SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
[_] Confidential, for Use of the
Check the appropriate box: Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-12
CHEAP TICKETS, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
N/A
(2) Aggregate number of securities to which transaction applies:
N/A
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
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(4) Date Filed:
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[CHEAP TICKETS LOGO APPEARS HERE]
April 27, 2001
Dear Stockholders:
It is my pleasure to invite you to Cheap Tickets' 2001 Annual Meeting of
Stockholders.
We will hold the meeting on May 21, 2001 at 9:00 AM, at the Hawaii Prince
Hotel at 100 Holomoana Street, Honolulu, Hawaii. In addition to the formal
items of business, we will review the major developments of 2000 and answer
your questions.
This booklet includes the Notice of Annual Meeting and the Proxy Statement.
The Proxy Statement describes the business that we will conduct at the meeting
and provides information about Cheap Tickets.
Your vote is important. Whether you plan to attend the meeting or not,
please complete, date, sign and return the enclosed proxy card promptly. If
you received more than one proxy card because you own shares registered in
different names or at different addresses, please be sure to separately
complete and return each proxy card. If you attend the meeting and prefer to
vote in person, you may do so.
We look forward to seeing you at the meeting.
Sincerely,
/s/ Michael J. Hartley
Michael J. Hartley
Executive Chairman of the Board
CHEAP TICKETS, INC.
1440 Kapiolani Boulevard
Honolulu, Hawaii 96814
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 21, 2001 at 9:00 AM, Local Time
----------------
DATE: May 21, 2001
TIME: 9:00 AM
PLACE: Hawaii Prince Hotel
Dear Stockholders:
At our annual meeting, we will ask you to:
1. Elect seven directors for terms expiring in 2002.
2. Ratify the selection of PricewaterhouseCoopers LLP, independent
certified public accountants, as our auditors for the year ending
December 31, 2001.
3. Transact such other business as may properly come before the meeting, or
any adjournment or adjournments thereof.
The foregoing items of business are more fully described in the Proxy
Statement which is attached and made a part hereof.
For ten days prior to the annual meeting, a complete list of our
stockholders entitled to vote at the meeting will be available for inspection
by any stockholder for any purpose relating to the meeting during ordinary
business hours at our offices at 1440 Kapiolani Boulevard, Honolulu, Hawaii.
This list will also be available for inspection at the annual meeting.
If you were a stockholder of record at the close of business on April 11,
2001, you may vote at the annual meeting.
By Order of the Board of Directors,
/s/ Samuel D. Horgan
Samuel D. Horgan
Secretary
April 27, 2001
Honolulu, Hawaii
CHEAP TICKETS, INC.
1440 Kapiolani Boulevard
Honolulu, Hawaii 96814
PROXY STATEMENT
----------------
Annual Meeting of Stockholders to be held May 21, 2001
----------------
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
Why Did You Send Me this Proxy Statement?
We sent you this proxy statement and the enclosed proxy card because our
board of directors is soliciting your proxy to vote at the 2001 annual meeting
of stockholders. This proxy statement summarizes the information you need to
know to cast a vote at the annual meeting. However, you do not need to attend
the annual meeting to vote your shares. Instead, you may simply complete, sign
and return the enclosed proxy card.
Who is Entitled to Vote?
We will begin sending this proxy statement, the attached notice of annual
meeting and the enclosed proxy card on or about April 27, 2001, to all
stockholders entitled to vote. Stockholders who owned Cheap Tickets common
stock at the close of business on April 11, 2001, are entitled to vote. On this
record date, there were 24,271,942 shares of Cheap Tickets common stock, par
value $0.001 per share, outstanding. Cheap Tickets' common stock is our only
class of voting stock. We are also authorized to issue up to 10,000,000 shares
of preferred stock, par value $0.01 per share, of which no shares are presently
issued and outstanding. We are also sending along with this proxy statement,
the Cheap Tickets 2000 Annual Report, which includes our financial statements.
What Constitutes a Quorum?
The holders of a majority of the outstanding shares of Cheap Tickets common
stock entitled to vote at the meeting must be present, in person or by proxy,
in order to constitute a quorum. We can conduct the business of the meeting
only if a quorum has been established. We will include proxies marked as
abstentions and broker non-votes in determining the number of shares present at
the meeting.
How Many Votes Do I Have?
Each share of Cheap Tickets common stock that you own entitles you to one
vote. The proxy card indicates the number of shares Cheap Tickets common stock
that you own.
How Do I Vote By Proxy?
Whether you plan to attend the annual meeting or not, we urge you to
complete, sign and date the enclosed proxy card and to return it promptly in
the postage-prepaid envelope provided. Returning the proxy card will not affect
your right to attend the annual meeting and vote.
If you properly fill in your proxy card and send it to us in time to vote,
your "proxy" (one of the individuals named on your proxy card) will vote your
shares as you have directed. If you sign the proxy card but do not make
specific choices, your proxy will vote your shares as recommended by the board
of directors as follows:
. "FOR" the election of all seven nominees for director (see pages 18 to
19); and
. "FOR" the ratification of the selection of PricewaterhouseCoopers LLP
as independent public accountants for 2001 (see page 19).
If any other matter is presented, your proxy will vote in accordance with
the recommendation of the board of directors or, if no recommendation is
given, in their own discretion. At the time this proxy statement went to
press, we knew of no matters which needed to be acted on at the annual
meeting, other than those discussed in this proxy statement.
May I Change My Vote After I Return My Proxy?
Yes. If you give a proxy, you may change your vote at any time before it is
exercised. You may change your vote in any one of three ways:
. You may send our Corporate Secretary another proxy with a later date.
. You may notify our Corporate Secretary in writing before the annual
meeting that you have revoked your proxy.
. You may attend the annual meeting and vote in person.
How Do I Vote in Person?
If you plan to attend the annual meeting and vote in person, we will give
you a ballot form when you arrive. However, if your shares are held in the
name of your broker, bank or other nominee, you must bring the proxy card, an
account statement or a letter from the nominee indicating that you are the
beneficial owner of the shares on April 11, 2001, the record date for voting,
and a written instruction from the nominee authorizing you to vote the shares.
What Vote Is Required to Approve Each Proposal?
Proposal 1: The seven nominees for director who receive the
Elect Seven Directors most votes will be elected. So, if you do not vote
for a particular nominee, or you indicate "WITHHOLD
AUTHORITY" to vote for a particular nominee on your
proxy card, your vote will not count either "for"
or "against" the nominee.
Proposal 2: The affirmative vote of a majority of the votes
Ratify Selection of cast at the annual meeting on this proposal is
Independent Public required to ratify the selection of independent
Accountants public accountants. So, if you "ABSTAIN" from
voting, it has the same effect as if you voted
"against" this proposal.
The Effect of Broker Non-Votes
If your broker holds your shares in its name, the
broker will be entitled to vote your shares on both
Proposals 1 and 2 even if it does not receive
instructions from you.
If your broker does not vote your shares on
Proposal 1, such "broker non-votes" will have no
effect on the outcome since only a plurality of
votes actually cast is required to elect a
director.
If your broker does not vote your shares on
Proposal 2, such "broker non-votes" do not count as
"shares present." This means that a broker non-vote
would reduce the number of affirmative votes that
are necessary to approve this proposal.
2
What Are the Costs of Soliciting these Proxies?
We will pay all the costs of soliciting these proxies. In addition to
mailing proxy soliciting material, our directors, officers and employees also
may solicit proxies in person, by telephone or by other electronic means of
communications for which they will receive no compensation. We will ask banks,
brokers, and other institutions, nominees and fiduciaries to forward the proxy
material to their principals and to obtain authority to execute proxies. We
will then reimburse them for their reasonable expenses. In addition, we may
pay for and use the services of individuals or companies that we do not
regularly employ in connection with the solicitation of proxies if the board
of directors determines this is advisable.
How Do I Obtain an Annual Report on Form 10-K?
If you would like a copy of our Annual Report on Form 10-K for the year
ended December 31, 2000, that we filed with the Securities and Exchange
Commission, or SEC, we will send you one without charge. Please write to:
Cheap Tickets, Inc.
1440 Kapiolani Boulevard, Suite 800
Honolulu, Hawaii 96814
Attention: Controller
You can also view a copy of our Annual Report on Form 10-K for the year ended
December 31, 2000 at the SEC's website at http://www.sec.gov.
INFORMATION ABOUT CHEAP TICKETS' COMMON STOCK OWNERSHIP
Which Stockholders Own at Least 5% of Cheap Tickets?
The following table shows, as of April 11, 2001, all persons or entities we
know to be "beneficial owners" of more than five percent of our common stock.
The information on Capital Group International, Inc., Capital Group Trust
Company, Mr. Scott A. Bommer, SAB Capital Advisors, L.L.C. and SAB Capital
Partners, L.P. below is based on Schedule 13G reports filed with the SEC. If
you wish, you may obtain these reports from the SEC.
Common Stock
Beneficially
Owned(1)(2)
---------------------
Number of Percent of
Name and Address of Beneficial Owner Shares Class
------------------------------------ ---------- ----------
Michael J. Hartley(3).................................. 11,445,171 47.2%
Sandra T. Hartley(4)................................... 11,445,171 47.2%
Capital Group International, Inc.(5)................... 1,674,900 6.9%
Capital Guardian Trust Company(6)...................... 1,674,900 6.9%
Scott A. Bommer(7)..................................... 1,605,000 6.6%
SAB Capital Advisors, L.L.C.(8)........................ 1,329,915 5.5%
SAB Capital Partners, L.P.(9).......................... 1,268,569 5.2%
- --------
(1) "Beneficial ownership" is a technical term broadly defined by the SEC to
mean more than ownership in the usual sense. So, for example, you
"beneficially" own Cheap Tickets common stock not only if you hold it
directly, but also if you directly or indirectly (through a relationship,
a position as a director or trustee, or a contract or understanding),
have, (or share) the power to vote the stock, to invest it, to sell it, or
you currently have the right to acquire it or the right to acquire it
within 60 days of April 11, 2001.
(2) Based on 24,271,942 shares of common stock outstanding.
3
(3) Includes 928,580 shares of common stock held by the Michael J. Hartley
Revocable Trust, as amended, 4,794,006 shares of common stock held by the
Hartley Investments Limited Partnership (held for the benefit of Michael
J. Hartley) and 5,722,585 shares of common stock held by Sandra T.
Hartley. Mr. Hartley is the husband of Sandra T. Hartley. Mr. Hartley's
address is 1440 Kapiolani Boulevard, Honolulu, Hawaii 96814. See note (4).
(4) Includes 928,579 shares of common stock held by the Sandra Tatsue Hartley
Revocable Trust, as amended, 4,794,006 shares of common stock held by the
Hartley Investments Limited Partnership (held for the benefit of Sandra T.
Hartley) and 5,722,586 shares of common stock held by Michael J. Hartley.
Ms. Hartley is the wife of Michael J. Hartley, Cheap Tickets' Executive
Chairman of the Board. Ms. Hartley's address is 1440 Kapiolani Boulevard,
Honolulu, Hawaii 96814. See note (3).
(5) Based on a Schedule 13G/A filed with the SEC on February 12, 2001. Capital
Group International, Inc. is the parent holding company of a group of
investment management companies that hold investment power and, in some
cases, voting power over the securities reported in its Schedule 13G/A.
The investment management companies, which include a "bank" as defined in
Section 3(a)(6) of the Securities Exchange Act of 1934 and several
investment advisers registered under Section 203 of the Investment
Advisers Act of 1940, provide investment advisory and management services
for their respective clients which include registered investment companies
and institutional accounts. Capital Group International, Inc. does not
have investment power or voting power over any of the securities reported
in its Schedule 13G/A; however, Capital Group International, Inc. may be
deemed to "beneficially own" such securities by virtue of Rule 13d-3 under
the Securities Exchange Act of 1934. Its address is 11100 Santa Monica
Boulevard, Los Angeles, California 90025. See Note (6).
(6) Based on a Schedule 13G/A filed with the SEC on February 12, 2001. Capital
Guardian Trust Company, a bank as defined in Section 3(a)(6) of the
Securities Exchange Act of 1934 is deemed to be the beneficial owner of
1,674,900 shares as a result of its serving as the investment manager of
various institutional accounts. Its address is 11100 Santa Monica
Boulevard, Los Angeles, California 90025. See Note (5).
(7) Based on a Schedule 13G filed with the SEC on March 5, 2001. Mr. Scott A.
Bommer serves as the managing member of SAB Capital Advisors, L.L.C., a
Delaware limited liability company, which is the general partner of a
group of partnerships, including SAB Capital Partners, L.P., a Delaware
limited partnership. Mr. Bommer's address is 650 Madison Avenue, 26th
Floor, New York, New York 10022. See Notes (8) and (9).
(8) Based on a Schedule 13G filed with the SEC on March 5, 2001. SAB Capital
Advisors, L.L.C., is the general partner of a group of partnerships,
including SAB Capital Partners, L.P., a Delaware limited partnership. Mr.
Scott A. Bommer serves as the managing member of SAB Capital Advisors,
L.L.C. Its address is 650 Madison Avenue, 26th Floor, New York, New York
10022. See Note (7) and (9).
(9) Based on a Schedule 13G filed with the SEC on March 5, 2001. SAB Capital
Partners, L.P., a Delaware limited partnership, is managed by SAB Capital
Advisors, L.L.C., which acts as general partner of SAB Capital Partners,
L.P. Mr. Scott A. Bommer serves as managing member of SAB Capital
Advisors, L.L.C. Its address is 650 Madison Avenue, 26th Floor, New York,
New York 10022. See Note (7) and (8).
4
How Much Stock is Owned by Directors and Executive Officers?
The following table shows, as of April 11, 2001, the Cheap Tickets common
stock that our directors and executive officers named in the Summary
Compensation Table under "How Do We Compensate Executive Officers?"
beneficially own and those shares of common stock owned by all executive
officers and directors as a group.
Common Stock
Beneficially
Owned(1)(2)
---------------------
Number of Percent of
Name of Beneficial Owner Shares Class
------------------------ ---------- ----------
Michael J. Hartley(3)................................ 11,445,171 47.2%
Cece Smith(4)........................................ 1,054,945 4.3%
Tammy A. Ishibashi(5)................................ 558,048 2.3%
Sam E. Galeotos(6)................................... 380,375 1.6%
Dale K. Jorgenson(7)................................. 69,900 *
George R. Mrkonic(8)................................. 32,791 *
Paul B. Halstead(9).................................. 20,000 *
Jason D. Horstman(10)................................ 15,250 *
Giles H. Bateman(11)................................. 13,829 *
A. Maurice Myers(12)................................. 2,923 *
Jeffrey N. Watanabe.................................. -- *
All directors and executive officers as a group (16
persons)............................................ 13,618,532 55.0%
- --------
* Less than 1%.
(1) See footnote 1 in the table included above at page 3, under "Which
Stockholders Own at Least 5% of Cheap Tickets?"
(2) Based on 24,271,942 shares of common stock outstanding. Shares of our
common stock issuable upon exercise of stock options currently
exercisable or exercisable within 60 days of April 11, 2001 are
considered outstanding for computing the percentage of the person holding
those options but are not considered outstanding for computing the
percentage of any other person.
(3) Includes 928,580 shares of common stock held by the Michael J. Hartley
Revocable Trust, as amended, 4,794,006 shares of common stock held by the
Hartley Investments Limited Partnership (held for the benefit of Michael
J. Hartley) and 5,722,585 shares of common stock held by Sandra T.
Hartley. Mr. Hartley is the husband of Sandra T. Hartley. See note (4)
under "Which Stockholders Own at Least 5% of Cheap Tickets?"
(4) Includes vested stock options to purchase 1,784 shares of common stock.
Ms. Smith is a co-founder and general partner of Phillips-Smith Specialty
Retail Group III, L.P.
(5) Ms. Ishibashi is the niece of Michael J. Hartley, Cheap Tickets'
Executive Chairman of the Board. See note (3).
(6) Includes vested stock options to purchase 379,375 shares of common stock.
(7) Includes 200 shares of common stock held by Mr. Jorgenson's minor child
and deemed to be beneficially owned by him and vested stock options to
purchase 56,000 shares of common stock.
(8) Includes vested stock options to purchase 1,784 shares of common stock.
(9) Represents vested stock options to purchase 20,000 shares of common
stock.
(10) Includes vested stock options to purchase 15,000 shares of common stock.
(11) Includes vested stock options to purchase 1,784 shares of common stock.
(12) Includes vested stock options to purchase 1,284 shares of common stock.
5
Compensation Committee Interlocks and Insider Participation
No interlocking relationship exists between Cheap Tickets' executive
officers, board of directors or compensation committee and any executive
officer or member of the board of directors or compensation committee of any
other company, nor has any such interlocking relationship existed in the past.
Did Directors, Executive Officers and Greater-Than-10% Stockholders Comply
With Section 16(a) Beneficial Ownership Reporting in 2000?
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our directors, officers, and greater-than-10% stockholders to file with the
SEC and the NASDAQ Stock Market on changes in their beneficial ownership of
Cheap Tickets common stock and to provide Cheap Tickets with copies of the
reports. Based on our review of these reports, we believe that all of those
reporting persons complied with their filing requirements for 2000, except for
Ronald L. McElfresh who filed one late report on Form 4 involving the exercise
of stock options.
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors
The board of directors oversees our business and affairs and monitors the
performance of management. In accordance with corporate governance principles,
the board does not involve itself in day-to-day operations. The directors keep
themselves informed through, among other things, discussions with the
executive chairman, the chief executive officer, other key executives and our
principal external advisers (legal counsel, outside auditors, investment
bankers and other consultants), reading reports and other materials that we
send them and participating in board and committee meetings.
The board met six times during fiscal 2000. Each incumbent director attended
at least 75% of the total number of board and committee meetings, of which the
director was a member, held in fiscal 2000.
The Committees of the Board
The board has an audit committee and a compensation committee. The full
board of directors nominates our officers and directors for election.
The Audit Committee The audit committee monitors our corporate
financial reporting and internal and external
audits. Directors Bateman, Mrkonic, Smith and
Watanabe serve as members of the audit committee.
The audit committee met five times during fiscal
2000.
The board adopted and approved a charter for the
audit committee in May 2000, a copy of which is
attached as an appendix to this proxy statement.
The board has determined that all members of the
audit committee are "independent" as that term is
defined in Rule 4200 of the listing standards of
the National Association of Securities Dealers.
The Compensation Committee The compensation committee makes recommendations
regarding our employee stock plans and makes
decisions concerning salaries and incentive
compensation for employees and consultants of Cheap
Tickets. Directors Bateman, Mrkonic, Smith and
Watanabe currently serve as members of the
compensation committee. The compensation committee
met six times during fiscal 2000.
6
How Do We Compensate Directors?
We pay our non-employee directors $2,500 for each board meeting and $1,000
for each committee meeting attended in person for their services as directors.
For telephonic participation at meetings, we pay our non-employee directors
$1,250 for each board meeting and $500 for each committee meeting. We, in lieu
of cash, pay our non-employee directors with our common stock based on the
fair market value per share on the date each meeting was held. Further,
directors are reimbursed for certain reasonable expenses incurred in attending
board or committee meetings.
Upon joining Cheap Tickets, each non-employee director receives an option to
acquire 1,500 shares of common stock at an exercise price equal to the then
fair market value. These options vest in equal increments over three years. In
addition, following each annual stockholders' meeting, each non-employee
director who continues as a director following the meeting and who has served
as a director for at least eight months will receive an option to acquire the
number of shares equal to $25,000 divided by the fair market value per share
on the date of such annual meeting. Such options will also vest in equal
increments over three years.
We have an arrangement with Mr. A. Maurice Myers, one of our non-employee
directors, which was initially entered into in December 1995 under which Mr.
Myers has agreed to provide us with consulting services associated with
helping us develop business relationships with various airlines. Under this
arrangement, we have agreed to pay Mr. Myers commissions of $2.00 per ticket
written on America West Airlines and $1.00 per ticket on domestic, unpublished
fares, we issue on United Airlines, for his services in helping us obtain
airfare contracts with these airlines. These commissions for tickets on
America West Airlines ended on December 31, 2000 and on United Airlines will
end July 1, 2002. In 2000, we paid Mr. Myers $166,639 in commissions he earned
under this arrangement during that year.
We have also entered into agreements with all directors pursuant to which we
have agreed to indemnify them against certain claims arising out of their
services as directors. Directors are also entitled to the protection of
certain indemnification provisions in our Certificate of Incorporation and
Bylaws.
Certain Relationships and Related Transactions
In January 2000, we entered into an employment agreement with our Chief
Technology Officer, Paul B. Halstead, that provides for a loan of $200,000
bearing no stated interest until maturity. At each of the first three
anniversaries of the loan, the Agreement requires us to forgive one-third of
the principal amount as long as Mr. Halstead is employed with us on such
anniversary, or in the year preceding such anniversary Mr. Halstead is
employed with us for at least six months. In addition, under the Agreement we
have agreed to pay Mr. Halstead on the first such anniversary of the loan an
amount equal to all income taxes accrued to or payable by Mr. Halstead with
respect to the first year's amount forgiven under the loan.
In February 2001, we entered into an employment agreement with our Chief
Financial Officer, Samuel D. Horgan, that provides for a loan of $200,000
bearing no stated interest until maturity. At each of the first three
anniversaries of the loan, the Agreement requires us to forgive one-third of
the principal amount as long as Mr. Horgan is employed with us on such
anniversary, or in the year preceding such anniversary Mr. Horgan is employed
with us for at least six months. In addition, under the Agreement we have
agreed to pay Mr. Horgan an amount such that, after the payment of federal,
state and local taxes, Mr. Horgan shall have received amounts free and clear
of such taxes equal to the amount for the forgiveness of his loan.
7
Executive Officers
Name and Age Principal Occupation and Business Experience
_____________ ____________________________________________
Michael J. Hartley
(51)................. Michael J. Hartley, a co-founder of Cheap Tickets, has
served as Executive Chairman of the Board since
February 2001, and as director since Cheap Tickets'
inception in August 1986. Mr. Hartley also served as
Chief Executive Officer from 1986 until February 2001.
Mr. Hartley is the uncle of Tammy A. Ishibashi, Cheap
Tickets' Executive Vice President of Ticket
Distribution. Prior to founding Cheap Tickets, Mr.
Hartley founded and sold one charter airline and served
as an organizer of two other airlines.
Sam E. Galeotos
(42)................. Sam E. Galeotos joined Cheap Tickets in October 1999
and has served as Chief Executive Officer since
February 2001, and as President and director since
October 1999. Prior to that Mr. Galeotos also served as
Chief Operating Officer from October 1999 to February
2001. Prior to joining Cheap Tickets, from 1980 to
1999, Mr. Galeotos worked for WORLDSPAN Travel
Information Systems in a variety of capacities,
eventually serving as Co-Chief Executive Officer.
Previously, he held management positions at Delta Air
Lines, Inc. and DatasLink Business Systems. Mr.
Galeotos earned his bachelor's degree in Business
Administration with emphasis on Accounting and
Management Information Systems from the University of
Arizona and is a graduate of the Wharton School of
Business advanced management program at the University
of Pennsylvania.
Samuel D. Horgan
(52)................. Samuel D. Horgan joined Cheap Tickets in February 2001
as Chief Financial Officer and Vice President of
Finance and has served as Secretary since April 2001.
From January 1999 to February 2000, Mr. Horgan was a
partner at Tatum CFO Partners, LLP, and from June 1997
to December 1998, he served as chief financial officer
and treasurer at OAO Technological Solutions, Inc. From
January 1996 to June 1997, Mr. Horgan was chief
financial officer at Worldspan, Ltd. Mr. Horgan has a
B.S. degree in Business from Youngstown State
University. Mr. Horgan also completed postgraduate
studies in accounting and economics at the University
of Pittsburgh, the University of South Florida and the
University of Buffalo.
Tammy A. Ishibashi
(34)................. Tammy A. Ishibashi has served as Executive Vice
President of Ticket Distribution since February 1995
and is responsible for managing the retail stores and
ticket distribution process, which includes fare
filings with the Airline Tariff Publishing Corporation,
ticket distribution, refunds and ARC reporting, and for
overseeing the five departments necessary to accomplish
this process. She joined Cheap Tickets as Treasurer in
September 1990, a position she held until November 1993
when she was appointed to Second Vice President.
Ms. Ishibashi served as a director of Cheap Tickets
from September 1990 until February 1999. Ms. Ishibashi
is the niece of Michael J. Hartley, Cheap Tickets'
Executive Chairman of the Board.
8
Name and Age Principal Occupation and Business Experience
____________ ____________________________________________
Ronald L. McElfresh
(51)................. Ronald L. McElfresh joined Cheap Tickets in January
1998 and has served as Vice President, Business
Development since February 2001. Prior to that
Mr. McElfresh served as Vice President of Online
Services, to design, develop, implement and maintain
Cheap Tickets' website. From 1996 to 1997, he worked at
Digital Island, a global Internet service provider, as
the Director of Marketing.
From June 1995 to June 1996, he served as general
manager at Hawaiian On-Line GTE, an Internet company.
From October 1994 to June 1995, he worked at GTE, a
telecommunications company, as an international
services product manager, where he developed and
managed telephony and worked on product development for
GTE's original Internet services. From April 1989 to
July 1993, Mr. McElfresh was the Director of Product
Marketing of Brite Voice Systems, Inc., a
telecommunications company. In October 1981, Mr.
McElfresh co-founded INFOCOM, a multimedia development
company, where he held various product development and
marketing positions, most recently as General Manager,
until October 1987. Mr. McElfresh holds a B.A. degree
from Blackhawk College.
Paul B. Halstead
(52)................. Paul B. Halstead joined Cheap Tickets in January 2000
as Chief Technology Officer. His responsibilities
include managing the development of new products for e-
commerce and call centers, and for managing the
operation of Cheap Tickets' systems and voice and data
communication networks. Prior to joining Cheap Tickets,
he worked at Bass Hotels & Resorts as Senior Vice
President, Corporate Systems from April 1997 to January
2000 and at WORLDSPAN as Vice President, Distributed
Systems Development from February 1990 to September
1996. Mr. Halstead holds a B.S. degree in Mathematics
from Samford University.
Jason D. Horstman
(38)................. Jason D. Horstman joined Cheap Tickets in January 2000
as Vice President, Business Development. His
responsibilities include overseeing business
partnerships, company affiliations and strategic
alliances. Prior to joining Cheap Tickets, Mr. Horstman
worked as Vice President of Sales and Marketing for
both Northwestern Travel Management, a corporate travel
agency, from August 1998 until January 2000, and at
TravelCorp, Inc., a travel agency, from February 1995
until August 1998. Mr. Horstman holds a B.A. degree in
Business Economics from Northwestern College.
R. Evans Gebhardt
(38)................. R. Evans Gebhardt joined Cheap Tickets in July 2000 as
Vice President, Marketing. Mr. Gebhardt is responsible
for the strategic development of branded sales and
marketing concepts. Prior to joining Cheap Tickets, Mr.
Gebhardt served in various capacities, including
marketing director, at Bristol-Myers Squibb from July
1987 to June 2000. Mr. Gebhardt holds a M.B.A. degree
from New York University and a bachelor's degree from
Hobart College.
Monica M. Kosiorek
(45)................. Monica M. Kosiorek joined Cheap Tickets in July 2000 as
Vice President, Consumer Sales and Service. Ms.
Kosiorek's responsibilities include customer service,
employee training programs and managing the four call
center operations. Prior to joining Cheap Tickets, she
worked at American Express Business Travel as Director,
Call Center Operations from September 1997 to June
2000, and as an independent consultant assisting
companies with call center operations from June 1997 to
September 1997. From June 1991 to June 1997, she served
as Vice President, Call Center Operations at Bank One.
Ms. Kosiorek holds a M.B.A. degree from the University
of Baltimore and a B.S. degree in Business
Administration from Towson State University.
9
How Do We Compensate Executive Officers?
The following table sets forth all compensation paid by Cheap Tickets during
2000, 1999, and 1998 to our (1) Chief Executive Officer and President during
fiscal 2000 and (2) four other most highly compensated executive officers
during fiscal 2000.
Summary Compensation Table
Long Term
Annual Compensation Compensation
-------------------------------------------- ----------------
Securities
Name and Principal Other Annual Underlying All Other
Position Year Salary ($) Bonus ($) Compensation ($) Options/SARs (#) Compensation ($)
- ------------------ ---- ---------- --------- ---------------- ---------------- ----------------
Michael J. Hartley....... 2000 496,494 -- -- -- --
Executive Chairman of 1999 401,260 357,000 -- -- --
the Board and former 1998 243,783 50,000 -- -- --
Chief Executive Officer
Sam E. Galeotos.......... 2000 450,000 -- 140,959(5) 675,000 --
Chief Executive Officer 1999 61,154(1) -- -- 600,000 400,000(7)
and President and Former 1998 -- -- -- -- --
Chief Operating Officer
Dale K. Jorgenson........ 2000 175,000 -- -- -- 442,500(8)
Former Chief Financial 1999 172,917 70,000 -- -- 50,085(9)
Officer and Vice 1998 78,366(2) 21,875 -- 140,000 --
President, Finance
Paul B. Halstead......... 2000 252,485(3) -- 29,174(6) 100,000 200,000(10)
Chief Technology Officer 1999 -- -- -- -- --
1998 -- -- -- -- --
Jason D. Horstman........ 2000 162,663(4) -- -- 75,000 --
Vice President, Business 1999 -- -- -- -- --
Development 1998 -- -- -- -- --
Tammy A. Ishibashi....... 2000 150,000 -- -- -- --
Executive Vice
President, 1999 122,921 37,500 -- -- --
Tickets Distribution 1998 100,008 25,000 -- -- --
- --------
(1) The annual salary of Mr. Galeotos for 1999 would have been $450,000 if he
had been with Cheap Tickets for the entire year. He joined Cheap Tickets
in October 1999.
(2) Mr. Jorgenson's annual salary for 1998 would have been $150,000, if he had
been with Cheap Tickets for the entire year. He joined Cheap Tickets in
May 1998.
(3) The annual salary of Mr. Halstead for 2000 would have been $275,000 if he
had been with Cheap Tickets for the entire year. He joined Cheap Tickets
in January 2000.
(4) The annual salary of Mr. Horstman for 2000 would have been $175,000 if he
had been with Cheap Tickets for the entire year. He joined Cheap Tickets
in January 2000.
(5) Represents amounts reimbursed for the payment of taxes on the amount
forgiven on Mr. Galeotos' loan. See note (7).
(6) Represents amounts reimbursed for the payment of taxes on non-qualified
moving expenses.
(7) Represents a loan bearing no stated interest until maturity, which we will
forgive one-third of the principal amount at each of the first three
anniversaries of the loan as long as Mr. Galeotos is employed with us on
such anniversaries. See "Employment Agreements" for a further description
of Mr. Galeotos' loan.
10
(8) Represents the net gain on stock options exercised in February 2000.
(9) Represents the net gain on stock options exercised in November 1999.
(10) Represents a loan bearing no stated interest until maturity, which we
will forgive one-third of the principal amount at each of the first three
anniversaries of the loan as long as Mr. Halstead is employed with us on
such anniversaries. See "Employment Agreements" for a further description
of Mr. Halstead's loan.
Individual Option Grants to Executive Officers During Fiscal Year 2000
The following table sets forth certain information regarding stock options
granted in 2000 to the individuals named in the Summary Compensation Table.
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Terms(6)
---------------------------------------------------- ---------------------
Percent of
Number of Total
Securities Options Granted Exercise
Underlying to Employees in Price Expiration
Name Options Granted Fiscal Year(4) Per Share Date(5) 5% 10%
- ---- --------------- --------------- --------- ---------- ---------- ----------
Sam E. Galeotos......... 150,000(1) 12.2% $14.56 6/8/06 $ 742,505 $1,684,368
................. 100,000(1) 8.1% $10.94 6/28/06 $ 371,784 $ 843,389
................. 425,000(2) 34.5% $ 7.19 12/3/06 $1,038,339 $2,355,465
Paul B. Halstead........ 100,000(3) 8.1% $12.31 1/23/06 $ 418,522 $ 949,415
Jason D. Horstman....... 75,000(3) 6.1% $12.31 1/23/06 $ 313,982 $ 712,061
- --------
(1) The options granted have a maximum term of five years from the date of the
grant and vest at a rate of 10% semi-annually.
(2) The options granted have a maximum term of five years from the date of the
grant, 25% of which vested and became immediately exercisable upon grant;
the remainder vests at a rate of 12.5% semi-annually over term of 3 years.
(3) The options granted have a maximum term of five years from the date of the
grant and vest at a rate of 20% per annum.
(4) Cheap Tickets granted options for a total of 1,232,102 shares of common
stock to employees of Cheap Tickets during 2000.
(5) Options may terminate before their expiration dates if optionee's status
as an employee or consultant is terminated or upon the optionee's death or
disability.
(6) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the SEC and do not represent Cheap Tickets'
estimate or projection of future prices of its common stock prices. Based
on the public offering price, the actual values realized may be
substantially greater than those assumed under these rules.
11
The following table sets forth for each of the individuals named in the
Summary Compensation Table, certain information concerning the number of
shares subject to both exercisable and unexercisable stock options as of
December 31, 2000. Also reported are values for "in-the-money" options that
represent the positive spread between the respective exercise prices of
outstanding options and the fair market value of Cheap Tickets' common stock
as of December 31, 2000.
Aggregate Option Exercises in 2000 and Year-End Option Values
Number of Securities
Underlying Unexercised Value of Unexercised
Number of Value Realized Options at In-the-Money Options
Shares (Market Price at December 31, 2000 at December 31, 2000(1)
Acquired on Exercise Less ------------------------- -------------------------
Name Exercise Exercise Price) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ---------------- ----------- ------------- ----------- -------------
Michael J. Hartley...... -- -- -- -- -- --
Sam E. Galeotos......... -- -- 251,250 1,023,750 $272,266 $816,797
Dale K. Jorgenson....... 25,000 442,500 28,000 84,000 $268,000 $804,000
Paul B. Halstead........ -- -- -- 100,000 -- --
Jason D. Horstman....... -- -- -- 75,000 -- --
Tammy A. Ishibashi...... -- -- -- -- -- --
- --------
(1) Calculated by determining the difference between the fair market value of
the securities underlying the option at December 31, 2000 and the exercise
price of the named officer's option. The fair market value at December 31,
2000 was deemed to be $9.75.
Employment Agreements
Cheap Tickets has entered into an employment agreement with its Chief
Executive Officer and President Sam E. Galeotos. The agreement which was
amended in October 2000 provides for an initial five-year period of employment
during which Mr. Galeotos will be paid an initial annual salary of $450,000.
Mr. Galeotos could potentially earn a bonus equal to 75% of his annual salary
if certain performance goals are met. The Agreement also provides for a
$400,000 loan to Mr. Galeotos, bearing no stated interest until maturity. At
each of the first three anniversaries of the loan, the Agreement requires us
to forgive one-third of the principal amount as long as Mr. Galeotos is
employed with us on such anniversary, or in the year preceding such
anniversary Mr. Galeotos is employed with us for at least six months. In
addition, under the Agreement we have agreed to pay Mr. Galeotos an amount
such that, after the payment of federal, state and local taxes, Mr. Galeotos
shall have received amounts free and clear of such taxes equal to the amounts
for the forgiveness of his loan and moving expenses should such amount be
considered compensation by us and not deductible by Mr. Galeotos.
Under the Agreement, if Mr. Galeotos' employment with Cheap Tickets is
terminated either by us without cause or by Mr. Galeotos for good reason (as
defined in the Agreement), we are required to pay Mr. Galeotos a severance
payment equal to two and one-half times his annual salary at the time of
termination and if such termination occurs within the initial three years of
his employment with us, sixty percent (60%) of all options held by Mr.
Galeotos shall immediately vest and become exercisable. In addition, if there
is a "change of control" of Cheap Tickets (as defined in the Agreement) the
following shall occur: (1) we are required to pay Mr. Galeotos an amount equal
to his bonus prorated to the date of the change of control; (2) all unvested
stock options held by Mr. Galeotos shall immediately vest and become
exercisable, or, if the stock options will not be assumed by the successor
corporation, all unvested stock options shall vest and become exercisable at
least 10 days before the change of control; and (3) we are required to pay Mr.
Galeotos an amount such that, after the payment of federal, state and local
taxes, he shall have received amounts free and clear of such taxes equal to
the amounts paid to Mr. Galeotos as a result of the change of control.
Furthermore, if Mr. Galeotos' employment with Cheap Tickets is either
terminated by us without cause or by Mr. Galeotos for good reason within one
year after a change of control of Cheap Tickets, we are required to pay Mr.
Galeotos: (1) a severance payment equal to three times his annual salary at
the time of termination; (2) outplacement services up to $30,000; (3) medical
insurance coverage for one year on the same terms as provided by Cheap
Tickets; and (4) any outstanding principal owed by Mr. Galeotos to Cheap
Tickets.
12
Cheap Tickets has entered into an employment agreement with its Chief
Technology Officer, Paul B. Halstead. The agreement provides for an initial
five-year period of employment during which Mr. Halstead will be paid an
initial annual salary of $275,000. Mr. Halstead could potentially earn a bonus
equal to 50% of his annual salary if certain performance goals are met. The
Agreement also provides for a $200,000 loan to Mr. Halstead, bearing no stated
interest until maturity. At each of the first three anniversaries of the loan,
the Agreement requires us to forgive one-third of the principal amount as long
as Mr. Halstead is employed with us on such anniversary, or in the year
preceding such anniversary Mr. Halstead is employed with us for at least
six months. In addition, under the Agreement we have agreed to pay Mr.
Halstead on the first such anniversary of the loan an amount equal to all
income taxes accrued to or payable by Mr. Halstead with respect to the first
year's amount forgiven under the loan.
Cheap Tickets has also entered into an employment agreement with its Vice
President, Business Development, Jason D. Horstman. The agreement provides for
an initial five-year period of employment during which Mr. Horstman will be
paid an initial annual salary of $175,000. Mr. Horstman could potentially earn
a bonus equal to 50% of his annual salary if certain performance goals are
met.
Under Messrs. Halstead's and Horstman's Agreements, if their employment with
Cheap Tickets is terminated either by us without cause or by them for good
reason (as defined in the Agreements), we are required to pay them a severance
payment equal to their annual salary at the time of termination. In addition,
if there is a "change of control" of Cheap Tickets (as defined in the
Agreements) the following shall occur: (1) we are required to pay them an
amount equal to their bonus prorated to the date of the change of control; (2)
fifty percent (50%) of all unvested stock options held by them shall
immediately vest and become exercisable, and the remaining fifty percent (50%)
of the unvested stock options shall vest and become exercisable one year from
the date of the change of control, or if the stock options will not be assumed
by the successor corporation, the remaining fifty percent (50%) of the
unvested stock options shall vest and become exercisable on the date of the
change of control; and (3) we are required to pay them an amount such that,
after the payment of federal, state and local taxes, they shall have received
amounts free and clear of such taxes equal to the amounts paid to them as a
result of the change of control. Furthermore, if their employment with Cheap
Tickets is either terminated by us without cause or by them for good reason
within one year after a change of control of Cheap Tickets, the remaining
fifty percent (50%) of their unvested stock options shall vest and become
exercisable upon termination, and we are required to pay them (1) a severance
payment equal to two times their annual salary at the time of termination; (2)
outplacement services up to $30,000; (3) medical insurance coverage for one
year on the same terms as provided by Cheap Tickets; and (4) any outstanding
principal owed by them to Cheap Tickets.
Cheap Tickets has entered into an at will employment agreement with its
Chief Financial Officer, Samuel D. Horgan. The agreement provides for an
initial annual salary of $225,000. Mr. Horgan could potentially earn a bonus
equal to 50% of his annual salary if certain performance goals are met. The
Agreement also provides for a $200,000 loan to Mr. Horgan, bearing no stated
interest until maturity. At each of the first three anniversaries of the loan,
the Agreement requires us to forgive one-third of the principal amount as long
as Mr. Horgan is employed with us on such anniversary, or in the year
preceding such anniversary Mr. Horgan is employed with us for at least six
months. In addition, under the Agreement we have agreed to pay Mr. Horgan an
amount such that, after the payment of federal, state and local taxes, Mr.
Horgan shall have received amounts free and clear of such taxes equal to the
amount for the forgiveness of his loan.
Cheap Tickets does not have any employment agreements with any of its other
key personnel. Cheap Tickets has a severance agreement with Michael J.
Hartley. The severance agreement requires Cheap Tickets to pay Mr. Hartley an
amount equal to twice his annual salary in the event that his employment is
terminated either by Cheap Tickets without cause or by him for good reason.
13
REPORTS OF THE COMPENSATION COMMITTEE AND AUDIT COMMITTEE
The following Compensation Committee's Report on Executive Compensation and
Audit Committee's Report on Cheap Tickets' Audited Financial Statements for
the fiscal year ended December 31, 2000 shall not be deemed to be "soliciting
material" or to be "filed" with the SEC or subject to Regulations 14A or 14C
of or to the liabilities of Section 18 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and shall not be deemed incorporated by
reference into any filing under the Securities Act of 1933 or the Exchange
Act, notwithstanding any general incorporation by reference of this proxy
statement into any other document.
The Report of the Compensation Committee on Executive Compensation
The following is a report of the Compensation Committee of the Board of
Directors (the "Compensation Committee") describing the compensation policies
applicable to our executive officers during the fiscal year ended December 31,
2000. The Compensation Committee is responsible for ensuring that we provide
competitive compensation practices and that those practices are in accordance
with all legal requirements and are of the highest quality. These
responsibilities include making recommendations to the board of directors
regarding all forms of compensation to be provided to our executive officers,
senior executives and directors, and all bonus and stock compensation to all
employees.
General Compensation Policy
Under the supervision of the Compensation Committee, our compensation policy
is designed to attract and retain qualified key executives critical to our
growth and long-term success. It is the objective of the Compensation
Committee to have a portion of each executive's compensation contingent upon
our performance, as well as upon the individual's personal performance.
Accordingly, each executive officer's compensation package is comprised of
three elements: (1) base salary which reflects individual performance and
expertise; (2) variable bonus awards payable in cash and tied to the
achievement of certain performance goals, and (3) long-term stock-based
incentive awards which are designed to strengthen the mutuality of interests
between the executive officers and our stockholders. In addition, some of our
key executives have been granted under their employment agreements non-
interest bearing loans which are to be forgiven over a period of time if the
executive continues his employment with us.
The following summary describes in more detail the factors, which the
Compensation Committee considers in establishing each of the three primary
components of the compensation package provided to the executive officers.
Base Salary
The level of base salary is established on the basis of the individual's
qualifications and relevant experience, the strategic goals for which she or
he has responsibility, compensation levels at companies which compete with us
for business and executive talent, and incentives necessary to attract and
retain qualified management. Base salary is adjusted annually to take into
account the individual's performance and to maintain a competitive salary
structure. The Compensation Committee reviews and approves base wage
compensation proposals for all executives earning $150,000 or more per annum.
Cash-Based Incentive Compensation
Cash bonuses are awarded to executive officers on the basis of their success
in achieving designated individual goals and our success in achieving specific
company-wide goals, such as increases in gross bookings, reaching earnings
target goals, and maintaining a high level of customer service. The
Compensation Committee reviews and recommends to the Board of Directors all
incentive Compensation (bonus) Plan proposals relating to annual performance.
14
Long-Term Incentive Compensation
We utilize our stock option plans to provide executive and other key
employees with incentives to maximize long-term stockholder values. Awards
under this plan take the form of stock options designed to give the recipient
a meaningful stake in the equity in Cheap Tickets and thereby closely align
his or her interests with those of our stockholders.
Each option grant allows the executive officer to acquire shares of common
stock at a fixed price per share (the fair market value on the date of grant)
over a specified period of time ranging from 6 to 10 years. The options
typically vest equally over five years, contingent upon the executive
officers' continued employment with us. Accordingly, the option will provide a
return to the executive officer only if he or she remains in our service and
then only if the market price of the common stock appreciates over the option
term.
Compensation of the Chief Executive Officer
Michael J. Hartley, a co-founder of Cheap Tickets, served as Chief Executive
Officer from 1986 until February 2001, and as Chairman of the Board from
February 1999 to February 2001. Mr. Hartley has currently served as Executive
Chairman of the Board since February 2001. His base salary for fiscal 2000 was
$500,000.
The factors discussed previously in "Base Salaries" and "Cash-Based
Incentive Compensation," were applied in establishing the amount of Mr.
Hartley's salary. The Compensation Committee noted in particular a number of
achievements by Cheap Tickets in 2000, including year-over-year growth in
gross bookings of 34%, significant growth in on-line operations, including a
235% growth in our Internet subscriber base over 1999 to more than 8.6 million
and a 77% increase in Internet bookings from 1999. He was also successful in
recruiting and hiring other key executives. The Compensation Committee
believes that the salary level for Mr. Hartley was fair and equitable for
2000.
Deductibility of Executive Compensation
The Compensation Committee has considered the impact of Section 162(m) of
the Internal Revenue Code adopted under the Omnibus Budget Reconciliation Act
of 1993, which section disallows a deduction for any publicly held corporation
for individual compensation exceeding $1 million in any taxable year for the
chief executive officer and the four other most highly compensated executive
officers, respectively, unless such compensation meets the requirements for
the "performance-based" exception to Section 162(m). As the cash compensation
paid by Cheap Tickets to each of its executive officers is expected to be
below $1 million and the Compensation Committee believes that options granted
under our 1997, and 1999 Incentive Stock Option Plans to such officers will
meet the requirements for qualifying as performance-based, the Compensation
Committee believes that Section 162(m) will not affect the tax deductions
available to us with respect to the compensation of its executive officers. It
is the Compensation Committee's policy to qualify, to the extent reasonable,
its executive officers' compensation for deductibility under the applicable
tax law. However, we may from time to time pay compensation to its executive
officers that may not be deductible.
SUBMITTED BY THE COMPENSATION COMMITTEE:
Cece Smith
Giles H. Bateman
George R. Mrkonic
Jeffrey N. Watanabe
15
The Report of the Audit Committee on Cheap Tickets' Audited Financial
Statements
During fiscal 2000, the Audit Committee of the board of directors (the
"Audit Committee") developed a charter for the Audit Committee, which was
approved by the board in May 2000. The complete text of the new charter, which
reflects standards set forth in new SEC regulations and Nasdaq rules, is
reproduced in the appendix to this proxy statement.
The following is the report of the Audit Committee with respect to our
audited financial statements for the fiscal year ended December 31, 2000,
which include our consolidated balance sheets as of December 31, 2000, and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for each of the three years in the period ended December 31,
2000, and the notes thereto.
Review with Management
The Audit Committee has reviewed and discussed our audited financial
statements with management.
Review and Discussions with Independent Accountants
The Audit Committee has discussed with PricewaterhouseCoopers LLP, our
independent accountants, the matters required to be discussed by SAS 61
(Codification of Statements on Accounting Standards) which includes, among
other items, matters related to the conduct of the audit of our financial
statements. The audit committee has also received written disclosures and the
letter from PricewaterhouseCoopers LLP required by Independence Standards
Board Standard No. 1 (which relates to the accountant's independence from us
and its related entities) and has discussed with PricewaterhouseCoopers LLP
their independence from us.
Conclusion
Based on the review and discussions referred to above, the Audit Committee
recommended to the board that our audited financial statements be included in
our Annual Report on Form 10-K for the fiscal year ended December 31, 2000.
SUBMITTED BY THE AUDIT COMMITTEE
Giles H. Bateman
George R. Mrkonic
Cece Smith
Jeffrey N. Watanabe
Audit and Non-Audit Fees
For the fiscal year ended December 31, 2000, fees for services provided by
PricewaterhouseCoopers LLP were as follows:
A. Audit........................................................... $ 54,900
B. Financial Information Systems Design and Implementation......... $ 0
C. All Other....................................................... $202,287
Total.............................................................. $257,188
16
Performance Graph
The following graph compares, for the period from March 19, 1999 (the date of
our initial public offering) through December 31, 2000, the percentage change
in our cumulative total stockholder return of Cheap Tickets common stock with
the cumulative total return of the NASDAQ Total Return Index and the TSC
Internet Index. The graph assumes an initial investment of $100. The graph is
not necessarily indicative of future price performance.
The graph shall not be deemed incorporated by reference by any general
statement incorporating by reference this proxy statement into any filing under
the Securities Act of 1933 or under the Securities Exchange Act of 1934, except
to the extent that we specifically incorporate the information by reference,
and shall not otherwise be deemed filed under such acts.
Comparison of Total Return to Stockholder Among Cheap Tickets,
NASDAQ Total Return Index and TSC Internet Index.
PERFORMANCE GRAPH APPEARS HERE
TSC
Measurement Period CHEAP NASDAQ- INTERNET
(Fiscal Year Covered) TICKETS, INC TOTAL US INDEX
- --------------------- --------------- --------- ----------
Measurement Pt-03/18/1999 $100.00 $100.00 $100.00
FYE 03/31/1999 $224.17 $100.74 $104.14
FYE 06/30/1999 $243.33 $109.32 $ 99.87
FYE 12/31/1999 $ 91.25 $165.60 $187.97
FYE 06/30/2000 $ 80.00 $161.61 $136.34
FYE 12/31/2000 $ 65.00 $ 99.66 $ 48.69
17
DISCUSSION OF PROPOSALS RECOMMENDED BY THE BOARD
Proposal 1: Elect Seven Directors
Our bylaws provide that the exact number of directors will be fixed from
time to time by action of stockholders or board of directors. The number of
directors currently is fixed at seven.
The board has nominated seven directors for election at the annual meeting.
Each nominee is currently serving as one of our directors. If you re-elect
them, they will hold office until the annual meeting in 2002 or until their
successors have been elected or until they resign.
We know of no reason why any nominee may be unable to serve as a director.
If any nominee is unable to serve, your proxy may vote for another nominee
proposed by the board, or the board may reduce the number of directors to be
elected. If any directors resigns, dies or is otherwise unable to serve out
his or her term, or the board increases the number of directors, the board may
fill the vacancy until the next meeting.
These are the biographies of Cheap Tickets' nominees for directors, except
for Mr. Hartley, the Executive Chairman and Mr. Galeotos, the Chief Executive
Officer and President, whose biographies are included above at page 8, under
"Executive Officers."
Nominees
Name and Age Principal Occupation and Business Experience
------------ --------------------------------------------
Giles H. Bateman (56)... Mr. Bateman has been a director of Cheap Tickets
since the closing of our initial public offering. He
has served as a director of CompUSA Inc. since
December 1991 and as Chairman of the Board of
Directors since December 1993. Since January 1992,
Mr. Bateman has been an investor in and director of
other public and private companies, including
Boatracs, Inc., Beverages and More, Inc., Auto Expo,
Inc. and Advanced Remote Communication Solutions. The
assets of Auto Expo, Inc. were assigned for the
benefit of its creditors in 1995. In 1991,
Mr. Bateman was a visiting professor at the
University of San Diego Olin Hall School of Business
Administration. Mr. Bateman was co-founder of The
Price Company, the operator of The Price Club chain
of warehouse club retail superstores. He served as a
director and Chief Financial Officer of The Price
Company from 1976 to 1991 and as Vice Chairman from
1986 to 1991. Since 1998, Mr. Bateman has volunteered
as the Chairman of the Board of Trustees of The
Hoffman Institute in Northern California. Mr. Bateman
holds a B.A. degree from Oxford University and an
M.B.A. degree from Harvard University.
George R. Mrkonic (48).. Mr. Mrkonic has been a director of Cheap Tickets
since the closing of our initial public offering. He
has served as the Vice Chairman of Borders Group,
Inc. since December 1994, and a director since its
formation in August 1994. He also served as President
of Borders Group, Inc. from December 1994 until
January 1997. Prior to joining Borders, Mr. Mrkonic
served as Executive Vice President of Specialty
Retailing Group of Kmart Corporation, where he had
overall responsibility for the specialty retailing
operations of Kmart including, among others, Borders,
Inc. and Walden Book Company, Inc., from November
1990 to November 1994. Mr. Mrkonic is also a director
of Champion Enterprises, Inc., a manufacturer and
seller of manufactured homes and Syntel, Inc., a
computer software and development company.
18
Name and Age Principal Occupation and Business Experience
------------ --------------------------------------------
A. Maurice Myers (60)... Mr. Myers has been a director of Cheap Tickets since
September 1999. Since November 1999, Mr. Myers has
been the Chairman, President and Chief Executive
Officer for Waste Management, Inc., a provider of
integrated waste management services. From April 1996
to October 1999, he was Chairman, President and Chief
Executive Officer of Yellow Corp. Prior to that, Mr.
Myers was the President of America West Airlines,
Inc. from January 1994 to December 1995. Mr. Myers is
a director of Hawaiian Electric Industries, Inc., a
publicly held electric utility and financial services
service provider, and Waste Management, Inc.
Cece Smith (56)......... Ms. Smith has been a director of Cheap Tickets since
July 1997. Since 1986, Ms. Smith has been a general
partner of Phillips-Smith Specialty Retail Group, a
retail venture capital investment firm. She
previously served as a director of publicly-held
retailers BizMart, Inc., A Pea in the Pod, Inc. and
Hot Topic, Inc. Ms. Smith holds a B.B.A. degree in
Business Administration from the University of
Michigan and an M.L.A. degree in Liberal Arts from
Southern Methodist University. Ms. Smith served as a
director from 1992 to 1997 and as Chairman from 1994
to 1996 of the Federal Reserve Bank of Dallas.
Jeffrey N. Watanabe Mr. Watanabe has been a director of Cheap Tickets
(58)................... since March 2001. Mr. Watanabe has been chief
executive officer of the law firm, Watanabe, Ing &
Kawashima, since 1991. He serves as a director of
Hawaiian Electric Industries, Inc., a publicly-held
electric utility and financial services provider,
American Classic Voyages, a publicly-held passenger
cruise company, First Insurance Company of Hawaii,
Ltd., a privately-held company owned by CNA and The
Tokio Marine & Fire Insurance Company, Limited, and
Grace Pacific Corporation, a privately-held
contracting and quarrying company. Mr. Watanabe has a
B.A. degree from the University of California at
Berkeley and a law degree from The George Washington
University Law Center.
The board recommends that you vote "FOR" the election of all seven nominees
for director.
Proposal 2: Ratify Selection of Independent Auditors for 2001
We are asking you to ratify the board's selection of PricewaterhouseCoopers
LLP, certified public accountants, as independent public accountants for 2001.
The audit committee recommended the selection of PricewaterhouseCoopers to the
board. All professional services PricewaterhouseCoopers rendered to us during
2000 were furnished at customary rates and terms. PricewaterhouseCoopers has
served as the independent public accountants of Cheap Tickets since August
1998.
A representative of PricewaterhouseCoopers will attend the annual meeting
and be able to make a statement and to answer your questions.
We are submitting this proposal to you because the board believes that such
action follows sound corporate practice. If you do not ratify the selection of
independent public accountants, the board will consider it a direction to
consider selecting other public accountants. However, even if you ratify the
selection, the board may still appoint new independent public accountants at
any time during the year if it believes that such a change would be in the
best interests of Cheap Tickets and our stockholders.
The board recommends that you vote "FOR" ratification of the selection of
PricewaterhouseCoopers as Independent Public Accountants for 2001.
19
INFORMATION ABOUT STOCKHOLDER PROPOSALS
If you wish to submit proposals to be included in our 2002 proxy statement,
we must receive them, in a form which complies with the applicable securities
laws, on or before December 28, 2001. In addition, in the event a stockholder
proposal is not submitted to us prior to March 13, 2002, the proxy to be
solicited by the board of directors for the 2002 annual meeting will confer
authority on the holders of the proxy to vote the shares in accordance with
their best judgment and discretion if the proposal is presented at the 2002
annual meeting without any discussion of the proposal in the proxy statement
for such a meeting. Please address your proposals to: Cheap Tickets, Inc., 1440
Kapiolani Boulevard, Honolulu, Hawaii 96814, Attention: Corporate Secretary.
By Order of the Board of Directors,
/s/ SAMUEL D. HORGAN
Samuel D. Horgan
Secretary
20
Appendix
CHEAP TICKETS, INC.
AUDIT COMMITTEE CHARTER
There shall be a committee of the board of directors to be known as the
audit committee. The audit committee shall be composed of directors who are
independent of the management of the corporation and are free of any
relationship that, in the opinion of the board of directors, would interfere
with their exercise of independent judgment as a committee member.
Statement of Purpose
The audit committee shall provide assistance to the corporate directors in
fulfilling their responsibility to the shareholders, potential shareholders,
and investment community relating to corporate accounting, reporting practices
of the corporation, and the quality and integrity of the financial reports of
the corporation. In so doing, it is the responsibility of the audit committee
to maintain free and open means of communication between the directors, the
independent auditors, the internal auditors, and the financial management of
the corporation.
Responsibilities
In carrying out its responsibilities, the audit committee believes its
policies and procedures should remain flexible, in order to best react to
changing conditions and to ensure to the directors and shareholders that the
corporate accounting and reporting practices of the corporation are in
accordance with all requirements and are of the highest quality.
In carrying out these responsibilities, the audit committee will:
. Review and approve management's recommendation of the independent
auditors to be selected to audit the financial statements of the
corporation and its divisions and subsidiaries. Recommend the independent
auditors to the Board of Directors.
. Meet with the independent auditors and financial management of the
corporation to review the scope of the proposed audit for the current
year and the audit procedures to be utilized, and at the conclusion
thereof review such audit, including any comments or recommendations of
the independent auditors.
. Review with the independent auditors, the company's internal auditor, and
financial and accounting personnel, the adequacy and effectiveness of the
accounting and financial controls of the corporation, and elicit any
recommendations for the improvement of such internal control procedures
or particular areas where new or more detailed controls or procedures are
desirable. Particular emphasis should be given to the adequacy of such
internal controls to expose any payments, transactions, or procedures
that might be deemed illegal or otherwise improper. Further, the
committee periodically should review company policy statements to
determine their adherence to the code of conduct.
. Review the internal audit function of the corporation including the
independence and authority of its reporting obligations, the proposed
audit plans for the coming year, and the coordination of such plans with
the independent auditors.
. Receive and review an annual plan of projects for the Audit Services
Department as well as periodic summaries of audit findings from completed
audit projects.
. Review the financial statements contained in the annual report to
shareholders with management and the independent auditors to determine
that the independent auditors are satisfied with the disclosure and
content of the financial statements to be presented to the shareholders.
Any changes in accounting principles should be reviewed.
. Review the quarterly earnings with the company's financial management and
external auditors. Review the quarterly earnings press release.
. Provide sufficient opportunity for the internal and independent auditors
to meet with the members of the audit committee without members of
management present. Among the items to be discussed in these meetings are
the independent auditors' evaluation of the corporation's financial,
accounting, and auditing personnel, and the cooperation that the
independent auditors received during the course of the audit.
. Review accounting and financial human resources and succession planning
with the company.
. Submit the minutes of all meetings of the audit committee to, or discuss
the matters discussed at each committee meeting with, the board of
directors.
. Investigate any matter brought to its attention within the scope of its
duties, with the power to retain outside counsel for this purpose if, in
its judgment, that is appropriate.
A-2
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PROXY CARD
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CHEAP TICKETS, INC.
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 21, 2001
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Michael J. Hartley and Samuel D. Horgan, and
each of them, the attorneys, agents and proxies of the undersigned, with full
powers of substitution to each, to attend and act as proxy or proxies of the
undersigned at the Annual Meeting of Stockholders of Cheap Tickets, Inc. to be
held at the Hawaii Prince Hotel at 100 Holomoana Street, Honolulu, Hawaii, on
Monday, May 21, 2001 at 9:00 AM, and at any and all adjournments thereof, and to
vote as specified herein the number of shares which the undersigned, if
personally present, would be entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS
NOMINATED BY THE BOARD OF DIRECTORS AND "FOR" RATIFICATION OF THE APPOINTMENT OF
PRICEWATERHOUSECOOPERS LLP.
THE PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS
MADE YOUR VOTE WILL NOT COUNT "FOR" OR "AGAINST" THE ELECTION OF DIRECTORS
NOMINATED BY THE BOARD OF DIRECTORS. IF NO DIRECTION IS MADE YOUR VOTE WILL HAVE
THE SAME EFFECT AS IF YOU VOTED "AGAINST" RATIFICATION OF THE APPOINTMENT OF
PRICEWATERHOUSECOOPERS LLP.
I (WE) WILL [_] WILL NOT [_]
ATTEND THE MEETING IN PERSON.
PLEASE SIGN AND DATE ON REVERSE SIDE
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--- Please mark
X your votes
--- as in this
example.
FOR all WITHHOLD
nominees listed AUTHORITY
below (except as to vote for
indicated to the all nominees
contrary below.) listed below. FOR AGAINST ABSTAIN
1. Election of Directors [_] [_] 2. Ratification of Appointment of [_] [_] [_]
PricewaterhouseCoopers LLP as independent
Director nominees: Giles H. Bateman, Sam E. Galeotos, public accountants of Cheap Tickets for the
Michael J. Hartley, George R. Mrkonic, A. Maurice Myers, year ending December 31, 2001.
Cece Smith and Jeffrey Watanabe.
FOR AGAINST ABSTAIN
3. Other Business. In their discretion, the [_] [_] [_]
INSTRUCTION: To Withhold Authority to vote for any proxies are authorized to vote upon such
individual nominee, write that nominee's name in the other business as may properly come before
space below. the meeting and at any and all adjournments
thereof. The board of directors at present
- -------------------------------------------------------- knows of no other business to be presented
by or on behalf of Cheap Tickets or the board
of directors at the meeting.
The undersigned hereby ratifies and confirms all that the
attorneys and proxies, or any of them, or their substitutes, shall
lawfully do or cause to be done by virtue hereof, and hereby
revokes any and all proxies heretofore given by the undersigned to
vote at the meeting. The undersigned acknowledges receipt of the
Notice of Annual Meeting and the Proxy Statement accompanying such
notice.
__________________ ____________________ Dated:__________ , 2001
Signed Signed
Please date this proxy card and sign above exactly as your name
appears on this card. Joint owners should each sign personally.
Corporate proxies should be signed by an authorized officer.
Executors, administrators, trustees, etc., should give their full
titles.
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