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PROSPECTUS
Filed pursuant to Rule 424(b)(4)
November 22, 1999
Registration No. 333-87161
[LOGO OF GETTHERE.COM APPEARS HERE]
5,000,000 Shares of Common Stock
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GetThere.com, Inc.:
. We are a provider of Internet-based travel procurement and supply services,
primarily for businesses and travel suppliers.
. GetThere.com, Inc.
4045 Campbell Avenue
Menlo Park, California 94025
(650) 752-1500
Symbol & Market:
. GTHR/Nasdaq National Market
The Offering:
. We are offering 5,000,000 shares of our common stock. The underwriters have
reserved 500,000 of these shares to sell to a subsidiary of United Air Lines.
. The underwriters have an option to purchase an additional 750,000 shares from
GetThere.com to cover over-allotments.
. This is our initial public offering. The initial public offering price is
$16.00 per share.
. We plan to use the net proceeds from this offering for working capital, the
purchase of property and equipment and other general corporate purposes.
. Closing: November 29, 1999.
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Per Share Total
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Public offering price: $16.00 $80,000,000
Underwriting fees: 1.12 5,600,000
Proceeds to GetThere.com: 14.88 74,400,000
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This investment involves risk. See "Risk Factors" beginning on Page 6.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
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Donaldson, Lufkin & Jenrette
Salomon Smith Barney
Bear, Stearns & Co. Inc.
WR Hambrecht + Co
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Description of Graphics--Inside Front Cover
At top of page, there is text that reads "Internet-Based Business-to-Business
Travel Procurement and Supply Services."
Underneath the text is the words "GT Exchange"
Underneath those words is a box with text inside that reads:
". Create travel preference profiles
. Access airline, car rental and hotel information and availability
. Access pricing information
. Create and ticket travel reservations
. Access travel-related information such as news, weather and maps
. Collect and analyze travel data."
There are arrows coming out of the box pointing to two screen shots.
At lower left side of page, there is a screen shot of the Nike travel booking
Web site. Immediately below the screen shot, there is text that reads:
"Businesses use ITN Global Manager"
At lower right side of page, there is a screen shot of the United Air Lines
consumer Web site. Immediately below the screen shot, there is text that reads:
"Suppliers use ITN FlightRez"
Framing the page, there is a partial customer list that includes the
following customers: United Air Lines, Travel.com, Cendant, American Express,
Texas Instruments, Chevron, Nike, Nabisco, Trip.com, Credit Suisse First
Boston, Lauda Airlines, PeopleSoft, Airlines.com, Airlines of the Web, Toyota,
Hewlett-Packard, National Airlines, IEEE, PricewaterhouseCoopers, Travelnow,
HP/Verifone, Inteletravel, Lawrence Berkeley Labs, AAA Travel, NationsBank,
Uniglobe, Ambassador Travel, Boeing.
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You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of the
prospectus or any sale of the common stock. In this prospectus, unless the
context indicates otherwise, the Company, GetThere.com, we, us and our refer to
GetThere.com, Inc., a Delaware corporation.
ITN is our registered trademark. GetThere.com, ITN Global Manager, ITN
FlightRez and GT Exchange are our trademarks. This prospectus also contains
trademarks of other companies.
We were incorporated in the State of California as Internet Travel Network on
August 7, 1995 and changed our name to GetThere.com, Inc. on July 16, 1999. Our
principal headquarters are located at 4045 Campbell Ave., Menlo Park,
California 94025, and our telephone number is (650) 752-1500. Information
contained on our Web site is not a part of this prospectus.
Unless otherwise indicated, all information in this prospectus:
. assumes no exercise of the underwriters' option to purchase an
additional 750,000 shares of common stock;
. gives effect to the conversion of all of our outstanding shares of
series A, B, C and E convertible preferred stock into shares of
common stock upon the closing of this offering;
. gives effect to our reincorporation from California to Delaware, to
become effective prior to the completion of this offering; and
. assumes the effectiveness of our amended and restated certificate of
incorporation in the State of Delaware upon the completion of this
offering.
TABLE OF CONTENTS
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Page
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Prospectus Summary....................................................... 1
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 23
Dividend Policy.......................................................... 23
Capitalization........................................................... 24
Dilution................................................................. 25
Selected Financial Data.................................................. 27
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 28
Business................................................................. 42
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Page
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Management................................................................. 54
Relationships and Related Transactions..................................... 66
Principal Stockholders..................................................... 71
Description of Capital Stock............................................... 73
Shares Eligible for Future Sale............................................ 80
Underwriting............................................................... 82
Legal Matters.............................................................. 86
Experts.................................................................... 86
Additional Information..................................................... 86
Index to Financial Statements.............................................. F-1
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PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the common stock being sold in this
offering and our financial statements and the related notes appearing elsewhere
in this prospectus.
In evaluating an investment in our common stock, you should consider the
following risks:
. our business model is evolving;
. we have continuing net losses, including $20.3 million for the six months
ended July 31, 1999 and $15.6 million for the fiscal year ended January
31, 1999, and our operating results fluctuate;
. we will record significant charges associated with the amortization of
stock-based compensation and other securities issuances;
. we face intense competition;
. we depend on United Air Lines;
. we have experienced low adoption rates of our services;
. we depend on our ITN Global Manager and ITN FlightRez services;
. our inability to address customer complaints;
. our dependence on travel service providers;
. we may not be able to integrate our new management team;
. we may not be able to protect our intellectual property rights, and we
may infringe the intellectual property rights of others; and
. we face risks associated with the year 2000 problem.
In addition, you should carefully review the discussion of risk factors on
pages 6 through 22 of this prospectus.
GetThere.com
GetThere.com is a provider of Internet-based travel procurement and supply
services, primarily for businesses and travel suppliers. Our services enable
users to make airline, hotel and car rental reservations and to purchase
airline tickets over the Internet. Our services also provide users with access
to valuable travel information, such as airline, hotel, car rental, news,
weather, maps and pricing information. Through our ITN Global Manager service,
which is sold to businesses, we provide a Web site for each business that
enables its employees to make travel-related reservations and to purchase
airline tickets over the Internet. Through our ITN FlightRez service, which is
sold to travel suppliers such as airlines, we provide a Web site that enables
travel suppliers to sell travel products and services over the Internet. In
addition, we provide Web sites to Internet-based content and electronic
commerce providers and travel agencies that enable them to sell travel products
and services over the Internet. We derive our revenues primarily from
transaction fees and commissions when reservations are made or airline tickets
are purchased using our services.
In 1998, there were approximately 1.4 billion total airline passengers
worldwide as reported by the International Airtransport Association. According
to the American Express 1998 Survey of Business Travel Management, U.S.
businesses in 1998 completed 154 million air travel transactions and U.S.
business expenditures for airline tickets, car rentals and lodging exceeded
$122 billion. Forrester Research estimates that online expenditures for
business travel will grow from $5 billion in 1999 to $38 billion in 2003.
We believe the current market for the procurement and supply of travel-
related goods and services is characterized by numerous inefficiencies that
contribute to higher costs. These inefficiencies are largely the result of the
involvement of multiple intermediaries and limited access by businesses and
travel suppliers to
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valuable travel-related information. Accordingly, businesses may find it more
difficult to negotiate favorable contracts with travel suppliers, monitor
employee compliance with corporate travel policies and direct purchases to
preferred travel suppliers. These inefficiencies may also limit the ability of
travel suppliers to establish personalized relationships with customers,
minimize excess capacity and maximize the effectiveness of customer loyalty
programs, such as frequent flier programs. In addition, the labor intensive
nature of the travel procurement and supply processes decreases productivity
and contributes to higher costs.
Our services are designed to reduce current inefficiencies in the travel
procurement and supply process by decreasing the role of intermediaries, such
as travel agents, by providing customers with valuable travel information and
by enabling the internal procurement and supply processes of our customers to
become quicker and more efficient. ITN Global Manager is designed to enable our
business customers to reduce costs, increase productivity and provide real-time
data analysis and reporting. ITN FlightRez is designed to enable our travel
supplier customers to increase revenue opportunities, reduce sales and
distribution costs, enhance customer service and increase customer loyalty.
Our objective is to be the leading provider of Internet-based procurement and
supply services for travel and other indirect goods and services. Key elements
of our strategy are to:
. expand our customer base;
. increase the rates of adoption of our services by our business customers;
. aggressively pursue other travel markets;
. continue to develop our technology; and
. leverage technology and relationships into markets for other indirect
goods and services.
On September 14, 1999, we entered into an agreement with American Express
Travel Related Services Company, Inc. under which American Express has agreed
to promote and sell our Internet-based travel procurement services to its
customers and potential customers. American Express will promote and market
these services to large, middle market and small businesses. In addition,
commencing January 27, 2000, American Express will exclusively use our services
for the procurement and supply of travel on its consumer Web sites, such as
www.americanexpress.com. We have also agreed to transfer the rights to the
domain names www.itn.net and www.itn.com to American Express. See "Business--
Relationship with American Express."
Since July 31, 1999, we issued:
. an aggregate of 1,875,423 shares of series C convertible preferred stock
at a purchase price of $5.125 per share to American Express, America West
Airlines and Air Canada;
. an aggregate of 5,041,076 shares of series E convertible preferred stock
at a purchase price of $12.50 per share to American Express, United Air
Lines, through its wholly owned subsidiary Covia LLC, America West
Airlines, Air Canada, MeriTech Capital and ITN Joint Venture;
. one share of series D3 convertible preferred stock at a purchase price of
$12.50 to American Express, which entitles American Express to elect one
member to our board of directors;
. a warrant to purchase up to 375,000 shares of common stock at a purchase
price of $16.50 per share to American Express;
. a warrant to purchase up to 1,650,000 shares of our series C convertible
preferred stock at a purchase price of $5.125 per share to Northwest
Airlines;
. warrants to purchase up to an aggregate of 1,136,821 shares of series C
convertible preferred stock at a purchase price of $11.20 per share to
United Air Lines; and
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. warrants to purchase up to an aggregate of 2,160,046 shares of series E
convertible preferred stock to American Express, America West Airlines
and Air Canada. These warrants include:
. a warrant to American Express to purchase 730,023 shares of series E
convertible preferred stock at a purchase price of $21.00 per share;
. a warrant to American Express to purchase 730,023 shares of series E
convertible preferred stock at a purchase price of $31.00 per share;
. a warrant to America West Airlines to purchase 500,000 shares of series
E convertible preferred stock at a purchase price of $12.50 per share;
and
. a warrant to Air Canada to purchase 200,000 shares of series E
convertible preferred stock at a purchase price of $12.50 per share.
. In November 1999, we elected to repurchase from Air Canada 500,000 shares
of series C convertible preferred stock at $5.125 per share and 200,000
shares of series E convertible preferred stock at $12.50 per share. This
right of repurchase became effective when Air Canada and we failed to
enter into a commercial arrangement on acceptable terms by November 15,
1999. Air Canada's warrant to purchase 200,000 shares of series E
convertible preferred stock terminates upon this repurchase in accordance
with its terms.
For a description of these transactions, see "Business--Customers,"
"Business--Relationship with American Express," "Relationships and Related
Transactions" and Note 11 of Notes to Financial Statements.
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The Offering
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Common stock offered by GetThere.com....... 5,000,000 shares
Common stock to be outstanding after the
offering.................................. 31,345,425 shares
Use of proceeds............................ Working capital, purchase of
property and equipment and other
general corporate purposes. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol..... GTHR
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The number of shares to be outstanding after this offering is based on:
. 7,663,730 shares of our common stock outstanding as of July 31, 1999;
. 5,000,000 shares of our common stock to be sold in this offering;
. 11,731,314 shares of our common stock issuable upon conversion of our
series A, B and C convertible preferred stock outstanding as of July
31, 1999;
. 6,216,500 shares of our common stock issuable upon conversion of our
series C and E convertible preferred stock issued after July 31, 1999,
net of shares repurchased in November 1999;
. 163,951 shares of common stock issued after July 31, 1999;
. one share of our series D3 convertible preferred stock;
. conversion of a promissory note of $1.65 million plus accrued interest
into 162,077 shares of our common stock; and
. 407,852 shares of our common stock issuable upon the exercise of
outstanding warrants which would otherwise terminate upon the
completion of this offering.
The number of shares outstanding after this offering excludes:
. 12,491,190 shares of our common stock reserved for issuance under our
1996 stock plan, of which 3,781,810 shares are subject to options
outstanding as of July 31, 1999, with a weighted average exercise
price of $1.33 per share;
. 1,442,825 shares of our common stock subject to options granted after
July 31, 1999, with a weighted average exercise price of $8.94 per
share;
. 7,504,503 shares of our common stock issuable upon exercise of
outstanding warrants, with a weighted average exercise price of $10.57
per share;
. one share each of our authorized series D1 and D2 convertible
preferred stock;
. 5,000,000 shares of our common stock reserved for issuance under our
1999 stock incentive plan;
. 2,500,000 shares of our common stock reserved for issuance under our
1999 employee stock purchase plan; and
. 750,000 shares of our common stock available for issuance under our
1999 directors' stock option plan, of which options to purchase an
aggregate of 250,000 shares of our common stock will be issued upon
the effectiveness of this offering.
See "Capitalization," "Management--Employee Benefit Plans" and Notes 6, 7, 8
and 11 of Notes to Financial Statements.
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Summary Financial Information
The following table summarizes the statement of operations and balance sheet
data for our business. For a more detailed explanation of this financial data,
see "Selected Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our financial statements
located elsewhere in this prospectus. The pro forma data reflects the following
assumptions:
. receipt of approximately $72.6 million in proceeds from the issuance of
our series C and series E convertible preferred stock, of which $9.6
million was raised from the sale of 1,875,423 shares of series C
convertible preferred stock at $5.125 per share and $63.0 million was
raised from the sale of 5,041,077 shares of series E convertible
preferred stock at $12.50 per share;
. repurchase of 500,000 shares of Series C convertible preferred stock and
200,000 shares of Series E convertible preferred stock for an aggregate
purchase price of $5.1 million;
. conversion of all 17,947,814 shares of our series A, B, C and E
convertible preferred stock into 17,947,814 shares of our common stock
upon the completion of this offering, which is a one-for-one conversion
ratio;
. issuance of one share of our series D3 convertible preferred stock;
. conversion of a promissory note of $1.65 million plus accrued interest
into 162,077 shares of our common stock; and
. issuance of 407,852 shares of our common stock upon the exercise of
outstanding warrants which would otherwise terminate upon the completion
of this offering.
In addition, the pro forma as adjusted balance sheet data assumes the sale of
5,000,000 shares of our common stock in this offering at an initial public
offering price of $16.00 per share, after deducting estimated underwriting
discounts, commissions and offering expenses, and the application of the
resulting net proceeds.
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Fiscal Year Ended Six Months Ended
January 31, July 31,
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1997 1998 1999 1998 1999
(unaudited)
(In thousands, except per share data)
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Statement of Operations Data:
Total revenues.................. $ 582 $ 3,001 $ 6,447 $ 2,709 $ 5,598
Gross profit.................... 448 1,321 2,155 1,086 1,625
Loss from operations............ (3,470) (6,328) (15,822) (6,410) (20,195)
Net loss........................ $(3,437) $(6,358) $(15,649) $(6,492) $(20,344)
Net loss per share:
Basic and diluted............. $ (1.22) $ (1.81) $ (4.03) $ (1.73) $ (5.05)
Weighted average shares....... 2,827 3,537 3,957 3,823 4,071
Pro forma net loss per share:
Basic and diluted............. $ (1.05) $ (1.26)
Weighted average shares....... 14,917 16,199
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As of July 31, 1999
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Pro
Pro Forma As
Actual Forma Adjusted
(In thousands, unaudited)
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Balance Sheet Data:
Cash, cash equivalents and short-term investments.. $ 6,541 $74,959 $147,109
Working capital (deficit).......................... (2,203) 66,215 138,365
Total assets....................................... 18,939 87,357 159,507
Long-term obligations, net of current portion...... 7,014 5,364 5,364
Redeemable convertible preferred stock and
warrants.......................................... 33,105 -- --
Total stockholders' equity (deficit)............... (31,380) 71,793 143,943
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RISK FACTORS
You should carefully consider the risks and uncertainties described below
before buying shares in this offering. These risks and uncertainties are not
the only ones facing our company. Additional risks and uncertainties that we
are unaware of or currently deem immaterial may also become important factors
that may harm our business.
Risks Related to Our Business
It is difficult to evaluate our business because our business model is
evolving.
It is difficult to accurately forecast our revenues, and we have limited
meaningful historical financial data on which to plan operating expenses. We
were incorporated on August 7, 1995. Prior to 1996, our business was focused on
providing travel-related services to consumers from our www.itn.net Web site
and other consumer-related Web sites. In 1996, we began focusing on our
services for businesses and travel suppliers. We introduced ITN Global Manager
for businesses in 1996 and ITN FlightRez for travel suppliers in 1997. In
addition, the revenues and income potential of our business and market are
unproven. Changing our focus from the consumer business to providing Internet-
based travel procurement and supply services for businesses and travel
suppliers may not have a positive effect on, or may harm, our business or
operating results. If we are unable to accomplish the following, we may not
become commercially successful:
. grow our base of both business and travel supplier customers;
. increase adoption rates by our existing business customers;
. successfully implement sales and marketing initiatives;
. provide timely and effective customer service and technical support; and
. anticipate and adapt to the evolving online travel services market.
We will devote a significant amount of our resources to satisfy our obligations
under our agreement with American Express.
We recently entered into an agreement with American Express under which
American Express has agreed to promote and sell our Internet-based travel
procurement services to its customers and potential customers. This
relationship is likely to require the use of a significant amount of our
resources, including our management and technical personnel. This devotion of a
significant amount of our resources to this relationship could impair our
ability to develop other aspects of our business, which could seriously harm
our results of operations if we are unable to generate a significant amount of
revenues from our agreement with American Express. In addition, we are required
to reimburse American Express a portion of its fees if we do not deliver a
minimum number of unique users to American Express. American Express Company,
the parent of American Express Travel Related Services, is traded under the
symbol "AXP", and its file number under the Exchange Act of 1934, as amended,
is 001-07657. The information contained in any filings by American Express
Company is not a part of this prospectus. See "Business--Relationship with
American Express."
American Express has developed a travel service with Microsoft that competes
with our ITN Global Manager service.
American Express and Microsoft have developed the AXI travel management
system, which is a service that provides a Web site for businesses that enables
their employees to make travel-related reservations and to purchase airline
tickets over the Internet. This service competes directly with our ITN Global
Manager service. If we are unable to compete effectively with the AXI travel
management system, our business and results of operations would be adversely
affected. Even though we have a business relationship with American Express to
provide Web-based travel services on behalf of American Express, American
Express is not precluded from selling and servicing the AXI travel management
system or from continuing to work with Microsoft.
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We have incurred significant net losses to date and expect to continue to incur
net losses for the foreseeable future.
Since our inception we have incurred significant net losses and negative cash
flow. We expect net losses and negative cash flow to continue for the
foreseeable future, and we may never be profitable. We incurred net losses of
$20.3 million for the six months ended July 31, 1999, $15.6 million for our
fiscal year ended January 31, 1999 and $6.4 million for our fiscal year ended
January 31, 1998. As of July 31, 1999, we had an accumulated deficit of $46.0
million. We anticipate that our losses will increase significantly from current
levels as we continue to increase our operating expenses in each of our
operating expense categories. In addition, we expect the rate at which these
losses will be incurred will increase significantly from current levels,
particularly in the quarter ending October 31, 1999. We expect these additional
costs and expenses to be related to:
. transitioning the use of our www.itn.net Web site to American Express;
. developing and implementing the American Express travel procurement
services for businesses;
. developing Web sites for Northwest Airlines and America West Airlines;
. establishing and integrating our recently acquired call center in Fort
Lauderdale, Florida;
. enhancing our Internet-based travel procurement and supply services;
. continuing to develop our services, computer network and the systems that
we use to process travel-related transactions;
. recruiting and training additional personnel, particularly customer
service, technical support and engineering personnel;
. moving our headquarters to Menlo Park, California;
. establishing an engineering development center in Dallas, Texas;
. developing the GetThere.com brand, as well as other marketing and
promotional activities; and
. developing relationships with strategic business partners.
Unless we generate and sustain substantially higher revenues while
maintaining reasonable expense levels, we will continue to incur significant
net losses. Even if we increase revenues we may experience price competition or
increased expenses which would lower our gross margins or cause us to incur net
losses. Furthermore, if we ever do achieve profitability or reduce our net
losses, we may not sustain this result on a quarterly or annual basis in the
future. See "Selected Financial Data" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Our quarterly operating results may fluctuate in future periods and we may fail
to meet expectations.
We believe that quarter-to-quarter comparisons of our revenues and operating
results are not necessarily meaningful because of quarterly fluctuations, and
that such comparisons may not be accurate indicators of future performance.
Consequently, in future quarters our operating results may fall below the
expectations of investors and, as a result, the price of our common stock may
fall. The operating results of companies in the travel and electronic commerce
industries have in the past experienced significant quarter-to-quarter
fluctuations. We will likely experience similar fluctuations due to a number of
factors, any of which, if not adequately addressed, may adversely affect the
long-term viability of our business. These factors include:
. varying adoption rates of our services;
. the timing and expense of expanding our operations;
. our ability to attract new customers, retain existing customers and
satisfy customer demand;
. the mix of transaction revenues and professional service revenues;
. the mix of transaction revenues from businesses, travel suppliers and
other customers;
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. our ability to achieve market acceptance of new services and upgrades;
. product introductions by us;
. our ability to attract, integrate and retain key personnel;
. changes in our pricing policies;
. our ability to upgrade and develop our systems and infrastructure without
disrupting our operations;
. technical difficulties with our systems or system down time;
. difficulties accessing computer reservation systems or travel suppliers'
systems; and
. costs related to the acquisition of businesses or technologies.
In addition, we expect our quarterly operating results to fluctuate due to
factors beyond our control, including:
. unforeseen events affecting the travel or electronic commerce industries;
. product introductions by our competitors;
. changes in the rate of Internet usage and electronic commerce;
. changes in inventory availability from suppliers or commission rates paid
by travel suppliers; and
. changes in the pricing policies of our competitors.
We currently expect that a majority of our revenues for the foreseeable
future will come from fees paid to us by our customers who have implemented our
ITN Global Manager and ITN FlightRez services and from commissions earned from
travel suppliers. The volume and timing of these fees and commissions are
difficult to predict because the market for our services in its infancy. As
with other companies in our industry, our operating expenses, which include
sales and marketing, research and development and general and administrative
expenses, are based on our expectations of future revenues and are relatively
fixed in the short term. As a result, a delay in generating or recognizing
revenue for any reason could cause significant variations in our operating
results from quarter to quarter and could result in greater than expected
operating losses.
In addition, we will incur significant costs related to the move of our
corporate headquarters from Palo Alto, California to Menlo Park, California,
which we accomplished in the fall of 1999. As a result, we expect our net
losses to be significantly higher for the quarter ending October 31, 1999 and
the quarter ending January 31, 2000.
Our recent acquisition of a call center will cause our gross margins to
decrease.
As a result of the acquisition of a call center in Fort Lauderdale, Florida
in July 1999 and the start-up costs associated with integrating this call
center, we expect our gross margins to decrease in the quarter ending October
31, 1999 and in subsequent quarters. Fluctuations in our operating results due
to these decreased margins will make period-to-period comparisons of our
operating results less meaningful and could cause fluctuations in our stock
price.
Our business is subject to seasonal fluctuations.
We have experienced and expect to continue to experience seasonality in our
business, reflecting seasonal fluctuations in the travel industry, Internet
usage and advertising expenditures. This seasonality will cause quarterly
fluctuations in our operating results and could significantly harm our business
and operating results. Business travel bookings typically decline during the
fourth quarter of each calendar year due to decreased business travel during
the holiday season. Consumer travel bookings typically increase during the
second quarter of each calendar year in anticipation of summer travel. Internet
usage and the rate of such usage
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typically decline during the summer. In addition, advertising sales in
traditional media, such as broadcast and cable television, generally decline in
the first and third quarters of each year. Depending on the extent to which the
Internet is accepted as an advertising medium, seasonality in the level of
advertising expenditures could become more pronounced for Internet-based
advertising.
The price per share of our stock in a previous offering was lower than the
initial public offering price.
In August and September of 1999, we sold in a private placement 1,875,423
shares of our series C preferred stock at a price of $5.125 per share and
5,041,076 shares of our series E preferred stock at a price of $12.50 per
share. Investors who purchased these shares in the private placement obtained
our stock at a lower price than will be available in this public offering.
Our results of operations will be harmed by charges associated with our payment
of stock-based compensation and charges associated with other securities
issuances by us.
We expect to incur a significant amount of amortization in future periods,
which will negatively effect our operating results. We expect to amortize
approximately $6.3 million of stock-based compensation for the quarter ending
October 31, 1999 and may incur additional amortizable charges in the future in
connection with grants of stock-based compensation at below market value. In
addition, in August and September 1999, we sold an aggregate of 1,875,423
shares of series C convertible preferred stock at a purchase price of $5.125
per share, of which 500,000 shares were repurchased in November 1999. We expect
to record a charge in an amount equal to the difference between the fair value
of the series C convertible preferred stock and the amount paid for the stock.
In August and September 1999, we issued a warrant to purchase an aggregate of
375,000 shares of common stock, a warrant to purchase an aggregate of 1,136,821
shares of series C convertible preferred stock and warrants to purchase an
aggregate of 2,160,046 shares of series E convertible preferred stock, of which
a warrant to purchase 200,000 shares of Series E convertible preferred stock
terminated in connection with the repurchase of Series C and E convertible
preferred stock in November 1999. As a result of issuing these warrants in
connection with the sale of our preferred stock, our earnings per share will be
adversely affected until the closing of this offering. See Note 11 of Notes to
Financial Statements.
In addition, in August 1999, we issued a warrant to purchase up to 1,650,000
shares of our series C convertible preferred stock to Northwest Airlines at an
exercise price of $5.125 per share. The exercise of this warrant is subject to
the implementation of our services on Northwest Airlines' primary Web site,
www.nwa.com prior to August 27, 2001. We will record an expense for the
Northwest Airlines warrant to the extent the exercise price is lower than the
market value of our common stock if and when the specified conditions are
achieved. We cannot currently quantify the amount of this expense, however,
based on the initial public offering price of $16.00, the fair value of this
warrant is approximately $21.0 million. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Our long and variable sales cycle depends upon factors outside our control and
could cause us to expend significant time and resources prior to earning
associated revenues.
The typical sales cycle of our services is long and unpredictable, requires
pre-purchase evaluation by a significant number of employees in our customers'
organizations and involves a significant investment decision by our customers.
These lengthy sales cycles will have a negative impact on the timing of our
revenues, especially our realization of transaction revenues, and may cause our
revenues and operating results to vary significantly from period to period. Our
sales cycle is affected by the business conditions and budgetary cycles of each
prospective customer. Many of our potential customers are large enterprises
that generally take longer to make significant purchases. Moreover, a purchase
decision by a potential customer typically requires the approval of several
senior decision makers. Our sales cycle for our larger business customers and
travel suppliers is generally between six and nine months, although it has on
occasion lasted significantly longer.
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Many of our customers test the technical fit of our services prior to
entering into a full services contract with us by undertaking a pilot program.
Some of our pilot programs have taken over a year to complete and require us to
commit significant resources with no certainty that a sale will result.
We have not yet reached a definitive agreement regarding providing our
services for Northwest Airlines' primary Web site, www.nwa.com. We may not
reach a definitive agreement with Northwest Airlines or successfully implement
our services on its www.nwa.com Web site or America West Airlines' Web site.
Because implementation of our travel procurement and supply services is time
consuming, there may be significant delays between the sale and deployment of
our services.
The implementation and deployment of our services require a significant
commitment of resources by us and by our customers. Any delays may have a
negative impact on our recognition of revenues, especially our recognition of
transaction revenues, and could significantly harm our business and operating
results. Prior to full implementation, most of our customers undertake a
lengthy process to integrate our services into their systems. The timing of
deployment depends upon the:
. complexity of our customers' current systems and intended application and
the required implementation and customization efforts;
. technical and engineering capabilities of our customers;
. resources that our customers are willing to dedicate to implement travel
procurement or supply services;
. budgetary constraints of our customers;
. availability of our development, training and support organizations to
provide technical support to our customers; and
. decision by some customers to implement a pilot program prior to full
deployment of our services.
Because of the number of factors influencing the integration and deployment
processes, we expect that the period between selling our services and the time
our customers deploy applications based on our services will vary widely. We
have experienced and expect to continue to experience delays in the deployment
of our services.
The market for Internet-based travel procurement and supply services is highly
competitive and we may not be able to compete effectively.
The market for Internet-based travel procurement and supply services is new,
highly competitive and rapidly evolving, and we expect competition to intensify
in the future. Our failure to compete effectively would harm our business and
operating results. Increased competition is likely to result in price
reductions, reduced gross profits and loss of market share, any of which could
harm our revenues and operating results. We currently, or potentially may,
compete with a variety of companies. Our primary competition currently comes
from or is anticipated to come from companies in the following categories:
. providers of online travel products and services to businesses, such as
Sabre BTS, Oracle Corporation's eTravel, XTRA On Line, American Express
AXI and Microsoft;
. other online providers of indirect goods and services such as Ariba and
Commerce One; and
. traditional travel service providers, including travel agencies.
In addition, we compete with consumer Web sites, such as Microsoft's Expedia
and Sabre's Travelocity, which recently announced the acquisition of Preview
Travel.
Some of our competitors and potential competitors have longer operating
histories and significantly greater financial resources and name recognition
than we do. In addition, many of these companies have more
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technical, marketing and sales personnel and more established customer support
and professional services organizations than we do. They may also enter into
strategic or commercial relationships with larger, more established and well-
financed companies.
Furthermore, as new participants enter the online travel procurement and
supply market, we will face increased competition. Potential competitors, such
as online providers of indirect goods and services, may incorporate online
travel-related services into their existing product offerings. It is also
possible that new competitors or alliances among our competitors may emerge and
rapidly acquire significant market share. Our competitors may be able to
respond more quickly to new or emerging technologies and changes in customer
requirements than we can, which could cause our services to become obsolete.
See "Business--Competition."
We rely on United Air Lines for a significant portion of our transaction
revenues, and the termination of this relationship would adversely affect our
business.
United Air Lines, one of our principal stockholders, has been our primary
travel supplier customer since November 1997. Any disruption of our
relationship with United Air Lines could leave us with excess overhead, as well
as with a loss of significant revenue, either of which would significantly harm
our business and operating results as well as our reputation for providing
services to travel suppliers. In fiscal 1999 and for the six months ended July
31, 1999, we derived $1.5 million and $1.9 million directly and zero and
$319,000 indirectly from United Air Lines, accounting for an aggregate of 24.8%
and 39.5% of our total revenues. During these periods, United Air Lines has
also accounted for substantially all of our revenues from our travel supplier
customers. We expect that in the near term the percentage of our revenues
derived from United Air Lines will increase. Our services agreement with United
Air Lines can be terminated by us or United Air Lines for any reason by
providing the other party with notice 180 days prior to termination. In
addition, as our primary customer, we dedicate a significant amount of our
resources to United Air Lines. The public filings of UAL Corporation, the
parent of United Air Lines, can be found at www.sec.gov. UAL Corporation is
traded under the symbol "UAL", and its file number under the Exchange Act of
1934, as amended, is 001-06033. The information contained in any filings by UAL
Corporation is not a part of this prospectus. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Relationships
and Related Transactions."
We may not be able to significantly increase the use of our services after our
services have been implemented by our customers.
If the use of our services does not increase significantly, we may not be
able to achieve or sustain growth in our business. Employees of our business
customers and patrons of our travel supplier customers and other customers have
been slow to increase the use of our services after implementation. The
adoption of our services is largely outside of our control and primarily
dependent on our customers' efforts and ability to promote the use of our
services. Furthermore, any failure to increase the use of our services would
limit our ability to increase revenues from customers, which would
significantly harm our business and operating results.
Two of our recent advertisements contain statements that may not be accurate.
We have run an advertisement as recently as September 27, 1999 that states
that we process more Internet-based business to business travel transactions
than anyone. We have not substantiated the statements in the advertisement. As
a result, this claim may not have been accurate when originally released, and,
if it were accurate at that time, it may no longer be accurate. If this
statement is no longer accurate, it could indicate a loss of market share,
which could significantly harm our business and operating results. In addition,
another of our advertisements states that businesses can achieve adoption rates
of 50% to 61% by using our services. This claim is based on the experience of
only one of our customers and not of our other customers, which have
experienced much lower rates.
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We have limited experience with widespread deployment of our travel procurement
and supply services.
If we cannot support large-scale deployments, our business and operating
results will be significantly harmed. Only a limited number of our customers
have deployed ITN Global Manager and ITN FlightRez on a large scale. Our
primary source of revenue is expected to come from transaction fees derived
from the use of ITN Global Manager and ITN FlightRez; therefore, our ability to
support large numbers of transactions is critical to our success. Our ability
to provide effective and timely support for our services depends on our ability
to:
. attract, train, integrate and retain sufficient engineering personnel;
. establish effective customer support and technical organizations;
. enhance our systems and technology to add functionality and scalability;
. provide sufficient training to our customers, including training on
systems usage and Web site configuration;
. test and document the performance of our systems;
. provide adequate data storage; and
. efficiently integrate our technology with the systems of our customers.
In addition, our customers require ITN Global Manager and ITN FlightRez to be
highly scalable. We must be able to rapidly accommodate a large increase in the
number of users. If we are unable to achieve this level of scalability in a
timely manner, our business and operating results could be significantly
harmed.
We have experienced significant growth in our business in recent periods, and
failure to manage our growth could strain our management and other resources.
We may fail to successfully offer our services and develop new customer
relationships, which could significantly harm our business and operating
results. In addition, we are integrating the operations of our recently
acquired call center in Fort Lauderdale, Florida, moving our headquarters from
Palo Alto, California to Menlo Park, California and planning to establish an
engineering development facility in Dallas, Texas. These efforts will be
expensive and will put a significant strain on our management and other
resources. We continue to increase the scope of our operations and grow our
headcount substantially. At January 31, 1998, we had a total of 74 employees,
and at October 15, 1999, we had a total of 271 employees. We expect to hire a
significant number of new employees in the near future. This growth has placed,
and our anticipated future operations will continue to place, a significant
strain on our management, systems and resources and on our internal training
capabilities. If we fail to effectively manage our growth, our business and
operating results will be significantly harmed.
We may not be able to develop the necessary infrastructure or hire the required
personnel to manage our growth, which could result in the disruption of our
operations.
To manage future growth effectively, we must maintain and enhance our
financial and accounting systems and controls, manage expanded operations and
attract, train, integrate and retain key employees, including those in our
engineering, operations and executive management organizations. These key
employees include Gadi Maier, our president and chief executive officer,
Kenneth R. Pelowski, our chief financial officer and chief operating officer,
Eric Sirkin, our vice president of engineering, and Daniel Whaley, our chief
technical officer. We currently have a relatively small professional services
and customer support organization. We will need to increase our customer
service and support staff to serve new customers and the expanding needs of our
existing customers. However, hiring qualified professional services and
customer support personnel, as well as sales, marketing, administrative and
research and development personnel, is very competitive in our industry,
particularly in the San Francisco Bay Area, where we are headquartered, due to
the high demand for people with
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the necessary technical skills and understanding of the Internet. We expect to
face greater difficulty attracting these personnel with equity incentives as a
public company than we did as a privately held company. We may not be able to
attract, integrate, assimilate or retain highly qualified personnel in the
future. Our business will not continue to grow and could be significantly
harmed if we are unable to attract qualified personnel.
Our operating results are substantially dependent on the success of ITN Global
Manager and ITN FlightRez, and a reduction in sales or our inability to
significantly increase sales of our services, including sales of our ITN Global
Manager and ITN FlightRez, would significantly harm our business.
We expect to derive a substantial portion of our revenues from ITN Global
Manager and ITN FlightRez, and we have not yet generated any profits from sales
of these services. If we are unable to generate significant revenues from
either ITN Global Manager or ITN FlightRez, or if we are unable to generate
profits from these services, our business and operating results would be
significantly harmed. In the six months ended July 31, 1999 and in the fiscal
year ended January 31, 1999, ITN Global Manager and ITN FlightRez collectively
accounted for 54.8% and 45.7% of our total revenues, and we expect this
dependence to remain the same or increase in the future. We need to
significantly increase sales of our services, including sales of ITN Global
Manager and ITN FlightRez. Our services may not successfully compete with those
of our competitors, and we may not be able to enhance our services or develop
new services to meet customer needs. In addition, we have in the past offered
equity rights to potential customers in connection with the sale of our
services. In the future, we expect to decrease offering equity rights to these
potential customers which may make sales of our services more difficult.
Furthermore, businesses and travel suppliers may choose to develop their own
Internet-based travel services.
We have received a high level of complaints regarding our traveler support
services.
Any failure to improve the support we provide to travelers could
significantly harm our business and operating results. Travelers and customers
seeking telephone customer support from us have experienced delays before being
connected to our traveler support staff. In addition, our traveler support
staff has not always been able to answer travelers' questions. This problem has
become more pronounced due to the increasing complexity of travel services
provided, such as the integration of affinity programs. As a result, we have
received an increased number of complaints regarding our traveler support
services. We recently purchased an additional call center in Fort Lauderdale,
Florida, but this call center may not be fully operational until the end of
1999. The operations of this call center may not be integrated into our
business in a timely or effective manner. Our two call centers may not
sufficiently handle future growth. Furthermore, unless our traveler support
staff is adequately trained to effectively respond to travelers' questions,
travelers may continue to experience frustration with our traveler support,
which could lead to a loss of business.
We rely on suppliers of travel services and products for our revenues, and
these suppliers are not obligated to use our services or pay us commissions.
We are dependent on airlines, hotels, car rental companies and other
providers of travel services in order to offer our business customers access to
travel products and services. If these travel suppliers restrict our access to
their products and services or otherwise make our services unnecessary or less
attractive to travelers, we would experience significant harm to our business
and operating results. None of these suppliers are obligated to sell their
products or services through us. Some travel service providers may decide not
to sell their services online or through our services. Some travel service
providers have initiated direct online distribution channels and, in some
cases, have offered reduced rates directly to major business customers.
Revenues derived from some of our customers are dependent on the commissions
customarily paid by travel suppliers for purchases made through our travel
procurement services. These travel suppliers are not obligated to pay any
specified commissions or to pay commissions at all. As a result, travel
suppliers may reduce current commission rates or eliminate such commissions
entirely, which could significantly harm our business and operating results.
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Our travel procurement services depend on our ability to access computer
reservation systems.
Our travel procurement services are limited to those travel suppliers whose
services and products are available through the computer reservation systems we
access. These travel suppliers may not continue to sell services or products
through the computer reservation systems to which we have access. In addition,
we may not be able to extend our existing relationships to a wider array of
travel services or maintain or establish new relationships with computer
reservation systems. Our failure to do so would significantly harm our business
and operating results.
Of the Web sites we provide services to, approximately 66% use the Galileo
International computer reservation system. If our agreement to use the Galileo
International system were terminated, we would be unable to process travel
transactions for a significant number of our customers. Our agreement with
Galileo terminates on June 30, 2001, although either party to the agreement may
terminate the agreement if the other party becomes insolvent or ceases or
suspends its operations, or if the other party fails to perform its obligations
under the agreement and this failure continues for a period of 30 business
days. In addition, we currently do not have a direct connection with the Sabre
computer reservation system. Companies seeking to use our services through the
Sabre computer reservation system need to provide their own connection to
Sabre. As a result, companies using Sabre may find our services less
attractive.
A decline in the travel industry will significantly harm our business.
Our business and future growth are dependent on the travel industry. We
currently derive substantially all of our revenues from our Internet-based
travel procurement and supply services. Any decline in the travel industry
would significantly harm our business and operating results. The travel
industry is sensitive to changes in economic conditions and tends to decline
during general economic downturns and recessions. The travel industry is also
highly susceptible to events beyond our control, such as fuel price escalation,
travel related accidents, extreme weather conditions, labor disputes, terrorist
activities, the outbreak or threat of military hostilities and other adverse
occurrences.
Our strategy to provide our services in the market for Internet-based
procurement and supply of indirect goods and services is unproven and may fail.
One of our strategies is to apply our existing expertise in the travel market
to provide services for the Internet-based procurement and supply of other
indirect goods and services. For example, we may provide Web sites through
which companies, such as telecommunications and information technology
companies, can supply their goods and services. The pursuit of this strategy
may cause us to expend significant time and resources on the development of new
services. However, this strategy may not be successful. If we are unsuccessful,
we may not be able to recover the costs and expenses associated with developing
and implementing this strategy. In addition, the time and attention of our
management will have been diverted. Consequently, our business and operating
results may be significantly harmed.
In addition, the markets for Internet-based procurement and supply of
indirect goods and services are extremely competitive. When and if we enter
markets for the Internet-based procurement and supply of indirect goods and
services other than travel, we may not be able to compete successfully. Several
companies have been competing in the Internet-based procurement and supply of
indirect goods and services markets for the past several years and consequently
have a larger customer base than we do. We may not be successful in selling our
services to their existing customers or competing for future customers. We
expect that competition in these markets will intensify as current competitors
expand their product offerings and new competitors enter these markets. Because
there are relatively low barriers to entry in the electronic commerce market,
competition from other established and emerging companies may develop in the
future.
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Our strategy to expand internationally may not succeed and makes us much more
susceptible to risks from international operations.
We intend to increase our international sales capabilities and operational
presence. However, we may not successfully increase our international sales
capabilities and operations. Our international business activities are subject
to a variety of risks, including:
. reduced intellectual property protection in some countries could allow
others using our technology to compete against us or otherwise
misappropriating our intellectual property;
. the incurrence of significant penalties if we do not comply with a wide
variety of complex foreign laws and treaties;
. difficulty in integrating international operations with existing
operations;
. difficulty in staffing and managing international operations;
. the loss of revenues and asset values resulting from currency
fluctuations;
. higher costs due to licenses, tariffs and other trade barriers;
. longer sales and payment cycles and greater difficulties in collecting
accounts receivable; and
. interruptions in our operations due to political and economic
instability.
The expansion of our international sales capability and operations, will
require significant capital and other resources, may divert the attention of
our management and will further expose us to these risks. To date, we have not
adopted a hedging program to protect us from risks associated with currency
fluctuations. To the extent that we are unable to successfully expand
internationally or manage the expansion of our business into international
markets, our business and operating results could be harmed.
Our executive officers and certain key personnel are critical to our business,
and many of these officers and key personnel have only recently joined us and
may not remain with us in the future.
The loss of one or more of our executive officers or other key personnel
could significantly harm our business and operating results. Any of our
officers or key personnel can quit at any time, and we cannot prevent them from
joining our competitors or otherwise competing with us. If we are unable to
retain or integrate any key personnel, or if any key personnel join a
competitor or otherwise compete with us, our business and operating results
could be significantly harmed. Our future success depends on the continued
services and performance of our senior management and other key personnel,
particularly Gadi Maier, our president and chief executive officer, and Ken
Pelowski, our chief operating officer and chief financial officer. Almost all
of our senior management joined us recently, including Mr. Maier, who joined us
in December 1998, and Mr. Pelowski, who joined us in April 1999. In addition,
between December 1998 and May 1999, we hired our vice presidents of
engineering, human resources, sales and services. In November 1999, we promoted
one of our employees to vice president of marketing. Because our management
team has only worked together for a short period of time, we do not know if our
managers will effectively integrate into our operations or work well together.
We do not have "key person" life insurance policies covering any of our
employees. See "Management."
We rely on Exodus Communications to host and maintain our systems.
We rely on Exodus Communications to provide us with and maintain the
facilities, power and climate control necessary to operate our computer
hardware and software. If Exodus Communications fails to adequately host or
maintain our systems, our services could be disrupted and our business and
operating results could be significantly harmed. Exodus Communications
currently provides these hosting and maintenance services for our computer
hardware used to process travel-related transactions. Our agreement with Exodus
Communications has a term of six months and is automatically renewable for
additional six month terms. This agreement may be terminated by either party
upon 60 days' notice to the other party.
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We incorporate software licensed from third parties and any defects or
significant interruption in the availability of these products could harm our
business.
We rely on third-party software for the development of our products and
services. For example, we use Netscape Enterprise Server to configure
presentation layers of each unique Web site, and our platforms are based on
commercially-supported versions of the UNIX operating system. Some of the
software we license from third parties would be difficult to replace. This
software may not continue to be available on commercially reasonable terms or
at all. The loss or inability to maintain any of these technology licenses
could result in delays in the sale of our services until equivalent technology,
if available, is identified, licensed and integrated. Such delays could harm
our business. We may not be able to replace the functionality provided by
third-party software currently offered with our services if that software is
found to be obsolete, defective or incompatible with future versions of our
services or if that software is discontinued or upgraded in such a way that it
becomes incompatible with our services. In addition, if this third-party
software is not adequately maintained or updated it may become incompatible
with our current services. The absence of, or any significant delay in, the
replacement of third-party software could result in delayed or lost sales and
increased costs and could harm our business and operating results.
We may not be able to develop services that contain the features and
functionality our customers demand.
If we fail to accurately determine the features and functionality that our
customers require and enhance our existing services or develop new services,
our current and potential customers will not buy them. Any failure to develop
services that contain the features and functionality our customers demand could
harm our business and operating results. To date, we have designed our services
based in large part on feedback from a limited number of current and potential
customers. Therefore, the features and functionality of our services may not
adequately satisfy future customer demands. Some of our customers may also
require us to develop customized features or capabilities, which would increase
our costs and consume our limited resources. In addition, we may not be able to
develop customized features in a cost-effective manner.
If we do not respond to rapid technological changes by introducing new
services, our services could become obsolete and our business would be
seriously harmed.
The development of our services entails significant technical, financial and
business risks. We may not be able to successfully implement new technologies
or adapt our services to customer requirements or emerging industry standards.
The Internet and electronic commerce are characterized by:
. rapid technological change;
. changes in user and customer requirements and preferences;
. frequent new product and service introductions embodying new
technologies; and
. the emergence of new industry standards and practices.
Any of these factors could render our services obsolete.
If we fail to modify or improve our services in response to evolving industry
standards, our services could rapidly become obsolete, which would harm our
business and operating results. Uncertainties related to the timing and nature
of new product announcements, introductions or modifications by vendors of
operating systems, applications software and Internet browsers could harm our
business and operating results.
If the protection of our trademarks and other proprietary rights is inadequate,
our business could be harmed.
Our means of protecting our proprietary rights may not be adequate. We rely
on trademark and copyright law, trade secret protection and confidentiality or
license agreements with our employees, customers, partners
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and others to protect our proprietary rights. These legal protections afford
only limited protection for our trade secrets and other intellectual property.
In addition, effective patent, trademark, service mark, copyright and trade
secret protection may not be available in every country in which we offer our
services. Unauthorized parties may attempt to copy or otherwise obtain and use
our services or technology and our competitors could independently develop
similar technology.
We have filed applications for United States trademark registrations for,
among other trademarks, "GetThere," "ITN Global Manager" and "ITN FlightRez."
We may not be able to secure these registrations. It is also possible that our
competitors or others will adopt service names similar to ours, thereby
impeding our ability to build brand identity and possibly leading to customer
confusion. Furthermore, the relationship between regulations governing domain
names and laws protecting trademarks and similar proprietary rights is unclear.
Therefore, we may be unable to prevent third parties from acquiring domain
names that are similar to, infringe upon or otherwise decrease the value of our
trademarks and other proprietary rights.
Policing unauthorized use of our intellectual property is difficult, and we
cannot be certain that the steps we have taken will prevent misappropriation of
our technology. Furthermore, litigation may be necessary in the future to
enforce our intellectual property rights, to protect our trade secrets and
domain names and to determine the validity and scope of the proprietary rights
of others. If third parties prepare and file applications in the United States
that claim trademarks used or registered by us, we may oppose those
applications and be required to participate in proceedings before the United
States Patent and Trademark Office to determine priority of rights to the
trademarks, which could result in substantial costs to us. Any litigation,
arbitration or priority proceeding to protect our trademarks and other
proprietary rights, even if not adverse, could result in substantial costs,
diversion of development resources and diversion of technical and management
personnel and could significantly harm our business and operating results.
Our business may be harmed if we are found to infringe proprietary rights of
others.
Third parties may claim infringement by us with respect to past, current or
future proprietary rights. We expect that participants in our industry will be
increasingly subject to infringement claims as the number of services and
competitors in our industry segment grows. Any such claim, whether meritorious
or not, could be time-consuming, result in costly litigation or arbitration and
diversion of technical and management personnel or require us to develop non-
infringing technology or to enter into royalty or licensing agreements. Such
royalty or licensing agreements, if required, may not be available on terms
acceptable to us, or at all, and could significantly harm our business and
operating results.
We may be subject to potential trade name or trademark infringement claims
brought by owners of other registered trademarks or trademarks that incorporate
variations of the terms GetThere, ITN Global Manager, ITN FlightRez or GT
Exchange. Any claims or customer confusion related to our trademarks, or our
failure to obtain trademark registration, would harm our business. We are aware
of a pending trademark application in the European Union filed by a company for
the mark GETTHERE!. We have discussed the rights related to this mark with this
company, but we have not resolved this matter. If it is determined that this
mark is validly held by this company, we may be unable to use the mark in the
European Union, which could significantly harm our ability to expand our brand
awareness and business operations in the European Union. We also use, and our
customers use, trade names, trademarks and other similar intellectual property
of travel suppliers on Web sites supported or hosted by us. This use may result
in claims of infringement or misuse brought by the owners of this intellectual
property. Any claims or disputes of this type may also damage the relationships
we have with travel suppliers and preclude us from using travel supplier trade
names and other intellectual property, either of which could significantly harm
our business and operating results.
If we engage in acquisitions, we will incur a variety of costs, and the
anticipated benefits of the acquisition may never be realized.
We have acquired and may in the future attempt to acquire businesses,
technologies, services or products that we believe are a strategic fit with our
business. No material acquisition is currently being pursued. The
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process of integrating an acquired business, technology, service or product may
result in unforeseen operating difficulties and expenditures and may divert
significant management attention from the ongoing development of our business,
which could impair our relationships with our current employees, customers and
strategic partners. Moreover, we may be unable to maintain uniform standards,
controls, procedures and policies in connection with any acquisition, and we
may fail to realize the anticipated benefits of any acquisition. Future
acquisitions could result in potentially dilutive issuances of equity
securities, the incurrence of debt, contingent liabilities and amortization
expenses related to goodwill and other intangible assets, any of which could
significantly harm our business and operating results.
In addition, recent proposed changes in the Financial Accounting Standards
Board rules for merger accounting may affect our ability to make acquisitions
and harm our business results if we complete any acquisitions. For example,
elimination of the "pooling" method of accounting for mergers could increase
the amount of goodwill that we would be required to record if we merge with
another company, which would significantly harm our future operating results.
Furthermore, accounting rule changes that reduce the availability of write-offs
for in-process research and development costs in connection with an acquisition
could result in the capitalization and amortization of such costs and
negatively impact our operating results in future periods.
Year 2000 issues present technological risks, could cause disruptions to our
business and could harm our sales.
We may experience negative consequences from year 2000 problems, including
material costs caused by undetected errors or defects in the technology used in
our internal systems. Many currently installed computer systems and software
products are coded to accept only two digit entries in the date code field.
Beginning in the year 2000, these code fields will need to accept four digit
entries to distinguish the year 2000 and 21st century dates from other 20th
century dates. If we fail to adequately address year 2000 issues, or third
parties that maintain our systems, such as Exodus Communications, fail to
adequately address year 2000 issues, we may be unable to provide services to
our customers, which would be similar to experiencing a general Internet
failure. Moreover, if our competitors do not experience similar year 2000
problems, we will be at a relative competitive disadvantage. This competitive
disadvantage could result in:
. delay or loss of revenues;
. cancellation of customer contracts;
. diversion of development resources;
. diversion of technical and management personnel;
. damage to our reputation;
. increased service and warranty costs; and
. litigation costs.
Our internal systems, including those used to deliver our services, utilize
third-party hardware and software which may contain year 2000 problems. In
addition, the external systems on which we rely, such as computer reservation
systems, may not be year 2000 compliant, which may significantly harm our
business and operating results. If we discover that any of our systems need
modification, or any of our third-party hardware and software is not year 2000
compliant, we will try to make modifications to our systems on a timely basis.
We cannot assure you that we will be able to modify these products, services
and systems in a timely, cost-effective or successful manner, and the failure
to do so could significantly harm our business and operating results. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Readiness."
Software defects could impair our ability to provide our services to our
customers.
Complex proprietary technology like ours frequently contain defects or errors
that may be detected only when the technology is in use. Further, we often
render implementation, consulting and other technical
18
<PAGE>
services, which typically involve working with sophisticated software,
computing and networking systems. From time to time, we experience software
bugs which disrupt our operations. We could fail to meet project milestones in
a timely manner or meet customer expectations as a result of any defects or
errors. Any defect or failure to meet project milestones for services could
result in loss of or delay in revenues, loss of market share, failure to
achieve market acceptance, diversion of development resources, harm to our
reputation, increased insurance costs or increased service and warranty costs.
To address these problems, we may need to expend significant capital and
resources that may not have been budgeted, and such problems may divert
technical and management personnel, which could significantly harm our business
and operating results.
Online security failures could harm our business and operating results.
The secure transmission of confidential information over the Internet is a
significant risk to electronic commerce, and any failure by us to provide
effective security would lead to a loss of customers. Advances in computer
capabilities, new discoveries in security technology, breakdowns in our
security technology or other events or developments may result in a compromise
or breach of the algorithms we use to protect customer and transaction data.
Our servers are vulnerable to such security breaches, which could lead to
interruptions in our business, delays in access to our services, loss of data
or the inability to accept and confirm customer reservations. A third party
that is able to circumvent our security systems could steal customer data or
other confidential or proprietary information or cause interruptions in our
operations or those of our customers, thus causing damage to our reputation and
loss of customers. Security breaches could also expose us to a risk of loss or
litigation and possible liability for failing to secure confidential or
proprietary customer information. Our insurance coverage may not be adequate to
reimburse us for losses caused by security breaches, and our security measures
may not prevent security breaches. As a result, we may be required to expend a
significant amount of financial and other resources to protect against security
breaches or to alleviate any problems that they may cause. These issues may
divert technical and management personnel. Security concerns and security
breaches of our services, as well as the products and services of others, could
significantly harm our business and operating results.
Our systems are subject to external events that may impact our ability to
conduct our business operations.
Currently, some of our systems are located in leased facilities in Palo Alto,
California and some are hosted by Exodus Communications in Santa Clara,
California and Sterling, Virginia. Our systems and operations are vulnerable to
damage or interruption from fire, flood, power loss, telecommunications
failure, break-in, earthquake and similar events. Palo Alto and Santa Clara are
located on a primary fault line. We currently do not have a disaster recovery
plan and do not carry sufficient business interruption insurance to compensate
us for losses that may occur.
Product liability claims could harm our business.
Our customers utilize our services for their travel procurement and supply
needs. Any errors, defects or other performance problems could result in
financial or other damages to our customers and prompt them to bring a product
liability claim against us. A product liability claim brought against us, even
if unsuccessful, would likely result in substantial costs and diversion of
resources, management and other personnel and could significantly harm our
business and operating results.
If we experience significant credit card fraud, we will incur increased costs.
If we fail to adequately control fraudulent credit card transactions, our
revenues and results of operations would be harmed because we do not carry
insurance against this risk. Under current credit card practices, we are liable
for fraudulent credit card transactions because we do not obtain a cardholder's
signature.
19
<PAGE>
Our officers, directors and entities affiliated with our officers and directors
will beneficially own approximately 38% of our common stock following the
completion of this offering.
Our executive officers, directors and entities affiliated with our executive
officers and directors will, in the aggregate, beneficially own approximately
38% of our outstanding common stock following the completion of this offering.
If they act together, they will be able to influence matters requiring
stockholder approval, including the election of directors and the approval of
mergers or other business combination transactions. To the extent these
stockholders can prevent the approval of a merger or acquisition, other
stockholders may not be able to recognize a premium on their shares. See
"Principal Stockholders" and "Description of Capital Stock."
United Air Lines and American Express will have significant influence over our
management and business decisions.
Covia, a wholly owned subsidiary of United Air Lines and the beneficial owner
of approximately 28% of our common stock following the completion of this
offering, holds an option to purchase one share each of our series D1 and
series D2 convertible preferred stock which, if exercised, would provide Covia
the right to elect two members to our board of directors. Consequently, Covia
could have significant influence over our management and business decisions.
For a discussion of our relationship with United Air Lines and Covia, see
"Relationships and Related Transactions."
American Express, the beneficial owner of approximately 15% of our common
stock following the completion of this offering, holds one share of our series
D3 convertible preferred stock and has the right to elect one representative to
our board of directors. For a discussion of this right and American Express'
expected representative, see "Management--Executive Officers and Directors."
We are subject to anti-takeover provisions that could delay or prevent an
acquisition of our company.
Provisions of our certificate of incorporation, bylaws and Delaware law could
make it more difficult for a third party to acquire us, even if doing so would
be beneficial to our stockholders. See "Description of Capital Stock." We have
implemented a classified board. In addition, some of our stockholders,
including United Air Lines, American Express and America West Airlines are
subject to a standstill agreement preventing them from acquiring more than a
specified percentage of our voting securities. This standstill agreement will
have the effect of making it more difficult for these stockholders to acquire
us. See "Relationships and Related Transactions--Equity Financings and
Stockholders Arrangements" and "Description of Capital Stock--Certificate of
Incorporation and Bylaws."
We do not intend to pay any dividends.
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings for funding growth and,
therefore, do not expect to pay any dividends in the foreseeable future. In
addition, our lending facilities contain certain restrictions on our ability to
pay dividends.
Risks Related to the Electronic Commerce Market
Our business depends upon online travel procurement achieving market
acceptance.
The online market for travel products and services is in its infancy. Any
failure to achieve acceptance of our online travel services could significantly
harm our business and operating results. We may not be able to convince a large
number of businesses to utilize online travel procurement methods instead of
traditional methods. Furthermore, businesses that have implemented our online
services experience low adoption rates by their employees. Specific factors
that could prevent widespread business acceptance of online travel procurement
methods include:
. competition from traditional travel procurement systems, such as travel
agencies;
. entrenched travel procurement systems;
20
<PAGE>
. failure to provide adequate customer service;
. reliability of access to the Internet;
. lack of security on the Internet; and
. the development of Internet infrastructure and performance.
As a result of such factors, we may not be able to gain commercial acceptance
of our online travel services.
Our revenues may decrease if Internet usage growth or Internet infrastructure
development does not occur as projected.
The use of the Internet as a means of transacting business is relatively new
and has not been accepted by all customers in the markets we have targeted. As
a result, the market may not accept products and services that rely on the
Internet, such as ours. If the growth rate of Internet usage in our targeted
markets is less than expected our revenues will suffer. The Internet as a means
of conducting business may not continue to grow at a rate similar to its
historical rate, if at all.
In addition, the Internet may not be accepted as a viable long-term
commercial marketplace for a number of reasons, including potentially
inadequate development of the necessary network infrastructure or delayed
development of enabling technologies and performance improvements. Our success
will depend, in large part, upon third parties maintaining the Internet
infrastructure to provide a reliable network backbone with the speed, data
capacity, security and hardware necessary for reliable Internet access and
services. The recent growth in Internet traffic has caused frequent periods of
decreased performance. The infrastructure may not be able to support these
demands and the performance and reliability of the Internet may decline. If
outages or delays on the Internet occur frequently or increase in frequency,
overall Internet usage including usage of our services could grow more slowly
or decline. Our ability to increase the speed and scope of our services to
customers is ultimately limited by and depends upon the speed and reliability
of both the Internet and our customers' internal networks. Furthermore, changes
in, or insufficient availability of, telecommunications services to support the
Internet also could result in slower response times and adversely affect usage
of the Internet generally and by our customers in particular. Consequently, the
emergence and growth of the market for our services depends upon improvements
being made to the entire Internet infrastructure as well as to our individual
customers' networking infrastructures to alleviate overloading and congestion.
If these improvements are not made, the ability of our customers to utilize our
services will be hindered, which will significantly harm our business and
operating results.
Future regulation of the Internet may slow its growth, resulting in decreased
demand for our services and increased costs of doing business.
Laws governing the Internet remain largely unsettled, even in areas where
there has been some legislative action. It may take years to determine whether
and to what extent existing laws such as those governing intellectual property,
privacy, libel and taxation apply to the Internet. In addition, the growth and
development of the market for online commerce may prompt calls for more
stringent consumer protection laws, both in the United States and abroad, the
result of which may be to impose additional burdens on companies conducting
business online. The adoption or modification of laws or regulations relating
to the Internet could significantly harm our business and operating results.
Risks Related to this Offering
There has been no prior market for our common stock, and the price of our stock
will be volatile.
Before this offering, there was no public trading market for our common
stock, and an active trading market for our common stock may not develop or be
sustained after this offering. The initial public offering price may not be
indicative of the price that will prevail in the public market after this
offering. The public market price of our common stock could fall below the
initial public offering price. See "Underwriting."
21
<PAGE>
In addition, the market price for our common stock is likely to be highly
volatile, particularly since the market for Internet-related stocks has
experienced extreme price and volume fluctuations. We expect our stock price to
be subject to wide fluctuations as a result of a variety of factors, including
factors beyond our control. Such factors include:
. actual or anticipated variations in our quarterly operating results;
. announcements of technological innovations or new products or services by
us or by our competitors;
. publicity about our company, our services, our competitors or electronic
commerce in general;
. conditions or trends in the Internet and electronic commerce industries;
. changes in the economic performance and/or market valuations of other
Internet, electronic commerce or travel companies;
. announcements by us or by our competitors of significant acquisitions,
strategic partnerships, joint ventures or capital commitments;
. additions or departures of key personnel;
. releases of lock-up or other transfer restrictions on our outstanding
shares of common stock or sales of additional shares of common stock; and
. potential litigation.
Because of this volatility, it is likely that we will fail to meet the
expectations of our stockholders at some time in the future, resulting in a
decline in our stock price.
Future sales of shares could affect our stock price.
If our stockholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could fall. Such sales also might make it more difficult for us to sell equity
or equity-related securities in the future, at a time and price that we deem
appropriate. Based on shares outstanding as of October 15, 1999, upon
completion of this offering we will have outstanding 31,345,425 shares of
common stock, assuming no exercise of the underwriters' over-allotment option
and assuming the repurchase of 500,000 shares of series C convertible preferred
stock and 200,000 shares of series E convertible preferred stock in November
1999. In addition to the shares being sold in this offering, approximately
19,266,847 shares will be eligible for sale in the public market after the date
of this prospectus. See "Shares Eligible for Future Sale" for a further
description regarding shares that will become eligible for sale at future dates
after this offering.
Investors in this offering will suffer immediate and substantial dilution.
The initial public offering price of our common stock is substantially higher
than the book value per share of our outstanding common stock. As a result,
based upon the initial public offering price of $16.00 per share, if you
purchase common stock in this offering, you will incur immediate, substantial
dilution in pro forma net tangible book value of $11.50 per share. In addition,
we have issued options and warrants to acquire common stock at prices
significantly below the initial public offering price of our common stock. In
particular, after this offering we will have outstanding warrants to purchase
7,504,503 shares of our common stock. To the extent these outstanding options
and warrants are ultimately exercised, there will be further dilution to
investors in this offering. See "Dilution" and "Description of Capital Stock--
Warrants."
We have substantial discretion as to how to use the proceeds from this
offering.
Our management has broad discretion as to how to spend the proceeds from this
offering and may spend the proceeds in ways with which our stockholders may not
agree. We cannot predict that investments of the proceeds will yield a
favorable or any return. See "Use of Proceeds."
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<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the 5,000,000 shares of common stock we are
selling in this offering will be approximately $72.2 million, at an initial
public offering price of $16.00 per share, after deducting the estimated
underwriters' discount and offering expenses. If the underwriters' option to
purchase an additional 750,000 shares of common stock is exercised in full, the
aggregate net proceeds will be approximately $83.3 million.
We expect to use approximately $11.0 million of the net proceeds for capital
expenditures and the majority of the net proceeds for working capital and other
general corporate purposes. These uses include funding our data center
operations and funding new contracts. In addition, we may use a portion of the
net proceeds to acquire or make investments in complementary products,
technologies or businesses. We have no present commitments or agreements with
respect to any of these kinds of acquisitions or investments. Our management
will have broad discretion concerning the allocation and use of the net
proceeds. Pending the above uses, we plan to invest the net proceeds of this
offering in short-term, investment-grade, interest-bearing securities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and do
not anticipate paying any cash dividends on our capital stock in the
foreseeable future. In addition, our lending facilities contain restrictions on
our ability to pay dividends.
23
<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of GetThere.com as
of July 31, 1999 and the pro forma and pro forma as adjusted capitalization of
GetThere.com:
<TABLE>
<CAPTION>
July 31, 1999
-------------------------------
Pro Pro Forma
Actual Forma As Adjusted
(In thousands, unaudited)
<S> <C> <C> <C>
Cash and cash equivalents...................... $ 3,306 $ 71,724 $143,874
======== ======== ========
Long-term liabilities, less current portion.... $ 7,014 $ 5,364 $ 5,364
-------- -------- --------
Redeemable convertible preferred stock and
warrants, $0.0001 par value, 25,100,000 shares
authorized, 11,731,714 shares outstanding,
actual; 10,000,000 shares authorized, one
share outstanding, pro forma; and 10,000,000
shares authorized, one share outstanding, pro
forma as adjusted............................. 33,105 -- --
Stockholders' equity (deficit)
Common stock, $0.0001 par value, 50,000,000
shares authorized, 7,663,730 shares issued
and outstanding, actual; 200,000,000 shares
authorized, 26,345,425 shares outstanding,
pro forma; and 200,000,000 shares
authorized, 31,345,425 shares issued and
outstanding, pro forma as adjusted.......... -- 2 3
Additional paid-in capital................... 53,931 157,102 229,251
Note receivable from stockholder............. (2,707) (2,707) (2,707)
Unearned compensation........................ (36,628) (36,628) (36,628)
Accumulated deficit.......................... (45,976) (45,976) (45,976)
-------- -------- --------
Total stockholders' equity (deficit)....... (31,380) 71,793 143,943
-------- -------- --------
Total capitalization..................... $ 8,739 $ 77,157 $149,307
======== ======== ========
</TABLE>
For a description of the assumptions underlying the pro forma and pro forma
as adjusted data, see "Prospectus Summary--Summary Financial Information."
24
<PAGE>
DILUTION
The pro forma net tangible book value of our common stock on July 31, 1999
was $69.1 million, or approximately $2.62 per share. Pro forma net tangible
book value per share represents the amount of our total tangible assets less
total liabilities divided by the number of shares of common stock outstanding
on a pro forma basis. For a description of the assumptions underlying the pro
forma data, which includes issuances of our securities since July 31, 1999, see
"Prospectus Summary--Summary Financial Information." The number of shares
outstanding and the calculations based on the number of shares outstanding are
based on the pro forma data. Dilution in pro forma net tangible book value per
share represents the difference between the amount per share paid by purchasers
of shares of our common stock in this offering and the pro forma net tangible
book value per share of our common stock immediately afterwards. After giving
effect to our sale of 5,000,000 shares of common stock offered by this
prospectus at an initial public offering price of $16.00 per share and after
deducting the estimated underwriting discounts and offering expenses payable by
us, our pro forma net tangible book value will be $141.2 million, or
approximately $4.50 per share. This represents an immediate increase in pro
forma net tangible book value of $1.88 per share to existing stockholders and
an immediate dilution in pro forma net tangible book value of $11.50 per share
to new investors.
<TABLE>
<S> <C> <C>
Initial public offering price per share....................... $16.00
Pro forma net tangible book value per share as of July 31,
1999....................................................... $2.62
Increase per share attributable to investors in this
offering................................................... 1.88
-----
Adjusted pro forma net tangible book value per share after the
offering..................................................... 4.50
------
Dilution in pro forma net tangible book value per share to new
investors.................................................... $11.50
======
</TABLE>
This table excludes all options and warrants that will remain outstanding
upon completion of this offering. As of July 31, 1999, there were options
outstanding to purchase a total 3,781,810 shares of common stock, with a
weighted average exercise price of $1.33 per share. As of November 18, 1999,
there were warrants outstanding to purchase 7,504,503 shares of our common and
convertible preferred stock with a weighted average exercise price of $10.57
per share. The exercise of outstanding options and warrants having an exercise
price less than the offering price would increase the dilutive effect to new
investors.
The following table sets forth, as of July 31, 1999, on the pro forma basis
described above, which includes issuances of our securities since July 31,
1999, the differences between the number of shares of common stock purchased
from us, the total price and the average price per share paid by existing
stockholders and by the new investors, before deducting estimated underwriting
discounts and offering expenses payable by us, at an initial public offering
price of $16.00 per share.
<TABLE>
<CAPTION>
Average
Shares Purchased Total Consideration Price
------------------ -------------------- Per
Number Percent Amount Percent Share
<S> <C> <C> <C> <C> <C>
Existing stockholders........ 26,345,425 84.0% $105,019,000 56.8% $ 3.99
New investors................ 5,000,000 16.0 80,000,000 43.2% 16.00
---------- ----- ------------ -----
Total...................... 31,345,425 100.0% $185,019,000 100.0% $ 5.90
========== ===== ============ ===== ======
</TABLE>
The existing stockholder amounts in the table above have been calculated on a
pro forma basis, which includes shares outstanding as of July 31, 1999 and
issuances of securities since July 31, 1999, but excludes:
. 12,491,190 shares of our common stock reserved for issuance under our
1996 stock plan, of which 3,781,810 shares are subject to options
outstanding as of July 31, 1999, with a weighted average exercise
price of $1.33 per share;
25
<PAGE>
. 1,442,825 shares of our common stock subject to options granted after
July 31, 1999, with a weighted average exercise price of $8.94 per
share;
. 7,504,503 shares of our common stock issuable upon exercise of
outstanding warrants, with a weighted average exercise price of
$10.57 per share;
. one share each of our authorized series D1 and D2 convertible
preferred stock;
. 5,000,000 shares of our common stock reserved for issuance under our
1999 stock incentive plan;
. 2,500,000 shares of our common stock reserved for issuance under our
1999 employee stock purchase plan; and
. 750,000 shares of our common stock available for issuance under our
1999 directors' stock option plan, of which options to purchase an
aggregate of 250,000 shares of our common stock will be issued upon
the effectiveness of this offering.
See "The Offering" for a full explanation of what is included in the pro forma
share calculation.
If the underwriters' over-allotment option is exercised in full, the number
of shares held by new public investors will be increased to 5,750,000 or
approximately 17.9% of the total numbers of shares of our common stock
outstanding after this offering.
26
<PAGE>
SELECTED FINANCIAL DATA
The selected statement of operations data presented below for the years ended
January 31, 1997, 1998 and 1999, and the balance sheet data as of January 31,
1998 and 1999 are derived from our financial statements, which have been
audited and are included elsewhere in this prospectus. The balance sheet data
as of January 31, 1997 is derived from audited financial statements not
included in this prospectus. The statement of operations data for the period
from inception to January 31, 1996 and the six months ended July 31, 1998 and
1999 and the balance sheet data at January 31, 1996 and July 31, 1999 are
derived from our unaudited financial statements. In the opinion of management,
the unaudited financial statements have been prepared on the same basis as the
audited financial statements and include all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of our results
of operations for such periods and financial condition at such dates. The
historical results presented below are not necessarily indicative of the
results to be expected for any future period. The selected financial data set
forth is qualified in its entirety by, and should be read in conjunction with,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and notes thereto included elsewhere
in this prospectus.
<TABLE>
<CAPTION>
Inception Six Months
through Years Ended January 31, Ended July 31,
January 31, -------------------------- -----------------
1996 1997 1998 1999 1998 1999
(unaudited) (unaudited)
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
Transaction........... $ 129 $ 253 $ 2,098 $ 4,932 $ 2,090 $ 4,862
Professional service.. 14 329 903 1,515 619 736
------ ------- ------- -------- ------- --------
Total revenues....... 143 582 3,001 6,447 2,709 5,598
Cost of revenues........ 17 134 1,680 4,292 1,623 3,973
------ ------- ------- -------- ------- --------
Gross profit............ 126 448 1,321 2,155 1,086 1,625
Operating expenses:
Research and
development.......... 118 906 2,266 4,113 1,726 1,819
Sales and marketing... 109 1,030 2,393 5,732 2,522 3,612
General and
administrative....... 81 1,962 2,887 6,127 2,687 6,973
Stock-based
compensation......... -- 20 103 2,005 561 9,416
------ ------- ------- -------- ------- --------
Total operating
expenses............ 308 3,918 7,649 17,977 7,496 21,820
------ ------- ------- -------- ------- --------
Loss from operations.... (182) (3,470) (6,328) (15,822) (6,410) (20,195)
Interest income
(expense), net......... -- 33 (30) 173 (82) (149)
------ ------- ------- -------- ------- --------
Net loss................ $ (182) $(3,437) $(6,358) $(15,649) $(6,492) $(20,344)
====== ======= ======= ======== ======= ========
Basic and diluted net
loss per share......... $(0.06) $ (1.22) $ (1.81) $ (4.03) $ (1.73) $ (5.05)
Shares used in computing
basic and diluted net
loss per share......... 3,000 2,827 3,537 3,957 3,823 4,071
Pro forma basic and
diluted net loss per
share.................. $ (1.05) $ (1.26)
Shares used in computing
pro forma basic and
diluted net loss per
share.................. 14,917 16,199
</TABLE>
<TABLE>
<CAPTION>
As of January 31,
-------------------------------------- As of July 31,
1996 1997 1998 1999 1999
(unaudited) (unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents
and short-term
investments............ $ 3 $ 579 $ 1,332 $ 15,802 $ 6,541
Working capital
(deficit).............. (143) (152) (842) 12,089 (2,203)
Total assets............ 146 1,426 4,390 20,806 18,939
Total stockholders'
deficit................ (185) (3,558) (9,854) (20,382) (31,380)
</TABLE>
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This prospectus contains forward-looking statements, the accuracy of which
involve risks and uncertainties. We use words such as "anticipates,"
"believes," "plans," "expects," "future," "intends" and similar expressions to
identify forward-looking statements. This prospectus also contains forward-
looking statements attributed to certain third parties relating to their
estimates regarding the growth of the Internet and electronic commerce markets.
Prospective investors should not place undue reliance on these forward-looking
statements, which apply only as of the date of this prospectus. GetThere.com's
actual results could differ materially from those anticipated in these forward-
looking statements for many reasons, including the risks faced by GetThere.com
described in "Risk Factors" and elsewhere in this prospectus. You should read
the following discussion in conjunction with the "Selected Financial Data" and
our financial statements and related notes included elsewhere in this
prospectus.
Overview
We are a provider of Internet-based travel procurement and supply services
primarily for businesses and travel suppliers. Our business model has developed
over time to increasingly focus on the business-to-business market. We were
incorporated in August 1995 as Internet Travel Network Inc., and we changed our
name to GetThere.com, Inc. in July 1999. In 1995, we launched our www.itn.net
Web site, an Internet-based travel reservation system targeted at consumers and
small businesses. In response to interest from Internet-based content and
electronic commerce providers and travel agencies, we began to offer travel
services for these companies' Web sites. In 1996, we introduced ITN Global
Manager. In 1997, we introduced ITN FlightRez. In 1998, we continued to expand
our customer base for our ITN Global Manager service, and we expanded our
relationship with United Air Lines to include online offerings of unused
capacity and the ability to provide online one-way ticket upgrades. In 1999, we
continued to expand our relationship with United Air Lines by offering online
frequent flyer mileage redemption. We recently entered into a commercial
agreement with American Express Travel Related Services.
Our business customer base has grown from 14 at April 30, 1997 to 53 at July
31, 1999. Our travel supplier customer base has grown from zero at April 30,
1997 to five at July 31, 1999, including United Air Lines, the second largest
North American airline in terms of the number of passengers. The number of
travel-related transactions that we have processed has grown from approximately
18,000 in the quarter ending April 30, 1997 to approximately 306,000 in the
quarter ending July 31, 1999.
We generate revenues primarily from processing travel-related transactions,
such as booking and ticketing reservations, and performing professional
services. These revenues are generated from business customers using our ITN
Global Manager service, from travel suppliers using our ITN FlightRez service
and from other customers. Transaction revenues are comprised of fees and
commissions earned in connection with making travel related reservations and
purchasing airline tickets and providing related traveler support services for
customers asking technical and travel assistance. In addition, our transaction
revenues include fees received from computer reservation system companies for
making travel reservations on that computer reservation system, hosting fees
charged to gain access to our services and the sale of advertising on our
www.itn.net Web site and the Web sites of some of our customers. Transaction
revenues are recognized as the transactions are performed or when the
commission is received or, with respect to hosting fees, when invoiced. In the
case of advertising, we recognize revenues on a per impression basis after a
specified minimum number of impressions have been delivered. Professional
service revenues primarily consist of implementation and customization fees
associated with the deployment and on-going customization of our services.
Professional service revenues are recognized as performed.
Under our agreement with American Express, we will be entitled to receive
fixed quarterly payments. A portion of the fixed payments will be subject to
reimbursement if a specified number of visitors to www.itn.net
28
<PAGE>
and www.itn.com do not register on American Express' site. In addition, we will
be entitled to receive transaction fees with guaranteed annual minimums. Our
annual minimums are subject to reduction based upon failure to meet specified
development timetables.
Our gross margins are affected by numerous factors, such as the mix of
transaction revenues and professional service revenues, and the mix of
transaction revenues from our customers. We generally receive higher gross
margins on transaction revenues than from professional service revenues and
higher gross margins from business customers than from travel supplier
customers. Our gross margins are also affected by personnel and infrastructure
expenditures, which are expected to increase substantially in the future. As a
result, our gross margins will decrease unless we are able to significantly
increase our revenues. Furthermore, we will incur greater costs of revenues due
to the costs of developing and operating our recently acquired traveler support
center in Fort Lauderdale, Florida. These costs may negatively impact our gross
margins for the quarter ending October 31, 1999 and may also have a negative
impact on our gross margins in subsequent quarters.
Stock-based compensation represents the difference between the deemed fair
value of our common stock on the date options were granted or stock was issued
and the exercise or purchase price of our options or stock. This amount is
included as a reduction of stockholders' equity and is amortized over the
vesting period of the individual options or stock, generally four years. We
recorded amortization of stock-based compensation in the amount of $2.0 million
for the year ended January 31, 1999 and $9.4 million for the six months ended
July 31, 1999 in connection with the grant of certain stock options and
issuances of stock to employees and other service providers. As of July 31,
1999, we had a total of $36.6 million remaining to be amortized over the
corresponding vesting periods of the stock options or stock. We anticipate the
amortization of stock-based compensation will approximate $21.5 million for
fiscal 2000 (including the $9.4 million recorded for the six months ended
July 31, 1999), $15.2 million for fiscal 2001, $8.2 million for fiscal 2002 and
$3.5 million for fiscal 2003, which includes the impact of option grants
subsequent to July 31, 1999.
In August and September 1999, we sold an aggregate of 1,875,423 shares of
series C convertible preferred stock at a purchase price of $5.125 per share to
American Express, America West Airlines and Air Canada. In November 1999, we
elected to repurchase 500,000 shares of series C convertible preferred stock.
We expect to record expenses of $10.1 million, equal to the difference between
the fair value of the series C convertible preferred stock at that date ($12.50
per share) and the amount paid for the stock ratably over a four year period.
We entered into these equity transactions primarily for the purpose of inducing
these companies to invest in us and, secondarily, to utilize our travel
service. In addition to the respective equity arrangements with American
Express and America West Airlines. We also entered into commercial agreements
with these travel suppliers.
The commercial agreement with American Express includes the development,
implementation and maintenance of our travel services on the American Express
Web Sites. The initial term of the agreement is four years and includes
anticipated fixed payments over this period of approximately $17.2 million and
variable payments based upon a currently undetermined transaction fee for
tickets processed. These payments may be reduced to the extent that certain
contractual milestones are not met.
The commercial agreement with America West Airlines includes development,
implementation and hosting by us of the online ticket reservation services of
America West Airlines. The initial term of the agreement is four years with a
renewal option for an additional two years. The agreement can be terminated at
any time, but the anticipated fixed payments to be made to us over the initial
term will approximate $4 million plus variable payments based upon a
transaction fee for tickets processed. In addition, we have agreed to pay
America West Airlines a percentage of all hotel and car commissions collected
and a percentage of all advertising fees that we collect on their site. Our
objective is to build brand awareness, achieve market penetration, acquire
industry knowledge and develop business relationships with significant travel
suppliers through these transactions. We viewed the inducement as an essential
part of shaping and executing our business plan and sales and marketing
strategy since these investors provide us with additional knowledge and
leverage in the travel supply industry.
29
<PAGE>
In addition, in August 1999, we issued a warrant to purchase up to 1,650,000
shares of our series C convertible preferred stock to Northwest Airlines at an
exercise price of $5.125 per share. The exercise of this warrant is subject to
the satisfaction of certain specified conditions prior to August 27, 2001
including the execution of a definitive travel supplier agreement for Northwest
Airlines' primary Web site, www.nwa.com, and the adoption of our services on
this Web site. We entered into this warrant transaction primarily for the
purpose of inducing Northwest Airlines to invest in us and, secondarily, to
utilize our services on their Web sites. We entered into an agreement to
develop and provide hosting services for a website for Northwest Airlines
through which Northwest Airlines intends to offer low fare tickets. The
agreement has an initial term of one year with renewal options. Northwest
Airlines will pay a transaction fee of $5.75 per issued ticket to us during the
initial term. Our objective is to build brand awareness, achieve market
penetration and acquire industry knowledge as a result of these relationships
with Northwest Airlines. We will record an expense for the Northwest Airlines
warrant if and when the specified conditions are achieved. We cannot currently
quantify the amount of expense that ultimately will be recorded, however, based
on the initial public offering price, the fair value of this warrant is $21.0
million. After the value is ultimately determined and the performance
conditions are achieved, the value will be amortized ratably over a four year
period. See "Risk Factors--Our results of operations will be harmed by charges
associated with our payment of stock-based compensation and charges associated
with other securities issuances by us.
Since July 31, the Company issued the following warrants to various third
parties in connection with the sale of preferred stock.
<TABLE>
<CAPTION>
Number of
shares
exercisable
Holder Series of Stock under Warrants Exercise Price
<S> <C> <C> <C>
American Express............... Series E 730,023 $31.00
American Express............... Series E 730,023 $21.00
American Express............... Common 375,000 $16.50
Covia.......................... Series C 1,136,821 $11.20
Air Canada..................... Series E 200,000 $12.50
America West Airlines.......... Series E 500,000 $12.50
</TABLE>
The Black Scholes value of these warrants is as follows using a 5.5% risk
free interest rate, a zero dividend yield and a 70% volatility rate:
<TABLE>
<CAPTION>
Share
Holder Grant Fair Value
<S> <C> <C>
American Express....................................... 730,023 $ 2,400,000
American Express....................................... 730,023 2,350,000
American Express....................................... 375,000 250,000
Covia.................................................. 1,136,821 7,500,000
Air Canada............................................. 200,000 1,250,000
America West Airlines.................................. 500,000 3,100,000
-----------
$16,850,000
===========
</TABLE>
The fair value of these warrants was calculated using the Black Scholes
pricing model and a portion of the proceeds was allocated to the warrants
issued. This allocation results in a discount on the preferred stock that must
be accreted to the redemption value from the issuance date to the first
redemption date. The warrant issued to Air Canada to purchase 200,000 shares of
series E convertible preferred stock terminated in connection with the
repurchase of series C and series E convertible preferred stock from Air Canada
in November 1999.
We have incurred significant operating losses since our inception and, as of
July 31, 1999, had an accumulated deficit of $46.0 million. We anticipate that
our losses will continue to increase significantly for the
30
<PAGE>
forseeable future as we continue to increase our operating expenses. For
example, we expect to increase operating expenses to support our strategic
relationship with American Express and the development and implementation of a
Web site for Northwest Airlines through which Northwest Airlines intends to
offer low fare tickets. Furthermore, if we expand our relationship with
Northwest Airlines by implementing our services for Northwest Airlines' primary
Web site, www.nwa.com, we expect to incur significant additional expenses. We
have relocated our corporate headquarters from Palo Alto, California to Menlo
Park, California, and have recently established an engineering design center in
Dallas, Texas.
As a result of our compensation expenses, expenses associated with the recent
issuances of our securities, and other operating expenses related to the growth
of our business, we expect our net loss and net loss attributable to common
stockholders for the quarter ending October 31, 1999 to increase significantly.
In addition, we expect the rate at which future losses will be incurred will
increase significantly from current levels.
We have never recorded a provision for income taxes. As of July 31, 1999, we
had net operating loss carry-forwards for federal income tax purposes of
approximately $19.8 million and for state income tax purposes of approximately
$13.8 million. These federal and state income tax loss carry-forwards are
available to reduce future taxable income and expire at various dates through
2019. We cannot assure you that we will be able to generate sufficient taxable
income to utilize these income tax loss carry-forwards. In addition, under the
provisions of the Internal Revenue Code, certain changes in our ownership may
limit the amount of net operating loss carry-forwards that we may utilize
annually to offset taxable income in the future.
United Air Lines, one of our principal stockholders through its wholly owned
subsidiary Covia LLC, directly accounted for $1.9 million and $1.5 million or
approximately 33.8% and 24.8% of our total revenues for the six months ended
July 31, 1999 and for the fiscal year ended January 31, 1999. In September
1997, the Company and United Air Lines entered into a service agreement with an
initial term of one year with renewal options. Under the terms of the
agreement, the Company receives a fixed fee of $3.00 per transaction processed
together with additional variable amounts due for telephone call support and
maintenance services. Our service agreement with United Air Lines can be
terminated by either party for any reason by providing the other party with 180
days prior notice. Because a significant amount of our revenues has been and is
expected to continue to be derived from United Air Lines, we are dependent on
our relationship with United Air Lines. We expect that in the near term the
percentage of our revenues derived from United Air Lines will increase. Any
disruption of this relationship would significantly harm our business and
operating results.
We have experienced and expect to continue to experience seasonality in our
business, reflecting seasonal fluctuations in the travel industry, Internet
usage and advertising expenditures. Business travel bookings typically decline
during the fourth quarter of each calendar year due to decreased business
travel during the holiday season. Furthermore, consumer travel bookings
typically increase during the second quarter of each calendar year in
anticipation of summer travel. Internet usage and the rate of growth of such
usage typically decline during the summer.
31
<PAGE>
Results of Operations
The following table sets forth our results of operations as a percentage of
revenues:
<TABLE>
<CAPTION>
Six Months
Fiscal Year Ended Ended
January 31, July 31,
------------------------ ---------------
1997 1998 1999 1998 1999
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Transaction..................... 43.5% 69.9% 76.5% 77.2% 86.9%
Professional service............ 56.5 30.1 23.5 22.8 13.1
------ ------ ------ ------ ------
Total revenues................ 100.0 100.0 100.0 100.0 100.0
Cost of revenues.................. 23.0 56.0 66.6 59.9 71.0
------ ------ ------ ------ ------
Gross margin...................... 77.0 44.0 33.4 40.1 29.0
Operating expenses:
Research and development........ 155.7 75.5 63.8 63.7 32.5
Sales and marketing............. 177.0 79.8 88.9 93.1 64.5
General and administrative...... 337.1 96.2 95.0 99.2 124.5
Stock-based compensation........ 3.4 3.4 31.1 20.7 168.2
------ ------ ------ ------ ------
Total operating expenses...... 673.2 254.9 278.8 276.7 389.7
------ ------ ------ ------ ------
Loss from operations.............. (596.2) (210.9) (245.4) (236.6) (360.7)
Interest income (expense), net.... 5.7 (1.0) 2.7 (3.0) (2.7)
------ ------ ------ ------ ------
Net loss.......................... (590.5)% (211.9)% (242.7)% (239.6)% (363.4)%
====== ====== ====== ====== ======
</TABLE>
Comparison of Six Months Ended July 31, 1998 and 1999
Revenues. Revenues increased 106.6% from $2.7 million for the six months
ended July 31, 1998 to $5.6 million for the six months ended July 31, 1999 due
primarily to increased transactions from business customers and travel supplier
customers. Transaction revenues increased 132.6% from $2.1 million for the six
months ended July 31, 1998 to $4.9 million for the six months ended July 31,
1999. This increase was primarily due to an increase in the number of
transactions processed which resulted from increased adoption rates of our
products with existing customers, the addition of new customers, and the growth
in hosting revenues from new and existing customers as our installed base has
grown. Transactions increased 164.7% from 204,000 for the six months ended July
31, 1998 to 540,000 for the six months ended July 31, 1999. Professional
service revenues increased 18.9% from $619,000 for the six months ended July
31, 1998 to $736,000 for the six months ended July 31, 1999. This increase was
primarily due to increased implementation services to support the growth in our
customer base and, to a lesser extent, increased customization services for our
existing customers.
Cost of Revenues. Cost of revenues is predominately comprised of transaction
and personnel costs. These costs include costs associated with outside
consultants, commission sharing with some of our customers, printing and
delivery costs of tickets, computer reservation system charges, advertising
agency fees and personnel costs associated with operating our transaction
systems and providing traveler support. Our cost of revenues increased from
$1.6 million or 59.9% of revenues for the six months ended July 31, 1998 to
$4.0 million or 71.0% of revenues for the six months ended July 31, 1999. This
increase in dollars resulted primarily from personnel expenses related to the
hiring and training of additional personnel, equipment and material purchases
and outside consultants. Our gross margins declined from 40.1% for the six
months ended July 31, 1998 to 29.0% for the six months ended July 31, 1999 due
to our investments in additional personnel and infrastructure to increase our
transaction processing capacity in anticipation of future growth.
Research and Development. Research and development expenses consist
principally of personnel costs, equipment expenses, recruiting costs and
consulting fees relating to the development and enhancement of our
32
<PAGE>
services. Research and development expenses increased from $1.7 million or
63.7% of revenues for the six months ended July 31, 1998 to $1.8 million or
32.5% of revenues for the six months ended July 31, 1999. This increase in
dollars was due primarily to the addition of personnel and was partially offset
by a reduction in consulting fees and other expenses. We believe that continued
investment in research and development is critical to attaining our strategic
objectives and, as a result, we expect research and development expenses to
increase significantly in absolute dollars for the foreseeable future. We have
recently established a second engineering development center in Dallas, Texas.
For the quarters ending October 31, 1999 and January 31, 2000, we expect to
increase the number of personnel in our California and Texas engineering
development centers. These events are expected to significantly increase our
research and development expenditures.
Sales and Marketing. Sales and marketing expenses consist primarily of
payroll and related expenses, sales commissions, consulting fees, advertising,
public relations and promotional expenditures and costs relating to the
distribution and sale of our services, including travel and entertainment
expenses. Sales and marketing expenses increased from $2.5 million or 93.1% of
revenues for the six months ended July 31, 1998 to $3.6 million or 64.5% of
revenues for the six months ended July 31, 1999. This increase in dollars was
due primarily to the addition of personnel, increased promotional and
advertising expenditures, and costs associated with the sale and distribution
of our services. We expect to significantly increase our sales and marketing
activities including establishing additional sales offices globally as well as
increasing our sales and marketing expenditures both domestically and
internationally, particularly with respect to advertising expenditures. As a
result, we expect our sales and marketing expenses will increase significantly
in absolute dollars for the foreseeable future.
General and Administrative. General and administrative expenses consist of
payroll and related expenses for management, accounting and administrative
personnel, depreciation of equipment and software, insurance, recruiting,
professional services, facilities and other general corporate expenses. General
and administrative expenses increased from $2.7 million or 99.2% of revenues
for the six months ended July 31, 1998 to $7.0 million or 124.5% of revenues
for the six months ended July 31, 1999. This increase in dollars was due
primarily to the accelerated depreciation of leasehold improvements associated
with our current facilities, an increase in the number of employees focused on
general and administrative functions, and an increase in consulting services,
recruiting costs, depreciation and other general corporate expenses. To
accommodate our growth in headcount, we moved our corporate headquarters to
Menlo Park, California in the quarter ending October 31, 1999. We expect to
incur non-recurring expenditures related to the move, particularly in the
quarter ending October 31, 1999, and increased ongoing expenditures related to
this new facility. We expect general and administrative expenses to increase in
dollars in future periods as we expand our staff and incur additional costs
related to the growth of our business and the administration of a public
company.
Stock-Based Compensation. We recorded aggregate stock-based compensation of
$561,000 for the six months ended July 31, 1998 and $9.4 million for the six
months ended July 31, 1999.
Interest Income (Expense), Net. Interest income (expense), net includes
income from our cash investments, net of expenses related to our financing
obligations. Our interest expense of approximately $82,000 for the six months
ended July 31, 1998 increased to approximately $149,000 for the six months
ended July 31, 1999. This increase was attributable to an increase in interest
paid on financing obligations and a decrease in interest income due to lower
invested cash balances.
Comparison of Fiscal Years Ended January 31, 1997, 1998 and 1999
Revenues. Revenues increased 415.6% from $582,000 for the fiscal year ended
January 31, 1997 to $3.0 million for the fiscal year ended January 31, 1998,
due primarily to an increase in the number of transactions from businesses,
Internet-based content and electronic commerce providers and travel agencies.
Transaction revenues increased 729.2% from $253,000 for the fiscal year ended
January 31, 1997 to $2.1 million for the fiscal year ended January 31, 1998.
This increase was primarily due to an increase in the number of transactions
processed which resulted from increased use of our services by our existing
customers,
33
<PAGE>
and the addition of new customers. Professional service revenues increased
174.5% from $329,000 for the fiscal year ended January 31, 1997 to $903,000 for
the fiscal year ended January 31, 1998. The increase resulted primarily from
growth in the number of new customers, including services provided to United
Air Lines in the second-half of the fiscal year ended January 31, 1998.
Revenues increased 114.8% from $3.0 million for the fiscal year ended January
31, 1998 to $6.4 million for the fiscal year ended January 31, 1999, due
primarily to an increase in the number of transactions from businesses, travel
suppliers, Internet-based content and electronic commerce providers and travel
agencies. Transaction revenues increased 135.1% from $2.1 million for the
fiscal year ended January 31, 1998 to $4.9 million for the fiscal year ended
January 31, 1999. This increase was primarily due to an increase in the number
of transactions processed which resulted from increased use of our services by
our existing customers, the addition of new customers, and the growth in
hosting revenues from new and existing customers. The number of transactions
grew 294.6% from 130,000 for the fiscal year ended January 31, 1998 to 513,000
for the fiscal year ended January 31, 1999. Professional service revenues
increased 67.8% from $903,000 for the fiscal year ended January 31, 1998 to
$1.5 million for the fiscal year ended January 31, 1999. This increase was
primarily due to an increase in the number of custom development projects for
new and existing customers and growth in the number of new customers.
Cost of Revenues. Cost of revenues increased from $134,000 or 23.0% of
revenues for the fiscal year ended January 31, 1997 to $1.7 million or 56.0% of
revenues for the fiscal year ended January 31, 1998. This increase in dollars
primarily resulted from hiring and training of additional personnel for
customer support, professional services and data center operations, and costs
associated with integrating our dedicated traveler support center during the
second half of the year ended January 31, 1998. Cost of revenues increased to
$4.3 million or 66.6% of revenues for the fiscal year ended January 31, 1999.
This increase in dollars primarily resulted from the hiring and training of
additional personnel for customer support, professional services and data
center operations.
Gross margins declined from 77.0% for the fiscal year ended January 31, 1997
to 44.0% for the fiscal year ended January 31, 1998. This decrease was
primarily due to an increase in spending associated with the addition of our
traveler support organization and investments in additional personnel and
infrastructure in anticipation of future growth. Gross margins declined further
to 33.4% for the fiscal year ended January 31, 1999 due to our investment in
additional personnel and infrastructure to add transaction processing capacity
in anticipation of future growth.
Research and Development. Research and development expenses increased from
$906,000 or 155.7% of revenues for the fiscal year ended January 31, 1997 to
$2.3 million or 75.5% of revenues for the fiscal year ended January 31, 1998
and to $4.1 million or 63.8% of revenues for the fiscal year ended January 31,
1999. These increases in dollars were primarily due to the addition of
personnel, equipment and consulting fees to support the continued development
of our services.
Sales and Marketing. Sales and marketing expenses increased from $1.0 million
or 177.0% of revenues for the fiscal year ended January 31, 1997 to $2.4
million or 79.8% of revenues for the fiscal year ended January 31, 1998 and to
$5.7 million or 88.9% of revenues for the fiscal year ended January 31, 1999.
These increases in dollars were primarily due to the addition of personnel,
increased promotional and advertising expenditures, and increased expenses
associated with the sale and distribution of our services.
General and Administrative. General and administrative expenses increased
from $2.0 million or 337.1% of revenues for the fiscal year ended January 31,
1997 to $2.9 million or 96.2% of revenues for the fiscal year ended January 31,
1998. This increase in dollars was primarily due to an increase in the number
of employees and related recruiting costs, depreciation and other general
corporate expenses, partially offset by a decrease in professional services.
General and administrative expenses increased to $6.1 million or 95.0% of
revenues for the fiscal year ended January 31, 1999. This increase in dollars
primarily resulted from an increase in personnel and related recruiting costs,
depreciation, an increase in professional services and other general corporate
expenses.
34
<PAGE>
Stock-based Compensation. We recorded aggregate stock-based compensation of
$20,000 in the fiscal year ended January 31, 1997, $103,000 in the fiscal year
ended January 31, 1998, and $2.0 million in the fiscal year ended January 31,
1999.
Interest Income (Expense), Net. Our interest income was $33,000 for the
fiscal year ended January 31, 1997, declining to interest expense of $30,000
for the fiscal year ended January 31, 1998 and then increasing to interest
income of $173,000 for the fiscal year ended January 31, 1999. The decrease for
the year ended January 31, 1998 was due to an increase in interest paid on
financing obligations and a decrease in interest income resulting from lower
invested cash balances. The increase to net interest income in the year ended
January 31, 1999 was due to an increase in interest income due to higher
invested cash balances resulting from our series C convertible preferred stock
financing.
35
<PAGE>
Selected Quarterly Results of Operations
The following tables set forth our unaudited statement of operations data for
each of the six most recent quarters, and the percentage of total revenues
represented by each item. This data has been derived from unaudited financial
statements which, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of this information when read in conjunction with our annual
audited financial statements and related notes. You should not draw any
conclusions about our future results from the results of operations for any
quarter.
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------
April 30, July 31, Oct. 31, Jan. 31, April 30, July 31,
1998 1998 1998 1999 1999 1999
(In thousands, unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Transaction........... $ 1,057 $ 1,033 $ 1,372 $ 1,470 $ 1,930 $ 2,932
Professional service.. 253 366 451 445 380 356
------- ------- ------- ------- ------- --------
Total revenues...... 1,310 1,399 1,823 1,915 2,310 3,288
Cost of revenues........ 763 860 1,258 1,411 1,655 2,318
------- ------- ------- ------- ------- --------
Gross profit............ 547 539 565 504 655 970
Operating expenses:
Research and
development.......... 829 897 1,065 1,322 873 946
Sales and marketing... 1,270 1,252 1,520 1,690 1,580 2,032
General and
administrative....... 1,269 1,418 1,762 1,678 2,376 4,597
Stock-based
compensation......... 170 391 479 965 3,523 5,893
------- ------- ------- ------- ------- --------
Total operating
expenses........... 3,538 3,958 4,826 5,655 8,352 13,468
------- ------- ------- ------- ------- --------
Loss from operations.... (2,991) (3,419) (4,261) (5,151) (7,697) (12,498)
Interest income
(expense), net......... (111) 29 140 115 (12) (137)
------- ------- ------- ------- ------- --------
Net loss................ $(3,102) $(3,390) $(4,121) $(5,036) $(7,709) $(12,635)
======= ======= ======= ======= ======= ========
<CAPTION>
As a Percentage of Total Revenues
---------------------------------------------------------------
April 30, July 31, Oct. 31, Jan. 31, April 30, July 31,
1998 1998 1998 1999 1999 1999
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Transaction........... 80.7% 73.8% 75.3% 76.8% 83.5% 89.2%
Professional service.. 19.3 26.2 24.7 23.2 16.5 10.8
------- ------- ------- ------- ------- --------
Total revenues...... 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues........ 58.2 61.5 69.0 73.7 71.6 70.5
------- ------- ------- ------- ------- --------
Gross margin............ 41.8 38.5 31.0 26.3 28.4 29.5
Operating expenses:
Research and
development.......... 63.3 64.1 58.4 69.0 37.8 28.8
Sales and marketing... 97.0 89.5 83.4 88.3 68.4 61.8
General and
administrative....... 96.8 101.3 96.7 87.6 102.9 139.8
Stock-based
compensation......... 13.0 28.0 26.3 50.4 152.5 179.2
------- ------- ------- ------- ------- --------
Total operating
expenses........... 270.1 282.9 264.8 295.3 361.6 409.6
------- ------- ------- ------- ------- --------
Loss from operations.... (228.3) (244.4) (233.8) (269.0) (333.2) (380.1)
Interest income
(expense), net......... (8.5) 2.1 7.7 6.0 (0.5) (4.2)
------- ------- ------- ------- ------- --------
Net loss................ (236.8)% (242.3)% (226.1)% (263.0)% (333.7)% (384.3)%
======= ======= ======= ======= ======= ========
</TABLE>
The number of transactions that we process has increased in all of the
quarters presented due to the addition of new customers and increased adoption
by our existing customers. Transaction revenues grew in
36
<PAGE>
conjunction with growth in the number of transactions processed by us except in
the quarter ending July 31, 1998, which was negatively impacted by the
reduction in the commission rate paid by several airlines to all travel
agencies. Professional service revenues are driven by implementations for new
customers, and customer specific projects for new and existing customers.
Because the growth in the number of our customers has fluctuated, and because
these projects vary, professional service revenues have fluctuated on a
quarter-to-quarter basis. The decline in gross margin from the quarter ending
April 30, 1998 through the quarter ending January 31, 1999 was primarily
attributable to a reduction in commission rates paid by airlines, a reduction
in implementation pricing and an increase in infrastructure related
expenditures. The increase in gross margin during the quarters ended April 30,
1999 and July 31, 1999, was primarily attributable to transaction volumes
increasing faster than costs.
Research and development expenses increased in the quarters ended October 31,
1998 and January 31, 1999 primarily due to fees paid to consultants for
developing the capabilities of our data center. The decline in research and
development expenses as a percentage of revenues from the quarter ended January
31, 1999 through the quarter ended July 31, 1999, was primarily a result of the
completion of the data center review by outside consultants and slower than
expected hiring of technical staff. We expect research and development spending
to increase from current levels. The decline in sales and marketing expenses as
a percentage of revenues from the quarter ended January 31, 1999 through the
quarter ended July 31, 1999 was primarily the result of an increase in
transaction revenues and a decrease in personnel related costs. General and
administrative expenses decreased in the quarter ended January 31, 1999 due to
fewer salaries paid as a result of management departures. These salary expenses
increased in the following quarter due to increased hiring, particularly of
management personnel. The increase in general and administrative expenses as a
percentage of revenues from the quarter ended January 31, 1999 through the
quarter ended July 31, 1999 was attributable primarily to accelerated
depreciation of leasehold improvements associated with our current facility, an
increase in general and administrative employees and an increase in consulting
fees and depreciation expense.
We believe that quarter-to-quarter comparisons of our revenues and operating
results are not necessarily meaningful, and that such comparisons may not be
accurate indicators of future performance. The operating results of companies
in the travel and electronic commerce industries have in the past experienced
significant quarter-to-quarter fluctuations. We expect our revenues and
operating results to vary significantly from quarter to quarter due to a number
of factors, including:
. our ability to satisfy customer demand, retain existing customers and
attract new customers;
. varying adoption rates of our services;
. the timing and expense of expanding our operations;
. the mix of transaction revenues and professional service revenues;
. the mix of transaction revenues from our customers;
. our ability to obtain market acceptance of new services and upgrades;
. product introductions by us and our competitors;
. our ability to attract, integrate and retain key personnel;
. changes in the rate of Internet usage and electronic commerce;
. changes in our pricing policies or the pricing policies of our
competitors;
. changes in inventory availability from travel suppliers or commission
rates paid by travel suppliers;
. our ability to upgrade and develop our systems and infrastructure without
disrupting our operations;
. technical difficulties with our systems or system down time;
. difficulties accessing computer reservation systems or travel suppliers'
systems;
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. costs related to the acquisition of businesses or technologies; and
. unforeseen events affecting the travel or electronic commerce industries.
Furthermore, we currently expect that a majority of our revenues for the
foreseeable future will come from fees and commissions paid to us by our
customers using our ITN Global Manager, ITN FlightRez and other services. The
volume and timing of these fees and commissions are difficult to predict
because the online market for these products and services is in its infancy. As
with other companies in our industry, our operating expenses, which include
sales and marketing, research and development, general and administrative
expenses, and stock-based compensation are based on our expectations of future
revenues and are relatively fixed in the short term. As a result, a delay in
generating or recognizing revenues for any reason could cause significant
variations in our operating results from quarter to quarter and could result in
greater than expected operating losses. Consequently, in future quarters our
operating results may fall below the expectations of investors and, as a
result, the price of our common stock may fall. Additionally, despite our
sequential quarterly revenue growth during fiscal 1999, we expect future growth
rates to decline. You should not draw any conclusions about our future growth
rates from our historical growth rates.
Liquidity and Capital Resources
We have financed our operations primarily through private sales of capital
stock, bank loans and equipment leases. From inception through July 31, 1999,
we have raised approximately $35.9 million through the sale of preferred stock.
As of July 31, 1999, we had $6.5 million in cash, cash equivalents and short-
term investments, and $(2.2) million in working capital. As a result of
financing agreements for the sale of our series C and series E convertible
preferred stock entered into in August and September 1999, we raised $72.6
million in net proceeds. In November 1999, we repurchased 500,000 shares of
series C convertible preferred stock and 200,000 shares of series E convertible
preferred stock for an aggregate amount of $5.1 million.
Net cash used in operating activities was $3.0 million for the fiscal year
ended January 31, 1997 and was attributable primarily to our net loss of $3.4
million. Net cash used in operating activities was $4.6 million for the fiscal
year ended January 31, 1998 and was attributable primarily to our net loss of
$6.4 million, an increase in accounts receivable of $627,000 partially offset
by an increase in deferred revenue of $591,000 resulting from increased
revenues, and an increase in accounts payable and accrued liabilities of $1.2
million resulting from increased expenses. Net cash used in operating
activities was $11.4 million for the fiscal year ended January 31, 1999 and was
attributable primarily to our net loss of $15.6 million, partially offset by
depreciation and amortization of $1.5 million, and amortization of unearned
compensation of $2.0 million. Net cash used in operating activities was
$5.1 million for the six months ended July 31, 1998 and was attributable
primarily to our net loss of $6.5 million, partially offset by depreciation and
amortization of $633,000, and amortization of unearned compensation of
$561,000. Net cash used in operating activities was $6.9 million for the six
months ended July 31, 1999 and was attributable primarily to our net loss of
$20.3 million, partially offset by depreciation and amortization of $1.8
million, amortization of unearned compensation of $9.4 million, and an increase
in accounts payable and accrued liabilities of $2.8 million resulting from
increased expenses.
Net cash used in investing activities was $737,000 for the fiscal year ended
January 31, 1997, was $2.0 million for the fiscal year ended January 31, 1998
and was $10.5 million for the fiscal year ended January 31, 1999 and was
primarily attributable to short-term investing of cash to generate interest
income and the acquisition of property and equipment, which consists primarily
of computer equipment, leasehold improvements, and furniture and fixtures.
Property and equipment purchases were $637,000 for the fiscal year ended
January 31, 1997, $2.0 million for the fiscal year ended January 31, 1998 and
$2.9 million for the fiscal year ended January 31, 1999. Additionally, $7.5
million of cash was used for short-term investing to generate interest income
during the fiscal year ended January 31, 1999. Net cash used in investing
activities of $7.0 million for the six months ended July 31, 1998 was primarily
attributable to $1.9 million used for purchases of property and equipment and
$5.1 million for short-term investing to generate interest income. Net cash
used in investing activities of $1.7 million for the six months ended July 31,
1999 was primarily
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attributable to $5.2 million for purchases of property and equipment, $800,000
for the acquisition of the assets of our Florida call center and the conversion
of $4.3 million of short-term investments into cash.
Net cash provided by financing activities was $4.3 million for the fiscal
year ended January 31, 1997 and was primarily attributable to issuing $4.2
million of preferred stock and warrants. Net cash provided by financing
activities of $7.3 million for the fiscal year ended January 31, 1998 was
primarily attributable to issuing $6.5 million of preferred stock and warrants
and securing $838,000 of capital lease and bank net borrowings. Net cash
provided by financing activities for the fiscal year ended January 31, 1999 of
$28.8 million is primarily attributable to issuing $25.2 million of preferred
stock and warrants and securing $3.7 million of capital lease net borrowings.
Net cash provided by financing activities for the six months ended July 31,
1998 of $28.3 million was primarily attributable to issuing $25.2 million of
preferred stock and warrants and securing $3.1 million of capital lease net
borrowings. Net cash provided by financing activities for the six months ended
July 31, 1999 of $3.6 million was primarily attributable to $3.5 million of
capital lease net borrowings.
Computer equipment is our largest category of purchases of property and
equipment, and we expect to continue to invest significantly in computer
equipment to support the growth in the number of transactions we process and
the amount of data we store in our systems. In addition, we are currently in
the process of establishing additional data center operations in Virginia at
Exodus Communications to accommodate our needs for redundant systems and
additional processing capability to better serve our customers in the eastern
portion of the United States and Europe. We are also establishing an
engineering development center in Texas to further develop our services. The
Virginia data center operations and the planned Texas engineering development
center are expected to increase our expenditures for new property and
equipment. We also moved to a larger facility during October 1999, which will
increase our expenditures for new property and equipment.
We have a term loan for borrowings of up to $500,000 for purchases of
property and equipment. The outstanding principal balance is due in equal
monthly installments of $16,000 ending in October 2000 together with interest
at the bank's prime rate plus 1.75% (9.5% at January 31, 1999). At July 31,
1999, $234,000 was outstanding under this term loan. Borrowings are secured by
all our assets except leased assets. The term loan requires us to meet certain
financial covenants including quick ratio, tangible net worth and profitability
requirements. We also have two equipment lease lines. One lease line is for
$2.1 million and is fully drawn. Our other lease line is for $5.8 million, $5.2
million of which was used at July 31, 1999.
We expect to experience significant growth in our operating expenses,
particularly in sales and marketing, general and administrative and research
and development expenses in the foreseeable future. As a result, we expect
operating expenses and purchases of property and equipment will constitute the
majority of the future use of our cash resources. In addition, we may use our
cash resources to acquire or make investments in complementary products,
technologies or businesses. We believe our current cash resources, without the
proceeds from the sale of the common stock in this offering, will be sufficient
to meet our working capital and operating expenditures for the next 12 months.
After that point, we may need to obtain additional equity or debt financing to
meet our cash resource needs. In the event that additional financing is
required, it is uncertain whether or not we would be able to obtain financing
on acceptable terms.
Year 2000 Readiness
Many computers, software and other equipment include computer code in which
calendar year data is abbreviated to only two digits. As a result of this
design decision, some of these systems could fail to operate or fail to produce
correct results if "00" is interpreted to mean 1900, rather than 2000. These
problems are widely expected to increase in frequency and severity as the year
2000 approaches, and are commonly referred to as the "year 2000 problem."
General Readiness Assessment. The year 2000 problem may affect the network
infrastructure, computers, software and other equipment that we use, operate or
maintain for our operations. As a result, we have formalized our year 2000
compliance plan, to be implemented by a team of employees, led by Dr. Eric
Sirkin,
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our vice president of engineering, responsible for the implementation of our
year 2000 projects and reporting their status to our board of directors.
Additionally, according to our year 2000 compliance plan, the project team has
compiled a listing of all mission-critical items, both internally developed and
externally purchased, which may be impacted by the year 2000 problem. We have
obtained verification or validation from independent third parties whose
products and services are deemed mission-critical to our processes to assess
and correct any of our year 2000 problems or the costs associated with these
products and services. We expect to have all third party verifications, or
replacement of the related item, completed by the end of November 1999. We
believe we have identified most of the major computers, software applications
and related equipment used in connection with our internal operations that will
need to be evaluated to determine if they must be modified, upgraded or
replaced to minimize the possibility of a material disruption to our business.
We expect to resolve any year 2000 problems before the occurrence of any
material disruption of our business.
Assessment of Infrastructure. Beginning in August 1998, we began assessing
the ability of our internally developed and other technologies to operate
properly in the year 2000. We have tested the ability of our internal and other
systems to handle travel-based reservations, bookings, credit card
authorization and other features of our services for year 2000 compliance. We
believe that our current internally developed technologies are year 2000
compliant. Additionally, as we design and develop new products, we test them
for year 2000 compliance and the ability to distinguish between various date
formats.
Systems Other than Information Technology Systems. In addition to computers
and related systems, the operation of office and facilities equipment, such as
fax machines, telephone switches, security systems and other common devices may
be affected by the year 2000 problem. We are currently contacting all related
third party suppliers or testing the related items. We expect to have this
process completed and necessary replacements implemented by the end of November
1999.
Costs of Remediation. We estimate the total cost of completing any required
modifications, upgrades or replacements of our internal systems will not exceed
$50,000, most of which we expect to incur during fiscal 2000. This estimate is
being monitored and we will revise it as additional information becomes
available.
Based on the activities described above, we do not believe that the year 2000
problem will significantly harm our business or operating results. In addition,
we have not deferred any material information technology projects or equipment
purchases, as a result of our year 2000 problem activities.
Suppliers and Service Providers. As part of our year 2000 plan, we have
requested that our third-party suppliers and service providers used in the
delivery of our services identify any potential year 2000 problems. All of our
requests have been answered in writing with the third party suppliers and
service providers indicating that they are year 2000 compliant. However, we
have limited or no control over the actions of these third-party suppliers and
cannot independently verify the facts underlying their responses to our
requests. While we expect that we will be able to resolve any significant year
2000 problems with these third parties, these suppliers might not resolve any
or all year 2000 problems before the occurrence of a material disruption to the
operation of our business. Any failure of these third parties to resolve year
2000 problems with their systems in a timely manner could significantly harm
our business and operating results.
Most Likely Consequences of Year 2000 Problems. We expect to identify and
resolve all year 2000 problems that could significantly harm our business and
operating results. However, we believe that it is not possible to determine
with complete certainty that all year 2000 problems affecting us have been
identified or corrected. The number of devices and systems that could be
affected and the interactions among these devices and systems are too numerous
to address. In addition, no one can accurately predict which year 2000 problem-
related failures will occur or the severity, timing, duration, or financial
consequences of these potential failures. As a result, we believe that the
following consequences may be possible:
. operational inconveniences and inefficiencies for us, our suppliers and
our customers could divert management's time and attention and financial
and human resources from ordinary business activities;
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. business disputes and claims due to year 2000 problems experienced by our
customers and attributed to our services or performance; and
. allegations that we failed to comply with the terms of contracts or
industry standards of performance, some of which could result in
litigation or contract termination.
Contingency Plans. We have developed contingency plans to be implemented if
our efforts to identify and correct year 2000 problems affecting our internal
systems are not effective. Depending on the systems affected, these plans could
include:
. short to medium-term use of backup equipment and software or other
redundant systems;
. increased work hours for our personnel or the hiring of additional
information technology staff; and
. the use of contract personnel to correct, on an accelerated basis, any
year 2000 problems that arise or to provide interim alternate services
for information system deficiencies.
Our failure to implement of any of these contingency plans could
significantly harm our business and operating results.
Quantitative and Qualitative Disclosures about Market Risk
Most of our cash equivalents, short-term investments and capital lease
obligations are at fixed interest rates, and therefore the fair value of these
instruments is affected by changes in market interest rates. As of July 31,
1999, all of our cash equivalents mature within 90 days and all of our short-
term investments mature by April 2000. Because our investment portfolio is
primarily comprised of short-term instruments, an immediate 10% change in
interest rates would not have a material effect on the fair market value of our
portfolio, therefore, we would not expect our operating results or cash flows
to be affected to any significant degree by the effect of a sudden change in
market interest rates on our securities portfolio.
Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 is effective for
financial statements for years beginning after December 15, 1998 and provides
guidance on accounting for the costs incurred for computer software developed
or obtained for internal use including the requirement to capitalize specified
costs and the amortization of such costs. We have adopted the provisions of SOP
98-1 in the fiscal year beginning February 1, 1999. The adoption of SOP 98-1 is
not expected to have a material effect on our results of operations, financial
position or cash flows.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133 is effective for all fiscal quarters beginning with the quarter ending July
31, 1999. In July 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date
of FASB Statement No. 133" which deferred the effective date until the fiscal
quarter ending July 31, 2000. The adoption of SFAS No. 133 is not expected to
have a material effect on our results of operations, financial position or cash
flows.
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BUSINESS
Overview
GetThere.com is a provider of Internet-based travel procurement and supply
services primarily for businesses and travel suppliers. Through our Global
Manager service, which is sold to businesses, we provide a Web site that
enables employees to make travel reservations and purchase airline tickets over
the Internet. Through our ITN FlightRez service, which is sold to travel
suppliers such as airlines, we provide a Web site that enables travel suppliers
to sell travel products and services over the Internet. In addition, we provide
a service that enables Internet-based content and electronic commerce providers
and travel agencies to offer travel-related products and services over the
Internet.
Industry Background
Growth of Electronic Commerce
The Internet is dramatically changing the way people worldwide communicate,
share information and conduct commerce. The success of the Internet for
consumer-related electronic commerce is encouraging businesses to utilize
Internet-based services to simplify their business-to-business and business-to-
consumer transactions. Forrester Research estimates that the business-to-
business electronic commerce market in the United States will grow from $43.0
billion in 1998 to $1.3 trillion in 2003. Internet-based services enable
companies to increase revenues, lower costs and improve profitability by
enabling one-to-one marketing, increasing customer acquisition opportunities,
and streamlining business processes, such as the internal procurement and
supply of indirect goods and services.
Procurement and Supply of Indirect Goods and Services
Indirect goods and services include travel, entertainment, information
technology, telecommunications equipment, professional services and office
supplies and equipment. Killen & Associates, a research firm, estimates that
indirect goods and services expenditures are the largest segment of corporate
expenditures, representing approximately 33% of a typical company's total
revenues.
We believe the process of procuring and supplying indirect goods and services
is plagued by numerous inefficiencies, including:
. multiple layers of intermediaries, such as agents and distributors, which
lead to higher costs and indirect communication between businesses and
suppliers;
. the inability to monitor compliance with corporate procurement policies,
including the inability to control "rogue purchasing," which occurs when
personnel do not follow internal purchasing guidelines;
. the inability to maximize economies of scale by enforcing purchasing
through preferred suppliers; and
. labor-intensive processes which result in higher costs and lower employee
productivity.
Travel Procurement and Supply Market
In 1998, there were approximately 1.4 billion total airline passengers
worldwide as reported by the International Airtransport Association. According
to the American Express 1998 Survey of Business Travel Management, U.S.
business expenditures for airline tickets, car rentals and lodging exceeded
$122 billion in 1998. According to the same survey, businesses in the U.S.
completed approximately 154 million air travel transactions in 1998,
representing expenditures of approximately $73 billion. Forrester Research
estimates that travel will be the second largest spending category for online
business-to-business services in 1999, representing approximately 23% of this
market.
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In general, businesses purchase travel-related goods and services through a
traditional procurement channel that involves numerous intermediaries including
travel agents, computer reservation systems and credit card issuers. We believe
the involvement of these intermediaries creates numerous inefficiencies and
makes it difficult for businesses to obtain complete and timely information
regarding their travel expenditures. Consequently, businesses often experience
difficulty:
. negotiating favorable contracts with preferred travel suppliers;
. monitoring employee compliance with corporate procurement policies,
including controlling "rogue purchasing," which occurs when personnel do
not follow internal purchasing guidelines; and
. directing purchases to preferred travel suppliers to take advantage of
negotiated contracts and volume discounts.
In addition, these intermediaries increase transaction costs by charging fees
in connection with each purchase or reservation, with travel agency fees often
representing a majority of these costs. For example, we believe the purchase of
a single $500 airline ticket by a business generally includes a computer
reservation system fee of approximately $10 and a credit card processing fee of
approximately $10. In addition to the $500 ticket price, we believe that the
business also generally pays a travel agency fee of approximately $40.
Travel suppliers also incur significant costs and lost revenue opportunities
due to the control by intermediaries of valuable transaction and customer
information. In particular, the existence of multiple intermediaries often
limits the ability of travel suppliers to effectively:
. establish one-to-one personalized relationships with travelers;
. minimize excess capacity, such as unsold airline seats and empty hotel
rooms; and
. maximize the effectiveness of affinity programs.
Furthermore, the traditional travel procurement and supply process is labor
intensive, resulting in lower employee productivity and higher costs for both
businesses and travel suppliers. Deloitte & Touche estimates that the
procurement process for the purchase of a single airline ticket by a business
involves at least three people and takes an average of 46 minutes. Due to the
complexity and inefficiency inherent in this process, we believe that
businesses and travel suppliers will increasingly utilize Internet-based
services to reduce inefficiencies and costs.
Opportunity for an Internet-Based Travel Procurement and Supply Service
Forrester Research estimates that online business travel expenditures will
grow from $5 billion in 1999 to $38 billion in 2003. Accordingly, we believe
there is a significant market opportunity for a comprehensive Internet-based
service that reduces the inefficiencies in the travel procurement and supply
process for businesses and travel suppliers. This service should facilitate the
distribution of travel-related goods and services and provide businesses and
travel suppliers with tools for the complete and timely analysis and reporting
of travel-related information. Furthermore, the service should be easy to
implement and compatible with businesses' and travel suppliers' existing
technology.
The GetThere.com Service
GetThere.com is a provider of Internet-based travel procurement and supply
services primarily for businesses and travel suppliers. We provide fully-
managed travel reservation and booking services that enable businesses and
travel suppliers to reduce current inefficiencies in the travel procurement and
supply process. Our services can operate independently of third-party travel
agencies and are not dependent on any single computer reservation system.
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Our services use our proprietary technology, the GT Exchange, to provide
businesses, suppliers and travelers with the ability to:
. create profiles reflecting travel preferences;
. access airline, car rental and hotel information and availability;
. access their privately negotiated or publicly available pricing;
. create and ticket travel reservations;
. access travel-related information such as news, weather and maps; and
. collect and analyze travel data.
Our ITN Global Manager service is designed to enable businesses with
significant travel expenditures to reduce travel costs, increase employee
productivity and analyze and report travel data. Our ITN FlightRez service is
designed to enable travel suppliers, such as airlines, to increase revenue
opportunities, reduce costs and enhance customer service. In addition, we
provide a service that is designed to enable Internet-based content and
electronic commerce providers and travel agencies to offer travel-related goods
and services over the Internet.
Benefits to Businesses
Reduce costs. ITN Global Manager utilizes the Internet to further automate
the travel procurement process and decrease the role of intermediaries. Our
service is designed to enable businesses to significantly reduce travel-related
costs, such as travel agency fees, by reducing the number of people and the
time involved in processing travel-related transactions. In addition, our
service is designed to lower travel costs by enforcing the use of preferred
travel suppliers and negotiated rates. ITN Global Manager also provides data
analysis and reporting features that enable businesses to enforce corporate
travel policies and facilitate the negotiation of favorable contracts with
preferred travel suppliers. The ability to monitor travel-related purchases
also helps businesses control against rogue purchasing, which generally
accounts for a significant portion of travel expenditures.
Increase productivity. ITN Global Manager is designed to enable businesses to
increase productivity by streamlining their internal travel procurement
processes. We believe that by automating the travel procurement process, our
service enables businesses to reduce the amount of time it takes to execute
travel transactions and reduce the number of individuals involved. Also,
business travelers can use our services to procure travel-related goods and
services, 24 hours a day, seven days a week.
Provide real-time data analysis and reporting. ITN Global Manager is designed
to enable businesses to collect, analyze and report on their current and
historical travel data for both online and agency-generated reservations.
Businesses can utilize this information for planning and strategic purposes,
including negotiating volume discounts with travel suppliers. ITN Global
Manager also allows businesses to analyze useful real-time metrics, such as
cost per mile, compliance with travel policies and adoption rates of online
travel technologies. ITN Global Manager provides online access to this
information in a variety of customer-specific, user-friendly formats.
Benefits to Travel Suppliers
Increase revenue opportunities. ITN FlightRez is designed to provide travel
suppliers with an Internet-based sales channel enabling them to directly
interact with travelers using the Internet, 24 hours a day, seven days a week.
This service provides travel suppliers with the information needed to build
traveler profiles, to analyze traveler usage patterns and preferences and to
develop one-to-one personalized relationships. These relationships enable
travel suppliers to market directly to their customers by publishing,
distributing and selling special online-only promotional fares directly to
them. In addition, the traveler information we provide is
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designed to enhance travel suppliers' ability to sell unused capacity to
targeted travelers, resulting in increased revenues and improved inventory
management.
Reduce sales and distribution costs. ITN FlightRez is designed to enable
travel suppliers to reduce sales and distribution costs by allowing them to
sell directly to travelers over the Internet, thereby reducing or eliminating
travel agency fees. By further automating their reservation processes, travel
suppliers can reduce the high labor costs inherent in traditional processes. In
addition, travel-related information can be distributed online, thereby
reducing the costs of printing and distribution.
Enhance customer service and increase customer loyalty. ITN FlightRez is
designed to enable travel suppliers to provide their customers with real-time
access to travel information, including current flight information, historical
reservation bookings, flight status updates and seat maps. Additionally, ITN
FlightRez can be adjusted to provide other useful travel-related information,
such as news, weather, maps, driving directions, hotel locations and other
destination information. In addition, our services can be customized to allow
travelers to join a travel supplier's customer loyalty program, obtain account
balances and redeem award travel online. We believe these features enhance
customer service and increase customer loyalty. Furthermore, our services can
be customized to enable travel suppliers to provide their customers with the
ability to make other airline, car rental and hotel reservations so that
travelers can book an entire travel itinerary from the travel supplier's Web
site.
Benefits to Internet-based Content and Electronic Commerce Providers and
Travel Agencies
We also provide our services to Internet-based content and electronic
commerce providers and travel agencies that want to offer travel-related goods
and services online. Our services allow these companies to offer travel
reservation capabilities to attract more visitors and generate new travel-
related revenues. In addition, our service allows travel agencies to extend
their existing sales channel. Our service offers a variety of completely
outsourced and hosted capabilities, including online booking, transaction
processing, traveler support, and ticket fulfillment and delivery. Our service
is designed to enable our customers to quickly and easily add online travel
capabilities to their Web sites.
Our Strategy
Our objective is to be the leading provider of Internet-based procurement and
supply services for travel and other indirect goods and services. Key elements
of our strategy include:
Expand our customer base. Our current marketing activities focus on
advertising in trade publications and participating in trade shows. We intend
to continue to build our sales and marketing capabilities by adding personnel
and conducting marketing campaigns that strengthen our brand and increase our
penetration of businesses with significant travel expenditures, travel
suppliers and potential Internet-based companies. We target customers that
purchase or supply large volumes of travel-related goods and services and that
are increasingly using the Internet as a business tool. We intend to provide
these customers with high-quality transaction processing capabilities, data
analysis and reporting tools and customer support. In addition, we intend to
leverage our contacts in the travel industry in order to generate new
customers.
Increase adoption rates of our services by our business customers. We provide
professional services that are designed to help our business customers develop
internal programs to increase adoption rates of our ITN Global Manager service.
We intend to work with our business customers to implement customer loyalty
programs designed to encourage travelers to use our service. In addition, we
intend to enhance the content and information available through our service
such as providing improved directions and maps, and more up to date information
to further improve the user experience and increase customer retention.
Aggressively pursue other travel markets. We currently have a sales office in
the United Kingdom that has conducted limited market development activities in
Europe and is focused on supporting existing
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customers. We intend to grow our sales and marketing capabilities to target the
substantial opportunities represented by small-to-medium sized businesses and
seek new customers in international markets. In addition, we will continue to
pursue strategic relationships to accelerate our penetration of these markets.
For example, we recently signed an agreement with American Express that makes
us the preferred provider of Internet-based travel procurement services for
their small, middle and international markets.
Further develop our technology. Our architecture is designed to be reliable,
scalable and is flexible to meet the specific needs of a customer in order to
meet the evolving demands of the travel procurement and supply market. We
intend to continue to develop additional features and functionality.
Leverage technology and relationships into markets for other indirect goods
and services. We believe that the architecture of our travel procurement and
supply services is extendable to markets for other indirect goods and services.
For example, we may provide Web sites through which companies, such as
telecommunications and information technology companies, can supply their goods
and services. Furthermore, we believe that the relationships we have developed
with our business customers will enable us to extend our services into markets
for other indirect goods and services and provide us with significant cross-
selling opportunities.
Services
We provide Internet-based travel procurement and supply services for
businesses, travel suppliers and other customers. Our services are fully
managed by us, can be readily deployed from a limited number of users to a
large number of users, can be easily adjusted to meet the specific needs of a
customer and allow our customers the freedom to select their preferred computer
reservation system and travel agency.
ITN Global Manager. ITN Global Manager is a full service Internet-based
travel reservation and airline ticket purchasing service for businesses. This
service combines sophisticated cost, supplier, and travel policy management
features with an easy to follow, user-friendly interface. Our service is
adjustable to add our customers' corporate travel policies, which typically
include travel class options, travel supplier preferences, hotel room rates and
car rental prices.
ITN Global Manager provides corporate travel managers with the capability to
easily:
. change computer reservation systems;
. change, update and enforce multi-level corporate travel policies;
. view current status of volume-based negotiated contracts;
. specify preferred and non-preferred vendors;
. enforce use of preferred vendors and negotiated rates;
. generate travel reports in a variety of formats;
. analyze current and historical travel activity for online and travel
agency-generated reservations;
. monitor traveler use and purchasing behavior; and
. determine ticketing methods based on time and cost saving criteria.
ITN Global Manager provides travelers with the capability to easily:
. book a complete travel itinerary, including airlines, hotels and car
rentals;
. save profiles and preferences;
. adjust itineraries as travel plans change;
. view real-time airline seat maps and reserve a specific seat;
. receive customized maps and driving directions based on their travel
itineraries;
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. review previous travel itineraries;
. compare and choose ticket prices;
. make reservations for multiple travelers; and
. comply with corporate travel policies.
ITN FlightRez. ITN FlightRez is an Internet-based airline ticket purchasing
and travel reservation service designed for travel suppliers. This service
allows travel suppliers to serve travelers directly from the travel suppliers'
Web sites. ITN FlightRez allows a travel supplier to selectively present fares,
integrate programs designed to promote customer loyalty, and provide traveler
support, 24 hours a day, seven days a week. In addition, ITN FlightRez allows
the flexibility to design a Web site in accordance with the design
specifications of the travel supplier.
ITN FlightRez enables the travel supplier to offer:
. a customer-specific user interface;
. reservation capabilities for multiple airlines, hotels and car rental
agencies;
. a low-fare search engine which allows travelers to compare prices;
. discounted fares and sales promotions;
. targeted direct marketing campaigns through e-mail;
. electronic-ticketing capabilities;
. real-time seat maps for selection and reservation of specific seats;
. maps and driving directions based on travelers' itineraries; and
. access to previous travel itineraries.
Services for Other Customers. We provide an Internet-based airline ticket
purchasing and travel reservation service that offers the same capabilities as
our ITN FlightRez service to Internet-based content and electronic commerce
providers and travel agencies.
Professional Services. Our professional services organization provides the
following services:
. design, customization, implementation and maintenance of our travel
procurement and supply services;
. training and education programs designed to promote enterprise-wide
adoption of our services; and
. technical support, implementation of product upgrades, and integration of
added functionality to meet our customers' evolving needs.
Traveler Support. We provide ticket printing and delivery and telephone
support to travelers. Our objective is to assist travelers in resolving any
technical, functional or travel-related questions. This support is provided
from a traveler support center located in Palo Alto, California. We have also
recently purchased a call center located in Fort Lauderdale, Florida, which
will enable us to expand our customer support services across a wider range of
time zones. We expect that this support center will be operational in late
1999.
Customers
We primarily target businesses with significant travel expenditures, travel
suppliers and Internet-based content and electronic commerce providers and
travel agencies.
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Businesses. As of October 15, 1999, we had 61 business customers. The table
below represents our largest business customers as measured by fees paid to us
over the twelve months preceding October 1999:
<TABLE>
<S> <C>
Boeing Nike
Chevron PeopleSoft
Chiron PricewaterhouseCoopers
Credit Suisse First Boston State Farm Insurance
Hewlett-Packard Tektronix
Institute of Electrical and Electronics Engineers Texas Instruments
Kirkland and Ellis Toyota
Kodak VeriFone
Lawrence Berkeley National Laboratory Xerox
Nabisco
NationsBank
</TABLE>
Travel suppliers and Internet-based customers. Our top five travel supplier
customers, as measured by fees paid to us over the twelve months preceding
October 1999, are All Nippon Airways, Lauda Airlines, National Airlines, United
Air Lines and Virgin Atlantic Airways. We are developing a Web site for
Northwest Airlines through which Northwest Airlines intends to offer low fare
tickets. In addition, we are seeking to extend our relationship with Northwest
Airlines by implementing our services for Northwest Airlines' primary Web site,
www.nwa.com. We are also developing America West Airlines' Web site with our
services. Our top four Internet-based content and electronic commerce providers
and travel agencies, as measured by fees paid to us over the twelve months
preceding October 1999, are TRAVEL.com, Computravel, Travelzoo and TRIP.com.
We might not enter into a definitive agreement with Northwest Airlines
regarding its primary Web site, and America West Airlines might not adopt our
services for its Web site. See "Risk Factors--We rely on suppliers of travel
services and products."
Agreement with American Express
On September 14, 1999, we entered into an agreement with American Express
under which American Express has agreed to promote and market our Internet-
based travel procurement services to their customers and potential customers.
These promotional and marketing efforts will include the placement of our name
on American Express' travel-related Web sites and in American Express'
promotional and marketing materials. Once we have completed development
according to American Express' specifications, American Express will market
these services to large, middle market and small business customers as well as
consumers as described below:
. Large businesses with the highest volumes of corporate air travel
expenditures: American Express will promote and vigorously market, except
in the United Kingdom and Germany, our services to at least 30% of a
specified list of the world's largest companies during the first year,
increasing to 37.5% of these companies in the second year and 45% of
these companies in the third year.
. Middle market businesses: American Express will promote and vigorously
market our services for a period of three years.
. Small businesses: American Express will exclusively use our services on
its Web sites targeting small businesses for a period of three years.
. Consumers: Starting January 27, 2000, American Express will exclusively
use our services on its Web sites targeting consumers for a two-year
period. In addition, commencing January 27, 2000, we will transfer the
rights to the domain names, www.itn.net and www.itn.com, our consumer-
oriented Web site, and the associated customer information, to American
Express.
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Under the agreement, we will be entitled to receive fixed quarterly payments.
A portion of the fixed payments will be subject to reimbursement if a specified
number of visitors to www.itn.net and www.itn.com do not register on American
Express' site. In addition, we will be entitled to receive transaction fees
with guaranteed annual minimums. Our annual minimums are subject to reduction
based upon failure to meet certain development timetables. However, we might
not realize any benefit from our recent agreement with American Express, and
our relationship with American Express may not be successful.
Sales and Marketing
We market and sell our services to our customers primarily through a direct
sales force with offices in the United States and the United Kingdom. Our
target customers include businesses with significant travel expenditures,
travel suppliers and other customers. For potential business customers, our
sales efforts generally target the chief financial officer, the chief
information officer and the corporate travel manager. Within travel suppliers,
we generally target the officer responsible for distribution and the chief
information officer. The centralization of travel procurement decisions allows
us to penetrate most businesses on an enterprise-wide basis, which enables us
to grow our revenues with a smaller sales force than would otherwise be
possible. In addition, we believe that the relationships that we develop with
senior executives through the sales process will facilitate our ability to
extend our services into markets for other indirect goods and services.
Our sales and marketing activities are aimed at educating customers and
potential customers about the advantages of our services. Our marketing program
includes our Web site, seminars, direct mailings, trade shows, advertising and
public relations events. Our marketing organization assesses industry trends
and analyzes customer and industry feedback in order to help provide product
direction to our development organizations. We collect data directly from
customer visits and our sales force, as well as through customer advisory
meetings, forums and participation in industry trade organizations. In
addition, we work with some of our customers to promote our services to others.
For example, United Air Lines has promoted ITN FlightRez to its Star Alliance
partners and American Express has agreed to sell and promote versions of our
services.
Technology
Our travel procurement and supply services incorporate proprietary technology
and technology licensed from third parties. Our services are designed to be
highly adjustable and scaleable--in other words, readily deployable to a
limited number of users or to a high volume of users. All of our services use
our proprietary GT Exchange technology. GT Exchange combines a proprietary
database of information relating to travel services, individual traveler
preferences, and company-specific travel information, with connectivity to
computer reservation services, travel suppliers and the Web sites that
customers use to access our services. GT Exchange provides business customers
using our ITN Global Manager service with the ability to make reservations,
purchase airline tickets, and access and analyze their travel related
information. GT Exchange also provides our travel supplier customers using our
ITN FlightRez service with the ability to offer Internet-based travel
reservations and ticket purchasing and the ability to access and analyze
consumer travel information.
Highly adjustable architecture. As of July 31, 1999, we hosted more than 200
travel booking Web sites running similar executable application codes
configured for a customer's set of business rules and the appearance and
navigation of the customer's Web site. This system can be rapidly deployed and
adjusted for each customer. The architecture relies on a three-layer system
design, which enables the customization of each Web site. The presentation
layer is served by Netscape Enterprise Server software with the dynamic
rendering of Web pages done by a combination of a proprietary command
language/interpreter, HTML and Javascript. Most of the business logic rules in
the application layer can be readily adjusted by either our personnel or by our
customers. All adjustment is done with special security access through a Web
browser. The data layer is managed in either a commercial relational or a
proprietary database, depending on the nature of the database records.
Scalable platforms. In order to design a highly scalable and reliable
environment, we use only commercially-supported versions of the Unix operating
system. All application and Web servers run on Sun
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Microsystem's Solaris and Hewlett Packard's HP-UX operating systems. We
continually evaluate our capacity needs to better meet customer demand for
scalability.
Data center operations. In addition to our data center in Palo Alto,
California, we have data centers at Exodus Communications' facilities in Santa
Clara, California and Sterling, Virginia. Communication between the two Exodus
centers takes place across a portion of a fiber optic line. This network design
enables automatic switching of data paths in the event of an outage on one of
the network switches. Routers enable our customers to access these data centers
through either the Internet, a dedicated T1 line or other leased-line circuits.
We balance traffic across the various Web servers and across these data
centers.
Development methodology. Our services are developed using commercially
available compilers, debuggers and profiling tools. All of our releases are
preceded by a rigorous testing process. In addition, we schedule and release
upgrades to our services on a regular basis.
We currently license third-party technology and will continue to evaluate
third-party technology for integration into our services. For example, we
license data analysis and reporting software from Cognos, Inc. for our
services.
Competition
The market for Internet-based travel procurement and supply services is new,
intensely competitive and rapidly evolving and we expect competition to
intensify in the future. Increased competition is likely to result in price
reductions, reduced gross profits and loss of market share, any of which could
harm our revenues and results of operations. We currently, or potentially may,
compete with a variety of companies. Our primary competition currently comes
from or is anticipated to come from companies in the following categories:
. providers of online travel products and services to businesses, such as
Sabre BTS, Oracle Corporation's eTravel, XTRA On Line, American Express
AXI and Microsoft;
. other online providers of indirect goods and services such as Ariba and
Commerce One; and
. traditional travel service providers, including travel agencies.
In addition, we compete with consumer Web sites, such as Microsoft's Expedia,
Sabre's Travelocity, which recently announced the acquisition of Preview
Travel.
We believe the principal factors on which we compete include:
. cost effectiveness of our services;
. flexibility to operate with multiple travel agencies and computer
reservation systems;
. ease of implementation and customization;
. data analysis and reporting capabilities;
. traveler and technical support;
. convenience and ease of use;
. selection of services;
. reliability and speed of fulfillment; and
. price.
Some of our competitors and potential competitors have longer operating
histories and significantly greater financial resources and name recognition
than we do and may enter into strategic or commercial relationships with
larger, more established and well-financed companies. In addition, many of
these companies may have
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more technical and marketing personnel, and more established customer support
and professional services organizations than we do. Furthermore, as new
participants enter the online travel procurement and supply market, we will
face increased competition. Potential competitors, such as online providers of
indirect goods and services, may incorporate online travel-related services
into their existing product offerings. It is also possible that new competitors
or alliances among our competitors may emerge and rapidly acquire significant
market share. Our competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements than we can, which
could cause our services to become obsolete.
Intellectual Property and Other Proprietary Rights
We depend on our ability to develop and maintain the proprietary aspects of
our technology. To protect our proprietary technology, we rely primarily on a
combination of contractual provisions, confidentiality procedures, trade
secrets and patent, copyright and trademark laws.
We seek to protect our trade secrets through a number of means, including but
not limited to, requiring those persons with access to our proprietary
information, including all of our employees and consultants, to execute
confidentiality agreements with us and restricting access to our source code,
trade secrets and other intellectual property. We seek to protect our services,
documentation and other written materials under trade secret and copyright
laws, which afford only limited protection. We cannot assure you that any of
our proprietary rights will be viable or of value in the future since the
validity, enforceability and type of protection of proprietary rights in
Internet-related industries are uncertain and constantly evolving.
We presently have one U.S. patent application pending. It is possible that
any pending or future patents, if issued, may be successfully challenged, or
that no patents will be issued from our pending patent application. It is also
possible that we may not develop proprietary services or technologies that are
patentable, that any patent issued to us may not provide us with any
competitive advantages, or that the patents of others will seriously harm our
ability to do business.
ITN is registered as a trademark in the United States. We have filed
trademark applications in the United States for GetThere.com, ITN FlightRez and
ITN Global Manager. We have filed trademark applications in the European Union
for GetThere, ITN FlightRez and ITN Global Manager. In addition, we have filed
a trademark application in Tunisia for GetThere. The above mentioned trademark
applications are subject to review by the applicable governmental authority,
may be opposed by private parties and may not be issued. In addition, any
claims or customer confusion related to our trademark, or our failure to obtain
trademark registration, would harm our business and operating results. We are
aware of a pending trademark application in the European Union filed by a
company for the mark GETTHERE!. We have discussed the rights related to this
mark with this company and have not resolved this matter. If it is determined
that the mark is validly held by this company, we may be unable to use the mark
in the European Union, which could significantly harm our ability to expand our
brand awareness in the European Union.
We rely on technology that we license from third parties, including software
that is integrated with internally developed software and systems. If we are
unable to continue to license any of this software on commercially reasonable
terms, we will face delays in releases of our software until equivalent
technology can be identified, licensed or developed, and integrated into our
current services. These delays, if they occur, could seriously harm our
business.
Despite our efforts to protect our proprietary rights, unauthorized parties
may copy aspects of our services or obtain and use information that we regard
as proprietary. In addition, the laws of some foreign countries do not protect
our proprietary rights to as great an extent as do the laws of the United
States. Our means of protecting our proprietary rights may not be adequate and
our competitors may independently develop similar technology, duplicate our
services or design around patents issued to us or our other intellectual
property.
There has been a substantial amount of litigation in the Internet industry
regarding intellectual property rights. It is possible that in the future third
parties may claim that we or our current or potential future services
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infringe their intellectual property. We expect that providers of electronic
commerce services will increasingly be subject to infringement claims as the
number of products and competitors in our industry segment grows and the
functionality of products in different industry segments overlaps. Any claims,
with or without merit, could be time-consuming, result in costly litigation,
cause delays in releases of our services or require us to enter into royalty or
licensing agreements. Royalty or licensing agreements, if required, may not be
available on terms acceptable to us or at all, which could seriously harm our
business.
Government Regulation
Certain segments of the travel industry are heavily regulated by the United
States and international governments, and accordingly our services are affected
by such regulations. For example, we are subject to United States Department of
Transportation regulations prohibiting unfair and deceptive practices. In
addition, Department of Transportation regulations concerning the display and
presentation of information that are currently applicable to the computer
reservation systems could be extended to us in the future, as well as other
laws and regulations aimed at protecting consumers accessing online travel
services. In California, under the Seller of Travel Act, we are required to
register as a seller of travel, comply with certain disclosure requirements and
participate in California's restitution fund.
We are also subject to regulations applicable to businesses generally and
laws or regulations directly applicable to online commerce. Although there are
currently few laws and regulations directly applicable to the Internet and
commercial online services, it is possible that a number of laws and
regulations may be adopted covering issues such as user privacy, pricing,
content, copyrights, distribution, antitrust and characteristics and quality of
products and services. For example, some consumer organizations have raised
concerns claiming that favorable pricing terms provided by travel suppliers
solely to online users is unfair and discriminatory against those without
Internet access. Furthermore, the growth and development of the market for
electronic commerce may lead to more stringent consumer protection laws that
may impose additional burdens on companies conducting business online. The
adoption of any additional laws or regulations may decrease the growth of the
Internet or commercial online services, which could decrease the demand for our
services and increase our cost of doing business.
Moreover, the applicability to the Internet and commercial online services of
existing laws in various jurisdictions governing issues such as property
ownership, sales and other taxes, libel and personal privacy is uncertain and
may take years to resolve. For example, tax authorities in a number of states
are currently reviewing the appropriate tax treatment of companies engaged in
electronic commerce, and new state tax regulations may subject us to additional
state sales and income taxes. Any such new legislation or regulation, the
application of laws and regulations from jurisdictions whose laws do not
currently apply to our business or the application of existing laws and
regulations to the Internet and commercial online services could significantly
harm our business and operating results.
Employees
At October 15, 1999, we had a total of 271 employees. None of our employees
is subject to a collective bargaining agreement and we believe that our
relations with our employees are good.
Our future operating results depend in significant part on the continued
service of our key technical, sales and senior management personnel, none of
whom are bound to serve us for any specified term. Our future success also
depends on our ability to attract and retain highly qualified technical, sales
and senior management personnel. Competition for these personnel is intense,
and we may not be able to retain our key technical, sales and senior management
personnel or attract these personnel in the future. We have experienced
difficulty in recruiting qualified technical, sales and senior management
personnel, and we expect to experience these difficulties in the future. If we
are unable to hire and retain qualified personnel in the future, our business
and operating results could be significantly harmed.
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Facilities
Our principal executive offices are located in Menlo Park, California, where
we lease approximately 66,000 square feet under a lease that expires in May
2004. We also lease approximately 6,000 square feet of office space in Palo
Alto, California, under leases with varying expiration dates through March
2001. We have recently acquired a call center located in Fort Lauderdale,
Florida, where we lease approximately 10,000 square feet under leases with
varying expiration dates through May 2001. We also have a sales office in the
United Kingdom, where we lease approximately 300 square feet under a lease that
expired in September 1999, and which we have decided to continue on a month to
month basis. We have entered into a lease for approximately 5,000 square feet
for an engineering development center in Dallas, Texas.
Legal Proceedings
We are not aware of any pending legal proceedings against us that,
individually or in the aggregate, would significantly harm our business and
operating results. In the future, we may be party to litigation arising in the
course of our business, including claims that we allegedly infringe third-party
intellectual property rights. These claims, even if not meritorious, could be
time consuming, result in costly litigation or arbitration and divert the
attention of management.
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MANAGEMENT
Executive Officers and Directors
Our executive officers and directors and their ages as of October 15, 1999
are as follows:
<TABLE>
<CAPTION>
Name Age Position
<C> <C> <S>
Gadi Maier.......................... 42 President, Chief Executive Officer
and Director
Kenneth R. Pelowski................. 40 Chief Operating Officer, Chief
Financial Officer and Director
Eric Sirkin......................... 47 Vice President of Engineering
Daniel Whaley....................... 30 Chief Technical Officer and
Director
Richard D.C. Whilden................ 66 Chairman of the Board and Director
Jeffrey D. Brody.................... 39 Director
William R. Hambrecht................ 64 Director
John Ueberroth...................... 56 Director
Dale J. Vogel....................... 55 Director
</TABLE>
Gadi Maier has served as president, chief executive officer and as a director
since January 1999. From August 1997 to December 1998, he served as chief
executive officer of Memco Software, which provides security technology as well
as UNIX and NT security software. Prior to Memco, Mr. Maier served as vice-
president and general manager for Cisco Systems' Internet Business Unit from
June 1996 to August 1997. From September 1988 to June 1996, Mr. Maier worked at
Oracle Corporation, where he held various senior management positions,
including founder of Oracle/Japan, general manager for new technologies, and
head of worldwide sales and operations for the Network Computer Division. Mr.
Maier received his B.S. in natural resource economics as well as his M.B.A. in
marketing and finance from the University of California, Berkeley.
Kenneth R. Pelowski has served as chief operating officer and chief financial
officer since April 1999 and as a director since October 1999. From September
1997 to March 1999, he served as executive vice president and chief financial
officer of Preview Travel, a company that provides online travel services for
small business and leisure travelers. From July 1996 to August 1997, Mr.
Pelowski served as vice president of corporate development for General
Instruments. From March 1995 to July 1996, he worked at Quantum Corporation,
where he served as vice president for corporate planning and development. Prior
to this, Mr. Pelowski spent seven years at Sun Microsystems, where he served as
senior director for corporate development. Mr. Pelowski holds a B.S.E. in
electrical engineering from the University of Michigan, an M.S.E. in computer
engineering from Wayne State University, and an M.B.A. from the University of
Michigan.
Eric Sirkin has served as vice president of engineering since December 1998.
From August 1998 to December 1998, he acted as vice-president of engineering at
Filanet Corporation, which creates networking products for computer systems.
From December 1997 to April 1998, Dr. Sirkin served as vice president of
product development at Signafy Corporation, a software application company.
From January 1991 to March 1997, Dr. Sirkin served as director of interactive
media systems at Apple Computer, Inc. Earlier in his eighteen-year career in
the computer industry, Dr. Sirkin held various positions at Xerox Palo Alto
Research Corporation and Zoran Corporation. Dr. Sirkin received his B.S.C. in
chemistry from the University of Wisconsin at Madison and his Ph.D in chemistry
from the University of California, Berkeley.
Daniel Whaley is one of the founders of GetThere.com and has served as a
director since August 1995. He is currently serving as our chief technical
officer. Previously, he has held the positions of president and vice president
of engineering. Prior to founding GetThere.com, Mr. Whaley served as vice
president of Sunnyside Computing from March 1994 to April 1995. He holds a B.A.
in English from the University of Illinois.
Richard D.C. Whilden has served as chairman of the board of directors and as
a director of GetThere.com since May 1996. He served as our chief executive
officer from March 1998 until January 1999. Mr. Whilden
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currently serves as a principal of the Contrarian Group, an investment
management company. He is a director of Ambassadors International, Inc., an
educational travel, travel services and performance improvement company, and
also served as the managing director for the recently completed Council on
California Competitiveness. Mr. Whilden was formerly chairman and chief
executive officer of Independent Bancorp of Arizona, which was sold to Norwest
Bank in 1995. Prior to that he was an executive vice president for TRW where he
was responsible for all of TRW's consumer credit reporting and related
information services businesses. Earlier at TRW he had extensive management
responsibilities in their aerospace division. Mr. Whilden successfully
developed a major spacecraft program at NASA, for which he was awarded the
Public Service Medal. Mr. Whilden received his B.S. in business from the
University of the Redlands.
Jeffrey D. Brody has served as a director since April 1996. Mr. Brody is
currently a General Partner at Brentwood Venture Capital, which he joined in
April 1994, and a Managing Director of Redpoint Ventures, a firm he co-founded
in October 1999. From December 1988 to April 1994, Mr. Brody was senior vice
president of Comdisco Ventures, a venture leasing company. Mr. Brody is a
member of the board of directors of Concur Technologies and NextCard, Inc., and
serves on the compensation committee for both companies. Mr. Brody also serves
on the board of directors of several private companies. He received his B.S. in
engineering from the University of California, Berkeley, and his M.B.A. from
the Stanford University Graduate School of Business.
William R. Hambrecht has served as a director since May 1998. He is currently
the chairman and chief executive officer of WR Hambrecht + Co, a full service
Internet investment bank, which he founded in 1998. Prior to this, Mr.
Hambrecht was with Hambrecht & Quist, an investment banking firm specializing
in high growth technology companies, which he co-founded in 1968. He sits on
the board of KQED, Inc., San Francisco's public radio and television station,
and Beacon Education Management, which manages charter schools. Mr. Hambrecht
holds a B.A. from Princeton University.
John Ueberroth has served as a director since April 1996. Mr. Ueberroth has
served as president, chief executive officer, and a director of Ambassadors
International, Inc., an educational travel, travel services and performance
improvement company, since 1995, and as president of Ambassadors Performance
Group, Inc. since April 1999. Since 1989, Mr. Ueberroth has been a principal of
The Contrarian Group, an investment management company. From 1990 to 1993, he
served as chairman and chief executive officer of Hawaiian Airlines. From 1980
to 1989, Mr. Ueberroth served as president of Carlson Travel Group. He
currently serves as co-chairman and is a director of SatoTravel. Mr. Ueberroth
received his B.S. in business administration from the University of California,
Berkeley, and his M.B.A. from the University of Southern California. Mr.
Ueberroth also served as a Lieutenant in the United States Navy.
Dale J. Vogel has served as a director since April 1997. Mr. Vogel is
currently a partner with U.S. Venture Partners, and has been with the firm
since April 1990. From July 1984 until April 1990, Mr. Vogel was a partner with
Norwest Venture Capital. He served as president of K2 Corporation from 1980
until 1984. Mr. Vogel serves on the boards of Concur Technologies and Gymboree
Corporation, and currently serves on several private company boards. Mr. Vogel
received his B.S. in industrial engineering from San Jose State University, and
his M.B.A. from Harvard Business School.
Classified Board of Directors
Our certificate of incorporation provides that all directors, other than
those elected by our series D1, series D2 or series D3 convertible preferred
stock, will be part of a classified board of directors consisting of three
classes of directors, each serving staggered three-year terms. As a result,
only a portion of our directors will be elected each year. Under this
classified structure, three of the directors (Messrs. Hambrecht, Pelowski and
Whaley) have been elected to one-year terms. Two of the directors (Messrs.
Brody and Ueberroth) have been elected to two-year terms and three of the
directors (Messrs. Maier, Vogel and Whilden) have been elected to three-year
terms. Upon the completion of these terms, directors, other than those elected
by the series D1, series D2 and Series D3 convertible preferred stock, will be
elected for three-year terms. See "Description of Capital Stock--Antitakeover
Effects of Provisions of the Certificate of Incorporation, Bylaws, Delaware Law
and Standstill Agreement."
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Rights to Elect Directors
Under our certificate of incorporation, each of the series D1, series D2 and
series D3 convertible preferred stock is entitled to elect one director to our
board of directors. Each of these series has only one share authorized.
American Express owns the series D3 convertible preferred share, and, as
discussed below, United Air Lines, through its wholly owned subsidiary Covia
LLC, has an option to purchase the series D1 and series D2 convertible
preferred shares. American Express, as the holder of the one outstanding share
of series D3 convertible preferred stock, has the right to elect a person to
our board of directors.
Under the terms of our shareholders agreement, so long as Covia (and/or
United Air Lines or an entity controlling or controlled by United Air Lines)
holds at least 3,651,430 shares of our common stock (assuming exercise of any
warrants to purchase our common stock currently held by Covia) and Covia does
not hold our series D1 convertible preferred stock or series D2 convertible
preferred stock, we will use our best efforts to nominate for election to our
board of directors one person that is an independent industry representative or
a representative of one of our strategic partners that is satisfactory to
United Air Lines. In addition, under the terms of our shareholders agreement we
will also invite, subject to our fiduciary obligations, a representative of
United Air Lines to attend our board of directors meetings in a nonvoting
observer capacity. These rights terminate upon the earlier of the following:
. Covia purchases our series D1 or D2 convertible preferred stock;
. Covia (and/or United Air Lines or an entity controlling or controlled by
United Air Lines) holds less than 3,651,430 shares of our common stock
(assuming exercise of any warrants to purchase our common stock
currently held by Covia);
. May 10, 2001;
. a breach of the standstill agreement by a party to the agreement other
than Covia or United Air Lines, unless the breach is unintentional and
cured within a specified time; or
. a third party's:
. commencement of or publicly announced intention to acquire 15% or
more of our outstanding stock (or 10% or more of our outstanding
stock in the case of certain specified companies);
. acquisition or beneficial ownership of 15% or more of our outstanding
stock (or 10% or more of our outstanding stock in the case of certain
specified companies), provided that the third party has also filed a
Schedule 13D reserving the right to hold the securities with the
purpose of changing or influencing control over us;
. acquisition of all or substantially all of our assets;
. filing a notification under the Hart-Scott-Rodino Act reflecting an
intent to acquire all or substantially all of our assets;
. agreement to acquire us or public announcement of its intention to
acquire us;
. solicitation of proxies in opposition to any proxy solicitation being
conducted by us;
. public announcement of its intention to do any of the foregoing
actions; or
. entering into substantive discussions with our board of directors or
any of our executive officers with knowledge of any four members of
our board of directors regarding any of the foregoing actions.
In addition, we have granted an option to Covia to purchase one share of our
series D1 convertible preferred stock and one share of our series D2
convertible preferred stock at an exercise price of $10.00 per share. Covia
must hold at least 2,434,287 shares of our capital stock in order to exercise
its right to purchase the share of series D1 convertible preferred stock. Covia
must hold at least 3,651,430 shares of our capital stock in order to exercise
its right to purchase the share of series D2 convertible preferred stock. If
Covia purchases the share of series D1 convertible preferred stock, Covia will
have the right to elect a person to our board of directors so long as Covia
holds the share of Series D1 convertible preferred stock. If Covia purchases
the share of series D2 convertible preferred stock, Covia will have the right
to elect another person to our board
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of directors so long as Covia holds the share of series D2 convertible
preferred stock. Furthermore, if Covia purchases either the share of series D1
convertible preferred stock or the share of series D2 convertible preferred
stock, our obligation to nominate a board member satisfactory to United Air
Lines and the right to have a representative of United Air Lines to attend our
board of directors meetings will terminate.
The option to purchase our series D1 convertible or series D2 convertible
preferred stock will terminate on the earlier of:
. May 10, 2001;
. a breach of the standstill agreement by a party to the agreement other
than Covia or United Air Lines, unless the breach is unintentional and
cured within a specified time;
. a third party's:
. commencement of or publicly announced intention to acquire 15% or more
of our outstanding stock (or 10% or more of our outstanding stock in
the case of certain specified companies);
. acquisition or beneficial ownership of 15% or more of our outstanding
stock (or 10% or more of our outstanding stock in the case of certain
specified companies), provided that the third party has also filed a
Schedule 13D reserving the right to hold the securities with the
purpose of changing or influencing control over us;
. acquisition of all or substantially all our assets;
. filing a notification under the Hart-Scott-Rodino Act reflecting an
intent to acquire all or substantially all of our assets;
. agreement to acquire us or public announcement of its intention to
acquire us;
. solicitation of proxies in opposition to any proxy solicitation being
conducted by us;
. public announcement of its intention to do any of the foregoing
actions; or
. entering into substantive discussions with our board of directors or
any of our executive officers with knowledge of any four members of
our board of directors regarding any of the foregoing actions;
. Covia's breach of its standstill agreement with us;
. Covia's transfer or attempt to transfer the option to an entity that does
not control or is not controlled by United Air Lines; or
. Covia holding less than 2,434,287 shares of our common stock (assuming
exercise of warrants currently held by Covia).
In addition, we have the right to repurchase the series D1 and D2 convertible
preferred stock at Covia's original purchase price upon the occurrence of any
of the events specified above.
We also have the right to repurchase the share of series D1 convertible
preferred stock if Covia holds less than 2,434,287 shares of our common stock
and the right to repurchase the share of Series D2 convertible preferred stock
if Covia holds less than 3,651,430 shares of our common stock (in each case
assuming the exercise of warrants currently held by Covia).
On the date when either an arbitrator or court determines that the director
elected by the holder of series D3 convertible preferred stock unreasonably
refused to recuse himself or herself from any meeting of our board of directors
or a committee of the board following a request for recusal made by a majority
of the remainder of the board, the holder of series D3 convertible preferred
stock will take all necessary action to convert the share of series D3
preferred stock into a share of our common stock.
Upon the conversion of our series D1, series D2 or series D3 convertible
preferred stock, any directors who are then serving on the board of directors
at the election of the series D1, series D2 or Series D3 convertible preferred
stock will remain on the board of directors, but as directors within one of the
classes within the classified portion of our board of directors.
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For a description of the rights of our series D1 convertible preferred stock,
series D2 convertible preferred stock and series D3 convertible preferred
stock, including conversion rights, see "Description of Capital Stock."
Board Committees
The board of directors has established a compensation committee and an audit
committee.
Audit Committee. The audit committee of the board of directors has
responsibility for reviewing and monitoring our corporate financial reporting
and external audits, including our internal control functions, the results and
scope of the annual audit and other services provided by our independent
auditors and our compliance with legal matters that have a significant impact
on our financial reports. The audit committee also consults with management and
our independent auditors before the presentation of financial statements to
stockholders and, as appropriate, initiates inquiries into aspects of our
financial affairs. In addition, the audit committee has the responsibility to
consider and recommend the appointment of, and to review fee arrangements with,
our independent auditors. The current members of the audit committee are
Messrs. Whilden and Vogel.
Compensation Committee. The compensation committee of the board of directors
reviews and makes recommendations to the board regarding all forms of
compensation provided to our executive officers and directors, including stock
compensation and loans. In addition, the compensation committee reviews and
makes recommendations on bonus and stock compensation arrangements for all of
our employees. As part of these responsibilities the compensation committee
also administers or will administer our 1996 stock plan, 1999 equity incentive
plan and 1999 employee stock purchase plan. The current members of the
compensation committee are Messrs. Brody, Ueberroth and Vogel.
Director Compensation
Although we reimburse members of the board of directors for their out-of-
pocket expenses associated with their participation as members of the board of
directors, directors receive no cash compensation for their service as
directors or for their service on any committee of the board of directors. We
may, in the future, adopt a cash compensation plan for non-employee members of
our board of directors. Non-employee directors are eligible to receive
automatic grants of options to purchase shares of our common stock. For more
information see "Stock Plans--1999 Directors' Stock Option Plan."
Compensation Committee Interlocks and Insider Participation
None of our executive officers serve on the board of directors or
compensation committee of any entity which has one or more executive officers
serving as a member of our board or compensation committee, nor has any such
interlocking relationship existed in the past.
Indemnification of Directors and Executive Officers and Limitation of Liability
As permitted by the Delaware General Corporation Law, our amended and
restated certificate of incorporation provides that no director will be
personally liable to us or our stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability:
. for any breach of the director's duty of loyalty to us or our
stockholders;
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General
Corporation Law; and
. for any transaction from which the director derived an improper personal
benefit.
Our amended and restated bylaws further provide that we must indemnify our
directors and executive officers and may indemnify our other officers and
employees and agents to the fullest extent permitted by
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Delaware law. We currently maintain liability insurance for our officers and
directors, and have received approval from our board to purchase additional
directors' and officers' liability coverage with respect to our initial public
offering.
We have entered into indemnification agreements with each of our directors
and officers. These agreements require us, among other things, to indemnify
such directors and officers for certain expenses (including attorneys' fees),
judgments, fines, penalties and settlement amounts incurred by any such person
in any threatened, pending or completed action, suit, proceeding or alternative
dispute resolution mechanism by reason of any event or occurrence arising out
of such person's services as a director or officer of GetThere.com or any other
entity for which such services are performed at the request of GetThere.com.
There is no pending litigation or proceeding involving any of our directors,
officers, employees or agents as to which indemnification is being sought. We
are not aware of any pending or threatened litigation or proceeding that might
result in a claim for such indemnification.
Executive Compensation
The following table sets forth information regarding the compensation for the
fiscal year ended January 31, 1999, of each individual who served as our chief
executive officer during that fiscal year and our other executive officers who
served as executive officers at the end of that fiscal year. These individuals
are collectively referred to as Named Executive Officers.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term Compensation
Annual Compensation Awards
-------------------- -------------------------
Restricted Securities
Stock Underlying
Name and Principal Position Salary ($) Bonus ($) Award(s) ($) Options (#)
<S> <C> <C> <C> <C>
Gadi Maier(1).................... 20,769 -- -- 100,000
president and chief executive
officer
Richard D.C. Whilden(2).......... 237,827 -- 104,000(3) --
former president and chief
executive officer
Kenneth G. Swanton(4)............ 233,358 15,000 -- --
former president and chief
executive officer
Eric R. Sirkin(5)................ 22,212 -- -- 450,000
vice president of engineering
Daniel Whaley.................... 155,385 4,000 -- --
chief technical officer
</TABLE>
- ---------------------
(1) Mr. Maier became an employee on December 28, 1998, and became our president
and chief executive officer on January 11, 1999. His current annual salary
is $240,000.
(2) Mr. Whilden served as our president and chief executive officer on an
interim basis from March 11, 1998, to January 11, 1999. The amount shown as
Mr. Whilden's salary includes $35,250 paid to him for services rendered.
(3) This award covered 650,000 restricted shares of our common stock of which
162,500 shares were fully vested at the time of the award. During the
period from March 10, 1998 through March 9, 1999, the remaining unvested
shares vested at the rate of 13,542 for each month of continuous service
completed by Mr. Whilden in any capacity. During the period from March 10,
1999 through March 9, 2000, the shares vest at the rate of 27,083 for each
month of continuous service. All of the shares vest on March 10, 2000, if
Mr. Whilden's service is continuous until that date. As of January 31,
1999, Mr. Whilden held 650,000 shares of our restricted stock with an
aggregate value on that date of $650,000. The shares currently do not pay
dividends but have the same dividend rights as the other shares of our
common stock.
(4) Mr. Swanton served as our president and chief executive officer until March
11, 1998. He remained an employee until August 31, 1998.
(5) Dr. Sirkin became an employee on December 7, 1998. His current annual
salary is $165,000.
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<PAGE>
Option Grants in Last Fiscal Year
The table below sets forth each grant of stock options to each of the Named
Executive Officers during the fiscal year ended January 31, 1999.
The exercise price of each option was equal to the fair market value of our
common stock as valued by the board of directors on the date of grant. The
exercise price may be paid in cash, in shares of our common stock valued at
fair market value on the exercise date or through a cashless exercise procedure
involving a same-day sale of the purchased shares. Some of our officers may
also pay the exercise price with a promissory note. The fair market value of
our common stock was estimated by the board of directors on the basis of the
purchase price paid by investors for shares of our preferred stock (taking into
account the liquidation preferences and other rights, privileges and
preferences associated with the preferred stock) and an evaluation by the board
of our revenues, operating history and prospects.
The potential realizable value is calculated based on the ten-year term of
the option at the time of grant. Stock price appreciation of 5% and 10% is
assumed pursuant to rules promulgated by the Securities and Exchange Commission
and does not represent our prediction of our stock price performance. The
potential realizable values at 5% and 10% appreciation are calculated by
assuming that the estimated fair market value on the date of grant appreciates
at the indicated rate for the entire term of the option and that the option is
exercised at the exercise price and sold on the last day of its term at the
appreciated price. The initial public offering price is higher than the
estimated fair market value on the date of grant, and the potential realizable
value of the option grants would be significantly higher than the numbers shown
in the table if future stock prices were projected to the end of the option
term by applying the same annual rates of stock price appreciation to the
initial public offering price.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term
--------------------------------------------------- ---------------------
Percent of
Number of Total
Securities Options
Underlying Granted to
Options Employees in Exercise Expiration
Name Granted Fiscal Year(1) Price ($/Sh) Date 5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C>
Gadi Maier.............. 100,000(2) 6.43% 1.00 12/27/2008 62,889 159,374
Richard D.C. Whilden.... -- -- -- -- -- --
Kenneth G. Swanton...... -- -- -- -- -- --
Eric R. Sirkin.......... 450,000(3) 28.95% 1.00 12/16/2008 283,003 717,184
Daniel Whaley........... -- -- -- -- -- --
</TABLE>
- ---------------------
(1) Based on a total of 1,554,250 option shares granted to our employees under
our 1996 stock incentive plan during fiscal 1999.
(2) This option is exercisable at any time. However, we may repurchase the
shares acquired by exercising the option at the original exercise price if
the optionee's service terminates before the shares vest. The shares vest
on the earliest of (a) the date when the optionee completes 12 months of
continuous service, (b) the date of the optionee's death, (c) termination
of the optionee's service due to disability or (d) the date when
GetThere.com is subject to a change in control.
(3) This option is exercisable at any time with respect to 100,000 shares,
became exercisable on January 1, 1999, with respect to 100,000 shares,
becomes exercisable on January 1, 2000, with respect to 100,000 shares,
becomes exercisable on January 1, 2001, with respect to 100,000 shares and
becomes exercisable on January 1, 2002, with respect to the remaining
50,000 shares. We may repurchase the shares acquired by exercising the
option at the original exercise price if the optionee's service terminates
before the shares vest. 56,250 of the shares vest when the optionee
completes six months of continuous service. 9,375 of the shares vest when
the optionee completes each month of continuous service thereafter, until
all shares are vested after four years of service. The shares vest in full
if GetThere.com is subject to a change in control.
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<PAGE>
Fiscal Year End Option Values
The following table sets forth, for each Named Executive Officer, the number
and value of securities underlying options that were held by him as of January
31, 1999. No options were exercised by Named Executive Officers in the year
ended January 31, 1999.
Amounts shown under the column "Value of Unexercised In-the-Money Options at
Fiscal Year End" are based on the fair market value of our common stock at
January 31, 1999, as determined by our board of directors at that time, $1.00
per share, less the exercise price payable for such shares. The fair market
value of our common stock at January 31, 1999 was estimated by the board of
directors on the basis of the purchase price paid by investors for shares of
our preferred stock, taking into account the liquidation preferences and other
rights, privileges and preferences associated with the preferred stock, and an
evaluation by the board of our revenues, operating history and prospects. The
initial public offering price is higher than the estimated fair market value on
January 31, 1999, and the value of unexercised options would be higher than the
numbers shown in the table if the value were calculated by subtracting the
exercise price from the initial public offering price.
Mr. Maier's options are immediately exercisable for all of the option shares,
and Dr. Sirkin's options become exercisable over time as described above. We
may repurchase the shares acquired by exercising any of these options at the
original exercise price if the optionee's service terminates before the shares
vest as described above. The heading "Vested" refers to shares that are no
longer subject to repurchase, and the heading "Unvested" refers to shares that
remain subject to repurchase as of January 31, 1999.
<TABLE>
<CAPTION>
Number of Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Fiscal Options at Fiscal
Year End (#) Year End ($)
----------------------- --------------------
Name Vested Unvested Vested Unvested
<S> <C> <C> <C> <C>
Gadi Maier........................ -- 100,000 -- --
Richard D.C. Whilden.............. -- -- -- --
Kenneth G. Swanton................ -- -- -- --
Eric R. Sirkin.................... -- 450,000 -- --
Daniel Whaley..................... -- -- -- --
</TABLE>
Employment Agreements and Change of Control Arrangements
Gadi Maier. We entered into an employment agreement, dated January 11, 1999,
with Gadi Maier, our president and chief executive officer. Under the
agreement, Mr. Maier's annual salary may not be less than $240,000, and he is
entitled to an annual bonus of at least $60,000. The agreement further provides
that Mr. Maier will receive options to purchase 1,743,675 shares of our common
stock at an exercise price of $1.00 per share, which was the fair market value
at the time of grant (as determined by our board of directors). One-seventh of
the option shares vests when he completes 12 months of service, and the balance
vests in a series of equal installments when he completes each of his first 48
months of service. All or part of the option shares will vest on an accelerated
basis if Mr. Maier's service terminates because of his death or disability or
if GetThere.com is subject to a change in control. Mr. Maier has registration
rights with respect to his option shares. If Mr. Maier is actually or
constructively discharged without cause, he is entitled to a lump sum severance
benefit equal to his base salary and minimum bonus for a period of nine months
(if the discharge occurs before January 12, 2000) or a period of 12 months (if
the discharge occurs on or after January 12, 2000). During the same period,
group insurance coverage will continue and Mr. Maier will be subject to a non-
competition covenant. We will also reimburse Mr. Maier for a part of any excise
tax imposed on him under section 4999 of the Internal Revenue Code as the
result of a severance payment or option acceleration following a change in
control.
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Kenneth R. Pelowski. We entered into an employment agreement with our chief
operating officer and chief financial officer, Kenneth R. Pelowski, dated March
25, 1999. Under the agreement, he is entitled to an annual salary of $175,000
and a cash bonus of up to $50,000 per year. He was also entitled to an option
to purchase 500,000 shares of our common stock with an exercise price of $1.00
per share, which was the fair market value at the time of grant (as determined
by our board of directors). These shares are subject to our standard vesting
schedule, which provides that one-eighth of the shares vest after six months of
service and the balance vests in equal monthly installments over the next 42
months of continuous service. If Mr. Pelowski is actually or constructively
discharged within 18 months after GetThere.com is subject to a change in
control, then all shares vest. We will reimburse Mr. Pelowski for a part of any
excise tax imposed on him under section 4999 of the Internal Revenue Code as
the result of a severance payment or option acceleration following a change in
control. In connection with his employment with us, Mr. Pelowski assigned a
business concept to us. In return, we granted him 125,000 restricted shares of
our common stock. These shares vest in 24 equal monthly installments commencing
on March 29, 1999, subject to Mr. Pelowski's continuing service.
Eric R. Sirkin. On November 16, 1998, we entered into an agreement with Eric
R. Sirkin, our vice president of engineering. Under the agreement, Dr. Sirkin's
minimum salary is $165,000 per year. He was also entitled to receive an option
covering 450,000 shares of our common stock. The agreement further provides
that these shares will vest in full if GetThere.com is subject to a change in
control. If we terminate Dr. Sirkin's employment without cause, he is entitled
to four months' salary.
Richard D.C. Whilden. We entered into an agreement dated March 1, 1999, with
Richard D.C. Whilden, the chairman of our board of directors and our former
president and chief executive officer. Under the agreement, Mr. Whilden
remained a full-time employee until March 15, 1999. During the following 12
months, Mr. Whilden is obligated to make himself available to provide
consulting services. He is receiving a retainer of $5,000 per month for up to
two days of consulting per month. Additional services are compensated at the
rate of $2,000 per day. Either we or Mr. Whilden may terminate the consulting
services at any time, but the $5,000 monthly retainer will continue through
December 1999 if we terminate the consulting services before that date.
Moreover, if Mr. Whilden's service as a consultant or director terminates for
any reason other than voluntary resignation before March 15, 2000, then he will
receive service credit through that date for purposes of vesting in his
restricted shares of our common stock. Under the agreement, the 650,000
restricted shares granted to Mr. Whilden in 1998 are vesting at an accelerated
rate (27,083 shares per month during the period from March 1999 to March 2000)
and will be fully vested on March 10, 2000, if his service continues until
then. All of these shares vest if GetThere.com is subject to a change in
control.
Kenneth G. Swanton. We entered into an agreement dated March 11, 1998, with
Kenneth G. Swanton, our former president and chief executive officer, and
amended that agreement on June 30, 1998. Under that agreement, as amended, Mr.
Swanton resigned as our president and chief executive officer on March 11,
1998, but remained employed as the vice chairman of our board of directors
until August 31, 1998. As vice chairman, Mr. Swanton was paid an annual salary
of $225,000. Mr. Swanton received severance payments at the same rate until
January 31, 1999, and group insurance coverage also continued until that date.
For purposes of determining the vested portion of the restricted shares that we
had granted to Mr. Swanton, his service was deemed to continue until September
10, 1998.
Stock Plans
1999 Stock Incentive Plan
Share Reserve. Our board of directors adopted our 1999 stock incentive plan
on August 16, 1999, subject to stockholders approval. We have reserved five
million shares of our common stock for issuance under the 1999 stock incentive
plan. On February 1 of each year, starting with the year 2001, the number of
shares in the reserve will automatically increase by 4% of the total number of
shares of common stock that are outstanding at that time or, if less, by three
million shares. In general, if options or shares awarded under the 1999 stock
incentive plan are forfeited, then those options or shares will again become
available for awards under the 1999 stock incentive plan. We have not yet
granted any options under the 1999 stock incentive plan.
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<PAGE>
Administration. The compensation committee of our board of directors
administers the 1999 stock incentive plan. The committee has the complete
discretion to make all decisions relating to the interpretation and operation
of our 1999 stock incentive plan. The committee has the discretion to determine
who will receive an award, what type of award it will be, how many shares will
be covered by the award, what the vesting requirements will be (if any), and
what the other features and conditions of each award will be. The compensation
committee may also reprice outstanding options and modify outstanding awards in
other ways.
Eligibility. The following groups of individuals are eligible to participate
in the 1999 stock incentive plan:
. employees;
. members of our board of directors who are not employees; and
. consultants.
Types of Award. The 1999 stock incentive plan provides for the following
types of award:
. incentive stock options to purchase shares of our common stock;
. nonstatutory stock options to purchase shares of our common stock; and
. restricted shares of our common stock.
Options. An optionee who exercises an incentive stock option may qualify for
favorable tax treatment under Section 422 of the Internal Revenue Code of 1986.
On the other hand, nonstatutory stock options do not qualify for such favorable
tax treatment. The exercise price for incentive stock options granted under the
1999 Stock Incentive Plan may not be less than 100% of the fair market value of
our common stock on the option grant date. In the case of nonstatutory stock
options, the minimum exercise price is 70% of the fair market value of our
common stock on the option grant date. Optionees may pay the exercise price by
using:
. cash;
. shares of common stock that the optionee already owns;
. a full-recourse promissory note, except that the par value of newly
issued shares must be paid in cash;
. an immediate sale of the option shares through a broker designated by us;
or
. a loan from a broker designated by us, secured by the option shares.
Options vest at the time or times determined by the compensation committee.
In most cases, our options vest over the four-year period following the date of
grant. Options generally expire 10 years after they are granted, except that
they generally expire earlier if the optionee's service terminates earlier. The
1999 stock incentive plan provides that no participant may receive options
covering more than five million shares in the same year.
Restricted Shares. Restricted shares may be awarded under the 1999 stock
incentive plan in return for:
. cash;
. a full-recourse promissory note, except that the par value of newly
issued shares must be paid in cash;
. services already provided to us; and
. in the case of treasury shares only, services to be provided to us in the
future.
Restricted shares vest at the time or times determined by the compensation
committee.
Change in Control. The compensation committee determines to what extent an
option or restricted stock award under the 1999 stock incentive plan will vest
on an accelerated basis if GetThere.com is subject to a change in control.
Vesting could accelerate in full, or it could apply only to a part of an award.
Accelerated vesting could occur immediately after the change in control, or it
could be contingent upon the involuntary or
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constructive discharge of the participant following the change in control. In
general, all awards will vest in full upon a change in control if the surviving
corporation fails to assume the award or to replace it with a comparable award.
A change in control includes:
. a merger of GetThere.com after which our stockholders own 50% or less of
the surviving corporation (or its parent company);
. a sale of all or substantially all of our assets;
. a proxy contest that results in the replacement of more than one-half of
our directors over a 24-month period; or
. an acquisition of 50% or more of our outstanding stock by any person or
group.
Amendments or Termination. Our board may amend or terminate the 1999 stock
incentive plan at any time. If our board of directors amends the plan, it does
not need to ask for stockholder approval of the amendment unless applicable law
requires it. The 1999 stock incentive plan will continue in effect
indefinitely, unless the board decides to terminate the plan earlier.
1999 Employee Stock Purchase Plan
Share Reserve and Administration. Our board of directors adopted our 1999
employee stock purchase plan on August 16, 1999, subject to stockholder
approval. Our 1999 employee stock purchase plan is intended to qualify under
Section 423 of the Internal Revenue Code. We have reserved 2,500,000 shares of
our common stock for issuance under the plan. On June 1 of each year, starting
with the year 2000, the number of shares in the reserve will automatically be
restored to 2,500,000. In other words, the reserve will be increased by the
number of shares that have been issued under the 1999 employee stock purchase
plan during the prior 12-month period. The plan will terminate automatically on
August 15, 2009, unless it is extended by the board of directors and the
extension is approved by a vote of the stockholders. The plan will be
administered by the compensation committee of our board of directors.
Eligibility. All of our employees are eligible to participate if they are
employed by us for more than 20 hours per week and for more than five months
per year. Eligible employees may begin participating in the 1999 employee stock
purchase plan at the start of any offering period. Each offering period lasts
24 months. Overlapping offering periods start on June 1 and December 1 of each
year. However, the first offering period will start on the effective date of
this offering and end on November 30, 2001.
Amount of Contributions. Our 1999 employee stock purchase plan permits each
eligible employee to purchase common stock through payroll deductions. Each
employee's payroll deductions may not exceed 15% of the employee's cash
compensation. Purchases of our common stock will occur on May 31 and November
30 of each year. Each participant may purchase up to 3,000 shares on any
purchase date (6,000 shares per year). But the value of the shares purchased in
any calendar year (measured as of the beginning of the applicable offering
period) may not exceed $25,000.
Purchase Price. The price of each share of common stock purchased under our
1999 employee stock purchase plan will be 85% of the lower of:
. the fair market value per share of common stock on the date immediately
before the first day of the applicable offering period; or
. the fair market value per share of common stock on the purchase date.
In the case of the first offering period, the price per share under the plan
will be 85% of the lower of:
. the price per share to the public in this offering; or
. the fair market value per share of common stock on the purchase date.
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Other Provisions. Employees may end their participation in the 1999 employee
stock purchase plan at any time. Participation ends automatically upon
termination of employment with GetThere.com. If a change in control of
GetThere.com occurs, our 1999 employee stock purchase plan will end and shares
will be purchased with the payroll deductions accumulated to date by
participating employees, unless the plan is assumed by the surviving
corporation or its parent. Our board of directors may amend or terminate the
1999 employee stock purchase plan at any time. If our board increases the
number of shares of common stock reserved for issuance under the plan (except
for the automatic increases described above), it must seek the approval of our
stockholders.
1999 Directors' Stock Option Plan
Share Reserve. Our board of directors adopted our 1999 directors' stock
option plan on August 16, 1999, subject to stockholder approval. We have
reserved 750,000 shares of our common stock for issuance under the plan. On
February 1 of each year, starting with the year 2001, the number of shares in
the reserve will automatically be restored to 750,000. In other words, the
reserve will be increased by the number of shares that have been granted under
the 1999 directors' stock option plan during the prior 12-month period. In
general, if options granted under the 1999 directors' stock option plan are
forfeited, then those options will again become available for grants under the
plan. The directors' stock option plan will be administered by the compensation
committee of our board of directors, although all grants under the plan are
automatic and non-discretionary.
Initial Grants. Only the non-employee members of our board of directors will
be eligible for option grants under the 1999 directors' stock option plan. Each
non-employee director will receive an initial option to buy 50,000 shares on
the effective date of this offering. Each non-employee director who first joins
our board after the effective date of this offering will receive an initial
option for 50,000 shares. That grant will occur when the director takes office.
The initial options vest in equal monthly installments over the four-year
period following the date of grant, except that all vesting for the first six
months occurs at the close of that six-month period.
Annual Grants. At the time of each of our annual stockholders' meetings,
beginning in 2000, each non-employee director who will continue to be a
director after that meeting will automatically be granted an annual option for
12,500 shares of our common stock. However, a new non-employee director who is
receiving the 50,000-share initial option will not receive the 12,500 share
annual option in the same calendar year. The annual options vest in equal
monthly installments over the one-year period following the date of grant.
Other Option Terms. The exercise price of each non-employee director's option
will be equal to the fair market value of our common stock on the option grant
date. A director may pay the exercise price by using cash, shares of common
stock that the director already owns, or an immediate sale of the option shares
through a broker designated by us. The non-employee directors' options have a
10-year term, except that they expire one year after a director leaves the
board (if earlier). If a change in control of GetThere.com occurs, a non-
employee director's option granted under the 1999 directors' stock option plan
will become fully vested. Vesting also accelerates in the event of the
optionee's death or disability.
Amendments or Termination. Our board may amend or terminate the 1999
directors' stock option plan at any time. If our board amends the plan, it does
not need to ask for stockholder approval of the amendment unless applicable law
requires it. The 1999 directors' stock option plan will continue in effect
indefinitely, unless the board decides to terminate the plan.
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<PAGE>
RELATIONSHIPS AND RELATED TRANSACTIONS
Equity Financings and Stockholders Arrangements
Since February 1, 1996, we have issued and sold shares of our preferred stock
to the following persons who are our principal stockholders, executive officers
or directors.
<TABLE>
<CAPTION>
Shares of Shares of Shares of Shares of
Series A Series B Series C Series E Value
Convertible Convertible Convertible Convertible Amount at $16.00
Investor Preferred Stock Preferred Stock Preferred Stock Preferred Stock Paid per Share
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
United Air Lines ....... -- -- 4,060,875 1,500,000 $39,562 $88,974
Entities affiliated with
Brentwood Associates... 1,985,353 512,048 -- -- $ 3,099 $39,958
American Express........ -- -- 875,423 2,121,076 $31,000 $47,944
Entities affiliated with
U.S. Venture Partners.. -- 2,409,639 -- -- $ 4,000 $38,554
ITN Joint Venture....... 1,544,163 -- -- 80,000 $ 2,750 $25,987
Hambrecht 1980 Revocable
Trust.................. -- -- 25,000 -- $ 128 $ 400
WR Hambrecht + Co....... -- -- 25,000 -- $ 128 $ 400
</TABLE>
Shares held by all affiliated persons and entities have been aggregated.
Share numbers and purchase price information are reflected on an as if
converted into shares of common stock basis. See "Principal Stockholders" for
more detail on shares held by these purchasers. The per share purchase price
for the series A convertible preferred stock was $1.13. The per share purchase
price for the series B convertible preferred stock was $1.66. The per share
price for the series C convertible preferred stock was $5.125. The per share
purchase price for the series E convertible preferred stock was $12.50. Dale J.
Vogel, one of our directors, is an affiliate of each of the entities affiliated
with U.S. Venture Partners. Jeffrey D. Brody, one of our directors, is a
general partner of Brentwood Venture Capital and as such is an affiliate of
each of the entities affiliated with Brentwood Associates. John Ueberroth, one
of our directors, is an affiliate of the ITN Joint Venture. William R.
Hambrecht, one of our directors, is trustee of the Hambrecht 1980 Revocable
Trust and chairman and chief executive officer of WR Hambrecht + Co.
In addition to the shares listed above, we issued the following warrants:
. a warrant to purchase 51,205 shares of our series B convertible preferred
stock at an exercise price of $1.66 per share to entities affiliated with
Brentwood Associates;
. a warrant to purchase 240,964 shares of our series B convertible
preferred stock at an exercise price of $1.66 per share to entities
affiliated with U.S. Venture Partners; and
. a warrant to purchase 375,000 shares of our common stock at an exercise
price of $16.50 per share, a warrant to purchase 730,023 shares of our
series E convertible preferred stock at an exercise price of $21.00 per
share and a warrant to purchase 730,023 shares of our series E
convertible preferred stock at an exercise price of $31.00 per share to
American Express.
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<PAGE>
<TABLE>
<CAPTION>
Warrants Warrants Warrants Warrants
for for for for
Warrants Series A Series B Series C Series E
for Convertible Convertible Convertible Convertible
Common Preferred Preferred Preferred Preferred Aggregate Value at
Stock Stock Stock Stock Stock Consideration $16.00 per Share
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
United Air Lines........ -- -- -- 3,369,058 -- $24,181 $53,905
Entitles affiliated with
Brentwood Associates... -- -- 51,205 -- -- $ 85 $ 819
American Express........ 375,000 -- -- -- 1,460,046 $44,149 $29,361
Entities affiliated with
U.S. Venture Partners.. -- -- 240,964 -- -- $ 400 $ 3,885
</TABLE>
For a description of warrants we issued to United Air Lines, see "--United
Air Lines."
Under the terms of our shareholders agreement, United Air Lines and a number
of our stockholders, including chief technical officer Dan Whaley, Richard D.C.
Whilden, chairman of our board of directors, entities affiliated with Brentwood
Associates, ITN Joint Venture, entities affiliated with U.S. Venture Partners
and Covia, are subject to a standstill agreement. Under the standstill
agreement, the above investors agree that they will not:
. acquire, attempt to acquire or participate in the acquisition of voting
securities that places their holdings of our voting securities above a
specified percentage;
. participate in the solicitation of proxies in opposition to any proxy
solicitation being conducted by us; or
. enter into any agreements or substantive discussions with any third party
regarding the acquisition of our business or the solicitation of proxies.
The standstill agreement terminates on the earlier of:
. May 10, 2001;
. a breach by a party to the agreement other than United Air Lines or
Covia, unless the breach is unintentional and cured within specified
times; or
. a third party's:
. commencement of or publicly announced intention to acquire or
beneficially own 15% or more of our outstanding stock (or 10% or more
of our outstanding stock in the case of certain specified companies);
. acquisition or beneficial ownership of 15% or more of our outstanding
stock (or 10% or more of our outstanding stock in the case of certain
specified companies), provided that the third party has also filed a
Schedule 13D reserving the right to hold the securities with the
purpose of changing or influencing control over us;
. acquisition of all or substantially all of our assets;
. agreement to acquire us or public announcement of its intention to
acquire us;
. solicitation of proxies in opposition to any proxy solicitation being
conducted by us; or
. entering into substantive discussions with our board of directors or
any of our executive officers with knowledge of any four members of
our board of directors regarding any of the foregoing actions.
In addition, American Express is subject to a standstill agreement. Under
this agreement, it has agreed that it will not:
. acquire, attempt to acquire or participate in the acquisition of voting
securities that places their holdings of our voting securities above a
specified percentage;
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<PAGE>
. participate in the solicitation of proxies in opposition to any proxy
solicitation being conducted by us; or
. enter into any agreements or substantive discussions with any third party
regarding the acquisition of our business or the solicitation of proxies.
The standstill agreement terminates on the earlier of:
. May 10, 2001;
. a breach of the standstill agreement by any of the parties other than
American Express, unless the breach is unintentional and is cured within
specified times;
. an occurrence of a termination event as it is defined in our amended and
restated shareholders agreement, dated September 14, 1999; or
. a third party's:
. commencement of or publicly announced intention to acquire or
beneficially own 12.5% or more of our outstanding stock (or 10% or
more of our outstanding stock in the case of certain specified
companies, or 30% or more of our outstanding stock if the third party
is United Air Lines or any of its affiliates);
. acquisition of beneficial ownership of 12.5% or more of our
outstanding stock (or 10% or more of our outstanding stock in the case
of certain specified companies, or 30% or more of our outstanding
stock if the third party is United Air Lines or any of its
affiliates), provided that the third party has also filed a Schedule
13D reserving the right to hold the securities with the purpose of
changing or influencing control over us;
. filing of a notification and report form under the Hart-Scott-Rodino
Act, reflecting an intent to acquire all or substantially all of our
assets;
. acquisition of all or substantially all our assets;
. agreement to acquire us or substantially all of our assets, or to
beneficially own 12.5% or more of our outstanding stock, if the third
party has not also entered into a similar standstill agreement;
. solicitation of proxies in opposition to any proxy solicitation being
conducted by us; or
. public announcement of its intention to undertake any of the foregoing
actions.
Employment-Related Agreements
In connection with Mr. Pelowski's employment with us, he assigned a business
concept to us. In return, we issued to him 125,000 restricted shares of common
stock. These shares vest in 24 equal monthly installments commencing on March
29, 1999, subject to Mr. Pelowski's continuing service with us.
Some of our executive officers have entered into employment agreements with
us. See "Management--Employment Agreements and Change of Control Arrangements."
We have entered into an indemnification agreement with each of our executive
officers and directors. See "Management--Indemnification of Officers and
Directors."
Options Granted to Executive Officers Since January 31, 1999
The following table sets forth information regarding the number of options
granted and stock issued to our executive officers since January 31, 1999, the
end of our most recent fiscal year.
<TABLE>
<CAPTION>
Number of Options Granted
Executive Officers Since January 31, 1999
<S> <C>
Gadi Maier......................................... 1,700,000
Kenneth R. Pelowski................................ 800,000
Eric R. Sirkin..................................... 225,000
Daniel Whaley...................................... 315,000
</TABLE>
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<PAGE>
American Express
In September 1999, we entered into a Web services and travel agreement under
which American Express has agreed to promote and sell customized, co-branded
versions of our Internet-based travel procurement services to their customers
and potential customers. See "Business--Relationship with American Express."
In September 1999, American Express purchased one share of our series D3
convertible preferred stock. As the holder of the outstanding share of series
D3 convertible preferred stock, American Express has the right to elect a
representative to our board of directors. See "Management--Executive Officers
and Directors."
United Air Lines
In November 1997, we entered into a services agreement with United Air Lines,
the parent company of Covia, under which we agreed, at specified fees, to host
and provide support for a set of customized world wide web pages through which
United Air Lines customers may access our reservation system. In addition,
United Air Lines agreed to pay us various fees for customization and
miscellaneous services.
In connection with our sale of 4,060,875 shares of series C convertible
preferred stock to Covia in May 1998, we also sold Covia the right to have us
grant Covia a warrant to purchase up to 807,698 shares of series C convertible
preferred stock at a price of $0.01 per share. In addition, we granted Covia
the right to have us grant Covia an option to purchase, at its choice, up to
2,473,392 shares of series C convertible preferred stock at a price of $5.125
per share or, for a purchase price of $5.125 per share, a warrant to purchase
up to 2,473,392 shares of series C convertible preferred stock at an exercise
price of $0.01 per share. As a result of an unsatisfied contingency contained
in the series C preferred stock purchase agreement, Covia no longer has a right
to receive an option for 2,473,392 shares of series C convertible preferred
stock or a warrant for 2,473,392 shares of series C convertible preferred
stock, and instead Covia currently has the right to receive either an option to
purchase 1,424,539 shares of series C convertible preferred stock or a warrant
to purchase 1,424,539 shares of series C convertible preferred stock. These
options terminate on the earlier of November 10, 2000 or the date we are
acquired by another company.
Also, in connection with Covia's purchase of our series C convertible
preferred stock, we granted Covia an option to purchase one share of series D1
convertible preferred stock and one share of series D2 convertible preferred
stock at a price of $10.00 per share. Each of the series D1 convertible
preferred stock and the series D2 convertible preferred stock carries with it
the right to elect one member to our board of directors. For a description of
the terms of this option and the rights and obligations related into our series
D1 convertible preferred stock and series D2 convertible preferred stock, see
"Management--Executive Officer and Directors" and "Description of Capital
Stock."
Our shareholders agreement provides that if Covia exercises its options to
purchase a share of series D1 convertible preferred stock or series D2
convertible preferred stock, it will participate, either in person or by proxy,
in shareholders' meetings and will vote these shares in favor of any proposal
approved by our board of directors and submitted to the shareholders, provided
the proposal is not for the purpose of nominating, electing, or removing board
members. Covia has agreed not to exercise any dissenters' rights or transfer
either the D1 or D2 shares during any period prohibited by pooling accounting
treatment rules.
Covia has also agreed, in the event we decide to sell our business, to
participate, either in person or by proxy, in any shareholders' meeting
regarding the sale, and to vote its shares in favor of the sale. Covia will not
exercise any dissenters' rights or transfer either the series D1 convertible
preferred stock or series D2 convertible preferred stock shares for 120 days
prior to the sale. Covia's obligation to vote in favor of our decision to sell
our business commences upon the earlier of August 10, 2000 or the termination
of our commercial relationship with United Air Lines by us as a result of
United Air Lines' nonperformance or by United Air Lines for any or no reason.
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<PAGE>
In connection with Covia's purchase of 1,500,000 shares of our series E
convertible preferred stock on September 14, 1999, we issued to Covia a warrant
to purchase 1,136,821 shares of our series C convertible preferred stock at an
exercise price of $11.20 per share.
All future transactions, including loans, if any, between us and our
officers, directors, principal stockholders and their affiliates will be
approved by a majority of the board of directors, including a majority of the
independent and disinterested outside directors on the board of directors, and
will continue to be on terms no less favorable to us than could be obtained
from unaffiliated third parties.
Indebtedness of Management
The following executive officers and relatives of executive officers
delivered to us full-recourse promissory notes to purchase restricted stock
under the 1996 stock incentive plan. The full principal amount and accrued
interest under each note remain outstanding. The terms of the notes are
summarized below:
<TABLE>
<CAPTION>
Highest Loan Balance
During Period From Loan Balance
February 1, 1998 to on August 31, Date of
Name August 31, 1999 1999 Maturity Interest Rate
<S> <C> <C> <C> <C>
Gadi Maier... $1,010,227 $1,010,227 June 21, 2004 5.37%
Kenneth R.
Pelowski.... 507,797 507,797 May 12, 2004(1) 5.22
Eric Sirkin.. 282,863 282,863 June 21, 2004(1) 5.37
Al Whaley.... 141,707 141,707 June 21, 2004(1) 5.37
Daniel
Whaley...... 318,221 318,221 June 21, 2004 5.37
</TABLE>
- ---------------------
(1) Also becomes due 180 days after employment with us terminates for any
reason.
Messrs. Maier, Pelowski, Sirkin and Daniel Whaley are executive officers. Al
Whaley is a co-founder and former chief technical officer.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of October 15, 1999. The information is
provided with respect to:
. each person who is known to us to own beneficially more than 5% of the
outstanding shares of common stock;
. each of our directors;
. each of our Named Executive Officers; and
. all of our directors and executive officers as a group.
Applicable percentage ownership in the following table is based on 26,345,424
shares of common stock outstanding as of October 15, 1999, as adjusted to
reflect the conversion of all outstanding shares of series A, B, C and E
convertible preferred stock upon the closing of this offering, conversion of a
promissory note of $1.65 million plus accrued interest into 162,077 shares of
our common stock and the exercise of warrants to purchase 407,852 shares of our
common stock.
The numbers shown in the table below assume no exercise by the underwriters
of their over-allotment option. GetThere.com has granted the underwriters an
option to purchase up to 750,000 shares to cover over-allotments, if any.
Unless otherwise indicated, the address for each listed stockholder is c/o
GetThere.com, 4045 Campbell Avenue, Menlo Park, CA 94025.
Except as otherwise indicated by footnote, and subject to community property
laws where applicable, the persons named in the table below have sole voting
and investment power with respect to all of the shares of common stock shown as
beneficially owned.
Principal Stockholders Table
<TABLE>
<CAPTION>
Percentage of
Shares
Beneficially
Number of Owned(1)
Shares -----------------
Beneficially Prior to After
Directors and Executive Officers Owned Offering Offering
<S> <C> <C> <C>
Gadi Maier(2).................................. 1,800,000 6.63% 5.60%
Kenneth R. Pelowski(3)......................... 800,000 3.02% 2.54%
Daniel Whaley(4)............................... 1,315,000 4.99% 4.20%
Eric Sirkin(5)................................. 405,000 1.53% 1.29%
Richard D.C. Whilden(6)........................ 833,250 3.16% 2.66%
Jeffrey D. Brody(7)............................ 2,563,606 9.73% 8.17%
William R. Hambrecht(8)........................ 115,000 0.44% 0.37%
John Ueberroth(9).............................. 1,869,163 7.09% 5.96%
Dale J. Vogel(10).............................. 2,665,603 10.11% 8.50%
Executive officers and directors as a group
(9 persons)(11)............................... 12,366,622 44.85% 37.97%
5% Stockholders
United Air Lines(12)........................... 8,929,935 33.90% 28.49%
American Express(13)........................... 4,831,547 18.34% 15.41%
Entities associated with Brentwood
Associates(14)................................ 2,548,606 9.67% 8.13%
Entities associated with U.S.Venture
Partners(15).................................. 2,650,603 10.06% 8.46%
ITN Joint Venture(16).......................... 1,624,163 6.16% 5.18%
</TABLE>
- ---------------------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power
with respect to the securities. Shares of common stock subject to options,
warrants or other rights to purchase which are currently exercisable or
are
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<PAGE>
exercisable within 60 days after October 15, 1999 are deemed outstanding
for purposes of computing the percentage ownership of the persons holding
such options, warrants or other rights, but are not deemed outstanding for
purposes of computing the percentage ownership of any other person.
(2) Includes personal options immediately exercisable for 800,000 shares.
159,256 of Mr. Maier's shares and options to purchase shares were vested
as of July 31, 1999.
(3) Includes personal options immediately exercisable for 175,000 shares, of
which no shares were vested as of July 31, 1999.
(4) 1,052,500 shares were vested as of July 31, 1999.
(5) Includes personal options immediately exercisable for 125,000 shares, of
which 29,166 shares were vested as of July 31, 1999.
(6) Includes personal options immediately exercisable for 15,000 shares.
799,238 of Mr. Whilden's shares and options to purchase shares were
vested as of July 31, 1999.
(7) Includes 2,437,160 shares held of record by Brentwood Associates, VII,
L.P. and 60,241 shares of record held by Brentwood Affiliates Fund, L.P.,
and assumes the exercise of warrants for a total of 51,205 shares held by
both entities. Mr. Brody is the general partner of both the Brentwood
Associates fund and the Brentwood Affiliates Fund. Mr. Brody disclaims
beneficial interest in such shares, except as to his pecuniary interest
in both entities. Also includes personal options immediately exercisable
for 15,000 shares, of which 1,562 shares were vested as of July 31, 1999.
(8) Includes 25,000 shares held of record by the 1980 Hambrecht Revocable
Trust and 25,000 shares held of record by WR Hambrecht + Co. Also
includes personal options immediately exercisable for 65,000 shares.
16,145 of Mr. Hambrecht's shares and options to purchase shares were
vested as of July 31, 1999.
(9) Includes 1,624,163 shares held of record by ITN Joint Venture. Mr.
Ueberroth currently serves as President of Ambassadors International,
Inc., which owns stock in the ITN Joint Venture. Mr. Ueberroth exercises
voting and investment control over these shares. He disclaims beneficial
ownership of these shares, except to the extent of his pecuniary interest
in Ambassadors International, Inc. Also includes personal options
immediately exercisable for 15,000 shares, of which 1,562 shares were
vested as of July 31, 1999.
(10) Includes 2,168,675 shares held of record by U.S. Venture Partners V,
L.P., 120,482 shares held of record by USVP V International, L.P., 53,012
shares held of record by USVP V Entrepreneur Partners, L.P., and 67,470
shares held of record by 2180 Associates Fund V, L.P. (collectively, the
"USVP Entities"). Also assumes the exercise of warrants for 240,964
shares held by the USVP entities. Mr. Vogel has an "assignee interest in"
and is referred to as a "venture partner" of Presidio Management Group V,
LLC, which is the General partner of each of the USVP Entities. Mr. Vogel
does not share voting or disposition control over these holdings. He
disclaims beneficial interest in such shares, except as to his pecuniary
interest therein arising as a result of his "assignee interest in"
Presidio Management Group V, LLC. Also includes personal options
immediately exercisable for 15,000 shares, of which 1,562 shares were
vested as of July 31, 1999.
(11) Includes personal options immediately exerciseable for 1,175,000 shares.
(12) Includes rights to purchase or warrants to purchase 3,369,060 shares. The
address of Covia is 1200 East Algonquin Road, Elk Grove Township,
Illinois 60007.
(13) Includes warrants for 1,835,046 shares. The address of American Express
is American Express Tower, World Financial Center, New York, New York
10285.
(14) Includes 2,437,160 shares held of record by Brentwood Associates, VII,
L.P. and 60,241 shares of record held by Brentwood Affiliates Fund, L.P.,
and assumes the exercise of warrants for a total of 51,205 shares held by
both entities. The address of Brentwood Associates is 3000 Sand Hill
Road, Building 1, Suite 260, Menlo Park, California 94025.
(15) Includes 2,168,675 shares held of record by U.S. Venture Partners V,
L.P., 120,482 shares held of record by U.S.V.P. V International, L.P.,
53,012 shares held of record by USVP V Entrepreneur Partners, L.P., and
67,470 shares held of record by 2180 Associates Fund V, L.P. Also assumes
the exercise of warrants for 240,964 shares held by the USVP Entities.
The address of U.S. Venture Partners is 2180 Sand Hill Road, Menlo Park,
California 94025.
(16) The address of ITN Joint Venture is c/o Ambassadors International Inc.,
1071 Camelback Street, Newport Beach, California 92660-3228.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
At the closing of this offering, our authorized capital stock will consist of
200,000,000 shares of common stock and 10,000,000 shares of preferred stock. We
have designated one share of series D1 convertible preferred stock, one share
of series D2 convertible preferred stock and one share of series D3 convertible
preferred stock. As of July 31, 1999, 7,663,730 shares of common stock were
issued and outstanding and 11,731,314 shares of preferred stock, convertible
into 11,731,314 shares of common stock upon the completion of the offering,
were issued and outstanding. As of July 31, 1999, we had 117 stockholders.
The following description of our capital stock does not purport to be
complete and is subject to and qualified in its entirety by our amended and
restated certificate of incorporation to be effective after the closing of this
offering, our bylaws and the provisions of applicable Delaware law.
Common Stock
Each holder of common stock is entitled to one vote for each share on all
matters to be voted upon by the stockholders.
Subject to the preferences to which holders of any shares of preferred stock
issued after the offering may be entitled, holders of the common stock are
entitled to receive ratably such dividends and other distributions, if any,
that the board of directors may, from time to time, declare out of funds
legally available therefor. See "Dividend Policy." In the event of our
liquidation, dissolution or winding up, subject to the rights of holders of
series D1 convertible preferred stock, series D2 convertible preferred stock
and series D3 convertible preferred stock, holders of common stock would be
entitled to share in any of our assets remaining after the payment of
liabilities and the satisfaction of any liquidation preference granted to the
holders of any outstanding shares of preferred stock.
Holders of common stock have no preemptive or conversion rights or other
subscription rights, nor are there any redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are, and
the shares of common stock offered by us in this offering, when issued and paid
for, will be, fully paid and nonassessable. The rights, preferences and
privileges of the holders of the common stock are subject to, and may be
adversely affected by, the rights of the holders of our series D1, D2, or D3
convertible preferred stock, or any shares of preferred stock that we may
designate in the future.
Preferred Stock
Upon completion of this offering, other than one share of series D3
convertible preferred stock, no shares of preferred stock will be outstanding.
However, United Air Lines, through its wholly owned subsidiary Covia, holds an
option to purchase one share of series D1 convertible preferred stock and one
share of series D2 convertible preferred stock. See "Certain Transactions--
United Air Lines" for a description of the terms of the option.
Each holder of series D1 convertible preferred stock, series D2 convertible
preferred stock and series D3 convertible preferred stock is entitled to vote
on all matters to be voted upon by the stockholders. Each holder of series D1
convertible preferred stock, series D2 convertible preferred stock and series
D3 convertible preferred stock is entitled to the number of votes equal to the
number of shares of common stock into which a share of series D1 convertible
preferred stock, series D2 convertible preferred stock and series D3
convertible preferred stock could be converted at the record date for
determination of the stockholders entitled to vote on matters to be voted upon
by the stockholders. In addition, so long as any shares of series D1
convertible preferred stock are outstanding, we may not take any action that
adversely affects the rights of the series D1 convertible preferred stock or
that increases the authorized number of shares of series D1 convertible
preferred stock without the approval of the holder of series D1 convertible
preferred stock. So long as any shares of series D2 convertible preferred stock
are outstanding, we may not take any action that adversely affects the
73
<PAGE>
rights of the series D2 convertible preferred stock or that increases the
authorized number of shares of series D2 convertible preferred stock without
the approval of the holder of series D2 convertible preferred stock. So long as
any shares of series D3 convertible preferred stock are outstanding, we may not
take any action that adversely affects the rights of the series D3 convertible
preferred stock or that increases the authorized number of shares of series D3
convertible preferred stock.
Also, so long as a share of series D1 convertible preferred stock remains
outstanding, one member of our board of directors will be elected by the holder
of series D1 convertible preferred stock. So long as a share of series
D2 convertible preferred stock remains outstanding, one member of our board of
directors will be elected by the holders of series D2 convertible preferred
stock. So long as a share of series D3 convertible preferred stock remains
outstanding, one member of our board of directors will be elected by the
holders of the series D3 convertible preferred stock.
Subject to the rights of preferred stock that may be authorized and issued
after this offering, holders of series D1 convertible preferred stock, series
D2 convertible preferred stock and series D3 convertible preferred stock are
entitled to receive ratably with holders of common stock such dividends and
other distributions, if any, that the board of directors may, from time to
time, declare out of funds legally available therefor. See "Dividend Policy."
In the event of our liquidation, dissolution or winding up, each holder of
series D1 convertible preferred stock and series D2 convertible preferred stock
will be entitled to $10.00 per share, and each holder of series D3 convertible
preferred stock will be entitled to $12.50 per share as adjusted for stock
splits, consolidations and the like, prior to any distribution to holders of
common stock.
Each share of series D1 convertible preferred stock, series D2 convertible
preferred stock and series D3 convertible preferred stock is convertible, at
the option of the holder, into one share of common stock, subject to
proportional adjustments for stock splits, combinations, dividends and the
like. Each share of series D1 convertible preferred stock and series D2
convertible preferred stock will automatically convert into one share of common
stock, subject to proportional adjustments for stock splits, combinations,
dividends and the like, upon a termination event, as it is defined in the
shareholders' agreement. This event is defined as the earlier of:
. May 10, 2001;
. a breach of the standstill agreement by a party to the agreement other
than Covia or United Air Lines, unless the breach is unintentional and
cured within specified times;
. a third party's:
. commencement or publicly announced intention to acquire or
beneficially own 15% or more of our outstanding stock (or 10% or more
of our outstanding stock in the case of certain specified companies);
. acquisition or beneficial ownership of 15% or more of our outstanding
stock (or 10% or more of our outstanding stock in the case of certain
specified companies), provided that the third party has also filed a
Schedule 13D reserving the right to hold the securities with the
purpose of changing or influencing control over us;
. acquisition of all or substantially all our assets;
. filing a notification under the Hart-Scott-Rodino Act reflecting an
intent to acquire all or substantially all of our assets;
. agreement to acquire us or public announcement of its intention to
acquire us;
. solicitation of proxies in opposition to any proxy solicitation being
conducted by us;
. public announcement of its intention to do any of the foregoing
actions; or
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<PAGE>
. entering into substantive discussions with our board of directors or
any of our executive officers with knowledge of any four members of
our board of directors regarding any of the foregoing actions;
. Covia's breach of its standstill agreement with us;
. Covia's transfer or attempt to transfer the option to an entity that does
not control or is controlled by United Air Lines; or
. Covia holding less than 2,434,287 shares of our common stock (assuming
exercise of warrants currently held by Covia).
In addition, each share of series D1 convertible preferred stock will
automatically convert to common stock upon the earlier of:
. the date the holder holds less than 2,434,287 shares of our common stock
(assuming exercise of any warrants to purchase our common stock held by
the holder at a purchase price of $0.01 or less); or
. the date the holder transfers the series D1 convertible preferred stock
without our prior written consent to an entity that does not control us
or is not controlled by us.
Likewise, each share of series D2 convertible preferred stock will
automatically convert to common stock upon the earlier of:
. the date the holder holds less than 3,651,430 shares of our common stock
(assuming exercise of any warrants to purchase our common stock held by
the holder at a purchase price of $0.001 or less); or
. the date the holder transfers the series D2 convertible preferred stock
without our prior written consent to an entity that does not control us
or is not controlled by us.
Each share of series D3 convertible preferred stock will automatically
convert into one share of common stock, subject to proportional adjustments for
stock splits, combinations, dividends and the like, upon a termination event,
as it is defined in the standstill agreement. This event is defined as the
earlier of:
. May 10, 2001;
. a breach of the standstill agreement by any of the parties other than
American Express, unless the breach is unintentional and is cured within
specified times;
. an occurrence of a termination event as it is defined in our amended and
restated shareholders agreement; or
. a third party's:
. commencement or publicly announced intention to acquire or
beneficially own 12.5% or more of our outstanding stock (or 10% more
of our outstanding stock in the case of certain specified companies,
or 30% or more of our outstanding stock if the third party is United
Air Lines or any of its affiliates);
. acquisition or beneficial ownership of 12.5% or more of our
outstanding stock (or 10% or more of our outstanding stock in the case
of certain specified companies, or 30% or more of our outstanding
stock if the third party is United Air Lines or any of its
affiliates), provided that the third party has also filed a Schedule
13D reserving the right to hold the securities with the purpose of
changing or influencing control over us;
. filing of a notification and report form under the Hart-Scott-Rodino
Act, reflecting an intent to acquire all or substantially all of our
assets;
. acquisition of all or substantially all our assets;
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<PAGE>
. agreement to acquire us or substantially all of our assets, or to
beneficially own 12.5% or more of our outstanding stock, if the third
party has not also entered into a similar standstill agreement;
. solicitation of proxies in opposition to any proxy solicitation being
conducted by us; or
. public announcement of its intention to undertake any of the foregoing
actions.
In addition, each share of series D3 convertible preferred stock will
automatically convert to common stock upon the earlier of:
. the date that the holder thereof transfers the series D3 convertible
preferred without our written consent except to a related party of
American Express;
. beginning with the first day of the second financial quarter following
the commencement of sales by American Express pursuant to the Web
services and travel agreement between us and American Express, on the
last day of any subsequent three consecutive financial quarters during
which American Express' sales of our services pursuant to the Web
services and travel agreement to the Global 950 (as defined in the Web
services and travel agreement) total less than twenty five percent (25%)
in such three consecutive financial quarter periods of American Express'
total sales of on-line services similar to those provided by the
Reservation System, as defined in the Web services and travel agreement,
to new accounts within the Global 950;
. eighteen (18) months following the closing of this offering; or
. the date of the consummation of a liquidation of our business.
In addition, the series D3 convertible preferred stock will automatically
convert to common stock:
. if we consummate this offering on or before the later of (x) December 31,
1999, or (y) the consummation of the next bona fide sale of our
securities to investors in an arms-length transaction with gross
aggregate proceeds of at least $10,000,000, in each case the "pay to play
date", on the date that the holder of the share of series D3 convertible
preferred stock holds a percentage of our common stock (calculated
assuming (1) the conversion of all then-outstanding preferred stock into
common stock, (2) the issuance of the number of shares of common stock
issuable upon conversion of the securities issuable upon exercise of
outstanding warrants to purchase our securities held by the holder of the
share of series D3 convertible preferred stock and (3) the issuance of
all shares of common stock issuable upon the exercise of all options
vested as of such date exercisable for shares of our common stock) equal
to less than the difference of (x) the percentage of our common stock
held by the holder of the share of series D3 convertible preferred stock
immediately after the consummation of this offering minus (y) 1.0%; or
. if we do not consummate this offering on or before the pay to play date,
on the date that the holder of the share of series D3 convertible
preferred stock holds a percentage of our common stock (calculated
assuming (1) the conversion of all then-outstanding preferred stock into
common stock, (2) the issuance of the number of shares of common stock
issuable upon conversion of the securities issuable upon exercise of
outstanding warrants to purchase our securities held by the holder of the
share of series D3 convertible preferred stock and (3) the issuance of
all shares of common stock issuable upon the exercise of all options
vested as of such date exercisable for shares of our common stock) equal
to less than the difference of (x) the percentage of our common stock
held by the holder on the date that American Express is issued shares of
our series E convertible preferred stock, minus (y) 1.0%.
In addition, our board of directors is authorized, subject to any limitations
prescribed by law, without stockholder approval, to fix or alter the rights,
preferences and privileges, including voting rights, conversion rights,
dividend rights, redemption privileges and liquidation preferences of any
unissued series of preferred stock and to issue such designated series of
preferred stock. The rights of the holders of the common stock will be subject
to, and may be adversely affected by, the rights of the holders of any such
preferred stock that may be issued in the future. The issuance of preferred
stock, while providing flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of entrenching our board of
directors and
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<PAGE>
making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, a majority of our outstanding voting
stock. We have no present plans to issue any shares or designate any additional
series of preferred stock.
Warrants
Upon completion of the offering, we will have outstanding warrants and rights
to acquire warrants exercisable for an aggregate of 7,504,503 shares of common
stock, at a weighted average exercise price of $10.57 per share. These warrants
have net exercise provisions under which the holder may, in lieu of payment of
the exercise price in cash, surrender the warrant and receive a net amount of
shares, based on their fair market value of the common stock at the time of
exercise of the warrant, after deducting the exercise price of the warrant.
These warrants expire on dates ranging from two years from the closing of this
offering to five years from the closing of this offering. These warrants and
rights to acquire warrants include:
. a warrant to initially purchase up to 1,650,000 shares of our series C
convertible preferred stock to Northwest Airlines at a price of $5.125
per share. The exercisability of the warrant is subject to implementing
our services on Northwest Airlines' primary Web site, www.nwa.com. The
number of shares exercisable under this warrant is subject to adjustment
based on the timing of implementing our services on the www.nwa.com Web
site. If our solutions are implemented on this Web site within 12 months
of the issuance of the warrant, the warrant will be exercisable for
1,650,000 shares of common stock. If our services are implemented on
this Web site after 12 months but on or prior to 18 months after the
warrant issuance date, the warrant will be exercisable for 1,500,000
shares of common stock. If our services are implemented on this Web site
after 18 months but on or prior to 24 months after the warrant issue
date, the warrant will be exercisable for 1,250,000 shares of common
stock. If our services are not implemented on this Web site within 24
months after the warrant issuance date, the warrant will not be
exercisable for any shares and will terminate;
. a warrant to American Express to purchase 375,000 shares of common stock
at an exercise price of $16.50 per share, a warrant to purchase 730,023
shares of our series E convertible preferred stock at an exercise price
of $21.00 per share and a warrant to purchase 730,023 shares of our
series E convertible preferred stock at an exercise price of $31.00 per
share;
. a warrant to America West Airlines to purchase 500,000 shares of our
series E convertible preferred stock at an exercise price of $12.50 per
share and a warrant to Covia to purchase 1,136,821 shares of our series
C convertible preferred stock at $11.20 per share; and
. we have granted Covia the right to have us grant United Air Lines an
option to purchase, at its choice, up to 1,424,539 shares of series C
convertible preferred stock at a price of $5.125 per share or, for a
purchase price of $5.125 per share, a warrant to purchase up to
1,424,539 shares of Series C convertible preferred stock at an exercise
price of $0.01 per share. In addition, we sold Covia the right to have
us grant United Air Lines a warrant to purchase 807,698 shares of series
C convertible preferred stock at a price of $0.01 per share.
Antitakeover Effects of Provisions of the Certificate of Incorporation, Bylaws,
Delaware Law and Standstill Agreement
Certificate of Incorporation and Bylaws
We have adopted provisions in our amended and restated certificate of
incorporation and in our amended and restated bylaws that:
. provide that all directors, other than those elected by our series D1,
series D2 or series D3 convertible preferred stock, will be part of a
classified board of directors that results in only approximately one-
third of our directors within the classified board being elected at each
annual meeting of stockholders;
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<PAGE>
. eliminate the right of stockholders to call a special meeting of
stockholders or bring matters before a special meeting of stockholders;
. require stockholders to give us advance notice of their intent to
nominate directors or bring matters before an annual meeting of
stockholders;
. eliminate the ability of stockholders to take action by written consent;
and
. permit the board of directors to create one or more series of preferred
stock and to issue the shares thereof.
These provisions could adversely affect the rights of the holders of common
stock by delaying, deferring or preventing a change in control. These
provisions are intended to enhance the likelihood of continuity and stability
in the composition of the board of directors and in the policies formulated by
the board of directors and to discourage certain types of transactions that may
involve an actual or threatened change of control. These provisions are
designed to reduce our vulnerability to an unsolicited acquisition proposal and
to discourage certain tactics that may be used in proxy fights. However, such
provisions could have the effect of discouraging others from making tender
offers for our shares and, as a consequence, they also may inhibit fluctuations
in the market price of our shares that could result from actual or rumored
takeover attempts. Such provisions also may have the effect of preventing
changes in our management.
Delaware Anti-Takeover Statute
We are subject to Section 203 of the Delaware General Corporation Law, which,
subject to certain exceptions, prohibits a publicly held Delaware corporation
from engaging in any "business combination" with any "interested stockholder"
for a period of three years following the date that such stockholder became an
interested stockholder, unless:
. prior to that date, the board of directors approved either the business
combination or the transaction that resulted in the stockholder becoming
an interested stockholder;
. upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned by directors, officers
and certain employee stock plans; and
. on or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66~% of the outstanding voting stock that is not owned by the
interested stockholder.
Section 203 defines "business combination" to include:
. any merger or consolidation involving the corporation and the interested
stockholder;
. any sale, transfer, pledge or other disposition of 10% or more of our
assets involving the interested stockholder;
. subject to certain exceptions, any transaction that results in the
issuance or transfer by us of any of our stock to the interested
stockholder;
. any transaction involving us that has the effect of increasing the
proportionate share of the stock of any class or series beneficially
owned by the interested stockholder; and
. the receipt by the "interested stockholder" of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as an entity or
person beneficially owning 15% or more of our outstanding voting stock and any
entity or person affiliated with or controlling or controlled by such entity or
person.
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In addition, some of our stockholders are subject to standstill agreements
preventing them from acquiring over a specified percentage of our voting
securities. These standstill agreements will have the effect of making us more
difficult to be acquired by these stockholders. For a discussion of these
standstill agreements, see "Certain Transactions--Equity Financings and
Stockholders Arrangements."
Registration Rights
After this offering, the holders of 19,357,882 shares of common stock will be
entitled to certain rights with respect to the registration of these shares
under the Securities Act. Under the terms of our investors' rights agreement
between us and the holders of registrable securities, if we propose to register
any of our securities under the Securities Act, either for our own account or
for the account of other security holders exercising registration rights, these
holders are entitled to notice of such registration and are entitled to include
their shares of such common stock in the registration. Additionally, holders of
16,623,597 shares of the registrable securities are also entitled to certain
demand registration rights under which they may require us to file a
registration statement under the Securities Act at our expense with respect to
our shares of common stock, and we are required to use our best efforts to
effect such registration. Further, the holders of such demand rights may
require us to file additional registration statements on Form S-3. All of these
registration rights are subject to certain conditions and limitations, among
them the right of the underwriters of an offering to limit the number of shares
included in such registration and our right not to effect a requested
registration within six months following the initial public offering of our
securities, including this offering.
Transfer Agent and Registrar
The Transfer Agent and Registrar for our common stock is ChaseMellon
Shareholder Services.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering (assuming no exercise of the underwriters'
overallotment option), we will have an aggregate of 31,345,425 shares of common
stock outstanding, based upon the shares outstanding as of October 15, 1999,
assuming no exercise of outstanding options and the repurchase of 500,000
shares of series C convertible preferred stock and 200,000 shares of series E
convertible preferred stock in November 1999. Of the total outstanding shares,
the 5,000,000 shares sold in this offering will be freely tradable without
restriction or further registration under the Securities Act of 1933, as
amended, except that any shares held by our affiliates, as that term is defined
under the Securities Act, may generally only be sold in compliance with the
limitations of Rule 144 described below.
Sales of Restricted Shares
The remaining 26,345,425 shares of common stock are deemed restricted shares
under Rule 144. Sale in the public market of these restricted shares is limited
by restrictions under the Securities Act and lock-up agreements or similar
arrangements under which the holders of such shares have agreed not to sell or
otherwise dispose of any of their shares for a period of 180 days after the
date of this prospectus without the prior written consent of Donaldson, Lufkin
& Jenrette Securities Corporation. On the date of this prospectus, no shares
other than the 5,000,000 shares offered hereby will be eligible for sale in the
public market. Beginning 180 days after the date of this prospectus, or earlier
with the consent of Donaldson, Lufkin & Jenrette Securities Corporation,
19,266,847 restricted shares will become available for sale in the public
market, subject to certain limitations of Rule 144 of the Securities Act.
The following table shows approximately when the 26,345,425 shares of our
common stock that are not being sold in this offering, but which will be
outstanding when this offering is complete, will be eligible for sale in the
public market:
Eligibility of Restricted Shares for Sale in the Public Market
<TABLE>
<CAPTION>
Number of
Date Shares
<S> <C>
At the effective date............................................. 0
180 days after the effective date................................. 19,266,847
From time to time after 180 days after the effective date......... 7,078,577
</TABLE>
Resale of 4,317,825 of the restricted shares that will become available for
sale in the public market starting 180 days after the effective date of this
offering will be limited by volume and other resale restrictions under Rule 144
of the Securities Act because the holders are our affiliates.
In general, under Rule 144 of the Securities Act as currently in effect,
beginning 90 days after this offering, a person (or persons whose shares are
aggregated) who has beneficially owned restricted shares for at least one year,
including a person who may be deemed an affiliate, is entitled to sell within
any three-month period a number of shares that does not exceed the greater of
1% of the then-outstanding shares of our common stock (approximately 313,454
shares after giving effect to this offering) and the average weekly trading
volume of our common stock on the Nasdaq National Market during the four
calendar weeks preceding such sale. Sales under Rule 144 of the Securities Act
are subject to certain restrictions relating to manner of sale, notice and the
availability of current public information about us. A person who is not our
affiliate at any time during the 90 days preceding a sale, and who has
beneficially owned shares for at least two years, would be entitled to sell
such shares immediately following this offering without regard to the volume
limitations, manner of sale provisions or notice or other requirements of Rule
144 of the Securities Act. However, the transfer agent may require an opinion
of counsel that a proposed sale of shares comes within the terms of Rule 144 of
the Securities Act prior to effecting a transfer of such shares.
Prior to this offering, there has been no public market for our common stock
and no predictions can be made of the effect, if any, that the sale or
availability for sale of shares of additional common stock will have
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on the market price of our common stock. Nevertheless, sales of substantial
amounts of such shares in the public market, or the perception that such sales
could occur, could adversely affect the market price of the common stock and
could impair our future ability to raise capital through an offering of our
equity securities.
Options
As of October 15, 1999, options to purchase a total of 4,715,355 shares of
common stock pursuant to the 1996 stock incentive plan were exercisable. All of
the shares subject to options are subject to lock-up agreements or similar
arrangements. An additional 5,000,000 shares of common stock were reserved as
of August 16, 1999 for future option grants or direct issuances under the 1999
stock incentive plan, 2,500,000 shares of common stock were reserved as of
August 16, 1999 under our 1999 employee stock purchase plan and 750,000 shares
of common stock were reserved as of August 16, 1999 under our 1999 directors'
stock option plan. See "Management--Stock Plans" and Notes 8 and 11 of Notes to
Consolidated Financial Statements.
We intend to file a registration statement on Form S-8 under the Securities
Act to register all shares of common stock subject to outstanding stock options
and common stock issued or issuable under our 1996 and 1999 stock incentive
plans and our 1999 employee stock purchase plan. We expect to file such a
registration statement shortly after the closing of this offering. Such
registration statement is expected to become effective upon filing. Shares
covered by this registration statement will thereupon be eligible for sale in
the public markets, subject to the lock-up agreements.
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UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement, the underwriters named below, for whom Donaldson, Lufkin & Jenrette
Securities Corporation, Salomon Smith Barney Inc., Bear, Stearns & Co. Inc. and
WR Hambrecht + Co are acting as representatives, have severally agreed to
purchase, and GetThere.com has agreed to sell to them, severally, the
respective number of shares of common stock set forth opposite their respective
names below:
<TABLE>
<CAPTION>
Number of
Underwriters: Shares
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation............... 1,900,000
Salomon Smith Barney Inc. ........................................ 1,000,000
Bear, Stearns & Co. Inc. ......................................... 1,000,000
WR Hambrecht + Co ................................................ 100,000
Allen & Company Incorporated...................................... 50,000
BancBoston Robertson Stephens Inc. ............................... 50,000
Deutsche Banc Alex. Brown......................................... 50,000
A.G. Edwards & Sons, Inc. ........................................ 50,000
First Union Securities, Inc....................................... 50,000
SG Cowen Securities Corporation................................... 50,000
C.E. Unterberg, Towbin............................................ 50,000
Thomas Weisel Partners LLC........................................ 50,000
Adams, Harkness & Hill, Inc....................................... 25,000
Robert W. Baird & Co. Incorporated................................ 25,000
J.C. Bradford & Co................................................ 25,000
Crowell, Weedon & Co.............................................. 25,000
D.A. Davidson & Co................................................ 25,000
Fahnestock & Co. Inc.............................................. 25,000
Wachovia Securities, Inc.......................................... 25,000
Janney Montgomery Scott LLC....................................... 25,000
Johnston, Lemon & Co. Incorporated................................ 25,000
C.L. King & Associates, Inc. ..................................... 25,000
Legg Mason Wood Walker, Incorporated.............................. 25,000
McDonald Investments Inc., a KeyCorp Company...................... 25,000
Morgan Keegan & Company, Inc. .................................... 25,000
Needham & Company, Inc. .......................................... 25,000
Parker/Hunter Incorporated........................................ 25,000
Pennsylvania Merchant Group....................................... 25,000
Ragen Mackenzie Inc. ............................................. 25,000
Raymond James & Associates, Inc. ................................. 25,000
Sanders Morris Mundy.............................................. 25,000
Sands Brothers & Co., Ltd. ....................................... 25,000
Scott & Stringfellow, Inc. ....................................... 25,000
The Seidler Companies Incorporated................................ 25,000
Sutro & Co. Incorporated.......................................... 25,000
Tucker Anthony Cleary Gull........................................ 25,000
---------
Total........................................................... 5,000,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
to purchase and accept delivery of the shares of common stock in the offering
are subject to approval by their counsel of legal matters concerning the
offering and to conditions precedent that must be satisfied by GetThere.com.
The underwriters are obligated to purchase and accept delivery of all the
shares of common stock in the offering, other than those shares covered by the
over-allotment option described below, if any are purchased.
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The underwriting agreement provides that the underwriters will severally
agree to purchase shares of common stock from GetThere.com at $14.88 per share
and propose to make a public offering of those shares at the initial public
offering price set forth on the cover of this prospectus. If the shares are
sold at the initial public offering price, the underwriters will receive a fee
that is a percentage of the initial public offering price, referred to as the
underwriting fee, of $1.12 per share. The expenses of the offering, exclusive
of the underwriting discount, are estimated at $2.25 million and are payable
entirely by us. These expenses include: filing and listing fees of
approximately $130,000; legal, accounting and other professional services fees
of approximately $1.9 million; and approximately $220,000 in miscellaneous
expenses.
In addition to offering part of the shares of common stock directly to the
public at the initial public offering price, the underwriters plan to offer
part of the shares to dealers, including the underwriters, at such price less a
concession not in excess of $0.67 per share. The underwriters may allow, and
such dealers may re-allow, to other dealers a concession not in excess of $0.10
per share. After the initial offering of the common stock, the public offering
price and other selling terms may be changed by the representatives of the
underwriters at any time without notice. The underwriters do not intend to
confirm sales to any accounts over which they exercise discretionary authority.
The underwriting agreement provides that GetThere.com will grant to the
underwriters an option, exercisable for 30 days after the date of this
prospectus, to purchase, from time to time, in whole or in part, up to an
aggregate of 750,000 additional shares of common stock at the initial public
offering price less underwriting discounts and commission. The underwriters may
exercise the option solely to cover over-allotments, if any, made in connection
with the offering. To the extent that the underwriters exercise the option,
each underwriter will become obligated, subject to conditions contained in the
underwriting agreement, to purchase its pro rata portion of such additional
shares based on the underwriters' percentage underwriting commitment as
indicated in the above table.
The underwriting agreement also provides that GetThere.com will indemnify the
underwriters against liabilities which may arise in connection with the
offering, including liabilities under the Securities Act of 1933, and
contribute to payments that the underwriters may be required to make.
As required by the underwriting agreement, each of GetThere.com's officers,
directors and other stockholders, option holders and warrant holders who hold
in the aggregate 39,736,667 shares of common stock and options (including
shares held by officers and directors) have agreed not to:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend, or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock, other than shares
acquired in the initial public offering or on the Nasdaq National Market,
or any securities convertible into or exercisable or exchangeable for
common stock; or
. enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock, whether any such transaction described above is to be
settled by delivery of common stock or other securities, in cash, or
otherwise.
Donaldson, Lufkin & Jenrette Securities Corporation may choose to release
some of these shares from such restrictions prior to the expiration of the 180-
day lock-up period, although it has no current intention of doing so.
In addition, during such 180-day period, GetThere.com has also agreed not to
file any registration statement with respect to, and each of its executive
officers, directors and stockholders of GetThere.com have agreed not to make
any demand for, or exercise any right with respect to, the registration of any
shares of common stock or any securities convertible into or exercisable or
exchangeable for common stock without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation.
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The following table sets forth the items of compensation considered to be
underwriting compensation under the rules of the National Association of
Securities Dealers:
<TABLE>
<CAPTION>
Total
-----------------------------
Per Without With
Share Over-Allotment Over-Allotment
<S> <C> <C> <C>
Underwriting fees paid by us............. $1.12 $5,600,000 $6,440,000
Expenses payable by us................... .45 2,250,000 2,250,000
----- ---------- ----------
Total.................................. $1.57 $7,850,000 $8,690,000
===== ========== ==========
</TABLE>
Prior to the offering, there has been no established trading market for the
common stock. The initial public offering price of the shares of common stock
offered was determined by negotiation among GetThere.com and the underwriters.
The factors considered in determining the initial public offering price
include:
. our history and the prospects for the industry in which we compete;
. our past and present operations;
. our historical results of operations;
. our prospects for future earnings;
. the recent market prices of securities of generally comparable companies;
and
. the general condition of the securities markets at the time of the
offering.
Other than in the United States, no action has been taken by GetThere.com or
the underwriters that would permit a public offering of the shares of common
stock offered in any jurisdiction where action for that purpose is required.
The shares of common stock offered may not be offered or sold, directly or
indirectly, nor may this prospectus or any other offering material or
advertisements in connection with the offer and sale of any such shares of
common stock be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. Persons into whose possession this prospectus
comes are advised to inform themselves about and observe any restrictions
relating to the offering and the distribution of this prospectus. This
prospectus does not constitute an offer to sell or a solicitation of any offer
to buy any shares of common stock offered in any jurisdiction in which such an
offer or a solicitation is unlawful.
In connection with the offering, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the common stock.
Specifically, the underwriters may over-allot the offering, creating a
syndicate short position. The underwriters may bid for and stabilize the price
of the common stock. In addition, the underwriting syndicate may reclaim
selling concessions from syndicate members and selected dealers if they
repurchase previously distributed common stock in syndicate covering
transactions, in stabilizing transactions or otherwise. These activities may
stabilize or maintain the market price of the common stock above independent
market levels. The underwriters are not required to engage in these activities,
and may end any of these activities at any time.
A limited number of shares allocated to WR Hambrecht + Co will be distributed
in this offering through the use of the Internet. WR Hambrecht + Co will post
on its Web site (www.wrhambrecht.com) a brief description of the offering which
contains only the information permitted under Rule 134. Visitors to this Web
site will have access to the preliminary prospectus by links on the Web site.
WR Hambrecht + Co will accept conditional offers to purchase shares from
account holders that are determined eligible to participate. In the event that
the demand for shares exceeds the amount of shares allocated to it, WR
Hambrecht + Co will, at the request of GetThere.com, first allocate shares to
persons with an established relationship with GetThere.com. If any shares
remain, WR Hambrecht + Co will allocate them to individual and institutional
account holders,
84
<PAGE>
considering the following criteria: trading history of the account with respect
to initial public offerings, post-offering activity in previous offerings and
tenure of the account.
The underwriters have reserved for sale, at the initial public offering
price, up to 300,000 shares of the common stock to be sold in the offering for
officers, employees, advertisers, vendors and other persons selected by
GetThere.com. The underwriters have also reserved for sale, at the initial
public offering price, up to 500,000 shares of the common stock to be sold in
the offering to Covia, a wholly owned subsidiary of United Air Lines. The
number of shares available for sale to the general public will be reduced to
the extent Covia or these entities purchase these reserved shares. Any reserved
shares not so purchased will be offered by the underwriters to the general
public on the same basis as other shares sold in this offering.
WR Hambrecht + Co is an investment banking firm formed as a limited liability
company in February 1998. In addition to this offering, WR Hambrecht + Co has
engaged in the business of public and private equity investing and financial
advisory services since its inception. The chairman and chief executive officer
of WR Hambrecht + Co, William R. Hambrecht, has 40 years of experience in the
securities industry. Mr. Hambrecht is a director of GetThere.com and
beneficially owns 50,000 shares and options to acquire an additional 65,000
shares of GetThere.com common stock.
85
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock being offered by GetThere.com will
be passed upon for GetThere.com by Gunderson Dettmer Stough Villeneuve Franklin
& Hachigian, LLP, Menlo Park, California, which has acted as our counsel in
connection with this offering. Certain legal matters in connection with this
offering will be passed upon for the underwriters by Brobeck, Phleger &
Harrison LLP, Palo Alto, California.
EXPERTS
The financial statements as of January 31, 1999 and 1998 and for each of the
three years in the period ended January 31, 1999 included in this prospectus
have been so included in reliance on the reports of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firms as experts in
auditing and accounting.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 with respect to the common stock being offered. This
prospectus, which forms a part of the registration statement, does not contain
all of the information set forth in the registration statement. For further
information with respect to us and our common stock, reference is made to the
registration statement. 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 document
filed as an exhibit to the registration statement, and each such statement is
qualified in all respects by such reference.
Copies of the registration statement may be examined without charge at the
Public Reference Section of the Securities and Exchange Commission, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, and the Securities and
Exchange Commission's Regional Offices located at Seven World Trade Center,
13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any portion of
the registration statement can be obtained from the Public Reference Section of
the Securities and Exchange Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, upon payment of certain prescribed fees. The Securities and
Exchange Commission maintains a Web site that contains registration statements,
reports, proxy and information statements and other information regarding
registrants (including us) that file electronically. The address of such Web
site is http://www.sec.gov.
We intend to distribute annual reports containing audited financial
statements and will make copies of quarterly reports available for the first
three quarters of each fiscal year containing unaudited interim financial
statements.
86
<PAGE>
GETTHERE.COM, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants.......................................... F-2
Balance Sheet.............................................................. F-3
Statement of Operations.................................................... F-4
Statement of Stockholders' Deficit......................................... F-5
Statement of Cash Flows.................................................... F-6
Notes to Financial Statements.............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of GetThere.com, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of stockholders' deficit and of cash flows present fairly, in all
material respects, the financial position of GetThere.com, Inc. at January 31,
1998 and 1999, and the results of its operations and its cash flows for each
of the three years in the period ended January 31, 1999, in conformity with
generally accepted accounting principles. 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 audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards, which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
San Jose, California
November 18, 1999
F-2
<PAGE>
GETTHERE.COM, INC.
BALANCE SHEET
(In thousands, except per share data)
<TABLE>
<CAPTION>
January 31, Pro Forma
----------------- July 31, July 31,
1998 1999 1999 1999
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents............ $ 1,332 $ 8,268 $ 3,306 $ 4,161
Short-term investments............... -- 7,534 3,235 3,235
Accounts receivable, net............. 774 1,203 863 863
Prepaid expenses and other current
assets.............................. 78 136 593 593
------- -------- -------- --------
Total current assets............... 2,184 17,141 7,997 8,852
Property and equipment, net............ 2,158 3,621 7,352 7,352
Other assets........................... 48 44 46 46
Restricted cash (Note 5)............... -- -- 805 805
Intangible assets...................... -- -- 2,739 2,739
------- -------- -------- --------
$ 4,390 $ 20,806 $ 18,939 $ 19,794
======= ======== ======== ========
LIABILITIES, REDEEMABLE
CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
- ----------------------------------
Current liabilities:
Borrowings........................... $ 469 $ 328 $ 234 $ 234
Accounts payable..................... 1,271 1,000 3,264 3,264
Accrued liabilities.................. 358 1,339 2,637 2,637
Deferred revenue..................... 755 1,072 1,120 1,120
Capital lease obligations, current... 173 1,313 2,945 2,945
------- -------- -------- --------
Total current liabilities.......... 3,026 5,052 10,200 10,200
Convertible note payable............... -- -- 1,650 1,650
Capital lease obligations, long-term... 434 3,235 5,364 5,364
------- -------- -------- --------
3,460 8,287 17,214 17,214
------- -------- -------- --------
Redeemable convertible preferred stock
and warrants (Note 6)................. 10,784 32,901 33,105 --
------- -------- -------- --------
Commitments (Note 5)
Stockholders' equity (deficit):
Common stock; $.0001 par value;
50,000 shares authorized; 3,920,
4,544 and 7,664 (unaudited) and
19,803 (unaudited) shares issued and
outstanding at January 31, 1998 and
1999, July 31, 1999 and pro forma,
respectively........................ -- -- -- 1
Additional paid-in capital........... 499 11,753 53,931 87,890
Note receivable from stockholders.... -- -- (2,707) (2,707)
Unearned compensation................ (370) (6,503) (36,628) (36,628)
Accumulated deficit.................. (9,983) (25,632) (45,976) (45,976)
------- -------- -------- --------
Total stockholders' equity
(deficit)......................... (9,854) (20,382) (31,380) 2,580
------- -------- -------- --------
$ 4,390 $ 20,806 $ 18,939 $ 19,794
======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
GETTHERE.COM, INC.
STATEMENT OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal Year Ended Six Months Ended
January 31, July 31,
-------------------------- -----------------
1997 1998 1999 1998 1999
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Transaction................... $ 253 $ 2,098 $ 4,932 $ 2,090 $ 4,862
Professional service.......... 329 903 1,515 619 736
------- ------- -------- ------- --------
Total revenues.............. 582 3,001 6,447 2,709 5,598
Cost of revenues............... 134 1,680 4,292 1,623 3,973
------- ------- -------- ------- --------
Gross profit................... 448 1,321 2,155 1,086 1,625
------- ------- -------- ------- --------
Operating expenses:
Research and development...... 906 2,266 4,113 1,726 1,819
Sales and marketing........... 1,030 2,393 5,732 2,522 3,612
General and administrative.... 1,962 2,887 6,127 2,687 6,973
Stock-based compensation...... 20 103 2,005 561 9,416
------- ------- -------- ------- --------
Total operating expenses.... 3,918 7,649 17,977 7,496 21,820
------- ------- -------- ------- --------
Loss from operations........... (3,470) (6,328) (15,822) (6,410) (20,195)
Interest income (expense),
net........................... 33 (30) 173 (82) (149)
------- ------- -------- ------- --------
Net loss....................... (3,437) (6,358) (15,649) (6,492) (20,344)
Accretion of series B and C
redeemable convertible
preferred stock............... -- (51) (309) (105) (204)
------- ------- -------- ------- --------
Net loss attributable to common
stockholders.................. $(3,437) $(6,409) $(15,958) $(6,597) $(20,548)
======= ======= ======== ======= ========
Basic and diluted net loss per
share......................... $ (1.22) $ (1.81) $ (4.03) $ (1.73) $ (5.05)
======= ======= ======== ======= ========
Shares used in computing basic
and diluted net loss per
share......................... 2,827 3,537 3,957 3,823 4,071
======= ======= ======== ======= ========
Pro forma basic and diluted net
loss per share................ $ (1.05) $ (1.26)
======== ========
Shares used in computing pro
forma basic and diluted net
loss per share................ 14,917 16,199
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
GETTHERE.COM, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
(In thousands)
<TABLE>
<CAPTION>
Note
Common Stock Additional Receivable Total
-------------- Paid-In from Unearned Accumulated Stockholders'
Shares Amount Capital Stockholders Compensation Deficit Deficit
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 31,
1996................... 3,000 $ -- $ 3 $ -- $ -- $ (188) $ (185)
Issuance of common
stock.................. 335 -- 34 -- -- -- 34
Issuance of restricted
common stock for
services............... 437 -- 59 -- (59) -- --
Issuance of warrant in
connection with
equipment lease line... -- -- 10 -- -- -- 10
Unearned compensation... -- -- 14 -- (14) -- --
Amortization of unearned
compensation........... -- -- -- -- 20 -- 20
Net loss................ -- -- -- -- -- (3,437) (3,427)
----- ----- ------- ------- -------- -------- --------
Balance at January 31,
1997................... 3,772 -- 120 -- (53) (3,625) (3,558)
Issuance of common stock
for services........... 40 -- 6 -- (6) -- --
Exercise of common stock
options................ 108 -- 10 -- -- -- 10
Accretion of series B
and C redeemable
convertible preferred
stock.................. -- -- (51) -- -- -- (51)
Unearned compensation... -- -- 414 -- (414) -- --
Amortization of unearned
compensation........... -- -- -- -- 103 -- 103
Net loss................ -- -- -- -- -- (6,358) (6,358)
----- ----- ------- ------- -------- -------- --------
Balance at January 31,
1998................... 3,920 -- 499 -- (370) (9,983) (9,854)
Issuance of restricted
common stock for
services............... 692 -- 1,118 -- (1,118) -- --
Issuance of warrant in
connection with
equipment lease line... -- -- 13 -- -- -- 13
Exercise of common stock
options................ 83 -- 12 -- -- -- 12
Issuance of common stock
option in connection
with preferred stock -- -- 3,400 -- -- -- 3,400
Accretion of series B
and C redeemable
convertible preferred
stock.................. -- -- (309) -- -- -- (309)
Unearned compensation... -- -- 7,035 -- (7,035) -- --
Amortization of unearned
compensation........... -- -- -- -- 2,005 -- 2,005
Forfeiture of common
stock.................. (151) -- (15) -- 15 -- --
Net loss................ -- -- -- -- -- (15,649) (15,649)
----- ----- ------- ------- -------- -------- --------
Balance at January 31,
1999................... 4,544 -- 11,753 -- (6,503) (25,632) (20,382)
Exercise of common stock
options in exchange for
notes receivable
(unaudited)............ 2,707 -- 2,707 (2,707) -- -- --
Issuance of restricted
common stock for
employment
(unaudited)............ 125 -- 1,186 -- (1,186) -- --
Issuance of warrant in
connection with
equipment and lease
line................... -- -- 15 -- -- -- 15
Exercise of common stock
options (unaudited).... 288 -- 119 -- -- -- 119
Accretion of series B
and C redeemable
convertible preferred
stock (unaudited)...... -- -- (204) -- -- -- (204)
Unearned compensation
(unaudited)............ -- -- 38,355 -- (38,355) -- --
Amortization of unearned
compensation
(unaudited)............ -- -- -- -- 9,416 -- 9,416
Net loss (unaudited).... -- -- -- -- -- (20,344) (20,344)
----- ----- ------- ------- -------- -------- --------
Balance at July 31, 1999
(unaudited)............ 7,664 $ -- $53,931 $(2,707) $(36,628) $(45,976) $(31,380)
===== ===== ======= ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
GETTHERE.COM, INC.
STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended Six Months Ended
January 31, July 31,
-------------------------- -----------------
1997 1998 1999 1998 1999
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss....................... $(3,437) $(6,358) $(15,649) $(6,492) $(20,344)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization................ 119 413 1,462 633 1,828
Common stock issued for
services.................... 11 6 559 130 1,625
Amortization of unearned
compensation................ 9 97 1,446 431 7,791
Provision for doubtful
accounts.................... 74 82 508 212 115
Non-cash interest expense.... 20 72 261 137 175
Changes in assets and
liabilities:
Accounts receivable......... (209) (627) (937) (420) 345
Restricted cash............. -- -- -- -- (805)
Accounts payable............ 323 951 (271) (790) 2,264
Accrued liabilities......... (99) 259 981 803 564
Deferred revenue............ 164 591 317 394 48
Prepaid expenses and other
assets..................... 8 (73) (54) (137) (459)
------- ------- -------- ------- --------
Net cash used in operating
activities............... (3,017) (4,587) (11,377) (5,099) (6,853)
------- ------- -------- ------- --------
Cash flows from investing
activities:
Purchase of property and
equipment..................... (637) (2,006) (2,925) (1,914) (5,234)
Acquisition of businesses...... (100) -- -- -- (800)
Proceeds from sale of short-
term investments.............. -- -- -- -- 4,299
Purchase of short-term
investments................... -- -- (7,534) (5,126) --
------- ------- -------- ------- --------
Net cash used in investing
activities................ (737) (2,006) (10,459) (7,040) (1,735)
------- ------- -------- ------- --------
Cash flows from financing
activities:
Proceeds from issuance of
series A redeemable
convertible preferred stock... 4,200 -- -- -- --
Proceeds from issuance of
series B redeemable
convertible preferred stock
and warrants.................. -- 6,498 -- -- --
Proceeds from issuance of
series C redeemable
convertible preferred stock,
options and warrants.......... -- -- 25,208 25,208 --
Proceeds from borrowings on
capital lease obligations..... 118 494 3,972 3,261 4,308
Principal payments on capital
lease obligations............. (22) (125) (279) (113) (707)
Proceeds from (payment of) bank
borrowings.................... -- 469 (141) (47) (94)
Proceeds from issuance of
common stock.................. 34 10 12 5 119
------- ------- -------- ------- --------
Net cash provided by
financing activities..... 4,330 7,346 28,772 28,314 3,626
------- ------- -------- ------- --------
Net increase (decrease) in cash
and cash equivalents.......... 576 753 6,936 16,175 (4,962)
Cash and cash equivalents at
beginning of period........... 3 579 1,332 1,332 8,268
------- ------- -------- ------- --------
Cash and cash equivalents at
end of period................. $ 579 $ 1,332 $ 8,268 $17,507 $ 3,306
======= ======= ======== ======= ========
Supplemental disclosure of cash
flow information:
Cash paid for interest......... $ 19 $ 57 $ 339 $ 166 $ 220
======= ======= ======== ======= ========
Supplemental non-cash investing
and financing activities:
Warrants issued to acquire
redeemable convertible
preferred stock............... $ 10 $ 363 $ 4,139 $ 4,139 $ --
======= ======= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
GETTHERE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company
GetThere.com, Inc. ("GetThere" or the "Company") was incorporated as Internet
Travel Network in California on August 7, 1995. The Company changed its name to
GetThere.com on July 15, 1999.
GetThere.com is a provider of Internet-based travel procurement and supply
solutions primarily for businesses and travel suppliers. The Company's
Internet-based solutions are designed to reduce current inefficiencies in the
travel procurement and supply process by decreasing the role of intermediaries,
such as travel agents, by providing customers with valuable travel information
and by streamlining the internal procurement and supply processes of the
Company's customers. The Company offers corporate customers a service that
allows the Corporation's employees to gain access to a restricted web site
where they can make travel reservations. GetThere.com customizes the web site,
provides the software and servers which processes the reservation, provides
reports on reservation activities, answers phone inquiries and either prints
and delivers tickets, or passes the reservation to the Company's travel agent
for ticketing. The Company offers Travel Suppliers and other customers a public
web site where customers can make travel reservations. GetThere.com provides
the software and servers that process the reservation, provides phone and email
based traveler support, prints and delivers tickets, and provides reporting on
travel activities.
Reincorporation
In August 1999, the Company's Board of Directors authorized the
reincorporation of the Company in the State of Delaware. As a result of the
reincorporation, the Company is authorized to issue 200 million shares of
$0.0001 par value common stock and 10,000,000 shares of $0.0001 par value
preferred stock. The Board of Directors has the authority to issue undesignated
preferred stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof. Share and per share information for each
of the periods presented has been retroactively adjusted to reflect the
reincorporation.
Unaudited interim results
The accompanying balance sheet as of July 31, 1999, the statement of
operations and of cash flows for the six months ended July 31, 1999 and 1998
and the statement of stockholders' deficit for the six months ended July 31,
1999 are unaudited. In the opinion of management, these statements have been
prepared on the same basis as the audited financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for the
fair presentation of the results of these periods. The data disclosed in the
notes to the financial statements for these periods is unaudited.
Use 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
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Revenue recognition
All revenues arise from providing internet-based services. Transaction
revenues are largely derived from on-line orders, hosting fees, advertising,
and traveler support services. Hosting fees are charged to gain access to the
Company's on-line travel reservation service. Support fees are charged to
customers who elect to utilize traveler support services, and are earned on
either a fixed monthly basis or per minute of call time used. Revenues from
F-7
<PAGE>
GETTHERE.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
on-line hotel and car reservations are recognized when the commission is
received. Revenues from on-line air travel reservations are recognized upon the
completion of the transaction. Completion is generally defined as either the
placement of an order with a third party supplier or the fulfillment of an
order by printing and delivering tickets, depending upon the nature of the
agreement with the customer. Hosting fees are recognized monthly when invoiced.
Advertising revenues are primarily derived from advertising contracts in which
the Company is obligated to provide a minimum number of "impressions" or times
that an advertisement is viewed. Advertising revenues are recognized as a
percentage of completion of the guaranteed minimum number of impressions is
achieved, provided that no significant obligations remain. If obligations
remain, revenues from advertising are deferred until such obligations are
fulfilled. Revenues from traveler support services are recognized as the
services are performed.
Professional service revenues are primarily derived from fees for
implementation and customization of customer web sites utilizing the Company's
technology. These fees are recognized over the term of the project based upon
the project's state of completion. Payments received in advance of the
performance of services are recorded as deferred revenue. Provisions are made
in full for any contracts during the period in which a loss on a particular
contract becomes probable.
Cost of Revenues
Cost of revenues is predominantly comprised of transaction and personnel
costs including software and telecommunications costs associated with operating
the Company's transaction systems, traveler support and travel service center.
Costs associated with outside consultants, commission sharing with ePartners,
content licensing, printing and delivery costs of tickets, computer reservation
service charges and advertising agency fees are also included as cost of
revenues. It is impracticable for the Company to allocate the costs of
facilities or other expense items that are not directly attributable to revenue
generation activities; these common costs and expenses are primarily included
in general and administrative expenses.
Cash, cash equivalents and short-term investments
The Company considers all highly liquid investments purchased with a maturity
of three months or less at the date of acquisition to be cash equivalents;
those with original maturities greater than three months and current maturities
less than twelve months from the balance sheet date are considered short-term
investments.
Both cash equivalents and short-term investments are considered available-
for-sale securities and are carried at cost, which approximates fair value. The
following schedule summarizes the estimated fair value of the Company's cash,
cash equivalents and short-term investments (in thousands):
<TABLE>
<CAPTION>
January 31, July 31,
------------- -----------
1998 1999 1999
(unaudited)
<S> <C> <C> <C>
Cash and cash equivalents:
Cash.................................................. $ 286 $ 367 $ --
Money market funds.................................... 1,046 3,725 3,306
Corporate debt securities............................. -- 4,176 --
------ ------ ------
$1,332 $8,268 $3,306
====== ====== ======
Short-term investments:
Certificates of deposit............................... $ 629 $ --
Corporate debt securities............................. 997 --
Foreign debt securities............................... 1,019 --
U.S. government debt securities....................... 4,889 3,235
------ ------
$7,534 $3,235
====== ======
</TABLE>
F-8
<PAGE>
GETTHERE.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Concentration of credit risk
Financial instruments that potentially subject the Company to a concentration
of credit risk consist of cash, cash equivalents, short-term investments and
accounts receivable. Cash, cash equivalents and short-term investments are
deposited with high credit, quality financial institutions. The Company's
accounts receivable are derived from revenue earned from customers located
primarily in the United States. The Company performs credit evaluations of its
customers' financial condition and, generally, requires no collateral. The
Company maintains an allowance for doubtful accounts receivable based upon the
expected collectibility of such accounts.
For fiscal year 1997, Customers A and B accounted for 18% and 13% of the
Company's revenues, respectively. For fiscal year 1998, Customer B accounted
for 12% of the Company's revenues. For fiscal year 1999, Customer C accounted
for 25% of the Company's revenues. For the six months ended July 31, 1998 and
1999 (unaudited) Customer C accounted for 21% and 34% of the Company's revenue,
respectively. No other customer accounted for 10% or more of revenues during
fiscal years 1997, 1998 and 1999.
At January 31, 1998, Customers B, C and D accounted for 11%, 12% and 14% of
the total accounts receivable, respectively. At January 31, 1999, Customers C,
D and E accounted for 19%, 13% and 13% of the total accounts receivable,
respectively. At July 31, 1999, Customer C accounted for 23% (unaudited) of the
total accounts receivable. No other customer accounted for 10% or more of the
Company's total accounts receivable at the respective balance sheet dates.
Fair value of instruments
The Company's financial instruments including cash and cash equivalents,
short-term investments, accounts receivable, accounts payable and accrued
liabilities are carried at cost, which approximate fair value due to the short-
term maturity of these instruments. The carrying value of the Company's capital
leases approximate fair market value because of prevailing interest rates.
Redeemable preferred stocks are recorded at their redemption amounts which is
considered to approximate fair value.
Capitalization of internal-use software costs
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 is effective for
financial statements for years beginning after December 15, 1998 and provides
guidance on accounting for the costs incurred for computer software developed
or obtained for internal use including the requirement to capitalize specified
costs and amortization of such costs. The Company adopted the provisions of SOP
98-1 in its fiscal year beginning February 1, 1999.
Property and equipment
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, generally
three years. Leasehold improvements are amortized over the shorter of the
remaining term of the lease or the estimated useful lives of the assets.
Impairment of long-lived assets
The Company periodically evaluates the carrying value of long-lived assets to
be held and used, including but not limited to, capital assets and intangible
assets, when events and circumstances warrant such a review. The carrying value
of a long-lived asset is considered impaired when the anticipated undiscounted
cash flow from such asset is separately identifiable and is less than its
carrying value. In that event, a loss is recognized
F-9
<PAGE>
GETTHERE.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
based on the amount by which the carrying value exceeds the fair value of the
long-lived asset. Fair value is determined primarily using the anticipated cash
flows discounted at a rate commensurate with the risk involved. Losses on long-
lived assets to be disposed of are determined in a similar manner, except that
fair values are reduced for the cost of disposal. No losses from impairment
have been recognized in the financial statements.
Advertising
Advertising is expensed as incurred. Advertising and public relations
expenses for the fiscal years ended January 31, 1997, 1998 and 1999 and for the
six months ended July 31, 1998 and 1999 totaled $401,000, $536,000, $1,077,000,
$461,000 (unaudited) and $545,000 (unaudited), respectively.
Stock-based compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion No. 25
("APB 25"), "Accounting for Stock Issued to Employees" using the multiple
option approach and complies with the disclosure provisions of Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-
Based Compensation."
The Company accounts for equity instruments issued to non-employees in
accordance with the provisions of SFAS 123 and the Emerging Issues Task Force
in Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or In Conjunction with Selling, Goods or
Services."
Income taxes
Income taxes are accounted for using an asset and liability approach which
requires the recognition of taxes payable or refundable for the current year
and deferred tax liabilities and assets for the future tax consequences of
events that have been recognized in the Company's financial statements or tax
returns. The measurement of current and deferred tax liabilities and assets are
based on provisions of the enacted tax law; the effects of future changes in
tax laws or rates are not anticipated. The measurement of deferred tax assets
is reduced, if necessary, by the amount of any tax benefits that, based on
available evidence, are not expected to be realized.
Net loss per share
The Company computes net loss per share in accordance with Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share" and
SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under the provisions of SFAS
128 and SAB 98, basic net loss per share is computed by dividing the net loss
attributed to common stockholders for the period by the weighted average number
of shares of common stock outstanding during the period excluding shares of
Common Stock subject to repurchase. Such shares of common stock subject to
repurchase aggregated:
<TABLE>
<CAPTION>
Six Months Ended July
Year Ended January 31, 31,
---------------------------------------------- --------------------------------------
<S> <C> <C> <C> <C>
1997 1998 1999 1998 1999
(Unaudited)
318,409 275,464 401,831 646,178 3,033,378
</TABLE>
These shares primarily vest with the passage of time subject to continued
employment by certain executives.
F-10
<PAGE>
GETTHERE.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table sets forth the computation of basic and diluted net loss
per share for the periods indicated:
<TABLE>
<CAPTION>
Six Months Ended July
Year Ended January 31, 31,
-------------------------------------- -------------------------
1997 1998 1999 1998 1999
(unaudited)
<S> <C> <C> <C> <C> <C>
Numerator:
Net loss attributable
to common
stockholders......... $(3,437,000) $(6,409,000) $(15,788,000) $(6,534,000) $(20,449,000)
Denominator:
Weighted average
shares............... 3,201,768 3,873,540 4,474,073 4,420,963 5,423,907
Weighted average
unvested shares of
common stock subject
to repurchase........ (374,484) (337,005) (516,681) (597,882) (1,352,820)
----------- ----------- ------------ ----------- ------------
Denominator for basic
and diluted
calculation............ 2,827,284 3,536,535 3,957,392 3,823,081 4,071,087
=========== =========== ============ =========== ============
Net loss per share:
Basic and diluted..... $ (1.22) $ (1.81) $ (3.99) $ (1.71) $ (5.02)
=========== =========== ============ =========== ============
</TABLE>
The following table sets forth potential shares of common stock that are not
included in the diluted net loss per share calculation above because to do so
would be anti-dilutive for the periods indicated:
<TABLE>
<CAPTION>
Six Months Ended July
Year Ended January 31, 31,
------------------------------ ---------------------
1997 1998 1999 1998 1999
(unaudited)
<S> <C> <C> <C> <C> <C>
Weighted average effect of
common stock equivalents
Series A preferred
stock.................. 2,764,787 3,705,991 3,705,991 3,705,991 3,705,991
Series B preferred
stock.................. -- 3,098,938 3,914,448 3,914,448 3,914,448
Series C preferred
stock.................. -- -- 2,948,085 1,370,292 4,110,875
Warrants and options to
purchase
redeemable convertible
preferred stock........ 13,235 351,386 2,814,579 1,857,594 3,772,171
Shares of common stock
subject
to repurchase.......... 374,484 337,005 516,681 597,882 1,352,820
Common stock options.... 57,156 544,136 1,188,637 1,032,144 3,197,445
--------- --------- ---------- ---------- ----------
3,209,662 8,037,456 15,088,421 12,478,351 20,053,750
========= ========= ========== ========== ==========
</TABLE>
Pro forma net loss per share (unaudited)
Pro forma net loss per share is computed using the weighted average number of
shares of common stock outstanding, including the pro forma effects of the
automatic conversion of the Company's series A, B and C preferred stock and the
exercise of series B and E warrants into shares of the Company's common stock
effective upon the closing of the Company's initial public offering as if such
conversion occurred at the beginning of the period, or at the date of issuance,
if later. The resulting pro forma adjustment for the fiscal year ended January
31, 1999 and the six months ended July 31, 1999 includes (i) an increase in the
weighted average shares used to compute the basic net loss per share of
10,959,969 and 12,127,654, respectively, and (ii) a decrease in the net loss
attributable to common stockholders for the accretion of redeemable convertible
preferred stock of $309,000 and $105,000, respectively. The calculation of
diluted net loss per share excludes
F-11
<PAGE>
GETTHERE.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
potential shares of common stock as the effect of their inclusion would be
antidilutive. Pro forma potential common stock consists of common stock subject
to repurchase rights and incremental shares of common stock issuable upon the
exercise of stock options.
Pro forma stockholders' equity (unaudited)
Effective upon the closing of the Company's initial public offering, the
outstanding shares of series A, B and C preferred stock will automatically
convert into 3,705,991, 3,914,448, 4,110,875 shares of common stock,
respectively. In addition, 407,852 warrants to purchase Series B and E
preferred stock will be exercised to purchase the same number of shares of
common stock. Proceeds from this exercise will total $855,000. Also effective
upon the closing of the Company's initial public offering, the outstanding
warrants for 17,647, 86,225 and 3,281,090 shares of series A, B and C preferred
stock, respectively, will automatically convert to outstanding warrants for the
same number of shares of common stock. The pro forma effects of these
transactions are unaudited and have been reflected in the accompanying pro
forma balance sheet at July 31, 1999.
Comprehensive income
Effective February 1, 1998, the Company adopted the provisions of Statements
of Financial Accounting Standard No. 130 ("SFAS 130"), "Reporting Comprehensive
Income". SFAS 130 establishes standards for reporting comprehensive income and
its components in financial statements. Comprehensive income, as defined,
includes all changes in equity (net assets) during a period from nonowner
sources. To date, the Company has not had any transactions that are required to
be reported in comprehensive income.
Segment information
Effective February 1, 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about
Segments of an Enterprise and Related Information." The Company identifies its
operating segments based on business activities and management responsibility.
During the fiscal years ended January 31, 1997, 1998 and 1999, the Company
operated in a single business segment providing internet-based services.
Recent accounting pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133 is effective for all fiscal quarters beginning with the quarter ending July
31, 1999. In July 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date
of FASB Statement No. 133" which deferred the effective date until the fiscal
quarter ending July 31, 2000. The adoption of SFAS No. 133 is not expected to
have a material effect on the Company's results of operations, financial
position or cash flows.
In April 1998, the AICPA issued SOP 98-5 "Reporting on the Costs of Start-Up
Activities." Start-up activities are defined broadly as those one-time
activities related to opening a new facility, introducing a new product or
service, commencing some new operation or organizing a new entity. Under SOP
98-5, the cost of start-up activities should be expensed as incurred. SOP 98-5
is effective February 1, 1999 and the Company does not expect its adoption to
have a material effect on their combined results of operations, financial
position or cash flows.
F-12
<PAGE>
GETTHERE.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 2--RELATED PARTY TRANSACTIONS:
In September 1997, the Company and United Air Lines entered into a service
agreement with an initial term of one year with renewal options. Under the
terms of the agreement, the Company receives a fixed fee of $3.00 per
transaction processed together with additional variable amounts due for
telephone call support and maintenance services. During the fiscal years ended
January 31, 1998 and 1999 and the six months ended July 31, 1998 and 1999, the
Company provided services to United Air Lines, an investor of the Company.
Services provided to the investor totaled (in thousands):
<TABLE>
<CAPTION>
Six Months
Year Ended Ended July
January 31, 31,
------------- -------------
1998 1999 1998 1999
<S> <C> <C> <C> <C>
Transaction revenues............................ $ 47 $1,143 $ 488 $1,633
Professional service revenues................... 145 351 83 258
------ ------ ------ ------
Total $ 192 $1,494 $ 571 $1,891
====== ====== ====== ======
</TABLE>
Amounts due from the investor totaled $111,000, $336,000 and $322,000
(unaudited) at January 31, 1998 and 1998 and July 31, 1999, respectively. There
were no material related party transactions in fiscal 1997.
NOTE 3--BALANCE SHEET COMPONENTS:
<TABLE>
<CAPTION>
January 31, July 31,
--------------- -----------
1998 1999 1999
(in thousands) (unaudited)
<S> <C> <C> <C>
Accounts receivable:
Accounts receivable........................... $ 929 $ 1,743 $ 1,400
Less: Allowance for doubtful accounts......... (155) (540) (537)
------ ------- -------
$ 774 $ 1,203 $ 863
====== ======= =======
Property and equipment, net:
Computer equipment............................ $2,367 $ 4,055 $ 8,988
Furniture and fixtures........................ 311 537 657
Leasehold improvements........................ 12 1,023 1,529
------ ------- -------
2,690 5,615 11,174
Less: Accumulated depreciation and
amortization................................. (532) (1,994) (3,822)
------ ------- -------
$2,158 $ 3,621 $ 7,352
====== ======= =======
Equipment subject to capital leases included above, totaled $2,161,000,
$5,244,000 and $9,448,000 (unaudited) at January 31, 1998 and 1999 and July 31,
1999, respectively. Accumulated amortization on such equipment totaled
$400,000, $1,614,000 and $2,817,000 (unaudited) at January 31, 1998 and 1999
and July 31, 1999, respectively.
<CAPTION>
January 31, July 31,
--------------- -----------
1998 1999 1999
(in thousands) (unaudited)
<S> <C> <C> <C>
Accrued liabilities:
Payroll and related expenses.................. $ 250 $ 724 $ 683
Acquisition accruals.......................... -- -- 616
Other......................................... 108 615 1,338
------ ------- -------
$ 358 $ 1,339 $ 2,637
====== ======= =======
</TABLE>
F-13
<PAGE>
GETTHERE.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 4--BORROWINGS:
In April 1997, the Company entered into a financing agreement with a bank,
which provides for a term loan with borrowings up to $500,000 of capital
expenditure purchases. The outstanding principal balance is due in equal
monthly installments of $16,000 ending on October 2000 together with interest
at the bank's prime rate plus 1.75% (9.5% at January 31, 1999). At January 31,
1999, $328,000 was outstanding under this term loan.
Borrowings are secured by all of the Company's assets except leased assets.
The term loan requires the Company to meet certain financial covenants
including quick ratio, tangible net worth and profitability requirements. At
January 31, 1999, the Company was in compliance with the covenants of this
agreement.
Equipment lease line
In April 1996, the Company entered into an equipment financing arrangement
which provided for borrowings of up to $250,000, secured by the assets
acquired. In conjunction with the financing agreement, the Company issued a
warrant to purchase 17,647 additional shares of series A redeemable convertible
preferred stock with an exercise price of $1.1333 per share. The warrant can be
exercised up to the earlier of May 2003 and two years from the effective date
of the Company's initial public offering. The Company determined that the fair
value of the warrant approximated $10,000 using the Black Scholes model and has
recorded the fair value as additional interest expense. In February 1998, the
Company extended the equipment lease line to $3,250,000 through January 1999.
The conditions and covenants of the extended agreement remain unchanged from
the previous agreement. In association with this extension, the Company issued
a warrant to purchase 54,216 shares of series B redeemable convertible
preferred stock for $1.66 per share. The Company determined that the fair value
of the warrant approximated $13,000 using the Black Scholes model and has
recorded the fair value as additional interest expense.
In March 1997, the Company entered into another equipment financing
arrangement which provided for borrowings of up to $500,000, secured by the
assets acquired. In February 1998, the Company extended the equipment lease
line to $2,100,000 through January 1999. The conditions and covenants of the
extended agreement remain unchanged from the previous agreement. In association
with this extension, the Company issued warrants to purchase 28,916 shares of
series B redeemable convertible preferred stock for $1.66 per share. The
Company determined the fair value of the warrant approximated $15,000 using the
Black Scholes model and has recorded the fair value as additional interest
expense.
In June 1999, the Company entered into an agreement to extended the Company's
then current $3,250,000 equipment lease line to $5,750,000 through June 2000.
The conditions and covenants of the extended agreement remain unchanged from
the previous agreement. In association with this extension, the Company issued
warrants to purchase 19,500 shares of series B convertible preferred stock at a
price equal to 85% of the next financing in excess of $10,000,000. The Company
will determine the fair value of the warrant using the Black Scholes model and
will record the fair value as additional interest expense during the quarter
ending October 31, 1999.
NOTE 5--COMMITMENTS:
Leases
The Company leases office space and equipment under noncancelable operating
and capital leases with various expiration dates through the year 2004. Rent
expense for the years ended January 31, 1997, 1998 and 1999 and for the six
months ended July 31, 1998 and 1999 totaled $99,000, $196,000, $463,000,
$197,000 (unaudited) and $467,000 (unaudited), respectively.
F-14
<PAGE>
GETTHERE.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
In May 1999, the Company entered into an operating lease for new office
facilities in Menlo Park, California that expires in May 2004. Under the terms
of this agreement, $805,000 of cash was pledged as collateral on an outstanding
letter of credit and was classified as restricted cash at July 31, 1999
(unaudited). The restricted cash balance will be reduced by $109,000 after the
first year of the lease and by $174,000 each year thereafter provided no event
of default has occurred. The Company was in compliance with such covenants at
July 31, 1999 (unaudited).
In association with the lease arrangement, the Company issued warrants to
purchase 16,407 share of series E convertible preferred stock at an exercise
price equal to the next equity financing or $10 per share if the Company fails
to close a financing by September 30, l999. The Company determined that the
fair value of the warrant approximated $28,000 using the Black Scholes model
with an exercise price of $10 and has recorded the fair value as additional
interest expense in the second quarter of fiscal 2000.
Future minimum lease payments under all noncancelable operating and capital
leases, as of January 31, 1999 and including a new office space operating lease
executed in May, 1999, are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
Fiscal Year Ending January 31, ------- ---------
(in thousands)
<S> <C> <C>
2000....................................................... $1,633 $1,103
2001....................................................... 1,926 1,420
2002....................................................... 1,438 1,375
2003....................................................... 102 1,419
2004....................................................... -- 1,468
Thereafter................................................. -- 495
------ ------
5,099 $7,280
======
Less: Amount representing interest......................... 551
------
4,548
Less: Current portion...................................... 1,313
------
Long-term portion of capital lease obligations............. $3,235
======
</TABLE>
The Company has entered into employment agreements with certain officers and
employees of the Company. The agreements generally provide for annual bonuses
and incentive stock options as determined by the board of directors as well as
covenants not-to-compete during the employment term and for a period
thereafter. The employment agreements also generally provide for severance in
the event the individual is terminated without cause.
NOTE 6--REDEEMABLE CONVERTIBLE PREFERRED STOCK AND WARRANTS:
At January 31, 1999 and July 31, 1999 (unaudited), redeemable convertible
preferred stock consisted of the following:
<TABLE>
<CAPTION>
Liquidation
Shares and
---------------------- Redemption
Series Designated Outstanding Amount
<S> <C> <C> <C>
A......................................... 4,000,000 3,705,991 $ 4,200,000
B......................................... 4,500,000 3,914,448 6,498,000
C......................................... 10,099,998 4,110,875 21,068,000
D1........................................ 1 -- --
D2........................................ 1 -- --
---------- ---------- -----------
18,600,000 11,731,314 $31,766,000
========== ========== ===========
</TABLE>
F-15
<PAGE>
GETTHERE.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The holders of redeemable convertible preferred stock are entitled to various
rights and preferences as follows:
Voting
Each share of series A, B, C, D1, D2, D3 and E has voting rights equal to the
equivalent number of shares of common stock into which it is convertible. The
holders of series D1, D2 and D3 also have the right to each elect one Board
seat.
Dividends
Holders of series A, B, C and E redeemable convertible preferred stock are
entitled to receive noncumulative dividends at the per annum rate of $0.079331,
$0.1162, $0.35875 and $0.875 per share, respectively, when and if declared by
the board of directors. These dividends are payable in preference to any
declaration or payment of any dividend on common stock, series D1 convertible
preferred stock, series D2 convertible preferred stock or series D3 convertible
preferred stock. The board from inception through January 31, 1999 has declared
no dividends on the redeemable convertible preferred stock or common stock.
Liquidation
In the event of any liquidation, dissolution or winding up of the Company,
including a merger, acquisition or sale of assets where the beneficial owners
of the Company's common stock and redeemable convertible preferred stock own
less than a majority of the resulting voting power of the surviving entity, the
holders of series A, B, C, D1, D2, D3 and E are entitled to receive an amount
equal to $1.1333, $1.66, $5.125, $10, $10, $12.50 and $12.50 per share plus any
declared but unpaid dividends, respectively. If the assets and funds thus
distributed are insufficient to permit full payment, all assets and funds will
be distributed ratably among the holders of series A, B, C, D1, D2, D3 and E
convertible preferred stock in proportion to their full preferential amounts.
After payment has been made to the holders of the redeemable convertible
preferred stock, all remaining assets of the Company will be distributed
ratably among the holders of all classes of stock based on the number of shares
held by each holder. Distribution rights for the holders of the redeemable
convertible preferred stock, as described, will cease at such time as the
holders of the series A and B shares receive an aggregate of $4.5332 and $4.98
per share, respectively.
Redemption
Upon the request of the holders of the majority of the outstanding shares of
series A, B, C, and E at any time prior to sixty days before April 23, 2002,
the shares are redeemable in four annual installments beginning not earlier
than April 23, 2002 and continuing thereafter on the first, second and third
anniversaries of the initial redemption date. The shares may be redeemed at a
price equal to the original issue price, subject to adjustments for dilution
and declared and unpaid dividends. The difference between the carrying value
and the redemption value of the redeemable convertible preferred stock results
primarily from the value attributed to the series B warrants and series C
options granted.
Conversion
Each share of series A, B, C, D1, D2, D3 and E redeemable convertible
preferred stock is convertible, at the option of the holder, according to a
conversion ratio, subject to adjustment for dilution. Each share of series A,
B, C, D1, D2, D3 and E redeemable convertible preferred stock automatically
converts into the number of shares of common stock into which such shares are
convertible at the then effective conversion ratio (currently one to one) upon:
(1) the closing of a public offering of common stock at a price per share of at
least $6.50 with gross proceeds of at least $15,000,000, or (2) the consent of
the holders of at least 75% of redeemable convertible preferred stock.
F-16
<PAGE>
GETTHERE.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Warrants and Options for Redeemable Convertible Preferred Stock
In connection with the issuance of series B redeemable convertible preferred
stock on April 17, 1997, the Company issued warrants to purchase 391,445
additional shares of series B redeemable convertible preferred stock with an
exercise price of $1.66 per share. The warrants can be exercised prior to April
2002. The Company determined the fair value of the warrants approximated
$338,000 using the Black Scholes pricing model. As discussed above, this amount
is being accreted ratably over the life of the instrument.
In April 1997, the Company issued a warrant to purchase 30,120 additional
shares of series B redeemable convertible preferred stock with an exercise
price of $1.66 per share in conjunction with a banking arrangement. The warrant
can be exercised prior to April 15, 2002. The Company determined the fair value
of the warrants approximated $25,000 and has recorded the fair value as
additional interest expense in 1997.
In connection with the issuance of series C redeemable convertible preferred
stock in May 1998, the Company is required, at the request of the holder, to
immediately issue a warrant to purchase 807,698 additional shares of series C
redeemable convertible preferred stock with an exercise price of $0.01 per
share. Proceeds from the warrant totaled $4,139,000. The Company determined
that the fair value of the warrant approximated the proceeds using the Black
Scholes pricing model and included such amount in redeemable convertible
preferred stock in the fiscal 1999 financial statements. The warrant is
exercisable immediately and has an indefinite exercise period. Upon the closing
of a public offering in which the Company's outstanding series C redeemable
convertible preferred stock is converted into common stock, the warrant will be
exercisable for the number of shares of common stock that would have resulted
from the conversion of the warrant immediately prior to such public offering.
In addition, on this date the Company granted the holder an option to purchase,
at its choice, up to 2,473,392 shares of series C preferred stock at a price of
$5.125 per share or, for a purchase price of $5.125 per share, a warrant to
purchase up to 2,473,392 shares of series C preferred stock at an exercise
price of $0.01 per share. As a result of an unsatisfied contingency, the holder
currently has the right to receive either an option to purchase 1,424,539
shares of series C preferred stock or a warrant to purchase 1,424,539 shares of
series C preferred stock. These options terminate on the earlier of November
10, 2000 or the date the Company is acquired. The Company valued the fixed
portion of the option grant on the date of issuance at approximately $3.4
million using the Black Scholes pricing model. As discussed above, a portion of
the total proceeds received was allocated to this instrument which resulted in
a discount on the series C preferred stock that is being accreted ratably over
the period from issuance until the first redemption date.
NOTE 7--COMMON STOCK:
The Company's amended Certificate of Incorporation authorizes the issuance of
50,000,000 shares of $.0001 par value common stock. The Company had reserved
shares of the authorized common stock for future issuance as follows:
<TABLE>
<CAPTION>
January July 31,
31, 1999 1999
(unaudited)
<S> <C> <C>
Conversion of series A preferred Stock............... 4,000,000 4,000,000
Conversion of series B preferred Stock............... 4,500,000 4,500,000
Conversion of series C preferred Stock............... 10,099,998 10,098,998
Conversion of series D1 preferred Stock.............. 1 1
Conversion of series D2 preferred Stock.............. 1 1
Exercise of stock options under stock option plan.... 2,601,190 7,491,190
---------- ----------
21,201,190 26,090,190
========== ==========
</TABLE>
F-17
<PAGE>
GETTHERE.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company has granted stock to certain founders and employees under a
restricted stock plan. As of July 31, 1999, the Company had 340,689 shares of
common stock that were subject to certain repurchase rights by the Company. The
Company's right to repurchase such shares declines on a percentage basis,
usually over three years, based on the length of the employees continual
employment with the Company.
NOTE 8--EMPLOYEE BENEFIT PLANS:
401(k) Savings Plan
The Company has a savings plan (the "Savings Plan") that qualifies as a
deferred salary arrangement under Section 401(k) of the Internal Revenue Code.
Under the Savings Plan, participating employees may defer a percentage (not to
exceed 25%) of their eligible pretax earnings up to the Internal Revenue
Service's annual contribution limit. All employees on the United States payroll
of the Company are eligible to participate in the Savings Plan. The Company is
not required to contribute to the Savings Plan and has made no contributions
since the plan's inception.
Stock Option Plan
In May, 1996, the Company's board of directors adopted the 1996 Stock Option
Plan (the "Plan") under which 1,341,190 shares of the Company's common stock
had been reserved for issuance of options. The Plan provides for the granting
of options to employees and consultants of the Company. In the fiscal years
ended January 31, 1998 and 1999 and for the six months ended July 31, 1999, the
Company had reserved an additional 800,000 shares, 460,000 shares and 4,890,000
shares (unaudited), respectively, for issuance under the Plan. Options granted
under the Plan may be either incentive stock options ("ISO") or nonqualified
stock options ("NSO"). ISOs may be granted only to Company employees (including
officers and directors). NSOs may be granted either to Company employees or
consultants.
At the July 27, 1999 meeting, the board of directors approved an increase in
the maximum number of shares of common stock authorized for issuance under the
1996 Stock Incentive Plan from 7,491,190 to 12,491,190 shares. This amendment
requires stockholder approval.
Options under the plans may be granted for periods up to ten years and at
prices no less than 85% of the estimated fair value of the shares on the date
of grant as determined by the Board of Directors provided, however, that (i)
the exercise price of an ISO may not be less than 100% of the estimated fair
value of the shares on the date of grant, and (ii) the exercise price of an ISO
granted to a 10% shareholder may not be less than 110% of the estimated fair
value of shares on the date of grant. Options are exercisable immediately,
subject to repurchase rights held by the Company which lapse over a maximum
period of ten years, at such times and under such conditions as determined by
the board of directors. Options generally vest at a rate of 12.5% after six
months and 2.08% per month thereafter.
F-18
<PAGE>
GETTHERE.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table summarizes the activity under the Plan for the fiscal
years ended January 31, 1998, 1999 and the six months ended July 31, 1999:
<TABLE>
<CAPTION>
Fiscal Year Ended January 31,
--------------------------------------------------------- Six Months Ended
1997 1998 1999 July 31, 1999
----------------- ------------------- ------------------- --------------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Exercise Exercise Exercise Exercise
Shares Price Shares Price Shares Price Shares Price
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. -- $ -- 448,950 $0.10 1,081,525 $0.14 2,085,292 $0.65
Granted................. 477,350 0.10 965,350 0.15 1,554,250 0.83 5,024,047 1.35
Exercised............... -- -- (108,261) 0.10 (82,933) 0.13 (2,994,930) 0.94
Cancelled............... (28,400) 0.10 (224,514) 0.11 (467,550) 0.18 (332,599) 0.81
------- --------- --------- ----------
Outstanding at end of
period................. 448,950 0.10 1,081,525 0.14 2,085,292 0.65 3,781,810 1.33
======= ========= ========= ==========
Options exercisable at
end of period.......... 448,950 1,081,525 1,915,292 3,511,810
======= ========= ========= ==========
Weighted average fair
value of options
granted during the
period................. $0.07 $0.81 $3.88 $6.80
===== ===== ===== =====
</TABLE>
Certain of the options exercised during the six months ended July 31, 1999
were issued in exchange for notes receivable, which are full recourse and
additionally collateralized by the underlying shares of common stock and other
personal property. These notes receivable are payable on the earlier of June
21, 2004 or 180 days after the borrower's employment with the Company
terminates for any reason and bear interest at rates ranging from 5.22% to
5.37% of the unpaid principal balance each year. These notes receivable have
been included in stockholders' equity.
The following table summarizes information about stock options outstanding
and exercisable at January 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding at Options Exercisable
January 31, 1999 at January 31, 1999
-------------------------------- --------------------
Weighted
Average
Remaining Weighted Weighted
Number of Contractual Average Number of Average
Shares Life Exercise Shares Exercise
Exercise Prices Outstanding (Years) Price Exercisable Price
<S> <C> <C> <C> <C> <C>
$ 0.10................ 233,750 7.9 $0.10 233,750 $0.10
$ 0.16................ 455,086 8.8 $0.16 455,086 $0.16
$ 0.60................ 366,456 9.3 $0.60 366,456 $0.60
$ 1.00................ 1,030,000 9.8 $1.00 860,000 $1.00
--------- ---------
2,085,292 1,915,292
========= =========
</TABLE>
F-19
<PAGE>
GETTHERE.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table summarizes information about stock options outstanding
and exercisable at July 31, 1999 (unaudited):
<TABLE>
<CAPTION>
Options Outstanding at July Options Exercisable
31, 1999 at July 31, 1999
-------------------------------- --------------------
Weighted
Average
Remaining Weighted Weighted
Number of Contractual Average Number of Average
Shares Life Exercise Shares Exercise
Exercise Prices Outstanding (Years) Price Exercisable Price
<S> <C> <C> <C> <C> <C>
$ 0.10................ 152,202 7.3 $0.10 152,202 $0.10
$ 0.16................ 280,442 8.2 $0.16 280,442 $0.16
$ 0.60................ 329,216 8.8 $0.60 329,216 $0.60
$ 1.00................ 2,519,050 9.6 $1.00 2,249,050 $1.00
$ 3.00................ 311,400 10.0 $3.00 311,400 $3.00
$ 7.00................ 189,500 10.0 $7.00 189,500 $7.00
--------- ---------
3,781,810 3,511,810
========= =========
</TABLE>
Fair value disclosures
Had compensation costs for the Company's option plan been determined based on
the fair value at the grant dates using the minimum value model as prescribed
by SFAS 123, the Company's pro forma net loss for the fiscal years ended
January 31, 1997, 1998 and 1999 would have been $(3,942,000), $(6,440,000) and
$(16,543,000), respectively, which represents an increase in the net loss
attributable to common stockholders of $(5,000), $(31,000) and $(755,000),
respectively. In addition, the pro forma basic and diluted net loss per share
under SFAS 123 would have been $(1.22), $(1.82) and $(4.18), respectively for
the periods presented. The fair value of each option is estimated on the date
of grant using the minimum value method with the following assumptions:
<TABLE>
<CAPTION>
Fiscal Year Ended
January 31,
-------------------
1997 1998 1999
<S> <C> <C> <C>
Expected life (years)................................... 4 4 4
Risk-free interest rate................................. 6.23% 6.48% 5.14%
Dividend yield.......................................... 0% 0% 0%
</TABLE>
Because the determination of the fair value granted after the Company becomes
a public entity will include an expected volatility factor and because
additional option grants are expected to be made each year, the compensation
expense for the three years ended January 31, 1999 are not representative of
the pro forma effects of option grants on reported net income (loss) for future
years.
Unearned compensation
In connection with certain stock option grants the Company recognized
unearned compensation which is being amortized over the vesting periods of the
related options, usually four years. The total unearned compensation recorded
by the Company from August 7, 1995 (inception) through July 31, 1999 was
$47,159,000. The fair value per share used to calculate unearned compensation
was derived by reference to the preferred stock values, reduced by a nominal
discount factor. Future compensation charges are subject to reduction for any
employee who terminated employment prior to the expiration of such employee's
option vesting period. The amortization of unearned compensation during the
fiscal year ended January 31, 1997, 1998
F-20
<PAGE>
GETTHERE.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
and 1999 and the six months ended July 31, 1999 totaled $5,000, $87,000,
$1,919,000 and $8,753,000 (unaudited), respectively. Additionally, the Company
recorded unearned compensation for restricted common stock granted to service
providers, which is being amortized over the related vesting period.
NOTE 9--INCOME TAXES:
No provision for income taxes was recorded from inception through January 31,
1999 as the Company incurred net operating losses during the period.
The components of the Company's net deferred tax assets consist of the
following:
<TABLE>
<CAPTION>
January 31,
----------------
1998 1999
(in thousands)
<S> <C> <C>
Net operating loss carryforwards........................... $ 3,082 $ 7,920
Other reserves and accruals................................ 215 545
------- -------
Total deferred tax assets.................................. 3,297 8,465
Less: valuation allowance.................................. (3,297) (8,465)
------- -------
$ -- $ --
======= =======
</TABLE>
Management believes, based on the available objective evidence, that
sufficient uncertainty exists regarding the realization of the deferred tax
assets such that a full valuation allowance has been recorded.
At January 31, 1999, the Company had approximately $19,800,000 of federal and
$13,750,000 of state net operating tax loss carryforwards available to offset
future taxable income. Such carryforwards expire in varying amounts through
2019. Under the Tax Reform Act of 1986, the amounts of and the benefit from net
operating loss carryforwards may be impaired or limited in certain
circumstances. Events which may cause limitations in the utilization of net
operating losses in any one year include, but are not limited to, a cumulative
stock ownership change of greater than 50%, as defined, over a three year
period. Such change may have occurred as a result of the preferred stock
issuances.
NOTE 10--ACQUISITION:
In July 1999, the Company entered into an agreement to purchase certain
assets of Oasis Reservation Services, Inc. in Fort Lauderdale, Florida. The
purchase price totaled $2.45 million comprised of $800,000 cash and a
$1,650,000 convertible note. The note bears interest at a rate of 5% per annum
and is payable in full on April 14, 2000. The note is convertible into
redeemable convertible preferred stock or common stock of the Company. The note
holder may elect to convert this note into shares of equity securities issued
by the Company, either through a private placement or an initial public
offering at the price of the respective offering. This right shall terminate on
the earlier of the note maturity date or the closing of the IPO. The note shall
be convertible into the number of shares of equity securities based on the
principal amount of the note plus accrued and unpaid interest divided by the
price paid for the equity securities by third parties.
This acquisition was accounted for using the purchase method of accounting.
The aggregate purchase price was allocated to the net assets acquired, based
upon their respective fair market value with the remainder allocated to
intangible assets, including goodwill. The Company is amortizing goodwill and
other intangible assets on a straight-line basis over 24 months.
F-21
<PAGE>
GETTHERE.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following summarizes the unaudited pro forma results of operations, on a
combined basis, as if the acquisition occurred as of the beginning of each of
the periods presented, after including the impact of certain adjustments such
as amortization of costs in excess of net assets acquired:
<TABLE>
<CAPTION>
Fiscal
Year-Ended Six months
January 31, Ended July 31,
1999 1999
(in thousands, except
per share data)
<S> <C> <C>
Net revenues...................................... $ 6,447 $ 5,598
Net loss.......................................... (16,464) (20,928)
Basic and diluted net loss per share.............. $ (4.16) $ (5.14)
</TABLE>
The unaudited pro forma results are not necessarily indicative of the results
of the operations that would have been reported had the acquisition occurred
prior to the beginning of the period presented. In addition, they are not
intended to be indicative of future results.
NOTE 11--SUBSEQUENT EVENTS:
Employee and Director Benefit Plans
On August 16, 1999, the board of directors approved the 1999 stock incentive
plan under which 5,000,000 shares of common stock have been reserved. On each
February 1, commencing with the year 2001, the number of shares in reserve will
automatically increase by 4% of the total number of shares of common stock that
are outstanding at that time or, if less, by 3,000,000 shares.
In August 1999, the Company adopted the 1999 employee stock purchase plan
under which 2,500,000 shares have been reserved for issuance thereafter. On
each June 1, the number of shares in reserve will automatically be restored to
2,500,000 (in other words, the reserve will be increased by the number of
shares that were issued in the prior 12 months). The plan permits purchases of
common stock via payroll deductions. The maximum payroll deduction is 15% of
the employee's cash compensation. Purchases of the common stock will occur on
May 31 and November 30 of each year. The price of each share purchased will be
85% of the lower of:
. The fair market value per share of common stock on the date immediately
before the first day of the applicable offering period; or
. The fair market value per share of common stock on the purchase date.
In August, the board of directors also adopted the 1999 directors' stock
option plan and 750,000 shares of common stock were reserved for issuance under
this plan. On each February 1, starting with the year 2001, the number of
shares in reserve will automatically be restored to 750,000. Non-employee
members of the board of directors will be eligible for option grants under the
1999 directors' stock option plan. Each non-employee director who joins the
board after the effective date of the plan will receive an initial option of
50,000 shares. The initial options vest 25% at the end of year one, and the
balance in 36 equal monthly installments. At each annual stockholder's meeting,
beginning in 2000, each non-employee director will automatically be granted an
annual option for 12,500 shares of the common stock. A new non-employee
director who receives the initial option will not receive the 12,500 share
annual option in the same calendar year. These options vest in equal monthly
installments over the one-year period following the date of the grant. The
exercise price of the option will be equal to the fair market value of the
common stock on the option grant date. The non-employee directors' options have
a 10-year term, and expire one year after a director leaves the board. Upon a
change of control of the Company, the options become fully vested. Vesting also
accelerates in the event of the optionee's death or disability.
The above plans are subject to stockholder approval.
F-22
<PAGE>
GETTHERE.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Initial public offering
In August, 1999, the Company's board of directors authorized management to
file a registration statement with the Securities and Exchange Commission to
permit the Company to sell shares of its common stock to the public.
Financing Activities
On August 27, 1999, the Company sold to America West Airlines ("AWA") 500,000
shares of its series C preferred stock at $5.125 per share.
On August 27, 1999, a warrant to purchase 1,650,000 shares of the Company's
series C preferred stock with an exercise price of $5.125 per share was issued
to Northwest Airlines ("NWA"). This warrant becomes fully vested and
exercisable at the date NWA begins to use the Company's travel solution on the
nwa.com Web site.
On September 14, 1999, the Company sold 200,000 shares of its series E
preferred stock to Air Canada Airlines ("ACA") at a price per share of $12.50.
The Company also sold to ACA 500,000 shares of its series C preferred stock at
a price per share of $5.125 and issued to ACA a warrant to purchase 200,000
shares of its series E preferred stock with an exercise price of $12.50 per
share. This warrant was fully vested at the date of issuance and is exercisable
30 days after the date of issuance and has an exercise period of 3 years from
the date of first exerciseability. Since a commercial agreement was not reached
between ACA and the Company by November 15, 1999, the Company has elected to
repurchase the series C and E preferred stock issued to ACA at a price per
share equal to the original issue price. In addition, the preferred stock
warrant issued to ACA terminated at the date the Company elected to repurchase
the preferred stock.
On September 14, 1999, the Company sold 500,000 shares of its series E
preferred stock to AWA at a price per share of $12.50 and issued AWA a warrant
to purchase 500,000 shares of its series E preferred stock with an exercise
price of $12.50 per share. This warrant was fully vested and exercisable on
October 1, 1999 and has an exercise period of 3 years from the vesting date.
The relative fair value of the warrant was calculated to be $3.1 million using
the Black Scholes pricing model. As a result, $3.1 million of the total
proceeds received from the sale of the series E preferred stock ($6.25 million)
was allocated to the warrant with the remainder being allocated to preferred
stock. The discount between the carrying amount and redemption value of the
preferred stock will be accreted ratably over the period until the first
redemption date. The Company entered into a commercial agreement with AWA in
October 1999 that includes development, implementation and hosting of the
online ticket reservation services of AWA. The initial term of the agreement is
four years with a renewal option for an additional two years. The agreement can
be terminated at any time, but the anticipated fixed payments to be made to the
Company over the initial term will approximate $4 million plus variable
payments based upon a transaction fee for tickets processed. In addition, The
Company has agreed to pay AWA a percentage of all hotel and car commissions
collected and a percentage of all advertising fees that we collect on their
site.
On September 14, 1999, the Company and American Express ("AMEX") entered into
an agreement whereby the Company agreed to sell to AMEX 875,423 shares of its
series C preferred stock at a price per share of $5.125. The Company also
agreed to sell to AMEX 2,121,076 shares of its series E preferred stock at a
price per share of $12.50. AMEX also purchased one share of series D3 preferred
stock for $12.50. As the holder of the outstanding share of series D3 preferred
stock, AMEX has the right to elect a representative to the board of directors.
F-23
<PAGE>
GETTHERE.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
. a warrant to purchase 730,023 shares of the Company's series E preferred
stock at an exercise price of $31.00 per share. This warrant becomes
exercisable 30 days after the date of issuance and has an exercise period
of 3 years.
. a warrant to purchase 375,000 shares of the Company's common stock at an
exercise price of $16.50 per share. This warrant becomes exercisable 30
days after the date of issuance and has an exercise period of 120 days
from the date of issuance.
The Company entered into a commercial agreement with AMEX in September 1999
which includes the development, implementation and maintenance of our travel
services on the AMEX Web Sites. The initial term of the agreement is four years
and includes anticipated fixed payments over this period of approximately
$17.2 million and variable payments based upon a currently undetermined
transaction fee for tickets processed. These payments may be reduced to the
extent that certain contractual milestones are not met.
In connection with the sale of the Company's series E preferred stock on
September 14,1999, the Company sold 1,500,000 shares of series E preferred
stock at a price per share of $12.50 to Covia and issued to Covia a warrant to
purchase 1,136,821 shares of the Company's common stock at an exercise price of
$11.20 per share. The equity instruments sold were unbundled and the aggregate
proceeds of $18.75 million allocated to each separate instrument based on the
relative fair values. The warrant has a fair value of $7.5 million using the
Black Scholes pricing model. As a result, $11.25 and $7.5 million proceeds was
allocated to the preferred stock and warrant, respectively. The preferred stock
will be classified as temporary equity and accreted to the redemption value
until the first redemption date.
In addition, on September 14, 1999, the Company sold 720,000 shares of series
E preferred stock at a price per share of $12.50 to two venture capital funds.
At November 18, 1999 a summary of proceeds allocated to the detachable
securities issued contemporaneously with preferred stock was as follows:
<TABLE>
<CAPTION>
Series Gross Detachable Value
Holder/Date of Stock Proceeds Security Allocated
<S> <C> <C> <C> <C>
AWA--9/99........................... Series E $ 6,250,000 Warrant $ 3,100,000
AMEX--9/99.......................... Series E 26,513,450 Warrants 5,000,000
Covia--9/99......................... Series E 18,750,000 Warrant 7,500,000
----------- -----------
$51,513,450 $15,600,000
=========== ===========
</TABLE>
Management determined that the fair value of the Company's series C preferred
stock at September 14, 1999 was $12.50 per share. The issuance price for the
series C preferred stock in August and September 1999 was $5.125 per share. The
difference between the fair value and the issuance price will be recorded as an
intangible asset. The intangible asset will be recorded at the issuance date of
the stock and amortized over the estimated period to be benefited (four years).
F-24
<PAGE>
GETTHERE.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
With respect to the sale of the series C preferred stock to American Express
Travel Related Services Company and America West Airlines the commitment date
for purposes of measuring the value of the intangible asset was the date of
issuance of these shares. The amortization of the intangible asset outlined
below will be classified as general and administrative expenses. The
calculation of the value of the intangible asset related to these shares is as
follows:
<TABLE>
<CAPTION>
Fair Value Amount of
Series of Number of at Price Per Intangible
Stock Shares Sold Issue Date Share Asset
<S> <C> <C> <C> <C> <C>
AMEX..................... Series C 875,423 $12.50 $5.125 $ 6,456,245
AWA...................... Series C 500,000 $12.50 $5.125 3,687,500
-----------
$10,143,745
===========
</TABLE>
The value related to the stock warrant issued to NWA will be classified as an
intangible asset and amortized over a four year period in a manner similar to
the intangible asset discussed above. The warrant is not exercisable until such
date as NWA migrates its primary Web site to the Company's travel solution and,
therefore, a performance commitment exists with regard to the NWA warrant under
EITF 96-18, paragraph 5. The value of the warrant issued to NWA will be
measured on the date that the NWA Web site is migrated to the Company's travel
solution. The Company will disclose the value of this warrant over the interim
reporting periods. The amortization of the warrant value related to the
intangible asset will be classified as general and administrative expenses. The
Company also entered into an agreement to develop and provide hosting services
for a website for NWA through which NWA intends to offer low fare tickets. The
agreement has an initial term of one year with renewal options. NWA will pay a
transaction fee of $5.75 per issued ticket to us during the initial term.
F-25
<PAGE>
Description of Graphics--Inside Back Cover
At top of the page, there is a title that reads "Our services are designed to
reduce costs, increase productivity, and provide real-time data analysis."
At upper left side of the page, there is a screen shot of a Web page
depicting the booking of flight reservations. Immediately above the screen
shot, there is a title that reads "Searching" and immediately below the screen
shot, there is a caption that reads "Travelers can book real-time reservations
over the Internet utilizing their negotiated rates and preferred vendors."
Opposite the screen shot, there is a quotation, titled "Chevron," that reads "
"Our research suggested that ease-of-use was essential to the adoption of an
online travel solution and GetThere.com met our needs. We hope to have the
majority of our travelers using the system in the future.'--Nancy Godfrey,
Travel Administration Manager."
At middle right side of the page, there is a screen shot of a Web page
depicting a real-time airline seat map. Immediately above the screen shot,
there is a title that reads "Selecting" and immediately below the screen shot,
there is a caption that reads "Travelers can select an available seat from a
real-time seat map." Opposite the screen shot, there is a quotation, titled
"Hewlett-Packard," that reads " "Our VeriFone subsidiary installed
GetThere.com's solution and has achieved an adoption rate of more than 60%.
This has led to savings of up to 15% on airline tickets.'--Joe Beyers, Vice
President and General Manager, Internet Business Unit."
At lower left side of the page, there is a screen shot of a Web page
depicting real-time data reporting. Immediately above the screen shot, there is
a title that reads "Reporting" and immediately below the screen shot, there is
a caption that reads "Travel managers get real-time reporting of their actual
travel spending, allowing them to manage budgets and monitor performance."
Opposite the screen shot, there is a quotation, titled "Nike," that reads "
"Releasing a corporate online travel program is complex. GetThere.com provided
Nike with a services-oriented approach and implementation services that
simplified the process. The benefits and returns to Nike were immediate.'--Ted
Cullen, Travel Director, Nike."
At the lower right corner of the page, there is the GetThere.com logo.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
November 22, 1999
[GETTHERE.COM LOGO]
5,000,000 Shares of Common Stock
----------------------
PROSPECTUS
----------------------
Donaldson, Lufkin & Jenrette
Salomon Smith Barney
Bear, Stearns & Co. Inc.
WR Hambrecht + Co
- -------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as
to matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where
that would not be permitted or legal. Neither the delivery of this prospectus
nor any sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of
GetThere.com have not changed since the date hereof.
- -------------------------------------------------------------------------------
Until December 17, 1999 (25 days after the date of this prospectus), all
dealers that effect transactions in these shares of common stock may be
required to deliver a prospectus. This is in addition to the dealer's
obligation to deliver a prospectus when acting as an underwriter and with
respect to its unsold allotments or subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
