market position.
Acquisitions would expose us to increased risks, including, but not limited
to:
o Risks associated with assimilating the new operations and personnel;
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o The diversion of resources from our existing operations;
o The inability to generate revenues from such new acquisitions
sufficient to offset associated acquisition costs;
o The establishment and maintenance of uniform standards, procedures and
policies and the impairment of relationships with employees and
customers as a result of the integration of new operations and
employees;
o Additional expenses associated with amortization of acquired
intangible assets or potential businesses; and
o Customer dissatisfaction or performance problems at an acquired
company could have an adverse effect on our reputation.
Decisions regarding acquisitions are the sole prerogative of our
management. We will use our best efforts to undertake a thorough due diligence
review of any acquisition candidate prior to committing to the acquisition.
However, there can be no assurance that businesses we acquire will achieve the
anticipated revenues and earnings.
Should we elect to undertake acquisitions, part or all of the funds
utilized for those acquisition(s) may come from funds generated by this
Offering. We may elect to use other consideration for acquisitions such as stock
and/or other securities. If we issue additional stock or securities to make an
acquisition, your share position likely will be diluted.
There are no assurances that, if we seek to pursue any acquisition, we will
be able to assemble the stock, securities or other consideration needed to
complete the acquisition. If we are unable to assemble the needed consideration,
we may be unable to implement an acquisition strategy. You should not subscribe
to this Offering with the expectation that we will be able to grow based upon an
acquisition strategy.
9. WE MUST PROTECT OUR TRADEMARK. We have applied to the U.S. Patent and
Trademark Office to register the service marks "TravelnStore" and
"TravelnStore.com." We also have registered our Web site "TravelnStore.com." We
have not applied to register or otherwise protect either of such marks or our
Web site domain name in any country other than the United States. There are no
assurances that the applications will be approved and the registrations granted
or that any other person will not challenge the registration or attempt to
infringe upon our marks.
10. WE MUST MAINTAIN GOOD INDUSTRY AND CUSTOMER RELATIONS. Our growth is
keyed to our relationships with travel consumers, retail travel agencies and
travel industry suppliers, such as airlines, hotels and rental car companies. We
strive to negotiate and maintain our relationships so that they are secure and
long term. However, these relationships and agreements generally are terminable
by either party on short notice and without cause. Consequently we cannot
guarantee that any particular relationship or agreement will endure for any
specific period of time.
Changes within the travel industry may make our agreements and
relationships less attractive in the future as the industry adapts to meet
challenges posed by competition and technological advances. In addition, an
actual or perceived decline in the quality of travel products and services
provided by suppliers could adversely affect our reputation. Diminished demand
for the products and services of our travel suppliers could have a material
adverse effect on our business, financial condition and operations.
We may experience loss of contracts, changes in our pricing agreements,
commission structures or incentive override arrangements. We may experience
restricted access to travel suppliers' products and services.
11. WE MUST HAVE EFFECTIVE INFORMATION SYSTEMS. We use computer technology
to communicate information to, and to provide services for, our customer base.
We also use it to communicate with our suppliers, vendors and others with whom
we interact. A reliable and effective information system is critical to our
operating results. Any system interruptions that result in the unavailability of
our online sites or other services could have a material, adverse effect on our
business, operating results and financial condition.
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RISKS ASSOCIATED WITH OUR BUSINESS
Our business bridges the travel and online commerce industries. Risks of
doing business within the travel industry may be clearly stated in terms of a
historical perspective. Risks of operating within the emerging industry of
online commerce are not as clear. Our management team and staff have experience
in the travel industry. This experience may not be applicable or transferable to
the online commerce industry. We will have to be able to quickly recognize and
adapt to the changes as they occur in both industries, but particularly in the
online commerce industry.
1. OUR RISKS ASSOCIATED WITH THE TRAVEL INDUSTRY.
a. THE TRAVEL INDUSTRY'S HISTORICAL RISKS. There are traditional
cycles and fluctuations that can adversely affect the travel industry. Leisure
travel is dependent upon personal discretionary spending levels and is sensitive
to changes in economic conditions. Travel purchases tend to decline during
general economic downturns and recessions. The travel industry is highly
susceptible to unforeseen events such as political instability, regional
hostilities, fuel price escalation, travel-related accidents and unusual weather
patterns. Also, governmental regulations can directly or indirectly increase the
cost of travel or influence the way people travel and/or their respective
destinations. Any event which results in decreased travel generally would not be
good for our business.
b. EMERGING RISKS WITHIN THE TRAVEL INDUSTRY. The traditional way
the travel industry has marketed its products is being challenged on two new
fronts. First, there is increasing competition directly from travel service
providers, such as airlines, hotels, cruise ships and car rental firms. They are
seeking new and innovative ways to market their products directly to the travel
consumer via online commerce and by other means. Second, there are emerging
internet businesses whose focus is to compete directly with the traditional
travel agency by marketing travel products through online commerce. Our core
business involves encouraging the travel consumer to patronize retail travel
agencies. Any trends that direct consumers away from agency patronage would not
be good for our business.
c. AVAILABILITY OF TRAVEL SERVICES. There is no requirement on the
part of the travel service providers to make their services available to
visitors to TravelnStore.com. If there were a substantial change in the
marketing methodology of a supplier or suppliers, we may not be able to offer
their services through our Web site. If this were to happen, it could severely
restrict the scope of travel services which could be accessed through
TravelnStore.com. This could reduce the volume of our business.
d. PAYMENTS OF COMMISSIONS AND OVERRIDES. A majority of our
projected revenue comes from the payment by travel service providers of
commissions and overrides for travel sales. There is no requirement on the part
of travel service providers to continue to pay commissions and overrides for
travel sales in general and to us specifically. They also may elect to reduce
the commission and/or override rates. Airlines have reduced their commission
rates dramatically in the past few years. Other travel service providers may
also seek to reduce their distribution costs by reducing their commission rates.
Reduction in these rates would reduce our income.
e. SEASONALITY OF THE TRAVEL INDUSTRY. The travel industry
experiences seasonality in the demand for travel services. This means that
during certain parts of the year travel sales, and particularly leisure travel
sales, are reduced. Generally, the months of the year are more productive as
people invest in their summer vacations. This seasonality produces fluctuations
in the income of all companies in the travel industry to varying degrees. Our
company will not be immune to these fluctuations. As the stock price of a public
company is often affected by the most recent quarterly results, our stock price
may be adversely affected at certain times of the year as the seasonality of the
travel industry affects our quarterly results.
2. OUR RISKS ASSOCIATED WITH THE ONLINE COMMERCE INDUSTRY. The online
commerce industry is an emerging industry that is growing and rapidly changing.
Like other Internet related businesses, we must be able to develop our business
so that it will be profitable. There are few proven online commerce business
models which we can emulate.
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We also must be able to compete effectively for Internet users. We cannot be
successful unless we are able to define an effective business strategy,
implement it and continually adapt it as the Internet matures.
MARKET COMPETITION
1. COMPETITION TO TRADITIONAL RETAIL TRAVEL AGENCIES. Certain emerging
internet businesses use the Internet to redirect consumers from traditional
travel agencies. Our business uses the Internet to direct consumers to
traditional retail travel agencies. While projections of Internet travel sales
within the next two years only approach 5% of the volume of travel sales
conducted by the 29,000 existing retail travel agencies, this 5% could adversely
affect retail travel agencies and our business.
2. COMPETITION FOR INTERNET USERS. Many of the travel related Web sites
on the Internet are owned and operated by companies who are established and
better financed than are we. Many have already obtained exclusive agreements
with the large portal sites and have already invested considerably in
establishing their brand names on the Internet. We must invest in advertising,
promotion and establishing any strategic relationships to effectively compete
for Internet consumers. We may not be able to compete at a level that will be
sufficient to execute our business plan.
3. COMPETITION WITH TRAVEL SERVICE PROVIDER WEB SITES. Our Web site,
TravelnStore.com acts as a navigational site to the proprietary sites of various
travel service providers. These sites, to varying degrees, compete for Internet
users and for Internet travel sales. If consumers increase their purchases
directly from these proprietary Web sites without navigating through
TravelnStore.com our business will be adversely affected.
TECHNOLOGY COMPETITION.
1. RAPID CHANGES IN TECHNOLOGY. The Internet is a rapidly evolving
technology. We must keep abreast of this technological evolution. To do so, we
must continually improve the performance, features and reliability of our online
services and equipment. If we fail to maintain a competitive level of
technological expertise we will not be able to compete in our market.
2. WEB SITE DESIGN. New technologies and the emergence of new industry
standards and practices could render our existing online sites and our
proprietary technology obsolete. The development of Web sites and related
technology entails significant technical and business risks and can require
substantial expenditures and lead time. Our success will depend, in part, on our
ability to enhance our existing services, to develop new Web site services and
technology that address the increasingly sophisticated and varied needs of
Internet users.
3. TIMELY RESPONSE. We must be able to respond to technological advances
and emerging industry standards and practices on a cost-effective and timely
basis. We can offer no assurance that we will be able to successfully use new
technologies effectively or adapt our Web sites in a timely manner to a
competitive standard. If we are unable to adapt in a timely manner to changing
technology, market conditions or customer requirements we may not be able to
successfully compete in our market.
4. SYSTEM AVAILABILITY. Our business relies on the availability and
capacity of both our Internet service provider and the Internet. Any
interruptions in the availability of our Web sites may reduce our revenue. If
these interruptions are prolonged or repetitive, they could materially and
adversely affect our revenue. Interruptions in our services may be beyond our
control if they take place on the Internet in general. Any failure by our
Internet service provider to maintain our server in an operationally
satisfactory manner may reduce our revenue.
Any significant failure on our part to adapt and compete effectively in the
online commerce arena we would likely have a material, adverse affect on our
business results of operations and financial position.
5. WE ARE RELYING ON THE INTERNET. Our business is directing internet
consumers to retail travel agents. As such, we are not dependent on the Internet
for the sale of our services directly to consumers. Nonetheless, our revenues
and any future profits are substantially dependent upon the widespread
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<PAGE> 15
acceptance and use of the Internet as an effective medium of commerce by
consumers. For us to be successful, these consumers must accept and use new ways
of conducting business and exchanging information. Rapid growth in the use of
the Internet is a recent phenomenon, and there can be no assurance that a
sufficiently broad base of consumers will adopt, and use, the Internet as a
medium of commerce, particularly in the travel industry.
6. WE ARE RELYING ON THE GROWTH OF ONLINE COMMERCE. Generally, demand for
recently introduced services and products over the Internet has been subject to
a high level of uncertainty and there exist few proven profitable services and
products in this relatively new field of commerce. The development of the
Internet as a viable, commercial marketplace is subject to a number of factors
including continued growth in the number of users, concerns about privacy,
continued development of the necessary technological infrastructure and the
development and acceptance of complementary products and services. If the
internet does not become a viable, commercial marketplace, our business,
operating results and financial condition could be materially adversely
affected.
7. GOVERNMENTAL REGULATION OF THE INTERNET COMMERCE AND OTHER ISSUES MAY
LIMIT OUR GROWTH. Currently there are few laws or regulations that specifically
regulate communications or commerce on the Internet. Laws and regulations may be
adopted in the future that address issues such as user privacy, pricing, and the
characteristics and quality of products and services. Several telecommunications
companies have petitioned the Federal Communications Commission to regulate
Internet service providers and online services providers in a manner similar to
long distance telephone carriers and to impose access fees on these companies.
Any imposition of access fees could increase the cost of transmitting data over
the Internet. Moreover, it may take years to determine the extent to which
existing laws relating to issues such as property ownership, libel and personal
privacy are applicable to the Internet. Any new laws or regulations relating to
the Web could adversely affect our business.
8. WE RELY ON THIRD PARTIES FOR OUR WEB SITE OPERATIONS. IF THESE SYSTEMS
FAIL, THEY COULD DISRUPT OR DELAY USER TRAFFIC, WHICH COULD IMPAIR OUR BUSINESS.
Substantially all of our Web site communications hardware and computer hardware
operations are located at Zest.Net's facilities in Ventura, California. Zest.Net
provides Web site hosting services. Fire, floods, earthquakes, power loss,
telecommunications failures, break-ins and similar events could damage these
systems and cause interruptions in our services. Computer viruses, electronic
break-ins or other similar disruptive problems could result in reduction or
termination of our services by our customers or otherwise adversely affect our
Web site. Our business could be adversely affected if our systems were affected
by any of these occurrences. We currently do not maintain insurance to cover
these business risks. We do not presently have a formal disaster recovery plan.
Our Web site must be able to accommodate a high volume of traffic and
deliver frequently updated information. Our Web site has experienced in the past
and may in the future experience slower response times or decreased traffic for
a variety of reasons. In addition, our users depend on Internet service
providers, online service providers and other Web site operators for access to
our Web site. Many of them have experienced significant outages in the past, and
could experience outages, delays and other difficulties due to system failures
unrelated to our systems. Moreover, the Internet network infrastructure may not
be able to support continued growth. Any of these problems could adversely
affect our business.
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<PAGE> 16
RISKS ASSOCIATED WITH THIS OFFERING
1. WE DO NOT HAVE AN UNDERWRITER. We are making this Offering without the
benefit of an underwriter. Underwriters typically review a company in great
detail as part of their due diligence process. No underwriter has reviewed
TravelnStore.com, our management, business plan, operations, financials or
competitiveness in our marketplace. Consequently, you must rely solely on your
own due diligence and review of such matters and judge the likelihood of our
success in our marketplace and opportunity for profitable operation.
2. THIS IS A "MINIMUM/BEST EFFORTS" OFFERING. We're making this Offering
on a minimum/best efforts basis. This means that we must sell a minimum amount
of stock but we may not sell all of the stock that is being offered. If we sell
only the minimum number of shares, this Offering will only raise sufficient
capital for us to operate for twelve (12) months. With only the minimum
offering, we may not generate sufficient capital to execute our plan of business
at a level that will generate a profit.
We have set a minimum of $1,200,000 of stock to be sold in this Offering.
Until acceptable subscriptions for such minimum amount have been received, all
subscriptions will be held in an escrow account. Once deposited, these funds
will only be returned to the investor if the minimum amount of $1,200,000 is not
subscribed in the 120 day Offering period.
Investors who subscribe for shares in the earlier stages of the Offering,
will assume a greater risk than investors who subscribe for shares later in the
Offering as subscriptions approach the maximum level of $5,000,000. This is
because as we approach the maximum level we have more promotional and operating
capital to use.
3. WE MUST MARKET THIS OFFERING EFFECTIVELY. In addition to running our
business, we also must market this Offering effectively. To do this, we must
implement a comprehensive program to make a sufficient number of potential
investors aware of this Offering. We must be able to produce and distribute the
Offering materials in a cost effective manner. We must establish and maintain an
Investor Relations Department. We must comply with all applicable federal and
state securities regulations. The success of this Offering is in part dependent
upon our ability to implement our plan of distribution. If we are unable to do
this, for any reason, we may not be able to raise sufficient capital to
implement our business plan.
4. THE MAXIMUM CAPITAL MAY BE INADEQUATE. Even if we sell all of the
shares covered by this Offering and raise the maximum proceeds, such proceeds
may be insufficient to implement our business plan to the point that we achieve
profitability. There is no guarantee that the funds generated by this Offering
will be sufficient to cover operating losses or to address the financial
requirements for our growth. (See "Use of Proceeds"). The failure of operating
revenues and/or funds from this Offering to meet the expenses associated with
our operations and growth, could have a material, adverse impact on our
business, our financial condition and your investment.
5. WE ARBITRARILY DETERMINED THE SHARE PRICE. We arbitrarily set the
price of the shares we are offering based upon the amount of capital we wished
to raise and the percentage of our Company that we were willing to sell at this
point in our development. We established the price of the shares and the value
of our Company without independent appraisal. The price has no relationship to
book value per share, current earnings or other generally accepted measurement
of value. You should only invest if you agree the price we have set is
reasonable based upon our prospects.
6. YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION. The offering price
of the Common Stock is substantially higher than the tangible book value per
share of the outstanding Common Stock. If you purchase shares in this Offering
you will incur immediate and substantial dilution, and our existing stockholders
will receive a material increase in the tangible book value per share of their
shares of Common Stock. If we sell the maximum number of shares in this
Offering, the immediate dilution to new investors will be $9.12 per share or
91.2%.
7. WE ARE NOT LIMITED IN OUR USE OF PROCEEDS. We are reserving the right
to use the proceeds from this Offering in any manner that we deem most effective
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<PAGE> 17
in executing our business plan. We have set forth in the "Use of Proceeds"
section the primary areas of operation in which we expect to use the proceeds.
The proportional amounts that we allocate to each area will be determined as we
encounter changing circumstances and opportunities. We can make no guarantees
that the decisions on allocations will result in profitable operations. If we
are unable to allocate our capital effectively, it will adversely affect our
business, revenues, profitability and financial condition.
8. OUR SHARES HAVE NEVER BEEN TRADED PUBLICLY. This is our initial public
offering of shares. To this point, there has not been a market for our shares.
We cannot give any assurances that a market will develop, or, if such a market
should develop, that it will be sustained with sufficient liquidity to permit
you to sell your shares at any time. We also cannot give any assurance to you
that your shares could ever be sold at or near the offering price, or at all,
even in an emergency.
9. WE DO NOT INTEND TO LIST OUR SHARES ON AN EXCHANGE FOR AT LEAST FOUR
MONTHS AFTER THE OFFERING. Because we are directly selling our stock at a fixed
price of $10.00 per share, we do not intend to list our stock on any exchange or
through the NASDAQ quotation system for secondary trading until such time as we
have closed our Offering. This is to maintain an orderly Offering. If you are an
early investor in this Offering you may have to hold your stock for several
months before a secondary market becomes available to you.
We do not anticipate applying to list our Common Stock on any exchange or
through the Nasdaq quotation system for a period of at least four (4) months
after the closing of the Offering for the minimum number of shares. There will
be no public market for resale of the Common Stock until the Common Stock is
listed on an exchange or quoted through Nasdaq. As we may not be able to close
the Offering on the minimum number of shares for up to one hundred twenty (120)
days, there may be no secondary trading market for the Common Stock for a period
of eight (8) months or more after any investor subscribes for shares.
There are many requirements by various exchanges which we may or may not be
able to meet at the time we wish to list our stock for trading. If we are not
able to list our stock, or list our stock on an active exchange or find suitable
market maker(s) for our stock, you may be unable to sell your stock at or near
your purchase price.
10. A SECONDARY OFFERING MAY NOT BE AVAILABLE. It is our intent to make a
secondary Offering of Common Stock at the time we are ready to list our stock on
an exchange. There are several factors relating to our business, our industry,
the economy, stock market activity and the growth and position of our company
that will determine whether we can successfully make a secondary Offering. We
have no control over most of these factors. If we are unable to make a secondary
Offering it can substantially affect our ability to list our stock and your
ability to sell your stock.
11. WE DO NOT ANTICIPATE PAYING DIVIDENDS. We do not anticipate paying any
cash dividends on shares of Common Stock in the foreseeable future. The future
of payment of dividends is directly dependent upon our future earnings, our
financial requirements and other factors to be determined from time to time by
our management. For the foreseeable future, we anticipate that any earnings
which may be generated from our operations, will be used to finance the growth
of TravelnStore.com even if our operations are profitable. Our issuance in the
future of any shares of Preferred Stock may also effect our ability to pay
dividends on the Common Stock. (See, "Dividends" and "Description of
Securities")
12. INVESTING IN STOCKS IS RISKY. Once a market for our shares is
established, fluctuations in the stock market can greatly affect the value of
our shares irrespective of the performance of our company at any given time. The
market price of our stock may be subject to significant fluctuations in response
to quarter to quarter variations in our operating results, announcements by us
or our competitors of new products, services or technological innovations and
other events.
13. INTERNET RELATED STOCKS HAVE BEEN VERY VOLATILE. Recent stock market
activity shows that shares of businesses marketing products or services through
the online commerce industry can be subject to greater volatility than those of
businesses in more established fields such as manufacturing or traditional forms
of sales or services. Accordingly, many analysts caution that stock investments
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<PAGE> 18
within the online commerce industry, where values have often risen out of
proportion to historic price to earnings ratios, should be considered highly
speculative and are appropriate only for investors who can bear significant
risks.
14. OUR CURRENT STOCKHOLDERS WILL CONTINUE IN CONTROL. Even if we sell the
maximum number of shares covered by this Offering, our current stockholders and
our management team will continue to hold approximately 90% of the outstanding
Common Stock. This means that they will be able to elect a majority of our Board
of Directors and control other actions which require a vote of the stockholders.
GENERAL RISKS
1. WE ARE SUBJECT TO VARIOUS REGULATIONS. Our Company is subject to
governmental regulations that effect how we do business. Our company may be
directly affected by existing, or new regulations concerning the travel
industry, the Internet, and general business companies with publicly traded
securities.
a. THE TRAVEL INDUSTRY. Certain segments of the travel industry are
heavily regulated, domestically by Federal and state governments, and
internationally, by foreign governments. Such regulation, directly or
indirectly, affects all businesses in the travel industry. Fiscal regulations,
mostly in the form of taxes or other fees, are pervasive throughout the travel
industry. Any negative impact on the travel industry through existing or new
regulations may adversely affect our operations.
b. THE INTERNET. National, state and local governments are
evaluating whether new laws should be enacted to regulate the Internet and
online commerce. These new laws and regulations could address issues such as
property ownership, sales and other taxes and personal privacy of online
customers and users. Furthermore, the growth of online commerce may prompt calls
for more stringent consumer protection laws. It is impossible to predict how any
such laws and regulations may affect us and our operations. Any such new laws
and regulations could have a material adverse effect on our business, operating
results and financial condition.
c. GENERAL BUSINESS. We are subject to regulations applicable to
businesses generally. The adoption of any additional laws or regulations may
decrease the growth of our company, decrease the demand for our services and
increase our cost of doing business. Changes in tax laws also could have a
significant adverse effect on our operating results and our financial condition.
d. SECURITIES REGULATIONS. As a public company, we will be subject
to both state and federal securities regulations governing how we structure our
debt and equity securities, relate to our investors and present our business to
the public. We will assume increased operating costs in regards to accounting,
required securities filings and legal matters that a private company does not
incur. Any failure on our part to conform to existing regulations may subject us
to sanctions and increased compliance costs. New regulations may require us to
expend additional time and money to comply. Money that we use complying with
these regulations reduces the amount of money we have available to operate and
grow our business.
2. WE MUST MAKE SURE THAT OUR SYSTEMS ARE YEAR 2000 COMPLIANT. We are
aware of the issues associated with the programming code in existing computer
systems as the year 2000 approaches. The year 2000 problem is pervasive and
complex. Virtually every computer operation will be affected in some way by the
rollover of the two digit year value to "00." The issue is whether computer
systems will properly recognize date-sensitive information when the year changes
to 2000. Systems that do not properly recognize such information could generate
erroneous data or cause a system to fail. We are reviewing both our information
technology and our non-information technology systems to determine which are not
year 2000 compliant. We have not made any material expenditures to address the
year 2000 problem and we do not anticipate that we will be required to make any
such material expenditure in the future.
We are contacting all of our significant suppliers and service providers to
determine the extent to which we are vulnerable to their failure to address the
year 2000 problem. Although we do not believe our operations will be
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<PAGE> 19
significantly disrupted even if third-parties with whom we have relationships
are not year 2000 compliant, we can not guaranty that any year 2000 compliance
problems of third persons will not adversely affect our business or financial
performance. Because uncertainty exists concerning the potential costs and
effects associated with any year 2000 compliance, we intend to continue to make
efforts to ensure that third-parties with whom we have relationships are year
2000 compliant.
3. RISK OF LOW-PRICED SECURITIES. The Securities and Exchange Commission
(the "Commission") has adopted regulations which generally define "penny stock"
to be any equity security that has a market price (as defined) of less than
$5.00 per share or an exercise price of less than $5.00 per share, subject to
certain exceptions, including an exception for any equity security that is
quoted on The Nasdaq Stock Market. If the shares of Common Stock offered hereby
are removed or delisted from The Nasdaq Stock Market, the security may become
subject to rules that impose additional sales practice requirements on
broker-dealers who sell such securities. For transactions covered by these
rules, the broker-dealer must make a special suitability determination for the
purchaser of such securities and have received the purchaser's written consent
to the transactions prior to the purchase. Additionally, for any transaction
involving a penny stock, unless exempt, the rules require the delivery, prior to
the transaction, of a disclosure schedule prepared by the Commission relating to
the penny stock market. The broker-dealer also must disclose the commissions
payable to both the broker-dealer and the registered representative, current
quotations for the securities and, if the broker-dealer is the sole
market-maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market. Finally, among other requirements, monthly
statements must be sent disclosing recent price information for the penny stock
held in the account and information on the limited market in penny stocks.
Consequently, the "penny stock" rules may restrict the ability of purchasers in
this offering to sell the Common Stock offered hereby in the secondary market.
4. COMMON STOCK ELIGIBLE FOR RESALE. Of the 4,700,000 shares of Common
Stock presently outstanding, approximately 4,700,000 shares are "restricted
securities" and under certain circumstances may be sold in compliance with Rule
144 adopted under the Securities Act of 1933, as amended. Future sales of such
shares will in all likelihood depress the market price of our Common Stock.
5. PREFERRED STOCK AUTHORIZED. Our Articles of Incorporation authorize
the issuance of up to 1,000,000 shares of Preferred Stock, the terms,
preferences, rights and restrictions of which may be established by its Board of
Directors. Other companies on occasion have issued series of such Preferred
Stock with terms, rights, preferences and restrictions that could be considered
to discourage other persons from attempting to acquire control of such companies
and thereby insulate incumbent management. It is possible we could issue shares
of our Preferred Stock for such a purpose. Issuance of the Preferred Stock for
such purposes could have a depressant effect on the market value of the Common
Stock.
FORWARD-LOOKING STATEMENTS
This prospectus contains "forward-looking statements," which may include
the following:
o our business strategy;
o timing of and plans for the introduction or phase-out of products,
services, enhancements;
o plans for hiring additional personnel;
o entering into strategic alliances; and
o the adequacy of anticipated sources of funds, including the proceeds
from this offering, to fund our operations for at least the 12 months
following the date of this prospectus.
Other statements about our plans, objectives, expectations and intentions
contained in this prospectus that are not historical facts may also be
forward-looking statements. 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,
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<PAGE> 20
actual results could differ materially from those expressed or implied by these
forward-looking statements for a number of reasons, including those discussed
under "Risk Factors" and elsewhere in this prospectus. We assume no obligation
to update any forward-looking statements.
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<PAGE> 21
DIVIDENDS
Holders of Common Stock are entitled to receive such dividends as may be
declared by the Board of Directors. No dividends have been paid on the Common
Stock and no dividends are anticipated to be paid in the foreseeable future. We
intend to retain all earnings to finance the development and expansion of our
operations.
We are authorized to issue shares of Preferred Stock. Any shares of
Preferred Stock that are issued may preclude the payment of any dividends on the
Common Stock until dividends in a certain amount have been paid on the Preferred
Stock. We do not have any present plans to issue any shares of Preferred Stock.
USE OF PROCEEDS
We estimate that the net proceeds to TravelnStore.com from this offering,
after deducting the expenses of the offering, will be $1,095,000, if we raise
only the minimum amount, and $4,880,000, if we raise the maximum amount. Such
proceeds will be applied substantially as follows.
<TABLE>
<CAPTION>
APPROXIMATE
-------------
APPLICATION OF PROCEEDS DOLLAR AMOUNT
----------------------- -------------
Minimum Offering Maximum Offering
---------------- ----------------
<S> <C> <C>
Enhance and Market Web site $ 540,000 $3,330,000
Co-host Agency Recruitment $75,000 $250,000
Additional Staff & Management $80,000 $285,000
Strategic Relationships $50,000 $250,000
Additional Equipment $20,000 $45,000
Facilities Expansion $15,000 $25,000
Trade Accounts Payable $75,000 $75,000
Working Capital $ 240,000 $ 620,000
----------- -----------
TOTAL $1,095,000 $4,880,000
</TABLE>
The holders of the Convertible Promissory Notes issued in the private
placement commenced January 1, 1999, have the right to require the payment of
the Notes prior their due date of December 31, 2000, if the proceeds of this
offering exceed $2,000,000. The maximum principal amount of the Notes that could
be payable in such event is $225,000. (See, "CERTAIN TRANSACTIONS.")
The amounts actually expended for such purposes may vary significantly and
will depend on a number of factors, including the amount of our future revenues
and other factors described under "Risk Factors." Accordingly, we will retain
broad discretion in the allocation of the net proceeds of this offering. A
portion of the net proceeds may also be used to acquire or invest in
complementary businesses, technologies, product lines or products. We currently
have no agreements or commitments with respect to any such acquisitions. Pending
such uses, we intend to invest the net proceeds of the offering in
investment-grade, interest-bearing securities.
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<PAGE> 22
DILUTION
At December 31, 1998, the pro forma net tangible book deficit of
TravelnStore, LLC was ($307,914), or approximately ($0.07) per share of Common
Stock based on 4,700,000 shares of Common Stock outstanding. The net tangible
book deficit per share represents the amount of TravelnStore.com's total assets
less the amount of its intangible assets and liabilities, divided by the number
of shares of Common Stock outstanding. After giving effect to the receipt of the
maximum net proceeds (estimated to be approximately $4,880,000) from the sale of
the shares offered hereby, the pro forma net tangible book value of
TravelnStore.com at December 31, 1998, would be $4,572,086, or approximately
$0.88 per share of Common Stock. This would result in dilution to the public
investors (i.e., the difference between the estimated public offering price per
share and the net tangible book value per share after giving effect to this
offering) of approximately $9.12 per share. If we receive only the minimum
subscription our pro forma net tangible book value would be $787,086, or
approximately $0.16 per share, and the public investors would have dilution of
$9.84 per share. The following table illustrates the per share dilution:
<TABLE>
<S> <C>
Assumed public offering price $ 10.00
Pro forma net tangible book deficit per share
at December 31, 1998 $ (307,914)
Increase in pro forma net tangible book value
per share attributable to new investors $4,880,000
Pro forma net tangible book value per share
after this offering $4,572,086
Dilution of net tangible book value per shares
to new investors $ 9.12
</TABLE>
For purposes of this table it is assumed that the offering price will be $10.00
per share.
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<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and related notes included elsewhere in this prospectus.
Except for historical information contained herein, the discussion in this
prospectus contains certain forward-looking statements that involve risks and
uncertainties. TravelnStore.com's actual results could differ materially from
those discussed below. Factors that could cause or contribute to such
differences include, among others, those discussed below, in "Risk Factors" and
elsewhere in this prospectus. TravelnStore. com does not intend to update these
forward-looking statements.
OVERVIEW
TravelnStore.com was founded in July of 1998 as a limited liability
company. In March of 1999 it was converted to a California corporation. We
created, maintain and promote the TravelnStore.com Web site which acts as a
navigational site to the Web sites created by a wide array of travel service
providers, such as cruise lines, tour companies, car rental firms, destination
resorts and hotel groups. Visitors to the TravelnStore.com Web site can print
out Certificates of Value for various travel services to which our site provides
links. These Certificates may be redeemed for discounts, upgrades or other
premiums designed to encourage the visitor to book a particular travel service.
Certificates may be redeemed at any of the 29,000 retail travel agencies the
United States. We receive a commission or override from the travel service
provider for each Certificate that is redeemed. We also recruit individual
travel agencies to co-host our Web site within their market areas. Agencies
subscribe for ZIP codes within their market. When a visitor to our Web site logs
in from a subscribed ZIP code, that agency is graphically presented as the local
TravelnStore.com co-host agency. While Certificates may be redeemed at any
agency, a local co-host agency is presented as a preferred redemption location.
Using these methodologies, we are able to link the graphic presentation of
travel services on the Internet with the existing, retail distribution
infrastructure represented by the 29,000 retail travel agencies in the United
States.
RESULTS OF OPERATIONS
The financial statements contained in this Prospectus represent our
operations from July 6, 1998 through December 31, 1998. As a new company, a
significant portion of our operations pertained to physically constructing our
work environment, installing our information systems, designing and testing our
Web site and recruiting and training employees. We also designed and structured
our marketing program to recruit our co-host agencies and designed and
structured a development program to negotiate agreements with various travel
service providers to participate in the TravelnStore.com Web site. These
activities required the expenditure of $326,356 through December 31, 1998.
Because the TravelnStore.com Web site is a navigational site to the
proprietary sites of various travel service providers, its structure is
relatively simple. Consequently, we were able to have the first version
operational by November 1, 1998. The launch of the site coincided with the
appearance of our first advertisements in the inflight magazines of United
Airlines, American Airlines, Delta Airlines, Southwest Airlines, U.S. Airways,
Continental Airlines, America West Airlines and TWA. We also promoted the launch
of TravelnStore.com by participating in two prestigious trade shows, the ASTA
World Congress in Los Angeles and the United States Tour Operators Association
show in Las Vegas.
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<PAGE> 24
In September of 1998, in advance of the launch of the site, we were able to
initiate recruitment of co-host agencies. Because of the simplicity and
compelling concept of our TravelnStore.com Web site, we were able to recruit
approximately 100 agencies prior to the launch of the Web site. Travel agencies
pay a minimum $60.00 registration fee and a $36.00 quarterly fee to participate
as co-host agencies. Pricing for the co-host fees is designed to primarily
offset the direct costs of operating the TravelnStore.com Web site. We were
pleased that income from co-host agency fees generated $23,128 through December
31, 1998. This reduced our operating loss to $303,228 through December 31, 1998.
The primary anticipated revenue model is reliant upon the receipt of
overrides and commissions through the use of our Certificates of Value. However,
we do not anticipate any significant income from the Certificates of Value prior
to fourth-quarter, 1999. This is because the overrides and commissions do not
become payable until after the related travel service is used by the purchaser.
Leisure travel services are often purchased 2 - 6 months in advance of use. Our
overrides generally range from 1% to 5% of the total travel purchase and our
commissions generally range from 5% to 10% of the total travel purchase.
As we have been operating for only a short period of time, we do not
believe that our experience to date provides a useful model for estimating how
much of our future revenues will be used for particular operating and
administrative expenses.
SOURCE OF FUNDS
We have been fortunate to have been able to maintain the integrity of our
equity structure by funding TravelnStore.com through a combination of straight
debt and convertible debt. Two of the original five members of TravelnStore.com
LLC advanced a total of $140,000 prior to December 31, 1998. We also issued six
convertible notes totaling $85,000. We anticipate that all six of the
convertible notes will convert to equity per the terms of the notes. Subsequent
to December 31, 1998 we have issued an additional $225,000 of convertible notes.
(See "CERTAIN TRANSACTIONS".)
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have primarily financed our operations through the
issuance of debt instruments inclusive of straight notes and convertible notes.
At the conclusion of this Offering, assuming we sell the minimum amount of stock
to close the offering, we will have approximately $1,095,000 of capital to
further our business plan. If we sell the maximum amount of stock allowed in
this Offering, we will have approximately $4,880,000 of capital to further our
business plan. The majority of capital which we raise over the minimum amount of
the Offering will be used to further promote the TravelnStore.com Web site. The
accelerated promotion of the Web site should accelerate the growth of our
business requiring us to more rapidly expand our physical work environment and
add personnel. It is our goal to reach 300,000 visitors to the TravelnStore.com
Web site each month. At our minimum funding, we believe we can reach that goal
within 12 months. At maximum funding, we believe we can reach our goal
considerably sooner.
GOING CONCERN QUALIFICATION IN AUDITORS REPORT
Our plans are dependent upon our closing of this Offering for no less than
$1,200,000. We believe that this will be sufficient to meet our capital
requirements for a minimum of twelve months. However, as a development stage
Company we have yet to generate sufficient operating revenue to offset our
operating losses. To date, we have funded our start-up costs and our operating
losses from capital obtained primarily through the issuance of straight and
convertible debt instruments. Because we have not raised sufficient capital,
prior to this Offering, to provide for our capital needs for a minimum of
twelve months, our independent auditors have qualified their report with
inclusion of a "Going Concern" statement. The purpose of this Offering is to
raise sufficient capital to continue our operations and execute our business
plan. To assure that this Offering raises the minimum capital which we believe
is necessary to continue operations and execute our business plan we set a
minimum of $1,200,000. If we do not reach this goal within 120 days from the
effective date of this Offering, all investor funds will the returned without
deduction.
YEAR 2000 COMPLIANCE
Compliance. Many currently installed computer systems and software products
are coded to accept or recognize only two digit entries in the date code field.
These systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and/or software used by many companies and governmental agencies may
need to be upgraded to comply with such Year 2000 requirements or risk system
failure or miscalculations causing disruptions of normal business activities.
State of Readiness. We have made a preliminary assessment of the Year 2000
readiness of our operating financial and administrative systems, including the
hardware and software that support our systems. We have developed an assessment
plan consisting of the following:
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o quality assurance testing of our internal software;
o contacting third-party vendors and licensors of material hardware,
software and services that are related to the delivery of our
services;
o assessing repair or replacement requirements; and
o implementing repair or replacement.
Costs. To date, we have not incurred any material expenditures in
connection with identifying, evaluating or addressing Year 2000 compliance
issues. Most of our expenses have related to, and are expected to continue to
relate to, the operating costs associated with time spent by employees in the
evaluation process and Year 2000 compliance matters generally. At this time, we
do not possess the information necessary to estimate the potential costs of
revisions to our systems should such revisions be required or of the replacement
of third-party software, hardware or services that are determined not to be Year
2000 compliant.
Risks. We are not currently aware of any Year 2000 compliance problems
relating to our systems that would have a material adverse effect on our
business, results of operations and financial condition, without taking into
account our efforts to avoid or fix such problems. There can be no assurance
that we will not discover Year 2000 compliance problems in our systems that will
require substantial revision. In addition, there can be no assurance that
third-party software, hardware or services incorporated into our material
systems will not need to be revised or replaced, all of which could be
time-consuming and expensive. Our failure to fix or replace our internally
developed systems or third-party software, hardware or services on a timely
basis could result in lost revenues, increased operating costs, the loss of
customers and other business interruptions, any of which could have a material
adverse effect on our business, results of operations and financial condition.
In addition, there can be no assurance that governmental agencies, utility
companies, Internet access companies, third-party service providers and others
outside of our control will be Year 2000 compliant. The failure by such entities
to be Year 2000 compliant could result in a systemic failure beyond our control,
such as a prolonged Internet, telecommunications or electrical failure, which
could also prevent us from providing our services, decrease the use of the
Internet or prevent users from accessing our Web site, which could have a
material adverse effect on our business, results of operations and financial
condition.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standard Board ("FASB") recently issued Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and displaying
comprehensive income and its components in financial statements. Comprehensive
income, as defined, includes all changes to equity (net assets) during a period
from non-owner sources. SFAS No. 130 is effective for financial statements for
fiscal years beginning after December 15, 1997. To date, TravelnStore.com has
not had any transactions that are required to be reported in comprehensive
income.
The FASB recently issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for the
way public business enterprises are to report information about operating
segments in annual financial statements and requires those enterprises to report
selected information about operating segments in interim financial reports. SFAS
No. 131 is effective for financial statements for fiscal years beginning after
December 15, 1997. TravelnStore.com has determined that it does not have any
separately reportable business segments.
The American Institute of Certified Public Accountants issued Statement of
Position ("SOP") No. 98-1, "Software for Internal Use," which provides guidance
on accounting for the cost of computer software developed or obtained for
internal use. SOP No. 98-1 is effective for financial statements for fiscal
years beginning after December 15, 1998. TravelnStore.com does not expect that
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the adoption of SOP No. 98-1 will have a material impact on its financial
statements.
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BUSINESS
The following discussion contains forward-looking statements that involve
risks and uncertainties. These forward-looking statements are usually
accompanied by words such as "believes," "anticipates," "plans," "expects" and
similar expressions. Our actual results may differ materially from the results
discussed in the forward-looking statements because of factors such as the risks
described in "Risk Factors" beginning on page 10.
OUR BUSINESS
In July, 1998, we commenced operations through TravelnStore, LLC, a
California limited liability company. We launched the TravelnStore.com Web site
on November 1, 1998. In April, 1999 we completed a merger transaction in which
we acquired all of the business, assets and liabilities of TravelnStore, LLC.
INTRODUCTION
Our founders backgrounds include experience in the retail travel agency
industry both at the individual agency level and at the national, multi-agency
and consortium level. We believed that if we linked the graphical presentation
of travel services on the Internet with the personalized service available from
professional, experienced travel agents working in the 29,000 retail travel
agencies in the U.S., consumers would receive maximum value in their travel
arrangements.
Studies which have been conducted by national research firms such as
Forrester Research and Jupiter Communications have shown that only a relatively
small percentage of Internet users actually book travel online. The majority use
the Internet to research their planned trips and comparison shop the various
travel service providers who offer travel services that meet their needs. Having
completed their research and shopping, the majority tend to book with a local
travel agent. The more complex or expensive their itinerary, the more likely
they are to use the services of a professional travel agent.
We designed the TravelnStore.com Web Site as a database driven site. This
means that the information that we present graphically on the site is generated
out of a database of information. This flexibility allows us to add, change and
delete information quickly and economically. While we developed the site, we
began recruiting travel agencies into our co-host agency program and negotiating
with travel service providers to enter into contracts that would pay us
commissions and/or overrides for sales of their services generated through our
Web Site. We also negotiated with the travel service providers for discounts,
gifts or upgrades to be used as incentives for consumers to use a local, retail
travel agency to complete their travel service purchase transaction.
OUR CONCEPT
We created, maintain and promote the TravelnStore.com Web site as a
navigational site to the Web sites owned by a wide array of travel service
providers, such as cruise lines, tour companies, car rental firms, destination
resorts and hotel groups. Visitors to our Web site can print Certificates of
Value for travel services of the providers that are linked to our Web site.
These Certificates may be redeemed at the local retail travel agency for
discounts, upgrades or other premiums designed to encourage the visitor to book
a particular travel service. We receive a commission or override from the travel
service provider for each Certificate that is redeemed.
We also recruit individual travel agencies to co-host the TravelnStore.com
Web site within their own market areas. Agencies subscribe for their local
market ZIP codes so that when a visitor to our Web site logs in from a
subscribed ZIP code, that agency is graphically presented as the local co-host
agency. While Certificates may be redeemed at any agency, a local co-host agency
is presented as a preferred redemption location.
Using these methodologies, we are able to link the graphic presentation of
travel services on the Internet with the existing, retail distribution
infrastructure represented by the 29,000 retail travel agencies in the United
States.
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OUR COMPETITION
We do not directly sell travel. However, our revenue is derived from travel
sales wherein Internet users print and redeem our Certificates of Value at
local, retail travel agencies. Consequently, we compete, directly or indirectly,
with every other travel services distributor. Because we bridge the online
presentation of travel services on the Internet with the brick and mortar
physical locations of retail travel agencies, we are competing with both online
and offline distribution channels. These channels include not only travel
agencies but also direct sales from travel service providers to the public.
While in the broadest sense, we compete with other travel sales
distribution channels, we have not been able to identify a direct competitor for
our online services. There is no proprietary nature to our methodologies. We
must rely on our first-to-market position and our ability to maintain our
first-to-market position as imitators launch competing Web sites.
ONLINE AGENCIES
Several companies, such as Preview Travel, Microsoft Expedia, and
Travelocity, have been established in the last three years to act as online
travel agencies. They primarily generate revenue by consumers making their own
bookings online by selecting the travel service, creating a record and
presenting payment. Through the investment of hundreds of millions of dollars to
generate consumer traffic to their Web sites, they sold on average, $250 million
in bookings of travel services in 1998.
To this point in time, none of the online travel agencies have achieved
profitability. A major reason for this is that over 80% of the sales which they
have generated have been airline tickets averaging about $350 per ticket.
Airlines have placed a limit of only $10.00 of commission for each ticket sold.
This amount is insufficient to cover their fully loaded transaction costs.
Consequently, we do not sell airline tickets. The balance of their bookings have
been hotel reservations and car rentals. These usually generate commissions
between 5% and 10% of the amount of the bookings which average about $200 for
hotel bookings and $150 for car rentals. Less than 3% of their bookings can be
classified as higher value and higher commission leisure travel bookings.
Online travel agencies have had to invest significant capital in creating
content for their Web sites. They have also had to design software and hardware
to process online bookings and integrate those with the reservation systems used
by various travel service providers. In addition they have had to hire, train,
equip and manage staff to become travel agents to interact with consumers over
the telephone.
OUR DIFFERENCE
We do not sell travel services directly to customers and therefore have not
incurred capital expenditures to set up an online travel agency. Because
TravelnStore.com is a navigation site that directs consumers to the proprietary
Web sites of various travel service providers, the travel service providers make
all of the investment in Web site content. Because TravelnStore.com is a
database driven site, we can add, change or delete a travel service provider in
a matter of minutes without requiring the skills of a graphic artist or
programmer.
All sales of products or services consist of two major components. The
first part is the presentation and consideration of the various attributes of
the product or service and the determination by the buyer that the product or
service meets their needs. The second is the transactional part of the purchase
where money is exchanged for the product or service. In effect, look in the
barrel, pick out the apple that is most appealing, take it to the counter, pay
for it, have it put in a bag. This presentation/decision, transaction/completion
is often bridged by specific questions that the purchaser has for the seller.
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The more complex the product or service, the more likely the need for questions
and answers. This is true of Internet travel sales as well.
In the our system, the first part of the purchase is accomplished primarily
by the Web sites of the travel service providers. The second part, which
includes answering specific questions and the paperwork, is performed by the
experienced travel agents in the local, retail travel agencies.
We think the Internet can be used effectively to graphically present a lot
of information on which the user can make a decision about travel. We know that
once a person has used the Internet to research their trip, they prefer to use a
travel agent to complete their purchase. Our goal is to tie the two together in
creative and productive ways.
OUR MARKET CONSTITUENCIES.
To execute our business plan, we must continually expand and strengthen our
relationships with our three market constituencies. The three constituencies
are as follows.
a. TRAVEL SERVICE PROVIDERS. Travel service providers include major
hotel chains, car rental agencies, cruise ship operators and tour companies. We
contract with these travel service providers to receive commissions and/or
overrides for travel sales resulting from consumers accessing their proprietary
Web sites through our TravelnStore.com Web site. Overrides typically range from
1% to 5% of the total sale. Commissions typically range from 5% to 15% of the
total sale. We anticipate that the overrides will average about 2% and the
commissions will average about 10%.
These commissions and override contracts are a standard part of the travel
industry. They first came into being approximately 20 years ago as groups of
retail travel agencies were assembled into consortiums. These consortiums
negotiate with travel service providers for higher commission levels for their
member agencies and overrides for themselves based upon the volume of business
that is directed by the member agencies to that particular travel service
provider. Consortiums range from a few hundred agencies up to a few thousand.
Because our Certificates of Value can be redeemed at any of the 29,000 domestic
travel agencies, TravelnStore.com is like a cyber consortium with 29,000
physical locations.
We also negotiate with the travel service providers to underwrite our
Certificates of Value. Certificates can be printed directly from our Web site by
the consumer. They may represent a discount, an upgrade, or a premium on the
services purchased from the travel service providers. Travel service providers
provide the value of the Certificate to incentivize the consumer to purchase
their services. For example, a consumer might print a Certificate which they may
redeem for a two cabin upgrade at the retail agency of their choice. When the
consumer uses a Certificate, it places that sale into our consortium contract.
In so doing, we receive our negotiated override from that travel service
provider.
A simple example demonstrates the mechanics of this process.
A consumer accesses several competing travel service providers' Web
sites, navigating to those sites using our Web site. After comparison
shopping, the consumer selects a two-week stay at a resort hotel and prints
out the Certificate for the hotel. The consumer then takes the Certificate
to a travel agency. The agency books the hotel stay with the travel service
provider. The travel service provider flags its accounting system to pay us
the override at the conclusion of the trip. The agency receives the booking
or confirmation number from the travel service provider. The agency enters
on the Certificate the booking number and the agency identification
information. The Certificate is then faxed to us where it is entered into
our accounting and tracking system. Because the travel agency has used our
Certificate procedure, it is entitled to an enhanced commission from the
service provider. When the consumer takes the trip and the commission
becomes due, we receive our override.
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One of the reasons that travel service providers have accepted our concept
is that they have invested millions of dollars educating, cultivating and
motivating retail travel agencies to sell their services. Particularly in the
leisure segment of the industry, where products tend to be more complex and more
expensive, travel service providers realize that, while the Internet is very
good at graphically presenting their services to an unlimited number of
consumers, they are sensitive to their competing with their travel agency
distribution network by taking bookings directly over the Internet.
Our concept of bridging the distribution of information using the Internet
with the existing transactional infrastructure of the retail agency industry
allows travel service providers to enjoy the advantages of the Internet while
maintaining and protecting their substantial investments in their retail travel
agency distribution networks.
b. TRAVEL AGENCIES. Our second constituency is the 29,000 domestic,
retail travel agencies. It has been speculated that the advent of the Internet
purchases of travel services online directly by consumers would have a profound
negative effect on retail travel agencies. This does not appear to be the case.
It is estimated that in 1998 approximately $2 billion of travel services were
booked online. This compares with approximately $135 billion of travel services
booked by retail travel agencies. It has been projected that in the year 2000 as
much as $7 billion of travel services may be booked online. However, sales by
retail agencies should surpass $145 billion in the year 2000. Clearly, retail
travel agencies will retain a vast majority of travel sales.
Our business plan includes retail travel agencies in two important ways.
First, retail agencies represent the redemption site for our Certificates of
Value. As agencies come to recognize the Certificates and become familiar with
our program, we believe that agencies will also use our Web site to generate
Certificates for their clients who do not use the Internet. This will expand the
scope of our business beyond just those consumers who use our Web site. It is in
our best interest to continue to educate a broad section of the retail travel
industry to our program through the use of trade publications, trade shows and
other marketing initiatives.
Secondly, the agencies can participate in our Co-host Agency Program. Our
Web site is what is called a framed site. This means that as a visitor navigates
from one travel service provider site to another, a thin band of information
containing the TravelnStore.com logo always remains at the top of the computer
screen. This information band contains buttons that allow the visitor to
navigate back through our Web site to other travel service provider sites. This
band also presents the names, addresses and telephone numbers of our co-host
agencies. As a consumer visits the various proprietary sites of travel service
providers, the co-host agency is continuously being presented as an immediate
contact to purchase whatever travel service the consumer is reviewing.
Travel agencies join our Co-host Program by subscribing for their local
market Zip codes. We usually limit an agency to three Zip codes. When a visitor
logs into our Web site, they are asked for a Zip code. If an agency has
subscribed that Zip code, then that agency is presented in the navigation band
as our local Co-host Agency. This gives an individual travel agency all the
market power of TravelnStore.com but is presented only to those consumers who
live or work in a physical proximity to that individual travel agency.
Our Certificate of Value redemption program and our Co-host Agency Program
allows us to achieve both a cyber presence on the Internet and a physical
presence on Main Street. We believe that, as the use of the Internet as a
commerce tool matures, this dual presence will give us additional business
opportunities that companies with just an Internet presence will not enjoy.
c. CONSUMERS. Our third constituency is the consumers who use the
Internet to shop and purchase travel services. With annual Internet travel sales
estimated at $2 billion, travel became the number one consumer product purchased
on the Internet in 1998. While this is a fraction of the $135 billion annually
sold by retail travel agencies, it is a significant amount. By example, a 2%
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override on $2 billion is $40 million. This $2 billion is expected to reach $7
billion in 2000. Clearly, our market is growing at a compound rate. We intend to
continue to position TravelnStore.com to take advantage of this growing market.
Because of the rapid growth of travel sales on the Internet, there have
been numerous studies conducted by major research organizations to define the
trends in this emerging business. The majority of this research has focused on
statistical analyses of what consumers are buying, how they are buying and from
whom they are buying. Not surprising, the statistical evidence relating to
Internet travel sales reflects the statistical profile of e-commerce in general.
Even in the relatively short period of time (three years) that travel sales have
been heavily promoted online, some very clear trends have been established.
In formulating the TravelnStore.com concept of using the Internet for the
presentation of travel services and connecting that presentation to the
transactional infrastructure of the retail agency industry, we have been able to
use these trends to structure our business plan. Following are some of the
trends which we believe to be very significant.
o LOOKS BUT DOES NOT BOOK. E-commerce sites that have tracked their
productivity have found that, on average, 2.7% of their site visits
actually result in a sale. Further, the more complex or higher valued
the product, the lower the purchase percentage. In keeping with these
statistical trends, online travel services experience purchase
percentages of 1% to 2%. This reflects that a consumer may visit a
site multiple times prior to actually completing a transaction.
o MOST DO NOT PURCHASE ONLINE. In the context of the online travel
industry, current statistics show that only 18% of travel site
visitors have ever made an online booking. Again, this reflects
general e-commerce findings. Reasons given for not booking online are
transactional security, which includes credit card fraud, and concern
that the product purchased will not be received, the lack of personal
attention and advice in relationship to a complex product such as
travel, and insecurity on the part of the consumer that they will make
a mistake in the selection process or the transaction process.
o MOST PURCHASE FROM TRAVEL AGENTS. Of the remaining 82% of the visitors
that looked but failed to book online, 27% made no bookings, 28%
contacted the supplier directly to make a booking and 39% took their
business to a travel agency. In general, this indicates that the
online looker/off-line booker market is 3.7 times larger than the
online booker market. It also indicates that travel agencies continue
to get the lion's share of this market.
o ONLINE BOOKINGS ARE HEAVILY WEIGHTED TO COMMODITY TYPE TRAVEL. Major
online travel sites such as Preview Travel, Travelocity and Expedia,
report that over 80% of their bookings are for airline tickets with
simple itineraries. These tickets average only $350.00 per ticket.
Only 3% of their bookings can be classified as leisure travel
services, such as cruises and tours. The balance are for short-term
car rentals and hotel stays.
o LEISURE SALES WEIGHTED HEAVILY TO TRAVEL AGENCIES. If only 3% of
online bookings represent leisure sales, then the 39% of online
lookers who book off-line are more likely booking the higher value and
higher commission rate leisure sales with their local travel agent.
This follows the general e-commerce profile of higher value, more
complex products being researched online but actually purchased
off-line.
While the volume of on-line travel bookings has grown rapidly, the
statistics reflect that this growth has been primarily in low value, commodity
type bookings and that the retail travel agencies have retained substantially
all of the high value, complex leisure bookings.
Our conclusions are that consumers will increasingly use the Internet to
research their travel plans and comparison shop for travel services but that
their preference will be to complete their transactions off-line, enjoying the
transactional security of dealing with a local business and receiving the advice
and expertise of a professional travel agent.
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OUR INDUSTRY
GENERAL OVERVIEW
a. THE INTERNET. Initially, the Internet consisted of a linkage of
computers utilized by the U.S. government and certain academic institutions to
publish and exchange information and communicate via what is today known as
e-mail. Today, the Internet is a collection of computer networks linking
millions of public and private computers around the world.
b. THE WORLDWIDE WEB (www.). While the term Internet refers to the
linkage of computers enabling the free flow of information electronically, it is
the concept known as the Web which gives the Internet its content. A Web site
refers to a program of information developed, maintained and updated by its
creator to provide information to others who are able to access the site through
the Internet. The term "Internet" has become the inclusive term for both the
Worldwide Web and the Internet.
c. GENERAL INTERNET USAGE TRENDS. Morgan Stanley Research estimates
that the number of Internet users will surpass 150 million worldwide by the year
2000. The United States accounts for a significant majority of the users. The
growth of the Internet has been facilitated by its ability to offer a more
appealing, efficient and less costly means of engaging in and performing a
myriad of functions traditionally the province of the telephone, television and
postal and courier services. However, the major, driving force behind the
explosive growth of the Internet has been the ability of the worldwide computer
industry to produce personal computers at a price point that allowed one out of
every three U.S. households in 1997 to own a personal computer. It is projected
that this will increase to 50% of all U.S. households by the year 2000, 98% of
all U.S. households within the next 10 to 20 years.
d. E-COMMERCE. Our business is to bridge the presentation of travel
services on the Internet with the established, physical infrastructure of the
traditional retail travel industry. This opportunity has arisen due to the rapid
growth of the Internet as a vehicle for commerce in general and travel sales
specifically. Commonly called e-commerce, the selling of goods over the Internet
is creating new retailing and wholesaling business models in numerous fields. In
1998 the sale of travel services via the Internet became the largest segment of
e-commerce, surpassing computers and software.
e. ONLINE TRAVEL SALES. The travel segment of the e-commerce
industry has encountered many of the same challenges faced by other categories
of products sold online. We believe that the continued growth and eventual
success of e-commerce, inclusive of travel sales, is dependent upon Internet
users adjusting to the limitations of e-commerce and the ability of e-commerce
companies to realistically assess how they can use the Internet to meet the
needs of consumers. There is perhaps no more graphic example of the inherent
limitations of e-commerce as a retail tool than in the travel sector wherein
consumers use the Internet to gather travel information but choose to book their
travel with an agency salesperson knowledgeable in the complexities of travel
services.
We believe that the ability to consummate a transaction for the purchase of
many kinds of goods and services is compromised because of the inability of the
Internet to provide the advantages of an interactive medium. Consequently, we
recognize that the Internet is an excellent medium for the graphic presentation
of travel services and that its interactive limitations can be overcome by
connecting the online marketing of travel services with the transactional
abilities of local, retail travel agents.
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E-COMMERCE, THE ONLINE COMMERCE INDUSTRY.
a. RETAIL SALES COMPARISONS. The sale of goods and services online in the
U.S. during 1998 totaled approximately $13 billion. This figure must be
considered in light of the fact that overall personal consumption in the U.S.
during just the second quarter of 1998 reached an annual rate of $5.13 trillion.
While 25% of North American adults are "wired" or technologically capable of
purchasing online, only one-fifth of these adults did so in 1997. Most online
commerce is actually business to business, which accounted for $8 billion
(approximately 62%) of the 1998 sales and is projected to grow to $327 billion
in 2002, whereas retail or business to consumer sales totaled $4.8 billion in
1998 (approximately 37%) and is projected to grow more modestly to $17.4 billion
in 2002. Breaking down retail sectors, it is estimated that 43% of online sales
will be travel related by 2002 with all other sectors accounting for the
remaining 57%. This would place the dollar amount of online sales of consumer
travel services in the year 2002 in the range of $7.5 billion.
b. WIRED CONSUMERS AND LOOK TO BOOK RATIOS. There are particularly
troubling issues facing the retail sector of the online commerce industry. These
issues involve what are known as "wired" customers or travelers and "look to buy
or book" ratios.
Wired customers are those who have Internet access, and, in the case of the
travel industry, and who are likely to travel.
To evaluate the Internet as a retail sales tool, a distinction must be made
between customers who purchase online ("buy") or, in the case of travel
purchases ("book"), and those who merely visit the Internet ("look") to seek
information or comparison shop after which they either make no purchase or book
off line. Online retailers who track both lookers and buyers report they average
a conversion rate of looker to buyers of only 2.7%. This means that, of 100
shoppers who visit an e-commerce site, less than three actually make a purchase.
The reasons given for such a low percentage of buyers are credit card
security, transactional security, unfamiliarity with anonymous Internet
companies, lack of personal attention, inefficiencies in delivery, and
inefficiencies in getting questions answered.
Industry recommendations to increase patronage of e-commerce sites include
making Web sites more user friendly, offering discounts as incentives to
purchase and, following the lead of the travel industry, rewarding repeat
customers for their patronage, such as, in the case of the airlines, frequent
flyer miles. As e-commerce develops, the industry must shift its focus from
customer acquisition to customer retention.
The TravelnStore.com concept of presenting information on the Internet, but
completing the transaction at a local travel agency directly answers many of the
reasons given for not buying online and implements many of the recommendations
to incentivize and retain online customers.
THE TRAVEL INDUSTRY
RETAIL TRAVEL INDUSTRY
a. RETAIL TRAVEL AGENCIES. Historically, individual travel agencies have
been classified as commercial travel agencies or leisure travel agencies.
Commercial agencies tend to be larger and focus on commercial accounts whose
primary travel is for business purposes. Leisure agencies primarily deal with
the general public for personal travel needs.
b. RETAIL AGENCY INDUSTRY PROFILE. The latest U.S. Travel Agency survey
reported that the number of retail agencies had declined between 1995 and 1997.
However, the survey also showed a 25% annual increase in travel agencies' gross
sales from 1995 - 1997. This dramatic increase in sales has occurred despite the
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competitive threat posed by emerging online travel companies and a host of other
factors including reductions in commissions paid by airlines and many
initiatives undertaken by travel service providers to do business directly with
the travel consumer. Moreover, the number of travel agencies reported as
profitable has steadily increased from 71% in 1995 to 73% in 1996 to 76% in
1997.
The attrition rate for travel agencies is influenced primarily by sales
volume. In 1997, for example, 9 out of every 10 agencies with gross sales in
excess of $5 million were profitable; a number which fell to eight out of 10 for
agencies doing between $2 to $5 million and seven out of 10 for agencies in the
$1 to $2 million range. Only six out of 10 agencies selling less than $1 million
were profitable.
Not surprisingly, the greatest attrition has been with the smaller travel
agencies. In 1995, for example, 30% of the travel agencies had less than $1
million in sales. While these agencies constituted the largest single category
of agencies, they only accounted for 6% of the total retail agency sales. In
contrast, in 1997, 19% of the travel agencies had less than $1,000,000 in sales
and these agencies accounted for only 3% of the total retail agency sales.
These figures reflect a strong consolidation trend in the retail travel
agency industry. Smaller agencies are disappearing to the benefit of larger
agencies. Larger agencies are enjoying increased profitability as their volumes
increase. We expect this consolidation to continue and view it as a positive
trend.
c. TRANSITION TO LEISURE TRAVEL. The travel agencies have responded to
these challenges by increasing their attention to the sale of the more lucrative
leisure and vacation travel. This has been particularly evident in the
commercial agency sector as agencies have expanded their leisure travel
offerings and targeted their corporate client bases. For example, air travel
sales by agencies have dropped as a percentage of gross sales from 61% in 1995
to 56% in 1997, while income from leisure travel sales increased from 49% in
1995 to 51% in 1997.
In 1997, for the first time since 1974, income from leisure travel sales by
agencies exceeded 50% of gross revenues. Agencies typically receive 12% to 20%
commission on leisure sales. TravelnStore.com is specifically designed to
address the leisure travel market which continues to grow as the baby boom
generation matures and uses its discretionary income for travel purchases.
d. CONSORTIUMS AND FRANCHISES. A recent survey by Travel Weekly showed
that in 1997, 54% of all agency locations were affiliated with a leisure
oriented consortium. Ten years earlier, in 1987, only 36% of agency locations
had such affiliations. In addition, 14% of agencies were affiliated with
franchises such as Uniglobe, Carlson Wagonlit Travel and American Express.
Consortiums are able to negotiate for travel service providers to pay higher
commission levels to their travel agency members.
In addition to the higher commission levels for the member agencies, the
consortium typically receives an override commission based upon the total sales
of its member agencies. These overrides typically range between 1% and 5% of
gross sales.
e. BRICK AND MORTAR AGENCY SALES VS. ONLINE TRAVEL SALES. Just as online
retail sales compose only a small percentage of overall consumer spending,
online travel sales represent only a small portion of overall travel industry
gross receipts. For example, travel agents accounted for $126 billion in sales
in 1997 whereas online travel sales amounted to only $654 million (approximately
0.5% of total receipts). Just the annual growth in agency sales of 5% or $6.3
billion between 1997 and 1998, is more than three times 1998 total online travel
sales gross revenue. Many analysts have pointed out that rumors about the demise
of travel agencies in the face of online sales competition are greatly
exaggerated.
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WHOLESALE TRAVEL INDUSTRY.
a. TRAVEL SERVICE PROVIDERS. Travel service providers include cruise
lines, package tour companies, car rental companies, hotel groups, destination
resorts and airlines. The retail travel agency industry has traditionally
supplied the major distribution infrastructure for travel service providers.
Consequently, travel service providers have invested heavily in cultivating,
educating and motivating travel agents to sell their products.
b. AGENCY COMPETITORS. In most cases, travel service providers also
distribute their products directly to consumers. Traditionally this has been
accomplished through consumer direct advertising and the use of in-house
reservation centers or employees to field in-coming 800# telephone calls. This
direct competition has always been a point of contention between travel agencies
and travel service providers. Consequently, travel service providers have been
judicious in their use of direct consumer marketing, oftentimes referring
inquiries first to travel agencies and then to their own reservations staff.
c. INTERNET MARKETING INITIATIVES. Virtually all types of travel service
providers are using online commerce to offer their services. The travel industry
has embraced the Internet because it is a perfect medium for the inexpensive
distribution of large amounts of information. Because the presentation of travel
services has always employed photographs and maps, the graphical nature of the
Internet is a perfect fit for the distribution of travel information.
However, the Internet is not a conversive medium. What is presented is
what is presented. To make an inquiry requires the use of email which usually
has a long response cycle or the consumer must make a direct telephone call to
the travel service provider. Consequently, only very simple travel services can
easily be sold online. For this reason, the more complex and expensive leisure
travel services continue to be sold by retail travel agencies on a person to
person basis.
d. INTERNET COMPETITION SENSITIVITY. Internet market initiatives by
travel service providers have also been burdened by their desire to not appear
overly competitive with their existing retail travel agency distribution
networks. This is particularly true of leisure travel service providers.
THE EMERGING ONLINE TRAVEL INDUSTRY
a. MAJOR PLAYERS. The online commerce sector of the travel industry is
dominated by three companies, Preview Travel, Travelocity and Expedia.com. Each
of these recorded sales of approximately $250 million in 1998. Each of them also
lost tens of millions of dollars. Together they share 40% of a market projected
to grow to $7 billion in the year 2000. These three companies have rapidly
solidified their position of dominance by obtaining so-called "portal"
agreements to be the travel service providers for many of the major access sites
to the Internet. For example, Preview Travel has portal agreements with AOL.com,
Excite.com, Lycos.com and Webcrawler.com, Expedia is paired with Microsoft.com,
Infoseek.com and MSN.com and Travelocity links with Yahoo.com and Netscape.com.
All told, Web site portals garner over 150 million visits per month by
prospective consumers, any of whom, depending upon which site they have
accessed, can click directly into Preview, Expedia or Travelocity to make a
travel purchase or obtain travel related information.
b. ONLINE LOSSES. The reasons online travel agencies have incurred
substantial losses is that they have substantial expenses. Multi-million dollar
costs associated with acquiring and maintaining portal agreements and other
advertising and promotional expenses to generate traffic volume to their sites
have insured that these large online agencies will not turn a profit in the
forseeable future. In addition, they have incurred the expenses of setting up
the online agency, acquiring and training travel agents and other significant
operating expenses.
c. ONLINE COMPETITION. Online travel companies must bear the burden of
both the competitive factors they share with brick and mortar travel agencies
and also the competitive factors unique to the Internet. For example, airlines
are encouraging consumers to purchase their tickets from their own Web sites by
offering increased frequent flyer miles for online purchases. Further, because
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over 80% of online travel sales are airline tickets, continued erosion in this
segment of the online agency business is magnified as consumers purchase
directly from the airlines' Web sites.
d. ONLINE CONSUMER PROFILES. To gauge the effectiveness of the Internet
for travel sales, the industry has measured the patronage of "wired travelers";
U.S. adults with Internet access who have traveled by air in the last year and
visited a Web site in the past month. In a recent survey of 500 wired travelers,
an independent research firm found that 80% of wired travelers visited at least
one Internet travel site, 58% went so far as to check prices and 18% actually
booked travel online. Of the 58% who looked but did not book online, 67% bought
services later from another source such as a travel agency or from the supplier.
What is significant is that 75% of these motivated lookers said they were
unlikely to use the Internet to actually purchase travel in the near future.
They cited concerns over credit card security (82%), personal privacy (79%) or
said they would rather speak with a knowledgeable salesperson (77%).
SUMMARY
Today's travel industry, can be summarized as follows.
o Sales of all categories of goods and services online represent only a
fraction of the total dollar volume of U.S. personal consumption.
o While over 40% of online retail sales consist of travel products,
gross travel sales over the Internet currently represent less than 2%
of the sales recorded by travel agents.
o The vast majority of those who shop on the Internet look but do not
buy.
o Traditional travel agency business is generally strong. Travel agents
sold $132 billion of travel services in 1998, up over 30% from 1995.
o Both traditional travel agencies and online agencies face increasing
competition directly from travel service providers.
o Travel agencies have moved away from lower commission travel services
and have focused increased attention on leisure travel.
Our goal is to structure the TravelnStore.com concept to take aggressive
advantage both of the strengths of the Internet and the traditional travel
industry. Our concept answers specific needs of both our retail agency and
travel service provider constituencies. We believe that by pursuing these
advantages we are avoiding the weaknesses exhibited by the online travel agency
business of low look to book ratios and reduced commissions.
OUR COMPANY
OUR STRATEGY
For us to maintain and expand our unique position of linking Internet
travel shoppers to local travel agencies, we must continue to grow at an
increasing rate. Consequently, the major component of our business plan is our
growth strategy. We anticipate that we should be able to grow proportionately to
the compound growth rate of Internet usage. Our goal is to exceed that rate by
increasing traffic to our Web site by established Internet users.
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GROWTH STRATEGY
As outlined above, our business addresses three constituencies; travel
service providers, retail travel agencies and consumers. To grow, we must grow
our relationships with these three constituencies. Each of these requires
specific marketing strategies. Because these constituencies are interactive,
success with each begets additional success with the others. Our Web site
provides both a contact point and an interface mechanism for these three
constituencies. As the volume of site participants from these three
constituencies increases, so will the use of our Certificates of Value. This
will result in increased revenues to TravelnStore.com.
a. TRAVEL SERVICE PROVIDERS. Our smallest constituency is
the travel service providers. We have already established contractual and
working relationships with many of the major travel service providers.
Consequently, continued growth within this constituency will consist primarily
of adding the more specialized types of travel service providers or destination
specific travel service providers such as all-inclusive resorts.
Even though we will not be adding a significant number of additional
travel service providers, it is important that we continue to mature and expand
our relationships with our current travel service providers. This includes our
demonstration that our Web site is an increasingly important factor in their
overall Internet marketing programs. As our Web site adds value to their online
presence, we should be able to negotiate enhanced overrides and Certificates of
Value.
Because travel service providers provide the content for
TravelnStore.com and also the incentive of the Certificates of Value, they are a
key element in our success.
b. RETAIL TRAVEL AGENCIES. Continued growth within the
retail travel agency constituency will come in the form of additional direct
contractual relationships with individual retail agencies to participate as
co-host agencies. Presently, over 300 travel agencies have joined as co-host
agencies. These agencies receive a guaranteed geographical territory based upon
their subscription for their local market Zip codes. We estimate that we may
eventually have as many as 2,500 agencies in this program.
Our Certificates of Value can be redeemed at any of the 29,000 travel
agencies in the United States. As Certificates are redeemed, more agencies will
become cognizant of our business. Even if an agency does not elect to join our
co-host program, that agency can still participate by proactively printing out
Certificates of Value for its clients as sales opportunities present themselves.
We believe that many agencies will take advantage of the availability of the
Certificates of Value to provide additional value to their existing and walk-in
clientele. We intend to encourage agencies to use the Certificates of Value for
their clients. In so doing, they will be generating income for us that is not
dependent upon consumers who are shopping for travel on the Internet.
Our growth strategy, as it pertains to retail travel agencies, is
focused on expanding our co-host agency network and encouraging all agencies to
use the Certificates for their existing clientele. Because the retail agency
industry is well-established in physical locations with readily available
telephone and fax numbers, marketing to travel agencies can be focused as to
geography and demographic profile of targeted agencies.
c. CONSUMERS. The major growth we seek to generate is with
the consumer constituency. Regardless of the number of agencies or travel
service providers who participate with us, ultimately it is the use of the
TravelnStore.com Web site by consumers which will generate our revenue growth.
Growth in this constituency will be directly related to the amount of traffic
that we can generate to our Web site and how well those visitors accept the
opportunities to utilize the Certificates of Value. Advertising online includes
using banner ads, sponsorships and direct links and establishing strategic
relationships with non-competing, high traffic volume sites.
The most immediate methodology to generate traffic to the
TravelnStore.com site is to employ a comprehensive offline and online
advertising program. Funding of this advertising program is the primary use of
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proceeds of this Offering. Advertising offline in various media, such as
in-flight magazines and publications, is designed to communicate to travelers
who use the Internet. Online advertising is more directed to Internet users who
travel. Both are important segments of the consumer constituency.
Our goal is to generate 300,000 unique visitors, per month, to our Web
site by the end of 1999. Success of our business plan is dependent on consumers
using the Certificates of Value as part of their travel purchases. Whatever
percentage of visitors to our Web site use the Certificates, the actual number
of Certificates used is directly related to the total traffic to the site.
Consequently, the main growth challenge that the we face is to generate as much
growth in our visitor counts as possible. Fortunately, it has been the
experience of most Web sites that given sufficient promotional funds, visitor
counts increase proportionately to the amount of money invested in advertising
and promoting the site.
MARKETING STRATEGY.
Our marketing strategy can also be defined within the parameters of our
three constituencies. We have already successfully implemented marketing
strategies for the solicitation and acquisition of retail agencies to
participate in the co-host agency program. We have had a good response to our
invitations to agencies to co-host the TravelnStore.com Web site because most
agents realize that the Internet presents a good marketing opportunity. Further,
travel service providers are investing in the quality and quantity of their
proprietary Web sites. Because of this, we have enjoyed a good reception by
travel service providers. We are also confident that once consumers become
accustomed to using TravelnStore.com to navigate travel sites on the Internet,
they will return whenever they have need to purchase travel services.
a. RETAIL TRAVEL AGENCIES. Central to our strategy is the
operation of our co-host agency sales team. Leads for the sales team are
generated by a variety of promotional activities, including of the use of
broadcast faxes, online advertising on selected Internet travel agency sites,
traditional advertising in trade publications, press releases, referrals from
affiliated organizations, and direct telephone solicitation. Part of the
proceeds from this offering will be directed to expanding the sales team and
increasing these promotional activities.
We will also undertake a major trade publication and broadcast fax
marketing program designed to make all agencies aware of the opportunity for
agencies to use our Certificates of Value for their non-Internet clientele. This
program should increase the awareness of the retail travel industry as to how
our Certificate program works and that agencies will receive enhanced
commissions on travel sales generated by TravelnStore.com.
b. TRAVEL SERVICE PROVIDERS. Our marketing to the travel
service providers is designed to expand the scope of services and destinations
represented on our Web site. We have already participated as an exhibitor in
major trade shows to raise the awareness of the travel industry of the
TravelnStore.com concept. We will continue to develop new travel service
provider relationships as an ongoing strategy to broaden the appeal of our Web
site. However, unlike many other travel sites that seek to link to an endless
chain of informational sites of both a general and destination specific nature,
we will retain our philosophy of only linking to the proprietary sites of travel
service providers.
c. CONSUMERS. The majority of the proceeds from this
offering are earmarked for the promotion of our Web site to Internet users.
While we will use proven advertising strategies both in off-line publications
and in the online communities, we also have some unique strategies to generate
new traffic to our Web site and to build site loyalty. A key component of our
non-advertising strategies is our Affinity Program. Because our Web site is
structured as a database driven site, we are able to identify and track all
registered visitors to our Web site. This tracking extends to the eventual
travel sales in which a Certificate of Value is used. If the travel service
purchaser has been identified as part of a particular group or porting to our
Web site from another Web site, we have the capability to pay the group or the
Web site a portion of our commission or override.
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Recently we launched THE TRAVELNSTORE.COM AFFINITY PROGRAM (TAP). The
goal of TAP is to substantially increase awareness of our Web site and provide
incentives for using the site by TAP members. TAP's initial focus is alumni
associations of major colleges and universities throughout the United States.
Under the TAP alumni program, an academic institution enters into a standard
agreement with us wherein our Web site is promoted by the institution in a
variety of ways. This includes being featured on the institution's Web site and
in campus and alumni publications to encourage those affiliated with the
institution to use our Web site for their travel needs. Under our agreement with
a specific institution, we remit to the institution a percentage of each
commission or override earned by TravelnStore.com as the result of the use of a
Certificate of Value by the institution's alumni or supporters.
While there are almost unlimited opportunities to expand TAP beyond the
alumni associations of colleges and universities, we selected such associations
for the initial launch of TAP for a number of significant reasons.
o Alumni associations have one of the highest percentages of
Internet users with a high demographic travel profile.
o Colleges and universities spend a great deal of time and money
keeping current with the whereabouts of their alumni. Therefore,
their publications have a high probability of reaching those who
previously attended the institution.
o By contracting with academic institutions, TAP facilitates the
exposure of our Web site to a substantial number of individuals.
o We are able to publicize TravelnStore.com to an institution's
alumni and resident population efficiently and inexpensively by
tagging onto existing programs the institution uses to
communicate with its affinity population; e.g. the institution's
Web site and campus and alumni newsletters, newspapers and
magazines, all of which are targeted to various sectors of the
institution's overall current and former population.
We believe that by the end of 1999 we can have agreements in place
promoting our Web site to several million TAP members. We also intend to use a
modified model of this program to enter into associate relationships with a wide
variety of Internet sites whereby users of those sites porting to our Web site
will generate revenue back to the originating Web site through the use of our
Certificates.
Overall, the growth of TravelnStore.com is clearly defined by the
requirements of marketing to our three constituencies. Fortunately, each of our
constituencies is easily identified and has well-established conduits of
contact. With the funding from this offering, we will be able to implement our
marketing strategies targeted at each of our constituencies. Provided our
efforts are effective, we should experience the growth necessary for our company
to be increasingly valuable to its customers, employees and stockholders.
OPERATIONS
Our operations are reasonably simple. They involve promoting our Web
site, providing our Web site and Certificate of Value services to our travel
agency and travel service provider constituencies, and accounting for our
revenues and expenses. As we do not provide travel services directly to
consumers, we avoid the most labor-intensive component of the travel service
business.
Our revenues will come primarily from the commissions and overrides from
the travel service providers who honor our Certificates of Value. We anticipate
having profitable operations by limiting the labor intensive services that we
provide and automating the processing and accounting for our Certificates of
Value. While we anticipate high volume use of our Certificates, the dollar
amount of each commission and override will be low (the overrides likely will
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be between 2% and 5% of the cost of the travel service) and we must control the
cost of processing each Certificate. As we do not sell travel services directly
to consumers, we will avoid the high-cost, labor-intensive services of most
existing online travel service companies.
Our operational costs consist primarily of the following items:
o The cost of equipping our Web site and providing the bandwidth
needed for efficient and user friendly access to our Web site
information;
o The cost of the staff to deal with our customers, the retail
travel agencies and the travel service providers;
o The cost of processing and accounting for our Certificates of
Value; and
o The cost of promoting our Web site and increasing site traffic.
Our business model should let us control and minimize these cost
components and maximize our profit potential.
Our equipment costs include primarily the costs of obtaining and
maintaining the computer servers and telecommunications equipment required to
maintain our Web site. As our Web site is a navigational site through which
consumers can access the database Web sites of the travel service providers, we
avoid the high equipment costs often associated with Internet e-commerce
companies. We have an extremely low cost of content, as the participating travel
service providers provide all content. Similarly, as we deliver only our
"frame", the bandwidth required for the consumer's efficient review of the
available travel services is provided primarily by the Web sites of the
participating travel service providers. This means that we can handle
significant site traffic with a minimum investment of Webmaster time and a
minimum investment in hardware and software. The major function of our Web site
is one of client database acquisition and management.
Similarly, as we do not provide reservation or similar service to the
travel consumer, we do not have to invest in the order-processing and
confirmation computer hardware and software and other ticketing equipment that
is required with these operations.
Our labor costs will consist primarily of the cost of the staff to
perform the following functions:
o Processing and accounting for our Certificates of Value;
o Developing and maintaining our relationships with our travel
agency and travel service provider constituencies; and
o Promoting our Web site and increasing site traffic.
As we do not sell travel services directly with consumers, our staff can
be compact and focused and we do not have to invest in training our staff on the
intricacies of travel services.
Because of the complexities of travel, companies that sell travel
services directly to consumers must have a highly trained, knowledgeable and
experienced staff who can efficiently explain the services to the consumer.
Companies that sell travel services online, such as Preview Travel, Travelocity
and Expedia, must have the same highly trained, knowledgeable and experienced
staff. These online companies have had to invest significant capital to equip
their operations and to acquire and train a workforce.
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As we do not sell travel services directly to consumers, we have been
able to avoid the cost of training our staff in the intricacies of travel and
have been able to keep our labor costs low.
The processing and accounting for our Certificates of Value is primarily
a tracking function. We must properly record each Certificate that is sent to us
by a travel agent, must monitor our receipt of the commissions and overrides
from the travel service providers and must account to the travel agent for any
monies due to the agent from the travel service provider. These functions can be
automated with existing, off-the-shelf computers software. We do not anticipate
having to invest in proprietary hardware or software to handle these functions.
Through the automation of the processing and accounting for our
Certificates of Value, we anticipate that we can profitably operate a
high-volume, low-cost service business.
The costs of developing and maintaining our relationships with the
travel agencies and travel service providers can not be accurately predicted.
However, we anticipate that these costs can be managed so that they can be
covered through the net commissions and overrides realized from our Certificates
of Value. We will be facilitating the services provided by both the agencies and
the providers and will not be competing with either. As a result, we anticipate
that both constituencies will be receptive to our services and that we will not
have to invest significant sums in developing proprietary products or services
for either constituency.
Our principal labor cost will be the cost of promoting our Web site and
increasing site traffic. This cost is, in a sense, a discretionary cost and is
not directly tied to the cost of generating revenues from any particular
Certificate of Value. However, our revenues will be directly proportional to the
volume of Certificates that are used and such volume should also be proportional
to the amount of traffic to our site. We intend to devote substantial resources
to this function and anticipate that it will be our primary cost of operations.
Studies of e-commerce have shown that site traffic is directly related
to the amount of promotion of the site. The more potential users who are aware
of the site, the greater the site traffic. So long as the site traffic generates
profitable operations, the cost of promoting the site can be managed within an
overall profitable operation. We anticipate that our processing of each
Certificate of Value can be done profitably through automation. Our challenge
then becomes one of sufficiently promoting our site to generate increased
traffic while keeping the promotional costs within the net profit realized from
processing the Certificates.
EXAMPLE OF POTENTIAL OPERATIONAL PERFORMANCE
The following example illustrates how our business model operates. This
is only an example and, because of the changing e-commerce market and the
vagaries of travel service in general, likely will not reflect actual
operations. The assumptions underlying our example are based on information from
various Internet travel industry research and financial reports of other
Internet travel sites.
Research indicates that approximately 67% of on-line travel shoppers
eventually book travel offline and that the type of travel that is booked
offline is significantly weighted towards more complex leisure travel, such as
cruises and tours. For this example we have made the following assumptions.
This example illustrates the total revenue that might be generated from
traffic to our Web site. As the example revenue would be generated from the
visitor eventually booking the travel services offline, the example can not be
used to illustrate our likely revenue for any particular month. Also, we are
developing traffic to our Web site and currently we have several thousand
visitors to our Web site each month. We do not anticipate averaging 100,000
visitors per month until at least the fourth quarter of 1999.
o AMOUNT OF AND REVENUE FROM TRAVEL SERVICES BOOKED OFFLINE
o 67% of the visitors to our Web site will eventually book
travel services offline;
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o 10% of the on-line looker/off-line booker visitors to our
website will use a certificate of value.
o The eventual offline bookings will be for the following
types of services:
o 65% for leisure travel at an average value of $2,500;
o 20% for hotel accommodations at an average value of $200;
and
o 15% for car rentals at an average value of $150;
o 1.75% is the average net override payable to
TravelnStore.com from use of a Certificate; and
o Our revenues will be proportional regardless of the actual
amount of site traffic.
o DIRECT COSTS OF PROCESSING CERTIFICATES OF VALUE
o 10 minutes of processing time for each Certificate;
o $30 per hour as the cost of clerical labor to process
Certificates;
o $5 per Certificate as the labor for processing each
Certificate;
EXAMPLE:
o Of 100,000 visitors to our Web site, 67,000 will book
travel services offline;
o Of the 67,000 visitors who book services offline, 6,700
will use a Certificate of Value;
o Of the 6,700 visitors who use a Certificate of Value,
4,355 (or 65%) will book leisure travel services;
o Total bookings for leisure travel in which a Certificate
is used is $10,887,500 (i.e., 4,355 trips x $2,500 per
trip);
o Total bookings for hotel accommodations in which a
Certificate is used is $268,000 (i.e., 1,340 bookings x
$200 per booking);
o Total bookings for car rentals in which a Certificate is
used is $150,750 (i.e., 1,005 bookings x $150 per
booking);
o Total revenues from offline bookings is $11,306,250;
o Overrides paid to TravelnStore.com from offline bookings
is $197,860 (i.e., $11,306,250 x 1.75%); and
o Override per visitor is $1.97.
GOVERNMENTAL REGULATIONS
Laws and regulations directly applicable to Internet communications,
commerce and advertising are becoming more prevalent. The United States Congress
has enacted Internet laws regarding children's privacy, copyrights and taxation.
Such legislation could dampen the growth in use of the Internet generally and
decrease the acceptance of the Internet as a communications, commercial and
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advertising medium. Although our transmissions originate in California, the
governments of other states or foreign countries might attempt to regulate our
transmissions or levy sales or other taxes relating to our activities. The
European Union recently enacted its own privacy regulations that may result in
limits on the collection and use of certain user information. The laws governing
the Internet, however, remain largely unsettled, even in areas where there has
been some legislative action. It may take years to determine whether and how
existing laws such as those governing intellectual property, privacy, libel and
taxation apply to the Internet and Internet advertising.
The growth and development of the market for Internet commerce may
prompt calls for more stringent consumer protection laws, both in the United
States and abroad, that may impose additional burdens on companies conducting
business over the Internet. Furthermore, the Federal Trade Commission has
recently investigated the disclosure of personal identifying information
obtained from individuals by Internet companies. In the event the Federal Trade
Commission or other governmental authorities adopt or modify laws or regulations
relating to the Internet, our business, results of operations and financial
condition could be adversely affected. See "Risk Factors-- Governmental
Regulation of the Web."
INTELLECTUAL PROPERTY RIGHTS
We have filed for registration of the service mark "TravelnStore.com"
with the United States Trademark Office. We are the registered owner of the
"TravelnStore.com" internet domain name.
We have not filed for patent protection of any of our technology or
business systems with the United States Patent Office or any foreign patent
office. We believe that our success will be dependent on our operation of a
user-friendly Web site that offers superior services and information. We do not
believe that such user-friendly site or superior services and information are
dependent on our obtaining and enforcing patent protection for our technology
and business systems.
EMPLOYEES
As of April 30, TravelnStore.com had 12 employees consisting of 4
executive officers, and 8 administrative support personnel. We anticipate that
by December 31, 1999, we will have a total of approximately 30 employees
consisting of 6 executive officers and 24 administrative and support personnel.
FACILITIES
Our principal offices are located at 1320 Flynn Road, Suite 402,
Camarillo, California 93012. In anticipation of the need for additional space,
we executed only a twelve month lease in July of 1998 terminating June 30, 1999.
The monthly rental is $1,300. We also lease office space at 900 Avenida Acaso,
Suite J, Camarillo, California 93012. This office is approximately three blocks
from our principal office and consists of approximately 650 square feet. We rent
this office space on a month to month basis for $700 per month. We anticipate
that we will require additional office space of approximately 4,500 square feet
within the next six months. Office space of this size is readily available in
the proximity of our location. We will seek to coincide the acquisition and
move-in to the new space concurrently with the expiration of the Flynn Road
lease.
LEGAL PROCEEDINGS
We are not a party to any pending legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
TravelnStore.com's officers and directors and their ages are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <S>
Jim B. Tyner 50 Chairman, Chief Executive Officer and Director
John R. Toal 60 President, Chief Operating Officer and Director
Yula Greco 52 Vice President, Secretary and Director
Richard Bush 41 Vice President, Chief Financial Officer and
Director
E. Heinz Niederhoff 60 Director
</TABLE>
JIM B. TYNER is a co-founder of TravelnStore.com. From 1969 to 1976, he was
involved in the brokerage and sale of homes and agricultural investment
properties. In 1976, he founded a California licensed, independent escrow
company, which he built into a multi-location firm. He sold the escrow company
in 1989, having completed over 20,000 real estate transactions. Mr. Tyner
purchased two general travel agencies in 1981, which he grew from $600,000
annual sales to $3.5 million in four years. Mr. Tyner sold these agencies in
1985. From 1990 to 1995, Mr. Tyner was involved in real estate development and
brokerage, and served as the Managing Partner of 250,000 square feet of office,
industrial and commercial buildings. Mr. Tyner founded World Key, Inc. in 1994
as a specialized travel agency for travel to Great Britain. He continues as
Chairman of World Key, Inc. Mr. Tyner has been active in community affairs,
serving on the Board of Regents of California Lutheran University, as President
of the Camarillo Chamber of Commerce, as President of the Ventura County Escrow
Association and the Independent Escrow Association and on the Executive Board of
the California Escrow Association. Mr. Tyner is a graduate of California
Lutheran University.
JOHN R. TOAL is a co-founder of TravelnStore.com and has served as President and
Chief Operating Officer of TravelnStore.com since its inception. Prior to
joining TravelnStore, Mr. Toal was a Director and President of Impactor
Environmental Products, Inc., a publicly held company and the parent company of
Environmental Glass, Inc. Prior to his involvement with Impactor Environmental
Products, Inc. he served as President of Toal and Associates, a media
advertising and design consulting firm, which he founded in 1960. He has
lectured at UCLA and other venues on the topics of Advertising and Marketing. He
is a graduate of the American Academy of Art in Chicago.
YULA GRECO is a co-founder of TravelnStore.com and has served as Vice President,
Controller and Secretary since its inception. She is a co-founder of World Key,
Inc. and has served as Controller and Secretary since its founding in 1994. From
1981 to 1989 she served as Controller of Coronado Escrow Inc. and World Key
Travel, Inc. From 1989 to 1996 she served as Controller for several real estate
partnerships controlled by Jim B. Tyner. She holds a degree in accounting from
Ventura Community College.
RICHARD A. BUSH graduated with honors from Indiana University in 1980. He
qualified as a Certified Public Accountant in 1980. He spent 10 years with
Arthur Andersen & Company. He held the position of Manager, Audit Financial
Consulting Practice in its Chicago office. Mr. Bush joined the Aerospace
Division of Abex, Inc. as Controller in 1990. He also served as a Co-General
Partner, with Mr. Tyner, in several, large commercial real estate syndications.
He currently serves as Vice President of Finance of Fairfield Manufacturing
Company Inc., a $175 million per year manufacturing company located in West
Lafayette, Indiana. He will serve as the interim CFO on a consulting basis until
such time as we require a full-time CFO.
E. HEINZ NIEDERHOFF served as a Vice President for Sitmar Cruises from
1976-1979. From 1980 through 1982 he held the position of Vice President,
Western U.S., for Kuoni Tours. From 1982 to 1996 he served as President of DER
Travel Service, Inc., Los Angeles. DER is a major European tour operator with
annual sales in excess of $75 million. At present, he serves as Vice President,
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Sales and Marketing for Kemwel Holiday Autos, LLC, one of the largest rental
car marketing firms with offices worldwide. He is past Chairman and CEO of the
United States Tour Operators Association in 1994/1995.
We have not established separate Audit, Compensation or other Committees
of the Board of Directors. The functions of these Committees presently are being
performed by the full Board of Directors. We anticipate appointing such
Committees during calendar 1999.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
Our only compensation obligation to any of our Executive Officers is to
pay them the salary compensation described below. We have not established any
employee benefit or insurance plans or other forms of long-term benefits for any
of our Executive Officers or other employees. Accordingly, we have not included
a Summary Compensation Table, which would include only the listed salary, and
instead have separately described the compensation payable to our Executive
Officers. We anticipate that, after the completion of this offer, we may
establish one or more employee benefit or insurance plans of the type that
would be disclosed in the Summary Compensation Table.
CASH COMPENSATION
Neither our Chief Executive Officer, President nor any other Executive
Officer received or is entitled to receive for either fiscal year 1998 or fiscal
year 1999 compensation of $100,000 or more. We have no obligation to pay any
Executive Officer any deferred compensation for any period prior to the date of
this Prospectus. The compensation payable during fiscal 1999 to our Executive
Officers is as follows:
<TABLE>
<CAPTION>
COMPENSATION
NAME & POSITION FISCAL 1999
- --------------- ------------
<S> <C>
Jim B. Tyner, CEO $84,000
John R. Toal, President $72,000
Yula Greco, V.P. and Secretary $72,000
Richard Bush, CFO $48,000
</TABLE>
All of the foregoing compensation is payable as salary. We have no
obligation to pay any cash bonuses in fiscal 1999, although we may pay cash
bonuses in fiscal 1999 if our performance and the Executive Officer's
performance warrant a bonus.
STOCK OPTIONS
We have not granted any stock options, stock appreciation rights or
other stock incentives to any of the Executive Officers. (See, "Principal
Stockholders" and "Certain Transactions" for a discussion of the present stock
interests of the Executive Officers and Directors.) In the future we may grant
stock options, stock appreciation rights and other stock rights to any or all of
the Executive Officers. (See, "1999 Equity Incentive Plan.")
EMPLOYMENT AGREEMENTS
We have not entered into written Employment Agreements with any of the
Executive Officers. Accordingly, neither we nor any Executive Officer is
obligated to continue the employment of any Executive Officer for any period or
any particular period. We anticipate entering into written employment agreements
with at least our Chief Executive Officer and our President during fiscal 1999.
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<PAGE> 46
DIRECTORS' COMPENSATION
We do not pay any of the Directors any compensation, whether in cash or
other property, for their attendance at any meetings of the Board of Directors.
We provide cash reimbursements for each of the Directors for expenses incurred
in attending any such meetings. We anticipate that, after the closing of this
Offering and depending on our results of operations, we may compensate the
non-management Directors for their attendance at such meetings.
STOCK OPTION PLANS
1999 EQUITY INCENTIVE PLAN
In April 1999, we adopted the 1999 Equity Incentive Plan (the "Plan").
The purposes of the Plan are to provide an additional incentive for directors,
employees and consultants to further our growth, development and financial
success by personally benefiting through the ownership of our securities, and to
enable us to obtain and retain the services of directors, employees and
consultants considered essential to our long-term success.
We have reserved a total of 500,000 shares of Common Stock for issuance
under the Plan either upon the exercise of options or as shares of restricted
stock. The Plan provides for adjustment in the number of shares of Common Stock
covered by the Plan in the event of, among other things, any stock splits or
stock dividends and any combinations or reclassifications of our Common Stock.
Currently the Plan is administered by the Board of Directors, although
the Board may appoint a Committee to administer the Plan. The administrator has
authority to construe and implement the Plan, to select the individuals eligible
for the grant of options and the award of stock, to determine the amount and
exercise price of options and other shares to be granted, to impose restrictions
on the transferability of the options and shares and to prescribe all other
terms and conditions of each option granted under the Plan.
The administrator may grant options and award shares to our employees,
officers, directors, non-employee directors and consultants. As of the date
hereof, no employees, Directors or consultants have been granted any options or
issued any shares under the Plan nor are they entitled to receive the grant of
an option or the award of any shares under the Plan.
STOCK OPTIONS
Options granted under the Plan may be incentive stock options or
non-statutory stock options for federal and state income tax purposes. Options
granted under the Plan are not transferable, except in the event of the
Optionee's death, and options may be exercised only within the period prescribed
by the administrator. The maximum term of any option is ten (10) years.
The administrator of the Plan has the discretion to establish the
vesting schedule for any options. Generally options will vest at the rate of 20%
after each year of employment but, in the event of our merger or reorganization,
the administrator may accelerate the vesting of the Options. The administrator
may provide that the option will become fully vested on the occurrence of a
Change in Control, which would generally include (a) a person's acquisition of
25% or more of our outstanding voting securities; (b) the stockholders' approval
of our merger or consolidation with or into another corporation in which our
existing stockholders do not own at least 65% of the voting securities of the
surviving entity; or (c) over any two (2) year period, a change in the majority
of our Board of Directors that is not approved by at least two-thirds (2/3) of
the Directors then in office.
The expiration of any option is accelerated if the optionee's
employment, status as a director or consultant terminates for any reason. The
option must be exercised within thirty (30) days following such termination,
unless the termination is as a result of the optionee's death or disability, in
which case the option must be exercised within one (1) year after the date of
termination.
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<PAGE> 47
The exercise price of an option is set by the administrator at the time
of grant. The option price may not be less than 100% of the fair market value of
Common Stock on the date of grant. Payment of the exercise price of an option
may be made in whole or in part in the form of cash or our stock (valued at its
then fair market value).
RESTRICTED STOCK
The administrator may award shares under the Plan on such terms and
conditions as it deems appropriate. The shares may be awarded either as a stock
bonus for which the recipient shall not be obligated to pay a purchase price or
as a stock purchase in which case the recipient shall be obligated to pay a
purchase price established by the administrator, which price may be less than
the then fair market value of the Common Stock.
The recipient will be entitled to vote all of the shares immediately
upon the award of the shares. The Administrator may provide that the recipient's
economic interest in the shares will vest over a period of time; provided that
such period shall not be longer than 20% per year over five years.
In the event of the termination of the stockholder's employment or
status as a director or consultant, we shall have the right to repurchase any
unvested shares at a price equal to the purchase price paid by the stockholder.
The administrator also may provide that, on the occurrence of any such
termination, we will have the right to repurchase, at its then fair market
value, any vested shares.
ANTI-TAKEOVER IMPACT OF CHANGE IN CONTROL PROVISION.
The Plan permits the administrator to accelerate the vesting of any
option and any shares on the occurrence of a Change in Control. Such
acceleration of vesting could have an anti-takeover effect and could make it
more difficult for a third party to acquire TravelnStore.com. We are is not
currently discussing or negotiating with any other person regarding the
acquisition of TravelnStore.com or any similar transaction that would result in
a Change in Control.
AMENDMENT AND TERMINATION.
We may amend or terminate the Plan at any time, provided that no
outstanding option or shares may be adversely affected without the optionee's or
the stockholder's consent. The approval of our stockholders is required only for
amendments that increase the number of shares available for issuance under the
Plan other than as a result of stock split, recapitalization or other change in
our capital structure. The Plan will automatically terminate on December 31,
2009, unless it has previously been terminated; but options and shares then
outstanding may be exercised and will remain outstanding until they expire or
are terminated in accordance with their terms.
BENEFIT PLANS
We have not established any pension, profit-sharing, 401(k) or similar
benefit plans for our employees. We anticipate that we will establish one or
more of such plans after the completion of this Offering. Our provision of such
plans may be important in attracting and retaining the employees that we will
need to achieve our business plan.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our Articles of Incorporation limits the liability of directors to the
maximum extent permitted by California law. California law provides that
directors of a corporation will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except liability for (a) any
breach of their duty of loyalty to the corporation or its stockholders, (b) acts
or omissions not in good faith or which involve intentional misconduct or a
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<PAGE> 48
knowing violation of law, (c) unlawful payments of dividends or unlawful stock
repurchases or redemptions or (d) 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
rescission.
Our Articles of Incorporation and Bylaws provide that we will indemnify
our directors and executive officers and may indemnify our other officers and
employees and other agents to the fullest extent 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 or not California law would permit indemnification.
We have entered into agreements to indemnify our directors and executive
officers, in addition to 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 the right of TravelnStore.com, arising
out of such person's services as an director or executive officer of
TravelnStore.com, any of our subsidiaries or any other company or enterprise to
which the person provides services at our request. We believe that these
provisions and agreements are necessary to attract and retain qualified persons
as directors and executive officers.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of
TravelnStore.com pursuant to the provisions of our charter documents, California
law or the agreements described above, we have 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.
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of our Common
Stock as of April 30, 1999 and as adjusted to reflect the sale of the shares of
Common Stock offered hereby by:
o each person or entity who is known by us to beneficially own
more than 5% of our outstanding Common Stock;
o the CEO, each of the named executive officers and each of our
directors; and
o all executive officers and directors as a group.
Unless otherwise indicated, the address for each of the named
individuals is c/o TravelnStore.com, Inc., 1320 Flynn Road, Suite 402,
Camarillo, California 93012. 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 table is based on 4,700,000
shares of Common Stock outstanding as of April 30, 1999 and 5,200,000 shares
outstanding immediately following the completion of this offering. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission. None of the persons listed below hold any options or other
rights to acquire any additional shares of our Common Stock. The outstanding
Convertible Promissory Notes are convertible into a total of 240,000 shares of
Common Stock. There is one Stock Option outstanding covering a total of 100,000
shares of Common Stock. None of the shares of Common Stock issuable on
conversion of such Notes or upon exercise of such Stock Option are deemed
outstanding for the purpose of computing the percentage ownership of the persons
listed below. To the extent that any shares are issued upon exercise of options,
warrants or other rights to acquire our capital stock that are presently
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<PAGE> 49
outstanding or granted in the future or reserved for future issuance under our
stock plans, there will be further dilution to new public investors.
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS, DIRECTORS SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
AND 5% STOCKHOLDERS PRIOR TO OFFERING AFTER THE OFFERING
----------------- ------------------
NUMBER PERCENTAGE NUMBER PERCENTAGE
--------- ---------- --------- ----------
<C> <S> <S> <S> <S>
Jim B. Tyner 1,800,000 38.0% 1,800,000 34.6%
Scanlin 1989 Trust 1,050,000 22.3% 1,050,000 20.2%
Stevan Saylor 950,000 20.2% 950,000 18.3%
John R. Toal 450,000 9.6% 450,000 8.7%
Yula Greco 450,000 9.6% 450,000 8.7%
Richard Bush -0- 0.0% -0- 0.0%
E. Heinz Niederhoff -0- 0.0% -0- 0.0%
All Executive Officers and
Directors as a group
(5 persons) 2,700,000 57.4% 2,700,000 51.9%
</TABLE>
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<PAGE> 50
CERTAIN TRANSACTIONS
TravelnStore, LLC, a California limited liability company, was
organized on August 18, 1998, and is our predecessor. By a merger of
TravelnStore, LLC into us effective as of April 15, 1999, we acquired all of its
business, assets and liabilities. In connection with the merger, we issued to
the members of the LLC a total of 4,500,000 shares of Common Stock. The members
of the LLC had made an aggregate cash contribution to the LLC of $200 in
exchange for their membership interests in the LLC. The persons who were the
members of the LLC currently hold a majority of our outstanding Common Stock.
(See, "PRINCIPAL STOCKHOLDERS.")
In separate private placements commenced in September 1998 and January
1999, we issued Convertible Promissory Notes (the "Notes") in the aggregate
principal amount of $310,000. Each Note has a face value of $15,000, $85,000 of
the Notes have a coupon rate of 8% per annum, $225,000 of the Notes have a
coupon rate of 6% per annum and is all due and payable on December 31, 2000.
Each of the Notes was issued in exchange for cash, the forgiveness of debt or a
combination thereof in an amount equal to the principal amount of the Note.
Under both placements, the amount payable at December 31, 2000 on maturity of
the Notes will depend on whether or not we have affected a registered public
offering of our Common Stock. If we have not affected a registered public
offering of our Common Stock on or before December 31, 2000, we will be
obligated to pay an amount equal to the sum of the entire unpaid principal
balance of the Notes, all accrued interest thereon, and a premium equal to
$15,000. If we have affected a registered public offering of our Common Stock on
or before December 31, 2000, and have raised at least $2,000,000 in such
offering, we will be obligated to pay an amount equal to the sum of the entire
unpaid principal balance of the Notes, all accrued interest thereon, and a
premium equal to $7,500.
The Notes issued under both placements may be converted into shares of
Common Stock following the date on which a registered public offering of our
Common Stock is declared effective. For the Notes issued under the placement
commenced in September, 1998, the holder may convert the Note into that number
of shares of Common Stock determined by dividing the sum of $150,000 by the
price at which we issue the shares of Common Stock in the registered offering;
provided that the number of shares that are issuable upon such conversion shall
be appropriately pro-rated to reflect any partial payments on the Note prior to
the date of conversion. For the Notes issued under the placement commenced in
January, 1999, the holder may convert the Note into that number of shares of
Common Stock determined by dividing the sum of $50,000 by the price at which we
issue the shares of Common Stock in the registered offering; provided that the
number of shares that are issuable upon such conversion shall be appropriately
pro-rated to reflect any partial payments on the Note prior to the date of
conversion. In anticipation that the offering price for any shares issued in a
registered offering will be $10 per share, we have reserved for issuance on
conversion of the Notes a total of 240,000 shares of Common Stock. We will
appropriately adjust the number of shares reserved to reflect the actual
offering price and the then aggregate amount payable under the Notes.
In connection with the commencement of our Web site, we conducted a
Sweepstakes under which we solicited entries from visitors to our Web site. We
granted to a visitor whose name we drew at random from the list of all
participating visitors an Option to purchase that number of shares of our Common
Stock as is determined by dividing $1,000,000 by the price at which the shares
of Common Stock covered by this offering are issued to the public. If the Option
is exercised following our public offering of our Common Stock, the Option will
have an exercise price of $100.00. If we do not effect a public offering of our
Common Stock by December 31, 2000, the Option will expire on December 31, 2000
and we shall pay the holder of the Option $25,000 in cash.
In connection with our borrowing of a total of $90,000 from two
shareholders, we issued to such shareholders, as additional consideration for
the loans, a total of 200,000 shares of Common Stock. Two of the Notes issued
for a total of $50,000 are due and payable on June 30, 1999, and bear interest
at the rate of 10% per annum. One of the Notes issued for $40,000 is due and
payable on December 31, 1999, bears interest at the rate of 10% per annum and is
convertible at the holder's option into Convertible Notes issued in the
September 6, 1998 private placement (which is described above) in the aggregate
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<PAGE> 51
principal amount of $75,000.
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<PAGE> 52
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, our authorized capital stock will
consist of 20,000,000 shares of Common Stock, no par value, and 1,000,000 shares
of Preferred Stock, no par value. As of April 30, 1999, there were outstanding
4,700,000 shares of Common Stock held by five stockholders of record and no
shares of Preferred Stock. Of the 20,000,000 shares of Common Stock authorized,
500,000 shares are reserved for issuance pursuant to the 1999 Equity Incentive
Plan, 160,000 shares are reserved for issuance upon the conversion of
outstanding Convertible Notes, 100,000 are reserved for issuance on the
outstanding Stock Option, and 500,000 are being offered herein.
COMMON STOCK
The holders of our Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of our stockholders. Subject
to preferences applicable to any outstanding shares of Preferred Stock, the
holders of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of any funds legally available. In the
event of our liquidation, dissolution or winding up, holders of Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities
and the liquidation preferences of any outstanding shares of Preferred Stock.
Holders of Common Stock have no preemptive rights and no right to convert their
Common Stock into any other securities. There are no redemption or sinking fund
provisions applicable to our Common Stock. All outstanding shares of Common
Stock are, and all shares of Common Stock to be outstanding upon the closing of
this offering will be, fully paid and nonassessable. The rights, preferences and
privileges of holders of our Common Stock are subject to the rights of holders
of shares of any series of our Preferred Stock which we may designate and issue
in the future.
PREFERRED STOCK
Pursuant to our Articles of Incorporation, the Board of Directors has
the authority, without further action by the stockholders, to issue up to
1,000,000 shares of Preferred Stock in one or more series and to fix the rights,
preferences and privileges of such stock, 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, may issue Preferred Stock with voting,
conversion or other rights that could adversely affect the voting power and
other rights of the holders of Common Stock. Preferred Stock could thus be
issued quickly with terms which could delay or prevent a change in control of
TravelnStore.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 other rights of the
holders of Common Stock. Upon the closing of this Offering, there will be no
shares of Preferred Stock outstanding, and we do not currently have plans to
issue any of our Preferred Stock.
VOTING RIGHTS
Our Bylaws set forth specific procedures for a stockholder's submission
of any matter to be acted upon at any meeting of stockholders.
o If the stockholder wishes to nominate a person for election as a
director, the stockholder must deliver to us notice of the nomination
generally not less than thirty (30) days nor more than sixty (60)
days prior to the date of the meeting at which Directors are to be
elected. The stockholder must include with the notice certain
information about the nominee and his or her prior experience.
o If the stockholder wishes to present any other matter for action the
stockholder meeting, the stockholder must deliver to us notice of
such matter generally not less than thirty (30) days nor more than
sixty (60) days prior to the date of the meeting. The stockholder
must include with the notice certain information about the matter to
be acted upon and his or her interest in such matter.
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CONVERTIBLE NOTES
We have issued in two private placements Convertible Promissory Notes in
the aggregate principal amount of $310,000. Each Note has a face value of
$15,000, $85,000 of the Notes have a coupon rate of 8% per annum, $225,000 of
the Notes have a coupon rate of 6% per annum and is all due and payable on
December 31, 2000. Each of the Notes was issued in exchange for cash, the
forgiveness of debt or a combination thereof in an amount equal to the principal
amount of the Note. Under both placements, the amount payable at December 31,
2000 on maturity of the Notes will depend on whether or not we have affected a
registered public offering of our Common Stock. If we have not affected a
registered public offering of our Common Stock on or before December 31, 2000,
we will be obligated to pay an amount equal to the sum of the entire unpaid
principal balance of the Notes, all accrued interest thereon, and a premium
equal to $15,000. If we have affected a registered public offering of our Common
Stock on or before December 31, 2000, and have raised at least $2,000,000 in
such offering, we will be obligated to pay an amount equal to the sum of the
entire unpaid principal balance of the Notes, all accrued interest thereon, and
a premium equal to $7,500.
The Notes issued under both placements may be converted into shares of
Common Stock following the date on which a registered public offering of our
Common Stock is declared effective. For the Notes issued under the placement
commenced September, 1998, the holder may convert the Note into that number of
shares of Common Stock determined by dividing the sum of $150,000 by the price
at which we issue the shares of Common Stock in the registered offering;
provided that the number of shares that are issuable upon such conversion shall
be appropriately pro-rated to reflect any partial payments on the Note prior to
the date of conversion. For the Notes issued under the placement commenced
January, 1999, the holder may convert the Note into that number of shares of
Common Stock determined by dividing the sum of $50,000 by the price at which we
issue the shares of Common Stock in the registered offering; provided that the
number of shares that are issuable upon such conversion shall be appropriately
pro-rated to reflect any partial payments by us on the Note prior to the date of
conversion. In anticipation that the offering price for any shares issued in a
registered offering will be $10 per share, we have reserved for issuance on
conversion of the Notes a total of 240,000 shares of our Common Stock. We will
appropriately adjust the number of shares reserved to reflect the actual
offering price and the then aggregate amount payable under the Notes.
In connection with our borrowing of a total of $90,000 from two
shareholders, we issued to such shareholders, as additional consideration for
the loans, a total of 200,000 shares of Common Stock. Two of the Notes issued
for a total of $50,000 are due and payable on June 30, 1999, and bear interest
at the rate of 10% per annum. One of the Notes issued for $40,000 is due and
payable on December 31, 1999, bears interest at the rate of 10% per annum and is
convertible at the holder's option into Convertible Notes issued in the
September 6, 1998 private placement (which is described above) in the aggregate
principal amount of $75,000.
TRANSFER AGENT AND REGISTRAR
We will not list the shares of Common Stock issued in this offering on
any exchange or in the Nasdaq quotation service including after the offering.
Until such time as we list our shares of Common Stock on an exchange or in the
Nasdaq quotation service, we will act as the transfer agent and registrar for
our Common Stock.
UNDERWRITING
The shares of Common Stock covered by this Offering are being offered
directly by us. We have not employed the services of an underwriter to market
the shares, although we have reserved the right to employ one or more
underwriters and brokers.
We have established the following procedures for directly offering and
selling the shares covered by this Offering.
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<PAGE> 54
o INVESTOR RELATIONS DEPARTMENT. Our Investor Relations Department
consists of a Director of Investor Relations and an Investor
Relations Associate. The Director and Associate have a
comprehensive understanding of TravelnStore.com, our operations,
market strategies, and the market in which we compete. The
Director and Associate have received specific training about
this offering and the rules under which we are making this
offering.
o MARKETING. We intend to use the Internet, direct-mail and
traditional media to solicit investors using the following
strategies.
o THE INTERNET. We have established a procedure on our Web site
through which a prospective investor may download a copy of this
Prospectus and subscribe for shares by following the instructions
posted on the Web site. Our Investor Relations Department will
follow-up with each person who contacts the Web site to pursue
such person's investment in this offering.
o DIRECT-MAIL. We will use traditional surface mail and email to
contact retail travel agencies and travel service providers. We
believe that the owners, management and staff of travel agencies
and travel service providers are in a position to easily
understand our objectives and opportunities. We intend to contact
both agencies and providers with whom we have existing
relationships and those with whom we do not have relationships.
o TRADITIONAL MEDIA. We intend to use traditional media both in
the form of paid advertisements and press releases to promote the
availability of this Offering to potential investors.
o ESCROW ACCOUNT. To reduce the risk to early investors, we have
set a minimum offering amount of $1,200,000. We anticipate that
amount will be sufficient to fund our operations for twelve (12)
months. Until the minimum subscriptions are received, all funds
received from investors will be placed in an escrow account with
Santa Barbara Bank & Trust, an FDIC insured commercial bank with
more than $50,000,000 in assets. The subscription funds will not
be released to us until we have received acceptable
subscriptions for at least $1,200,000. If we have not received
acceptable subscriptions for at least $1,200,000 by __________,
1999 (i.e., 120 days after the effective date of the offering),
the funds will be returned to the investors, without interest.
We will not be deemed to have accepted any subscription until we
have accepted the subscription in writing and, if appropriate,
delivered instructions to the escrow agent to release the funds
from escrow. The escrow agreement provides that once the account
balance reaches $1,200,000, all funds will be released to us and
the escrow account closed. All charges and fees associated with
the escrowing of the funds will be paid by us with no deductions
or offsets available against the deposited funds.
Once the minimum amount of $1,200,000 is met all further subscriptions
will be directly deposited for use by us.
MINIMUM INVESTMENT
Each investor must subscribe for at least Two Hundred (200) shares of
Common Stock, for a minimum investment of $2,000.
SUITABILITY STANDARDS
We have determined that investment in the shares of Common Stock covered
by this offering is suitable only for persons of adequate financial means who
have no need for liquidity with respect to this investment and who can bear the
economic risk of loss of their investment. The shares will be sold only to
investors who are or
-54-
<PAGE> 55
whom we reasonably believe satisfy one or more of the standards described below.
These suitability standards represent minimum suitability standards for
prospective investors. The satisfaction of such standards by a prospective
investor does not necessarily mean that the shares are a suitable investment for
such prospective investor and does not obligate us to accept any subscription.
We may reject subscriptions, in whole or in part, in our absolute discretion.
We will require each investor to represent in writing, among other
things, that (i) either alone or with investor's professional advisors, the
investor is capable of evaluating the merits and risks of an investment in the
shares and of protecting his or her own interests in connection with the
transaction, (ii) the investor is acquiring the shares for his or its own
account, for investment only and not with a view toward the resale or
distribution thereof, and (iii) the investor meets the suitability standards set
forth below.
Each investor must represent in writing that such investor satisfies one
or more of the following:
(a) if the investor is an individual, either alone or jointly with
his or her spouse, one or more of the following:
(i) The investor has a net worth of at least $250,000.00; or
(ii) The investor has a net worth of at least $150,000.00 and
had gross income for each of the 1997 and 1998 tax years
of at least $50,000.00 and the investor anticipates
having at least that level of gross income for the 1999
tax year; or
(b) if investor is not an individual, that either the entity's total
assets exceed $250,000 or that the amount of the investment does
not exceed 5% of the entity's total assets.
We reserve the right, in our sole discretion, to approve or disapprove
each investor and to reject subscriptions in whole or in part for any reason.
SUBSCRIPTION PROCEDURE
An investor who desires to purchase any of the shares offered hereby
should do all of the following.
1. Complete, date, execute, and deliver to us two copies of the
Subscription Agreement.
2. Deliver to us a check payable to "TravelnStore.com Investor
Account" in the full amount of the offering price of the shares
the investor proposes to purchase.
Subscriptions will be accepted or rejected in our sole discretion. We
reserve the right to reject any subscription in whole or in part. All funds
received from investors will be held in an escrow account pending acceptance by
us of subscriptions in the amount of at least $1,200,000. Promptly after our
acceptance of any subscription, we will issue and deliver to the investors
certificates for the shares.
-55-
<PAGE> 56
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, we will have outstanding a total of
5,200,000 shares of Common Stock, assuming the sale of all of the shares covered
by this offering. Of these shares, the 500,000 shares offered hereby will be
freely tradable without restriction or further registration under the Securities
Act 1933, as amended (the "Act"), unless held by "affiliates" of
TravelnStore.com, as that term is defined in Rule 144 under the Act ("Rule
144"). The remaining 4,700,000 shares of Common Stock outstanding upon
completion of the Offering are "restricted securities" as that term is defined
in Rule 144.
In additions, we have reserved a total of 240,000 shares of Common
Stock for issuance upon conversion of the outstanding Convertible Notes and
100,000 for issuance upon exercise of the outstanding Stock Option. (See,
"CERTAIN TRANSACTIONS".) The shares of Common Stock issuable upon such
conversion and exercise will be "restricted securities" may be resold upon
compliance with the holding period, volume limitations, manner of sale and other
provisions of Rule 144. Generally, the holding period for the shares issuable on
such conversion or exercise will not begin until the effective date of such
conversion or exercise.
We have not required that the Directors, Executive Officers or any of
the holders of the Convertible Promissory Notes enter into Lock-Up Agreements or
otherwise agree that, for any particular period from the date of this
Prospectus, they will not, without our prior written consent, offer, sell,
contract to sell, or otherwise dispose of, any shares of Common Stock or any
securities convertible into, or exercisable or exchangeable for Common Stock, or
grant any options or warrants to purchase Common Stock. We have determined that
it is not necessary to so restrict our Directors, Executive Officers or
Noteholders as our Common Stock will not be listed for trading on any exchange
or in the Nasdaq quotation system. As a result, such shares will be eligible for
sale pursuant to Rule 144 subject to the provisions of such rules.
In general, under Rule 144 as currently in effect, a person (or persons
whose stock is aggregated) who has beneficially owned the stock for at least one
year (including the holding period of any prior owner except an affiliate from
whom such stock was purchased) is entitled to sell in "broker's transactions" or
to market makers, within any three-month period commencing 90 days after the
date of this Prospectus, a number of shares of stock that does not exceed the
greater of (a) one percent of the number of shares of Common Stock then
outstanding, or (b) the average weekly trading volume in the Common Stock during
the four calendar weeks preceding the required filing of a Form 144 with respect
to such sale. Sales under Rule 144 are generally subject to the availability of
current public information about TravelnStore.com. Persons other than affiliates
who have beneficially owned such stock for at least two years are not subject to
the notice, manner of sale, volume or public information requirements and may
sell such shares immediately following the Offering.
Prior to the Offering, there has not been any public market for the
Common Stock. Future sales of substantial amounts of Common Stock in the public
market could adversely affect the prevailing market prices and impair our
ability to raise capital through the sale of equity securities.
LEGAL MATTERS
The legality of our securities offered will be passed on for
TravelnStore.com by Reicker, Clough, Pfau & Pyle, LLP, 1421 State Street, Suite
B, Santa Barbara, California 93101.
EXPERTS
The audited financial statements of TravelnStore.com included in this
Prospectus and elsewhere in the Registration Statement have been audited by
Farber & Hass,, LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
-56-
<PAGE> 57
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement on Form SB-2 relating to the shares covered by this offering. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules filed therewith. For further information with respect to
TravelnStore.com and the shares offered hereby, reference is made to such
Registration Statement and such exhibits and schedules. Statements contained in
this Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. For
further information with respect to TravelnStore.com and the shares, reference
is made to the Registration Statement and the exhibits and schedules thereto.
You may read any document we file with the Commission at its public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call
the Commission at 1-800-SEC-0330 for further information about the public
reference rooms. Our filings with the Commission also are available to the
public from the Commission's Web site at http://www.sec.gov.
After the completion of this offering, we will be subject to the
information and periodic reporting requirements of the Securities Exchange Act
of 1934, and in accordance therewith will file periodic reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information may be inspected or copied at the Commission's
public reference rooms and through the Commission's Web site
(http.//www.sec.gov).
-57-
<PAGE> 58
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INDEPENDENT AUDITORS' REPORT F-2
FINANCIAL STATEMENTS:
Balance Sheet, December 31, 1998 F-3
Statement of Operations
for the Period July 6, 1998 (Date of
Inception) to December 31, 1998 F-4
Statement of Members' Deficit
for the Period July 6, 1998 (Date of
Inception) to December 31, 1998 F-5
Statement of Cash Flows
for the Period July 6, 1998 (Date of
Inception) to December 31, 1998 F-6
Notes to Financial Statements F-7 to F-10
</TABLE>
- --------------------------------------------------------------------------------
F-1
<PAGE> 59
INDEPENDENT AUDITORS' REPORT
To Travelnstore LLC:
We have audited the accompanying balance sheet of Travelnstore LLC (the
"Company") as of December 31, 1998 and the related statements of operations,
members' deficit and cash flows for the period July 6, 1998 (date of inception)
to December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements present fairly, in all material
respects, the financial position of Travelnstore LLC as of December 31, 1998 and
the results of its operations and its cash flows for the period July 6, 1998
(date of inception) to December 31, 1998 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 11 to the
financial statements, the Company has incurred losses from operations since
inception, has a working capital deficit of $234,538 and has a members' deficit
of $307,914. These conditions raise substantial doubt about its ability to
continue as a going concern. Management's plans regarding those matters also are
described in Note 11. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
April 27, 1998
F-2
<PAGE> 60
TRAVELNSTORE LLC
BALANCE SHEET
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
CURRENT ASSETS:
<S> <C>
Cash $ 18,860
Accounts receivable 185
Due from related party 43,264
---------
Total current assets 62,309
---------
PROPERTY AND EQUIPMENT 18,387
Less accumulated depreciation (1,672)
---------
Property and equipment, net 16,715
---------
OTHER ASSETS 2,946
---------
TOTAL ASSETS $ 81,970
=========
LIABILITIES AND MEMBERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 74,224
Accrued expenses 14,720
Income taxes payable 889
Notes payable, related parties 100,000
Convertible note payable, related party 40,000
Due to related party 1,050
Accrued expense, related party 46,500
Deferred income 19,464
---------
Total current liabilities 296,847
---------
CONVERTIBLE NOTES PAYABLE 85,000
---------
OTHER LIABILITIES 8,037
---------
MEMBERS' DEFICIT (307,914)
---------
TOTAL LIABILITIES AND MEMBERS' DEFICIT $ 81,970
=========
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
F-3
<PAGE> 61
TRAVELNSTORE LLC
STATEMENT OF OPERATIONS
FOR THE PERIOD JULY 6, 1998 (DATE OF INCEPTION)
TO DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SALES $ 23,128
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 326,356
---------
LOSS FROM OPERATIONS (303,228)
OTHER EXPENSE -- Interest Expense (4,086)
---------
LOSS BEFORE PROVISION FOR INCOME TAXES (307,314)
PROVISION FOR INCOME TAXES 800
---------
NET LOSS $(308,114)
=========
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
F-4
<PAGE> 62
TRAVELNSTORE LLC
STATEMENT OF MEMBERS' DEFICIT
FOR THE PERIOD JULY 6, 1998 (DATE OF INCEPTION)
TO DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
MEMBERS' EQUITY AT JULY 6, 1998
(DATE OF INCEPTION) $ -0-
MEMBERS' CAPITAL CONTRIBUTION 200
NET LOSS FOR THE PERIOD JULY 6, 1998
(DATE OF INCEPTION) TO DECEMBER 31, 1998 (308,114)
---------
MEMBERS' DEFICIT AT DECEMBER 31, 1998 $(307,914)
=========
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
F-5
<PAGE> 63
TRAVELNSTORE LLC
STATEMENT OF CASH FLOWS
FOR THE PERIOD JULY 6, 1998 (DATE OF INCEPTION)
TO DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C>
Net loss $(308,114)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation 1,672
Changes in operating assets and liabilities:
Accounts receivable (185)
Prepaid and other assets (2,946)
Accounts payable 74,224
Accrued expenses 15,770
Income taxes payable 889
Deferred income 19,464
Other liabilities 8,037
---------
Net cash used by operating activities (191,189)
---------
CASH FLOWS FROM INVESTING ACTIVITIES -
Capital expenditures (18,387)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Note payable borrowings 85,000
Net borrowings from related parties 96,736
Accrued expense, related party 46,500
Capital Contribution 200
---------
Net cash provided by financing activities 228,436
---------
NET INCREASE IN CASH 18,860
CASH, JULY 6, 1998 (DATE OF INCEPTION) -0-
---------
CASH, DECEMBER 31, 1998 $ 18,860
=========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 4,086
Income taxes $ 800
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
F-6
<PAGE> 64
TRAVELNSTORE LLC
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS - Travelnstore LLC (the "Company") is a provider of
a specialized internet website, which acts as a navigational site to other
websites owned by an array of travel service providers and agencies.
CONCENTRATION OF CREDIT RISK - Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of
advances. The advances are due from a single related party.
PERVASIVENESS OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
OPERATING SEGMENT INFORMATION - The Company predominantly operates in one
industry segment, travel industry websites. Substantially all of the
Company's assets and employees are located at the Company's headquarters in
Camarillo, California.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost with
depreciation provided over the estimated useful life of 5 years using the
straight-line method.
INCOME TAXES - The Company has elected to be taxed as a Limited Liability
Corporation for Federal and California tax purposes. The provision for
income taxes represents the California corporate minimum franchise tax.
2. DUE FROM RELATED PARTY
The Company makes periodic working capital advances to World Key, Inc., a
related party. The advances are repaid when funds are available and are
payable upon demand.
F-7
<PAGE> 65
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1998 consists of the
following:
<TABLE>
<S> <C>
Furniture and fixtures $ 2,764
Office equipment 15,623
--------
Total property and equipment 18,387
Less accumulated depreciation (1,672)
--------
Property and equipment, net $ 16,715
========
4. NOTES PAYABLE - RELATED PARTIES
Notes payable at December 31, 1998 consists of:
Two notes ($25,000 each) payable to two members of the LLC; in exchange
for marketing services performed; unsecured; payable in full, including
interest at 8%, upon the earlier of 1) successful
Company public stock offering, or 2) June 30, 1999 $ 50,000
Two notes ($25,000 each) payable to two members of the LLC; unsecured;
payable in full on June 30, 1999 with interest at 10%. In addition, each
note holder will receive 50,000 shares of the Company's common stock
when the Company converts to "C"
corporation status 50,000
--------
Total $100,000
========
5. CONVERTIBLE NOTE PAYABLE - RELATED PARTIES
Note payable to a member of the LLC; unsecured; payable in full on
December 31, 1999 with accrued interest at 10%. In addition, the note
holder will receive 100,000 shares of the Company's common stock upon
the Company's conversion to "C" corporation status. The note may be
converted, at the noteholder's option, into 5 convertible notes issued
by the Company during its September 15, 1998
private placement of convertible notes (Note 6) $ 40,000
========
</TABLE>
6. DEFERRED INCOME
The Company sells a monthly subscription to participating travel
agencies. The fee is billed in quarterly installments that allows online
bookings through the TravelnStore.com website. During the initial
subscription phase, agencies remitted subscription amounts as far as
October 2000. Revenues are deferred and amortized on a straight-line
basis over the remaining life of the advanced fee subscriptions.
F-8
<PAGE> 66
7. CONVERTIBLE NOTES PAYABLE
<TABLE>
<S> <C>
Six notes payable to individuals of various amounts ranging from $7,500
to $15,000; unsecured; payable in full, with interest at 8%, upon the
earlier of 1) public sale of registered shares of the Company, or 2)
December 31, 2000. The notes may be converted into $50,000 of the
Company's common stock at the time of a successful public stock
offering $ 85,000
========
</TABLE>
8. RELATED PARTY TRANSACTIONS
In 1998, the Company accrued a management fee of $46,500 payable on
demand to World Key, Inc., an affiliate company for common overhead
expenses such as rent, utilities and payroll. In addition, the Company
conducts transactions in the normal course of business with the
affiliate totalling $989 in 1998.
In 1998, the Company made periodic working capital advances to World Key
Inc., a related party (Note 2), in the amount of $76,650 and received
repayments of $34,375.
In December 1998, a member of the LLC made an unsecured working capital
loan to the Company in the amount of $1,050. The loan is payable upon
demand and bears no interest.
9. PRIVATE PLACEMENT OFFERING
On September 15, 1998, the Company initiated a Private Placement
Offering for Convertible Notes. Each unsecured note carries a $15,000
face value and an 8% coupon rate maturing December 31, 2000. The notes
may be converted to common stock of the Company only upon the public
sale of the Company's registered common shares in an underwritten,
initial public offering. A maximum of fifteen notes are permitted under
this offering of which eleven options were outstanding at December 31,
1998.
F-9
<PAGE> 67
10. SUBSEQUENT EVENTS (UNAUDITED)
On January 1, 1999, the Company initiated a Private Placement Offering
of Convertible Notes. Each note carries a $15,000 face value and a 6%
coupon rate maturing December 31, 2000. The notes may be converted to
common stock only upon the occurrence of the Company issuing registered
shares for sale to the public in an underwritten, initial public
offering. The maximum subscription of fifteen notes were sold under this
offering, producing total proceeds to the Company of $225,000.
On January 15, 1999, the Company initiated an Internet Stock Option
Sweepstakes. The winner of the sweepstakes was given the option to
purchase up to $1,000,000 of Company stock at the public issuing price.
Should the Company not make a public offering prior to December 31,
2000, the option may be redeemed for $25,000.
On February 1, 1999, the Company initiated an Equity Incentive Plan to
eligible participants. The maximum shares of stock renewed under this
plan is 500,000.
On April 15, 1999, the Company was acquired by TravelnStore.com, Inc., a
California corporation, in exchange for 4,500,000 shares of common stock.
11. GOING CONCERN
Management has evaluated the Company's current financial position and
its available resources and plans to make a direct public offering (DPO)
of the Company's stock during the second quarter of 1999. The Company
plans to raise between $1.2 million and $5 million in the offering.
- --------------------------------------------------------------------------------
F-10
<PAGE> 68
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 204(a)(10) of the California General Corporation Law (the "GCL")
permits corporations to eliminate the liability of a Director to the corporation
or its stockholders for monetary damages for breach of the Director's fiduciary
duty of care. Our Articles of Incorporation include such a provision eliminating
the liability of Directors to the fullest extent permissible under California
law. Under the GCL directors will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except liability for (a) any
breach of their duty of loyalty to the corporation or its stockholders, (b) acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) unlawful payments of dividends or unlawful stock
repurchases or redemptions or (d) 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
rescission.
Our Articles of Incorporation and Bylaws provide that we will indemnify
our directors and executive officers and may indemnify our other officers and
employees and other agents to the fullest extent 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 or not California law would permit indemnification.
We have entered into agreements to indemnify our directors and executive
officers, in addition to 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 the right of TravelnStore.com, arising
out of such person's services as an director or executive officer of
TravelnStore.com, any of our subsidiaries or any other company or enterprise to
which the person provides services at our request. We believe that these
provisions and agreements are necessary to attract and retain qualified persons
as directors and executive officers.
We are not obligated to indemnify the indemnitee with respect to (a)
acts, omissions or transactions from which the indemnitee may not be relieved of
liability under applicable law, (b) claims initiated or brought voluntarily by
the indemnitee and not by way of defense, except in certain situations, (c)
proceedings instituted by the indemnitee to enforce the Indemnification
Agreements which are not made in good faith or are frivolous, or (d) violations
of Section 16(b) of the Securities Exchange Act of 1934 or any similar statute.
While not requiring the maintenance of directors' and officers'
liability insurance, if there is such insurance, the indemnitee must be provided
with the maximum coverage afforded to Directors, officers, key employees, agents
or fiduciaries if indemnitee is a Director, officer, key employee, agent or
fiduciary, respectively. Any award of indemnification to an agent would come
directly from our assets, thereby affecting a stockholder's investment.
These indemnification provisions and the Indemnification Agreements may
be broad enough to permit indemnification of our officers and Directors for
liabilities (including reimbursement of expenses) arising under the Securities
Act.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses of the offering, all of which are to be borne by
the Registrant, are as follows:
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<PAGE> 69
SEC Filing Fee
Nasdaq Listing Fees
NASD Filing Fee
Underwriter's Non-Accountable Expense Allowance
Printing Expenses
Accounting Fees and Expenses
Legal Fees and Expenses
Blue Sky Fees and Expenses
Registrar and Transfer Agent Fees
Miscellaneous
Total
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
CONVERTIBLE PROMISSORY NOTES. In separate private placements commenced
in September 1998 and January 1999, we issued Convertible Promissory Notes (the
"Notes") in the aggregate principal amount of $310,000. Each Note has a face
value of $15,000, $85,000 of the Notes have a coupon rate of 8% per annum
$225,000 of the Notes have a coupon rate of 6% per annum, and all of the Notes
are due and payable on December 31, 2000. Each of the Notes was issued in
exchange for cash, the forgiveness of debt or a combination thereof in an amount
equal to the principal amount of the Note. Under both placements, the amount
payable at December 31, 2000 on maturity of the Notes will depend on whether or
not we have affected a registered public offering of its Common Stock. If we
have not affected a registered public offering of its Common Stock on or before
December 31, 2000, we will be obligated to pay an amount equal to the sum of the
entire unpaid principal balance of the Notes, all accrued interest thereon, and
a premium equal to $15,000. If TravelnStore.com has affected a registered public
offering of its Common Stock on or before December 31, 2000, and has raised at
least $2,000,000 in such offering, TravelnStore.com will be obligated to pay an
amount equal to the sum of the entire unpaid principal balance of the Notes, all
accrued interest thereon, and a premium equal to $7,500.
The Notes issued under both placements may be converted into shares of
Common Stock following the date on which a registered public offering of Common
Stock is declared effective. For the Notes issued under the placement commenced
September 6, 1998, the holder may convert the Note into that number of shares of
Common Stock determined by dividing the sum of $150,000 by the price at which we
issue the shares of Common Stock in the registered offering; provided that the
number of shares that are issuable upon such conversion shall be appropriately
pro-rated to reflect any partial payments on the Note prior to the date of
conversion. For the Notes issued under the private placement commenced January,
1999, the holder may convert the Note into that number of shares of Common Stock
determined by dividing the sum of $50,000 by the price at which we issues the
shares of Common Stock in the registered offering; provided that the number of
shares that are issuable upon such conversion shall be appropriately pro-rated
to reflect any partial payments on the Note prior to the date of conversion. In
anticipation that the offering price for any shares issued in a registered
offering will be $10 per share, we have reserved for issuance on conversion of
the Notes a total of 240,000 shares of our Common Stock. We will appropriately
adjust the number of shares reserved to reflect the actual offering price and
the then aggregate amount payable under the Notes.
STOCK OPTION. In connection with the commencement of our Web site, we
conducted a Sweepstakes under which we solicited entries from visitors to our
Web site. We granted to a visitor whose name we drew at random from the list of
all participating visitors an Option to purchase that number of shares of our
Common Stock as is determined by dividing $1,000,000 by the price at which the
shares of Common Stock covered by this offering are issued to the public. If the
Option is exercised following our public offering of our Common Stock, the
Option will have an exercise price of $100.00. If we do not effect a public
offering of our Common Stock by December 31, 2000, the Option will expire on
December 31, 2000 and we shall pay the holder of the Option $25,000 in cash.
-61-
<PAGE> 70
DEBT OBLIGATIONS. In connection with our borrowing of a total of $90,000
from two shareholders, we issued to such shareholders, as additional
consideration for the loans, a total of 200,000 shares of Common Stock. Two of
the Notes issued for a total of $50,000 are due and payable on June 30, 1999,
and bear interest at the rate of 10% per annum. One of the Notes issued for
$40,000 is due and payable on December 31, 1999, bears interest at the rate of
10% per annum and is convertible at the holder's option into Convertible Notes
issued in the September 6, 1998 private placement (which is described above) in
the aggregate principal amount of $75,000.
SHARES OF COMMON STOCK. Effective as of April 15, 1999, we acquired by
merger all of the business, assets and liabilities of TravelnStore.com, LLC, a
California limited liability company. In such merger we issued a total of
4,500,000 shares of Common Stock to the Members of the LLC.
TravelnStore.com's issuance of all of the foregoing securities were
effected in transactions exempt from registration under Section 4(2) of the
Securities Act of 1993 and Regulation D promulgated thereunder.
ITEM 27. EXHIBITS.
The following Exhibits are filed as part of this Registration Statement
pursuant to Item 601 of Regulation S-B:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
<S> <C>
2 Merger Agreement dated April 15, 1999, between TravelnStore.com,
LLC, a California limited liability company, and TravelnStore.com,
Inc., a California corporation
3 Charter Documents
3.1 Articles of Incorporation as filed March 4, 1999*
3.2 Bylaws*
4 Instruments defining rights of holders
4.1 Form of Convertible Promissory Note issued September 1998**
4.2 Form of Convertible Promissory Note issuable January 1999**
4.3 Subscription Agreement for this Offering*
5 Opinion of Reicker, Clough, Pfau & Pyle, LLP**
10 Material Contracts
10.1 Escrow Agreement with Santa Barbara Bank & Trust applicable
to this Offering**
10.2 Form of Agency Co-Host Agreement**
10.3 1999 Equity Incentive Plan*
10.4 Form of Officer and Director Indemnification Agreement*
10.5 Consulting Agreement with Donald Scanlin**
10.6 Consulting Agreement with Steven Saylor**
10.7 Stock Option granted to Stolzberg*
23 Consents of Experts and Counsel
23.1 Consent of Reicker, Clough, Pfau & Pyle, LLP (filed as part
of Exhibit 5 hereto)**
23.2 Consent of Farber & Hass, LLP**
* Filed herewith
** To be filed by amendment
</TABLE>
ITEM 28. UNDERTAKINGS.
We undertake to provide at the initial closing and each subsequent
interim closing of this offering stock certificates in such denominations and
registered in such names so as to permit our prompt delivery of the certificates
to the investors participating in such closing.
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<PAGE> 71
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 Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
-63-
<PAGE> 72
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Camarillo, State of California, on May 13, 1999.
TRAVELNSTORE.COM, INC.
By:____________________
Jim B. Tyner, Chief Executive Officer
In accordance with 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.
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jim B. Tyner, Yula Greco, John Toal and each of
them, such person's true and lawful attorneys-in-fact and agents, each with full
power of substitution and resubstitution for such person and in such person's
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments, exhibits thereto, and other documents in
connection therewith to this Registration Statement and any subsequent
registration statement filed by the Registrant pursuant to Rule 462(b) of the
Securities Act, which relates to this Registration Statement) and to file the
same with exhibits thereto and other documents in connection therewith with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as such person might or could do in person, hereby ratifying and
confirming all that each of said attorneys-in-fact and agents, or any of them,
or their substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ---- ----- ----
<S> <C> <C>
Chairman of the Board, Chief Executive Officer and May 13, 1999
Director
- --------------------------
Jim B. Tyner
President, Chief Operating Officer and Director May 13, 1999
- --------------------------
John R. Toal
Vice President, Secretary and Director May 13, 1999
- --------------------------
Yula Greco
Chief Financial Officer and Director (Principal Financial May 13, 1999
and Accounting Officer)
- --------------------------
Richard Bush
Director May 13, 1999
- --------------------------
Heinz Niederhoff
</TABLE>
-64-
<PAGE> 1
EXHIBIT 2
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER is made as of March 16, 1999, by and between
TravelnStore.com, Inc., a California corporation (herein the "Corporation"), and
TravelnStore, LLC, a California limited liability company (herein the "LLC").
(The Corporation and the LLC are hereinafter collectively referred to as the
"Constituent Entities".)
RECITALS
A. The Board of Directors and shareholders of the Corporation have
determined that it is desirable and in the best interests of the Corporation and
its shareholders that the LLC be merged with and into the Corporation on the
terms and conditions set forth herein and the Board of Directors and the
shareholders of the Corporation have approved this Agreement of Merger.
B. The Members of the LLC have determined that it is desirable and in
the best interests of the LLC and its Members that the LLC be merged with and
into the Corporation on the terms and conditions set forth herein and the
Members of the LLC have approved this Agreement of Merger.
C. The LLC is a member-managed limited liability company.
NOW, THEREFORE, in order to implement the foregoing, the parties agree
as follows:
1. MERGER. At the Effective Time (as defined in Section 2 hereof), the LLC
shall be merged with and into the Corporation (the "Merger") pursuant to the
provisions of, and with the effect provided in, Chapter 11 of the General
Corporation Law of California (the "GCL") and Chapter 12 of the Beverly-Killea
Limited Liability Company Act of California (the "LLC Act"). The Corporation
shall be the surviving corporation of the Merger (the "Surviving Corporation")
and shall continue to be governed by the GCL. The separate existence of the LLC
shall cease at the Effective Time. The corporate existence of the Surviving
Corporation shall continue unimpaired and unaffected by the Merger.
2. EFFECTIVE TIME OF THE MERGER. The Merger shall become effective at the
time of the filing in the office of the Secretary of State of the State of
California of a copy of this Agreement of Merger accompanied by Certificates of
Merger substantially in the form of Exhibits A and B hereto (the "Certificates
of Merger") in accordance with Sections 1103 and 1113 of the GCL and Section
17552 of the LLC Act, which time is herein sometimes referred to as the
"Effective Time".
3. DIRECTORS AND OFFICERS. The officers and directors of the Corporation
holding office at the Effective Time shall hold office in the Surviving
Corporation until removed as provided by law or until the election and
qualification of their respective successors.
1
<PAGE> 2
4. CONVERSION OF INTERESTS.
4.1 CONVERSION OF MEMBERSHIP INTERESTS. Upon the Effective Time, each
one percent (1%) membership interest in the LLC outstanding immediately prior to
the Effective Time shall be converted by reason of the Merger and without any
action on the part of the holders of any such membership interests into and
shall become Forty-Five Thousand (45,000) shares of Common Stock of the
Corporation.
4.2 CONVERSION OF COMMON STOCK. Upon the Effective Time, each share of
Common Stock of the Corporation issued and outstanding immediately prior thereto
shall, by virtue of the Merger and without any action by the Corporation, the
holder of such shares or any other person, be canceled and returned to the
status of authorized and unissued shares.
5. ASSUMPTION OF OBLIGATIONS. At the Effective Time, the franchises,
existence and rights of the LLC shall be merged into the Corporation and the
Corporation shall, as the Surviving Corporation, be fully vested therewith. At
the Effective Time, (a) the Surviving Corporation shall possess all of the
rights, privileges, powers and franchises and be subject to all of the
restrictions, disabilities and duties of each of the Constituent Entities; (b)
all property, real, personal and mixed, and all debts due to either of the
Constituent Entities on whatever account, including stock subscriptions, and all
other things in action and all and every other interest of or belonging to or
due to each of the Constituent Entities, shall be taken and deemed to be
transferred to and vested in the Surviving Corporation without further act or
deed; (c) all property, rights, privileges, powers, franchises and all and every
other interest of each of the Constituent Entities shall be thereafter as
effectually the property of the Surviving Corporation as they had been of the
respective Constituent Entities; and (d) the title to any real property, or any
interest therein, which has vested by deed or otherwise in either of the
Constituent Entities, shall not revert to the transferor thereof, or be in any
way impaired, by reason of the Merger. The Surviving Corporation shall assume
and thenceforth be responsible and liable for all the liabilities and
obligations of each of the Constituent Entities.
6. APPROVAL BY SHAREHOLDERS AND MEMBERS. The terms and conditions of the
Merger and this Agreement of Merger have been unanimously approved by the
shareholders of the Corporation and by the Members of the LLC.
7. FURTHER ACTS. From time to time, as or when requested by the Surviving
Corporation, or by its successors or assigns, the LLC shall execute and deliver
or cause to be executed and delivered all such other instruments, and shall take
or cause to be taken all such further or other actions, as the Surviving
Corporation, or its successors or assigns, may deem necessary or desirable in
order to vest in and confirm to the Surviving Corporation and its successors and
assigns, title to and possession of all of the property, rights, privileges,
powers and franchises referred to in Section 5 hereof and otherwise to carry out
the intent and purposes of this Agreement.
2
<PAGE> 3
8. AMENDMENT. The parties hereto, by mutual consent of their respective
Boards of Directors and Members, may amend, modify or supplement this Agreement
of Merger in such manner as may be agreed upon by them in writing at any time
before or after the adoption and approval of this Agreement of Merger by the
shareholders and Members of the Constituent Entities. If any amendment,
modification or supplement changes any of the principal terms of this Agreement
of Merger, then said amendment, modification or supplement to this Agreement of
Merger shall be approved by the shareholders and the Members of the Constituent
Entities.
9. ABANDONMENT. Subject to the rights of third parties under any contracts
relating thereto, this Agreement of Merger may be abandoned by the action of the
Board of Directors and Members of the Constituent Entities at any time before or
after approval or adoption hereof by the shareholders and Members of the
Constituent Entities, notwithstanding favorable action on the Merger by the
shareholders and Members of either Constituent Entity, but not later than the
filing of this Agreement of Merger with the Secretary of State of the State of
California.
10. MISCELLANEOUS.
10.1 ADDRESS OF SURVIVING CORPORATION. The address of the Surviving
Corporation for purposes of the delivery of notices regarding any matter
relating to the Merger and the transactions contemplated in this Agreement of
Merger is as follows:
TravelnStore.com, Inc.
1320 Flynn Road, Suite 420
Camarillo, California 93012
Attn: Chief Executive Officer
10.2 COUNTERPARTS. This Agreement of Merger may be executed in one or
more counterparts, and each such counterpart hereof shall constitute but one
agreement.
10.3 DESCRIPTIVE HEADINGS. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement of Merger.
10.4 GOVERNING LAW. This Agreement of Merger shall be governed by, and
construed in accordance with, the laws of the State of California as applied to
agreements between California residents made and performed entirely within the
State of California.
(Signatures appear on the following page)
3
<PAGE> 4
IN WITNESS WHEREOF, each of the parties hereto, pursuant to authority
granted by its Board of Directors and Section 17103(a)(3) of the LLC Act, has
caused this Agreement of Merger to be executed on its behalf as of the day first
written above.
TRAVELNSTORE, LLC, A CALIFORNIA TRAVELNSTORE.COM, INC., A CALIFORNIA
LIMITED LIABILITY COMPANY CORPORATION
By:_________________________________ By:_____________________________________
Jim B. Tyner, Member Jim B. Tyner, Chief Executive Officer
By:_________________________________ By:_____________________________________
John Toal, Member Yula Greco, Secretary
By:_________________________________
Yula, Greco, Member
4
<PAGE> 5
TRAVELNSTORE.COM, INC.
CERTIFICATE OF APPROVAL
OF
AGREEMENT OF MERGER
Jim B. Tyner and Yula Greco certify that:
1. They are the Chief Executive Officer and Secretary, respectively, of
TravelnStore.com, Inc., a California corporation (the "Corporation").
2. The principal terms of the Agreement of Merger to which this
Certificate is attached (the "Merger Agreement") were duly approved by the Board
of Directors and shareholders of the Corporation.
3. The principal terms of the Merger Agreement in the form attached were
approved by the vote of the number of shares of capital stock of the Corporation
which were entitled to vote, which vote equaled or exceeded the vote required.
The percentage vote required was more than fifty percent (50%) of the
outstanding shares of such class.
4. There are two classes of shares of capital stock of the Corporation,
which are designated, respectively, as Preferred Stock and Common Stock. There
are no shares of Preferred Stock issued and outstanding. The number of
outstanding shares of Common Stock is one (1).
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this certificate are true and
correct of our own knowledge.
Executed at Camarillo, California, on March 16, 1999.
By:_________________________________
Jim B. Tyner, Chief Executive Officer
By:_________________________________
Yula Greco, Secretary
Exhibit A
<PAGE> 6
CERTIFICATE OF MERGER
OF
TRAVELNSTORE, LLC
OTHER INFORMATION
The principal terms of the Agreement of Merger to which this Certificate
is attached (the "Merger Agreement") were duly approved by vote of the
percentage of the Membership Interests of TravelnStore, LLC which were entitled
to vote, which vote equaled or exceeded the vote required pursuant to Section
17103(a)(3) of the Beverly-Kilea Limited Liability Company Act. There is only
one class of Membership Interest of TravelnStore, LLC. The percentage vote
required by the Membership Interest of TravelnStore, LLC was more than fifty
percent (50%) of the outstanding Membership Interests of TravelnStore, LLC.
Exhibit B
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
TRAVELNSTORE.COM, INC.
ARTICLE I
The name of this Corporation is TRAVELNSTORE.COM, INC.
ARTICLE II
The purpose of this Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
The name and address in the State of California of this Corporation's
initial agent for service of process is:
Jim B. Tyner
1320 Flynn Road, Suite 402
Camarillo, California 93012
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<PAGE> 2
ARTICLE IV
(a) This Corporation is authorized to issue two classes of stock, which
shall be designated, respectively, Preferred Stock and Common Stock. The total
number of shares which this Corporation is authorized to issue is twenty-one
million (21,000,000). The total number of shares of Preferred Stock which this
Corporation is authorized to issue is one million (1,000,000). The total number
of shares of Common Stock which this Corporation is authorized to issue is
twenty million (20,000,000).
(b) The Board of Directors of the Corporation (the "Board of Directors")
is expressly authorized to provide for the issue of all or any of the shares of
the Preferred Stock in one or more series, and to fix the number of shares and
to determine or alter for each such series, such voting powers, full or limited,
or no voting powers (other than as prescribed by law), and such designations,
preferences and relative, participating, optional or other rights, and such
qualifications, limitations or restrictions, as shall be stated and expressed in
the resolution or resolutions adopted by the Board of Directors providing for
the issue of such shares and as may be permitted by the California Corporations
Code. The Board of Directors is also expressly authorized to increase or
decrease the number of shares of any series subsequent to the issue of shares of
that series (but not below the number of shares of such series then
outstanding). In case the number of shares of any such series shall be so
decreased, the shares constituting such decrease shall again be authorized for
issuance as Preferred Stock.
(c) Except to the extent required by applicable law, the Corporation
will not issue fractional shares of stock, either originally or upon transfer,
including issuances required in connection with mergers, reorganizations or
reclassifications or the exercise of option, warrant,
-2-
<PAGE> 3
conversion or similar rights. In connection with any issuance of shares which,
in the absence of the foregoing provision, would require the issuance of
fractional shares, the Corporation shall pay in cash to those entitled thereto
the fair value of the fractional shares they would otherwise have received.
ARTICLE V
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors shall have the power, both before and after receipt of
any payment for any of the Corporation's capital stock, to adopt, amend, repeal
or otherwise alter the Bylaws of the Corporation without any action on the part
of the shareholders. The grant of such power to the Board of Directors, however,
shall not divest the shareholders of, nor limit, their power to adopt, amend,
repeal or otherwise alter the Bylaws; provided that any action by the
shareholders to adopt, amend, repeal or otherwise alter the Bylaws shall not be
effective except upon the affirmative vote of not less than two-thirds of the
shares of the Corporation then issued and outstanding which have the right to
vote on the matter. Any amendment of this Article V shall require the approval
by the affirmative vote of not less than two-thirds of the shares of the
Corporation then issued and outstanding which have the right to vote on the
matter.
ARTICLE VI
The liability of the directors of this Corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
-3-
<PAGE> 4
ARTICLE VII
Subject to the limits on excess indemnification set forth in Section 204
of the Corporations Code, the Corporation is authorized to indemnify its agents
(as that term is defined in Section 317 of the Corporations Code) for breaches
of duty to the Corporation and its shareholders through bylaw provisions,
agreements with its agents, the vote of disinterested shareholders or
disinterested directors, or otherwise, in excess of the indemnification
otherwise permitted by Section 317 of the Corporations Code.
ARTICLE VIII
Effective on the date that the Corporation first becomes required to
file periodical and other reports pursuant to Section 13 of the Securities
Exchange Act of 1934, and with respect to any actions to be taken thereafter,
any action required or permitted to be taken by shareholders of the Corporation
must be taken at a duly called annual meeting or a duly called special meeting
of shareholders of the Corporation, and no action may be taken by the written
consent of the shareholders. Any amendment of this Article VIII shall require
the approval by the affirmative vote of not less than two-thirds of the shares
of the Corporation then issued and outstanding which have the right to vote on
the matter.
DATED: March ___, 1999
-----------------------
Jim B. Tyner,
Incorporator
-4-
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
TRAVELNSTORE.COM, INC. BYLAWS
OF
TRAVELNSTORE.COM, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C> <C>
1. OFFICES.............................................................. 1
1.1 Principal Office .............................................. 1
1.2 Other Offices ................................................. 1
2. MEETINGS OF SHAREHOLDERS ............................................ 1
2.1 Place of Meetings ............................................. 1
2.2 Annual Meetings of Shareholders ............................... 1
2.3 Special Meetings .............................................. 1
2.4 Notice of Shareholders' Meetings .............................. 2
2.5 Manner of Giving Notice; Affidavit of Notice .................. 2
2.6 Quorum ........................................................ 2
2.7 Adjourned Meeting and Notice Thereof .......................... 3
2.8 Voting ........................................................ 3
2.9 Waiver of Notice or Consent by Absent Shareholders ............ 4
2.10 Record Date for Shareholder Notice and Voting ................. 4
2.11 Proxies ....................................................... 4
2.12 Inspectors of Election ........................................ 4
2.13 Advance Notice of Shareholder Nominees ........................ 5
2.14 Advance Notice of Shareholder Business ........................ 6
3. DIRECTORS ........................................................... 6
3.1 Powers ........................................................ 6
3.2 Number and Qualification of Directors ......................... 7
3.3 Election and Term of Office of Directors ...................... 7
3.4 Vacancies ..................................................... 7
3.5 Place of Meetings and Telephonic Meetings ..................... 7
3.6 Annual Meetings ............................................... 8
3.7 Other Regular Meetings ........................................ 8
3.8 Special Meetings .............................................. 8
3.9 Quorum ........................................................ 8
3.10 Waiver of Notice .............................................. 8
3.11 Adjournment ................................................... 9
3.12 Notice of Adjournment ......................................... 9
3.13 Action Without Meeting ........................................ 9
3.14 Fees and Compensation of Directors ............................ 9
4. COMMITTEES .......................................................... 9
4.1 Committees of Directors ....................................... 9
4.2 Meetings and Action of Committees ............................. 10
5. OFFICERS ............................................................ 10
5.1 Officers ...................................................... 10
5.2 Election of Officers .......................................... 10
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
5.3 Subordinate Officers, Etc ..................................... 10
5.4 Removal and Resignation of Officers ........................... 10
5.5 Vacancies in Offices .......................................... 11
5.6 Chairman of the Board ......................................... 11
5.7 Chief Executive Officer ....................................... 11
5.8 President ..................................................... 11
5.9 Vice Presidents ............................................... 11
5.10 Secretary ..................................................... 11
5.11 Chief Financial Officer ....................................... 12
6. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS .................................................... 12
6.1 Indemnification of Agents ..................................... 12
6.2 Liability Insurance ........................................... 12
6.3 Other Indemnification ......................................... 12
7. RECORDS AND REPORTS ................................................. 13
7.1 Maintenance of Share Register ................................. 13
7.2 Maintenance of Bylaws ......................................... 13
7.3 Maintenance of Other Corporate Records ........................ 13
7.4 Inspection by Directors ....................................... 13
7.5 Annual Report to Shareholders ................................. 13
8. CORPORATE LOANS AND GUARANTEES ...................................... 13
8.1 Shareholder Approval .......................................... 13
8.2 Board Approval ................................................ 14
9. GENERAL CORPORATE MATTERS ........................................... 14
9.1 Record Date for Purposes Other Than Notice and Voting ......... 14
9.2 Checks, Drafts, Evidences of Indebtedness ..................... 14
9.3 Corporate Contracts and Instruments; How Executed ............. 14
9.4 Certificates for Shares ....................................... 15
9.5 Lost Certificates ............................................. 15
9.6 Representation of Shares of Other Corporations ................ 15
9.7 Construction and Definitions .................................. 15
10. AMENDMENTS .......................................................... 15
10.1 Amendments .................................................... 15
</TABLE>
-ii-
<PAGE> 4
BYLAWS
OF
TRAVELNSTORE.COM, INC.
ARTICLE 1
1. OFFICES
1.1 PRINCIPAL OFFICE. The Board of Directors shall fix the location of
the principal executive office of the corporation at any place within or outside
the State of California. If the principal executive office is located outside
this state, and the corporation has one or more business offices in this state,
the Board of Directors shall likewise fix and designate a principal business
office in the State of California.
1.2 OTHER OFFICES. The Board of Directors may at any time establish
branch or subordinate offices at any place or places where the corporation
disqualified to do business.
ARTICLE 2
2. MEETINGS OF SHAREHOLDERS
2.1 PLACE OF MEETINGS. Meetings of shareholders shall be held at
anyplace within or outside the State of California designated by the Board of
Directors. In the absence of any such designation, shareholders' meetings shall
be held at the principal executive office of the corporation.
2.2 ANNUAL MEETINGS OF SHAREHOLDERS. The annual meeting of shareholders
shall be held each year on a date and at a time designated by the Board of
Directors. At each annual meeting directors shall be elected, and any other
proper business may be transacted.
2.3 SPECIAL MEETINGS. A special meeting of the shareholders may be
called at any time by the Board of Directors, or by the Chairman of the Board,
or by the President, or by one or more shareholders holding shares in the
aggregate entitled to cast not less than ten percent (10%) of the votes at any
such meeting.
If a special meeting is called by any person or persons other than the
Board of Directors, the request shall be in writing, specifying the time of such
meeting and the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the Chairman of the Board, the President, any
Vice President or the Secretary of the corporation. The officer receiving such
request forthwith shall cause notice to be given to the shareholders entitled to
vote, in accordance with the provisions of Sections 2.4 and 2.5, that a meeting
will be held at the time requested by the person or persons calling the meeting
not less than thirty-five (35) nor more than sixty (60) days after the receipt
of the request. If the notice is not given within twenty (20) days after receipt
of the request, the person or persons requesting the meeting may give the
notice. Nothing contained in this paragraph of this Section 2.3 shall be
construed as limiting, fixing or affecting the time when a meeting of
shareholders called by action of the Board of Directors may be held.
2.4 NOTICE OF SHAREHOLDERS' MEETINGS. All notices of meetings of
shareholders shall be sent or otherwise given in accordance with Section 2.5 not
less than ten (10) nor more than sixty (60) days
1
<PAGE> 5
before the date of the meeting being noticed. The notice shall specify the
place, date and hour of the meeting and (i) in the case of a special meeting,
the general nature of the business to be transacted, or (ii) in the case of the
annual meeting, those matters which the Board of Directors, at the time of
giving the notice, intends to present for action by the shareholders. The notice
of any meeting at which directors are to be elected shall include the name of
any nominee or nominees which, at the time of the notice, management intends to
present for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the Corporations Code of California, (ii)
an amendment of the Articles of Incorporation, pursuant to Section 902 of such
Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of
such Code, (iv) a voluntary dissolution of the corporation, pursuant to
Section1900 of such Code, or (v) a distribution in dissolution other than in
accordance with the rights of outstanding preferred shares pursuant to Section
2007 of such Code, the notice shall also state the general nature of such
proposal.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of any meeting
of shareholders shall be given either personally or by first-class mail or
telegraphic or other written communication, charges prepaid, addressed to the
shareholder at the address of such shareholder appearing on the books of the
corporation or given by the shareholder to the corporation for the purpose of
notice. If no such address appears on the corporation's books or has been so
given, notice shall be deemed to have been given if sent by first-class mail or
telegraphic or other written communication to the corporation's principal
executive office, or if published at least once in a newspaper of general
circulation in the county where such office is located. Notice shall be deemed
to have been given at the time when delivered personally or deposited in the
mail or sent by telegram or other means of written communication.
If any notice addressed to a shareholder at the address of such
shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the shareholder
at such address, all future notices or reports shall be deemed to have been duly
given without further mailing if the same shall be available to the shareholder
upon written demand of the shareholder at the principal executive office of the
corporation for a period of one (1) year from the date of the giving of such
notice.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting shall be executed by the Secretary, any Assistant
Secretary or any transfer agent of the corporation giving such notice, and shall
be filed and maintained in the minute book of the corporation.
2.6 QUORUM. The presence in person or by proxy of the holders of a
majority of the shares entitled to vote at any meeting of shareholders shall
constitute a quorum for the transaction of business. The shareholders present at
a duly called or held meeting at which a quorum is present may continue to do
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
2.7 ADJOURNED MEETING AND NOTICE THEREOF. Any shareholders' meeting,
annual or special, whether or not a quorum is present, may be adjourned from
time to time by the vote of the majority of the shares represented at such
meeting, either in person or by proxy, but in the absence of a quorum, no other
business may be transacted at such meeting, except as provided in Section 2.6.
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When any meeting of shareholders, either annual or special, is adjourned
to another time or place, notice need not be given of the adjourned meeting if
the time and place thereof are announced at a meeting at which the adjournment
is taken, unless a new record date for the adjourned meeting is fixed, or unless
the adjournment is for more than forty-five (45) days from the date set for the
original meeting, in which case the Board of Directors shall set a new record
date. Notice of any such adjourned meeting, if required, shall be given to each
shareholder of record entitled to vote at the adjourned meeting in accordance
with the provisions of Sections 2.4 and 2.5. At any adjourned meeting, the
corporation may transact any business which might have been transacted at the
original meeting.
2.8 VOTING. Every shareholder shall be entitled to one vote for each
full share of the corporation held, and to cumulate such votes at any election
of directors under the conditions prescribed by law; provided that, effective
upon the corporation becoming a "listed company" (as defined in Section 301.5 of
the Corporations Code of California), cumulative voting shall be eliminated.
The shareholders entitled to vote at any meeting of shareholders shall
be determined in accordance with the provisions of Section 2.11, subject to the
provisions of Sections 702 to 704, inclusive, of the Corporations Code of
California (relating to voting shares held by a fiduciary, in the name of a
corporation or in joint ownership). Such vote may be by voice vote or by ballot;
provided, however, that all elections for directors must be by ballot upon
demand by a shareholder at any election and before the voting begins. Any
shareholder entitled to vote on any matter (other than the election of
directors) may vote part of the shares in favor of the proposal and refrain from
voting the remaining shares or vote them against the proposal, but, if the
shareholder fails to specify the number of shares such shareholder is voting
affirmatively, it will be conclusively presumed that the shareholder's approving
vote is with respect to all shares such shareholder is entitled to vote. If a
quorum is present, the affirmative vote of the majority of the shares
represented at the meeting and entitled to vote on any matter (other than the
election of directors so long as cumulative voting is in effect) shall be the
act of the shareholders, unless the vote of a greater number or voting by
classes is required by the California General Corporation Law or the Articles of
Incorporation.
So long as cumulative voting is in effect, at any shareholders' meeting
involving the election of directors, no shareholder shall be entitled to
cumulate votes (i.e., cast for any one or more candidates a number of votes
greater than the number of the shareholder's shares) unless such candidate or
candidates' names have been placed in nomination prior to commencement of the
voting and a shareholder has given notice prior to commencement of the voting of
the shareholder's intention to cumulate votes. If any shareholder has given such
notice, then every shareholder entitled to vote may cumulate such shareholder's
votes for candidates in nomination and give one candidate a number of votes
equal to the number of directors to be elected, multiplied by the number of
votes to which such shareholder's shares are entitled, or distribute the
shareholder's votes on the same principle among any or all of the candidates, as
the shareholder thinks fit. The candidates receiving the highest number of
votes, up to the number of directors to be elected, shall be elected.
2.9 WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS. The transactions
of any meeting of shareholders, either annual or special, however called and
noticed, and wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present either in person or
by proxy, and if, either before or after the meeting, each person entitled to
vote, not present in person or by proxy, signs a written waiver of notice or a
consent to a holding of the meeting, or an approval of
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the minutes thereof. The waiver of notice or consent need not specify either the
business to be transacted or the purpose of any annual or special meeting of
shareholders, except that if action is taken or proposed to be taken for
approval of any of those matters specified in the second paragraph of Section
2.4, the waiver of notice or consent shall state the general nature of such
proposal. All such waivers, consents or approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
Attendance of a person at a meeting shall also constitute a waiver of
notice of such meeting, except when the person objects, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened, and except that attendance at the meeting is not a waiver of
any right to object to the consideration of matters not included in the notice
of the meeting if such objection is expressly made at the meeting.
2.10 RECORD DATE FOR SHAREHOLDER NOTICE AND VOTING. For purposes of
determining the shareholders entitled to notice of any meeting or to vote, the
Board of Directors may fix, in advance, a record date, which shall not be more
than sixty (60) days nor less than ten (10) days prior to the date of any such
meeting, and in such case only shareholders of record on the date so fixed are
entitled to notice and to vote, as the case may be, notwithstanding any transfer
of any shares on the books of the corporation after the record date fixed as
aforesaid, except as otherwise provided in the California General Corporation
Law.
If the Board of Directors does not so fix a record date, the record date
for determining shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the business day next
preceding the day on which notice is given or, if notice is waived, at the close
of business on the business day next preceding the day on which the meeting is
held.
2.11 PROXIES. Every person entitled to vote for directors or on any
other matter shall have the right to do so either in person or by one or more
agents authorized by a written proxy signed by the person and filed with the
Secretary of the corporation. A proxy shall be deemed signed if the
shareholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transaction or otherwise)by the shareholder or the
shareholder's attorney-in-fact. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless (i)
revoked by the person executing it, prior to the vote pursuant thereto, by a
writing delivered to the corporation stating that the proxy is revoked or by a
subsequent proxy executed by, or attendance at the meeting and voting in person
by, the person executing the proxy; or (ii) written notice of the death or
incapacity of the maker of such proxy is received by the corporation before the
vote pursuant thereto is counted; provided, however, that no such proxy shall be
valid after the expiration of eleven (11) months from the date of such proxy,
unless otherwise provided in the proxy. The revocability of a proxy that states
on its face that it is irrevocable shall be governed by the provisions of
Section 705(e) and (f) of the Corporations Code of California.
2.12 INSPECTORS OF ELECTION. Before any meeting of shareholders, the
Board of Directors may appoint any persons other than nominees for office to act
as inspectors of election at the meeting or its adjournment. If no inspectors of
election are so appointed, the chairman of the meeting may, and on the request
of any shareholder or a shareholder's proxy shall, appoint inspectors of
election at the meeting. The number of inspectors shall be either one (1) or
three (3). If inspectors are appointed at a meeting on the request of one or
more shareholders or proxies, the holders of a majority of shares or their
proxies present at the meeting shall determine whether one (1) or three (3)
inspectors are to be appointed. If any person appointed as inspector fails to
appear or fails or refuses to act, the chairman of the meeting may,
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and upon the request of any shareholder or a shareholder's proxy shall, appoint
a person to fill such vacancy.
The duties of these inspectors shall be as follows:
A. Determine the number of shares outstanding and the
voting power of each, the shares represented at the meeting, the existence of a
quorum, and the authenticity, validity and effect of proxies;
B. Receive votes, ballots or consents;
C. Hear and determine all challenges and questions in any
way arising in connection with the right to vote;
D. Count and tabulate all votes or consents;
E. Determine when the polls shall close;
F. Determine the result; and
G. Do any other acts that may be proper to conduct the
election or vote with fairness to all shareholders.
2.13 ADVANCE NOTICE OF SHAREHOLDER NOMINEES. Nominations of persons for
election to the Board of Directors of the corporation may be made at a meeting
of shareholders by or at the direction of the Board of Directors or by any
shareholder of the corporation entitled to vote in the election of directors at
the meeting who complies with the notice procedures set forth in this Section.
Such nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the corporation. To be timely, a shareholder's notice shall be delivered to
or mailed and received at the principal executive offices of the corporation not
less than thirty (30) days nor more than sixty (60) days prior to the meeting;
provided, however, that in the event less than forty-five (45) days notice or
prior public disclosure of the date of the meeting is given or made to
shareholders, notice by the shareholder to be timely must be so received not
later than the close of business on the tenth day following the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made. Such shareholder's notice shall set forth (a) as to each person, if any,
whom the shareholder proposes to nominate for election or re-election as a
director: (i) the name, age, business address and residence address of such
person, (ii) the principal occupation or employment of such person, (iii) the
class and number of shares of the corporation which are beneficially owned by
such person, (iv) any other information relating to such person that is required
by law to be disclosed in solicitations of proxies for election of directors,
and (v) such person's written consent to being named as a nominee and to serving
as a director if elected; and (b) as to the shareholder giving the notice: (i)
the name and address, as they appear on the corporation's books, of such
shareholder, (ii) the class and number of shares of the corporation which are
beneficially owned by such shareholder, and (iii) a description of all
arrangements or understandings between such shareholder and each nominee and any
other person or persons (naming such person or persons) relating to the
nomination. At the request of the Board of Directors, any person nominated by
the Board for election as a director shall furnish to the Secretary of the
corporation that information required to be set forth in the shareholder's
notice of nomination which pertains to the
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nominee. No person shall be eligible for election as a director of the
corporation unless nominated in accordance with the procedures set forth in this
Section. The chairman of the meeting shall, if the facts warrant, determine and
declare at the meeting that a nomination was not made in accordance with the
procedures prescribed by these Bylaws, and if he should so determine, he shall
so declare at the meeting and the defective nomination shall be disregarded.
2.14 ADVANCE NOTICE OF SHAREHOLDER BUSINESS. At an annual meeting of the
shareholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be: (a) as specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (b) otherwise
properly brought before the meeting by or at the direction of the Board of
Directors, or (c) otherwise properly brought before the meeting by a
shareholder. Business to be brought before an annual meeting by a shareholder
shall not be considered properly brought if the shareholder has not given timely
notice thereof in writing to the Secretary of the corporation. To be timely, a
shareholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not less than thirty (30) nor
more than sixty (60) days prior to the meeting; provided, however, that in the
event that less than forty-five (45) days notice or prior public disclosure of
the date of the meeting is given or made to shareholders, notice by the
shareholder to be timely must be so received not later than the close of
business on the tenth day following the day on which such notice of the date of
the annual meeting was mailed or such public disclosure was made. A
shareholder's notice to the Secretary shall set forth as to each matter the
shareholder proposes to bring before the annual meeting: (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (ii) the name and address of
the shareholder proposing such business, (iii) the class and number of shares of
the corporation which are beneficially owned by the shareholder, (iv) any
material interest of the shareholder in such business, and (v) any other
information that is required by law to be provided by the shareholder in his
capacity as a proponent of a shareholder proposal. Notwithstanding anything in
these Bylaws to the contrary, no business shall be conducted at any annual
meeting except in accordance with the procedures set forth in this Section. The
chairman of the annual meeting shall, if the facts warrant, determine and
declare at the meeting that business was not properly brought before the meeting
and in accordance with the provisions of this Section, and, if he should so
determine, he shall so declare at the meeting that any such business not
properly brought before the meeting shall not be transacted.
ARTICLE 3
3. DIRECTORS
3.1 POWERS. Subject to the provisions of the California General
Corporation Law and any limitations in the Articles of Incorporation and these
Bylaws relating to action required to be approved by the shareholders or by the
outstanding shares, the business and affairs of the corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
Board of Directors.
3.2 NUMBER AND QUALIFICATION OF DIRECTORS. The authorized number of
directors shall be, until changed by a Bylaw duly adopted by the shareholders,
such number as may from time to time be authorized by resolution of the Board of
Directors, provided that the minimum number of directors of the corporation
shall not be less than four (4) and the maximum number of directors of the
corporation shall not be more than seven (7) and that no amendment may change
the stated maximum number of authorized directors to a number greater than two
(2) times the stated minimum number of directors minus one (1).
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The Board of Directors, and not the shareholders, shall have the exclusive right
to fix the exact number of authorized directors within the limits set forth
above.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS. Directors shall be elected
at each annual meeting of the shareholders to hold office until the next annual
meeting. Each director, including a director elected to fill a vacancy, shall
hold office until the expiration of the term for which elected and until a
successor has been elected and qualified.
3.4 VACANCIES. Vacancies in the Board of Directors (including, without
limitation, vacancies occurring by reason of the removal of directors) may be
filled by approval of the Board or, if the number of directors then in office is
less than a quorum, by (i) the unanimous written consent of the directors then
in office, (ii) the affirmative vote of a majority of the directors then in
office at a meeting held pursuant to notice or waivers of notice complying with
Section 307 of the Corporations Code or (iii) a sole remaining director. Each
director so elected shall hold office until the next annual meeting of the
shareholders and until a successor has been elected and qualified.
A vacancy or vacancies in the Board of Directors shall be deemed to
exist in the case of the death, resignation or removal of any director, or if
the Board of Directors by resolution declares vacant the office of a director
who has been declared of unsound mind by an order of court or convicted of a
felony, or if the authorized number of directors be increased, or if the
shareholders fail, at any meeting of shareholders at which any director or
directors are elected, to elect the full authorized number of directors to be
voted for at that meeting.
The shareholders may elect a director or directors at any time to fill
any vacancy or vacancies not filled by the directors. Any director may resign
upon giving written notice to the Chairman of the Board, the President, the
Secretary or the Board of Directors. A resignation shall be effective upon the
giving of the notice, unless the notice specifies a later time for its
effectiveness. If the resignation of a director is effective at a future time,
the Board of Directors may elect a successor to take office when the resignation
becomes effective.
No reduction of the authorized number of directors shall have the effect
of removing any director prior to the expiration of his term of office.
3.5 PLACE OF MEETINGS AND TELEPHONIC MEETINGS. Regular meetings of the
Board of Directors shall be held at such times and places as the Board, by
resolution, may designate from time to time. Notice of regular meetings need not
be given. Special meetings of the Board shall be held at any place within or
without the State that has been designated in the notice of the meeting or, if
not stated in the notice or if there is no notice, at the principal executive
office of the corporation. Any meeting, regular or special, may be held by
conference telephone or similar communication equipment, so long as all
directors participating in such meeting can hear one another, and all such
directors shall be deemed to be present in person at such meeting.
3.6 ANNUAL MEETINGS. Immediately following each annual meeting of
shareholders, the Board of Directors shall hold a regular meeting for the
purpose of organization, any desired election of officers and the transaction of
other business. Notice of this meeting shall not be required.
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3.7 OTHER REGULAR MEETINGS. Other regular meetings of the Board of
Directors shall be held without call at such time as shall from time to time be
fixed by the Board of Directors. Such regular meetings may be held without
notice.
3.8 SPECIAL MEETINGS. Special meetings of the Board of Directors for any
purpose or purposes may be called at any time by the Chairman of the Board or
the President or any Vice President or Secretary or any two (2) directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at his or her address as
it is shown upon the records of the corporation. In case such notice is mailed,
it shall be deposited in the United States mail at least four (4) days prior to
the time of the holding of the meeting. In case such notice is delivered
personally, or by telephone or telegram, it shall be delivered personally or by
telephone or to the telegraph company at least forty-eight (48) hours prior to
the time of the holding of the meeting. Any oral notice given personally or by
telephone may be communicated to either the director or to a person at the
office of the director who the person giving the notice has reason to believe
will promptly communicate it to the director. The notice need not specify the
purpose of the meeting or the place if the meeting is to be held at the
principal executive office of the corporation.
3.9 QUORUM. A majority of the authorized number of directors shall
constitute a quorum for the transaction of business, except to adjourn as
hereinafter provided. very act or decision done or made by a majority of the
directors present at a meeting duly held at which a quorum is present shall be
regarded as the act of the Board of Directors, subject to the provisions of
Section 310 of the Corporations Code of California (approval of contracts or
transactions in which a director has a direct or indirect material financial
interest), Section 311 (appointment of committees), and Section
317(e)(indemnification of directors). A meeting at which a quorum is initially
present may continue to transact business notwithstanding the withdrawal of
directors, if any action taken is approved by at least a majority of the
required quorum for such meeting.
3.10 WAIVER OF NOTICE. The transactions of any meeting of the Board of
Directors, however called and noticed or wherever held, shall be as valid as
though had at a meeting duly held after regular call and notice if a quorum be
present and if, either before or after the meeting, each of the directors not
present signs a written waiver of notice, a consent to holding the meeting or an
approval of the minutes thereof. The waiver of notice or consent need not
specify the purpose of the meeting. All such waivers, consents and approvals
shall be filed with the corporate records or made a part of the minutes of the
meeting. Notice of a meeting shall also be deemed given to any director who
attends the meeting without protesting, prior thereto or at its commencement,
the lack of notice to such director.
3.11 ADJOURNMENT. A majority of the directors present, whether or not
constituting a quorum, may adjourn any meeting to another time and place.
3.12 NOTICE OF ADJOURNMENT. Notice of the time and place of holding an
adjourned meeting need NOT be given, unless the meeting is adjourned for more
than twenty-four (24) hours, in which case notice of such time and place shall
be given prior to the time of the adjourned meeting, in the manner specified in
Section 3.8, to the directors who were not present at the time of the
adjournment.
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3.13 ACTION WITHOUT MEETING. Any action required or permitted to betaken
by the Board of Directors may be taken without a meeting, if all members of the
Board shall individually or collectively consent in writing to such action. Such
action by written consent shall have the same force and effect as a unanimous
vote of the Board of Directors. Such written consent or consents shall be filed
with the minutes of the proceedings of the Board.
3.14 FEES AND COMPENSATION OF DIRECTORS. Directors and members of
committees may receive such compensation, if any, for their services, and such
reimbursement of expenses, as may be fixed or determined by resolution of the
Board of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee or otherwise, and receiving compensation for such services.
ARTICLE 4
4. COMMITTEES
4.1 COMMITTEES OF DIRECTORS. The Board of Directors may, by resolution
adopted by a majority of the authorized number of directors, designate one (1)
or more committees, each consisting of two (2) or more directors, to serve at
the pleasure of the Board. The Board may designate one (1) or more directors as
alternate members of any committee, who may replace any absent member at any
meeting of the committee. Any such committee, to the extent provided in the
resolution of the Board, shall have all the authority of the Board, except with
respect to:
A. the approval of any action which, under the General
Corporation Law of California, also requires shareholders' approval or approval
of the outstanding shares;
B. the filling of vacancies on the Board of Directors or in
any committee;
C. the fixing of compensation of the directors for serving
on the Board or on any committee;
D. the amendment or repeal of Bylaws or the adoption of new
Bylaws;
E. the amendment or repeal of any resolution of the Board
of Directors which by its express terms is not so amendable or repealable;
F. a distribution to the shareholders of the corporation,
except at a rate or in a periodic amount or within a price range determined by
the Board of Directors; or
G. the appointment of any other committees of the Board of
Directors or members thereof.
4.2 MEETINGS AND ACTION OF COMMITTEES. Meetings and actions of
committees shall be governed by, and held and taken in accordance with, the
provisions of these Bylaws, Section 3.5 (place of meetings), 3.7 (regular
meetings), 3.8 (special meetings and notice), 3.9 (quorum), 3.10 (waiver of
notice), 3.11 (adjournment), 3.12 (notice of adjournment) and 3.13 (action
without meeting), with such changes in the context of those Bylaws as are
necessary to substitute the committee and its members for the Board of Directors
and its members, except that the time of regular meetings of committees may be
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determined by resolution of the Board of Directors as well as the committee,
special meetings of committees may also be called by resolution of the Board of
Directors and notice of special meetings of committees shall also be given to
all alternate members, who shall have the right to attend all meetings of the
committee. The Board of Directors may adopt rules for the government of any
committee not inconsistent with the provisions of these Bylaws.
ARTICLE 5
5. OFFICERS
5.1 OFFICERS. The officers of the corporation shall be (i) a Chairman of
the Board or a President (or both), (ii) a Secretary, and (iii) a Chief
Financial Officer. The corporation may also have, at the discretion of the Board
of Directors, one or more Vice Presidents, one or more Assistant Secretaries,
one or more Assistant Treasurers and such other officers as may be appointed in
accordance with the provisions of Section 5.3. Any number of offices may be held
by the same person.
5.2 ELECTION OF OFFICERS. The officers of the corporation, except such
officers as may be appointed in accordance with the provisions of Section 5.1,
shall be chosen by the Board of Directors, and each shall serve at the pleasure
of the Board, subject to the rights, if any, of an officer under any contract of
employment.
5.3 SUBORDINATE OFFICERS, ETC. The Board of Directors may appoint, and
may empower the Chairman of the Board or the President to appoint, such other
officers as the business of the corporation may require, each of whom shall hold
office for such period, have such authority and perform such duties as are
provided in the Bylaws or as the Board of Directors may from time to time
determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights, if any,
of an officer under any contract of employment, any officer may be removed,
either with or without cause, by the Board of Directors, at any regular or
special meeting thereof, or, except in case of an officer chosen by the Board of
Directors, by any officer upon whom such power of removal may be conferred by
the Board of Directors.
Any officer may resign at any time by giving written notice to the
corporation. Any such resignation shall take effect at the date of the receipt
of such notice or at any later time specified therein; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective. Any such resignation is without prejudice to the rights, if
any, of the corporation under any contract to which the officer is a party.
5.5 VACANCIES IN OFFICES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in these Bylaws for regular appointments to such office.
5.6 CHAIRMAN OF THE BOARD. The Chairman of the Board, shall, if present,
preside at all meetings of the Board of Directors and all meetings of
shareholders and shall exercise and perform such other powers and duties as may
be from time to time assigned to the Chairman by the Board of Directors or
prescribed by the Bylaws. If there is no Chief Executive Officer (including by
reason of disability), the
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Chairman of the Board shall, in addition, be the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in Section 5.7.
5.7 CHIEF EXECUTIVE OFFICER. Subject to such oversight authority, if
any, as may be given by the Board of Directors to the Chairman of the Board, if
there be such an officer, the Chief Executive Officer shall, subject to the
control of the Board of Directors, have general authority for the supervision,
direction and control of the business and the officers of the corporation. In
the absence of the Chairman of the Board, or if there be none, the Chief
Executive Officer shall preside at all meetings of the shareholders and all
meetings of the Board of Directors. He shall have the general powers and duties
of management usually vested in the office of Chief Executive Officer of a
corporation, and shall have such other powers and duties as may be prescribed by
the Board of Directors or the Bylaws.
5.8 PRESIDENT. Subject to such oversight authority, if any, as may be
given by the Board of Directors to the Chairman of the Board, if there be such
an officer, or to the Chief Executive Officer, if there be such an officer, the
President shall, subject to the control of the Board of Directors, have general
supervision of the operations of the business. In the absence of the Chairman of
the Board and the Chief Executive Officer, or if there be none, the President
shall preside at all meetings of the shareholders and all meetings of the Board
of Directors. He shall have the general powers and duties of management usually
vested in the office of President of a corporation, and shall have such other
powers and duties as may be prescribed by the Board of Directors or the Bylaws.
If there is no Chief Executive Officer or Chairman of the Board (including by
reason of disability), the President shall, in addition, be the Chief Executive
Officer of the corporation and shall have the powers and duties prescribed in
Section 5.7.
5.9 VICE PRESIDENTS. In the absence or disability of the President, the
Vice Presidents, if any, in order of their rank as fixed by the Board of
Directors or, if not ranked, a Vice President designated by the Board of
Directors, shall perform all the duties of the President, and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
President. The Vice Presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them, respectively, by
the Board of Directors or the Bylaws, the President or the Chairman of the Board
if there is no President.
5.10 SECRETARY. The Secretary shall keep, or cause to be kept, at the
principal executive office or such other place as the Board of Directors may
order, a book of minutes of all meetings and actions of directors, committees of
directors and shareholders, with the time and place of holding, whether regular
or special, and, if special, how authorized, the notice thereof given, the names
of those present at directors' and committee meetings, the number of shares
present or represented at shareholders meetings and the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the corporation's transfer agent or
registrar, as determined by resolution of the Board of Directors, a share
register, or a duplicate share register, showing the names of all shareholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the Board of Directors required by the Bylaws or
bylaw to be given, and he shall keep the seal of the
11
<PAGE> 15
corporation, if one be adopted, in safe custody, and shall have such other
powers and perform such other duties as may be prescribed by the Board of
Directors or by the Bylaws.
5.11 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 be open at all reasonable times 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 of his transactions as Chief Financial Officer and of the
financial condition of the corporation, and shall have other powers and perform
such other duties as may be prescribed by the Board of Directors or the Bylaws.
ARTICLE 6
6. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS
6.1 INDEMNIFICATION OF AGENTS. The Corporation shall have the power and
authority to indemnify any director, officer, committee member or other
representative, employee or agent of the Corporation (as that latter term is
defined in Section 317 of the California General Corporation Law) in the manner
and to the extent provided in Section 317 of the California General Corporation
Law. The indemnification provided for by this Section shall not be deemed
exclusive of any other rights which those seeking indemnification may have
including, but not limited to, any rights granted under any agreement, insurance
policy, or a vote of shareholders or disinterested directors.
6.2 LIABILITY INSURANCE. The Corporation shall have the power to
purchase and maintain insurance on behalf of any of its Directors, officers,
employees or agents insuring against liability asserted against or incurred by
any such person in such capacity, whether or not the Corporation would be
empowered to indemnify such person under the provisions of this Article.
6.3 OTHER INDEMNIFICATION. Nothing in this Article shall restrict the
power of the Corporation (a) to indemnify its Directors, officers, employees and
agents under any provision of the California General Corporation Law, as amended
from time to time, or under any other provision of law from time to time
applicable to the Corporation, or (b) to enter into any contract or agreement
providing for the indemnification of any Director, officer, employee or agent in
any manner or to any extent grater than that permitted under Section 317 of the
California General Corporation Law; provided that in no event shall the
Corporation have authority to indemnify any Director, officer, employee or agent
in any situation for which indemnification is prohibited under the California
General Corporation Law or other applicable law.
ARTICLE 7
7. RECORDS AND REPORTS
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<PAGE> 16
7.1 MAINTENANCE OF SHARE REGISTER. The corporation shall keep at its
principal executive office, or at the office of its transfer agent or registrar,
if either be appointed and as determined by resolution of the Board of
Directors, a record of its shareholders, giving the names and addresses of all
shareholders and the number and class of shares held by each shareholder.
7.2 MAINTENANCE OF BYLAWS. The corporation shall keep at its principal
executive office, or if its principal executive office is not in the State of
California, at its principal business office in this State, the original or a
copy of the Bylaws as amended to date, which shall be open to inspection by the
shareholders at all reasonable times during office hours. If the principal
executive office of the corporation is outside this State and the corporation
has no principal business office in this State, the Secretary shall, upon the
written request of any shareholder, furnish to such shareholder a copy of the
Bylaws as amended to date.
7.3 MAINTENANCE OF OTHER CORPORATE RECORDS. The accounting books and
records and minutes of proceedings of the shareholders and the Board of
Directors and any committee or committees of the Board of Directors shall be
kept at such place or places designated by the Board of Directors, or, in the
absence of such designation, at the principal executive office of the
corporation. The minutes shall be kept in written form and the accounting books
and records shall be kept either in written form or in any other form capable of
being converted into written form.
7.4 INSPECTION BY DIRECTORS. Every director shall have the absolute
right at any reasonable time to inspect all books, records and documents of
every kind and the physical properties of the corporation and each of its
subsidiary corporations. Such inspection by a director may be made in person or
by agent or attorney and the right of inspection includes the right to copy and
make extracts.
7.5 ANNUAL REPORT TO SHAREHOLDERS. Unless otherwise expressly required
by the General Corporation Law, the annual report to shareholders referred to in
Section 1501 of the General Corporation Law is hereby expressly waived and
dispensed with; provided, that nothing herein set forth shall be construed to
prohibit or restrict the right of the Board to issue such annual or other
periodic reports to the shareholders of the corporation as they may from time to
time consider appropriate.
ARTICLE 8
8. CORPORATE LOANS AND GUARANTEES
8.1 SHAREHOLDER APPROVAL. The corporation shall not make any loan of
money or property to, or guarantee the obligation of, any director or officer of
the corporation or its parent or subsidiary, unless the transaction or an
employee benefit plan authorizing such loans or guarantees, after disclosure of
the right under such a plan to include officers or directors:
A. is approved by a majority of the shareholders, with the
shares owned by the director or officer, or by the directors or officers then
eligible to participate in such plan, not being entitled to vote thereon; or
B. is approved by the unanimous vote of the shareholders.
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<PAGE> 17
8.2 BOARD APPROVAL. Notwithstanding Section 8.1, in the event the
corporation has outstanding shares held of record by one hundred (100) or more
persons on the date of approval by the Board, the Board alone by a vote
sufficient without counting the vote of any interested director or directors may
approve such a loan or guarantee to an officer, whether or not a director, or an
employee benefit plan authorizing such a loan or guarantee to an officer,
provided that the Board determines that such a loan or guarantee or plan may
reasonably be expected to benefit the corporation.
ARTICLE 9
9. GENERAL CORPORATE MATTERS
9.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING. For purposes
of determining the shareholders entitled to receive payment of any dividend or
other distribution or allotment of any rights or entitled to exercise any rights
in respect of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty (60) days prior to
any such action, and in such case only shareholders of record on the date so
fixed are entitled to receive the dividend, distribution or allotment of rights
or to exercise the rights, as the case may be, notwithstanding any transfer of
any shares on the books of the corporation after the record date fixed as
aforesaid, except as otherwise provided in the California General Corporation
Law.
If the Board of Directors does not so fix a record date, the record date
for determining shareholders for any such purpose shall be at the close of
business on the day on which the Board adopts the resolution relating thereto,
or the sixtieth (60th) day prior to the date of such action, whichever is later.
9.2 CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks, drafts or
other orders for payment of money, notes or other evidences of indebtedness,
issued in the name of or payable to the corporation, shall be signed or endorsed
by such person or persons and in such manner as, from time to time, shall be
determined by resolution of the Board of Directors.
9.3 CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The Board of
Directors, except as otherwise provided in these Bylaws, may authorize any
officer or officers, agent or agents, to enter into any contract or execute any
instrument in the name of and on behalf of the corporation, and such authority
may be general or confined to specific instances; and, unless so authorized or
ratified by the Board of Directors or within the agency power of an officer, no
officer, agent or employee shall have any power or authority to bind the
corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or to any amount.
9.4 CERTIFICATES FOR SHARES. A certificate or certificates for shares of
the capital stock of the corporation shall be issued to each shareholder when
any such shares are fully paid, and the Board of Directors may authorize the
issuance of certificates or shares as partly paid, provided that such
certificates shall state the amount of the consideration to be paid therefor and
the amount paid thereon. All certificates shall be signed in the name of the
corporation by the Chairman of the Board or Vice Chairman of the Board or the
President or Vice President and by the Chief Financial Officer or an Assistant
Treasurer or the Secretary or any Assistant Secretary, certifying the number of
shares and the class or series of shares owned by the shareholder. Any or all of
the signatures on the certificate may be facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued,
14
<PAGE> 18
it may be issued by the corporation with the same effect as if such person were
an officer, transfer agent or registrar at the date of issue.
9.5 LOST CERTIFICATES. Except as hereinafter in this Section 9.5
provided, no new certificate for shares shall be issued in lieu of an old
certificate unless the latter is surrendered to the corporation and canceled at
the same time. The Board of Directors may in case any share certificate or
certificate for any other security is lost, stolen or destroyed, authorize the
issuance of a new certificate in lieu thereof, upon such terms and conditions as
the Board may require, including provisions for indemnification of the
corporation secured by a bond or other adequate security sufficient to protect
the corporation against any claim that may be made against it, including any
expense or liability, on account of the alleged loss, theft or destruction of
such certificate or the issuance of such new certificate.
9.6 REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The Chairman of the
Board, the President or any Vice President, or any other person authorized by
resolution of the Board of Directors or by any of the foregoing designated
officers, is authorized to vote on behalf of the corporation any and all shares
of any other corporation or corporations, foreign or domestic, standing in the
name of the corporation. The authority herein granted to said officers to vote
or represent on behalf of the corporation any and all shares held by the
corporation in any other corporation or corporations may be exercised by any
such officer in person or by any person authorized to do so by proxy duly
executed by said officer.
9.7 CONSTRUCTION AND DEFINITIONS. Unless the context requires otherwise,
the general provisions, rules of construction and definitions in the California
General Corporation Law shall govern the construction of the Bylaws. Without
limiting the generality of the foregoing, the singular number includes the
plural, the plural number includes the singular, and the term "person" includes
both a corporation or other entity and a natural person.
ARTICLE 10
10. AMENDMENTS
10.1 AMENDMENTS. In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors shall have the power, both before
and after receipt of any payment for any of the corporation's capital stock, to
adopt, amend, repeal or otherwise alter these Bylaws without any action on the
part of the shareholders. The grant of such power to the Board of Directors,
however, shall not divest the shareholders of, nor limit, their power to adopt,
amend, repeal or otherwise alter these Bylaws; provided that any action by the
shareholders to adopt, amend, repeal or otherwise alter the Bylaws (including,
without limitation, this Section 10.1) shall not be effective except upon the
affirmative vote of not less than two-thirds of the shares of the corporation
then issued and outstanding which have the right to vote on the matter.
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<PAGE> 19
CERTIFICATE OF SECRETARY
I, Yula Greco, hereby certify:
1. That I am the duly elected and acting Secretary of TravelnStore.com,
Inc., a California corporation.
2. That the foregoing Bylaws constitute the Bylaws of the Corporation as
adopted by the Directors of this corporation by unanimous written consent on
March________, 1999.
3. That the foregoing Bylaws of the Corporation were adopted by the
shareholders of the corporation by written consent on March________, 1999.
IN WITNESS WHEREOF, I have hereunto subscribed my name on
March_______,1999.
By:
--------------------------------
Yula Greco
<PAGE> 1
EXHIBIT 4.3
TravelnStore.Com, Inc.
1320 Flynn Road
Camarillo, California 93012
Attn: Jim B Tyner, President
Gentlemen:
I am delivering this Agreement for the purpose of subscribing for the
number of shares of Common Stock of TravelnStore.Com, Inc., a California
corporation ("TravelnStore.Com") set forth on the Registration page of this
Subscription Agreement.
1. SUBSCRIPTION FOR SHARES. I agree to purchase the number of shares of Common
Stock (the "Shares") indicated on the Registration page and tender to the
Company a check for the full amount of the purchase price for the Shares. I
acknowledge that the minimum acceptable subscription is Two Hundred (200) Shares
at a subscription price of Ten Dollars ($10.00) per Share, for an aggregate
subscription price of Two Thousand Dollars ($2,000.00). If the number of Shares
specified on the Registration page does not comply with these requirements, the
Company may reject my subscription. The Company shall have no obligation to
notify me prior to its rejection of this subscription or that the number of
Shares specified on the Registration page does not comply with the foregoing
requirement.
2. TERMS OF SUBSCRIPTION. I am tendering this subscription on the following
terms and conditions.
a. I may rescind my subscription at any time prior to the time that the
Company accepts my subscription. If I exercise this right, my funds will be
returned to me, without interest.
b. The Company may, in its sole discretion, reject my subscription in
whole or in part. No cancellation fee will be charged if the Company rejects my
subscription.
3. REPRESENTATIONS AND ACKNOWLEDGMENTS. I hereby represent and warrant to the
Company as follows in connection with my subscription for the Shares.
a. EXAMINATION OF RISKS. I have read and reviewed with my professional
advisors the Company's Prospectus dated ______________, 1999, which describes
the Company, the Shares and this Offering.
i. I recognize that the Company, its business and my investment in
the Company will be subject to numerous investment and operating risks.
ii. I have reviewed the description of the risks associated with my
investment that are set forth in "Risk Factors" section of the Prospectus.
b. SUITABILITY STANDARDS. I represent and warrant as follows:
<PAGE> 2
i. if I am an individual, that I, either alone or jointly with my
spouse, satisfy one or more of the following:
(1) I have a net worth of at least $250,000.00; or
(2) I have a net worth of at least $150,000.00 and had gross
income for each of the 1997 and 1998 tax years of at least $50,000.00 and I
anticipate having at least that level of gross income for the 1999 tax year; or
ii. if I am not an individual, that the entity satisfies one or more
of the following:
(1) the entity has a net worth of at least $250,000.00; or
(2) the amount of the investment does not exceed 5% of the
entity's total assets.
c. FINANCIAL LIQUIDITY; RISK OF LOSS. I have adequate means of providing
for my current and future needs and contingencies, and I have no need for
liquidity in this investment. I have the financial ability to bear the risk of
this investment and can afford to lose the entire amount of my investment.
d. INDEPENDENT INVESTMENT ADVICE. I have made such inquiries and
investigations as I and my advisers determined to be appropriate for the purpose
of deciding whether to invest in the Company.
e. MARKETABILITY OF SHARES. I realize that the Company will not list the
Shares for trading on any exchange or the Nasdaq quotation system and that there
will be no ready market for my resale of any of the Shares, that I may have to
hold my Shares indefinitely, and that I may be unable to sell my Shares under
any circumstances, including an emergency. I further realize that the Company
has no obligation to list the Shares on any exchange or in the Nasdaq quotation
system.
INDEMNITY
I covenant and agree to indemnify and hold the Company, each of its
officers, directors, employees, attorneys and agents, and each of their
affiliates, free and harmless from and against any loss, damage or liability
arising from or due to any breach of any of the representations and warranties,
and from any false statement, representation or omission contained, in this
Subscription Agreement and the Registration Form in connection with my proposed
investment in the Company.
(Registration form appears on the following page)
<PAGE> 3
TRAVELNSTORE.COM, INC.
REGISTRATION FORM
1. NUMBER OF SHARES: (Minimum of 200 Shares)
------------------------
2. TOTAL PURCHASE PRICE: ($10 per Share)
------------------------
3. FORM OF OWNERSHIP. Please register ownership of my Shares as follows:
[ ] Husband and Wife, as community property
[ ] Married ([ ] Man) ([ ] Woman) as sole and separate property
[ ] Joint Tenants
[ ] Tenants in Common
[ ] Other (Specify: e.g., corporation, partnership, trust, single man,
etc.):
----------------------------------------------------------------
4. REGISTERED NAME. The exact spelling of the name(s) under which the Shares
are to be registered is as follows:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5. TAXPAYER ID#.
--------------------------------------------------------------
6. REGISTERED ADDRESS. Communications should be addressed to the following
mailing address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Telephone: ( ) Facsimile: ( )
----- ----------- ----- -----------
I DECLARE UNDER PENALTY OF PERJURY THAT THE INFORMATION WHICH I HAVE SUPPLIED IS
TRUE, CORRECT AND COMPLETE IN ALL RESPECTS.
EXECUTED this day of
-------------------- --------------------------------------
1999, at .
----------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------- ---------------------------------------
(printed name of subscriber) (printed name of spouse)
- ------------------------------------- ---------------------------------------
(signature of subscriber) (signature of spouse)
- --------------------------------------------------------------------------------
SUBSCRIPTION ACCEPTED:
TravelnStore.Com, Inc.
- -------------------------------------
By: Jim B. Tyner, Chief Executive
Officer
<PAGE> 1
EXHIBIT 10.3
1999 STOCK INCENTIVE PLAN
OF
TRAVELNSTORE.COM, INC.
TRAVELNSTORE.COM, INC., a California corporation (the "Company"), has
adopted this 1999 Stock Incentive Plan.
The purposes of this Plan are to provide an additional incentive for
directors, employees and consultants to further the growth, development and
financial success of the Company by personally benefitting through the ownership
of securities of the Company; and enable the Company to obtain and retain the
services of directors, employees and consultants considered essential to the
long-term success of the Company by offering them an opportunity to own
securities in the Company which will reflect the growth, development and
financial success of the Company.
1. DEFINITIONS
Wherever the following terms are used in this Plan they shall have the
meaning specified below, unless the context clearly indicates otherwise.
1.1 "ADMINISTRATOR" means the Board or the Committee which shall be
administering the Plan in accordance with SECTION 8 hereof.
1.2 "APPLICABLE LAWS" means the federal and state laws relating to the
administration of stock incentive plans, including, but not limited to, Section
16 of the Exchange Act and Rule 16b-3 promulgated thereunder.
1.3 "BOARD" means the Board of Directors of the Company as constituted
at the time in question.
1.4 "CHANGE IN CONTROL" shall be deemed to have occurred if:
1.4.1 Any "person" as such term is used in Sections 13(d) and
14(d) of the Exchange Act (other than (a) the Company, (b) any subsidiary of the
Company, (c) any trustee or other fiduciary G4
1.4.2 Holding securities under an employee benefit plan of the
Company or of any subsidiary of the Company, or (d) any company owned, directly
or indirectly, by the shareholders of the Company in substantially the same
proportions as their ownership of Stock of the Company), is or becomes the
"beneficial owner" (as defined in Section 13(d)), together with all Affiliates
and Associates (as such terms are used in Rule 12b-2 under the Exchange Act) of
such person, directly or indirectly, of securities of the Company representing
25% or more of the combined voting power of the Company's then outstanding
securities; or
1.4.3 During any period of two (2) consecutive years (not
including any period prior to the execution of the Plan), individuals who at the
beginning of such period constitute the Board, and any
1
<PAGE> 2
new director (other than a director designated by a person who has entered into
an agreement with the Company to effect a transaction described in SECTION 1.4.1
above) whose election by the Board or nomination for election by the Company's
shareholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so approved
cease for any reason to constitute at least a majority of the Board.
1.5 "CODE" means the Internal Revenue Code of 1986, as amended.
1.6 "COMMITTEE" means the Committee, if any, established by the Board
to administer the Plan and consisting solely of two or more Non-Employee
Directors.
1.7 "COMMON STOCK" means the Common Stock of the Company, no par value.
1.8 "COMPANY" means TravelnStore.Com, Inc., a California corporation,
and shall include any parent corporation and subsidiary corporation as those
terms are defined in Sections 424(e) and 424(f), respectively, of the Code.
1.9 "CONSULTANT" means any person who renders services to the Company
as a consultant or as an adviser, whether as an independent contractor or an
employee of an employer, and who is not an Employee or a Director as of the date
an Option is granted to him or her under the Plan.
1.10 "DIRECTOR" means a member of the Board.
1.11 "DISABILITY" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
1.12 "DONATIVE TRANSFER" means any transfer of an Option or Restricted
Stock made for donative purposes or without the receipt by or on behalf of the
Optionee or Restricted Shareholder of any cash, property or other consideration.
For purposes of this SECTION, neither the receipt of or eligibility for a
deduction, credit or similar allowance for federal or state income tax or estate
tax purposes nor the transferee's use for family or support purposes of any
proceeds realized from the sale of the any shares of Common Stock acquired on
exercise of an Option or of any shares of Restricted Stock shall be deemed to be
the receipt of consideration.
1.13 "EMPLOYEE" means any officer or other employee (as defined in
accordance with Section 3401(c) of the Code) of the Company.
1.14 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
1.15 "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:
1.15.1 If the Common Stock is listed on an established
national stock exchange or the National Market System of the National
Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") System,
the Fair Market Value of a share of Common Stock 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 (or the
2
<PAGE> 3
exchange with the greatest volume of trading in 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;
1.15.2 If the Common Stock is quoted on the NASDAQ System (but
not on the National Market System thereof) or 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 average of 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; and
1.15.3 If the Fair Market Value is not determined pursuant to
SECTION 1.15.1 or 1.15.2 above, the Fair Market Value shall be determined in
good faith by the Administrator.
1.16 "INCENTIVE STOCK OPTION" means an option which conforms to the
applicable provisions of Section 422 of the Code and which is designated as an
Incentive Stock Option by the Administrator.
1.17 "LAW" means the California Corporate Securities Law of 1968.
1.18 "NON-EMPLOYEE DIRECTOR" shall be defined as it is defined in Rule
16b-3.
1.19 "NONQUALIFIED STOCK OPTION" means an Option which is not
designated as an Incentive Stock Option by the Administrator.
1.20 "OPTION" means a stock option granted under this Plan. An Option
granted under this Plan shall be either a Nonqualified Stock Option or an
Incentive Stock Option; provided that Options granted to Directors and
Consultants shall be Nonqualified Stock Options.
1.21 "OPTION AGREEMENT" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. Each Option Agreement is subject to the terms and conditions of the Plan.
The terms and provisions of each Option Agreement need not be the same.
1.22 "OPTION EXCHANGE PROGRAM" means a program whereby outstanding
Options are surrendered in exchange for Options with a lower exercise price.
1.23 "OPTIONEE" means an Employee, Consultant or Director granted an
Option under this Plan.
1.24 "PLAN" means this 1999 Stock Incentive Plan, as amended from time
to time.
1.25 "RESTRICTED STOCK" means shares of Common Stock awarded under this
Plan.
1.26 "RESTRICTED SHAREHOLDER" means an Employee, Director or Consultant
granted an award of Restricted Stock under this Plan.
1.27 "RESTRICTED STOCK AGREEMENT" means a written agreement between the
Company and the Restricted Shareholder evidencing the terms and conditions of
the award of the Restricted Stock. Each Restricted Stock Agreement is subject to
the terms and conditions of the Plan. The terms and provisions of each
Restricted Stock Agreement need not be the same.
3
<PAGE> 4
1.28 "TERMINATION OF CONSULTANCY" means the date on which the
engagement of Optionee or Restricted Shareholder as a Consultant is terminated
for any reason, with or without cause, including, but not limited to,
resignation, discharge, death or retirement; but excluding terminations where
there is a simultaneous commencement of employment with the parent or a
subsidiary of the Company. The Administrator shall determine the effect of all
matters and questions relating to a Termination of Consultancy, including, but
not limited to, the question of whether a Termination of Consultancy resulted
from a discharge for cause for purposes of the Plan, and all questions of
whether particular leaves of absence constitute Terminations of Consultancy.
Notwithstanding any other provision of this Plan, the Company has an absolute
and unrestricted right to terminate a Consultant's service at any time for any
reason whatsoever, with or without cause, except to the extent expressly
provided in a separate writing between the Company and the Consultant.
1.29 "TERMINATION OF DIRECTORSHIP" means the date on which an Optionee
or Restricted Shareholder who is a Director ceases to be a Director for any
reason, including, but limited not to, a termination by resignation, failure to
be elected or re-elected, death or retirement. The Administrator shall determine
the effect of all matters and questions relating to a Termination of
Directorship for purposes of the Plan. Notwithstanding any other provision of
this Plan, nothing in this Plan or any Option Agreement or Restricted Stock
Agreement shall limit in any way the Company's right to terminate a Director's
status as a Director at any time or for any reason whatsoever, with or without
cause.
1.30 "TERMINATION OF EMPLOYMENT" means the date on which the
employee-employer relationship between the Optionee or Restricted Shareholder
and the Company is terminated for any reason, including, but limited not to,
resignation, discharge, death, disability or retirement; but excluding (a)
terminations where there is a simultaneous reemployment or continuing employment
of an Optionee or Restricted Shareholder by the parent or a subsidiary of the
Company, (b) at the discretion of the Administrator, terminations which result
in a temporary severance of the employee-employer relationship, and (c) at the
discretion of the Administrator, terminations which are followed by the
simultaneous establishment of a consulting relationship by the Company with the
former employee. The Administrator shall determine the effect of all matters and
questions relating to a Termination of Employment for purposes of the Plan,
including, but limited not to, the question of whether a Termination of
Employment resulted from a discharge for cause, and all questions of whether
particular leaves of absence constitute Terminations of Employment; provided
that, with respect to Incentive Stock Options, a leave of absence, change in
status from an employee to an independent contractor or other change in the
employee-employer relationship shall constitute a Termination of Employment if,
and to the extent that, such leave of absence or other change interrupts
employment for the purposes of Section 422(a)(2) of the Code. Notwithstanding
any other provision of this Plan, the Company has an absolute and unrestricted
right to terminate an Employee's employment at any time for any reason
whatsoever, with or without cause, except to the extent expressly provided in a
separate writing between the Company and the Employee.
2. SHARES SUBJECT TO PLAN
2.1 PLAN SHARES. The shares of stock subject to the grant of Options
and the award of Restricted Stock under this Plan shall be shares of the
Company's Common Stock. The aggregate number of shares of Common Stock which may
be issued upon exercise of Options granted under this Plan and as awards of
Restricted Stock under the Plan shall not exceed Five Hundred Thousand (500,000)
shares. The shares of
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Common Stock issuable upon exercise of Options or as awards of Restricted Stock
may be either previously authorized but unissued shares, or shares previously
issued and reacquired by the Company.
2.2 UNEXERCISED OPTIONS AND REACQUIRED RESTRICTED STOCK. If any Option
granted under this Plan expires or is cancelled without having been fully
exercised, or if the Company reacquires any shares of Restricted Stock, the
number of shares subject to the unexercised portion of such expired or cancelled
Option and such reacquired Restricted Stock may again be optioned or awarded
hereunder. Shares of Common Stock which are delivered by the Optionee or
withheld by the Company upon the exercise of any Option, in payment of the
exercise price thereof or in satisfaction of any tax withholding obligation, may
again be optioned or awarded hereunder. If any shares of Restricted Stock is
forfeited by the Restricted Shareholder, repurchased by the Company under this
Plan or withheld by the Company in payment of the purchase price for the
Restricted Stock or in satisfaction of any tax withholding obligation, such
shares may again be optioned or awarded hereunder. Notwithstanding the
provisions of this SECTION 2.2, no shares of Common Stock may again be optioned
or awarded if such action would cause an Incentive Stock Option to fail to
qualify as an incentive stock option under Section 422 of the Code.
3. GRANT OF OPTIONS
3.1 ELIGIBILITY. Any Employee, Consultant or Director selected by the
Administrator shall be eligible to be granted an Option; provided that Incentive
Stock Options may be granted only to Employees. Notwithstanding the foregoing,
no Option shall be granted under this Plan to a Director except by resolution
adopted by (a) a majority of the Board without counting the vote of the
interested Director or Directors, (b) or a majority of the Committee, or (c) a
majority of the shareholders of the Company.
3.2 DETERMINATION OF GRANTS.
3.2.1 The Administrator shall from time to time, in its
absolute discretion:
A. Determine which Employees are key Employees and
select the key Employees, Consultants and Directors (including
Employees, Consultants and Directors who have previously received
Options or other awards under this Plan) to be granted Options;
B. Determine the number of shares to be subject to
Options granted to Employees, Consultants and Directors;
C. Determine whether such Options are to be Incentive
Stock Options or Nonqualified Stock Options; and
D. Determine the other terms and conditions of such
Options consistent with this Plan.
3.2.2 Upon the selection of a key Employee, Consultant or
Director to be granted an Option, the Administrator shall instruct the Secretary
of the Company to issue the Option and may impose such conditions on the grant
of the Option as the Administrator deems appropriate.
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3.2.3 An Incentive Stock Option granted under this Plan may
not be modified by the Administrator to disqualify such Option from treatment as
an "incentive stock option" under Section 422 of the Code without the consent of
the Optionee.
4. TERMS OF OPTIONS
4.1 OPTION AGREEMENT. Each Option shall be evidenced by an Option
Agreement, which shall be executed by the Optionee and an officer of the Company
and which shall contain such terms and conditions as the Administrator shall
determine consistent with this Plan. Option Agreements evidencing Incentive
Stock Options shall contain such terms and conditions as may be necessary to
comply with the provisions of Section 422 of the Code.
4.2 EXERCISE PRICE. The exercise price per share of the Option shall be
set by the Administrator in its discretion; provided that:
4.2.1 in the case of Incentive Stock Options such price shall
not be less than 100% of the Fair Market Value of a share of Common Stock on the
date the Option is granted; provided that in the case of an Incentive Stock
Option granted to an individual who then owns (within the meaning of Section
424(d) of the Code) more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company, such price shall be 110% of the
Fair Market Value of a share of Common Stock on the date such Option is granted;
and
4.2.2 in the case of Nonqualified Stock Options, such price
shall be not less than 85% of the Fair Market Value of a share of Common Stock
on the date such Option is granted.
4.3 OPTION TERM. The term of an Option shall be set by the
Administrator in its discretion; provided that in any event the term of an
Option shall expire on the earliest of the following:
4.3.1 Ten (10) years after the date on which the Option was
granted; provided that the term of an Incentive Stock Option granted to an
individual who then owns (within the meaning of Section 424(d) of the Code) more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company shall expire no later than five (5) years after the date on
which the Option was granted; or
4.3.2 Thirty (30) days after the date of the Optionee's
Termination of Employment, Termination of Consultancy or Termination of
Directorship for cause, as determined by the Administrator; or
4.3.3 Three (3) months after the date of the Optionee's
Termination of Employment, Termination of Consultancy or Termination of
Directorship for any reason other than cause, death or disability; or
4.3.4 One (1) year after the date of the Optionee's
Termination of Employment, Termination of Consultancy or Termination of
Directorship if such termination occurs due to the Optionee's death or
disability.
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4.4 OPTION VESTING.
4.4.1 The period during which the right to exercise an Option
in whole or in part vests shall be set by the Administrator and the
Administrator may determine that an Option may not be exercised in whole or in
part for a specified period after it is granted. At any time after the grant of
an Option, the Administrator may, in its sole discretion, accelerate the period
during which an Option vests.
4.4.2 Notwithstanding anything in this Plan or in any Option
Agreement to the contrary, no Option shall be exercisable prior to six (6)
months after the date of grant of the Option.
4.4.3 The Administrator may provide in any Option Agreement
that the Option shall become fully vested on the occurrence of a Change in
Control. The Administrator's inclusion of such a provision in one Option
Agreement shall not obligate the Administrator to include such a provision in
all Option Agreements.
4.4.4 No portion of an Option which is unexercisable at the
Optionee's Termination of Employment, Termination of Directorship or Termination
of Consultancy, as applicable, shall thereafter become exercisable, except as
may be otherwise provided in the Option Agreement or in a resolution adopted
following the grant of the Option by the Board, the Committee or the
shareholders of the Company in the manner specified in SECTION 3.1 hereof.
4.5 LIMITATION ON INCENTIVE STOCK OPTIONS. The Company shall not grant
to any Optionee an Incentive Stock Option which would result in the aggregate
Fair Market Value of stock with respect to which all incentive stock options
then held by Optionee (including both Incentive Stock Options granted under this
Plan and all other incentive stock option plans of the Company) are exercisable
for the first time by an Optionee during any calendar year to exceed $100,000;
provided that the Company shall have no liability to an Optionee by reason of
the Company granting to the Optionee an Incentive Stock Option which exceeds
such $100,000 limit. To the extent that the aggregate Fair Market Value of stock
with respect to which any Incentive Stock Option (including Options granted
under both this Plan and all other incentive stock option plans of the Company)
are exercisable for the first time by an Optionee during any calendar year
exceeds $100,000, such Options shall be treated as Nonqualified Stock Options to
the extent required by Section 422 of the Code. The rule set forth in the
preceding sentence shall be applied by taking Options into account in the order
in which they were granted. For purposes of this SECTION 4.5, the Fair Market
Value of stock shall be determined as of the time the Option with respect to
such stock is granted.
4.6 CONSIDERATION. In consideration of the granting of an Option, the
Optionee shall agree to remain in the employ of or to consult for or to serve as
a Director of, as applicable, the Company for a period of at least one (1) year
(or such shorter period as may be fixed by the Administrator) after the Option
is granted (or until the next annual meeting of shareholders of the Company, in
the case of a Director). Nothing in this Plan or any Option Agreement shall
confer upon any Optionee any right to continue in the employ of, as a Consultant
for, or as a Director of the Company, or shall interfere with or restrict in any
way the rights of the Company to discharge any Optionee at any time for any
reason whatsoever, with or without cause.
4.7 REPURCHASE. In the discretion of the Administrator, the Option
Agreement for any Option may provide that the Company shall have the right to
repurchase the Common Stock issued upon the exercise
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of the Option upon the Optionee's Termination of Employment, Termination of
Directorship or Termination of Consultancy, as applicable.
5. EXERCISE OF OPTIONS
5.1 PARTIAL EXERCISE. An exercisable Option may be exercised in whole
or in part; provided that an Option shall not be exercised with respect to
fractional shares and the Administrator may require that a partial exercise be
with respect to a minimum number of shares.
5.2 MANNER OF EXERCISE. An Optionee shall exercise an Option, if at
all, by delivering all of the following to the Administrator:
5.2.1 A written notice of exercise, signed by the Optionee or
other person entitled to exercise the Option, complying with the rules
established by the Administrator and stating that the Option is being exercised;
5.2.2 Such representations and documents as the Administrator
deems necessary or advisable to effect compliance with the Applicable Laws. The
Administrator may take whatever additional actions it deems appropriate to
effect such compliance including, without limitation, placing legends on share
certificates representing shares issuable upon exercise of the Option and
issuing stop-transfer notices to transfer agents and registrars with respect to
such shares;
5.2.3 In the event that the Option is exercised by any person
or persons other than the Optionee, appropriate proof of the right of such
person or persons to exercise the Option; and
5.2.4 Full payment of the exercise price for the shares with
respect to which the Option is exercised.
5.3 PAYMENT OF EXERCISE PRICE. The Administrator may:
5.3.1 allow for the Company's extension of credit to the
Optionee or a delay in the Optionee's payment of the exercise price for up to
thirty (30) days from the date on which the Optionee delivers the notice of
exercise contemplated under this Plan; or
5.3.2 allow for payment of the exercise price, in whole or in
part, through any of the following:
A. the delivery of shares of Common Stock owned by the
Optionee and with a Fair Market Value on the date of delivery equal to
the applicable exercise price of the Option;
B. the surrender or withholding of shares of Common
Stock issuable upon exercise of the Option having a Fair Market Value
on the date of exercise of the Option equal to the applicable exercise
price of the Option;
C. the delivery of a full recourse promissory note
bearing interest at the rate determined by the Administrator (which in
any event shall not be less than such rate as shall
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preclude the imputation of interest under the Code) and payable upon
such terms as may be prescribed by the Administrator; and
D. through any combination of the foregoing types of
consideration. In the case of a promissory note, the Administrator may
prescribe the form of such note and the security to be given for such
note. The Option may not be exercised by delivery of a promissory note
or by a loan from the Company when or where such loan or other
extension of credit is prohibited by law.
5.4 CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES. The Company shall not
be required to issue or deliver any certificate or certificates for shares of
Common Stock issuable upon the exercise of any Option prior to fulfillment of
all of the following conditions:
5.4.1 The admission of such shares to listing on all stock
exchanges on which the Common Stock is then listed;
5.4.2 The completion of any registration or other
qualification of such shares under any state or federal law, or under the rules
or regulations of the Securities and Exchange Commission or any other
governmental regulatory body which the Administrator deems necessary or
advisable;
5.4.3 The obtaining of any approval or other clearance from
any state or federal governmental agency which the Administrator shall determine
to be necessary or advisable;
5.4.4 The lapse of such reasonable period of time following
the exercise of the Option as the Administrator may establish from time to time
for reasons of administrative convenience; and
5.4.5 The receipt by the Company of full payment of the
exercise price for such shares, including payment of any applicable withholding
tax.
5.5 RIGHTS AS SHAREHOLDER. An Optionee shall not be, nor have any of
the rights or privileges of, a shareholder of the Company with respect to any
shares of Common Stock issuable upon the exercise of an Option unless and until
certificates representing such shares have been issued by the Company to the
Optionee.
5.6 RESTRICTIONS ON TRANSFER OF OPTION SHARES.
5.6.1 TRANSFER RESTRICTIONS. The Administrator (or the Board
or the Committee, in the case of Options granted to Directors) may impose such
restrictions on the ownership and transferability of the shares of Common Stock
issuable upon the exercise of an Option as it deems appropriate. Any such
restriction shall be set forth in the Option Agreement and may be referred to on
the certificates evidencing such shares. The restrictions, if any, imposed by
the Administrator, the Board or the Committee under this SECTION need not be
identical for all Options and the imposition of any restrictions with respect to
one Option shall not require the imposition of the same or any other
restrictions with respect to any other Option.
5.6.2 DISPOSITION OF INCENTIVE STOCK OPTION. The Administrator
may require any Optionee who is granted an Incentive Stock Option to give the
Company prompt notice of any disposition of shares of Common Stock acquired upon
exercise of such Incentive Stock Option within (a) two (2) years from the date
of grant of such Incentive Stock Option, or (b) one (1) year after the issuance
of the shares to
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the Optionee upon exercise of the Incentive Stock Option. The Administrator may
direct that the certificates evidencing shares acquired upon exercise of an
Incentive Stock Option refer to such requirement to give prompt notice of
disposition.
6. RELOAD OPTIONS
6.1 GRANT OF RELOAD OPTIONS. Whenever the holder of any Option (the
"Original Option") outstanding under this Plan (whether an Incentive Option or a
Non-Qualified Option, and including any Reload Options granted under this Plan)
exercises the Original Option and makes payment of the exercise price by
tendering shares of the Common Stock of the Company owned by the Optionee, then
the Optionee shall be entitled to receive and the Company shall grant a new
Option (the "Reload Option") for that number of shares of the Common Stock of
the Company which is equal to the number of shares tendered by the Optionee in
payment of the exercise price of Common Stock for the Original Option being
exercised:
6.2 TERMS OF RELOAD OPTIONS. The Administrator shall determine the
terms, conditions and restrictions of each Reload Option, except that the
following provisions shall apply to each reload Option.
6.2.1 PRICE. The exercise price per share shall be an amount
equal to the Fair Market Value per share of the Company's Common Stock, as of
the date of exercise of the Original Option.
6.2.2 CHARACTER OF OPTION. The character of the Reload Option
shall be the same as the character of the Original Option, namely if the
Original Option is an Incentive Option, the Reload Option shall be an Incentive
Option, and if the Original Option is a Non-Qualified Option, the Reload Option
shall be a Non-Qualified Option.
7. AWARD OF RESTRICTED STOCK
7.1 AWARD OF RESTRICTED STOCK. The Administrator shall from time to
time, in its absolute discretion:
7.1.1 Determine which Employees are key Employees and select
the key Employees, Consultants and Directors (including Employees, Consultants
or Directors who have previously received other awards under this Plan) to be
awarded Restricted Stock;
7.1.2 Determine the purchase price, if any, payable for the
Restricted Stock provided; that the purchase price shall not be less than (a)
if, immediately prior to the award of the Restricted Stock, the Restricted
Shareholder owns stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company then outstanding,
one hundred percent (100%) of the Fair Market Value of the Common Stock; and (b)
in all other cases, eighty-five percent (85%) of the Fair Market Value of the
Common Stock;
7.1.3 Determine the period, if any, over which the Restricted
Shareholder's interest in the Restricted Stock shall vest; provided that the
Administrator may provide in any Restricted Stock Agreement that the Restricted
Stock shall be fully vested on the occurrence of a Change in Control; and
7.1.4 Determine the other terms and conditions, consistent
with this Plan, applicable to the award of the Restricted Stock.
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7.2 NOTICE OF AWARD. Upon the selection of a key Employee, Consultant
or Director to be awarded Restricted Stock, the Administrator shall instruct the
Secretary of the Company to issue such Restricted Stock and may impose such
conditions on the issuance of such Restricted Stock as the Administrator deems
appropriate.
7.3 RESTRICTED STOCK AGREEMENT. Restricted Stock shall be issued only
pursuant to a Restricted Stock Agreement, which shall be executed by the
selected key Employee, Consultant or Director and an officer of the Company and
which shall contain such terms and conditions as the Administrator shall
determine consistent with this Plan.
7.4 CONTINUED SERVICES. As consideration for the issuance of the
Restricted Stock, in addition to payment of any purchase price, the Restricted
Shareholder shall agree to remain in the employ of, or to consult for or to
serve as a Director of the Company for a period of at least one (1) year (or
such shorter period as may be fixed by the Administrator) after the Restricted
Stock is issued. Nothing in this Plan or in any Restricted Stock Agreement shall
confer on any Restricted Shareholder any right to continue in the employ of, or
as a Consultant for or as a Director of the Company or shall interfere with or
restrict in any way the rights of the Company to discharge any Restricted
Shareholder at any time for any reason whatsoever, with or without cause.
7.5 RIGHTS AS SHAREHOLDERS. Upon delivery of the shares of Restricted
Stock to the Restricted Shareholder or to the escrow holder pursuant to SECTION
7.9 hereof, the Restricted Shareholder shall have, unless otherwise provided by
the Administrator, all the rights of a shareholder with respect to said shares,
subject to the restrictions in the Restricted Stock Agreement, including the
right to receive all dividends and other distributions (other than stock
dividends, which shall be paid to the escrow holder for the benefit of the
Restricted Shareholder) paid or made with respect to the Restricted Stock.
7.6 RESTRICTION ON TRANSFER. Notwithstanding anything in this Plan or
any Restricted Stock Agreement to the contrary, no Restricted Shareholder may
sell or otherwise transfer, whether or not for value, any of the Restricted
Stock prior to six (6) months after the date of the award of the Restricted
Stock.
7.7 RESTRICTION. All shares of Restricted Stock issued under this Plan
(including any shares of Common Stock and other securities issued with respect
to the shares of Restricted Stock as a result of stock dividends, stock splits
or similar changes in the capital structure of the Company) shall be subject to
such restrictions as the Administrator shall provide, which restrictions may
include, without limitation, restrictions concerning voting rights,
transferability of the Restricted Stock and restrictions based on duration of
employment with or retention by the Company, Company performance and individual
performance; provided that the Administrator may, on such terms and conditions
as it may determine to be appropriate, remove any or all of such restrictions.
The restrictions, if any, imposed by the Administrator under this SECTION need
not be identical for all Restricted Stock and the imposition of any restrictions
with respect to any Restricted Stock shall not require the imposition of the
same or any other restrictions with respect to any other Restricted Stock.
7.8 REPURCHASE OF RESTRICTED STOCK.
7.8.1 UNVESTED RESTRICTED STOCK. Each Restricted Stock
Agreement shall provide that the Company, or any nominee of the Company, shall
have the right to repurchase from the Restricted
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Shareholder the unvested Restricted Stock upon a Termination of Employment,
Termination of Directorship or Termination of Consultancy at a cash price per
share equal to the purchase price paid by the Restricted Shareholder for such
Restricted Stock; provided that the Administrator may provide in the Restricted
Stock Agreement that such right of repurchase shall not apply in the event that
the Termination of Employment, Termination of Directorship or Termination of
Consultancy is for any reason other than cause or does not occur within three
(3) months following a Change In Control.
7.8.2 VESTED RESTRICTED STOCK. In the discretion of the
Administrator, the Restricted Stock Agreement may provide that the Company shall
have the right to repurchase the vested Restricted Stock upon a Termination of
Employment, Termination of Directorship or Termination of Consultancy at a cash
price per share equal to the then Fair Market Value of the Common Stock;
provided that the Administrator may provide in the Restricted Stock Agreement
that such right of repurchase shall not apply in the event that the Termination
of Employment, Termination of Directorship or Termination of Consultancy is for
any reason other than cause or does not occur within three (3) months following
a Change in Control.
7.9 ESCROW. The Administrator may provide in any Restricted Stock
Agreement that the Secretary of the Company or such other person as the
Administrator may appoint shall retain physical custody of each certificate
representing Restricted Stock until all of the restrictions imposed on the
Restricted Stock expire or have been removed. If the Restricted Stock is to be
held in escrow pursuant to this SECTION 7.9 the Administrator may require that
the Restricted Shareholder execute an appropriate Escrow Agreement as a
condition to the issuance of such Restricted Stock.
8. ADMINISTRATION
8.1 PROCEDURE. The Plan shall be administered by the Board or the
Committee. Once appointed, the Committee shall continue to administer the Plan
until otherwise directed by the Board. The Board may increase the size of the
Committee and may appoint additional members, remove members (with or without
cause) and substitute new members, fill vacancies (however caused), and remove
all members of the Committee and thereafter directly administer the Plan, all to
the extent permitted by Applicable Law.
8.2 POWERS OF THE ADMINISTRATOR. Subject to the provisions of the Plan,
the Administrator shall have the authority, in its discretion, to:
8.2.1 Select the Employees, Consultants and Directors to whom
Options and Restricted Stock may be granted or awarded hereunder;
8.2.2 Determine whether and to what extent Options and
Restricted Stock are granted or awarded hereunder;
8.2.3 Determine the number of shares of Common Stock to be
covered by Options and Restricted Stock granted or awarded hereunder;
8.2.4 Determine the Fair Market Value of the Common Stock in
accordance with SECTION 1.13 hereof;
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8.2.5 Approve forms of the Option Agreements and the
Restricted Stock Agreements, which Agreements need not be identical;
8.2.6 Determine the terms and conditions, not inconsistent
with the terms of this Plan, of any award granted hereunder, including, but not
limited to, the exercise price, the time or times when Options or Restricted
Stock may be exercised or become vested (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option or Restricted Stock or the
shares of Common Stock relating thereto, based in each case on such factors as
the Administrator, in its sole discretion, shall determine;
8.2.7 Construe and interpret the terms of the Plan and awards
granted under the Plan;
8.2.8 Prescribe, amend and rescind rules and regulations
relating to the Plan;
8.2.9 Modify or amend each Option or Restricted Stock;
8.2.10 Authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or the award of
Restricted Stock previously authorized by the Administrator;
8.2.11 Institute an Option Exchange Program;
8.2.12 Determine the terms and restrictions applicable to
Options and any Restricted Stock; and
8.2.13 Make all other determinations deemed necessary or
advisable for administering the Plan.
8.3 COMMITTEE PROCEDURE. If the Committee acts as the Administrator,
the Administrator shall act pursuant to the vote or written consent of a
majority of its members, and minutes shall be kept of all of its meetings and
copies thereof shall be provided to the Board. Subject to the provisions of the
Plan and the directions of the Board, the Committee may establish and follow
such other rules and regulations for the conduct of its business as it may deem
advisable.
8.4 PROFESSIONAL ASSISTANCE; GOOD FAITH ACTIONS. The Administrator may,
with the approval of the Board, employ and rely on the advice of attorneys,
consultants, accountants, appraisers, brokers, or other persons. All actions
taken and all interpretations and determinations made by the Administrator in
good faith shall be final and binding upon all Optionees, Restricted
Shareholders, the Company and all other interested persons. No member of the
Administrator or the Board or any officer, employee or agent of the Company
shall be personally liable for any action, determination or interpretation made
by the Administrator in good faith with respect to this Plan, any Options or
Restricted Stock granted or awarded under this Plan, or any Option Agreement or
Restricted Stock Agreement.
8.5 INDEMNIFICATION. In addition to any other rights of indemnification
they may have, the Administrator and the members of the Administrator shall be
indemnified by the Company against reasonable expenses, including attorneys'
fees and costs, incurred in connection with the defense of any claim, action,
suit, or proceeding, or in connection with any appeal thereof, to which they or
any of them may
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be a party by reason of any action taken or failure to act under or in
connection with the Plan, any Option or Restricted Stock granted or awarded
thereunder, or any Option Agreement or Restricted Stock Agreement, and against
all amounts paid by them in settlement thereof (provided such settlement is
approved by independent legal counsel selected by the Company) or paid by them
in satisfaction of a judgment in any action, suit, or proceeding; provided that
the foregoing indemnification shall not apply to matters as to which it shall be
adjudged in such action, suit, or proceeding that the Administrator or such
member is liable for gross negligence or willful misconduct in the performance
of his or her duties. The indemnification provided in this SECTION shall be
available only if, within sixty (60) days after institution of any such claim,
action, suit, or proceeding, the Administrator or the member thereof seeking
indemnification shall in writing offer the Company the opportunity, at its own
expense, to handle and defend such claim, action, suit or proceeding.
9. NONTRANSFERABILITY OF OPTIONS
9.1 NONTRANSFERABILITY. No Option may be sold, pledged, assigned,
hypothecated, transferred, or otherwise disposed of other than by will or by the
laws of descent or distribution or pursuant to a qualified domestic relations
order as defined in the Code and Title I of the Employee Retirement Income
Security Act, or the rules thereunder. An Option may be exercised, during the
lifetime of the Optionee, only by the Optionee.
9.2. LIMITED TRANSFERABILITY. Notwithstanding anything in SECTION 9.1
hereof to the contrary, the Administrator may, in its discretion, provide in the
Option Agreement that the a Nonqualified Stock Option may be transferred subject
to the terms and conditions of this SECTION 9.2. If an Option Agreement permits
the transfer of a Nonqualified Stock Option, any transfer that does not comply
with all of the provisions of this SECTION 9.2 and the Option Agreement shall
be null and void ab initio. The provisions of the Stock Option Agreements
dealing with the transferability of Nonqualified Stock Options need not be
identical for all Nonqualified Stock Options and the provision for
transferability with respect to any Nonqualified Stock Option shall not require
the provision for transferability with respect to any other Nonqualified Stock
Option.
9.2.1 PERMITTED TRANSFEREES. A Nonqualified Stock Option may
be transferred or assigned by the Optionee only to one or more of the following:
(a) the Optionee's spouse, parents and lineal descendants, including adopted
children (the "Immediate Family Members"); (b) a trust established by the
Optionee and with respect to which all beneficial interests are held by one or
more of the Optionee, the Immediate Family Members, and a tax-exempt charitable
organization which has only a contingent residual interest in the trust; (c) a
partnership or limited liability company established by the Optionee and in
which all beneficial interests are held by one or more of the Optionee and the
Immediate Family Members; (d) a tax-exempt educational, religious or charitable
organization, as those terms are defined in Section 501(c)(3) of the Code; and
(e) such other persons and entities as the Administrator may specifically
approve in writing after written notice from the Optionee. The Administrator may
require as a condition to the transfer of any Nonqualified Stock Option under
this SECTION that the transferee provide to the Administrator reasonable
evidence that the proposed transferee is described in one of the foregoing
clauses.
9.2.2 PERMITTED TRANSFERS. Any transfer of a Nonqualified
Stock Option under this SECTION 9.2 must be either a Donative Transfer, a
transfer to a partnership or limited liability company described in clause (c)
of SECTION 9.2.1 above without the Optionee's receipt of any consideration other
than
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the Optionee's interest in such entity, or a transfer specifically approved in
writing by the Company after written notice from the Optionee.
9.2.3 OTHER CONDITIONS. The Administrator may include in any
Option Agreement such other conditions and restrictions on the transfer of any
Nonqualified Stock Option as the Administrator may, in its sole discretion, may
deem appropriate.
9.2.4 DISCLAIMER. The Administrator's acceptance of any
transfer of a Nonqualified Stock Option shall not be considered legal or tax
advice to the Optionee or the proposed transferee as to their compliance with
any Applicable Law or the legal or tax consequences of such transfer or the
subsequent exercise of the transferred Nonqualified Stock Option or the sale or
exchange of any of the shares of Common Stock acquired on exercise of the
transferred Nonqualified Stock Option.
10. CHANGES IN CAPITAL STOCK
10.1 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, the number of shares of Restricted Stock outstanding,
and the number of shares of Common Stock which have been authorized for issuance
under the Plan but as to which no Options or Restricted Stock have been granted
or awarded, as well as the price per share of Common Stock covered by the
outstanding Options and Restricted Stock, shall be appropriately adjusted in the
event of a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or similar change in the capital structure
of the Company. Such adjustment shall be made by the Administrator, whose
determination 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 outstanding shares of
Restricted Stock.
10.2 DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, to the extent that any outstanding
Option or Restricted Stock has not been exercised or become vested, the Option
shall terminate and the Company shall have the right to repurchase the unvested
Restricted Stock immediately prior to the consummation of such proposed action.
The Administrator may, in its sole discretion, (a) declare that any Option shall
terminate as of a date fixed by the Administrator and may give each Optionee the
right to exercise the Option as to all or any part of the shares covered by the
Option, including shares as to which the Option would not otherwise be
exercisable, and (b) waive any vesting restrictions otherwise applicable to the
Restricted Stock. The Administrator may impose such conditions on the granting
of any right under this SECTION as the Administrator deems necessary or
appropriate, including, but not limited to, the consummation of the liquidation
or dissolution of the Company. The rights, if any, granted under this SECTION
need not be identical for all Optionees or Restricted Shareholders. Any
declaration or waiver made by the Administrator under this SECTION shall be
effective with respect to any Optionee or Restricted Shareholder only if it is
made in writing and written notice thereof is delivered to the Optionee or
Restricted Shareholder.
10.3 MERGER OR ASSET SALE. In the event of a merger of the Company with
or into another corporation, or the sale of all or substantially all of the
assets of the Company, all outstanding Options shall terminate and the Company
shall have the right to repurchase all unvested Restricted Stock unless the
successor corporation or a parent or subsidiary of the successor corporation
assumes such Options and
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Restricted Stock or an equivalent option or stock right is substituted therefor
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 Options or Restricted Stock, (a) the Optionee shall have the
right to exercise the Option as to all of the shares covered by the Option,
including shares as to which it would not otherwise be exercisable, and (b) any
restrictions applicable to the Restricted Stock shall be waived.
10.3.1 OPTION PROVISIONS. If an Option is exercisable in lieu
of assumption or substitution by the successor corporation, the Administrator
shall notify the Optionee thereof and the Option shall be fully exercisable for
a period of fifteen (15) days from the date of such notice and any portion of
the Option which is not exercised by the Optionee during such fifteen (15) day
period shall terminate. Any exercise and termination of an Option pursuant to
the preceding sentence shall be effective immediately prior to the closing of
the transaction contemplated in this SECTION 10.3. In the event that the Company
abandons or otherwise fails to close the transaction, any exercise or
termination of the Option shall be void ab initio and the Option shall have the
rights and be subject to the terms and conditions it had immediately prior to
the Company's consideration of the transaction described in this SECTION 10.3.
The Administrator may impose such conditions on the exercise of any Option under
this SECTION as the Administrator deems necessary or appropriate in connection
with the transactions contemplated in this SECTION 10.3.
10.3.2 RESTRICTED STOCK PROVISIONS. If the Restricted Stock is
not assumed or substituted for by the successor corporation, the Administrator
shall notify the Restricted Shareholder thereof and the waiver of any
restrictions. Any waiver of the restrictions shall be effective immediately
prior to the closing of the transaction contemplated in this SECTION 10.3. In
the event that the Company abandons or otherwise fails to close the transaction,
any waiver of the restrictions shall be void ab initio and the Restricted Stock
shall have the rights and be subject to the terms and conditions it had
immediately prior to the Company's consideration of the transaction described in
this SECTION 10.3. The Administrator may impose such conditions on the waiver of
any restrictions under this SECTION as the Administrator deems necessary or
appropriate in connection with the transactions contemplated in this SECTION
10.3.
10.3.3 ASSUMPTION. For the purposes of this SECTION, the
Option or Restricted Stock shall be considered assumed if, following the merger
or sale of assets, the Option or Restricted Stock confers the right to purchase
or receive the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding shares); provided that if such
consideration received in the merger or sale of assets was not solely common
stock of the successor corporation or its parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Restricted Stock to be solely common
stock of the successor corporation or its parent equal in fair market value to
the per share consideration received by holders of Common Stock in the merger or
sale of assets.
11. LIABILITY OF COMPANY
11.1 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 grant of any
Options, the issuance of any shares of Common Stock upon the exercise of any
Options or the issuance of any Restricted stock, shall relieve the Company of
any liability in respect of the
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failure to grant such Options or to issue such shares as to which such requisite
authority shall not have been obtained.
11.2 GRANTS EXCEEDING ALLOTTED SHARES. If the number of shares of
Common Stock covered by an Option or Restricted Stock exceeds, as of the date of
grant or award, the number of shares of Common Stock which may be issued under
the Plan without additional shareholder approval, such Option or Restricted
Stock shall be void with respect to such excess number of shares of Common
stock, unless shareholder approval of an amendment sufficiently increasing the
number of Shares subject to the Plan is thereafter obtained.
12. AMENDMENT AND TERMINATION OF THE PLAN
12.1 AMENDMENT AND TERMINATION. The Board may at any time amend, alter,
suspend or terminate the Plan.
12.2 SHAREHOLDER APPROVAL. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Section 422 of the Code (or any successor rule or statute or other
Applicable Law, including the requirements of any exchange or quotation system
on which the Common Stock is listed or quoted). Such shareholder approval, if
required, shall be obtained in such a manner and to such a degree as is required
by the Applicable Law.
12.3 EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee or
Restricted Shareholder, unless mutually agreed otherwise between the Optionee or
the Restricted Shareholder and the Administrator, which agreement must be in
writing and signed by the Optionee or the Restricted Shareholder and the
Company.
13. MISCELLANEOUS PROVISIONS
13.1 DISCLAIMER. Nothing in this Plan or any Option Agreement or
Restricted Stock Agreement, nor any action taken by the Company, the Board, the
Administrator, or any member, officer, employee, or agent of any of them, shall
be, or shall be deemed to be, legal or tax advice to any Optionee or Restricted
Shareholder with respect to any matter, including, but not limited to, (a) the
application of, or the Optionee's or the Restricted Shareholder's compliance
with any Applicable Law or (b) the tax consequences of the grant, transfer or
exercise of any Option or of the award or vesting of any Restricted Stock. EACH
OPTIONEE AND RESTRICTED SHAREHOLDER SHALL BE RESPONSIBLE FOR OBTAINING SUCH
LEGAL AND TAX ADVICE AS THE OPTIONEE OR RESTRICTED SHAREHOLDER DEEMS NECESSARY
IN CONNECTION WITH THEIR ACCEPTANCE AND EXERCISE OF ANY OPTION OR RESTRICTED
STOCK GRANTED OR AWARDED UNDER THIS PLAN.
13.2 TAX WITHHOLDING. The Company shall be entitled to require payment
in cash or deduction from other compensation payable to each Optionee or
Restricted Shareholder of any sums required by federal, state or local tax law
to be withheld with respect to the grant, issuance, vesting or exercise of any
Option or Restricted Stock. The Administrator may allow an Optionee or
Restricted Shareholder to satisfy such withholding obligation by having the
Company withhold shares of Common Stock otherwise issuable upon exercise of the
Option or as part of the Restricted Stock (or allow the return of shares of
Common Stock held by the Optionee or Restricted Shareholder) having a Fair
Market Value equal to the amount required to be withheld.
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13.3 FINANCIAL STATEMENTS. The Company shall provide to each Optionee
and Restricted Shareholder copies of the annual financial statements prepared by
the Company, which financial statements need not be audited. So long as the
Company is not required to file periodic reports under the Exchange Act, the
Company may condition the delivery of such financial statements on the
Optionee's and Restricted Shareholder's execution of an appropriate
Non-Disclosure Agreement.
13.4 OTHER PLANS. The adoption of this Plan shall not affect any other
compensation or incentive plans in effect for the Company. Nothing in this Plan
shall be construed to limit the right of the Company to (a) establish any other
forms of incentives or compensation for Employees, Consultants or Directors or
(b) grant or assume options or other rights otherwise than under this Plan in
connection with any corporate purpose, including, but not limited to, the grant
or assumption of options in connection with the acquisition of the business,
stock or assets of any corporation, partnership, firm or association.
13.5 COMPLIANCE WITH LAWS. This Plan, the granting and exercisability
of Options granted under this Plan, the award and vesting of Restricted Stock
awarded under this Plan, and the issuance and delivery of shares of Common Stock
are subject to compliance with all Applicable Laws (including, but not limited
to, state and federal securities law and federal margin requirements) and to
such approvals by any listing, regulatory or governmental authority as may, in
the opinion of counsel for the Company, be necessary or advisable in connection
therewith. Any securities delivered under this Plan shall be subject to such
restrictions, and the person acquiring such securities shall, if requested by
the Administrator, provide such assurances and representations to the Company as
the Administrator may deem necessary or desirable to assure compliance with
Applicable Law. To the extent permitted by applicable law, the Plan, the Option
Agreements and Restricted Stock Agreements, Options or Restricted Stock granted
or awarded under this Plan shall be deemed amended to the extent necessary to
conform to such laws, rules and regulations.
13.6 STATUTORY REFERENCES. All references in this Plan to any statute,
rule or regulation shall refer to the statute, rule or regulation as heretofore
or hereafter amended and in effect at the time in question.
13.7 GOVERNING LAW. This Plan and any agreements hereunder shall be
administered, interpreted and enforced under the internal laws of the State of
California without regard to conflicts of laws thereof.
13.8 RESERVATION OF SHARES. At all times during the term of this Plan,
the Company shall reserve and keep available such number of shares of Common
Stock and other securities as shall be sufficient to satisfy the requirements of
the Plan.
13.9 INTERPRETATION OF COMMON STOCK. Wherever in this Plan reference is
made to the term "Common Stock" for any purpose other than the determination of
the Fair Market Value of the Common Stock, such term shall include, and the
provision of this Plan shall apply to, both the shares of Common Stock and any
other securities issuable upon exercise of any Option or with respect to any
Restricted Stock by reason of the occurrence of an event described in SECTION 10
of this Plan.
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14. SHAREHOLDER APPROVAL AND TERM OF PLAN
The term of this Plan shall begin as April 15, 1999, and unless sooner
terminated by the Board in its sole discretion, the Plan shall expire on
December 31, 2009. The Plan shall be submitted for approval by the shareholders
of the Company on or prior to April 15, 2000. In the event such shareholder
approval is not obtained on or before April 15, 2000, this Plan shall continue
in full force and effect but shall permit the grant of only Nonqualified Stock
Options and the award of Restricted Stock, and any Stock Option Plans granted on
or before the date of such shareholder action shall remain outstanding, but
automatically shall be deemed to be Nonqualified Stock Options.
I hereby certify that the foregoing Plan was duly adopted by the Board
of Directors of TravelnStore.Com, Inc. on April 30, 1999.
EXECUTED on this 30th day of April, 1999.
----------------------------------
Yula Greco,
Secretary of TravelnStore.Com, Inc.
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EXHIBIT 10.4
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made as of
_______________, 1999 (the "Effective Date"), between TravelnStore.Com, Inc., a
California corporation (the "Company"), and ______________ ("Indemnitee") with
reference to the following facts.
RECITALS:
A. Indemnitee currently is serving, or has previously served as an
officer and/or Director of the Company and the Company wishes Indemnitee to
continue in such capacities.
B. The Company's Articles of Incorporation provide that the
Directors of the Company shall be exempted from liability for monetary damages
shall be eliminated to the maximum extent permitted by law and that the Company
is authorized to enter into agreements to indemnify the officers, Directors and
agents of the Company with respect to matters not otherwise covered by the
indemnification provisions of the California General Corporation Law, as amended
(the "GCL").
C. Indemnitee has advised the Company that he does not regard the
indemnities available to him under the Company's Articles of Incorporation,
Bylaws and available insurance, as adequate to protect him against the risks
associated with his performance of services as an officer and/or Director of the
Company. Indemnitee is not willing to serve as an officer and/or Director of the
Company in the absence of the benefits accorded to him under this Agreement.
D. The parties desire to enter into this Agreement to provide that
the Company will indemnify Indemnitee to the maximum extent permitted by law
against all costs, expenses and liabilities that might arise by reason of his
performance of services as an officer, Director, employee or agent of the
Company.
AGREEMENTS:
NOW, THEREFORE, in consideration of the Recitals and of Indemnitee's
past and continued services, and intending to be legally bound, the Company
hereby agrees for the benefit of Indemnitee as follows:
1. DEFINITIONS. The following terms shall have the following
meanings unless otherwise clearly required by the context in which used.
1.1 "EXPENSES" shall mean and include, without limitation, all
costs, expenses (including attorneys' fees), liabilities, losses, fines, ERISA
excise taxes and penalties, amounts paid or to be paid in settlement or
satisfaction of any judgment, all interest, assessments and other charges
imposed thereon, and all federal, state, local and foreign taxes imposed on
Indemnitee as a result of the actual or deemed receipt of any payments under
this Agreement, paid or incurred by or on behalf of Indemnitee in connection
with the investigation, defense, settlement, appeal, being a witness in,
participating in, or preparing for any of the foregoing in or with respect to
any Proceeding or in or with respect to any action for indemnification, whether
under this Agreement or otherwise, with respect to any Proceeding.
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1.2 "PROCEEDING" shall mean and include any threatened, pending or
completed claim, action, suit or proceeding, formal or informal, whether civil,
criminal, administrative or investigative, including, but not limited to, any
claim, action, suit or proceeding initiated by or on behalf of the Company,
brought or initiated by reason of the fact that the Indemnitee is or was an
officer, Director, employee or agent of the Company, or is or was serving at the
request of the Company as an officer, Director, employee or agent of an
Affiliated Enterprise, whether or not the Indemnitee is serving in such capacity
at the time any liability or expense is incurred for which indemnification or
reimbursement is to be provided under this Agreement.
1.3 "AFFILIATED ENTERPRISE" shall mean and include any corporation
other than the Company, partnership, joint venture, trust or other enterprise
for which Indemnitee was serving as an officer, Director, employee or agent at
the request of the Company.
2. AGREEMENT TO SERVE. Indemnitee agrees to serve as an officer and
Director of the Company for so long as Indemnitee is duly elected or appointed
to such position and until such time as Indemnitee tenders Indemnitee's
resignation in writing or is removed as an officer or Director of the Company.
Nothing in this Agreement shall obligate the Company, or any of its
shareholders, officers or Directors, to elect or cause Indemnitee to be elected,
to serve as an executive officer or Director of the Company or shall interfere
in any way with the right of the Company and its shareholders, officers and
Directors to terminate Indemnitee's status as an executive officer or Director
at any time. Indemnitee's resignation as an officer or Director of the Company,
regardless of the reason for such resignation, shall not be deemed to be a
breach of this Agreement or limit in any way Indemnitee's right to
indemnification under this Agreement.
3. INDEMNIFICATION.
3.1 INDEMNIFICATION. Subject to the limitations and restrictions of
this Agreement, if Indemnitee is or becomes a party to, or is threatened to be
made a party to, a Proceeding by reason of (a) the fact that Indemnitee is, was,
becomes or ceases to be an officer, Director, employee or agent of the Company
or an Affiliated Enterprise or (b) any act or omission, or alleged act or
omission, of Indemnitee while an officer, Director, employee or agent of the
Company or an Affiliated Enterprise, the Company shall indemnify and hold
Indemnitee harmless from and against all Expenses incurred by or on behalf of
Indemnitee in connection with the investigation, defense and settlement of such
Proceeding and the satisfaction of any judgment entered against Indemnitee in
such Proceeding; provided that the Company shall have no obligation to pay or
reimburse Indemnitee for any amount paid or payable in settlement of any
Proceeding unless such settlement has been approved in writing by the Company.
Subject to the limitations of SECTION 3.2 hereof, the indemnification authorized
by this SECTION shall include the Company's indemnification of Indemnitee
against all Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding initiated by or on behalf of the Company and alleging that
Indemnitee breached any duty as an officer, Director, employee or agent of the
Company to the Company or any of its shareholders.
3.2 LIMITATION. Notwithstanding anything in this Agreement to the
contrary, the Company shall not be obligated under this Agreement to indemnify
Indemnitee against any of the following:
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(a) Any Expenses for which payment is actually made to or on
behalf of Indemnitee under a valid and collectible insurance policy,
except that the Company shall indemnify Indemnitee for all Expenses of
the type covered by such insurance policy but which are not paid under
such policy, whether by reason of the financial limits of liability of
the policy or otherwise;
(b) Any Expenses for which Indemnitee is indemnified by and
receives payment from the Company otherwise than pursuant to this
Agreement;
(c) Any Expenses for which payment is actually made to or on
behalf of Indemnitee by any person other than the Company or with
respect to any insurance policy described in clause (a) above;
(d) Any Expenses incurred by Indemnitee with respect to any
Proceeding relating to a transaction or action from which Indemnitee in
fact received, by reason his being an officer, Director, employee or
agent of the Company, any personal profit or advantage to which he was
not legally entitled; except that the Company shall indemnify Indemnitee
with respect to all such Expenses if Indemnitee ultimately prevails with
respect to such Proceeding; and provided that such Expenses may be
provided or advanced by the Company in specific cases if the Board of
Directors has determined that it is more likely than not that Indemnitee
ultimately will prevail in such Proceeding;
(e) Any Expenses incurred by Indemnitee with respect to any
Proceeding for an accounting of profits made from the purchase and sale
by Indemnitee of securities of the Company subject to the provisions of
SECTION 16(b) of the Securities Exchange Act of 1934, as amended, or
similar provisions of any state statutory law or common law; except that
the Company shall indemnify Indemnitee with respect to all such Expenses
if Indemnitee ultimately prevails with respect to such Proceeding;
(f) Any Expenses incurred by Indemnitee with respect to any
Proceeding regarding any acts, omissions or transactions, or alleged
acts, omissions or transactions, involving Indemnitee and with respect
to which a Director may not be relieved of liability by reason of
SECTION 204(a)(10) of the GCL or as to circumstances in which
indemnification of an officer, Director, employee or agent of the
Company is expressly prohibited by SECTION 317 of the GCL;
(g) Any Expenses incurred by Indemnitee with respect to any
Proceeding initiated or brought voluntarily by Indemnitee and not by way
of defense, except with respect to any Proceeding brought to establish
or enforce a right to indemnification under this Agreement or the GCL or
any other statute, law or agreement or otherwise; provided that such
Expenses may be provided or advanced by the Company in specific cases if
the Board of Directors has approved the initiation or bringing of such
Proceeding; and
(h) If a court of competent jurisdiction finally determines
that any indemnification under this Agreement is unlawful.
3.3 INDEMNIFICATION OF EXPENSES OF SUCCESSFUL PARTY. Notwithstanding
anything in this Agreement to the contrary, to the extent that Indemnitee is
successful in defense of any Proceeding or in
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<PAGE> 4
defense of any claim, issue or matter raised in any proceeding, whether on the
merits or otherwise, including the dismissal of a Proceeding without prejudice
or the settlement of a Proceeding without an admission of liability by
Indemnitee, the Company shall indemnify Indemnitee against all Expenses incurred
in connection with such Proceeding, claim, issue or matter.
4. INDEMNIFICATION PROCEDURE.
4.1 NOTICE/COOPERATION. Indemnitee shall give the Company written
notice as soon as practicable of any claim made against him for which
indemnification will or could be sought by him under this Agreement; provided
that Indemnitee's delay in notifying the Company shall not limit in any way his
right to indemnification under this Agreement unless such delay materially
adversely affects the ability of Indemnitee or the Company to defend against
such claim or the availability of insurance coverage otherwise available to
Indemnitee or the Company.
4.2 NOTICE TO INSURERS. If, at the time of its receipt of a notice
of claim pursuant to SECTION 4.1 hereof, the Company has in effect liability
insurance applicable or potentially applicable to such claim, the Company shall
give prompt notice of the commencement of such Proceeding to the insurers in
accordance with the procedures set forth in the respective policies. The Company
thereafter shall take all necessary or desirable action to cause such insurers
to pay, on behalf of Indemnitee, all amounts payable as a result of or with
respect to such Proceeding in accordance with the terms of such policies.
4.3 ADVANCEMENT OF EXPENSES. The Company shall advance all Expenses
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of any Proceeding described in SECTION 3.1 hereof. Indemnitee hereby
undertakes to repay all amounts that are advanced to him by the Company only if,
and to the extent that, it shall ultimately be determined by a court of
competent jurisdiction that Indemnitee is not entitled to be indemnified by the
Company under this Agreement or otherwise with respect to such Expenses. The
advances to be made hereunder shall be paid by the Company to Indemnitee within
twenty (20) days following Indemnitee's delivery to the Company of a written
request therefor. For purposes of this Agreement, Indemnitee shall be deemed to
have incurred any Expense at the time that Indemnitee either receives an invoice
or statement requesting payment of such amount or otherwise becomes obligated to
pay such amount. It is not and shall not be a condition precedent to
Indemnitee's right to receive payment of any amount under this Agreement that
Indemnitee shall have first paid such amount. Notwithstanding the foregoing or
any other provision of this Agreement to the contrary, the Company shall not be
obligated to make any advance to Indemnitee under this Agreement if a
determination is reasonably and promptly made by the Board of Directors, (a)
that Indemnitee acted in bad faith or deliberately breached his duty to the
Company or its shareholders, and (b) as a result of such actions by Indemnitee,
it is more likely than not that it will ultimately be determined that Indemnitee
is not entitled to indemnification under this Agreement; provided that any such
determination shall not limit in any way the Company's obligation to indemnify
Indemnitee if Indemnitee ultimately prevails in any such Proceeding.
4.4 SELECTION OF COUNSEL. In the event the Company pays the Expenses
of any Proceeding against Indemnitee, the Company shall be entitled to assume
the defense of such Proceeding, with counsel approved by Indemnitee, which
approval shall not be unreasonably withheld, upon the delivery to Indemnitee of
written notice of its election to do so. After the Company's assumption of such
defense, the Company shall not be liable to Indemnitee under this Agreement for
any fees or expenses of counsel
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<PAGE> 5
subsequently incurred by Indemnitee with respect to the same Proceeding;
provided that (a) Indemnitee shall have the right to employ his own counsel in
any such Proceeding at Indemnitee's expense; and (b) if Indemnitee shall have
reasonably concluded that there may be a conflict of interest by reason of the
representation in such Proceeding of Indemnitee and the Company and/or any other
defendants by the same counsel, then Indemnitee may retain his own counsel with
respect to such Proceeding and the fees and expenses of such counsel shall be
Expenses for which Indemnitee is entitled to indemnification from the Company
subject to the terms and conditions of this Agreement. The Company shall not
settle any Proceeding in any manner which would impose any penalty or limitation
on the Indemnitee without the Indemnitee's written consent. The Company shall
not be entitled to assume the defense of any Proceeding brought by or on behalf
of the Company.
5. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
5.1 SCOPE. The parties intend by this Agreement that the Company
shall, to the fullest extent presently or hereafter permitted by law, indemnify
and hold Indemnitee harmless from and against all Expenses arising from or
relating to his acts and omissions, and alleged acts and omissions, as an
officer, Director, employee or agent of the Company. In the event of any change,
after the date of this Agreement, in any applicable law, statute or rule which
expands the right of a California corporation to indemnify an officer, Director,
employee or other agent, this Agreement automatically shall be amended as of the
effective date of such change to incorporate such expanded right and, from and
after such effective date, the Company shall be obligated to indemnify
Indemnitee to the maximum extent of such expanded right. In the event of any
change, after the date of this Agreement, in any applicable law, statute or rule
which narrows the right of a California corporation to indemnify an officer,
Director, employee or agent, such change, except to the minimum extent required
by such law, statute or rule, shall have no effect on this Agreement or the
parties' rights and obligations hereunder. As soon as practicable after the
effective date of any such change in any such applicable law, statute or rule,
the Company and Indemnitee shall prepare and execute a written amendment to this
Agreement memorializing the effect of such change; provided that any delay in
the preparation or execution of such written amendment shall not delay the date
on which this Agreement is deemed amended to incorporate the effect of such
change.
5.2 NONEXCLUSIVITY. The indemnification provided by this Agreement
shall not be deemed exclusive of any rights to which Indemnitee may be entitled
under the Company's Articles of Incorporation or its Bylaws, any other agreement
to which Indemnitee is a party, any right granted to Indemnitee, either
individually or as a member of a group of officers, Directors, employees or
agents of the Company, by reason of any vote of shareholders or disinterested
Directors of the Company, the GCL, or otherwise.
6. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provision
of this Agreement to indemnification by the Company for some or a portion of the
Expenses incurred by him with respect to any Proceeding, but not for the total
amount thereof, the Company shall nevertheless indemnify Indemnitee for the
portion of such Expenses to which Indemnitee is entitled.
7. INCURRENCE OF EXPENSES. No Expenses for which indemnity shall be sought
hereunder shall be incurred without the Company's consent, which consent shall
not be unreasonably withheld. The Company may consent, prior to Indemnitee
incurring any Expense, generally (a) to his incurring Expenses likely to be
incurred with respect to any Proceeding, (b) to his incurring all Expenses of a
general type or description with respect to any Proceeding, and (c) to his
obtaining the Company's consent to his incurring
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<PAGE> 6
any Expenses on such other expedited basis as the Company may deem appropriate
so as to facilitate the investigation, defense or settlement of any Proceeding.
8. SUBROGATION. In the event the Company makes any payment to Indemnitee
under this Agreement, (a) the Company shall be subrogated to the extent of such
payment to all of the rights of recovery of Indemnitee from any co-defendant,
insurer or other person and (b) Indemnitee shall execute all papers requested by
the Company and shall do such other things as the Company may request for the
purpose of securing such rights for the benefit of the Company, including the
execution of such documents as may be necessary to enable the Company to bring
suit to enforce such rights. The Company shall be solely responsible for
securing such subrogation rights for its benefit and Indemnitee shall have no
liability to the Company solely by reason of the Company's failure or inability
either to secure such subrogation rights or to recover any amounts from any
co-defendant of Indemnitee, any insurer, or any other person.
9. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge
that in certain instances federal or state law and/or applicable public policy
may prohibit the Company from indemnifying its officers, Directors, employees
and agents, including Indemnitee, under this Agreement or otherwise. Indemnitee
understands and acknowledges that the Company has undertaken or may be required
in the future to undertake with the Securities and Exchange Commission and/or
the securities agency of any state that in certain circumstances the Company
will submit for determination by a court the question of the Company's right to
indemnify Indemnitee with respect to a claim of the violation of applicable
securities laws. If the Company's indemnification obligation under this
Agreement is subject to the limitations of any federal or state law or
applicable public policy that prohibits the Company's indemnification of its
officers, Directors, employees or agents, or any group of them, the Company
shall have no liability to Indemnitee solely by reason of its failure or refusal
to indemnify Indemnitee as a result of the application of such law or public
policy.
10. DIRECTORS' AND OFFICERS' LIABILITY INSURANCE. The Company shall use
its best efforts to obtain and maintain in effect during the entire period for
which the Company is obligated to indemnify Indemnitee under this Agreement, one
or more policies of insurance with reputable insurance companies to provide
Indemnitee and other similarly situated officers, Directors, employees and
agents of the Company with coverage for losses from wrongful acts and omissions
and to ensure the Company's performance of its indemnification obligations under
this Agreement. In all policies of Directors' and officers' liability insurance,
Indemnitee shall be named as an insured in such a manner as to provide
Indemnitee with the same rights and benefits as are accorded to the most
favorably insured of the Company's Directors, if Indemnitee is a Director, or of
the Company's officers, if Indemnitee is not a Director but is an officer, or of
the Company's key employees, if Indemnitee is not an officer or Director but is
an employee. Notwithstanding the foregoing, the Company shall have no obligation
to obtain or maintain such insurance if the Company determines in good faith
that such insurance is not reasonably available, if the premium costs for such
insurance are disproportionate to the amount of coverage provided, if the
coverage provided by such insurance is limited by exclusions so as to provide an
insufficient benefit, or if Indemnitee is covered by similar insurance
maintained by a subsidiary or parent of the Company or an Affiliated Enterprise.
11. SETTLEMENT. Neither party shall settle any Proceeding with respect
to which the Company is obligated to indemnify Indemnitee under this Agreement
without the prior written consent of the other party, which consent shall not be
unreasonably withheld; provided that neither party shall be obligated to
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consent to any settlement if as a result of such settlement the party is
obligated to admit culpability for any criminal act.
12. ACTION BY BOARD OF DIRECTORS. Any action taken or determination made
by the Board of Directors under or with respect to this Agreement must be
approved by a majority vote of a quorum of disinterested Directors of the
Company; provided that (if such a quorum is not obtainable or, even if
obtainable, a quorum of disinterested Directors so directs) any such action or
determination may be approved by independent legal counsel duly appointed by the
affirmative vote of a majority of a quorum of disinterested Directors.
13. LIMITATIONS PERIOD. Notwithstanding anything in this Agreement or in
any applicable law to the contrary, any claim or action by or on behalf of the
Company against Indemnitee based on Indemnitee's action or omission in
Indemnitee's capacity as an officer, Director, employee or agent of the Company
must be initiated against Indemnitee within the earlier of (a) three (3) years
after the occurrence of the alleged act or omission and (b) two (2) years after
the discovery by the Company or anyone having the right to maintain the claim or
action on behalf of the Company of the facts constituting the alleged act or
omission. For purposes of this SECTION, (i) a claim or action shall be deemed to
be initiated against Indemnitee on the date on which written notice of such
claim or action (which notice shall specify in reasonable detail the alleged
acts or omissions on which the claim or action is based) is delivered to
Indemnitee by or on behalf of the Company in accordance with the terms of this
Agreement and (ii) the date on which the Company or anyone having the right to
maintain the claim or action on behalf of the Company discovered the facts
constituting the alleged act or omission shall be determined in accordance with
the provisions of SECTION 25506 of the GCL.
14. MISCELLANEOUS PROVISIONS
14.1 SEVERABILITY. Nothing in this Agreement is intended to require
or shall be construed as requiring the Company to take any actions, or to
refrain from taking any actions, in violation of applicable law. The Company's
inability to perform any of its obligations under this Agreement by reason of
any prohibitions or limitations imposed by federal or state law, applicable
public policy, or court order, shall not constitute a breach of this Agreement.
If this Agreement or any portion hereof shall be invalidated on any ground by
any court of competent jurisdiction, then the Company shall nevertheless
indemnify Indemnitee to the fullest extent permitted by any applicable portion
of this Agreement that shall not have been invalidated and the balance of this
Agreement not so invalidated shall be enforceable in accordance with its terms.
If any provision of this Agreement shall be held to be invalid, illegal or
unenforceable for any reason whatsoever, the enforceability of the remaining
provisions of this Agreement shall in no way be affected or impaired thereby.
14.2 EFFECTIVENESS OF AGREEMENT.
(a) This Agreement shall be effective as of the Effective Date,
regardless of the date on which the Agreement is executed, and shall
apply to all Proceedings against or involving Indemnitee that are
threatened or pending as of the Effective Date or are initiated on or
after the Effective Date, regardless of whether the underlying facts
relating to Indemnitee occurred before, on or after the Effective Date.
If this Agreement is first executed after the termination of
Indemnitee's status as an officer, Director, employee or agent of the
Company, it shall be
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effective from the first date on which Indemnitee was an officer,
Director, employee or agent of the Company.
(b) Indemnitee's right to indemnification under this
Agreement shall continue in effect after Indemnitee ceases to be, for
whatever reason, an officer, Director, employee or agent of the Company
and for so long as Indemnitee might be made a party to any Proceeding
described in this Agreement and with respect to which Indemnitee would
or might be entitled to indemnification under this Agreement if
Indemnitee was then an officer, Director, employee or agent of the
Company.
14.3 EMPLOYEE BENEFIT PLANS. For purposes of this Agreement, (a)
references to Affiliated Enterprises shall include employee benefit plans; (b)
references to "fines" shall include any excise taxes assessed on or against
Indemnitee with respect to an employee benefit plan; (c) references to "serving
at the request of the Company" shall include any service as a Director, officer,
employee or agent of the Company 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 (d) the term "ERISA" means
the Employee Retirement Income Security Act of 1974, as amended.
14.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
14.5 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Company and its successors and assigns, and shall inure to the benefit of
Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns.
14.6 ATTORNEYS' FEES. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all costs and expenses, including
reasonable attorneys' fees and expenses, incurred by Indemnitee with respect to
such action, unless as a part of such action, a court of competent jurisdiction
determines that the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement to enforce or
interpret any of the terms of this Agreement, Indemnitee shall be entitled to be
paid all costs and expenses, including reasonable attorneys' fees and expenses,
incurred by Indemnitee in defense of such action (including costs, expenses and
attorneys' fees incurred by Indemnitee with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a part of such
action the court determines that each of Indemnitee's material defenses to such
action were made in bad faith or were frivolous.
14.7 NOTICE. All notices or other written communications required or
permitted to be transmitted to any party under this Agreement shall be
personally delivered to such party or mailed, postage prepaid by registered or
certified mail, or sent by facsimile or other form of electronic transmission
addressed to such party at the address set forth by the party's signature to
this Agreement or such other address as hereafter may be given for purposes of
such notice. Any notice or other written communication sent in accordance with
the foregoing shall conclusively be deemed to have been received at the time of
delivery, if personally delivered, or five (5) business days after the date of
mailing, if mailed, or two (2) business days after transmission if sent by
facsimile or other form of electronic transmission.
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14.8 CHOICE OF LAW. This Agreement shall be governed by and its
provisions construed in accordance with the laws of the State of California as
applied to contracts between California residents entered into and to be
performed entirely within California.
14.9 INTERPRETATION.
(a) Indemnitee has been advised to seek independent legal counsel
with respect to the negotiation, preparation and execution of this
Agreement and the agreements contemplated herein. Therefore, the rule of
construction that an agreement shall be interpreted against the drafting
party shall not apply.
(b) All pronouns and any variation thereof shall be deemed to
refer to the masculine, feminine, or neutral and to the singular or
plural, as the identity of the person or persons may require for proper
interpretation of this Agreement. The words "herein" and "hereunder" and
other words of similar report refer to this Agreement as a whole and not
to any particular Article, section, subsection, paragraph, subparagraph
or other subdivision of this Agreement.
14.10 THIRD PARTY BENEFIT. The parties do not intend to confer any
benefit on any person, firm, corporation, entity or individual other than the
parties to this Agreement by reason, directly or indirectly, of the parties'
execution and delivery of this Agreement, including all Exhibits to this
Agreement, and any related documents, schedules, certificates and opinions.
IN WITNESS WHEREOF, the parties have executed this Indemnification
Agreement as of the date and year first above written.
"COMPANY": "INDEMNITEE":
TRAVELNSTORE.COM, INC.
By:
-------------------------------- -------------------------------------
By:
-------------------------------- ADDRESS OF INDEMNITEE:
ADDRESS OF THE COMPANY: -------------------------------------
TravelnStore.Com, Inc. -------------------------------------
132o Flynn Road, Suite ____
Camarillo, CA 93012 -------------------------------------
Attn: President
Facsimile No. (805)
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